SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended January 1, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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
incorporation or organization) Identification No.)
10801 Corporate Drive, Pleasant Prairie, Wisconsin 53158-1603
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (262) 656-5200
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
- ------------------------------- ------------------------------------
Common stock, $1 par value New York Stock Exchange
Preferred stock purchase rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in a definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value of voting stock held by non-affiliates of the registrant
at February 28, 2000: $1,309,772,474
Number of shares outstanding of each of the registrant's classes of common stock
at February 28, 2000: Common stock, $1 par value, 58,551,912 shares
Documents incorporated by reference
Portions of the Corporation's Annual Report to Shareholders for the fiscal year
ended January 1, 2000, are incorporated by reference into Parts I, II and IV of
this report.
Portions of the Corporation's Proxy Statement, dated March 28, 2000, prepared
for the Annual Meeting of Shareholders scheduled for April 28, 2000, are
incorporated by reference into Part III of this report.
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TABLE OF CONTENTS
Page
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PART I
Item 1. Business.........................................................3
Item 2. Properties.......................................................9
Item 3. Legal Proceedings...............................................10
Item 4. Submission of Matters to a Vote of Security Holders.............10
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters...................................12
Item 6. Selected Financial Data.........................................12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................12
Item 7A. Qualitative and Quantitative Disclosures About
Market Risk...................................................12
Item 8. Financial Statements and Supplementary Data.....................13
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...........................13
PART III
Item 10. Directors and Executive Officers of the Registrant..............13
Item 11. Executive Compensation..........................................13
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................................13
Item 13. Certain Relationships and Related Transactions..................13
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K...................................................14
Signature Pages...............................................................15
Exhibit Index.................................................................17
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PART I
Item 1: Business
Snap-on Incorporated (the "Corporation" or "Snap-on") was incorporated under the
laws of the state of Wisconsin in 1920 and reincorporated under the laws of the
state of Delaware in 1930. Snap-on's mission is to delight its customers by
providing productivity-enhancing, innovative products, services and solutions.
Snap-on is a leading global developer, manufacturer and marketer of professional
tools, diagnostics equipment and related services marketed in more than 150
countries. Long known as a quality and performance leader in professional tools
and tool storage, Snap-on offers a wide range of capabilities and solutions for
professional tool users in vehicle service, industrial and other commercial
applications worldwide. The Corporation's largest geographic markets include the
United States, Australia, Brazil, Canada, France, Germany, Japan, Mexico, the
Netherlands, Spain, Sweden and the United Kingdom. Customers include
professional vehicle service technicians, independent automotive repair and body
shops, franchised service centers, specialty repair shops, automotive
dealerships, vehicle manufacturers, government, and industrial and commercial
tool and equipment users worldwide. The originator of the dealer van
distribution channel, Snap-on also reaches its customers through company direct
and distributor channels where appropriate.
The Corporation's segments are based on the organization structure that is used
by management for making operating and investment decisions, and for assessing
performance. Based on this management approach, the Corporation has two
reportable segments: Global Transportation and Global Operations. The Global
Transportation segment consists of the Corporation's business operations serving
the dealer van channel worldwide. The Global Operations segment consists of the
business operations serving the direct sales and distributor channels worldwide.
These two segments derive revenues primarily from the sale of tools and
equipment. Additional information about the Corporation's business segments,
customers, domestic and international operations and products and services is
provided in Note 15 entitled "Segments" on pages 42 and 43 of the Corporation's
1999 Annual Report, incorporated herein by reference.
During 1999, the Corporation acquired the Sandvik Saws and Tools business, now
operating as the Bahco Group AB ("Bahco"), three other new business operations
and the remaining 40% interest in Mitchell Repair Information Company, LLC
("MRIC"). Each of the acquisitions provides the Corporation with a complementary
product line, new customer relationships, access to additional distribution
and/or extended geographic reach. Bahco is a manufacturer and supplier of
professional tool products and employs approximately 2,400 people. Of those,
approximately 1,000 employees are in Sweden. Products are manufactured at 11
plants in Sweden, the United States, Argentina, England, France, Germany and
Portugal. MRIC is a major provider of print and electronic versions of vehicle
mechanical and electrical repair information and of shop management software to
repair and service establishments throughout North America. In the fourth
quarter of 1999, the Corporation sold a 15% interest in MRIC to Genuine Parts
Company and entered into a strategic alliance to enhance and expand the
e-business efforts of both companies. The combined effort unites the electronic,
online replacement parts ordering capabilities of Genuine Parts Automotive Parts
Group with the online repair information capabilities of MRIC.
In 1998, the Corporation's board of directors approved Project Simplify, a broad
program of internal rationalizations, consolidations and reorganizations to make
the Corporation's business operations simpler and more effective. Project
Simplify was essentially completed and fully provided for as of January 1, 2000.
Additional information regarding Project Simplify can be found on pages 20 and
21, Management's Discussion and Analysis, and in Note 14 entitled
"Restructuring" on pages 41 and 42 of the Corporation's 1999 Annual Report,
incorporated herein by reference.
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Products and Services
The Corporation derives income from the manufacture, marketing and distribution
of its products and related services. Income is also derived from the financing
of certain of the Corporation's products, primarily through a 50%-owned joint
venture. The Corporation's two reportable business segments offer a broad line
of products and complementary services which can be divided into two groups:
tools and equipment. The following table shows the approximate percentage of
consolidated sales for each of these product groups in each of the past three
years.
Product Group % of Sales
1999 1998 1997
---- ---- ----
Tools 59% 52% 55%
Equipment 41% 48% 45%
---- ---- ----
100% 100% 100%
The tools product group includes hand tools, power tools and tool storage
products. Hand tools include wrenches, screwdrivers, sockets, pliers, ratchets,
saws and cutting tools, pruning tools and other similar products. Power tools
include pneumatic (air), cord-free (battery) and corded (electric) tools such as
impact wrenches, ratchets, chisels, drills, sanders, polishers and similar
products. Tool storage units include tool chests, roll cabinets and other
similar products. The majority of products are manufactured by Snap-on and in
completing the product line, some items are purchased from external
manufacturers.
The equipment product group includes hardware and software solutions for the
diagnosis and service of automotive and industrial equipment. Products include
engine analyzers, air conditioning service equipment, brake service equipment,
wheel balancing and alignment equipment, transmission troubleshooting equipment,
vehicle emissions and safety testing equipment, battery chargers, lifts and
hoists, diagnostics equipment service and collision repair equipment. Also
included are service and repair information products, online diagnostics
services, management systems, point-of-sale systems, integrated systems for
vehicle repair shops, and purchasing facilitation services. In the United
States, the Corporation supports the sale of its diagnostics and shop equipment
by offering training programs. These programs offer certification in both
specific automotive technologies and in the application of specific diagnostics
equipment developed and marketed by the Corporation.
Tools and equipment are marketed under a number of brand names and trademarks,
many of which are well known in the vehicle service and industrial markets
served. Some of the major trade names and trademarks and the products and
services with which they are associated include the following:
Trademarks Products and Services
---------- ---------------------
Snap-on Hand tools, power tools, tool storage units, and
certain equipment
Blue-Point Hand tools, power tools, tool storage units
Acesa Hand tools
Bahco Hand tools
Fish & Hook Hand tools
Irimo Hand tools
Lindstrom Hand tools
Palmera Hand tools
Pradines Hand tools
Sandflex Hand tools
Williams Hand tools
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ATI Tools and equipment for aerospace and industrial
applications
Sioux Power tools
Sun Diagnostics and service equipment
Balco Engine diagnostics
White Equipment to recover, recycle and recharge
refrigerant in vehicle air-conditioning systems
and other fluid handling equipment
John Bean Under-car and other service equipment
Wheeltronic ltd. Hoists and lifts for vehicle service shops
Texo Sollevatori Hoists and lifts for vehicle service shops
Hofmann Wheel balancers, lifts, tire changers and aligners
GS Wheel service equipment
Brewco Collision repair equipment
Hein-Werner Collision repair equipment
Blackhawk Collision repair equipment
Mitchell Repair Repair and service information and shop management
systems
ShopKey Repair and service information and shop management
systems
EquiServe Diagnostic equipment service
Snap-on Credit LLC ("the LLC"), a joint venture with Newcourt Financial USA Inc.
("Newcourt"), an affiliate of CIT Group, offers credit programs that facilitate
the sale of many of the Corporation's products and services. On January 3, 1999,
the Corporation established the LLC to provide financial services to the
Corporation's global dealer and customer networks. The LLC joint venture is 50%
owned by the Corporation and 50% owned by Newcourt. The joint venture operations
were established initially in the United States and will be expanded globally.
As a result of the establishment of the joint venture, the Corporation
effectively outsourced to the LLC its captive credit function, previously
managed by the Corporation's wholly owned subsidiary, Snap-on Credit
Corporation. Additional information about the LLC is provided in Note 5 entitled
"Receivables" on page 33 of the Corporation's 1999 Annual Report, incorporated
herein by reference.
Through contracts, extended credit is offered to technicians to enable them to
purchase tools and equipment that can be used to generate income while they pay
for the products over time. Financing, in a lease format, is also offered to
shop owners, both independent and national chains, who purchase equipment items,
which typically are higher-price-point products than tools. The duration of
lease contracts is often two-to-three times that of extended credit contracts.
Financing is also made available to new dealers, whereby a 10-year loan is
originated to enable the dealer to fund the purchase of the franchise and the
related working capital needs, primarily inventory and customer receivables.
Currently, the majority of the finance income is derived from the vehicle
service industry in North America. Internationally, the Corporation continues to
directly provide financing to its dealer and customer network.
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Market Sectors Served
The Corporation markets and distributes its products and related services
principally to professional tool and equipment users around the world. The
largest two market sectors are the vehicle service and repair sector, and the
industrial sector.
Vehicle Service and Repair Sector
The vehicle service and repair sector has three main customer groups:
professional technicians, who purchase tools and equipment for themselves;
service and repair shop owners and managers -- including independent shops,
national chains and automotive dealerships, who purchase equipment for use by
multiple technicians within a service or repair facility; and vehicle
manufacturers.
The Corporation provides innovative tool and equipment solutions, as well as
technical sales support and training, to meet technicians' evolving needs.
Snap-on's dealer van distribution system offers technicians the convenience of
purchasing quality tools with minimal disruption of their work routine. The
Corporation also serves owners and managers of shops where technicians work with
tools, diagnostics equipment, repair and service information, and shop
management products. Snap-on provides vehicle manufacturers products and
services including tools, facilitation services for the purchase and
distribution of equipment, and consulting services.
Major challenges for the Corporation and the vehicle service and repair industry
include the increasing rate of technological change within motor vehicles and
the resulting impact on the businesses of both suppliers and customers that is
necessitated by such change.
Industrial Sector
The Corporation markets its products to a wide variety of industrial customers,
including industrial maintenance and repair facilities; manufacturing and
assembly operations; government facilities; schools; and original equipment
manufacturers ("OEMs") that require instrumentation or service tools and
equipment for their products.
Major challenges in the industrial sector include a highly competitive,
cost-conscious environment, and a trend toward customers making all of their
tool purchases through one integrated supplier. The Corporation believes it is
currently a meaningful participant in the market sector for industrial tools and
equipment.
Distribution Channels
The Corporation serves customers primarily through three channels of
distribution: dealer/tech reps, company direct sales, and distributors. The
following discussion represents the Corporation's general approach in each
channel, and is not intended to be all-inclusive.
Dealer/Tech Rep Organization
In the United States, the majority of sales to the vehicle repair industry are
conducted through the Corporation's dealer network and its tech rep system.
Snap-on's mobile dealer van system ("Dealers") primarily covers vehicle service
technicians and shop owners, providing weekly contact at the customer's place of
business. Dealers' sales are concentrated in hand and power tools, tool storage
units and small diagnostic and shop equipment, which can easily be transported
in a van and demonstrated during a brief sales call. Dealers purchase the
Corporation's products at a discount from suggested retail prices and resell
them at prices of the dealer's choosing. Although some dealers have sales areas
defined by other methods, most U.S. Dealers are provided a list of places of
business which serves as the basis of the dealer's sales route.
Since 1991, all new U.S. Dealers, and a majority of existing U.S. Dealers, have
been enrolled as franchisees of the Corporation. The Corporation currently
charges initial and ongoing monthly license fees, which do not add materially to
the Corporation's revenues. The Corporation makes it possible for prospective
Dealer candidates to work as employee sales representatives, at salary plus
commission, prior to making an investment in a franchise. In addition, through
the LLC, financial assistance is provided to newly converted franchised dealers
and other new franchise Dealers, which could include financing for initial
license fees, inventory, revolving accounts receivable acquisition, equipment,
fixtures, other
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expenses and an initial checking account deposit. At year-end 1999,
approximately 90% of all U.S. Dealers were enrolled as franchisees versus
approximately 89% for 1998.
The Corporation services and supports its dealers with an extensive field
organization of branch offices and service and distribution centers. The
Corporation also provides sales training, customer and Dealer financial
assistance, and marketing and product promotion programs to strengthen dealer
sales. A National Dealer Advisory Council, composed of and elected by dealers,
assists the Corporation in identifying and implementing enhancements to the
franchise program.
In the United States, Dealers are supported by the Snap-on/Sun tech rep system
employee sales force. Tech reps are specialists who demonstrate and sell
higher-price-point diagnostics and shop equipment, as well as shop management
information systems. Tech reps work independently and with Dealers to identify
and generate sales leads among vehicle service shop owners. Tech reps are
compensated primarily on the basis of commission; Dealers receive a brokerage
fee from certain sales made by the Tech Specialists to the Dealer's customers.
Most products sold through the Dealer/tech rep organization are sold under the
Snap-on or Sun brand names.
The Corporation has replicated its Dealer van method of distribution in certain
countries, including Australia, Canada, Germany, Mexico, Benelux Countries,
South Africa, Japan and the United Kingdom. In many of these markets, as in the
United States, purchase decisions are generally made or influenced by
professional vehicle service technicians and shop owners. The Corporation
markets products in certain other countries through its subsidiary, Snap-on
Tools International, Ltd., which sells to foreign distributors under license or
contract with the Corporation.
Company Direct Sales
In the United States, a growing proportion of sales of Sun and other Snap-on
branded shop equipment, including John Bean, Wheeltronic, White and Hoffmann,
are made by a direct sales force that has responsibility for national accounts.
As the automotive service and repair industry consolidates (with more business
conducted by national chains, automotive dealerships and franchised service
centers) these larger organizations can be serviced most effectively by sales
people who can demonstrate and sell the full line of products and services. The
Corporation also sells its products and services directly to vehicle
manufacturers.
Tools and equipment are marketed to industrial and governmental customers in the
United States through industrial sales representatives, who are employees, and
independent industrial distributors. In most markets outside the United States,
industrial sales are conducted through distributors. The sales representatives
focus on industrial customers whose main purchase criteria are quality and
service, as well as on certain OEM accounts. At the end of 1999, the Corporation
had industrial sales representatives in the United States, Australia, Canada,
Japan, Mexico, Puerto Rico, and some European countries, with the United States
representing the majority of the Corporation's total industrial sales.
Distributors
Sales of certain tools and equipment are made through vehicle service and
industrial distributors, who purchase the items from Snap-on and resell them to
the end users. Products supplied by Bahco, under the Bahco, Sandflex, Fish &
Hook, Pradines and Lindstrom brands and trade names, for example, are sold
through distributors in Europe, North and South America, Asia and certain other
parts of the world. Under-car and other vehicle service equipment, sold through
distributors primarily under brands including John Bean and Hofmann, as well as
hand tools under brands including Irimo, Palmera and Acesa, are differentiated
from those products sold through the dealer/tech rep and direct sales channels.
Sun brand equipment is marketed through distributors in South America and Asia,
and through both a direct sales force and distributors in Europe. In addition,
through its J.H. Williams division, the Corporation manufactures specially
designed products for Lowe's Companies Inc. under the Lowe's brand name, known
as Kobalt(TM) which are marketed in more than 500 Lowe's outlets.
E-commerce
Snap-on's e-commerce development initiatives are expected to allow Snap-on to
match the capabilities of the Internet with Snap-on's existing brand sales and
distribution strengths and to reach new customer segments. These initiatives are
being designed to further leverage the one-on-one relationships and service
Snap-on currently has with its customers. With
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business-to-business and business-to-consumer capabilities, the Corporation and
its dealers will be enlarging communications with customers on a real-time,
24-hour, 7-days a week basis.
Competition
The Corporation competes on the basis of its product quality, service, brand
awareness and technological innovation. While no one company competes with the
Corporation across all of its product lines and distribution channels, various
companies compete in one or more product categories and/or distribution
channels.
The Corporation believes that it is a leading manufacturer and distributor of
its products for the customers it serves in the vehicle service industry, and
that it offers the broadest line of products to the vehicle service industry.
The major competitors selling to professional technicians in the vehicle service
and repair sector through the mobile van channel include MAC Tools (The Stanley
Works) and Matco (Danaher Corporation). The Corporation also competes with
companies that sell through non-mobile van distributors; these competitors
include Facom (Fimalac), Sears, Roebuck and Co., and The Stanley Works. In the
industrial sector, major competitors include Armstrong (Danaher Corporation),
Cooper Industries, Inc. and Proto (The Stanley Works). The major competitors
selling diagnostics and shop equipment to shop owners in the vehicle service and
repair sector include Corghi S.p.A., Facom (Fimalac), Hennessy (Danaher
Corporation), Hunter Engineering, SPX Corporation and Pentair, Inc.
Raw Materials and Purchased Product
The Corporation's supply of raw materials (including primarily various grades
and alloys of steel bars and sheets) and purchased components are readily
available from numerous suppliers.
The majority of 1999 consolidated net sales consisted of products manufactured
by the Corporation. The remainder was purchased from outside suppliers. No
single supplier's products accounted for a material portion of 1999 consolidated
net sales.
Patents and Trademarks
The Corporation vigorously pursues and relies on patent protection to protect
its inventions and its position in its markets. As of January 1, 2000, the
Corporation and its subsidiaries held 947 patents worldwide, with another 650
pending patent applications. No sales relating to any single patent represented
a material portion of the Corporation's revenues in 1999.
Examples of products that have features or designs that benefit from patent
protection include engine analyzers, serrated jaw open-end wrenches, wheel
alignment systems, wheel balancers, sealed ratchets, electronic torque wrenches,
ratcheting screwdrivers, emissions-sensing devices and air conditioning
equipment.
Much of the technology used in the manufacturing of vehicle service tools and
equipment is in the public domain. The Corporation relies primarily on trade
secret protection to protect proprietary processes used in manufacturing.
Methods and processes are patented when appropriate.
Trademarks used by the Corporation are of continuing importance to the
Corporation in the marketplace. Trademarks have been registered in the United
States and 78 other countries, and additional applications for trademark
registrations are pending. The Corporation vigorously polices proper use of its
trademarks.
The Corporation's right to manufacture and sell certain products is dependent
upon licenses from others. These products do not represent a material portion of
the Corporation's sales.
Working Capital
Because most of the Corporation's business is not seasonal, and its inventory
needs are relatively constant, no unusual working capital needs arise during the
year.
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The Corporation's use of working capital is discussed in "Management's
Discussion and Analysis of Results of Operations and Financial Condition," on
pages 22 and 23 of the Corporation's 1999 Annual Report and is incorporated
herein by reference.
The Corporation does not depend on any single customer, small group of customers
or government for any material part of its sales, and has no significant backlog
of orders.
Environment
The Corporation complies with applicable environmental control requirements in
its operations. Compliance has not had, and the Corporation does not for the
foreseeable future expect it to have, a material effect upon the Corporation's
capital expenditures, earnings or competitive position.
Employees
At the end of 1999, the Corporation employed approximately 14,000 people, of
whom approximately 36% are engaged in manufacturing activities.
Item 2: Properties
The Corporation maintains both leased and owned manufacturing, warehouse
distribution and office facilities throughout the world. The Corporation
believes that its facilities are well maintained and have a capacity adequate to
meet the Corporation's present and foreseeable future demand. The Corporation's
United States facilities occupy approximately 4.7 million square feet, of which
approximately 74 % is owned. The Corporation's facilities outside the United
States contain approximately 4.5 million square feet, of which approximately 66
percent is owned. Included are the Corporation's owned corporate and general
offices located in Pleasant Prairie, Wisconsin and Kenosha, Wisconsin,
respectively.
The Corporation's principal manufacturing locations and distribution centers are
as follows:
Location Type of property Owned/Leased
- ---------------------------- ---------------- ------------
Conway, Arkansas Manufacturing Owned
City of Industry, California Manufacturing Leased
Escondido, California Manufacturing Owned
San Jose, California Manufacturing Leased
Columbus, Georgia Manufacturing Owned
Crystal Lake, Illinois Distribution Owned
Mt. Carmel, Illinois Manufacturing Owned
Algona, Iowa Manufacturing Owned
Sioux City, Iowa Manufacturing Owned
Olive Branch, Mississippi Distribution Leased and owned
Carson City, Nevada Distribution Leased and owned
Robesonia, Pennsylvania Distribution Owned
Poway, California Distribution and Leased
manufacturing
Elizabethton, Tennessee Manufacturing Owned
Johnson City, Tennessee Manufacturing Owned
Milan, Tennessee Manufacturing Owned
Baraboo, Wisconsin Manufacturing Leased
East Troy, Wisconsin Manufacturing Owned
Elkhorn, Wisconsin Manufacturing Owned
Kenosha, Wisconsin Manufacturing Owned
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Milwaukee, Wisconsin Manufacturing Owned
Santo Tome, Argentina Manufacturing Owned
Barbara D'oeste, Brazil Manufacturing Owned
Mississauga, Canada Manufacturing Leased
Newmarket, Canada Distribution and Owned
manufacturing
Kettering, England Distribution Owned
Rotherham, England Manufacturing Leased
King's Lynn England Distribution and Owned
manufacturing
Pfungstadt, Germany Manufacturing Leased
Unterneukirchen, Germany Manufacturing Leased
Wuppertal, Germany Manufacturing Leased
Sopron, Hungary Manufacturing Owned
Correggio, Italy Manufacturing Owned
Helmond, Netherlands Distribution Owned
Veenendaal, Netherlands Distribution Leased
Vila do Conde, Portugal Manufacturing Owned
Irun, Spain Manufacturing Owned
Urretxu, Spain Manufacturing Owned
Vitoria, Spain Distribution and Owned
manufacturing
Bollnas, Sweden Manufacturing Owned
Edsbyn, Sweden Manufacturing Owned
Enkoping, Sweden Manufacturing Owned
Lidkoping, Sweden Manufacturing Owned
Sandviken, Sweden Distribution Leased
Item 3: Legal Proceedings
During 1999, the Corporation settled litigation involving Tejas Testing
Technology One, L.C. and Tejas Testing Technology Two, L.C. The Corporation is
involved in a suit with SPX Corporation. Further information is described in
Note 13 entitled "Commitments and Contingencies" to the Financial Statements of
the Corporation on pages 40 and 41 of its 1999 Annual Report, which is
incorporated herein by reference.
Item 4: Submission of Matters to a Vote of Security Holders
There was no matter submitted to a vote of the shareholders during the fourth
quarter of the fiscal year ending January 1, 2000.
Executive Officers of the Registrant
The executive officers of the Corporation, their ages as of January 1, 2000, and
their current titles and positions held during the last five years are listed
below.
Robert A. Cornog (59) - Chairman, President and Chief Executive Officer since
July 1991. A Director since 1982.
Branko M. Beronja (65) - Executive Vice President since October 1998. Senior
Vice President - Diagnostics from February 1998 to October 1998. Senior Vice
President - Diagnostics, North America from April 1996 to February 1998.
President North American Operations from April 1994 to April 1996, and Vice
President - Sales, North America from August 1989 to April 1994. A Director
since January 1997.
Frederick D. Hay (55) - Senior Vice President - Operations since October 1998.
Senior Vice President - Transportation from February 1996 to October 1998. Prior
to joining Snap-on, he was President of the Interior Systems and Components
Division of UT Automotive, a business unit of United Technologies Corporation,
from December 1989 to January 1996.
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Donald S. Huml (53) - Senior Vice President - Finance and Chief Financial
Officer since August 1994. Prior to joining Snap-on, he was Vice President and
Chief Financial Officer of Saint-Gobain Corporation from December 1990 to August
1994.
Michael F. Montemurro (51) - Senior Vice President - Transportation since
October 1998. Senior Vice President Financial Services and Administration from
August 1994 to October 1998. Senior Vice President - Financial Services,
Administration and Chief Financial Officer from April 1994 to August 1994.
Senior Vice President - Finance and Chief Financial Officer from March 1990 to
April 1994.
Neil T. Smith (45) - Controller since November 1997. Financial Controller from
June 1997 to November 1997. Director of Financial Analysis and Planning from
December 1994 to May 1997. Prior to joining Snap-on, he was Director of Finance
for the Nielsen Marketing Research Division of Dun and Bradstreet Corporation
from January 1991 to December 1994.
Susan F. Marrinan (51) - Vice President, Secretary and General Counsel since
January 1992.
There is no family relationship among the executive officers and there has been
no involvement in legal proceedings during the past five years that would be
material to the evaluation of the ability or integrity of any of the executive
officers. Executive officers may be elected by the board of directors or
appointed by the Chief Executive Officer at the regular meeting of the board of
directors which follows the Annual Shareholders' Meeting, held on the fourth
Friday of April each year, and at such other times as new positions are created
or vacancies must be filled.
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PART II
Item 5: Market for Registrant's Common Equity and Related Stockholder Matters
Since 1995, the Corporation has undertaken stock repurchases from time to time
to prevent dilution created by shares issued for employee and dealer stock
purchase plans, stock options and other corporate purposes, as well as to
repurchase shares when market conditions are favorable. At its January 1999
meeting, the board of directors authorized the repurchase of up to $50.0 million
of the Corporation's common stock. This action followed the board's
authorization in 1998 to repurchase up to $100.0 million of common stock and its
authorization in 1997 for up to $100.0 million of common stock. At the end of
1999, all of the 1999 authorization and substantially all of the 1998
authorization remained available. The Corporation repurchased 492,800 shares of
its common stock in 1999, 2,279,400 shares in 1998 and 986,333 shares in 1997.
Since 1995, the Corporation has repurchased 8,570,083 shares. In 1999, the
Corporation's average common stock repurchase price was $29.83.
At January 1, 2000, the Corporation had 65,224,118 shares of common stock
outstanding. This consists of 58,546,668 shares which are considered outstanding
for purposes of computing earnings per share and an additional 6,677,450 shares
held in a Grantor Stock Trust which are considered outstanding for voting
purposes but not for purposes of computing earnings per share.
The Corporation's stock is listed on the New York Stock Exchange under the
ticker symbol SNA.
The Corporation's common stock high and low prices for the last two years by
quarter were as follows:
Common Stock High/Low Prices - Unaudited
(Amounts in dollars)
Quarter 1999 1998
- ------- ---- ----
First $36.75 - $28.06 $46.22 - $37.19
Second $37.44 - $28.56 $46.44 - $34.38
Third $37.81 - $30.75 $37.50 - $25.50
Fourth $32.50 - $26.44 $36.00 - $28.88
Additional information required by Item 5 is contained in the sections entitled
"Quarterly Financial Information" and "Six-year Data" on pages 44 and 45 of the
Corporation's 1999 Annual Report and is incorporated herein by reference.
Item 6: Selected Financial Data
The information required by Item 6 is contained in the section entitled
"Six-year Data" on page 45 of the Corporation's 1999 Annual Report and is
incorporated herein by reference.
Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by Item 7 is contained in the section entitled
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" on pages 17 through 25 of the Corporation's 1999 Annual Report and is
incorporated herein by reference.
Item 7A: Qualitative and Quantitative Disclosures About Market Risk
The information required by Item 7A is contained in the section entitled "Value
at Risk" on page 24 and in Note 8 entitled "Financial Instruments" on pages 35
and 36 of the Corporation's 1999 Annual Report and is incorporated herein by
reference.
12
<PAGE>
Item 8: Financial Statements and Supplementary Data
Financial statements and supplementary data required by Item 8 is contained in
the Corporation's 1999 Annual Report appearing in the sections entitled
"Consolidated Statement of Earnings" on page 26, "Consolidated Balance Sheets"
on page 27, "Consolidated Statements of Shareholders' Equity and Comprehensive
Income" on page 28, "Consolidated Statements of Cash Flows" on page 29, "Notes
to Consolidated Financial Statements" on pages 30 through 43, "Report of
Independent Public Accountants" on page 46, and "Quarterly Financial
Information" appearing on page 44, and is incorporated herein by reference.
Additionally, the Corporation's gross profit for the last two years by quarter
was as follows:
Gross Profit*
(Amounts in thousands)
Quarter 1999 1998
- ------- ---- ----
First $218,901 $211,545
Second $225,265 $204,690
Third $218,419 $151,526
Fourth $233,602 $195,553
*Gross Profit equals net sales less cost of goods sold.
Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10: Directors and Executive Officers of the Registrant
The identification of the Corporation's directors as required by Item 10 is
contained in the Corporation's Proxy Statement, dated March 28, 2000, in the
section entitled "Proposal to be Voted on: Election of Directors" on page 4 and
in the section entitled "Board of Directors-Directors Not Standing for Election"
on page 5, and is incorporated herein by reference.
With respect to information about the Corporation's executive officers, see
caption "Executive Officers of the Registrant" at the end of Part I of this
report.
The disclosure concerning Section 16(a) filing compliance pursuant to Item 405
of Regulation S-K is contained in the Corporation's Proxy Statement, dated March
28, 2000, in the section entitled "Other Information" on page 19, and is
incorporated herein by reference.
Item 11: Executive Compensation
The information required by Item 11 is contained in the Corporation's Proxy
Statement, dated March 28, 2000, in the section entitled "Executive
Compensation" on pages 15 through 18 and in the section entitled "Other
Information" on page 19 and is incorporated herein by reference.
Item 12: Security Ownership of Certain Beneficial Owners and Management
The information required by Item 12 is contained in the Corporation's Proxy
Statement, dated March 28, 2000, in the section entitled "Security Ownership of
Management and Certain Beneficial Owners" contained on pages 8 and 9, and is
incorporated herein by reference.
Item 13: Certain Relationships and Related Transactions
None.
13
<PAGE>
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K
Item 14(a): Document List
1. List of Financial Statements
The following consolidated financial statements of Snap-on Incorporated, and the
Report of Independent Public Accountants thereon, contained on pages 26 through
43 and on page 46 of the Corporation's 1999 Annual Report to its shareholders
for the year ended January 1, 2000, are incorporated by reference in Item 8 of
this report:
Consolidated Balance Sheets as of January 1, 2000, and January 2, 1999.
Consolidated Statements of Earnings for the years ended January 1, 2000, January
2, 1999, and January 3, 1998.
Consolidated Statements of Shareholders' Equity and Comprehensive Income for the
years ended January 1, 2000, January 2, 1999, and January 3, 1998.
Consolidated Statements of Cash Flows for the years ended January 1, 2000,
January 2, 1999, and January 3, 1998.
Notes to Consolidated Financial Statements.
Report of Independent Public Accountants.
2. Financial Statement Schedules
The following consolidated financial statement schedules of Snap-on Incorporated
are included in Item 14(d) as a separate section of this report.
Schedule II Valuation and Qualifying Accounts and Reserves. Page 19 herein.
Report of Independent Public Accountants on Financial Statement Schedule. Page
20 herein.
Unaudited Pro forma Financial Statement Schedule of Bahco Group AB Acquisition.
Pages 21 through 24 herein.
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are inapplicable and,
therefore, have been omitted, or are included in the Corporation's 1999 Annual
Report in the Notes to Consolidated Financial Statements for the years ended
January 1, 2000, January 2, 1999, and January 3, 1998, which are incorporated by
reference in Item 8 of this report.
3. List of Exhibits
The exhibits filed with or incorporated by reference in this report are as
specified in the exhibit index under Item 14(c). Pages 17 and 18 herein.
Item 14(b): Reports on Form 8-K
During the fourth quarter of 1999, the Corporation reported on Form 8-K the
following:
Form 8-K dated September 30, 1999, its acquisition of the Bahco Group AB
under Item 2.
Form 8-K/A dated September 30, 1999, its acquisition of the Bahco Group AB
under Item 7.
Subsequent to year-end, the Corporation reported on Form 8-K/A dated September
30, 1999, additional information on its acquisition of the Bahco Group AB under
Item 7.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange
Act of 1934, the Corporation has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SNAP-ON INCORPORATED
By: /s/ R. A. Cornog Date: March 28, 2000
------------------------------------------------- ---------------
R. A. Cornog, Chairman of the Board of
Directors, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Corporation and in the
capacities as indicated.
/s/ R. A. Cornog Date: March 28, 2000
------------------------------------------------- ---------------
R. A. Cornog, Chairman of the Board of
Directors, President and Chief Executive Officer
/s/ D. S. Huml Date: March 28, 2000
------------------------------------------------- ---------------
D. S. Huml, Principal Financial Officer,
and Senior Vice President - Finance
/s/ N. T. Smith Date: March 28, 2000
------------------------------------------------- ---------------
N. T. Smith, Principal Accounting Officer,
and Controller
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Corporation and in the
capacities as indicated.
By: /s/ B. M. Beronja Date: March 28, 2000
------------------------------------------------- ---------------
B. M. Beronja, Director
By: /s/ D. W. Brinckman Date: March 28, 2000
------------------------------------------------- ---------------
D. W. Brinckman, Director
By: /s/ B. S. Chelberg Date: March 28, 2000
------------------------------------------------- ---------------
B. S. Chelberg, Director
By: /s/ R. J. Decyk Date: March 28, 2000
------------------------------------------------- ---------------
R. J. Decyk, Director
By: /s/ L. A. Hadley Date: March 28, 2000
------------------------------------------------- ---------------
L. A. Hadley, Director
By: /s/ A. L. Kelly Date: March 28, 2000
------------------------------------------------- ---------------
A. L. Kelly, Director
By: /s/ G. W. Mead Date: March 28, 2000
------------------------------------------------- ---------------
G. W. Mead, Director
By: /s/ J. D. Michaels Date: March 28, 2000
------------------------------------------------- ---------------
J. D. Michaels, Director
By: /s/ E. H. Rensi Date: March 28, 2000
------------------------------------------------- ---------------
E. H. Rensi, Director
By: /s/ R. F. Teerlink Date: March 28, 2000
------------------------------------------------- ---------------
R. F. Teerlink, Director
16
<PAGE>
EXHIBIT INDEX
Item 14(c): Exhibits
(2) (a) Share Purchase Agreement between CTT Cutting Tool Technology B.V.
and the Corporation dated as of April 16, 1999 (incorporated by
reference to Exhibit (2)(a) to the Corporation's report on Form 8-K
dated September 30, 1999 (Commission File No. 1-7724))
(b) Amendment Agreement #1 to Share Purchase Agreement between CTT Cutting
Tool Technology B.V. and the Corporation dated as of September 30,
1999 (incorporated by reference to Exhibit (2)(a) to the Corporation's
report on Form 8-K dated September 30, 1999 (Commission File No.
1-7724))
(3) (a) Restated Certificate of Incorporation of the Corporation as
amended through April 25, 1997 (incorporated by reference to Exhibit
(3)(a) to the Corporation's Annual Report on Form 10-K for the fiscal
year ended January 2, 1998 (Commission File No. 1-7724))
(b) Bylaws of the Corporation, effective as of January 26, 1996
(incorporated by reference to Exhibit (3)(b) to the Corporation's
Annual Report on Form 10-K for the fiscal year ended December 30, 1996
(Commission File No. 1-7724))
(4) (a) Rights Agreement between the Corporation and First Chicago Trust
Company of New York, effective as of August 22, 1997 (incorporated by
reference to the Corporation's Form 8-A12B dated October 17, 1997
(Commission File No. 1-7724))
The Corporation and its subsidiaries have no long-term debt agreement
for which the related outstanding debt exceeds 10% of consolidated
total assets as of January 1, 2000. Copies of debt instruments for
which the related debt is less than 10% of consolidated total assets
will be furnished to the Commission upon request.
(10) Material Contracts
(a) Amended and Restated Snap-on Incorporated 1986 Incentive Stock
Program*#
(b) Form of Restated Senior Officer Agreement between the Corporation and
each of Robert A. Cornog, Branko M. Beronja, Frederick D. Hay, Donald
S. Huml and Michael F. Montemurro (incorporated by reference to
Exhibit (10)(b) to the Corporation's Annual Report on Form 10-K for
the fiscal year ended December 30, 1995 (Commission File No. 1-7724))*
(c) Form of Restated Executive Agreement between the Corporation and each
of Alan T. Biland, Sharon M. Brady, Richard V. Caskey, Dale F.
Elliott, Nicholas L. Loffredo, Denis J. Loverine, Susan F. Marrinan
and Neil T. Smith (incorporated by reference to Exhibit (10)(b) to the
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 30, 1995 (Commission File No. 1-7724))*
(d) Deferred Compensation Waiver and Insurance Benefit Agreement between
the Corporation and Robert A. Cornog dated January 30, 1998
(incorporated by reference to Exhibit 10(d) to the Corporation's
Annual Report on Form 10-K for the fiscal year ended January 2,1999
(Commission File No. 1-7724))*
(e) Deferred Compensation Waiver and Insurance Benefit Agreement between
the Corporation and Branko M. Beronja dated December 21, 1998
(incorporated by reference to Exhibit 10(d) to the Corporation's
Annual Report on Form 10-K for the fiscal year ended January 2,1999
(Commission File No. 1-7724))*
(f) Deferred Compensation Waiver and Insurance Benefit Agreement between
the Corporation and Frederick D. Hay dated September 27, 1999*#
17
<PAGE>
(g) Form of Indemnification Agreement between the Corporation and each of
the Directors, Frederick D. Hay, Donald S. Huml, Susan F. Marrinan and
Michael F. Montemurro effective October 24, 1997 (incorporated by
reference to Exhibit (3)(a) to the Corporation's Annual Report on Form
10-K for the fiscal year ended January 2, 1998 (Commission File No.
1-7724))*
(h) Amended and Restated Snap-on Incorporated Directors' 1993 Fee Plan *#
(i) Snap-on Incorporated Deferred Compensation Plan*#
(j) Snap-on Incorporated Supplemental Retirement Plan for Officers *#
(k) Benefit Trust Agreement between the Corporation and The Northern Trust
Company, effective as of July 2, 1998 (incorporated by reference to
the Corporation's Form 8-K dated July 2, 1998 (Commission File No.
1-7724))
(l) Form of Deferred Award Agreement between the Corporation and each of
Robert A. Cornog, Branko M. Beronja, Alan T. Biland, Dale F. Elliott,
Gary S. Henning, Frederick D. Hay, Donald S. Huml, Michael F.
Montemurro and Susan F. Marrinan, dated March 1, 1999 and Form of
Restricted Stock Agreement between the Corporation and David E. Cox,
dated March 1, 1999*#
(m) Five-year Credit Agreement between the Corporation and Salomon Smith
Barney Inc., Banc One Capital Markets Inc. and the First National Bank
of Chicago (incorporated by reference to Exhibit 10(a) to the
Corporation's report on Form 10-Q for the quarterly period ended
October 2, 1999 (Commission File No. 1-7724))
(n) 364 Day Credit Agreement between the Corporation and Salomon Smith
Barney Inc., Banc One Capital Markets Inc. and the First National Bank
of Chicago (incorporated by reference to Exhibit 10(a) to the
Corporation's report on Form 10-Q for the quarterly period ended
October 2, 1999 (Commission File No. 1-7724))
(12) Computation of Ratio of Earnings to Fixed Charges#
(13) The following portions of the Corporation's Annual Report to
Shareholders, which are incorporated by reference in this Form 10-K,
are filed as Exhibit 13: Management's Discussion and Analysis of
Results of Operations and Financial Condition, Consolidated Statements
of Earnings, Consolidated Balance Sheets, Consolidated Statements of
Shareholders' Equity and Comprehensive Income, Consolidated Statements
of Cash Flows, Notes to Consolidated Financial Statements, Quarterly
Financial Information, Six-year Data, Management's Responsibility for
Financial Reporting and Report of Independent Public Accountants.#
(21) Subsidiaries of the Corporation#
(23) Consent of Independent Public Accountants#
(27) Financial Data Schedule - Fiscal 1999#
# Filed herewith.
* Denotes management contract or compensatory plan or arrangement.
18
<PAGE>
Item 14(d): Schedules
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(amounts in thousands)
Purchase
Balance (Sale)
at Acquisition Balance
Beginning (Divestiture), Costs and at End
Description of Year Net Expenses Deductions(1) of Year
- ----------- --------- ------------- -------- ------------- -------
Allowance for doubtful accounts
Year-ended
January 1, 2000 $29,231 $(7,569)* $24,126 $(18,002) $27,786
Year-ended
January 2, 1999 $20,645 $ 2,073 $24,984 $(18,471) $29,231
Year-ended
January 3, 1998 $16,903 $ 2,220 $21,040 $(19,518) $20,645
(1) This amount represents write-offs of bad debts.
* Includes a $9.5 million reduction due to the sale of receivables to Newcourt
Financial USA Inc.
19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
We have audited, in accordance with auditing standards generally accepted in the
United States, the financial statements included in Snap-on Incorporated's (the
"Corporation") Annual Report to Shareholders, incorporated by reference in this
Form 10-K, and have issued our report thereon dated February 1, 2000. Our audit
was made for the purpose of forming an opinion on those statements taken as a
whole. The schedule listed on page 20 is the responsibility of the Corporation's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 1, 2000
20
<PAGE>
UNAUDITED PRO FORMA FINANICAL STATEMENT SCHEDULE
OF BAHCO GROUP AB ACQUISITION
On September 30, 1999, the Corporation acquired the Sandvik Saws and Tools
business, formerly a wholly owned operating unit of Sandvik AB. Sandvik Saws and
Tools business now operates as the Bahco Group AB ("Bahco"). Bahco is a
manufacturer and supplier of professional tool products and employs
approximately 2,400 people. Of those, approximately 1,000 employees are in
Sweden. Products are manufactured at 11 plants in Sweden, Germany, Portugal,
France, England, the United States and Argentina.
The acquisition is being accounted for as a purchase and the results of Bahco
have been included in the accompanying consolidated financial statements since
the date of the acquisition. The total purchase price of approximately $380
million includes the purchase of facilities, a number of brand names and
trademarks, and certain other assets and liabilities. The Corporation funded the
acquisition through working capital and an expansion of an existing commercial
paper credit facility.
A preliminary goodwill allocation in accordance with the criteria established
under Accounting Principles Board ("APB") Opinion No. 16, "Business
Combinations," has been performed. The cost of the acquisition has been
allocated on the basis of the fair market value of the assets acquired and the
liabilities assumed. This preliminary allocation results in goodwill of $215
million being recorded. The final purchase price allocation will be finalized
during 2000 upon completion of asset valuations and any post-closing purchase
price adjustments.
The preliminary allocation of the purchase price of $380 million, which includes
direct acquisition costs of $9 million, is as follows:
(Amounts in millions)
Fair value of property and equipment $ 98
Fair value of patents and trademarks 25
Other net assets acquired 42
Goodwill 215
-----
Purchase price $ 380
=====
Assigned useful lives are as follows:
Patents 13 years
Trademarks 40 years
Goodwill 40 years
The following unaudited pro forma statements of earnings of the Corporation
gives effect to the acquisition of Bahco as if the acquisition had occurred on
January 1, 1998, after giving effect to certain adjustments for depreciation,
amortization, interest expense, and income taxes associated with the purchase
method of accounting as performed at the time of the acquisition.
For pro forma purposes, the Corporation's Audited Consolidated Statement of
Earnings for 1999, has been combined with the Unaudited Combined Statement of
Revenues and Direct Expenses of the Bahco Group for the nine-months ended
September 30, 1999, and the effects of pro forma adjustments as set forth in the
notes thereto.
For pro forma purposes, the Corporation's Audited Consolidated Statement of
Earnings for 1998, has been combined with the Audited Combined Statement of
Revenues and Direct Expenses of the Bahco Group for the year ended December 31,
1998, and the effects of pro forma adjustments as set forth in the notes
thereto.
The following unaudited pro forma statements of earnings are based on historical
financial data, and on assumptions and adjustments described in the notes
thereto. All such assumptions and adjustments are inherently subject to
significant uncertainty and contingencies. It can be expected that some or all
of the assumptions on which the following unaudited pro forma statements of
earnings is based will prove to be inaccurate. As a result, the unaudited pro
forma statements of earnings do not purport to represent what the Corporation's
results of operations would have been if the acquisition of Bahco had occurred
on January 1, 1998, and is not intended to project the Company's results of
operations for any future period. The final purchase price allocation, when
completed in 2000, will result in changes to the amount of recorded assets and
goodwill included as pro forma amounts.
21
<PAGE>
Unaudited Pro Forma Statement of Earnings for 1999
(Amounts in thousands except per share data)
<TABLE>
<CAPTION>
Snap-on Bahco Group
Incorporated Unaudited
Audited Combined
Consolidated Statement of
Statement Revenues and
Of Earnings Direct Expenses
Year-Ended Nine-Months Ended Pro forma
1999 September 30, 1999 Adjustments Pro forma
--------------------------------------------------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 1,945,621 $ 228,946 $ - $ 2,174,567
Cost of goods sold (1,032,836) (159,064) (1,845) a (1,193,745)
Cost of goods sold - non-recurring charges (16,598) - - (16,598)
Operating expenses (723,658) (57,964) (3,960) b (785,582)
Net finance income 60,476 - - 60,476
Restructuring and other non-recurring charges (20,592) - - (20,592)
Interest expense (27,358) - (11,738) c (39,096)
Other income (expense) - net 12,882 983 - 13,865
Earnings (loss) before income taxes 197,937 12,901 (17,543) 193,295
Income tax provision (benefit) 70,710 - (1,124) d 69,586
Net earnings (loss) $ 127,227 $ 12,901 $(16,419) $ 123,709
Earnings per weighted average
common share - basic $ 2.18 $ 2.11
Earnings per weighted average
common share - diluted $ 2.16 $ 2.10
Weighted average common shares
outstanding - basic 58,494 58,494
Effect of dilutive options 383 383
Weighted average common shares
outstanding - diluted 58,877 58,877
</TABLE>
22
<PAGE>
Unaudited Pro Forma Statement of Earnings for 1998
(Amounts in thousands except per share data)
<TABLE>
<CAPTION>
Snap-on Bahco Group
Incorporated Audited
Audited Combined
Consolidated Statement of
Statement Revenues and
Of Earnings Direct Expenses
Year-Ended Year-Ended Pro forma
1998 December 31, 1998 Adjustments Pro forma
------------------------------------------------------------ --------------
<S> <C> <C> <C> <C>
Net sales $1,772,637 $ 323,908 $ - $ 2,096,545
Cost of goods sold (948,761) (215,119) (2,460) a (1,166,340)
Cost of goods sold - non-recurring charges (60,562) - - (60,562)
Operating expenses (705,811) (78,989) (5,280) b (790,080)
Restructuring and other non-recurring charges (89,301) - - (89,301)
Net finance income 65,933 - - 65,933
Interest expense (21,254) - (15,650) c (36,904)
Other income (expense) - net (2,041) 280 - (1,761)
Earnings (loss) before income taxes 10,840 30,080 (23,390) 17,530
Income tax provision (benefit) 15,619 - 2,393 d 18,012
Net earnings (loss) $ (4,779) $ 30,080 $(25,783) $ (482)
Earnings per weighted average
common share - basic $ (0.08) $ (0.01)
Earnings per weighted average
common share - diluted $ (0.08) $ (0.01)
Weighted average common shares
outstanding - basic 59,220 59,220
Effect of dilutive options - -
Weighted average common shares
outstanding - diluted 59,220 59,220
</TABLE>
23
<PAGE>
The following notes to the pro forma adjustments for the Unaudited Pro forma
Statement of Earnings for 1999 and 1998 represent the adjustments that would
have resulted from the acquisition of the Bahco Group had the acquisition
occurred on January 1, 1998.
(a) To adjust depreciation expense for the preliminary change in the basis to
fair market value of property, plant and equipment.
(b) To adjust depreciation and amortization expense for the preliminary change
in the basis to fair market value of property, plant and equipment and
intangible assets including goodwill.
(c) To record additional interest expense resulting from the debt issued to
acquire the Bahco Group.
(d) To record an income tax benefit(expense) to return to an appropriate
consolidated effective tax rate of 36% for 1999 and 36% for 1998 before
Snap-on's restructuring Project Simplify initiative that occurred in 1998.
24
AMENDED AND RESTATED
SNAP-ON INCORPORATED
1986 INCENTIVE STOCK PROGRAM
(As Amended through January 22, 1999)
1. Purpose. The purpose of the Amended and Restated Snap-on
Incorporated 1986 Incentive Stock Program (the "Program") is to attract and
retain outstanding people as officers and key employees of Snap-on Incorporated
(the "Company") and its subsidiaries and entities of which at least 20% of the
equity interest is held directly or indirectly by the Company (together,
"Affiliates") and to furnish incentives to such persons by providing such
persons opportunities to acquire shares ("Shares") of the Company's common stock
("Common Stock"), or monetary payments based on the value of such Common Stock
or the financial performance of the Company, or both, on terms as herein
provided.
2. Administration. The Program will be administered by a committee
(the "Committee") of the Board of Directors of the Company (the "Board")
composed of not less than two Directors, each of whom shall qualify as a
"disinterested person" for purposes of Rule 16b-3 ("Rule 16b-3") under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as an
"outside director" under Section 162(m)(4)(C) of the Internal Revenue Code of
1986, as amended (the "Code") (or any successor provision thereto); provided,
however, that from and after such time as Rule 16b-3 as adopted in Securities
and Exchange Commission Release No. 34-37260 applies to the Company, members of
the Board serving on the Committee shall no longer need to be a "disinterested
person" but instead must qualify as a "Non-Employee Director" within the meaning
of Rule 16b-3. To the extent permitted by applicable law, the Board may, in its
discretion, delegate to another committee of the Board or to one or more senior
officers of the Company any or all of the authority and responsibility of the
Committee with respect to Benefits (as defined below) to Participants other than
Participants who are subject to the provisions of Section 16 of the Exchange Act
("Section 16 Participants") at the time any such delegated authority or
responsibility is exercised. The Board also may, in its discretion, delegate to
another committee of the Board consisting entirely of Non-Employee Directors any
or all of the authority and responsibility of the Committee with respect to
Benefits to Section 16 participants and other Participants. To the extent that
the Board has delegated to such other committee or one or more officers the
authority and responsibility of the Committee, all references to the Committee
herein shall include such other committee or one or more officers. The Committee
shall interpret the Program, prescribe, amend and rescind rules and regulations
relating thereto and make all other determinations necessary or advisable for
the administration of the Program. A majority of the members of the Committee
shall constitute a quorum and all determinations of the Committee shall be made
by a majority of its members. Any determination of the Committee under the
Program may be made without notice or meeting of the Committee by a writing
signed by a majority of the Committee members.
3. Participants. Participants in the Program ("Participants") will
consist of such officers or other key employees of the Company and its
Affiliates as the Committee in its sole discretion may designate from time to
time to receive benefits described in Section 4 hereof ("Benefits"). The
Committee's designation of a Participant in any year shall not require the
1
<PAGE>
Committee to designate such person to receive a Benefit in any other year. The
Committee shall consider such factors as it deems pertinent in selecting
Participants and in determining the type and amount of their respective
Benefits, including without limitation (i) the financial condition of the
Company; (ii) anticipated profits for the current or future years; (iii)
contributions of Participants to the profitability and development of the
Company; and (iv) other compensation provided to Participants.
4. Types of Benefits.
(a) The Committee shall have full power and authority to (i)
determine the type or types of Benefits to be granted to each Participant under
the Program; (ii) determine the number of Shares and/or monetary payments to be
covered by (or with respect to which payments, rights or other matters are to be
calculated in connection with) Benefits granted to Participants; and (iii)
determine any terms and conditions of any Benefit granted to a Participant,
subject in each case only to express requirements of the Program. Benefits under
the Program may be granted in any one or a combination of (A) incentive stock
options granted under Section 6 hereof and intended to meet the requirements of
Section 422 of the Code (or any successor provision thereto) ("Incentive Stock
Options"); (B) options granted under Section 7 hereof not intended to be
Incentive Stock Options ("Non-Qualified Stock Options"); (C) stock appreciation
rights granted pursuant to Section 9 hereof ("Stock Appreciation Rights"); (D)
Shares granted under Section 10 hereof to be held subject to certain
restrictions ("Restricted Stock") and Bonus Shares (are defined in Section 11)
delivered pursuant to Section 11; (E) Shares granted under Section 12 hereof
("Performance Shares"); and (F) monetary units granted under Section 13 hereof
("Performance Units"). For purposes hereof, Incentive Stock Options and
Non-Qualified Stock Options shall be hereinafter referred to collectively as
"Options". Benefits under the Program may be granted either alone or in addition
to, in tandem with, or in substitution for any other Benefit or any other award
or benefit granted under any other plan of the Company or any Affiliate.
Benefits granted in addition to or in tandem with other awards or benefits may
be granted either at the same time as or at different times from grants of such
other Benefits or other awards.
(b) Each member of the Board (a "Director") who is not also an
employee of the Company shall receive Director Options (as defined in Section
14) under the Program as provided in Section 14.
(c) As used in the Plan, the term "Award" shall mean any Benefit
or Director Option granted under the Program.
5. Shares Reserved under the Program.
(a) There is hereby reserved for issuance under the Program after
the Effective Date (as defined below) an aggregate of Six Million (6,000,000)
Shares, consisting of Shares (i) newly authorized effective upon approval of
this Program, as amended and restated, by the Company's shareholders at a
meeting duly called and held (the "Effective Date"), (ii) previously reserved
for issuance under the Program as to which Benefits could be awarded under
2
<PAGE>
this Program immediately prior to the Effective Date and (iii) subject to awards
of Benefits that are outstanding immediately prior to the Effective Date. Not
more than 300,000 Shares reserved for issuance under the Program after the
Effective Date may be issued as Restricted Stock.
(b) If there is a lapse, expiration, termination or cancellation
of any Award granted hereunder without the issuance of Shares or payment of cash
thereunder, if Shares are issued under any Award and thereafter are reacquired
by the Company pursuant to rights reserved upon the issuance thereof, or if
previously owned Shares are delivered to the Company in payment of the exercise
price of an Award, then the Shares subject to, reserved for or delivered in
payment in respect of such Award may again be used for new Options or other
Awards of any sort authorized under this Program.
(c) No Participant shall be granted Benefits under the Program
that could result in such Participant (i) receiving in any single fiscal year of
the Company Options for, and/or Stock Appreciation Rights with respect to, more
than 450,000 Shares, (ii) receiving Benefits in any single fiscal year of the
Company relating to more than 225,000 Shares of Restricted Stock, (iii)
receiving more than 225,000 Performance Shares in respect of any period
designated under Section 12 or (iv) receiving Performance Units exceeding
$1,000,000 in value in respect of any period designated under Section 13. Such
number of Shares as specified in the preceding sentence shall be subject to
adjustment in accordance with the terms of Section 18(a) hereof. In all cases,
determinations under this Section 5 shall be made in a manner that is consistent
with the exemption for performance-based compensation provided by Section 162(m)
of the Code (or any successor provision thereto) and any regulations promulgated
thereunder.
6. Incentive Stock Options. Incentive Stock Options will be
exercisable at purchase prices of not less than One Hundred percent (100%) of
the fair market value of the Shares on the date of grant, as such fair market
value is determined by such methods or procedures as shall be established from
time to time by the Committee ("Fair Market Value"). Incentive Stock Options
will be exercisable over not more than ten (10) years after date of grant and
shall terminate not later than three (3) months after termination of employment
for any reason other than death, except as otherwise provided by the Committee.
If the Participant should die while employed or within three (3) months after
termination of employment, then the right of the Participant's successor in
interest to exercise an Incentive Stock Option shall terminate not later than
twelve (12) months after the date of death, except as otherwise provided by the
Committee. In all other respects, the terms of any Incentive Stock Option
granted under the Program shall comply with the provisions of Section 422 of the
Code (or any successor provision thereto) and any regulations promulgated
thereunder.
7. Non-Qualified Stock Options. Non-Qualified Stock Options will be
exercisable at purchase prices of not less than One Hundred percent (100%) of
the Fair Market Value of the Shares on the date of grant. Non-Qualified Stock
Options will be exercisable as determined by the Committee over not more than
fifteen (15) years after the date of grant and shall terminate six (6) months
after termination of employment for any reason other than death, except that,
subject to the maximum term of fifteen (15) years, (a) in connection with the
termination of a Participant's employment in a manner that entitles the
Participant immediately to receive the
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payment of benefits under any defined benefit retirement plan of the Company or
any of its Affiliates ("Retirement"), a Non-Qualified Stock Option shall
terminate three (3) years after Retirement and (b) the Committee may provide
otherwise in connection with any termination of employment, including
Retirement. If the Participant should die while employed or within any period
after termination of employment during which the Non-Qualified Stock Option was
exercisable, then, subject to the maximum term of fifteen (15) years, the right
of the Participant's successor in interest to exercise a Non-Qualified Stock
Option shall terminate not later than twelve (12) months after the date of
death, except as otherwise provided by the Committee.
8. Certain Replacement Options. Without in any way limiting the
authority of the Committee to make grants of Options to Participants hereunder,
and in order to induce Participants to retain ownership of Shares acquired upon
the exercise of Options, the Committee shall have the authority (but not an
obligation) to include within any agreement setting forth the terms of any
Options (or any amendment thereto) a provision entitling a Participant to
further Options ("Replacement Options") in the event the Participant exercises
any Options (including a Replacement Option) under the Program, in whole or in
part, by surrendering previously acquired Shares. Any such Replacement Options
shall (a) be Non-Qualified Stock Options under Section 7, exercisable at a
purchase price, unless otherwise determined by the Committee, of 100% of the
Fair Market Value of the Shares on the date the Replacement Options are granted,
(b) be for a number of Shares equal to the number of Shares surrendered, (c)
only become exercisable on the terms specified by the Committee in the event the
Participant holds, for a minimum period of time prescribed by the Committee, the
Shares the Participant acquired upon the exercise in connection with which the
Replacement Options were issued, and (d) be subject to such other terms and
conditions as the Committee may determine.
9. Stock Appreciation Rights. The Committee is hereby authorized to
grant Stock Appreciation Rights to Participants. Subject to the terms of the
Program and any applicable agreement with a Participant, a Stock Appreciation
Right granted under the Program shall confer on the holder thereof a right to
receive, upon exercise thereof, the excess of (a) the Fair Market Value of one
Share (determined on the date the Stock Appreciation Right is exercised) over
(b) the grant price of the Stock Appreciation Right as specified by the
Committee, which shall, unless otherwise determined by the Committee, be 100% of
the Fair Market Value of one Share (determined on the date of grant of the Stock
Appreciation Right). Subject to the terms of the Program, the grant price, term,
calculation of Fair Market Value, methods of exercise, methods of settlement
(including whether the Participant will be paid in cash, Shares, other
securities, other Benefits or other property, or any combination thereof), and
any other terms and conditions of any Stock Appreciation Right shall be as
determined by the Committee. The Committee may impose such conditions or
restrictions on the exercise of any Stock Appreciation Right as it may deem
appropriate.
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<PAGE>
10. Restricted Stock.
(a) The Committee is hereby authorized to issue Restricted Stock
to Participants, with or without payment therefor, as additional compensation,
or in lieu of other compensation, for their services to the Company and/or any
Affiliate. Restricted Stock shall be subject to such terms and conditions as the
Committee determines appropriate, including, without limitation, restrictions on
sale or other disposition and rights of the Company to reacquire such Restricted
Stock upon termination of the Participant's employment within specified periods,
as prescribed by the Committee.
(b) Without limitation, such terms and conditions may provide that
Restricted Stock shall be subject to forfeiture if the Company or the
Participant fails to achieve certain goals established by the Committee over a
designated period of time. Any grant of Restricted Stock subject to such terms
and conditions to a Section 16 Participant shall be in writing. The goals
established by the Committee may relate to any one or more of the following:
revenues, earnings per share, return on shareholder equity, return on average
total capital employed, return on net assets employed before interest and taxes,
economic value added and/or, in the case of Participants other than Section 16
Participants, such other goals as may be established by the Committee in its
discretion. In the event the minimum goal established by the Committee is not
achieved at the conclusion of a period, all Shares of Restricted Stock shall be
forfeited. In the event the maximum goal is achieved, no Shares of Restricted
Stock shall be forfeited. Partial achievement of the maximum goal may result in
forfeiture corresponding to the degree of nonachievement to the extent specified
in writing by the Committee when the grant is made. The Committee shall certify
in writing as to the degree of achievement after completion of the performance
period.
11. Bonus Shares; Deposit Share Program. The Committee is authorized
to provide Participants the opportunity to elect to receive Shares in lieu of a
portion or all of cash bonuses under the Company's incentive compensation
programs and/or increases in base compensation ("Bonus Shares"). Bonus Shares
shall be issued in an amount equal to (a) the dollar amount of bonus or base
compensation a Participant elects to receive in Common Stock (subject to limits
prescribed by the Committee) divided by (b) the Fair Market Value of a Share (as
determined on the date the cash compensation to which the Bonus Shares relate
would otherwise be payable) and shall be subject to such terms and conditions as
the Committee deems appropriate, including, without limitation, restrictions on
withdrawal from the Deposit Share Program (as hereinafter defined), sale or
other disposition.
The Committee may establish a program (the "Deposit Share Program") in
connection with the delivery of Bonus Shares under which (a) Participants
wishing to receive Restricted Stock in tandem with Bonus Shares shall deposit
Bonus Shares with the Company or such other designee of the Company and comply
with all rules relating to the Deposit Share Program as the Committee prescribes
and (b) the Company shall match any Bonus Shares a Participant has deposited
with the Company by depositing up to one (1) Share of Restricted Stock for each
Bonus Share deposited, as determined by the Committee. The Restricted Stock
deposited by the Company shall vest in accordance with such terms and conditions
as determined by the Committee.
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Elections to receive Bonus Shares or to participate in the Deposit
Share Program may be made only in accordance with such rules and regulations
prescribed by the Committee from time to time, including any rules and
regulations applicable to Section 16 Participants.
12. Performance Shares. The Committee may grant Performance Shares
that the Participant may earn in whole or in part if the Company or the
Participant achieves certain goals established by the Committee over a
designated period of time consisting of one or more full fiscal years of the
Company, but not in any event more than five (5) years. Any such grant to a
Section 16 Participant shall be in writing. The goals established by the
Committee may relate to any one or more of the following: revenues, earnings per
share, return on shareholder equity, return on average total capital employed,
return on net assets employed before interest and taxes, economic value added
and/or, in the case of Participants other than Section 16 Participants, such
other goals as may be established by the Committee in its discretion. In the
event the minimum goal established by the Committee is not achieved at the
conclusion of a period, no delivery of Shares shall be made to the Participant.
In the event the maximum goal is achieved, One Hundred percent (100%) of the
Performance Shares shall be delivered to the Participant. Partial achievement of
the maximum goal may result in a delivery corresponding to the degree of
achievement to the extent specified in writing by the Committee when the grant
is made. The Committee shall certify in writing as to the degree of achievement
after completion of the performance period. The Committee shall have the
discretion to satisfy an obligation to deliver a Participant's Performance
Shares by delivery of less than the number of Shares earned together with a cash
payment equal to the then Fair Market Value of the Shares not delivered. The
number of Shares reserved for issuance under this Program shall be reduced only
by the number of Shares delivered in respect of earned Performance Shares.
Subject to Section 18(c)(iii), at the time of making an award of Performance
Shares, the Committee shall set forth the consequences of the termination of a
Participant's employment with the Company or an Affiliate prior to the
expiration of the designated performance period in respect of which the
Performance Shares are awarded.
13. Performance Units. The Committee may grant Performance Units to a
Participant that consist of monetary units and that the Participant may earn in
whole or in part if the Company or the Participant achieves certain goals
established by the Committee over a designated period of time consisting of one
or more full fiscal years of the Company, but not in any event more than five
(5) years. Any such grant to a Section 16 Participant shall be in writing. The
goals established by the Committee may relate to any one or more of the
following: revenues, earnings per share, return on shareholder equity, return on
average total capital employed, return on net assets employed before interest
and taxes, economic value added, Share price and/or, in the case of Participants
other than Section 16 Participants, such other goals as may be established by
the Committee in its discretion. In the event the minimum goal established by
the Committee is not achieved at the conclusion of a period, no payment shall be
made to the Participant. In the event the maximum goal is achieved, One Hundred
percent (100%) of the monetary value of the Performance Units shall be paid to
the Participant. Partial achievement of the maximum goals may result in a
payment corresponding to the degree of achievement to the
6
<PAGE>
extent specified in writing by the Committee when the grant is made. The
Committee shall certify in writing as to the degree of achievement after
completion of the performance period. Payment of a Performance Unit earned may
be in cash or in Shares or in a combination of both, as the Committee in its
sole discretion determines. The number of Shares reserved for issuance under
this Program shall be reduced only by the number of Shares delivered in payment
of Performance Units. Subject to Section 18(c)(iii), at the time of making an
award of Performance Units, the Committee shall set forth the consequences of
the termination of a Participant's employment with the Company or an Affiliate
prior to the expiration of the designated performance period in respect of which
the Performance Units are awarded.
14. Non-Employee Directors. Each Director who is not also an employee
of the Company (including members of the Committee) and who is a Director on the
date of the annual meeting of shareholders of the Company during the term of the
Program shall automatically be granted on each such meeting date a non-qualified
stock option for the purchase of 3,000 Shares ("Director Options") at a purchase
price equal to One Hundred percent (100%) of the Fair Market Value of the Shares
on the date each Director Option is granted, which shall be the closing price
for the Common Stock on such date as reported on the New York Stock Exchange.
Director Options shall be exercisable for ten (10) years from the date of grant
and shall terminate six (6) months after the non-employee Director ceases to
serve as a Director for any reason other than death, except that, subject to the
maximum term of ten (10) years, (a) as to any Director who, at the time the
Director ceases to serve as a Director, is at least age 65 or has completed six
(6) years of service, the Director Options held by the Director shall terminate
three (3) years after the Director ceases to serve as a Director and (b) the
Committee may amend such time limits. If the Director should die while serving
as a Director, or within any period after termination of his or her service as a
Director during which the Director Option was exercisable, then, subject to the
maximum term of ten (10) years, the right of his or her successor in interest to
exercise a Director Option shall terminate twelve (12) months after the date of
death. Non-employee Directors shall not be eligible for any Benefit under the
Program.
15. Transferability. Each Award granted under this Program shall not
be transferable other than by will or the laws of descent and distribution,
except that a Participant or Director may, to the extent allowed by the
Committee and in a manner specified by the Committee, (a) designate in writing a
beneficiary to exercise the Award after the Participant's or Director's death,
as the case may be, and (b) transfer any Award.
16. Term of Program and Amendment, Modification or Cancellation of
Benefits.
(a) No Award shall be granted more than ten (10) years after the
Effective Date.
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(b) Except as provided in Section 19(a) below and subject to the
requirements of the Program, the Committee may modify or amend any Award or
waive any restrictions or conditions applicable to any Award or the exercise
thereof, and the terms and conditions applicable to any Awards may at any time
be amended, modified or canceled by mutual agreement between the Committee and
the Participant or Director or any other persons as may then have an interest
therein, so long as any amendment or modification does not increase the number
of Shares issuable under this Program. Action may be taken under this Section
16(b) notwithstanding expiration of the Program under Section 16(a).
17. Taxes. The Company shall be entitled to withhold the amount of any
tax attributable to any amount payable or Shares deliverable under the Program
after giving the person entitled to receive such amount or Shares notice as far
in advance as practicable, and the Company may defer making payment or delivery
if any such tax may be pending unless and until indemnified to its satisfaction.
The Committee may, in its discretion and subject to such rules as it may adopt,
permit a Participant to pay all or a portion of the federal, state and local
withholding taxes arising in connection with (a) the exercise of a Non-Qualified
Stock Option, (b) a disqualifying disposition of Common Stock received upon the
exercise of an Incentive Stock Option, (c) the lapse of restrictions on
Restricted Stock or (d) the receipt of Performance Shares, by electing to (i)
have the Company withhold Shares, (ii) tender back Shares received in connection
with such Benefit or (iii) deliver other previously owned Shares, having a Fair
Market Value equal to the amount to be withheld; provided, however, that the
amount to be withheld shall not exceed the Participant's estimated total
federal, state and local tax obligations associated with the transaction. The
election must be made on or before the date as of which the amount of tax to be
withheld is determined and otherwise as required by the Committee. The Fair
Market Value of fractional Shares remaining after payment of the withholding
taxes shall be paid to the Participant in cash.
The Committee may, in its discretion, grant a cash bonus to a
Participant who holds Restricted Stock, either inside or outside of the Deposit
Share Program, or Performance Shares to enable the Participant to pay all or a
portion of the federal, state or local tax liability incurred by the Participant
upon the vesting of Restricted Stock or Performance Shares. The Company shall
deduct from any cash bonus such amount as may be required for the purpose of
satisfying the Company's obligation to withhold federal, state or local taxes.
18. Adjustment Provisions; Change of Control.
(a) If the Company shall at any time change the number of issued
Shares without new consideration to the Company (such as by stock dividends or
stock splits), the total number of Shares reserved for issuance under this
Program and the number of Shares covered by each outstanding Award shall be
adjusted so that the aggregate consideration payable to the Company and the
value of each such Award shall not be changed. The Committee shall also have the
right to provide for the continuation of Awards or for other equitable
adjustments after changes in the Common Stock resulting from reorganization,
sale, merger, consolidation or similar occurrence; provided, however, that
Director Options subject to grant or previously granted to Directors under the
Program at the time of any such event shall be subject to only such adjustment
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<PAGE>
as shall be necessary to maintain the proportionate interest of the Director and
preserve, without exceeding, the value of such Director Options.
(b) Notwithstanding any other provision of this Program, and
without affecting the number of Shares otherwise reserved or available
hereunder, the Committee may authorize the issuance or assumption of Benefits in
connection with any merger, consolidation, acquisition of property or stock, or
reorganization upon such terms and conditions as it may deem appropriate.
(c) In the event of a "change of control" (as hereinafter
defined):
(i) each holder of an Option and Director Option (A) shall
have the right at any time thereafter to exercise the Option or
Director Option in full whether or not the Option or Director
Option was theretofore exercisable; and (B) shall have the right,
exercisable by written notice to the Company within 60 days after
the change of control, to receive, in exchange for the surrender
of the Option or Director Option or any portion thereof to the
extent the Option or Director Option is then exercisable in
accordance with clause (A), the highest of (1) an amount of cash
equal to the difference between the Fair Market Value of the
Common Stock covered by the Option or Director Option or portion
thereof that is so surrendered on the date of the change of
control and the purchase price of such Common Stock under the
Option or Director Option, (2) an amount of cash equal to the
difference between the highest price per Share of Common Stock
paid in the transaction giving rise to the change of control and
the purchase price per Share of Common Stock under the Option or
Director Option multiplied by the number of Shares of Common
Stock covered by the Option or Director Option or (3) an amount
of cash equal to the difference between the Fair Market Value of
the Common Stock covered by the Option or Director Option or
portion thereof that is so surrendered, calculated on the date of
surrender, and the purchase price of such Common Stock under the
Option or Director Option; provided that the right described in
this clause (B) shall be exercisable only if a positive amount
would be payable to the holder pursuant to the formula specified
in this clause (B);
(ii) Restricted Stock held inside or outside of the
Deposit Share Program (including Bonus Shares) that is not then
vested shall vest upon the date of the change of control and each
holder of such Restricted Stock shall have the right, exercisable
by written notice to the Company within sixty (60) days after the
change of control, to receive, in exchange for the surrender of
such Restricted Stock, an amount of cash equal to the highest of
(A) the Fair Market Value of such Restricted Stock on the date of
surrender, (B) the highest price per Share of Common Stock paid
in the transaction giving rise to the change of control
multiplied by the number of Shares of Restricted Stock
surrendered or (C) the Fair Market Value of such Restricted Stock
on the effective date of the change of control;
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(iii) each holder of a Performance Share and/or
Performance Unit for which the performance period has not expired
shall have the right, exercisable by written notice to the
Company within 60 days after the change of control, to receive,
in exchange for the surrender of the Performance Share and/or
Performance Unit, an amount of cash equal to the product of the
value of the Performance Share and/or Performance Unit and a
fraction the numerator of which is the number of whole months
which have elapsed from the beginning of the performance period
to the date of the change of control and the denominator of which
is the number of whole months in the performance period; and
(iv) each holder of a Performance Share and/or Performance
Unit that has been earned but not yet paid shall receive an
amount of cash equal to the value of the Performance Share and/or
Performance Unit.
For purposes of this Section 18, the "value" of a Performance Share
shall be equal to the highest of (1) the Fair Market Value of a Share of Common
Stock on the date of the change of control, (2) the highest price per Share of
Common Stock paid in the transaction giving rise to the change of control or (3)
the Fair Market Value of a Share of Common Stock calculated on the date of
surrender or payment, as the case may be.
(d) A "change of control" of the Company shall be deemed to have
occurred for purposes of this Section 18 if the event set forth in any one of
the following paragraphs shall have occurred:
(i) any "Person" (as such term is defined in Section
3(a)(9) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as modified and used in Sections 13(d) and 14(d)
thereof, except that for purposes of this Section 18, the term
"Person" shall not include (1) the Company or any of its
subsidiaries, (2) a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any of its
subsidiaries, (3) an underwriter temporarily holding securities
pursuant to an offering of such securities, or (4) a corporation
owned, directly or indirectly, by the shareholders of the Company
in substantially the same proportions as their ownership of stock
in the Company) is or becomes the "Beneficial Owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company (not including in the securities
beneficially owned by such Person any securities acquired
directly from the Company or its affiliates) representing 25% or
more of either the then outstanding Shares of common stock of the
Company or the combined voting power of the Company's then
outstanding voting securities; or
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(ii) the following individuals cease for any reason to
constitute a majority of the number of Directors then serving:
individuals who, on January 1, 1996, constitute the Board and any
new Director (other than a Director whose initial assumption of
office is in connection with an actual or threatened election
contest, including but not limited to a consent solicitation,
relating to the election of Directors of the Company, as such
terms are used in Rule 14a-11 of Regulation 14A under the
Exchange Act) whose appointment or election by the Board or
nomination for election by the Company's shareholders was
approved by a vote of at least two-thirds (2/3) of the Directors
then still in office who either were Directors on January 1, 1996
or whose appointment, election or nomination for election was
previously so approved; or
(iii) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation or
approve the issuance of voting securities of the Company in
connection with a merger or consolidation of the Company (or any
direct or indirect subsidiary of the Company) pursuant to
applicable stock exchange requirements, other than (1) a merger
or consolidation which would result in the voting securities of
the Company outstanding immediately prior to such merger or
consolidation continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity or any parent thereof) at least 60% of the
combined voting power of the voting securities of the Company or
such surviving entity or any parent thereof outstanding
immediately after such merger or consolidation, or (2) a merger
or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no Person is or becomes
the Beneficial Owner, directly or indirectly, of securities of
the Company (not including in the securities beneficially owned
by such Person any securities acquired directly from the Company
or its affiliates) representing 25% or more of either the then
outstanding Shares of common stock of the Company or the combined
voting power of the Company's then outstanding voting securities;
or
(iv) the shareholders of the Company approve a plan of
complete liquidation or dissolution of the Company or an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets (in one transaction or
a series of related transactions within any period of 24
consecutive months), other than a sale or disposition by the
Company of all or substantially all of the Company's assets to an
entity, at least 75% of the combined voting power of the voting
securities of which are owned by Persons in substantially the
same proportions as their ownership of the Company immediately
prior to such sale.
Notwithstanding the foregoing, no "Change of Control" shall be deemed to have
occurred if there is consummated any transaction or series of integrated
transactions immediately following which the record holders of the common stock
of the Company immediately prior to such transaction or series of transactions
continue to have substantially the same proportionate ownership in an entity
which owns all or substantially all of the assets of the Company immediately
following such transaction or series of transactions.
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(e) As of the Effective Date, any outstanding Benefit previously
granted under the Program shall be deemed amended to provide to the holder of
such Benefit rights corresponding to those described in paragraph (c) of this
Section 18 in the event of a change of control (as defined herein).
(f) The Committee may, in its sole and absolute discretion,
amend, modify or rescind the provisions of this Section 18 if it determines that
the operation of this Section 18 may prevent a transaction in which the Company
or any Affiliate is a party from being accounted for on a pooling-of-interests
basis.
19. Amendment and Termination of the Program; Correction of Defects
and Omissions.
(a) The Board may at any time amend, alter, suspend, discontinue
or terminate the Program; provided, however, that the provisions of Section 14
of the Program shall not be amended more than once every six (6) months, other
than to comport with changes in the Code, the Employee Retirement Income
Security Act of 1974, as amended, or the rules promulgated thereunder; and
provided further that shareholder approval of any amendment of the Program shall
also be obtained if otherwise required by (i) the rules and/or regulations
promulgated under Section 16 of the Exchange Act (in order for the Program to
remain qualified under Rule 16b-3), (ii) the Code or any rules promulgated
thereunder (in order to allow for Incentive Stock Options to be granted under
the Program or to enable the Company to comply with the provisions of Section
162(m) of the Code so that the Company can deduct compensation in excess of the
limitation set forth therein), or (iii) the listing requirements of the New York
Stock Exchange or any principal securities exchange or market on which the
Shares are then traded (in order to maintain the listing or quotation of the
Shares thereon). Termination of the Program shall not affect the rights of
Participants or Directors with respect to Awards previously granted to them, and
all unexpired Awards shall continue in force and effect after termination of the
Program except as they may lapse or be terminated by their own terms and
conditions.
(b) The Committee may correct any defect, supply any omission, or
reconcile any inconsistency in any Award or agreement covering an Award in the
manner and to the extent it shall deem desirable to carry the Program into
effect.
20. Miscellaneous. The grant of any Award under the Program may also
be subject to other provisions (whether or not applicable to the Benefit awarded
to any other Participant) as the Committee determines appropriate, including,
without limitation, provisions for (a) one or more means to enable Participants
or Directors to defer recognition of taxable income relating to Awards or cash
payments derived therefrom, which means may provide for a return to a
Participant or Director on amounts deferred as determined by the Committee
(provided that no such deferral means may result in an increase in the number of
Shares issuable hereunder); (b) the purchase of Common Stock under Options or
Director Options in installments; (c) the financing of the purchase of Common
Stock under Options or Director Options in the form of a
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promissory note issued to the Company by a Participant or Director on such terms
and conditions as the Committee determines; (d) the payment of the purchase
price of Options or Director Options (i) by delivery of cash or other Shares or
securities of the Company having a then Fair Market Value equal to the purchase
price of such Shares or (ii) by delivery (including by fax) to the Company or
its designated agent of an executed irrevocable option exercise form together
with irrevocable instructions to a broker-dealer to sell or margin a sufficient
portion of the Shares and deliver the sale or margin loan proceeds directly to
the Company to pay for the exercise price; (e) restrictions on resale or other
disposition; and (f) compliance with federal or state securities laws and stock
exchange requirements. Notwithstanding the foregoing, to the extent required by
Rule 16b-3, Director Options shall be automatic, and the amount and terms of
such Director Options shall be determined as provided in Section 14 of the Plan.
*****
13
DEFERRED COMPENSATION WAIVER
AND INSURANCE BENEFIT AGREEMENT
This Agreement is entered into this 27th day of September, 1999,
by and between SNAP-ON INCORPORATED, a Delaware corporation (the "Company"), and
FREDERICK D. HAY (the "Executive").
WHEREAS, the Executive has a Cash Account under the Company's
Deferred Compensation Plan (the "Deferred Compensation Plan Balance"); and
WHEREAS, the Company is willing to establish the Split-Dollar
Life Insurance Agreement described in Section 3 of this Agreement ("Split-Dollar
Agreement"); and
WHEREAS, as of the date of this Agreement, the Executive and the
Company believe that the net Present Value of the Company's obligations under
the Split-Dollar Agreement are equivalent to the Present Value of the
Executive's waiver of rights under Section 2 of this Agreement.
NOW, THEREFORE, in consideration of the respective terms and
conditions set forth herein, the Company and the Executive hereby agree as
follows:
1. Definitions.
a. Waived Deferred Compensation Plan Rights. The estimated
payments to the Executive attributable to the Executive's Waived
Existing Balance (as defined in Section 2.a) calculated based on the
assumptions set forth in Exhibit B to this Agreement.
b. Change of Control. This term shall have the meaning given in
it Section 1.c. of the Senior Officer Agreement.
c. Committee. The Organization and Compensation Committee of the
Board of Directors of the Company.
d. Deferred Compensation Plan. The Snap-on Incorporated Deferred
Compensation Plan.
e. Present Value. The Present Value of a payment shall be
determined based on the assumptions set forth in Exhibit B to this
Agreement.
f. Senior Officer Agreement. The Restated Senior Officer
Agreement dated February 1, 1996, between the Company and the Executive.
<PAGE>
2. Executive's Waiver of Rights.
The Executive hereby waives any and all rights to receive Two Hundred
Thousand Dollars ($200,000) of the Executive's Cash Account under the
Company's Deferred Compensation Plan as of the date of this agreement
(the "Waived Existing Balance").
3. Split-Dollar Agreement.
The Company agrees to enter into the Split-Dollar Agreement attached as
Exhibit A to this Agreement. The Company agrees to pay the first ten
(10) annual premium payments of Ninety Thousand One Hundred Twenty-one
and 60/100 Dollars ($90,121.60) pursuant to Section 3 of the
Split-Dollar Agreement.
4. Payments Upon Death of Executive and Executive's Wife.
a. In the event of the death of the survivor of the Executive and
Kathleen V. Hay (the "Executive's wife") prior to the repayment to the
Company under Section 5 of the Split-Dollar Agreement, the Company will
pay to the beneficiary designated pursuant to Section 4.b or 4.c of this
Agreement the amount (if any) by which the Present Value of the
Executive's Waived Deferred Compensation Plan Rights exceeds the net
Present Value of the Company's premium payments under Section 3 of the
Split-Dollar Agreement (as recovered under Section 5 of the Split-Dollar
Agreement). These calculations shall be made based on the assumptions
set forth in Exhibit B to this Agreement. The death benefits based on
the Waived Deferred Compensation Plan Rights are shown in column 11 of
Exhibit B to this Agreement.
b. The Executive may designate a beneficiary or beneficiaries
who, upon the death of the survivor of the Executive and the Executive's
wife are to receive the amounts that are paid under Section 4.a of this
Agreement. All designations shall be in writing to the Company in such
form as it requires or accepts and signed by the Executive. The
designation shall be effective only if and when delivered to the Company
during the lifetime of the Executive. The Executive also may change his
beneficiary or beneficiaries by a signed, written instrument delivered
to the Company. The payment of amounts shall be in accordance with the
last unrevoked written designation of beneficiary that has been signed
and delivered to the Company.
c. In the event the Executive does not designate a beneficiary or
if for any reason such designation is ineffective, in whole or in part,
for any reason including the death of a beneficiary prior to the death
of the survivor of the Executive and the Executive's wife, any amount
payable under Section 4.a of this Agreement shall be paid to the estate
of the survivor of the Executive and the Executive's wife, and in such
event, the term "beneficiary" shall include such estate.
-2-
<PAGE>
5. Equivalence of Benefits.
The Company and the Executive agree that the net Present Value of the
Company's premium payment obligation under Section 3 of the Split-Dollar
Agreement (as recovered under Section 5 of the Split-Dollar Agreement)
plus the net Present Value of any death benefit required to be paid
under Section 4 of this Agreement are equivalent to the Present Value of
the Executive's Waived Deferred Compensation Plan Rights based on the
assumptions set forth in Exhibit B to this Agreement.
6. Funding Upon a Change of Control.
a. In the event that a Change of Control of the Company occurs,
the Company shall immediately transfer to an irrevocable grantor trust
established by the Company which is substantially identical to the trust
attached as Exhibit C to this Agreement and contains such other
supplemental provisions as are required by the trustee which are not
inconsistent with Exhibit C (the "Trust") an amount equal to (i) the
aggregate unpaid premiums required to be paid by the Company under
Section 3 of this Agreement plus (ii) an additional amount equal to the
death benefit required to be paid under Section 4.a of this Agreement if
the survivor of the Executive and the Executive's wife dies in the year
in which the Company's final premium payment is due.
b. The Trust is an administrative and funding vehicle for the
Company's general assets contributed to the Trust for the purpose of
ultimately satisfying obligations under this Agreement. In the event
that the Company transfers assets to the Trust for the express purpose
of ultimately satisfying its obligations under this Agreement then,
subject to the terms of the Trust and limited by assets available and
held by the Trustees of the Trust for the purpose of funding the
benefits provided by this Agreement, payments may be made from such
Trust in satisfaction of Company's obligations hereunder. The transfer
of assets by the Company to the Trust for this purpose shall not
increase, decrease or vary in any way the rights and obligations of the
parties to this Agreement, nor shall the Executive, the Executive's wife
or the owner of the insurance policy held pursuant to the Split-Dollar
Agreement have any ownership rights with respect to such assets nor
shall the assets be treated as a trust fund of any kind for the benefit
of any such person; provided that as and when any such person is
entitled to receive payments hereunder, such person may, subject to the
terms of the Trust and limited by the terms of this Agreement, obtain
such payments from the Trust. The Executive, the Executive's wife or the
owner of the insurance policy held pursuant to the Split-Dollar
Agreement may enforce and obtain satisfaction of such payment rights
against the assets held by the Trust for the purpose of satisfying such
obligations of the Company.
7. Successors and Binding Agreements.
a. The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation, reorganization or
otherwise) to all or substantially all
-3-
<PAGE>
of the business and/or assets of the Company expressly to assume and to
agree to perform this Agreement in the same manner and to the same
extent the Company would be required to perform if no succession had
taken place. This Agreement shall be binding upon and inure to the
benefit of the Company and any such successor, and such successor shall
thereafter be deemed the "Company" for purposes of this Agreement.
b. This Agreement shall inure to the benefit of and be
enforceable by the Executive's respective personal or legal
representative, executor, administrator, successor, heirs, distributees
and/or legatees.
c. Neither the Company nor the Executive may assign, transfer or
delegate this Agreement or any rights or obligations hereunder except as
expressly provided in this Agreement.
8. Notices.
All communications provided for herein shall be in writing and shall be
deemed to have been duly given when delivered or five (5) business days
after having been mailed by United States registered or certified mail,
return receipt requested, postage prepaid, addressed to the Company (to
the attention of the Secretary of the Company) at its principal
executive office and to the Executive at his principal residence, or to
such other address as any party may have furnished to the other in
writing in accordance herewith, except that notices of a change of
address shall be effective only upon receipt.
9. Governing Law.
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Wisconsin
without giving effect to the principles of conflict of laws of such
state, except that Section 10 shall be construed in accordance with the
Federal Arbitration Act if arbitration is chosen as the method of
resolution.
10. Settlement of Disputes; Arbitration.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled, at the election of the Executive, the
Executive's wife or the owner of the insurance policy held pursuant to
the Split-Dollar Agreement, either by arbitration in Chicago, Illinois
in accordance with the rules of the American Arbitration Association
then in effect or by litigation. Judgment may be entered on the
arbitrator's award in any court having jurisdiction.
11. Certain Limitations.
Nothing in this Agreement shall grant the Executive any right to remain
an executive, director or employee of the Company or of any its
subsidiaries for any period of time.
-4-
<PAGE>
12. Miscellaneous.
a. Expenses. All costs and expenses of administering this
Agreement shall be borne by the Company.
b. Action by the Company. Any action required or permitted to be
taken under this Agreement by the Company shall be by resolution of the
Board of Directors, by the duly authorized Committee of the Board of
Directors, or by a person or persons authorized by resolution of the
Board of Directors or the Committee.
IN WITNESS WHEREOF the parties have signed and sealed this
Agreement as of the date first above written.
In the presence of SNAP-ON INCORPORATED
/s/ By /s/ Michael F. Montemurro
Its Senior Vice President -
Transportation
/s/ /s/ Frederick D. Hay
Frederick D. Hay
-5-
<PAGE>
EXHIBIT A
SNAP-ON INCORPORATED
SPLIT-DOLLAR INSURANCE AGREEMENT
1. This Agreement is entered into this 27th day of September, 1999, by
and between SNAP-ON INCORPORATED, a Delaware corporation, and the HAY 1999
INSURANCE TRUST.
2. Definitions.
(a) "Company" means Snap-on Incorporated, a Delaware corporation, with
offices in Kenosha, Wisconsin.
(b) "Insureds" means Frederick D. and Kathleen V. Hay.
(c) "Insurer" means Northwestern Mutual Life.
(d) "Owner" means the Hay 1999 Insurance Trust, who may or may not be the
same person as the Insureds.
(e) "Policy" means the policy or policies of insurance on the lives of
the Insureds issued by the Insurer and listed on Schedule "A" attached hereto
together with any supplementary contracts issued by the Insurer in conjunction
therewith
(f) "Policy Interest" means the interest of the Company in the Policy.
Policy Interest is an amount equal to the aggregate premiums paid by the
Company. The existence of the Company's Policy Interest shall be evidenced by
filing with the Insurer an assignment in substantially the form attached hereto
as Schedule "B."
3. Premium Payments.
(a) The Company agrees to pay up to the first ten (10) annual premium
payments of Ninety Thousand One Hundred Twenty-one and 60/100 Dollars
($90,121.60) as they become due. The Owner shall be responsible for paying all
premium payments not paid by the Company.
(b) Policy dividends shall be applied to purchase paid-up additional
insurance protection.
4. Policy Ownership.
(a) Except as provided in subparagraph (b), the Owner shall be the sole
and exclusive owner of the Policy. This includes all the rights of "owner" under
the terms of the Policy except as otherwise provided in this Section 4,
including but not limited to the right to designate beneficiaries and select
settlement options.
(b) Neither the Owner nor the Company shall have the right to obtain a
cash loan from the Insurer in accordance with the loan provisions of the Policy.
<PAGE>
(c) In exchange for the Company's payment of its premium contribution
under Section 3, the Owner shall assign to the Company the following limited
ownership rights in the Policy:
(1) The right to recover its Policy Interest from the cash
value of the Policy in the event of the termination of this
Agreement as provided in Section 5.
(2) The right to recover its Policy Interest from the proceeds
of the Policy in the event of the death of the survivor of
the Insureds.
(d) To secure the Company's interest in the Policy the Owner shall
execute an Assignment of the Policy to the Company in substantially the form
attached hereto as Schedule B.
(e) It is agreed that benefits will be paid under the Policy by the
Insurer only by separate checks to the parties entitled thereto.
5. Termination of Plan.
(a) This Agreement may be terminated by the Owner by giving notice in
writing to the Company. In the event of termination of this Agreement the Owner
shall, at its election:
(1) Repay to the Company within 60 days of the date of
termination an amount equal to the Company's Policy
Interest. Or,
(2) Execute any and all instruments that may be required to
vest ownership of the Policy in the Company; and the
Company shall refund to Owner that part of any payment by
the Owner under Section 3 for the premium payment period in
which termination occurred representing the unexpired
portion of that period. Thereafter, Owner shall have no
further interest in the Policy.
(b) This Plan shall terminate on the sixteenth anniversary of the
issuance of the Policy.
6. The Insurer shall be bound only by the provisions of and endorsements
on the Policy, and any payments made or action taken by it in accordance
therewith shall fully discharge it from all claims, suits and demands of all
persons whatsoever. It shall in no way be bound by or be deemed to have notice
of the provisions of this Agreement.
7. The Company and the Owner may amend this Agreement. Such amendment
shall be in writing and signed by the Company and Owner.
-2-
<PAGE>
8. This Agreement shall bind and inure to the benefit of the Company and
its successors and assigns; Owner and his/her heirs, executors, administrators
and assigns; and any Policy beneficiary.
IN WITNESS WHEREOF the parties have signed and sealed this Agreement on
the date first above written.
In the presence of SNAP-ON INCORPORATED
/s/ By /s/ Michael F. Montemurro
/s/ Its Senior Vice President - Transportation
OWNER
HAY 1999 INSURANCE TRUST
/s/ Donald W. Hay
Donald W. Hay, Trustee
-3-
<PAGE>
SCHEDULE A
LIFE INSURANCE
Initial Face Insureds' Initial
Policy Number Amount Economic Benefit
15173092 $1,600,000 $701
<PAGE>
SCHEDULE B
COLLATERAL ASSIGNMENT FORM
SNAP-ON INCORPORATED SPLIT-DOLLAR INSURANCE PLAN
Insurer: Northwestern Mutual Life
Insureds: Frederick D. and Kathleen V. Hay
Policy No. 15173092
FOR VALUE RECEIVED, THIS ASSIGNMENT is made by the undersigned Owner
effective this 27th day of September, 1999.
1. Definitions.
(a) "Assignee" means Snap-on Incorporated, a Delaware corporation, of
Kenosha, Wisconsin.
(b) "Insureds" means Frederick D. and Kathleen V. Hay.
(c) "Insurer" means Northwestern Mutual Life.
(d) "Owner" means the Hay 1999 Insurance Trust.
(e) "Policy" means the following policy or policies of insurance issued
by the Insurer on the lives of the Insureds, together with any supplementary
contracts issued in conjunction therewith:
Policy Number: 15173092 Face Amount: $1,600,000
(f) "Policy Interest" means the Assignee's "Policy Interest" as set forth
in the Split-Dollar Plan. The Insurer shall be entitled to rely on the
Assignee's certification of the amount of its Policy Interest.
(g) "Split-Dollar Plan" means that certain plan of even date herewith,
between the Owner and the Assignee. The Insurer is not bound by nor deemed to
have notice of the provisions of the Split-Dollar Plan.
2. Introduction. Under the Split-Dollar Plan, the Assignee has agreed to
assist the Owner in payment of premiums on the Policy. In consideration of such
premium payments by the Assignee, the Owner grants herein to the Assignee
certain limited interests in the Policy.
3. Assignment. The Owner hereby assigns, transfers and sets over to the
Assignee, its successors and assigns, the following specific rights in the
Policy and subject to the following terms and conditions:
<PAGE>
(a) The right to recover its Policy Interest from the cash value of the
Policy in the event of the Policy's surrender by the Owner.
(b) The right to recover its Policy Interest from the proceeds of the
Policy in the event of the death of the survivor of the Insureds.
4. Insurer. The Insurer is hereby authorized to recognize, and is fully
protected in recognizing:
(a) The claims of the Assignee to rights hereunder, without investigating
the reasons for such action by the Assignee, or the validity or the amount of
such claims.
(b) The Owner's request for surrender of the Policy with or without the
consent of the Assignee. Upon surrender, the Policy shall be terminated and of
no further force or effect.
5. Release of Assignment. Upon payment to the Assignee of its policy
interest, the Assignee shall execute a written release of this assignment.
IN WITNESS WHEREOF the Owner has executed this assignment on the date
first above written.
HAY 1999 INSURANCE TRUST
Donald W. Hay, Trustee
-2-
<PAGE>
<TABLE>
EXHIBIT B
Male Age 55/Female Age 54 CORPORATE SUMMARY
- -------------------------------------------------------------------------------------------------------------------------
FREDERICK AND KATHLEEN HAY
CALCULATION OF NET PRESENT VALUE OF CORPORATE CASH FLOWS
September, 1999
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Corporate Cost of Deferral
--------------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5) (6)
63%(3) 63%(2) NPV Sum(4)
+NPV(5)
End of Net A/T
Year Annual Payment Death Net
Annual Account ----------------------------- Benefit Present
Yr. Age Deferral Balance Gross Net A/T Payable Value
- ------- ------- -------------- -------------- ------------ --------------- --------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 55 200,000 218,000 0 0 137,340 132,338
2 56 0 237,620 0 0 149,701 138,994
3 57 0 259,006 0 0 163,174 145,985
4 58 0 282,316 0 0 177,859 153,328
5 59 0 307,725 0 0 193,867 161,040
6 60 0 335,420 0 0 211,315 169,140
7 61 0 365,608 0 0 230,333 177,648
8 62 0 398,513 0 0 251,063 186,583
9 63 0 434,379 0 0 273,659 195,968
10 64 0 473,473 0 0 298,288 205,825
11 65 0 442,309 67,685 42,642 278,654 214,698
12 66 0 408,340 67,685 42,642 257,254 222,591
13 67 0 371,314 67,685 42,642 233,928 229,507
14 68 0 330,956 67,685 42,642 208,502 235,447
15 69 0 286,965 67,685 42,642 180,788 240,409
16 70 0 239,015 67,685 42,642 150,580 244,392
17 71 0 186,750 67,685 42,642 117,653 247,391
18 72 0 129,781 67,685 42,642 81,762 249,399
19 73 0 67,685 67,685 42,642 42,642 250,408
------------------
20 74 0 0 67,685 42,642 0 250,408
-------------- ============ --------------- ------------------
200,000 676,849 426,415
============== ============ ===============
<CAPTION>
Corporate Cost of Life Insurance Survivor Benefit
- --------------------------------------------------------- ------------------------------------
(7) (8) (9) (10) (11)
Sum(7) NPV Sum(7) (6)-(9) (10)/63%
+NPV(8) Net A/T
Corp. Values
Scheduled Premium Net in Excess of Lump
Premium Recovery Present Waived Sum
Outlay At Death Value Compensation Payable
- ------------------ ----------------- ----------------- --------------------- -------------
<S> <C> <C> <C> <C>
90,121 (90,121) 3,282 129,055 204,849
90,121 (180,241) 9,608 129,386 205,374
90,121 (270,362) 18,751 127,234 201,958
90,121 (360,482) 30,498 122,830 194,968
90,121 (450,603) 44,647 116,393 184,751
90,121 (540,724) 61,007 108,133 171,640
90,121 (630,844) 79,399 98,249 155,951
90,121 (720,965) 99,652 86,931 137,986
90,121 (811,085) 121,607 74,361 118,034
90,121 (901,206) 145,113 60,712 96,369
0 (901,206) 167,763 46,935 74,500
0 (901,206) 189,588 33,003 52,386
0 (901,206) 210,618 18,889 29,983
0 (901,206) 230,882 4,565 7,246
0 (901,206) 250,408 (9,998) (15,870)
(901,206) 0 250,408 (6,016) (9,549)
0 0 250,408 (3,017) (4,789)
0 0 250,408 (1,009) (1,602)
0 0 250,408 0 0
-----------------
0 0 250,408 0 0
-----------------
- ----------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Assumptions
Years to Defer 1 Interest Crediting Rate 9%
Deferral 200,000 NPV Interest Rate 6%
Years Before Pymts Begin 10 Year to Roll-Out 15
Tax Rate 37%
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT C
SNAP-ON INCORPORATED INSURANCE BENEFIT TRUST
(Established pursuant to the Deferred Compensation Waiver and
Insurance Benefit Agreement dated September 27, 1999, between
Snap-on Incorporated and Frederick D. Hay)
(a) This Agreement made this 27th day of September, 1999, by and between
SNAP-ON INCORPORATED, a Delaware Corporation (the "Company") and THE NORTHERN
TRUST COMPANY ("Trustee");
(b) WHEREAS, Company has entered into a Deferred Compensation Waiver And
Insurance Benefit Agreement with Frederick D. Hay dated September 27, 1999 (the
"Plan").
(c) WHEREAS, Company has incurred liability under the terms of such Plan.
(d) WHEREAS, Company wishes to establish a trust (hereinafter called
"Trust") and to contribute to the Trust assets that shall be held therein,
subject to the claims of Company's Insolvency, as herein defined, until used to
pay insurance premiums as required by Section 3 of the Plan or used to pay a
death benefit as required by Section 4 of the Plan;
(e) WHEREAS, all payments made pursuant to the Plan are made to or for
the benefit of Frederick D. Hay, Kathleen V. Hay, the Hay 1999 Insurance Trust,
the beneficiary designated by Frederick D. Hay pursuant to Section 4 of the Plan
or the estate of the survivor of Frederick D. Hay and Kathleen V. Hay (the "Plan
Beneficiaries");
(f) WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plan
as an unfunded plan for purposes of Title I of the Employee Retirement Income
Security Act of 1974;
(g) WHEREAS, it is the intention of Company to make contributions to the
Trust to provide itself with a source of funds to assist it in the meeting of
its liabilities under the Plan;
NOW, THEREFORE, the parties do hereby establish the Trust and agree that
the Trust shall be comprised, held and disposed of as follows:
Section 1. Establishment of Trust.
(a) Company hereby deposits with Trustee in trust One Hundred Dollars
($100.00) which shall become the principal of the Trust to be held, administered
and disposed of by the Trustee as provided in this Trust Agreement.
(b) The Trust hereby established is revocable by Company; it shall become
irrevocable upon a Change of Control, as defined herein.
<PAGE>
(c) The Trust is intended to be a grantor trust, of which Company is the
grantor, within the meaning of subpart E, part I, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
(d) Company shall have the right at any time, and from time to time in
its sole discretion, to substitute assets of equal fair market value for any
asset held by the Trust. This right is exercisable by Company in a nonfiduciary
capacity without the approval or consent of any person in a fiduciary capacity.
(e) The principal of the Trust, and any earnings thereon, shall be held
separate and apart from other funds of Company and shall be used exclusively for
the uses and purposes of the Plan and general creditors as herein set forth.
(f) No Plan Beneficiary shall have any preferred claim on, or any
beneficial ownership interest in, any asset of the Trust. Any rights created
under the Plan and this Trust Agreement shall be mere unsecured contractual
rights of the Plan Beneficiaries against Company. Any assets held by the Trust
will be subject to the claims of Company's general creditors under federal and
state law in the event of Insolvency, as defined in Section 3(a) herein.
(g) Upon a Change of Control, Company shall immediately make an
irrevocable contribution to the Trust as required by Section 5 of the Plan. The
Trustee shall have no duty to enforce any funding obligations of the Company and
the duties of the Trustee shall be governed solely by the terms of this Trust
Agreement.
Section 2. Payments Under the Plan.
(a) Upon a Change of Control, Company shall deliver to Trustee a schedule
(the "Payment Schedule") that directs the Trustee regarding the amounts payable
under the Plan, the form in which such amounts are to be paid, and the dates on
which such amounts are payable. Except as otherwise provided herein, the Trustee
shall make payments in accordance with such Payment Schedule. The Company shall
have the sole responsibility for all tax withholding, related filings and
reports. The Trustee shall withhold for taxes such amounts from distributions as
the Company directs and shall follow the instructions of the Company with
respect to the remission of such withheld amounts to the appropriate
governmental authorities.
(b) Company may make payments directly as they become due under the terms
of the Plan. Company shall notify Trustee of its decision to make payments
directly prior to the time amounts are payable under the Plan. In addition, if
the principal of the Trust, and any earnings thereon, are not sufficient to make
payments in accordance with the terms of the Plan, Company shall make the
balance of each such payment as it falls due. Trustee shall notify Company where
principal and earnings are not sufficient.
(c) The entitlement of Plan Beneficiaries to benefits under the Plan
shall be determined under the Plan, and any claim for such benefits shall be
considered and reviewed under the procedure set out in the Plan.
-2-
<PAGE>
Section 3. Trustee Responsibility Regarding Payments When Company is
Insolvent.
(a) Trustee shall cease payments under the Plan if the Company is
Insolvent. Company shall be considered "Insolvent" for purposes of this Trust
Agreement if (i) Company is unable to pay its debts as they become due, or (ii)
Company is subject to a pending proceeding as a debtor under the United States
Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided in
Sections 1(e) and 1(f) hereof, the principal and income of the Trust shall be
subject to claims of general creditors of Company under federal and state law as
set forth below.
(1) The Board of Directors and the Chief Executive Officer of
Company shall have the duty to inform Trustee in writing of Company's
Insolvency. If a person claiming to be a creditor of Company alleges in
writing to Trustee that Company has become Insolvent, Trustee shall
determine whether Company is Insolvent and, pending such determination,
Trustee shall discontinue payment of benefits under the Plan.
(2) Unless Trustee has actual knowledge of Company's Insolvency,
or has received notice from Company or a person claiming to be a creditor
alleging that Company is Insolvent, Trustee shall have no duty to inquire
whether Company is Insolvent. Trustee may in all events rely on such
evidence concerning Company's solvency as may be furnished to Trustee and
that provides Trustee with a reasonable basis for making a determination
concerning Company's solvency. In no event shall "actual knowledge" be
deemed to include knowledge of Company's credit status held by banking
officers or banking employees of The Northern Trust Company which has not
been communicated to the Trust Department of Trustee. The Trustee may
appoint an independent accounting, consulting or law firm to make any
determination of solvency required by Trustee under this Section 3. In
such event, Trustee may conclusively rely upon the determination by such
firm and shall be responsible only for the prudent selection of such
firm.
(3) If at any time Trustee has determined that Company is
Insolvent, Trustee shall discontinue payments under the Plan and shall
hold the assets of the Trust for the benefit of Company's general
creditors. Nothing in this Trust Agreement shall in any way diminish any
rights as general creditors of Company with respect to benefits due under
the Plan or otherwise.
(4) Trustee shall resume the payments under the Plan in accordance
with Section 2 of this Trust Agreement only after Trustee has determined
that Company is not Insolvent (or is no longer Insolvent).
(c) Provided that there are sufficient assets, if Trustee discontinues
the payments from the Trust pursuant to Section 3(b) hereof and subsequently
resumes such payments, the first payment following such discontinuance shall
include the aggregate amount of all payments due under the terms of the Plan for
the period of such discontinuance, less the aggregate amount of any payments
made by Company in lieu of the payments provided for
-3-
<PAGE>
hereunder during any such period of discontinuance, all in accordance with the
Payment Schedule. The Payment Schedule may only be modified by the Company with
the written consent of all Plan Beneficiaries as necessary to comply with the
provisions of this paragraph. The Company shall be responsible for securing the
written consent of all Plan Beneficiaries and providing such consents to the
Trustee.
Section 4. Payments to Company.
Except as provided in Section 3 hereof, after the Trust has become
irrevocable, Company shall have no right or power to direct Trustee to return to
Company or to divert to others any of the Trust assets before all payments of
benefits have been made pursuant to the terms of the Plan. The Trustee shall be
entitled to rely on the written representations of the Company and all Plan
Beneficiaries that all such payments have been made. The Company shall be
responsible for securing the written representations of all Plan Beneficiaries
and providing such representations to the Trustee.
Section 5. Disposition of Income.
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
Section 6. Accounting by Trustee.
Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions required to be made,
including such specific records as shall be agreed upon in writing between
Company and Trustee, which records may be audited annually (or at such other
times as agreed by the Company and the Trustee) by the Company or anyone named
by the Company. Within thirty (30) days following the close of each calendar
year and within thirty (30) days after the resignation of Trustee, Trustee shall
deliver to Company a written account of its administration of the Trust during
such year or during the period from the close of the last preceding year to the
date of such resignation, setting forth all investments, receipts, disbursements
and other transactions effected by it, including a description of all securities
and investments purchased and sold with the cost or net proceeds of such
purchases or sales (accrued interest paid or receivable being shown separately),
and showing all cash, securities and other property held in the Trust at the end
of such year or as of the date of such resignation, as the case may be. In the
absence of the filing in writing with the Trustee by the Company of exceptions
or objections to any such account within ninety (90) days, the Company shall be
deemed to have approved such account; in such case, or upon the written approval
by the Company of any such account, the Trustee shall be released, relieved and
discharged with respect to all matters and things set forth in such account as
though such account had been settled by the decree of a court of competent
jurisdiction. The Trustee may conclusively rely on determinations of the Company
of valuations for assets of the Trust for which the Trustee deems there to be no
readily determinable fair market value and on the determination of the issuer of
any insurance contracts with respect to the fair market value of such insurance
contracts.
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<PAGE>
Section 7. Responsibility of Trustee.
(a) Trustee shall act with the care, skill, prudence, and diligence under
the circumstances then prevailing that a prudent person acting in like capacity
and familiar with such matters would use in the conduct of an enterprise of a
like character and with like aims; provided, however, that Trustee shall incur
no liability to any person for any action taken pursuant to a direction, request
or approval given by Company which is contemplated by, and in conformity with,
the terms of this Trust and is given in writing by Company. In the event of a
dispute between Company and a party, Trustee may apply to a court of competent
jurisdiction to resolve the dispute.
(b) If Trustee undertakes or defends any litigation arising in connection
with this Trust, Company agrees to indemnify Trustee against Trustee's costs,
expenses and liabilities (including, without limitation, attorneys' fees and
expenses) relating thereto and to be primarily liable for such payments. If
Company does not pay such costs, expenses and liabilities in a reasonably timely
manner, Trustee may obtain payment from the Trust.
(c) Trustee may consult with legal counsel (who may also be counsel for
Company generally) with respect to any of its duties or obligations hereunder.
(d) Trustee shall have, without exclusion, all powers conferred on
Trustees by applicable law, unless expressly provided otherwise herein.
(e) Notwithstanding any powers granted to Trustee pursuant to this Trust
Agreement or to applicable law, Trustee shall not have any power that could give
this Trust the objective of carrying on a business and dividing the gains
therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
(f) To invest and reinvest part or all of the trust fund in any real or
personal property (including investments in any stocks, bonds, debentures,
mutual fund shares (including those for which the Trustee or its affiliate is
advisor), notes, commercial paper, treasury bills, options, commodities, futures
contracts, partnership interests, venture capital investments, any interest
bearing deposits held by any bank or similar financial institution, and any
other real or personal property) and to diversify such investments so as to
minimize the risk of large losses unless under the circumstances it is clearly
prudent not to do so; except that the Company may from time to time establish
investment guidelines and the trustee shall follow such investment guidelines.
(g) To retain in cash such amounts as the trustee considers advisable and
as are permitted by applicable law and to deposit any cash so retained in any
depository (including any bank acting as trustee) which the trustee may select.
(h) To manage, sell, insure and otherwise deal with all real and personal
property held by the trustee on such terms and conditions as the trustee shall
decide.
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(i) To vote stock and other voting securities personally or by proxy (and
to delegate the trustee's powers and discretions with respect to such stock or
other voting securities to such proxy), to exercise subscription, conversion and
other rights and options (and make payments from the trust fund in connection
therewith), to take any action and to abstain from taking any action with
respect to any reorganization, consolidation, merger, dissolution,
recapitalization, refinancing and any other program or change affecting any
property constituting a part of the trust fund (and in connection therewith to
delegate the trustee's discretionary powers and to pay assessments,
subscriptions and other charges from the trust fund), to hold or register any
property from time to time in the trustee's name or in the name of a nominee or
to hold it unregistered or in such form that title shall pass by delivery and,
with the approval of the Company, to borrow from anyone, including any bank
acting as trustee, to the extent permitted by law, such amounts from time to
time as the trustee considers desirable to carry out this trust (and to mortgage
or pledge all or part of the trust fund as security).
(j) To make payments from the trust fund of amounts that have become
payable under the Plan pursuant to Section 2 to the extent not already paid by
the Company or that are required to be made to the creditors of the Company
pursuant to Section 3.
(k) To employ counsel and to begin, maintain or defend any litigation
necessary in connection with the administration of this trust except that,
unless otherwise required by law, the trustee shall not be obliged or required
to do so unless indemnified to the trustee's satisfaction. (l) To withhold, if
the trustee considers it advisable, all or any part of any payment required to
be made hereunder as may be necessary and proper to protect the trustee or the
trust fund against any liability or claim on account of any estate, inheritance,
income or other tax or assessment attributable to any amount payable hereunder,
and to discharge any such liability with any part or all of such payment so
withheld, provided that at least ten days prior to discharging any such
liability with any amount so withheld the trustee shall notify the Company in
writing of the trustee's intent to do so.
(m) The Company (which has the authority to do so under the laws of its
state of incorporation) shall indemnify the Trustee and defend it and hold it
harmless from and against any and all liabilities, losses, claims, suits or
expenses (including attorneys' fees), of whatsoever kind and nature which may be
imposed upon, asserted against or incurred by the Trustee at any time by reason
of its provision of services under this Trust Agreement, its status as Trustee,
or by reason of any act or failure to act under this Trust Agreement, or any
action taken in accordance with any directions which conform with the terms of
this Trust Agreement, or acts omitted due to absence of such directions, from
the Company, except to the extent, such liability, loss, claim, suit or expense
arises directly from the Trustee's negligence or willful misconduct in the
performance of responsibilities specifically allocated to it under this Trust
Agreement. This paragraph shall survive the termination of the Trust Agreement.
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(n) To furnish the Company with such information in the trustee's
possession as the Company may need for tax or other purposes.
(o) To employ agents, attorneys, accountants, actuaries and other persons
(who also may be employed by the Company, the Company or others), to delegate
discretionary powers to such persons and to reasonably rely upon information and
advice furnished by such persons; provided that each such delegation and the
acceptance thereof by each such person shall be in writing; and provided further
that the trustee may not delegate its responsibilities as to the management or
control of the assets of the trust fund.
(p) To perform all other acts which in the trustee's judgment are
appropriate for the proper management, investment and distribution of the trust
fund.
(q) The trustee may invest any part or all of the trust assets for which
it has investment responsibility in any common, collective or commingled trust
fund or pooled investment fund that is maintained by a bank or trust company
(including a bank or trust company acting as trustee) provided such investments
are consistent with applicable investment requirements and guidelines. To the
extent that any trust assets are invested in any such fund, the provisions of
the documents under which such common, collective or commingled trust fund or
pooled investment fund are maintained shall govern any investments therein.
Section 8. Compensation and Expenses of Trustee.
Company shall pay all administrative and Trustee's fees and expenses. If
not so paid, the fees and expenses shall be paid from the Trust.
Section 9. Resignation of Trustee.
(a) Trustee may resign at any time by written notice to Company, which
shall be effective thirty (30) days after receipt of such notice unless Company
and Trustee agree otherwise.
(b) The Trustee may not be removed by Company.
(c) Upon resignation of Trustee and appointment of a successor Trustee,
all assets shall subsequently be transferred to the successor Trustee. The
transfer shall be completed within thirty (30) days after receipt of notice of
resignation or transfer, unless Company extends the time limit. The Company's
consent to the extension of time for the transfer of trust assets shall not be
unreasonably withheld.
(d) If Trustee resigns, a successor shall be appointed, in accordance
with Section 10(a) hereof, by the effective date of the resignation under
Section 9(a). If no such appointment has been made, Trustee may apply to a court
of competent jurisdiction for appointment of a successor or for instructions.
All expenses of Trustee in connection with the proceeding shall be allowed as
administrative expenses of the Trust.
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Section 10. Appointment of Successor.
(a) If Trustee resigns a successor Trustee shall be appointed by the
written consent of the Company and all Plan Beneficiaries. The Company shall be
responsible for securing the written consent of all Plan Beneficiaries and
providing such consents to the former Trustee and the new Trustee. Any third
party such as a bank trust department or other party that may be granted
corporate trustee powers under state law may be appointed successor Trustee. The
appointment of a successor Trustee shall be effective when accepted in writing
by the new Trustee. The new Trustee shall have all the rights and powers of the
former Trustee, including ownership rights in Trust assets. The former Trustee
shall execute any instrument necessary or reasonably requested by the successor
Trustee to evidence the transfer.
(b) The successor Trustee need not examine the records and acts of any
prior Trustee and may retain or dispose of existing Trust assets, subject to
Sections 6 and 7 hereof. The successor Trustee shall not be responsible for and
Company shall indemnify and defend the successor Trustee from any claim or
liability resulting from any action or inaction of any prior Trustee or from any
other past event, or any condition existing at the time it becomes successor
Trustee.
Section 11. Amendment or Termination.
(a) This Trust Agreement may be amended by a written instrument executed
by Trustee and the Company. Notwithstanding the foregoing, no such amendment
shall conflict with the terms of the Plan or shall make the Trust revocable
after it has become irrevocable in accordance with Section 1(b) hereof. The
Trustee be shall entitled to rely upon the written determination and
representation of the Company and all Plan Beneficiaries that such amendment
does not conflict with the terms of the Plan. The Company shall be responsible
for securing the written determination of all Plan Beneficiaries and providing
such determinations to the Trustee.
(b) The Trust shall not terminate until the date on which no one is
entitled to payments pursuant to the terms of the Plan unless sooner revoked in
accordance with Section 1(b) hereof. Upon termination of the Trust any assets
remaining in the Trust shall be returned to Company. The Trustee shall be
entitled to rely upon the written determination and representation of the
Company and the Plan Beneficiaries as to such non-entitlement. The Company shall
be responsible for securing the written determination of all Plan Beneficiaries
and providing such determinations to the Trustee.
(c) Upon written approval of all Plan Beneficiaries the Company may
terminate this Trust prior to the time all benefit payments under the Plan have
been made. All assets in the Trust at termination shall be returned to Company.
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Section 12. Miscellaneous.
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Amounts payable under this Trust Agreement may not be anticipated,
assigned (either at law or in equity), alienated, pledged, encumbered or
subjected to attachment, garnishment, levy, execution or other legal or
equitable process.
(c) This Trust Agreement shall be governed by and construed in accordance
with the laws of Wisconsin.
(d) For purposes of this Trust, Change of Control shall have the meaning
given it in Section 1.c. of the Restated Senior Officer Agreement between the
Company and Frederick D. Hay dated January 29, 1996. The Company shall
immediately notify the Trustee of any Change of Control. The Trustee may
conclusively rely upon such notice and shall have no duty to determine whether a
Change of Control has occurred.
(e) Where written approval, consent, determination or other communication
is required of or by the Plan Beneficiaries under any provision of this Trust
Agreement, the Company shall certify to the Trustee that the responding Plan
Beneficiaries are all of the Plan Beneficiaries under the terms of the Plan and
this Trust Agreement at that time, and the Trustee may rely on such
certification.
Section 13. Effective Date.
The effective date of this Trust Agreement shall be the date written
above.
In the presence of SNAP-ON INCORPORATED
By
Its
THE NORTHERN TRUST COMPANY, Trustee
By
Its
9
Amended and Restated
Snap-on Incorporated
Directors' 1993 Fee Plan
(as amended through October 22, 1999)
1. Purpose. The Amended and Restated Snap-on Incorporated Directors'
1993 Fee Plan (the "Plan") is intended to provide an incentive to members of the
Board of Directors (the "Board") of Snap-on Incorporated, a Delaware corporation
(the "Company"), who are not employees of the Company ("Directors"), to remain
in the service of the Company and increase their efforts for the success of the
Company and to encourage such Directors to own shares of the Company's stock or
participate in a Company phantom stock account, thereby aligning their interests
more closely with the interests of stockholders.
2. Definitions.
(a) "Board" means the Board of Directors of the Company.
(b) "Committee" means a committee consisting of members of the
Board authorized to administer the Plan.
(c) "Common Stock" means the common stock, par value $1.00 per
share, of the Company.
(d) "Deferral Election" means an election pursuant to Section 6
hereof to defer receipt of Fees and/or shares of Common Stock which would
otherwise be received pursuant to Minimum Grants and Elective Grants.
(e) "Deferred Amounts" mean the amounts credited to a Director's
Share Account or Cash Account pursuant to a Deferral Election.
(f) "Director" means a member of the Board or an appointed
Director Emeritus, who is not an employee of the Company.
(g) "Elective Grants" shall have the meaning set forth in Section
5(b) hereof.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(i) "Fair Market Value" means the closing price of the Common
Stock on the New York Stock Exchange on any particular date; provided, however,
that for purposes of Section 8, Fair Market Value shall mean the closing price
of Common Stock on the New York Stock Exchange on the date of the Change of
Control (as defined therein) or, if higher, the highest price per share of
Common Stock paid in the transaction giving rise to the Change of Control.
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(j) "Fees" mean the annual retainer scheduled to be paid to a
Director for the calendar year plus any additional fees (including meeting and
committee fees) earned by a Director for his or her services on the Board during
the calendar year.
(k) "Grants" mean Minimum Grants and Elective Grants.
(l) "Minimum Grants" shall have the meaning set forth in Section
5(a) hereof.
(m) "Share Election" shall have the meaning set forth in Section
5(b) hereof.
3. Administration of the Plan.
(a) Member of the Committee. The Plan shall be administered by the
Committee. Members of the Committee shall be appointed from time to time by the
Board, shall serve at the pleasure of the Board and may resign at any time upon
written notice to the Board.
(b) Authority of the Committee. The Committee shall adopt such
rules as it may deem appropriate in order to carry out the purpose of the Plan.
All questions of interpretation, administration, and application of the Plan
shall be determined by a majority of the members of the Committee then in
office, except that the Committee may authorize any one or more of its members,
or any officer of the Company, to execute and deliver documents on behalf of the
Committee. The determination of such majority shall be final and binding in all
matters relating to the Plan. No member of the Committee shall be liable for any
act done or omitted to be done by such member or by any other member of the
Committee in connection with the Plan, except for such member's own willful
misconduct or as expressly provided by statute.
4. Stock Reserved for the Plan. The number of shares of Common Stock
authorized for issuance under the Plan is 300,000, subject to adjustment
pursuant to Section 7 hereof. Shares of Common Stock delivered hereunder may be
either authorized but unissued shares or previously issued shares reacquired and
held by the Company.
5. Terms and Conditions of Grants.
(a) Minimum Grant. Subject to Section 5(e) hereof, each Director
shall automatically receive (subject to a Deferral Election) a number of whole
shares of Common Stock equal in value to fifty percent (50%) of his or her Fees
earned in each calendar year (the "Minimum Grants"). Such shares of Common Stock
(and cash in lieu of fractional shares) shall be transferred in accordance with
Section 5(c) hereof.
(b) Elective Grant. Subject to Section 5(e) hereof, each Director
may make an election (the "Share Election") to receive (subject to a Deferral
Election) any or all of his or her remaining Fees earned in each calendar year
in the form of Common Stock (the "Elective Grants"). The shares of Common Stock
(and cash in lieu of fractional shares) issuable pursuant to a Share Election
shall be transferred in accordance with Section 5(c) hereof. The Share
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Election (i) must be in writing and delivered to the Secretary of the Company,
(ii) shall be effective commencing on the date the Secretary receives the Share
Election or such later date as may be specified in the Share Election, and (iii)
shall remain in effect unless modified or revoked by a subsequent Share Election
in accordance with the provisions hereof.
(c) Transfer of Shares. Shares of Common Stock issuable to a
Director with respect to Minimum Grants and Elective Grants shall be transferred
to such Director as of the last business day of each calendar month. The total
number of shares of Common Stock to be so transferred (1) in respect of a
Minimum Grant, shall be determined by dividing (a) an amount equal to fifty
percent (50%) of the Director's Fees payable during the applicable calendar
month, by (b) the Fair Market Value of a share of Common Stock on the last
business day of such calendar month, and (2) in respect of an Elective Grant,
shall be determined by dividing (x) the dollar amount of the Director's Fees
payable during the applicable calendar month to which the Share Election
applies, by (y) the Fair Market Value of a share of Common Stock on the last
business day of such calendar month. In no event, shall the Company be required
to issue fractional shares. Whenever under the terms of this Section 5 a
fractional share of Common Stock would otherwise be required to be issued to a
Director, an amount in lieu thereof shall be paid in cash based upon the Fair
Market Value of such fractional share.
(d) Termination of Services. If a Director's services as a Board
member are terminated before the end of a calendar quarter, the Director shall
receive in cash the Fees such Director would otherwise have been entitled to
receive for such quarter in the absence of this Plan.
(e) Commencement of Grants. Notwithstanding anything in this Plan
to the contrary, no Grants shall be effective with respect to Fees to be paid
prior to the requisite approval of this Plan by the stockholders of the Company.
6. Deferral Election.
(a) In General. Each Director may irrevocably elect annually (a
"Deferral Election") to defer receiving all or a portion of the shares of Common
Stock (that would otherwise be transferred upon a Grant) or such Director's Fees
in respect of a calendar year that are not subject to a Grant. Deferral
Elections shall be made in multiples of ten percent. A Director who makes a
Deferral Election with respect to Grants shall have the amount of deferred
shares of Common Stock credited to a "Share Account" in the form of "Share
Units." A Director who makes a Deferral Election with respect to Fees that are
not subject to a Grant shall have the amount of Deferred Fees credited to a
"Cash Account." Collectively, the amounts deferred in a Director's Share Account
and Cash Account shall hereafter be the "Deferred Amounts."
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(b) Timing of Deferral Election. The Deferral Election shall be in
writing and delivered to the Secretary of the Company on or prior to December 31
of the calendar year immediately preceding the calendar year in which the
applicable Fees are to be earned; provided, however, that a New Director may
make a Deferral Election with respect to Fees earned subsequent to such election
during the thirty-day period immediately following the commencement of his or
her directorship. A Deferral Election, once made, shall be irrevocable for the
calendar year with respect to which it is made and shall remain in effect for
future calendar years unless modified or revoked by a subsequent Deferral
Election in accordance with the provisions hereof. A Deferral Election may be
changed only with respect to fees earned subsequent to the effective date of
such Election; provided, however, until December 31, 1999, Directors may execute
a new Deferral Election to change the payment commencement date and/or manner of
payments for previously Deferred Amounts.
(c) Cash Dividends and Share Accounts. Whenever cash dividends are
paid by the Company on outstanding Common Stock, there shall be credited to the
Director's Share Account additional Share Units equal to (i) the aggregate
dividend that would be payable on outstanding Shares of Common Stock equal to
the number of Share Units in such Share Account on the record date for the
dividend, divided by (ii) the Fair Market Value of the Common Stock on the last
trading business day immediately preceding the date of payment of the dividend.
(d) Cash Accounts. At the election of a Director, a Director's
Cash Account shall be credited or debited with (i) interest at an annual rate
equal to the sum of the daily interest earned at a rate specified by the
Committee and compounded monthly or (ii) the annual investment return relating
to such investment vehicle or vehicles that the Director chooses from those the
Committee determines to make available, or such combination of (i) and (ii) as
the Director designates at the time of a Deferral Election or a modification
thereof.
(e) Commencement of Payments. Except as otherwise provided in
Sections 6(h) and 8(b), a Director's Deferred Amounts shall become payable as
soon as practicable following the earlier to occur of (a) the date the Director
terminates service as a Director or (b) the Director's attainment of age 70
years or such later date designated by the Director in the Deferral Election.
(f) Form of Payments. Subject to a Director's right to convert a
Share Account balance to a Cash Account, all payments from a Share Account shall
be made in shares of Common Stock by converting Share Units into Common Stock on
a one-for-one basis, with payment of fractional shares to be made in cash. All
payments from a Cash Account shall be made in cash.
(g) Manner of Payments. In his or her Deferral Election, each
Director shall elect to receive payment of his or her Deferred Amounts either in
a lump sum or in two to fifteen substantially equal annual installments. In the
event of a Director's death, payment of the remaining portion of the Director's
Deferred Amounts will be made to the Director's beneficiary in a lump sum as
soon as practicable following the Director's death.
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(h) Hardship Distribution. Notwithstanding any Deferral Election,
in the event of severe financial hardship to a Director resulting from a sudden
and unexpected illness, accident or disability of the Director or other similar
extraordinary and unforeseeable circumstances arising as a result of events
beyond the control of the Director, all as determined by the Committee, a
Director may withdraw any portion of the Share Units in his or her Share Account
or cash in his or her Cash Account by providing written notice to the Secretary
of the Company. All payments resulting from such a hardship shall be made in the
form provided in Section 6(f) above.
(i) Designation of Beneficiary. Each Director or former Director
entitled to payment of deferred amounts hereunder from time to time may
designate any beneficiary or beneficiaries (who may be designated concurrently,
contingently or successively) to whom any such deferred amounts are to be paid
in case of the Director's death before receipt of any or all of such deferred
amounts. Each designation will revoke all prior designations by the Director or
former Director, shall be in a form prescribed by the Company, and will be
effective only when filed by the Director or former Director, during his or her
lifetime, in writing with the Secretary of the Company. Reference in this Plan
to a Director's "beneficiary" at any date shall include such persons designated
as concurrent beneficiaries on the Director's beneficiary designation form then
in effect. In the absence of any such designation, any balance remaining in a
Director's or former Director's Share Account at the time of the Director's
death shall be paid to such Director's estate in a lump sum.
(j) Account Transfers. Subject to any applicable corporate
policies, from time to time a Director may convert all or a portion of any Cash
Account balance of the Director into deferred shares of Common Stock credited to
the Director's corresponding Share Account by written notice to the Company. In
such event, and effective as of the date the Company receives such a notice, (i)
there shall be credited to the Director's Share Account a number of Share Units
equal to the number of Share Units specified in the notice or, if such notice
specifies a dollar amount, a number of Share Units equal to such dollar amount
divided by the Fair Market Value on the last trading business day immediately
preceding the date the Company receives such notice and (ii) the Director's Cash
Account shall be debited in an amount equal to the number of Share Units
credited to the Share Account multiplied by the Fair Market Value on the same
trading business day. Subject to any applicable corporate policies, from time to
time a Director with a credit balance in a Share Account may convert all or a
portion of such balance into an amount to be credited to the Director's
corresponding Cash Account by giving written notice to the Company. In such
event, and effective as of the date the Company receives such a notice, (i)
there shall be credited to the Director's Cash Account an amount equal to the
number of Share Units specified in the notice multiplied by the Fair Market
Value on the last trading business day immediately preceding the date the
Company receives such notice and (ii) the Director's Share Account shall be
debited by the number of Share Units specified in the notice.
7. Effect of Certain Changes in Capitalization. If there is any
change in the number or class of shares of Common Stock through the declaration
of stock dividends, or recapitalization resulting in stock splits, or
combinations or exchanges of such shares or similar
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corporate transactions, the maximum number or class of shares available under
the Plan, the number or class of shares of Common Stock to be delivered
hereunder and each Director's Share Account shall be proportionately adjusted by
the Committee to reflect any such change in the number or class of issued shares
of Common Stock; provided, however, that the number or class of shares of Common
Stock to be delivered and each Director's Share Account shall be subject to only
such adjustment as shall be necessary to maintain the proportionate interest of
the Director and preserve, without exceeding, the value reflected by the
Director's Share Account.
8. Change of Control.
(a) A "Change of Control" of the Company shall be deemed to have
occurred if:
(1) any "Person" (as such term is defined in Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
as modified and used in Sections 13(d) and 14(d) thereof, except
that for purposes of this Section 8, the term "Person" shall not
include (A) the Company or any of its subsidiaries, (B) a trustee
or other fiduciary holding securities under an employee benefit
plan of the Company or any of its subsidiaries, (C) an
underwriter temporarily holding securities pursuant to an
offering of such securities, or (D) a corporation owned, directly
or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock in
the Company) is or becomes the "Beneficial Owner"(as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company (not including in the securities
beneficially owned by such Person any securities acquired
directly from the Company or its affiliates) representing 25% or
more of either the then outstanding shares of common stock of the
Company or the combined voting power of the Company's then
outstanding voting securities; or
(2) the following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals
who, on January 1,1996, constitute the Board and any new director
(other than a director whose initial assumption of office is in
connection with an actual or threatened election contest,
including but not limited to a consent solicitation, relating to
the election of directors of the Company, as such terms are used
in Rule 14a-11 of Regulation 14A under the Exchange Act) whose
appointment or election by the Board or nomination for election
by the Company's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either
were directors on January 1, 1996 or whose appointment, election
or nomination for election was previously so approved; or
(3) the stockholders of the Company approve a merger or consolidation
of the Company with any other corporation or approve the issuance
of voting securities of the Company in connection with a merger
or consolidation of the Company (or
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any direct or indirect subsidiary of the Company) pursuant to
applicable stock exchange requirements, other than (1) a merger
or consolidation which would result in the voting securities of
the Company outstanding immediately prior to such merger or
consolidation continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity or any parent thereof) at least 60% of the
combined voting power of the voting securities of the Company or
such surviving entity or any parent thereof outstanding
immediately after such merger or consolidation, or (2) a merger
or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no Person is or becomes
the Beneficial Owner, directly or indirectly, of securities of
the Company not including in the securities beneficially owned by
such Person any securities acquired directly from the Company or
its affiliates) representing 25% or more of either the then
outstanding shares of common stock of the Company or the combined
voting power of the Company's then outstanding voting securities;
or
(4) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company or an agreement for the
sale or disposition by the Company of all or substantially all of
the Company's assets (in one transaction or a series of related
transactions within any period of 24 consecutive months), other
than a sale or disposition by the Company of all or substantially
all of the Company's assets to an entity, at least 75% of the
combined voting power of the voting securities of which are owned
by Persons in substantially the same proportions as their
ownership of the Company immediately prior to such sale.
Notwithstanding the foregoing, no "Change of Control" shall be deemed to
have occurred if there is consummated any transaction or series of
integrated transactions immediately following which the record holders
of the common stock of the Company immediately prior to such transaction
or series of transactions continue to have substantially the same
proportionate ownership in an entity which owns all or substantially all
of the assets of the Company immediately following such transaction or
series of transactions.
(b) Upon the occurrence of a Change of Control:
(i) All Share Units credited to a Share Account shall be
converted into cash in an amount equal to the number of Share Units multiplied
by the Fair Market Value, and together with all Deferred Amounts credited to a
Cash Account shall be transferred as soon as practicable to each Director; and
(ii) Notwithstanding anything herein to the contrary, Fees earned
in respect of the calendar quarter in which the Change of Control occurs, shall
be paid in cash as soon as practicable.
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9. Term of Plan. This Plan shall become effective as of the date of
approval of the Plan by the stockholders of the Company, and shall remain in
effect until a Change of Control, unless sooner terminated by the Board;
provided, however, that, except as provided in Section 8(b) hereof, Deferred
Amounts may be delivered pursuant to any Deferral Election, in accordance with
such election, after the Plan's termination. Prior to the effective date of the
Plan, Directors may make the elections provided for herein, but the
effectiveness of such elections shall be contingent upon the receipt of
stockholder approval of the Plan. No transfer of shares of Common Stock may be
made to any Director or any other person under the Plan until such time as
stockholder approval of the Plan is obtained pursuant to this Section 9. In the
event stockholder approval is not obtained, Fees that were not subject to
Deferral Elections shall be paid to the Directors in cash and Fees that were
subject to Deferral Elections shall be deferred pursuant to the Prior Plan.
10. Amendment; Termination. The Board or the Committee may at any time
and from time to time alter, amend, suspend, or terminate the Plan in whole or
in part; provided, however, that (a) no amendment which requires stockholder
approval in order for the exemptions available under Rule 16b-3 of the Exchange
Act, as amended from time to time ("Rule 16b-3"), to be applicable to the Plan
and the Directors shall be effective unless the same shall be approved by the
stockholders of the Company entitled to vote thereon; (b) the provisions of
Section 5(a) hereof shall not be amended more than once every six months, other
than to comport with changes in the Internal Revenue Code of 1986, as amended,
the Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder; and (c) action by the Board shall be required to amend the first
sentence of Section 5(a) hereof. Notwithstanding the foregoing, no amendment
shall affect adversely any of the rights of any Director, without such
Director's consent, under any election theretofore in effect under the Plan.
11. Rights of Directors.
(a) Retention as Director. Nothing contained in the Plan or with
respect to any Grant shall interfere with or limit in any way the right of the
stockholders of the Company to remove any Director from the Board pursuant to
the bylaws of the Company, nor confer upon any Director any right to continue in
the service of the Company as a Director.
(b) Nontransferability. No right or interest of any Director in
Deferred Amounts shall be assignable or transferable during the lifetime of the
Director, either voluntarily or involuntarily, or subjected to any lien,
directly or indirectly, by operation of law, or otherwise, including execution,
levy, garnishment, attachment, pledge or bankruptcy. In the event of a
Director's death, a Director's rights and interests in his or her Deferred
Amounts shall be transferable by testamentary will or the laws of descent and
distribution. If in the opinion of the Committee a person entitled to payments
or to exercise rights with respect to the Plan is disabled from caring for his
or her affairs because of mental condition, physical condition or age, payment
due such person may be made to, and such rights shall be exercised by, such
person's guardian, conservator or other legal personal representative upon
furnishing the Committee with evidence satisfactory to the Committee of such
status.
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12. General Restrictions.
(a) Investment Representations. The Company may require any
director to whom Common Stock is granted, as a condition of receiving such
Common Stock, to give written assurances in substance and form satisfactory to
the Company and its counsel to the effect that such person is acquiring the
Common Stock for his own account for investment and not with any present
intention of selling or otherwise distributing the same, and to such other
effects as the Company deems necessary or appropriate in order to comply with
Federal and applicable state securities laws.
(b) Compliance with Securities Laws. Each Grant shall be subject
to the requirement that, if at any time counsel to the Company shall determine
that the listing, registration or qualification of the shares subject to such
Grant upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, is necessary as a
condition of, or in connection with, the issuance of shares thereunder, such
Grant may not be accepted or exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained on conditions acceptable to the Committee. Nothing herein shall be
deemed to require the Company to apply for or to obtain such listing,
registration or qualification.
13. Withholding. The Company may defer making payments under the Plan
until satisfactory arrangements have been made for the payment of any federal,
state or local income taxes required to be withheld with respect to such payment
or delivery. Each Director shall be entitled to irrevocably elect to have the
Company withhold shares of Common Stock having an aggregate value equal to the
amount required to be withheld. The value of fractional shares remaining after
payment of the withholding taxes shall be paid to the Director in cash. Shares
so withheld shall be valued at Fair Market Value on the regular business day
immediately preceding the date such shares would otherwise be transferred
hereunder.
14. Governing Law. This Plan and all rights hereunder shall be
construed in accordance with and governed by the laws of the State of Delaware.
15. Headings. The headings of sections and subsections herein are
included solely for convenience of reference and shall not affect the meaning of
any of the provisions of the Plan.
9
SNAP-ON INCORPORATED
DEFERRED COMPENSATION PLAN
(as amended through October 22, 1999)
Section 1. Establishment and Purposes
1.1 Establishment. Snap-on Incorporated hereby establishes, effective as of
April 1, 1986, a deferred compensation plan for executives as described herein,
which shall be known as the "SNAP-ON INCORPORATED DEFERRED COMPENSATION PLAN"
(hereinafter called the "Plan").
1.2 Purposes. The purposes of this Plan are to enable the Corporation to attract
and retain persons of outstanding competence, to provide a means whereby certain
amounts payable by the Corporation to selected executives may be deferred to
some future period and to provide such executives with a means to have deferred
amounts treated as if invested in the Corporation's stock, thereby aligning
their interests more closely with the interests of shareholders. The plan is
intended to constitute an unfunded plan primarily for the purpose of providing
deferred compensation for a select group of management or highly compensated
employees.
Section 2. Definitions
2.1 Definitions. Whenever used herein, the following terms shall have the
meanings set forth below:
(a) "Board" means the Board of Directors of the Corporation.
(b) "Committee" means the Organization and Compensation Committee of the
Board.
(c) "Common Stock" means the common stock, par value $1.00 per share, of the
Corporation.
(d) "Compensation" means the gross Salary and Incentive Compensation payable
to a Participant during a Year and Other Compensation payable to a
Participant.
(i) Salary. "Salary" means all regular, basic compensation, before
reduction for amounts deferred pursuant to this Plan or any
other plan of the Corporation, payable in cash to a Participant
for services during the Year, exclusive of any bonuses or
incentive compensation, special fees or awards, allowances, or
amounts designated by the Corporation as payments toward or
reimbursement of expenses.
(ii) Incentive Compensation. "Incentive Compensation" means the
annual Incentive Compensation Plan payable in cash by the
Corporation to a Participant in a Year.
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(iii) Other Compensation. "Other Compensation" means other
compensation payable in cash and/or Common Stock or other
property by the Corporation to a Participant in a Year,
including without limitation compensation payable under the
Amended and Restated Snap-on Incorporated 1986 Incentive Stock
Program, as amended (the "Stock Program"), if the award of such
compensation provides that the Participant may defer the
compensation.
(e) "Corporation" means Snap-on Incorporated, a Delaware corporation.
(f) "Fair Market Value" means the closing price of the Common Stock on the
New York Stock Exchange on any particular date; provided, however, that
for purposes of Section 16, Fair Market Value shall mean the closing
price of the Common Stock on the New York Stock Exchange on the date of
the Change of Control (as defined therein) or, if higher, the highest
price per share of Common Stock paid in the transaction giving rise to
the Change of Control.
(g) "Growth Increment" means the amount of interest earned on a
Participant's deferred amounts.
(h) "Participant" means an individual selected by the Committee for
participation in the Plan.
(i) "Year" means a calendar year.
2.2 Gender and Number. Except when otherwise indicated by the context, any
masculine terminology used herein also shall include the feminine gender, and
the definition of any term herein in the singular also shall include the plural.
Section 3. Eligibility and Participation
3.1 Eligibility. The elected officers and appointed officers of the Corporation
and, effective as of January 1, 1996, the elected and appointed officers of
Snap-on Tools Company and of any other direct or indirect subsidiary of the
Corporation designated by the Committee from time to time shall be eligible to
participate in this Plan.
3.2 Ceasing Eligibility. In the event a Participant no longer meets the
requirements for participation in this Plan, he shall become an inactive
Participant, retaining all the rights described under this Plan, except the
right to make any further deferrals, until the time that he again meets the
eligibility requirements of Section 3.1.
Section 4. Election to Defer
4.1 Deferral Election. (a) Subject to the following provisions, prior to the
beginning of the Year, a Participant irrevocably may elect, by written notice to
the Corporation, to defer all or a percentage of annual Salary, Incentive
Compensation, or both Salary and Incentive Compensation. The amount to be
deferred each year must equal or exceed $5,000.
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(i) With respect to Salary deferrals, the deferral percentage elected shall
be applied to the Participant's Salary for each pay period of the Year
to which the Deferral Election applies and must be made before November
30 of the year immediately preceding the Year for which such Deferral
Election applies.
(ii) With respect to Incentive Compensation deferrals, the deferral
percentage elected shall apply only to the Participant's Incentive
Compensation payable with respect to service to be performed in the Year
and must be made before December 31 of such Year.
(b) An individual who becomes a Participant at or after the beginning of
the Year may irrevocably elect, by written notice to the Corporation, to defer
all or a percentage of (i) the annual Salary earned by such Participant for such
Year after such election, if such election is made within 30 days after becoming
a Participant, and (ii) the pro rata share of the Participant's Incentive
Compensation, if any, payable with respect to service performed during such
Year, if such election is made before December 31 of such Year.
(c) If so provided in an award of Other Compensation, and subject to
such restrictions and conditions as may be set forth in the award or imposed by
the Corporation, a Participant irrevocably may elect, by written notice to the
Corporation, to defer all or a percentage of such Other Compensation.
4.2 Deferral Period. (a) The Participant irrevocably shall select the deferral
period for each separate deferral. The deferral period shall be for a specified
number of years or until a specified date. The deferral period shall not be less
than five years.
(b) However, notwithstanding the deferral period specified, payments shall begin
following the earliest to occur of:
(i) Death,
(ii) Total and permanent disability,
(iii) Subject to subsection (c), retirement, or
(iv) Subject to subsection (c), termination of employment.
(c) A Participant may elect to have a deferral period continue beyond
termination of employment due to retirement by so indicating when the
Participant selects, or modifies pursuant to Section 4.4, the Participant's
deferral period for a deferral. The Participant may elect one or more
successive post retirement deferral periods of up to five years each, and
may change the manner in which a deferred amount will be paid and/or the
date such payments are to commence by written election made prior to the
Year in which such payments are to commence.
4.3 Manner of Payment Election. At the same time as the election made pursuant
to Section 4.1, the Participant also may elect to have a deferred amount paid
either in a lump
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sum or in a specified number of approximately equal annual installments, not to
exceed ten.
4.4 Modification. A Participant may change the manner in which a deferred amount
will be paid and/or the date such payments are to commence by written election
made prior to the Year in which such payments are to commence.
Section 5. Deferred Compensation Account
5.1 Participant Accounts. The Corporation shall establish and maintain
individual bookkeeping accounts in respect of deferrals made by a Participant
consisting of a "Cash Account" and a "Share Account." A Participant shall have
separate Cash Accounts and Share Accounts for deferred amounts with different
deferral periods under Section 4.2 hereof and/or manners of payment under
Section 4.3 hereof. A Participant's Cash Account shall be credited with the
dollar amount of any amount deferred as of the date the amount deferred
otherwise would have become due and payable unless prior to such date the
Participant notifies the Corporation in writing that all or any portion of the
dollar amount deferred shall be converted into deferred shares of Common Stock
to be credited to the Participant's Share Account. In such event (i) there shall
be credited to the Participant's Share Account as of such date a number of units
("Share Units") equal to the dollar amount of any amount deferred or if less the
dollar amount specified in such notice divided by the Fair Market Value on the
last trading business day immediately preceding the date the amount deferred
otherwise would have become due and payable and (ii) the Participant's Cash
Account shall be credited as of such date with the balance of the dollar amount
deferred, if any.
5.2 Growth Increments. The Corporation will provide the opportunity for Growth
Increments to be earned on the balance of a Participant's Cash Accounts. The
Committee will have the authority to select, from time to time, the appropriate
interest rate to apply to such amounts. Each Cash Account shall be credited on
the first day of each month with a Growth Increment computed on the daily
balance in the Cash Account during the immediately preceding month. The Growth
Increment shall be the sum of the daily interest earned, compounded monthly by
the interest rate selected by the Committee.
5.3 Share Accounts.
(a) Subject to applicable corporate policies, from time to time a
Participant may convert all or a portion of any Cash Account balance of
the Participant into deferred shares of Common Stock credited to the
Participant's corresponding Share Account by written notice to the
Corporation. In such event, and effective as of the date the Corporation
receives such a notice, (i) there shall be credited to the Participant's
Share Account a number of units Share Units equal to the number of Share
Units specified in the notice or, if such notice specifies a dollar
amount, a number of Share Units equal to such dollar amount divided by
the Fair Market Value on the last trading business day immediately
preceding the date the Corporation receives such notice and (ii) the
Participant's Cash Account shall be debited in an amount equal to the
number of Share Units credited to the Share Account multiplied by the
Fair Market Value on the same trading business day.
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(b) Subject to the authority of the Committee, the Corporation's Chief
Executive Officer may approve the terms of any agreements between the
Corporation and any Participant relating to the deferral of Other
Compensation where, but for the Participant's deferral, the Participant
would have received shares of Common Stock if such officer determines
that such terms are appropriate to carry out the purposes of this Plan
and the award of Other Compensation. Without limitation, the Corporation
may enter into an agreement with a Participant relating to such a
deferral under which (i)(A) there shall be credited to the Participant's
Share Account a number of Share Units equal to the number of shares of
Common Stock the receipt of which the Participant has deferred which
credit shall be made as of the date the Other Compensation deferred
otherwise would have become due and payable or (B) Share Units shall be
credited to the Participant's Share Account only at a future date, such
as the date that one or more conditions to vesting have been satisfied;
(ii) a credit of Share Units may be made subject to such restrictions as
are imposed under the terms of the award of Other Compensation (or
restrictions substantially equivalent to those to which shares of Common
Stock would have been subject but for the deferral), including without
limitation forfeiture under certain circumstances and restrictions on
the Participant's rights to convert such Share Units pursuant to Section
5.3(d); and (iii) if the terms of the award of Other Compensation
require a Participant to deliver cash and/or shares of Common Stock to
the Corporation to exercise or otherwise receive the benefit of such
Other Compensation, then in lieu of delivering such cash and/or Common
Stock, there may be a debit to the Participant's Cash Account in an
amount equal to the amount of cash that the Participant otherwise would
have delivered and/or a debit to the Participant's Share Account in an
amount equal to the number of shares of Common Stock that the
Participant otherwise would have delivered, in each case to the extent
of any credit balance in such account.
(c) Whenever cash dividends are paid by the Corporation on outstanding
Common Stock, as of the payment date for the dividend, at the election
of a Participant (i) there shall be credited to a Participant's Cash
Account an amount equal to the amount per share of the cash dividend on
the Common Stock multiplied by the number of Share Units reflected in
the Participant's Share Account, if any, as of the close of business on
the record date for the dividend or (ii) there shall be credited to a
Participant's Share Account additional Share Units equal to the cash
amount described in clause (i) divided by the Fair Market Value of the
Common Stock on the last trading business day immediately preceding the
date of payment of the dividend. Absent an express election by a
Participant, clause (i) shall apply. A Participant shall be entitled to
elect treatment under clause (i) as to some Share Units reflected in the
Participant's Share Account and treatment under clause (ii) as to other
Share Units reflected in the Participant's Share Account.
(d) Subject to applicable corporate policies, from time to time a
Participant with a credit balance in a Share Account may convert all or
a portion of such balance into an amount to be credited to the
Participant's corresponding Cash Account by giving written notice to the
Corporation. In such event, and effective as of the date the Corporation
receives such a notice, (i) there shall be credited to the Participant's
Cash Account an amount equal to the number of Share Units specified in
the notice multiplied by the Fair Market Value on
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the last trading business day immediately preceding the date the
Corporation receives such notice and (ii) the Participant's Share
Account shall be debited by the number of Share Units specified in the
notice.
5.4 Charges Against Accounts. There shall be charged against a Participant's
Cash Account any cash payments (excluding payments for fractional shares) made
to the Participant or to his beneficiary in accordance with Section 6 hereof.
There shall be charged against a Participant's Share Account any distributions
made to the Participant or to his beneficiary in respect of the Participant's
Share Account in accordance with Section 6 hereof.
Section 6. Payment of Deferred Amounts
6.1 Payment of Deferred Amounts.
(a) Payment of a Participant's Cash Account balance, including accumulated
Growth Increments attributable thereto and dividend credits under
Section 5.3(b), shall be paid in cash commencing within thirty calendar
days after the commencement date referred to in Section 4.2 hereof. The
payments shall be made in the manner selected by the Participant under
Section 4.3 of this Plan or, in the absence thereof, in a lump sum. The
amount of each payment shall be equal to a Participant's then
distributable Cash Account balance multiplied by a fraction, the
numerator of which is one and the denominator of which is the number of
installment payments remaining.
(b) Payment of a Participant's Share Account balance shall be paid
commencing within thirty calendar days after the commencement date
referred to in Section 4.2 hereof. Payments in respect of a Share
Account balance shall be made by converting Share Units into Common
Stock on a one-for-one basis, with payment of fractional shares to be
made in cash based upon the Fair Market Value on the last trading
business day immediately preceding the date of payment; provided,
however, that at the election of a Participant, made by written notice
to the Corporation delivered not less than five business days before a
payment due date, payments in respect of a Share Account may be made
solely in cash in an amount equal to the number of Share Units then
payable multiplied by the Fair Market Value on the last trading business
day immediately preceding the date of payment. The payments shall be
made in the manner selected by the Participant under Section 4.3 of this
Plan or, in the absence thereof, in a lump sum. The number of Share
Units payable at the time of a payment shall be equal to a Participant's
then distributable Share Account balance multiplied by a fraction, the
numerator of which is one and the denominator of which is the number of
installment payments remaining.
6.2 Acceleration of Payments. If a Participant dies prior to the payment of all
or a portion of his Cash Account and/or Share Account balances, the balance of
any amounts payable shall be paid in a lump sum to the beneficiaries designated
under Section 7 hereof. In addition, if a Participant's Cash Account balance is
less than $5,000 at the time for the payment specified, such amount shall be
paid to the Participant in a lump sum, and if a Participant's Share Account
balance is less than 300 Share Units at the time for the payment specified, such
amount shall be paid to the Participant in a lump sum.
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6.3 Financial Emergency. The Committee, at its sole discretion, may alter the
timing or manner of payment of deferred amounts in the event that the
Participant establishes, to the satisfaction of the Committee, severe financial
hardship. In such event, the Committee may:
(a) provide that all, or a portion of, the amount previously deferred by the
Participant immediately shall be paid in a lump sum payment,
(b) provide that all, or a portion of, the installments payable over a
period of time immediately shall be paid in a lump sum, or
(c) provide for such other installment payment schedules as it deems
appropriate under the circumstances, as long as the amount distributed
shall not be in excess of that amount which is necessary for the
Participant to meet the financial hardship.
Severe financial hardship will be deemed to have occurred in the event
of the Participant's impending bankruptcy, a dependent's long and serious
illness, or other events of similar magnitude. The Committee's decision in
passing on the severe financial hardship of the Participant and the manner in
which, if at all, the payment of deferred amounts shall be altered or modified
shall be final, conclusive, and not subject to appeal.
Section 7. Beneficiary Designation
7.1 Designation of Beneficiary. A Participant shall designate a beneficiary or
beneficiaries who, upon the Participant's death, are to receive the amounts that
otherwise would have been paid to the Participant. All designations shall be in
writing to the Corporation in such form as it requires or accepts and signed by
the Participant. The designation shall be effective only if and when delivered
to the Corporation during the lifetime of the Participant. The Participant also
may change his beneficiary or beneficiaries by a signed, written instrument
delivered to the Corporation. However, if a married Participant maintains his
primary residence in a state that has community property laws, the Participant's
spouse shall join in any designation of a beneficiary or beneficiaries other
than the spouse. The payment of amounts shall be in accordance with the last
unrevoked written designation of beneficiary that has been signed and delivered
to the Corporation.
7.2 Death of Beneficiary. In the event that all of the beneficiaries named in
Section 7.1 predecease the Participant, the amounts that otherwise would have
been paid to the Participant shall be paid to the Participant's estate, and in
such event, the term "beneficiary" shall include his estate.
7.3 Ineffective Designation. In the event the Participant does not designate a
beneficiary, or if for any reason such designation is ineffective, in whole or
in part, the amounts that otherwise would have been paid to the Participant
shall be paid to the Participant's estate, and in such event, the term
"beneficiary" shall include his estate.
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Section 8. Rights of Participants
8.1 Contractual Obligation. It is intended that the Corporation is under a
contractual obligation to make payments from a Participant's account when due.
Payment of account balances payable in cash shall be made out of the general
funds of the Corporation as determined by the Board.
8.2 Unsecured Interest. No Participant or beneficiary shall have any interest
whatsoever in any specific asset of the Corporation. To the extent that any
person acquires a right to receive payments under this Plan, such receipt shall
be no greater than the right of any unsecured general creditor of the
Corporation.
8.3 Employment. Nothing in the Plan shall interfere with or limit in any way the
right of the Corporation to terminate any Participant's employment at any time,
nor confer upon any Participant any right to continue in the employ of the
Corporation.
8.4 Participation. No employee shall have a right to be selected as a
Participant or, having been so selected, to be selected again as a Participant.
Section 9.
9.1 Nontransferability. In no event shall the Corporation make any payment under
this Plan to any assignee or creditor of a Participant or a beneficiary. Prior
to the time of a payment hereunder, a Participant or a beneficiary shall have no
rights by way of anticipation or otherwise to assign or otherwise dispose of any
interest under this Plan nor shall such rights be assigned or transferred by
operation of law.
Section 10. Administration
10.1 Administration. This Plan shall be administered by the Committee. The
Committee may from time to time establish rules for the administration of this
Plan that are not inconsistent with the provisions of this Plan.
10.2 Finality of Determination. The Committee has sole discretion in
interpreting the provisions of the Plan. The determination of the Committee as
to any disputed questions arising under this Plan, including questions of
construction and interpretation, shall be final, binding, and conclusive upon
all persons.
10.3 Expenses. The cost of payment from this Plan and the expenses of
administering the Plan shall be borne by the Corporation.
10.4 Action by the Corporation. Any action required or permitted to be taken
under this Plan by the Corporation shall be by resolution of the Board of
Directors, by the duly authorized Committee of the Board of Directors, or by a
person or persons authorized by resolution of the Board of Directors or the
Committee.
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Section 11. Amendment and Termination
11.1 Amendment and Termination. The Corporation expects the Plan to be permanent
but, since future conditions affecting the Corporation cannot be anticipated or
foreseen, the Corporation necessarily must and does hereby reserve the right to
amend, modify, or terminate the Plan at any time by action of this Board.
Notwithstanding the foregoing, upon the occurrence of a Potential Change of
Control (as hereinafter defined) and for a period of six months thereafter, the
Plan may not be terminated or amended in a manner adverse to Participants. For
purposes hereof, a "Potential Change of Control" shall be deemed to have
occurred if an event set forth in any one of the following shall have occurred:
(i) The Corporation enters into an agreement, the consummation of
which would result in the occurrence of a Change of Control;
(ii) The Corporation or any other Person publicly announces an
intention to take or consider taking actions that, if
consummated, would constitute a Change of Control;
(iii) Any Person becomes the beneficial owner, as defined in Rule
13d-3 under the Securities Exchange Act of 1934, as amended (the
"Beneficial Owner"), directly or indirectly, of securities of
the Corporation representing 15% or more of either the then
outstanding shares of Common Stock or the combined voting power
of the Corporation's then outstanding voting securities; or
(iv) The Board adopts a resolution to the effect that, for purposes
of this Plan, a Potential Change of Control has occurred.
Section 12. Applicable Law
12.1 Applicable Law. This Plan shall be governed and construed in accordance
with the laws of the State of Wisconsin.
Section 13. Withholding of Taxes
13.1 Tax Withholding. The Corporation shall have the right to deduct from all
contributions made to, or payments made from, the Plan any federal, state, or
local taxes required by law to be withheld with respect to such contributions or
payments. The Corporation may defer making payments in the form of Common Stock
under the Plan until satisfactory arrangements have been made for the payment of
any federal, state or local taxes required to be withheld with respect to such
payment or delivery. Each Participant shall be entitled to irrevocably elect,
prior to the date shares of Common Stock would otherwise be delivered hereunder,
to have the Corporation withhold shares of Common Stock having an aggregate
value equal to the amount required to be withheld. The value of fractional
shares remaining after payment of the withholding taxes shall be paid to the
Participant in cash. Shares so withheld shall be valued at Fair Market Value on
the
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last trading business day immediately preceding the date such shares would
otherwise be transferred hereunder.
Section 14. Notice
14.1 Notice. Any notice required or permitted to be given under the Plan shall
be sufficient if in writing and hand-delivered, or sent by a registered or
certified mail, and if given to the Corporation, delivered to the principal
office of the Corporation. Such notice shall be deemed given as of the date of
delivery or, if delivery is made by mail, as of the date shown on the postmark
or the receipt for registration or certification.
Section 15. Common Stock Matters
15.1 Stock Reserved for the Plan. The number of shares of Common Stock
authorized for issuance under the Plan is 75,000 (after giving effect to the
3-for-2 stock split declared June 28, 1996), subject to adjustment pursuant to
Section 15.3 hereof. Shares of Common Stock delivered hereunder shall be
previously issued shares reacquired and held by the Corporation.
15.2 General Restrictions.
(a) Investment Representations. The Corporation may require any Participant,
as a condition of receiving Common Stock, to give written assurances in
substance and form satisfactory to the Corporation and its counsel to
the effect that such person is acquiring the Common Stock for his own
account for investment and not with any present intention of selling or
otherwise distributing the same, and to such other effects as the
Corporation deems necessary or appropriate in order to comply with
federal and applicable state securities laws.
(b) Compliance with Securities Laws. Delivery of Common Stock under the Plan
shall be subject to the requirement that, if at any time counsel to the
Corporation shall determine that the listing, registration or
qualification of the shares of Common Stock upon any securities exchange
or under any state or federal law, or the consent or approval of any
governmental or regulatory body, is necessary as a condition of, or in
connection with, the issuance of shares thereunder, such shares may not
be delivered in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or obtained
on conditions acceptable to the Committee. Nothing herein shall be
deemed to require the Corporation to apply for or to obtain such
listing, registration or qualification.
15.3 Effect of Certain Changes in Capitalization. If there is any change in the
number or class of shares of Common Stock through the declaration of stock
dividends, or recapitalization resulting in stock splits, or combinations or
exchanges of such shares or similar corporate transactions, the maximum number
or class of shares available under the Plan, the number or class of shares of
Common Stock to be delivered hereunder and the number of Share Units in each
Participant's Share Account shall be proportionately adjusted by the Committee
to reflect any such change in the number or class of issued shares of Common
Stock.
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Section 16. Change of Control
16.1 Change of Control. A "Change of Control" of the Company shall be deemed to
have occurred if:
(1) any "Person" (as such term is defined in Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as modified and used in Sections 13(d) and 14(d) thereof,
except that for purposes of this section 16.1(1) and subsection
16.1(3), the term "Person" shall not include (i) the Company or
any of its subsidiaries, (ii) a trustee or other fiduciary
holding securities under an employee benefit plan of the Company
or any of its subsidiaries, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities,
or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same
proportions as their ownership of stock in the Company) is or
becomes the "Beneficial Owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the
Company (not including in the securities beneficially owned by
such Person any securities acquired directly from the Company or
its affiliates) representing 25% or more of either the then
outstanding shares of common stock of the Company or the
combined voting power of the Company's then outstanding voting
securities; or
(2) the following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals
who, on January 1, 1996, constitute the Board and any new
director (other than a director whose initial assumption of
office is in connection with an actual or threatened election
contest, including but not limited to a consent solicitation,
relating to the election of directors of the Company, as such
terms are used in Rule 14a-11 of Regulation 14A under the
Exchange Act) whose appointment or election by the Board or
nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors on January 1,
1996 or whose appointment, election or nomination for election
was previously so approved; or
(3) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation or
approve the issuance of voting securities of the Company in
connection with a merger or consolidation of the Company (or any
direct or indirect subsidiary of the Company) pursuant to
applicable stock exchange requirements, other than (i) a merger
or consolidation which would result in the voting securities of
the Company outstanding immediately prior to such merger or
consolidation continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity or any parent thereof) at least 60% of the
combined voting power of the voting securities of the Company or
such surviving entity or any parent thereof outstanding
immediately after such merger or consolidation, or (ii) a merger
or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in
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which no Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities
acquired directly from the Company or its affiliates)
representing 25% or more of either the then outstanding shares
of common stock of the Company or the combined voting power of
the Company's then outstanding voting securities; or
(4) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company or an agreement for
the sale or disposition by the Company of all or substantially
all of the Company's assets (in one transaction or a series of
related transactions within any period of 24 consecutive
months), other than a sale or disposition by the Company of all
or substantially all of the Company's assets to an entity, at
least 75% of the combined voting power of the voting securities
of which are owned by Persons in substantially the same
proportions as their ownership of the Company immediately prior
to such sale.
Notwithstanding the foregoing, no "Change of Control" shall be deemed to
have occurred if there is consummated any transaction or series of
integrated transactions immediately following which the record holders
of the common stock of the Company immediately prior to such transaction
or series of transactions continue to have substantially the same
proportionate ownership in an entity which owns all or substantially all
of the assets of the Company immediately following such transaction or
series of transactions.
16.2 Payments. Upon the occurrence of a Change of Control, and
notwithstanding Section 6,
(a) payment of a Participant's Cash Account balance shall be paid
immediately in cash in a lump sum; and
(a) payment of a Participant's Share Account balance shall be paid
immediately in cash in a lump sum in an amount equal to the number of
Share Units in the Share Account multiplied by the Fair Market Value.
Section 17 - RATING EVENT
17.1 Rating Event. The term "Rating Event" means the date on which the
Corporation's debt rating drops below an Investment Grade Rating.
"Investment Grade Rating" means a rating at or above Baa3 by Moody's
Investors Services, Inc. (or its successors) or a rating at or above BBB
by Standard & Poor's Corporation (or its successors). Only one such rating
at the required level is necessary for the Corporation to have an
Investment Grade Rating for purposes of this Section. If either or both of
these ratings cease to be available then an equivalent rating from a
nationally prominent rating agency shall be substituted by the
Corporation.
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17.2 Payment. Upon the occurrence of a Rating Event, and notwithstanding Section
6:
(a) a Participant's Cash Account balance shall be paid immediately in cash in a
lump sum; and
(b) payments in respect of a Share Account balance shall be made immediately by
converting Share Units into Common Stock on a one-for-one basis, with payment of
fractional shares to be made in cash based upon the Fair Market Value on the
last trading business day immediately preceding the date of payment; provided,
however, that at the election of a Participant, made by written notice to the
Company prior to delivery of such Common Stock, payments in respect of a Share
Account may be made solely in cash in an amount equal to the number of Share
Units then payable multiplied by the Fair Market Value on the last trading
business day immediately preceding the date of payment."
(c) In addition to payment of the Participant's Cash Account balance as
described above, the Corporation shall pay the Participant an amount equal to
the interest that would have been earned on the Accelerated Tax Amount from the
date of the Rating Event to the date payment of the deferred amounts were then
scheduled to commence, calculated at the interest rate determined under Section
5.2 hereof, compounded monthly, which interest amount shall then be discounted
to the date of payment at a discount rate equal to the rate determined under
Section 5.2. The Accelerated Tax Amount means the Participant's Cash Account
balance multiplied by the Assumed Tax Rate. The Assumed Tax Rate means a
percentage which reflects the highest stated federal and state income tax rates
imposed on residents of Wisconsin after giving effect to the deductibility of
state income taxes.
17.3 Revocation of Election. Upon the occurrence of a Rating Event all deferral
elections made prior thereto are revoked.
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SNAP-ON INCORPORATED
SUPPLEMENTAL RETIREMENT PLAN FOR OFFICERS
(As Amended October 22, 1999)
SECTION 1 -- INTRODUCTION
1.1 Plan. SNAP-ON INCORPORATED SUPPLEMENTAL RETIREMENT PLAN FOR OFFICERS (the
"Plan") was originally established by Snap-on Incorporated for the benefit of
eligible employees of that corporation and its subsidiaries that adopted the
Plan with that corporation's consent (1/28/94, effective 4/22/94). The Plan is
intended to constitute an unfunded "excess benefit plan" as defined in Section
3(36) of the Employee Retirement Income Security Act of 1974 ("ERISA") and an
unfunded Plan maintained primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees as
defined in Section 201(2) of ERISA (6/28/91). Benefits payable from the Plan
will be paid solely from the general assets of the Corporation or other
employers under the Plan.
1.2 Effective Date. The "effective date" of the Plan as set forth below is
August 26, 1983.
1.3 Employers. The term "Corporation" means Snap-on Tools Corporation until such
date that name "Snap-on Tools Corporation" is changed to "Snap-on Incorporated"
by shareholder approval, and on such date "Corporation" shall mean Snap-on
Incorporated or any successor thereto, and all rights and obligations under this
Plan shall be transferred to Snap-on Incorporated or any successor thereto. The
Corporation and any subsidiary of the Corporation which adopts the Plan with the
consent of the Corporation is referred to herein individually as an "employer"
and collectively as the "employers" (1/28/94, effective 4/22/94).
1.4 Purpose. The Plan has been established to supplement retirement benefits
provided by the Snap-on Tools Retirement Plan for Administrative and Field
Employees (the "Administrative and Field Plan") in the event that benefits
provided under the Administrative and Field Plan are limited by the benefit
restrictions imposed under ERISA and/or limited due to participation in Snap-on
Tools Corporation Deferred Compensation Plan.
SECTION 2 -- PARTICIPATION AND SUPPLEMENTAL BENEFITS
2.1 Eligibility. Each employee of Snap-on Incorporated or any subsidiary
employer who was a participant in the Plan will continue to be eligible to
participate in the Plan in accordance with the terms of the Plan. Each employee
of the Corporation will become a participant in the Plan and eligible for
benefits in accordance with subsection 2.2, provided that such participant meets
the following requirements:
(a) The employee is an elected officer of the Corporation, as
determined under the Bylaws of the Corporation; and (1/28/94,
effective 4/22/94)
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(b) Such employee is a member of the Administrative and Field
Plan (1/28/94, effective 4/22/94).
2.2 Supplemental Benefits. Supplemental benefits payable to or on behalf of a
participant under the Plan shall be equal to the difference (if any) between (i)
the full amount of the retirement income or pre-retirement spouse's benefit
computed for the participant or his surviving spouse under the Administrative
and Field Plan benefit formula (disregarding any benefit or compensation
limitations contained in ERISA and/or limited due to participation in Snap-on
Tools Corporation Deferred Compensation Plan) (6/28/91), and (ii) the amount of
retirement income or pre-retirement spouse's benefit which is actually payable
under the Administrative and Field Plan, subject to the following limitations:
(a) Should employment continue after service as an officer
terminates, retirement benefits under this Plan will not accrue
after the calendar year in which service as an officer terminates
(4/26/85).
(b) The maximum supplemental benefits payable annually under this
Plan for any participant who retired under the Plan prior to
January 28, 1994 are limited to $150,000 (1/28/94).
(c) Supplemental benefits will be payable in accordance with
Subsection 2.3.
(d) Deferred compensation will be considered as eligible earnings
only for the year payment is deferred for purposes of determining
retirement benefits (8/22/86).
(e) For purposes of calculating the supplemental benefits under
(i) above for Robert A. Cornog, two (2) years of credited service
shall be credited for each year of his credited service under the
Administrative and Field Plan for both accrual and vesting
purposes (6/25/92).
2.3 Payment of Benefits. Subject to the provisions of this Plan, supplemental
benefits shall be payable to or on behalf of a participant as follows;
(a) Normal Form. Supplemental benefits to a participant who
retires on a normal, deferred or early retirement date will be
made monthly, will commence on his retirement date and continue
thereafter for life and, if the participant dies within a period
of five years after his retirement date, a continuing payment of
the same amount will be made to his eligible spouse (as defined
in Subsection 5.2) if then surviving spouse or such eligible
spouse is not living or dies prior to the expiration of such
five-year period, to his beneficiary for the balance of said
period.
(b) Payments to Surviving Spouse. If, at the later to occur of
the death of a retired participant or the completion of the
applicable five-year period specified
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in Paragraph (a) above, such participant's eligible spouse (as
defined in Subsection 5.2) is living, such spouse shall be
entitled to receive a monthly supplemental benefit on the first
day of the next month, equal to 50 percent of the monthly
supplemental benefit which the participant or such eligible
spouse was receiving under Paragraph (a). Such spouse's monthly
benefit will be paid on the first day of each month thereafter
with the last payment being the payment due on the first day of
the month in which such spouse's death occurs. If such spouse is
more than ten years younger than the participant, the amount of
monthly benefit payable to such spouse shall be reduced by an
appropriate percentage (determined actuarially) for each full
month by which such spouse's age is more than ten years less
than the participant's age.
(c) Retirement Date. For purposes of this subsection, a
participant's "retirement date" will be the first day of the
month coincident with or next following the date as of which a
participant actually retires or is retired from the employ of all
of the employers (i) on or after attaining age 65 years, (ii) on
or after attaining age 50 years if he has completed ten or more
years of continuous employment under the Administrative and Field
Plan or (iii) on the date he is retired because of total and
permanent disability if he has completed ten or more years of
continuous employment under the Administrative and Field Plan.
(d) Pre-retirement Spouse's Benefit. In the event a participant
who has a spouse to whom he is legally married at the time he
satisfied the requirements of Paragraph 2.3(c)(ii) above dies
leaving an eligible spouse, there shall be payable to such
participant's eligible spouse the supplemental amount that would
have been payable to his spouse under Paragraph (b) above had the
participant retired on the first day of the month coincident with
or next following the month in which his death occurred and had
received payment commencing on such date in the form described in
Paragraphs (a) and (b) above. Such monthly spouse's benefit will
be paid to such spouse on the first day of the month coincident
with or next following the date of the participant's death and
will be payable on the first day of each month thereafter, with
the final payment being the payment due on the first day of the
month in this such spouse's death occurs.
The computation and payment of such benefits by the Corporation shall be
conclusive on the participant, his eligible spouse and his beneficiary
(6/23/89).
Notwithstanding the provisions of subparagraphs 2.3(b) and 2.3(d), if the amount
payable to the surviving spouse of Robert Cornog in the form of payment
specified therein is less than $50,000 per year, the minimum amount payable to
such spouse pursuant to each of such subparagraphs on an annual basis shall be
$50,000 (6/25/92).
2.4 Benefits Provided by Employers. Benefits under this Plan to a participant,
his surviving spouse or his beneficiary may be paid directly by the
participant's employer. No employee shall be required to segregate any assets or
establish any trust or fund to provide for the payment of benefits under this
Plan (6/23/89).
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SECTION 3 -- OTHER EMPLOYMENT
A participant or other person receiving supplemental benefits under the Plan
will continue to be entitled to receive such payments regardless of other
employment or self-employment.
SECTION 4 -- FORFEITURE FOR CAUSE
Notwithstanding any provisions of the Plan to the contrary, a retired officer
will be disqualified for benefits under this Plan if he, during his term of
employment with the Corporation, or within two years of the date his employment
terminates:
(a) Uses or discloses trade secrets for the benefit of someone
other than the Corporation or its subsidiaries;
(b) Embezzles or steals cash or other property of the Corporation
or its subsidiaries or performs other similar dishonest acts
against the Corporation or its subsidiaries; or
(c) Enters into a business in direct competition with the
Corporation or its subsidiaries as either an employee, director,
proprietor, consultant, partner or joint venturer of such
business (1/6/84).
SECTION 5 -- GENERAL
5.1 Administration. The Plan will be administered by the Corporation. The Board
of Directors of the Corporation will designate the person or persons authorized
to act on behalf of the Corporation in the administration of the Plan.
5.2 Spouse or Beneficiary. Any benefits payable to an eligible spouse or
beneficiary under the Plan shall be paid to such spouse or beneficiary eligible
to receive the participant's benefits under the Administrative and Field Plan as
provided in Subsection 2.3 or, if no such beneficiary has been designated, to
the participant's estate. For purposes of this Plan, an "eligible spouse" of a
participant is a spouse of the participant as of the participant's retirement
date (or, if applicable, the participant's date of death) resulting from a
legally recognized marriage (6/23/89).
5.3 Interests Not Transferable. Except as to any withholding of tax under the
laws of the United States or any state, the interest of any participant or other
person under the Plan shall not be subject to the claims of creditors and may
not be voluntarily or involuntarily sold, transferred, assigned, alienated or
unencumbered.
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<PAGE>
5.4 Facility of Payment. Any amounts payable hereunder to any person under legal
disability or who, in the judgment of the Corporation, is unable to properly
manage his financial affairs may be paid to the legal representative of such
person (6/23/89).
5.5 Gender and Number. Words in the masculine gender shall include the feminine
gender and, where the context admits, the plural shall include the singular and
the singular shall include the plural.
5.6 Controlling Law. Except to the extent superseded by the laws of the United
States, the laws of Wisconsin shall be controlling in all matters relating to
the Plan.
5.7 Successors. This Plan is binding on each employer and will inure to the
benefit of any successor of an employer, whether by way of purchase, merger,
consolidation or otherwise.
5.8 Not a Contract. This Plan does not constitute a contract of employment, and
shall not be construed to give any participant the right to be retained in any
employer's employ. No participant shall have any rights under this Plan except
those specifically provided herein. Such participant shall not have any right or
security interest in any specific asset of the employers or any trust, it being
understood that any assets set aside shall be available for the claims of an
employer's creditors (6/23/89).
5.9 Litigation by Participant. If a legal action relating to the Plan is begun
against the Corporation or an employer by or on behalf of any person, or if a
legal action arises because of conflicting claims to a participant's or other
person's benefits, the cost to the Corporation or the employer of defending the
action shall be charged to the extent permitted by law to the sum, if any, which
were involved in the action or were payable to the participant or other person
concerned, or to the supplemental benefits payable to the participant under the
Plan.
SECTION 6 -- AMENDMENT AND TERMINATION
While the employer expects to continue the Plan indefinitely, the right to amend
or terminate the Plan by action of the Board of Directors of the Corporation is
hereby reserved, provided that in no event shall any participant's supplemental
benefits accrued to the date of such amendment or termination be reduced or
modified by such action. Any supplemental benefits accrued to the date of such
amendment or termination shall be payable under Subsection 2.3 (8/28/87)
(6/23/89).
SECTION 7 -- ADDITIONAL SPECIAL RESTRICTIONS (1/1/96)
7.1 Effective Date and Overriding Provisions. The following provisions of this
Section 7 shall become effective on a "restricted date" (as defined in
subsection 7.6 below) and, upon becoming effective, shall remain effective until
the following related unrestricted date and, during that period, shall supersede
any other provisions of the Plan to the extent necessary to
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<PAGE>
eliminate any inconsistencies between the provisions of this Section 7 and any
other provisions of the Plan, including any exhibits and supplements thereto.
7.2 Prohibitions Against Mergers and Termination; Restrictions on Amendment.
During the period beginning on a restricted date and ending on the following
related unrestricted date, (i) the Plan may not be merged into any other plan or
terminated, (ii) no amendment of the Plan which would reduce the accrual of
benefits or change participation or vesting requirements to the detriment of
existing participants in the Plan immediately prior to the restricted date shall
be permitted, and (iii) the provisions of Section 2.2(a) shall not apply with
respect to any employee whose service as an officer ceases during such period.
7.3 Subsidiaries and Affiliates. For purposes of this Section 7, a "subsidiary"
of the Corporation means any corporation more than 50 percent of the voting
stock of which is owned, directly or indirectly, by the Corporation. An
"affiliate" of the Corporation means any individual, corporation, partnership,
trust or other entity which controls, is controlled by, or is under common
control with the Corporation.
7.4 Prohibition Against Amendment. Except as otherwise required by law, the
provisions of this Section 7 may not be amended, deleted or superseded by any
other provision of the Plan, during the period beginning on a restricted date
and ending on the related unrestricted date.
7.5 Timing and Method of Distribution. During the period beginning on a
restricted date and ending on the following related unrestricted date, the
timing and methods of distributions of benefits payable to or on behalf of a
participant under the Plan and the determination of actuarially equivalent
values shall be governed by the applicable provisions of the Plan as in effect
on the date immediately preceding the restricted date.
7.6 Restricted and Unrestricted Dates. For purposes of this Section 7, the term
"restricted date" means the date on which either a Change of Control (as defined
in Subsection 7.7) or a Potential Change of Control (as defined in Subsection
7.8) occurs. An "unrestricted date" means (1) in the case of a restricted date
which occurs by reason of a Change of Control, the last day of the five year
period following such Change of Control or (2) in the case of a restricted date
occurring by reason of a Potential Change of Control, the last day of the
six-month period following such Potential Change of Control."
7.7 Change of Control. A "Change of Control" of the Corporation shall be deemed
to have occurred if:
(1) any "Person" (as such term is defined in Section 3(a)(9) of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as modified and used in Sections 13(d) and 14(d) thereof,
except that for purposes of this Section 7.7 and Section 7.8, the
term "Person" shall not include (i) the Corporation or any of its
subsidiaries, (ii) a trustee or other fiduciary holding
securities under an employee benefit plan of the Corporation or
any of its subsidiaries, (iii) an underwriter temporarily holding
securities pursuant to an offering of such securities, or (iv) a
corporation owned, directly or indirectly, by the stockholders
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<PAGE>
of the Corporation in substantially the same proportions as
their ownership of stock in the Corporation) is or becomes the
"Beneficial Owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Corporation
(not including in the securities beneficially owned by such
Person any securities acquired directly from the Corporation or
its affiliates) representing 25% or more of either the then
outstanding shares of common stock of the Corporation or the
combined voting power of the Corporation's then outstanding
voting securities; or
(2) the following individuals cease for any reason to constitute
a majority of the number of directors then serving: individuals
who, on January 1, 1996, constitute the Board and any new
director (other than a director whose initial assumption of
office is in connection with an actual or threatened election
contest, including but not limited to a consent solicitation,
relating to the election of directors of the Corporation, as
such terms are used in Rule 14a-11 of Regulation 14A under the
Exchange Act) whose appointment or election by the Board or
nomination for election by the Corporation's stockholders was
approved by a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors on January 1,
1996 or whose appointment, election or nomination for election
was previously so approved; or
(3) the stockholders of the Corporation approve a merger or
consolidation of the Corporation with any other corporation or
approve the issuance of voting securities of the Corporation in
connection with a merger or consolidation of the Corporation (or
any direct or indirect subsidiary of the Corporation) pursuant
to applicable stock exchange requirements, other than (i) a
merger or consolidation which would result in the voting
securities of the Corporation outstanding immediately prior to
such merger or consolidation continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity or any parent thereof) at
least 60% of the combined voting power of the voting securities
of the Corporation or such surviving entity or any parent
thereof outstanding immediately after such merger or
consolidation, or (ii) a merger or consolidation effected to
implement a recapitalization of the Corporation (or similar
transaction) in which no Person is or becomes the Beneficial
Owner, directly or indirectly, of securities of the Corporation
(not including in the securities beneficially owned by such
Person any securities acquired directly from the Corporation or
its affiliates) representing 25% or more of either the then
outstanding shares of common stock of the Corporation or the
combined voting power of the Corporation's then outstanding
voting securities; or
(4) the stockholders of the Corporation approve a plan of
complete liquidation or dissolution of the Corporation or an
agreement for the sale or disposition by the Corporation of all
or
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substantially all of the Corporation's assets (in one
transaction or a series of related transactions within any
period of 24 consecutive months), other than a sale or
disposition by the Corporation of all or substantially all of
the Corporation's assets to an entity, at least 75% of the
combined voting power of the voting securities of which are
owned by Persons in substantially the same proportions as their
ownership of the Corporation immediately prior to such sale.
Notwithstanding the foregoing, no "Change of Control" shall be deemed to have
occurred if there is consummated any transaction or series of integrated
transactions immediately following which the record holders of the common stock
of the Corporation immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity which owns all or substantially all of the assets of the Corporation
immediately following such transaction or series of transactions.
7.8. Potential Change of Control. A "Potential Change of Control" shall be
deemed to have occurred if :
(a) the Corporation enters into an agreement, the consummation of which
would result in the occurrence of a Change of Control;
(b) the Corporation or any person publicly announces an intention to
take or to consider taking actions which, if consummated, would
constitute a Change of Control;
(c) any person becomes the beneficial owner, directly or indirectly, of
securities of the Corporation representing 15% or more of either the
then outstanding shares of common stock of the Corporation or the
combined voting power of the Corporation's then outstanding voting
securities; or
(d) the Board adopts a resolution to the effect that, for purposes of
this plan, a Potential Change of Control has occurred.
SECTION 8 - PAYMENT OF BENEFITS DURING CREDIT RATING LIMITATION PERIOD
8.1 Effective Date and Overriding Provisions. The following provisions of this
Section 8 shall become effective upon the occurrence of a "Credit Rating
Limitation Date" (as defined in Section 8.2 below) and, upon becoming effective,
shall remain effective until a subsequent "Credit Rating Delimitation Date" (as
defined in Section 8.2 below) and, during the "Credit Rating Limitation Period"
(as defined in Section 8.2 below) shall supersede any other provisions of the
Plan, other than Section 7, to the extent necessary to eliminate any
inconsistencies between the provisions of this Section 8 and any other
provisions of the Plan, other than Section 7, including any exhibits and
supplements thereto.
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8.2 Credit Rating Limitation and Delimitation Dates. For purposes of this
Section 8, the term "Credit Rating Limitation Date" means the date on which the
Corporation's debt rating drops below an Investment Grade Rating. "Investment
Grade Rating" means a rating at or above Baa3 by Moody's Investors Services,
Inc. (or its successors) or a rating at or above BBB by Standard & Poor's
Corporation (or its successors). Only one such rating at the required level is
necessary for the Corporation to have an Investment Grade Rating for purposes of
this Section 8. If either or both of these ratings cease to be available then an
equivalent rating from a nationally prominent rating agency shall be substituted
by the Corporation. For purposes of this Section 8, the term "Credit Rating
Delimitation Date" means the date on which the Company's debt rating achieves an
Investment Grade Rating after having previously lost such rating. The period of
time commencing on a Credit Rating Limitation Date and ending on a Credit Rating
Delimitation Date shall be the "Credit Rating Limitation Period."
8.3 Benefit Payment Provisions. Upon the occurrence of a Credit Rating
Limitation Date and on each December 31 after such date occurring during the
Credit Rating Limitation Period, and prior to the occurrence of a Credit Rating
Delimitation Date, a single sum payment shall be made immediately to each
participant under the Plan of the amount by which the "Actuarial Equivalent" (as
defined in Section 8.4 below) of (a) exceeds the sum of (b) plus (c):
(a) The amount determined in Section 2.2(i) (as limited by all of Section
2.2) based upon the assumption that (1) the participant has a
nonforfeitable right to the participant's benefit from the Pension Plan,
(2) the participant incurs a termination of employment as of the date of
determination, and (3) benefits payable from the Pension Plan would
commence upon the earliest payment date allowed under the Pension Plan
immediately following such termination of employment.
(b) The Actuarial Equivalent of the amount determined in Section 2.2(ii) (as
limited by all of Section 2.2) based upon the same assumptions as in
Paragraph (a) above.
(c) The Actuarial Equivalent of the amount paid to such participant based on
any prior determination date pursuant to this Section 8.3.
8.4 Actuarial Equivalent. Actuarial Equivalent means an amount equal in value to
the benefit replaced as determined with respect to a single sum distribution
under Section 8 by using the average thirty (30) year Treasury rate for the
second full calendar month preceding the first day of the calendar quarter in
such Plan year that contains the determination date as of which the lump sum is
being determined, as specified by the Commissioner of the Internal Revenue
Service in the Internal Revenue Bulletin, and the mortality table prescribed by
the Secretary of the Treasury in revenue rulings, notices, or other guidance
pursuant to Section 807(d)(5)(A) of the Internal Revenue Code that has been
published in the Internal Revenue Bulletin as of the date such lump sum is being
determined.
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8.5 Supplemental Benefits In Payment Status During Credit Rating Limitation
Period. During a Credit Rating Limitation Period the Actuarial Equivalent
payment of any unpaid supplemental benefits in payment status under this Plan
shall be made immediately to the participant or other appropriate recipient in a
single sum amount.
8.6 No Duplication of Benefits. Under no circumstances shall a participant
receive duplicate payment of benefits under the Plan. Entitlement to periodic or
other payment of supplemental benefits is canceled when such benefits are paid
out in accordance with this Section 8.
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SNAP-ON INCORPORATED
DEFERRED AWARD AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of March 1,
1999 by and between SNAP-ON INCORPORATED, a Delaware corporation (the
"Company"), and _________, an employee of the Company (the "Key Employee").
W I T N E S S E T H :
WHEREAS, on January 21, 1999, the Organization and Executive
Compensation Committee of the Board of Directors of the Company (such committee,
whether acting as such or through the ad hoc committee of the Board to which
such committee delegated its authority in connection with this Agreement, the
"Committee") approved the grant (the "Grant") to the Key Employee of _______
(the "Grant Number") shares of the Company's common stock ("Common Stock")
pursuant to the Company's 1986 Incentive Stock Program, as amended (the "Stock
Program"), to be effective March 1, 1999; and
WHEREAS, in accordance with the terms of the Grant, the Key Employee
elected to defer receipt of all of the shares subject to the Grant by executing
an Election to Defer Compensation (the "Deferral Election") prior to the Grant's
effective date, which the Company countersigned prior to such date;
WHEREAS, the Deferral Election provides that the Grant will also be
subject to the terms of a "Deferred Award Agreement," the form of which is to be
determined by the Company, and this Agreement is intended to serve as the
additional agreement contemplated by the Deferral Election; and
WHEREAS, the Company has in effect the Snap-on Incorporated Deferred
Compensation Plan, as amended (the "Deferral Plan").
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements herein set forth, the parties hereby mutually covenant and agree
as follows:
1. Share Units. Subject to the terms and conditions set forth herein,
(a) As of March 1, 1999, the Company shall establish and maintain
bookkeeping accounts for the Key Employee relating to the Grant under the
Deferral Plan consisting of a "Cash Account" and a "Share Account."
(b) As of March 1, 1999, there shall be credited to the Share
Account a number of Share Units (as defined in the Deferral Plan) equal to the
Grant Number. From and after the time of such credit, the Key Employee shall
have the rights afforded under the Deferral Plan in respect of Share Units so
credited, except that such Share Units shall be subject to vesting and
forfeiture as set forth below.
<PAGE>
2. Vesting and Forfeiture Based on Performance. Subject to the terms
and conditions set forth herein,
(a) Unless the Key Employee has previously forfeited such Share
Units, one-half of the Share Units credited under subsection 1(b) (the "1999
Units") will vest upon the Committee's determination that the Company achieved
its target cost savings from Project Simplify of $30 million in fiscal 1999.
Conversely, upon the Committee's determination that the Company did not achieve
that target, the Key Employee will forfeit this half of the Grant.
(b) Unless the Key Employee has previously forfeited such Share
Units, one-half of the Share Units credited under subsection 1(b) (the "2000
Units") will vest upon the Committee's determination that the Company achieved
its target cost savings from Project Simplify of $60 million in fiscal 2000.
Conversely, upon the Committee's determination that the Company did not achieve
that target, the Key Employee will forfeit this half of the Grant.
(c) The accounting charge related to this Grant and other similar
grants that the Committee approved at the time of this Grant will not be a
"cost" that will be part of the cost savings calculation as an offset against
cost savings otherwise realized.
(d) On the basis of information available to the Committee
concerning the level of cost savings the Company has achieved, the Committee
will confirm whether the cost savings targets have been reached promptly after
such information is available and communicate its determination to the Key
Employee.
3. Forfeiture Based on Employment Status. Subject to the terms and
conditions set forth herein,
(a) In addition to any rights of the Company under Section 9, the
Key Employee will forfeit any Share Units credited under subsection 1(b) as to
which the Committee has not made its vesting determination under Section 2
("Unvested Units") if the Key Employee's employment with the Company or its
subsidiaries is terminated for any reason prior to such determination unless the
Committee determines, on such terms and conditions, if any, as the Committee may
impose, that there may nonetheless be vesting of all or a portion of the Award
at the time of such determination or at any other time. Absence of the Key
Employee on leave approved by a duly elected officer of the Company, other than
the Key Employee, shall not be considered a termination of employment during the
period of such leave.
(b) Notwithstanding the foregoing, in the case of termination of
employment as a result of death or Total Disability (as defined below), (i) the
Grant shall vest or be forfeited in respect of the 1999 Units in accordance with
Section 2(a) as if employment continued if the death or disability occurs in
1999 or in 2000 prior to the Committee's determination under Section 2(a) and
(ii) the Grant shall vest or be forfeited in respect of the 2000 Units in
accordance with Section 2(b) as if employment continued if the death or
disability occurs in 2000 or in 2001 prior to the Committee's determination
under Section 2(b).
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<PAGE>
(c) As used herein, "Total Disability" means the complete and
permanent inability of the Key Employee to perform all of his duties under the
terms of his employment with the Company, as determined by the Committee or any
successor to such committee that administers the Stock Program (as the same may
be amended), or if no such committee has been appointed, by the Board of
Directors of the Company (such body, the "Determining Committee") upon the basis
of such evidence, including independent medical reports and data, as the
Determining Committee deems appropriate or necessary.
4. Dividends. Dividends on the Common Stock will result in a credit
to the Cash Account pursuant to Section 5.3(c) of the Deferral Plan. However,
the Key Employee will forfeit such credit and any related Growth Increments (as
defined in the Deferral Plan) upon any forfeiture of the related Share Units.
5. No Diversification. Notwithstanding Section 5.3(a) and Section
5.3(d) of the Deferral Plan, (a) the Key Employee shall not have any right under
Section 5.3(d) of the Deferral Plan to convert all or a portion of any Unvested
Units into an amount to be credited to the Cash Account and (b) the Key Employee
shall not have any right under Section 5.3(a) of the Deferral Plan to convert
all or a portion of any amount credited to the Cash Account in respect of
Unvested Units into an amount to be credited to the Share Account.
6. Deferral Period.
(a) The deferral period with respect to the Grant for purposes of
Section 4.2 of the Deferral Plan shall extend until the date set forth on the
signature page hereto.
(b) Notwithstanding the deferral period specified, but subject to
Section 11 and to any election that the Key Employee makes in accordance with
the Deferral Plan, payments shall begin following the earliest to occur of (i)
death, (ii) total and permanent disability, (iii) retirement, or (iv)
termination of employment.
7. Manner of Payment. Deferred amounts shall be paid in a lump sum or
in installments as set forth on the signature page hereto.
8. Changes in Deferral Period and Manner of Payment. The Key Employee
may change the manner in which the deferred amount will be paid and/or delay the
date such payments are to commence by written election made in accordance with
the Deferral Plan.
9. Detrimental Activity.
(a) Activity During Employment. If, prior to termination of the
Key Employee's employment with the Company or during the one-year period
following termination of the Key Employee's employment with the Company, the
Company becomes aware that, prior to termination, the Key Employee had engaged
in detrimental activity, then the Committee in its sole discretion, for purposes
of this Agreement, may characterize or recharacterize termination of the Key
Employee's employment as a termination to which this Section 9 applies and may
determine or redetermine the date of such termination, and the Key
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<PAGE>
Employee's rights with respect to the Grant shall be determined in accordance
with the Committee's determination.
(b) Activity Following Termination. If, within the three-month
period following the Key Employee's termination of employment with the Company,
the Company becomes aware that the Key Employee has engaged in detrimental
activity subsequent to termination, then the Key Employee's rights with respect
to the Grant shall be determined in accordance with any determination by the
Committee under this Section 9.
(c) Remedies. If the Key Employee has engaged in detrimental
activity as described in subsections (a) and (b), then the Committee may, in its
discretion, cancel any (or all) amounts credited to the Key Employee's Share
Account and/or Cash Account in respect of the Grant and/or cause the Key
Employee to return any cash or property actually realized by the Key Employee
(directly or indirectly) in respect of the Grant, in each case whether or not
the Committee has made a vesting determination under Section 2 in respect
thereof before or after the date the Key Employee engaged in the detrimental
activity or before or after the date of termination as determined or
redetermined under subsection (a).
(d) Allegations of Activity. If an allegation of detrimental
activity by the Key Employee is made to the Committee, then the Committee may
suspend the Key Employee's rights in respect of the Grant to permit the
investigation of such allegation.
(e) Definition of "Detrimental Activity". For purposes of this
Agreement, "detrimental activity" means activity that is determined by the
Committee in its sole discretion to be detrimental to the interests of the
Company or any of its subsidiaries, including but not limited to situations
where the Key Employee (i) divulges trade secrets of the Company, proprietary
data or other confidential information relating to the Company or to the
business of the Company or any subsidiaries, (ii) enters into employment with a
competitor under circumstances suggesting that the Key Employee will be using
unique or special knowledge gained as an employee of the Company to compete with
the Company, (iii) uses information obtained during the course of his prior
employment with the Company for his own purposes, such as for the solicitation
of business and competition with the Company, (iv) is determined to have engaged
(whether or not prior to termination due to retirement) in either gross
misconduct or criminal activity harmful to the Company, or (v) takes any action
that harms the business interests, reputation or goodwill of the Company and/or
its subsidiaries.
10. Beneficiary. The person whose name appears on the signature page
hereof after the caption "Beneficiary," if any, shall be the beneficiary of the
Key Employee designated pursuant to Section 7 of the Deferral Plan.
11. Change in Control. In the event of a "Change of Control" (as
defined in the Deferral Plan), any Unvested Units shall immediately vest, unless
the Key Employee has previously forfeited such Share Units, and the Key Employee
shall be entitled to payments in respect thereof in accordance with Section 16.2
of the Deferral Plan and/or applicable provisions of the Stock Program.
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<PAGE>
12. Voting Rights. Until such time, if any, as certificates
representing shares of Common Stock are delivered to the Key Employee in
accordance with the Deferral Plan, the Key Employee shall have no voting rights
in respect of the Grant or Share Units.
13. Tax Withholding. The Company and the Key Employee shall have
rights with respect to tax withholding as set forth in Section 13 of the
Deferral Plan. Without limitation, the Company shall be entitled to withhold any
taxes due and payable in accordance with Section 3121(v) of the Internal Revenue
Code from any payments due to the Key Employee.
14. Adjustments in Event of Change in Stock. In the event of any
reclassification, subdivision or combination of shares of Common Stock, merger
or consolidation of the Company or sale by the Company of all or a portion of
its assets, or other event which could, in the judgment of the Committee,
distort the implementation of the Grant or the realization of its objectives,
the Committee may make such adjustments in the number of Share Units under this
Agreement, or in the terms, conditions or restrictions of this Agreement, as the
Committee deems equitable; provided that in the absence of express action by the
Committee, adjustments that apply generally to Share Units credited under the
Deferral Plan shall apply automatically to the number of Share Units under this
Agreement.
15. Powers of Company Not Affected. The existence of the Grant shall
not affect in any way the right or power of the Company or its stockholders to
make or authorize any combination, subdivision or reclassification of the Common
Stock or any reorganization, merger, consolidation, business combination,
exchange of shares, or other change in the Company's capital structure or its
business, or any issue of bonds, debentures or stock having rights or
preferences equal, superior or affecting the Common Stock or the rights thereof,
or dissolution or liquidation of the Company, or any sale or transfer of all or
any part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise. Nothing in this Agreement shall
confer upon the Key Employee any right to continue in the employment of the
Company or interfere with or limit in any way the right of the Company to
terminate the Key Employee's employment at any time.
16. Interpretation by Committee. The Key Employee agrees that any
dispute or disagreement that may arise in connection with this Agreement shall
be resolved by the Committee, in its sole discretion, and that any
interpretation by the Committee of the terms of this Agreement, the Stock
Program or the Deferral Plan and any determination made by the Committee under
this Agreement or such plans may be made in the sole discretion of the Committee
and shall be final, binding, and conclusive.
17. Miscellaneous.
(a) This Agreement shall be governed and construed in accordance
with the laws of the State of Wisconsin applicable to contracts made and to be
performed therein between residents thereof.
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<PAGE>
(b) This Agreement may not be amended or modified except by the
written consent of the parties hereto.
(c) The captions of this Agreement are inserted for convenience of
reference only and shall not be taken into account in construing this Agreement.
(d) Any notice, filing or delivery hereunder or with respect to
the Grant shall be given to the Key Employee at either his usual work location
or his home address as indicated in the records of the Company, and shall be
given to the Committee or the Company at 10801 Corporate Drive, Kenosha,
Wisconsin 53142, Attention: Secretary. All such notices shall be given by first
class mail, postage pre-paid, or by personal delivery.
(e) This Agreement shall be binding upon and inure to the benefit
of the Company and its successors and assigns and shall be binding upon and
inure to the benefit of the Key Employee, his beneficiary and the personal
representative(s) and heirs of the Key Employee.
18. Deferral Matters.
(a) The Key Employee understands that (i) as a result of this
Agreement, no restricted stock, cash or other property will be deliverable to
the Key Employee in respect of the Grant until the date identified pursuant to
Section 6, and (ii) all amounts deferred pursuant to this Agreement shall be
reflected in an unfunded account established for the Key Employee by the
Company, payment of the Company's obligation will be from general funds, and no
special assets (stock, cash or otherwise) have been or will be set aside as
security for this obligation.
(b) The Key Employee understands and agrees that the Key
Employee's rights to payments hereunder are not subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or
garnishment by the Key Employee's creditors or the creditors of his
beneficiaries, whether by operation of law or otherwise, and any attempted sale,
transfer, assignment, pledge, or encumbrance with respect to such payment shall
be null and void, and shall be without legal effect and shall not be recognized
by the Company.
(c) The Key Employee understands and agrees that his right to
receive payments hereunder is that of a general, unsecured creditor of the
Company, and that this Agreement constitutes a mere promise by the Company to
pay such benefits in the future. Further, it is the intention of the parties
hereto that the arrangements hereunder be unfunded for tax purposes and for
purposes of Title I of ERISA.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed by its duly authorized officer and its corporate seal hereunto affixed,
and the Key Employee has hereunto affixed his hand and seal, all on the day and
year set forth below.
SNAP-ON INCORPORATED
By: __________________________________
Title:
Key Employee:
____________________________________(Seal)
____________________
Beneficiary: ____________________________
Address of Beneficiary:
_________________________________________
_________________________________________
Beneficiary Tax Identification
No. _____________________________________
DEFERRAL PLAN MATTERS
DATE PAYMENTS COMMENCE
Specified Date: ______________________________________________________________
(Not earlier than 3/1/2004)
FORM OF PAYMENT
____ Lump sum payment.
____ Annual installment payments for _______ years (not to exceed 10).
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<PAGE>
SNAP-ON INCORPORATED
RESTRICTED STOCK AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of March 1,
1999 by and between SNAP-ON INCORPORATED, a Delaware corporation (the
"Company"), and _________, an employee of the Company (the "Key Employee").
W I T N E S S E T H :
WHEREAS, on January 21, 1999, the Organization and Executive
Compensation Committee of the Board of Directors of the Company (such committee,
whether acting as such or through the ad hoc committee of the Board to which
such committee delegated its authority in connection with this Agreement, the
"Committee") approved the grant (the "Grant") to the Key Employee of _______
(the "Grant Number") shares of the Company's common stock ("Common Stock")
pursuant to the Company's 1986 Incentive Stock Program, as amended (the "Stock
Program"), to be effective March 1, 1999; and
WHEREAS, the Grant contemplated that the Grant will also be subject to
the terms of an award agreement, the form of which is to be determined by the
Company, and this Agreement is intended to serve as the additional agreement
contemplated by the Grant.
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements herein set forth, the parties hereby mutually covenant and agree
as follows:
1. Restricted Shares. Subject to the terms and conditions set forth
herein, as of March 1, 1999, the Company hereby awards to the Key Employee a
number of shares of Common Stock (the "Restricted Shares") equal to the Grant
Number which shall be subject to vesting and forfeiture as set forth below.
Except as otherwise provided herein, no Restricted Share may be sold,
transferred or otherwise alienated or hypothecated until such Restricted Share
vests as provided herein.
2. Escrow.
(a) The Company shall cause certificates for Restricted Shares to
be issued as soon as practicable in the name of the Key Employee, but the
Company, as escrow agent, shall hold such shares in escrow. Upon issuance of
such certificates, (i) the Company shall give the Key Employee a receipt for the
Restricted Shares held in escrow which will state that the Company holds such
Restricted Shares in escrow for the account of the Key Employee, subject to the
terms of this Agreement, and (ii) the Key Employee shall give the Company a
stock power for such Restricted Shares duly endorsed in blank which will be held
in escrow for use in the event such Restricted Shares are forfeited in whole or
in part.
(b) Unless theretofore forfeited as provided herein, Restricted
Shares and any other property held in escrow pursuant to this Agreement shall
cease to be held in escrow, and
<PAGE>
the Company shall release such certificates for such Restricted Shares, and any
related property held in escrow (without interest), to the Key Employee, or in
the case of his death, to his Beneficiary (as hereinafter defined) when such
Restricted Shares vest as provided herein at which time such shares shall be
freely transferable by the Key Employee or his Beneficiary.
(c) Restricted Shares and any other property held in escrow
pursuant to this Agreement shall cease to be held in escrow, and the Company may
assume possession thereof in its own right, when the Key Employee forfeits such
Restricted Shares as provided herein.
3. Vesting and Forfeiture Based on Performance. Subject to the terms
and conditions set forth herein,
(a) Unless the Key Employee has previously forfeited such
Restricted Shares, one-half of the Restricted Shares (the "1999 Shares") will
vest upon the Committee's determination that the Company achieved its target
cost savings from Project Simplify of $30 million in fiscal 1999. Conversely,
upon the Committee's determination that the Company did not achieve that target,
the Key Employee will forfeit this half of the Grant.
(b) Unless the Key Employee has previously forfeited such
Restricted Shares, one-half of the Restricted Shares (the "2000 Shares") will
vest upon the Committee's determination that the Company achieved its target
cost savings from Project Simplify of $60 million in fiscal 2000. Conversely,
upon the Committee's determination that the Company did not achieve that target,
the Key Employee will forfeit this half of the Grant.
(c) The accounting charge related to this Grant and other similar
grants that the Committee approved at the time of this Grant will not be a
"cost" that will be part of the cost savings calculation as an offset against
cost savings otherwise realized.
(d) On the basis of information available to the Committee
concerning the level of cost savings the Company has achieved, the Committee
will confirm whether the cost savings targets have been reached promptly after
such information is available and communicate its determination to the Key
Employee.
4. Forfeiture Based on Employment Status. Subject to the terms and
conditions set forth herein,
(a) In addition to any rights of the Company under Section 5, the
Key Employee will forfeit any Restricted Shares as to which the Committee has
not made its vesting determination under Section 3 ("Unvested Shares") if the
Key Employee's employment with the Company or its subsidiaries is terminated for
any reason prior to such determination unless the Committee determines, on such
terms and conditions, if any, as the Committee may impose, that there may
nonetheless be vesting of all or a portion of the Award at the time of such
determination or at any other time. Absence of the Key Employee on leave
approved by a duly elected officer of the Company, other than the Key Employee,
shall not be considered a termination of employment during the period of such
leave.
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<PAGE>
(b) Notwithstanding the foregoing, in the case of termination of
employment as a result of death or Total Disability (as defined below), (i) the
Grant shall vest or be forfeited in respect of the 1999 Shares in accordance
with Section 3(a) as if employment continued if the death or disability occurs
in 1999 or in 2000 prior to the Committee's determination under Section 3(a) and
(ii) the Grant shall vest or be forfeited in respect of the 2000 Shares in
accordance with Section 3(b) as if employment continued if the death or
disability occurs in 2000 or in 2001 prior to the Committee's determination
under Section 3(b).
(c) As used herein, "Total Disability" means the complete and
permanent inability of the Key Employee to perform all of his duties under the
terms of his employment with the Company, as determined by the Committee or any
successor to such committee that administers the Stock Program (as the same may
be amended), or if no such committee has been appointed, by the Board of
Directors of the Company (such body, the "Determining Committee") upon the basis
of such evidence, including independent medical reports and data, as the
Determining Committee deems appropriate or necessary.
5. Detrimental Activity.
(a) Activity During Employment. If, prior to termination of the
Key Employee's employment with the Company or during the one-year period
following termination of the Key Employee's employment with the Company, the
Company becomes aware that, prior to termination, the Key Employee had engaged
in detrimental activity, then the Committee in its sole discretion, for purposes
of this Agreement, may characterize or recharacterize termination of the Key
Employee's employment as a termination to which this Section 5 applies and may
determine or redetermine the date of such termination, and the Key Employee's
rights with respect to the Grant shall be determined in accordance with the
Committee's determination.
(b) Activity Following Termination. If, within the three-month
period following the Key Employee's termination of employment with the Company,
the Company becomes aware that the Key Employee has engaged in detrimental
activity subsequent to termination, then the Key Employee's rights with respect
to the Grant shall be determined in accordance with any determination by the
Committee under this Section 5.
(c) Remedies. If the Key Employee has engaged in detrimental
activity as described in subsections (a) and (b), then the Committee may, in its
discretion, declare that the Key Employee has forfeited the Grant in whole or in
part and cause the Company to assume possession of any or all property held in
escrow in respect of the Grant in its own right and/or cause the Key Employee to
return any cash or property actually realized by the Key Employee (directly or
indirectly) in respect of the Grant, in each case whether or not the Committee
has made a vesting determination under Section 3 in respect thereof before or
after the date the Key Employee engaged in the detrimental activity or before or
after the date of termination as determined or redetermined under subsection
(a).
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<PAGE>
(d) Allegations of Activity. If an allegation of detrimental
activity by the Key Employee is made to the Committee, then the Committee may
suspend the Key Employee's rights in respect of the Grant to permit the
investigation of such allegation.
(e) Definition of "Detrimental Activity". For purposes of this
Agreement, "detrimental activity" means activity that is determined by the
Committee in its sole discretion to be detrimental to the interests of the
Company or any of its subsidiaries, including but not limited to situations
where the Key Employee (i) divulges trade secrets of the Company, proprietary
data or other confidential information relating to the Company or to the
business of the Company or any subsidiaries, (ii) enters into employment with a
competitor under circumstances suggesting that the Key Employee will be using
unique or special knowledge gained as an employee of the Company to compete with
the Company, (iii) uses information obtained during the course of his prior
employment with the Company for his own purposes, such as for the solicitation
of business and competition with the Company, (iv) is determined to have engaged
(whether or not prior to termination due to retirement) in either gross
misconduct or criminal activity harmful to the Company, or (v) takes any action
that harms the business interests, reputation or goodwill of the Company and/or
its subsidiaries.
6. Change in Control. In the event of a "Change of Control" (as
defined in the Stock Program), any Unvested Shares shall immediately vest,
unless the Key Employee has previously forfeited such Restricted Shares.
7. Voting Rights; Dividends and Other Distributions.
(a) While the Restricted Shares are subject to restrictions under
Section 1 and prior to any forfeiture thereof, the Key Employee may exercise
full voting rights for the Restricted Shares registered in his name and held in
escrow hereunder.
(b) While the Restricted Shares are subject to the restrictions
under Section 1 and prior to any forfeiture thereof, all dividends and other
distributions paid with respect to the Restricted Shares shall be held in escrow
pursuant to Section 2 and shall be subject to the same restrictions as the
Restricted Shares with respect to which they were paid.
(c) Subject to the provisions of this Agreement, the Key Employee
shall have, with respect to the Restricted Shares, all other rights of holders
of Common Stock.
8. Tax Withholding; Repurchase.
(a) It shall be a condition of the obligation of the Company to
issue or release from escrow Restricted Shares to the Key Employee or the
Beneficiary, and the Key Employee agrees, that the Key Employee shall pay to the
Company, upon its demand, such amount as may be requested by the Company for the
purpose of satisfying its liability to withhold federal, state, or local income
or other taxes incurred by reason of the Award or as a result of the vesting
hereunder or shall provide evidence satisfactory to the Company that the Company
has no liability to withhold.
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<PAGE>
(b) At each time the Company is obligated to issue or release from
escrow Restricted Shares to the Key Employee or the Beneficiary, the Key
Employee or the Beneficiary, as the case may be, may elect to have the Company
repurchase up to 40% of the Restricted Shares to be so issued or released at a
price equal to the Fair Market Value (as defined below) on the Tax Date (as
defined below). The election must be delivered to the Company within 30 days
after the Tax Date. If the number of shares so determined shall include a
fractional share, then the Company shall not be obligated to repurchase such
fractional share. All elections shall be made in a form acceptable to the
Company. As used herein, (i) "Tax Date" means the date on which the Key Employee
must include in his gross income tax purposes the fair market value of the
Restricted Shares and (ii) "Fair Market Value" means the per share closing price
on the date in question in the principal market in which the Common Stock is
then traded or, if no sales of Common Stock have taken place on such date, the
closing price on the most recent date on which selling prices were quoted.
9. Beneficiary.
(a) The person whose name appears on the signature page hereof
after the caption "Beneficiary" or any successor that the Key Employee
designates in accordance herewith (the person who is the Key Employee's
Beneficiary at the time of his death herein referred to as the "Beneficiary")
shall be entitled to receive such portion, if any, of the Restricted Shares that
vests following the death of the Key Employee. The Key Employee may from time to
time revoke or change his Beneficiary without the consent of any prior
Beneficiary by filing a new designation with the Committee. The last such
designation that the Committee receives shall be controlling; provided, however,
that no designation, or change or revocation thereof, shall be effective unless
received by the Committee prior to the Key Employee's death, and in no event
shall any designation be effective as of a date prior to such receipt.
(b) If no such Beneficiary designation is in effect at the time of
the Key Employee's death, or if no designated Beneficiary survives the Key
Employee or if such designation conflicts with law, then the Key Employee's
estate shall be entitled to receive the portion, if any, of the Restricted
Shares that vests following the death of the Key Employee. If the Committee is
in doubt as to the right of any person to receive such Restricted Shares, then
the Company may retain such Restricted Shares, without liability for any
interest thereon, until the Committee determines the person entitled thereto, or
the Company may deliver such Restricted Shares to any court of appropriate
jurisdiction, and such delivery shall be a complete discharge of the liability
of the Company therefor.
10. Adjustments in Event of Change in Stock. In the event of any
reclassification, subdivision or combination of shares of Common Stock, merger
or consolidation of the Company or sale by the Company of all or a portion of
its assets, or other event which could, in the judgment of the Committee,
distort the implementation of the Grant or the realization of its objectives,
the Committee may make such adjustments in the number of Restricted Shares under
this Agreement, or in the terms, conditions or restrictions of this Agreement,
as the Committee deems equitable; provided that in the absence of express action
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<PAGE>
by the Committee, adjustments that apply generally to Restricted Shares granted
under the Stock Program shall apply automatically to the Restricted Shares under
this Agreement.
11. Powers of Company Not Affected. The existence of the Grant shall
not affect in any way the right or power of the Company or its stockholders to
make or authorize any combination, subdivision or reclassification of the Common
Stock or any reorganization, merger, consolidation, business combination,
exchange of shares, or other change in the Company's capital structure or its
business, or any issue of bonds, debentures or stock having rights or
preferences equal, superior or affecting the Common Stock or the rights thereof,
or dissolution or liquidation of the Company, or any sale or transfer of all or
any part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise. Nothing in this Agreement shall
confer upon the Key Employee any right to continue in the employment of the
Company or interfere with or limit in any way the right of the Company to
terminate the Key Employee's employment at any time.
12. Certificate Legend. Each certificate for Restricted Shares shall
bear the following legend:
The sale or other transfer of the shares of stock represented by this
certificate, whether voluntary, or by operation of law, is subject to
certain restrictions set forth in the Restricted Stock Award Agreement
between Snap-on Incorporated and the registered owner hereof. A copy of
such Agreement may be obtained from the Secretary of Snap-on
Incorporated.
When the restrictions imposed by Section 1 terminate, the Key Employee shall be
entitled to have the foregoing legend removed from the certificates representing
such Restricted Shares.
13. Interpretation by Committee. The Key Employee agrees that any
dispute or disagreement that may arise in connection with this Agreement shall
be resolved by the Committee, in its sole discretion, and that any
interpretation by the Committee of the terms of this Agreement or the Stock
Program and any determination made by the Committee under this Agreement or such
plan may be made in the sole discretion of the Committee and shall be final,
binding, and conclusive.
14. Miscellaneous.
(a) This Agreement shall be governed and construed in accordance
with the laws of the State of Wisconsin applicable to contracts made and to be
performed therein between residents thereof.
(b) This Agreement may not be amended or modified except by the
written consent of the parties hereto.
(c) The captions of this Agreement are inserted for convenience of
reference only and shall not be taken into account in construing this Agreement.
-6-
<PAGE>
(d) Any notice, filing or delivery hereunder or with respect to
the Grant shall be given to the Key Employee at either his usual work location
or his home address as indicated in the records of the Company, and shall be
given to the Committee or the Company at 10801 Corporate Drive, Kenosha,
Wisconsin 53142, Attention: Secretary. All such notices shall be given by first
class mail, postage pre-paid, or by personal delivery.
(e) This Agreement shall be binding upon and inure to the benefit
of the Company and its successors and assigns and shall be binding upon and
inure to the benefit of the Key Employee, the Beneficiary and the personal
representative(s) and heirs of the Key Employee, except that the Key Employee
may not transfer any interest in any Restricted Shares prior to the release of
the restrictions imposed by Section 1.
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed by its duly authorized officer and its corporate seal hereunto affixed,
and the Key Employee has hereunto affixed his hand and seal, all on the day and
year set forth below.
SNAP-ON INCORPORATED
By: ___________________________________
Title:
Key Employee:
_________________________________(Seal)
______________________
Beneficiary: __________________________
Address of Beneficiary:
_______________________________________
_______________________________________
Beneficiary Tax Identification
No. ___________________________________
-7-
Exhibit (12)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(amounts in thousands)
1999 1998 1997
---- ---- ----
Net Earnings (Loss) $127,227 $(4,779) $150,366
Add:
Income taxes 70,710 15,619 88,310
Minority interest in earnings of
consolidated subsidiaries 177 4,228 4,461
-------- ------- --------
Net Earnings as Defined 198,114 15,068 243,137
Fixed Charges:
Interest on debt 27,358 21,254 17,654
Interest element of rentals 5,031 3,595 3,630
-------- ------- --------
Total Fixed Charges 32,389 24,849 21,284
Total Adjusted Earnings Available for
For Payment of Fixed Charges $230,503 $39,917 $264,421
-------- ------- --------
Ratio of Earnings to Fixed Charges 7.1 1.6 12.4
======== ======= ========
For purpose of computing this ratio, "earnings" consist of (a) income from
continuing operations before income taxes (adjusted for minority interest) and
(b) "fixed charges" consist of interest on debt and the estimated interest
portion of rents.
Snap-on Incorporated 1999 Annual Report 17
Management's Discussion and Analysis of Results of Operations and Financial
Condition
Results of Operations
OVERVIEW: Snap-on Incorporated is a leading global developer,
manufacturer, marketer and distributor of tool, diagnostic and equipment
solutions for professional tool users in transportation service, industrial and
other commercial applications worldwide. Snap-on's mission is to delight its
customers by providing productivity-enhancing, innovative products, services and
solutions. The Corporation has two business segments: Global Transportation,
which serves the worldwide dealer van channel, and Global Operations, which is
the Company's worldwide non-dealer tool and equipment products business. The
Corporation offers financing for the purchase of products primarily through its
50%-owned financial services joint venture and, in certain instances, through a
captive credit subsidiary. Product lines include hand and power tools,
diagnostics and shop equipment, tool storage, diagnostics software and repair
information, and other related services. Snap-on goes to market with multiple
brands and through multiple channels of distribution.
CONSOLIDATED RESULTS: Net sales in 1999 increased 9.8% to a record
$1.946 billion over the $1.773 billion posted in 1998. It was the eighth
consecutive year of record sales for the Corporation. Comparable organic sales
growth increased 5%, driven primarily by revenue gains in its Global
Transportation segment and in the North American portion of its Global
Operations segment. Increases in unit volumes were the primary contributor to
the increase in organic growth in 1999. Acquisitions, net of divestitures,
contributed an additional 7% to growth, partially offset by a 1% decline from
the sale of emissions-testing equipment and a 1% decline from the translation of
foreign-currency-denominated results into U.S. dollars. In 1998, net sales rose
6.0%. Excluding the results of acquisitions completed in 1998, sales declined
approximately 1%. The unanticipated difficulties encountered in implementing the
Corporation's new enterprisewide computer system, weakness in the Asia/Pacific
region and difficult comparisons against 1997, which contained an unusually high
level of emissions-testing equipment sales and was a 53-week year, affected
sales growth in 1998. Additionally, currency translations impacted sales
negatively by 1% in 1998.
(Amounts in thousands
except per share data) 1999 1998 1997
- --------------------------------------------------------------------------------
Sales $1,945,621 $1,772,637 $1,672,215
Net earnings (loss) 127,227 (4,779) 150,366
Earnings (loss) per common
share - basic $2.18 $(.08) $2.47
Earnings (loss) per common
share - diluted $2.16 $(.08) $2.44
In 1999, net earnings of the Corporation were $127.2 million, or $2.16
in earnings per share - diluted. This compares with a net loss in 1998 of $4.8
million, or $.08 per share. Included in 1999 net earnings is an after-tax charge
of $23.3 million, or $.40 per share - diluted, for restructuring and other
non-recurring items associated with the Corporation's restructuring initiative,
Project Simplify, launched in September 1998 (see page 20, Restructuring and
Other Charges). In 1998, the net loss included an after-tax charge of $107.6
million, or $1.82 per share - diluted, for restructuring and other non-recurring
items related to Project Simplify. Net earnings excluding these restructuring
and other non-recurring items was up 46.7% in 1999. The improvement in 1999 net
earnings, before the impact of the restructuring and other non-recurring
charges, was driven primarily by the increase in operating earnings from the
Global Transportation and Global Operations segments. Operating earnings from
these segments increased to $189.1 million, or 9.7% of net sales, compared with
$118.1 million, or 6.7% of net sales in 1998. This increase was due to cost
savings realized from Project Simplify activities, an improvement in
productivity, and growth in net sales. The net loss in 1998 was due to the
restructuring and other non-recurring costs associated with implementing Project
Simplify and to the increased costs and lost sales associated with the
unanticipated difficulties of aligning internal processes with a new
enterprisewide computer system. In addition, there were higher costs related to
the increased organizational complexity of the company - the result of numerous
acquisitions over the preceding six years. In 1997, the Corporation had $150.4
million in net earnings, or $2.44 in earnings per share - diluted, the result of
higher sales, particularly from emissions-related product, and improved margins
due to lower operating expenses as a percent of sales.
COSTS AND PROFIT MARGINS: The gross profit margin increased to 46.1%
in 1999, compared with 43.1% in 1998. It was 50.5% in 1997. The improvement in
1999 was related primarily to cost savings from Project Simplify actions and
improved leverage from the higher level of sales, partially offset by a shift in
business mix, related primarily to the acquisition of the Bahco Group AB
("Bahco"), and expense related to the discontinuance of emissions-testing
equipment. Bahco, compared to the Corporation's historical profile, has both a
lower gross profit margin and lower operating expenses as a percent of net
sales, which result from its focus on sales to distributors. Included in the
cost of goods sold in 1999 were $16.6 million of non-recurring charges. The
decline in the 1998 gross margin was due to a change in business mix resulting
from several equipment acquisitions and a less favorable
<PAGE>
18 Snap-on Incorporated 1999 Annual Report
Management's Discussion and Analysis (continued)
product mix. Also negatively impacting 1998 were higher costs related to the
shipping of hand tools as a result of the difficulties in implementing the
Corporation's new computer system. Included in 1998 cost of goods sold were
$60.6 million of non-recurring charges related to Project Simplify and a $14.1
million reduction in inventory related to the conversion to the new computer
system. Sales per employee, a common measurement of productivity, increased 4%
in 1999 following an increase of 1% in 1998.
Margin Analysis
- ---------------
1995 - 1,292 Net sales in $ millions
- 51.3% Gross profit margin
- 9.7% Earnings margin from reportable segments
1996 - 1,485 Net sales in $ millions
- 50.5% Gross profit margin
- 10.5% Earnings margin from reportable segments
1997 - 1,672 Net sales in $ millions
- 50.5% Gross profit margin
- 11.6% Earnings margin from reportable segments
1998 - 1,773 Net sales in $ millions
- 43.1% Gross profit margin
- 6.7% Earnings margin from reportable segments
1999 - 1,946 Net sales in $ millions
- 46.1% Gross profit margin
- 9.7% Earnings margin from reportable segments
Total operating expenses as a percent of net sales decreased to 37.2%
in 1999 from 39.8% in 1998. It was 38.9% in 1997. The decline in 1999 resulted
primarily from Project Simplify actions to streamline activities and lower costs
throughout the Corporation. Also contributing to the decrease was a shift in the
business mix related to the acquisition of Bahco, partially offset by
acquisition-related charges. The increase in 1998 was due primarily to lower
productivity and higher costs for additional labor and freight because of
difficulties associated with the new computer system. These higher costs, along
with the influence of acquisitions, caused total operating expenses to increase
$55.6 million over 1997. Research and engineering costs for the development of
new and improved products, as well as process improvements, are included in
operating expenses. These costs were $50.2 million, $48.6 million and $46.5
million in 1999, 1998 and 1997. In 1999, approximately 300 new products were
launched. More than 10% of total sales in 1999 were generated from the sale of
products introduced during the prior 12 months.
Operating Expenses as
a Percent of Net sales
- ----------------------
1995 - 41.6
1996 - 40.0
1997 - 38.9
1998 - 39.8
1999 - 37.2
Research & Development
in $ millions
- ----------------------
1995 - 34
1996 - 42
1997 - 47
1998 - 49
1999 - 50
SEGMENT RESULTS: During the fourth quarter of 1999, the Corporation
adopted a new management organization structure, which changed the manner in
which it reports its operating segments. The following review reflects the new
organizational structure and does not include the allocation by reportable
segment of the restructuring and other non-recurring charges. See Note 15 for
additional information, including a more complete description of the segments.
(Amounts in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Net sales from external customers
Global Transportation $1,050,922 $1,009,863 $1,001,078
Global Operations 894,699 762,774 671,137
- --------------------------------------------------------------------------------
Total from reportable segments $1,945,621 $1,772,637 $1,672,215
================================================================================
Earnings
Global Transportation $ 120,020 $ 90,169 $ 130,646
Global Operations 69,107 27,896 63,000
- --------------------------------------------------------------------------------
Total from reportable segments $ 189,127 $ 118,065 $ 193,646
================================================================================
Net sales in Global Transportation, the Corporation's business serving
the dealer van channel worldwide, increased 4.1%, driven primarily by continued
strength in the dealer channel in North America and a 1% average increase in
selling price. Increased dealer productivity led to a 6% sales increase in North
America. A sales gain in the Asia/Pacific region was partially offset by a
currency-impacted sales decline in Europe. Sales of hand and power tools, tool
storage and handheld diagnostics scan tools increased in 1999, partially
resulting from the successful introduction of new products. Among the new
products were a more powerful impact wrench, new soft-grip screwdrivers, new
tool storage products and upgraded diagnostics software. Operating earnings
increased 33.1% in 1999, benefiting from lower costs as a result of Project
Simplify actions and the absence of the additional costs in 1998 arising from
the computer-conversion difficulties, an improved product mix, and the higher
level of sales. The 0.9% sales increase in 1998 over 1997 was due to an
improvement in North American dealer sales, partially offset by a decline in
sales of emissions-testing equipment and lost sales arising from difficulties in
implementing the Corporation's new enterprisewide computer system. Currency
translation negatively impacted sales growth by 1% in 1998. Higher costs and
lower productivity associated with operating the business during the
difficulties of implementing the new computer system contributed to the 31.0%
decline in
<PAGE>
Snap-on Incorporated 1999 Annual Report 19
operating earnings in 1998. These higher costs included additional freight and
labor in an effort to improve customer order fill rates and distribution
services hampered by the computer conversion. Sales in 1997 benefited from the
launch of several large emissions programs, the successful introduction of new
products and an additional week in the accounting period. Operating earnings in
1997 benefited from the increase in sales, improvements in productivity and
expense control, higher selling prices, and the additional week in the
accounting period.
Net sales in Global Operations, the Corporation's business operations
serving the direct sales and distributor sales channels, increased 17.3% in
1999. The increase was due to the Bahco acquisition, the contribution of
businesses acquired in 1998, growth in sales to industrial customers and
incremental sales to new-car dealerships from equipment facilitation programs
for vehicle manufacturers, partially offset by soft equipment sales and negative
currency effects in Europe. Currency translation negatively impacted segment
sales growth by 2%. Excluding acquisitions and the negative currency impact,
sales increased 3% in 1999. Operating earnings increased 147.7% in 1999 due to
cost savings from Project Simplify actions, the absence of the costs in 1998
related to the enterprisewide computer systems conversion, improved productivity
and expense control, improving profitability in Europe, and the higher level of
sales. Sales increased 13.7% in 1998 due to the contribution from newly acquired
businesses and the addition of new products, such as cordless power tools, new
shop management software and a line of palm sanders. The increase was partially
offset by the difficulties in shipping tools to industrial customers because of
the computer systems conversion and a decline in sales of emissions-testing
equipment to distributors and national accounts. Currency translation negatively
affected sales growth by 1% for the year. Excluding the impact of acquisitions
and currency translation, sales declined 3% in 1998. Operating earnings in 1998
declined 55.7% because of higher costs and increased organizational complexity
related to the acquired businesses, the increased costs associated with the
operational difficulties of the computer conversion and reduced profitability in
European equipment operations. In 1997, sales benefited from high levels of
emissions-testing equipment, new products and an additional week in the
accounting period. Operating income benefited from the higher sales, partially
offset by changes in the business mix resulting from acquired businesses.
NET FINANCE INCOME: Net finance income declined 8.3% to $60.5 million,
resulting primarily from a change in format of the Corporation's financial
services business, partially offset by higher growth in originations of extended
credit installment receivables and the introduction of new credit services, such
as dealer finance programs and van leasing. The Corporation uses its financing
programs to facilitate the sales of products. In seeking to reduce the asset
intensity resulting from its financing activities, the Corporation established a
joint venture with Newcourt Financial USA Inc. ("Newcourt") in January 1999, to
provide financial services to the Corporation's global dealer and customer
network through a limited liability company known as Snap-on Credit LLC ("the
LLC"), 50% owned by each company. As a result of the establishment of the joint
venture, the Corporation effectively outsourced to the LLC its captive credit
function, previously managed by a wholly owned subsidiary, Snap-on Credit
Corporation.
(Amounts in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Net finance income $60,476 $65,933 $71,891
The operations were established initially in the United States and are
being expanded globally. As part of the transition, the Corporation repurchased
$337.0 million of its previously securitized installment receivables and $68.3
million of dealer finance loan receivables, and then sold them to Newcourt. In
addition, in a separate transaction, the remaining on-balance sheet U.S.
portfolio of extended credit installment receivables, equipment lease
receivables and dealer loan receivables were sold to Newcourt for an aggregate
sale price of $141.1 million, resulting in a pre-tax gain of approximately $40
million. Newcourt has the right to put back to the Corporation the unpaid
portion of the extended credit installment receivables portfolio based on the
same pricing formula. As a result, this gain is being recognized over a two-year
period.
In 1998, net finance income declined 8.3% to $65.9 million after
having increased 11.9% in 1997 to $71.9 million. The decrease in 1998 reflects
an increase in securitization of installment receivables.
As part of its efforts to improve asset efficiency, the Corporation
sold $48.5 million in extended credit installment receivables and $29.4 million
of dealer finance receivables in 1998. In 1997, a total of $125.0 million of
extended credit installment receivables was sold. The effect of these asset
securitizations was a decline in net finance income offset by a corresponding
decline in related interest expense. The proceeds of the securitization and
receivables sales were used to pay down short-term debt and for working capital
and other general corporate purposes.
The higher net finance income in 1997 was the result of increases in
extended credit installment receivables and benefits from programs to control
related costs.
<PAGE>
20 Snap-on Incorporated 1999 Annual Report
Management's Discussion and Analysis (continued)
RESTRUCTURING AND OTHER CHARGES: In the third quarter of 1998, the
Corporation's board of directors approved Project Simplify, a broad program of
internal rationalizations, consolidations and reorganizations to make the
Corporation's business operations simpler and more effective.
The expected $185 million in total charges for the 18-month program
included the cost of closing facilities, employee severance costs associated
with a reduction in staffing, impaired asset write-downs, costs to revalue
discontinued stock keeping units ("SKUs"), legal matters and other non-recurring
costs. The Corporation expected to realize annual cost savings of approximately
$60 million from the initiative, with one-half of the savings expected to be
realized in 1999.
Project Simplify was essentially completed and fully provided for as
of January 1, 2000. The Corporation achieved its original targets of closing 60
facilities, eliminating approximately 1,100 positions and discontinuing more
than 12,000 SKUs of inventory, along with the consolidation of certain business
units. Total charges for Project Simplify, which are composed of restructuring
charges and other non-recurring charges, amounted to $187.1 million. This amount
consists of $67.1 million of restructuring charges and $120.0 million of other
non-recurring charges. Approximately 65% of the total charges were non-cash with
the remaining costs requiring cash outflows which were provided from operations.
The Corporation recorded in its Consolidated Statements of Earnings,
$37.2 million in 1999 and $149.9 million in 1998 in pre-tax charges related to
Project Simplify actions. The Corporation achieved its target of realizing $30
million in cost savings in 1999 and the Corporation expects to meet its target
of approximately $60 million in total annual cost savings in 2000.
During 1999, the Corporation recorded pre-tax charges of $37.2
million. This charge consists of $43.2 million of additional other non-recurring
charges, partially offset by $6.0 million of previously recorded restructuring
reserves, which were no longer needed and reversed.
The composition of the Corporation's restructuring charge activity for
the year ended January 1, 2000, was as follows:
<TABLE>
<CAPTION>
Restructuring Restructuring
Reserves as of Reversal of Reserves as of
(Amounts in thousands) January 2, 1999 Reserves Cash Payments January 1, 2000
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Expenditures for
severance and other exit costs $16,505 $ (902) $(11,103) $4,500
Charges for warranty provisions 9,660 (5,065) (4,595) -
- -----------------------------------------------------------------------------------------------------------------
Total restructuring reserves $26,165 $(5,967) $(15,698) $4,500
=================================================================================================================
</TABLE>
As part of the Corporation's restructuring efforts, charges of $15.5
million were recorded in 1998 for severance and $7.6 million for non-cancelable
lease agreements on facilities to be closed and other exit costs associated with
Project Simplify. As of January 1, 2000, 1,029 employees of an estimated 1,100
have separated from the Corporation, and severance payments of $7.1 million were
made during 1999. Severance costs for worldwide salaried and hourly employees
relate to facility closures, elimination of staffing redundancies and
operational streamlining. The elimination of the remaining positions is expected
by the end of the first quarter of 2000. As of January 1, 2000, the Corporation
has remaining restructuring reserves of $4.5 million for expected severance,
non-cancelable lease agreements on facilities to be closed and other exit costs.
Also, as part of the restructuring efforts, the Corporation recorded a
charge in the amount of $9.7 million in 1998 to provide additional warranty
support, at no cost to the customer, for products already sold, relating to the
elimination of discontinued business units and their product lines. During 1999,
the Corporation made $4.6 million in cash payments under these warranties. The
extended warranty period expired in 1999 and the remaining reserve of $5.1
million was reversed. The warranty reserve has been included in Cost of Goods
Sold - Discontinued Products while all remaining restructuring charges have been
included in Restructuring and Other Non-recurring Charges on the accompanying
Consolidated Statements of Earnings.
As part of Project Simplify, the Corporation recorded other
non-recurring charges in the amount of $120.0 million. These charges include the
elimination of $55.7 million of discontinued SKUs of inventory, costs to resolve
certain legal matters in the amount of $18.7 million, which represents
attorneys' fees and, in some cases, the likely cost to settle certain disputes
which predated the commencement of Project Simplify, the discontinuance of an
emissions-testing equipment line of $16.9 million and other non-recurring costs
in the amount of $28.7 million.
<PAGE>
Snap-on Incorporated 1999 Annual Report 21
During 1999, the Corporation recorded other non-recurring charges of
$43.2 million. A total of $4.8 million was recorded for the discontinuance of
SKUs of inventory. This initiative is an effort to reduce the transaction costs
and working capital intensity of the Corporation's product offering and refocus
on high-volume growth products. The Corporation also recorded $16.9 million in
charges for the discontinuance of an emissions-testing equipment line as part of
the Corporation's refocus on high-volume growth products.
In 1999, additional other non-recurring charges in the amount of $21.5
million consisted of employee incentives of $1.5 million, relocation costs of
$10.9 million and professional services of $9.1 million. In 1998, additional
other non-recurring charges in the amount of $7.2 million consisted of $2.5
million of accelerated depreciation of computer equipment that was abandoned
during the fourth quarter, employee incentives of $1.0 million, relocation costs
of $1.2 million and professional services of $2.5 million. The non-recurring
charges related to the reduction of SKUs and discontinuance of product lines
have been included as part of Cost of Goods Sold - Discontinued Products, while
the remaining non-recurring charges have been included in Restructuring and
Other Non-recurring Charges on the accompanying Consolidated Statements of
Earnings.
OTHER INCOME AND EXPENSES: Interest expense for 1999 was $27.4
million, an increase of $6.1 million compared with 1998. This increase is due to
higher average levels of debt outstanding, as a result of the Bahco acquisition.
Other income in 1999 included a gain on the sale of a 15% interest in Mitchell
Repair Information Company, LLC ("MRIC"), a subsidiary of the Corporation, and a
modest gain on the net effect of a currency hedge on the purchase price
commitment for the acquisition of Bahco. Other expense in 1998 was attributable
primarily to a gain on the sale of a European manufacturing facility and lower
foreign currency transaction losses, offset by the deduction for the minority
interest in MRIC. Other expense in 1997 related primarily to the deduction for
the minority interest in connection with the Corporation's 50% ownership of MRIC
and a loss from foreign currency transactions.
(Amounts in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Interest expense $(27,358) $(21,254) $(17,654)
Interest income 1,217 1,169 1,163
Other income (expense) 11,665 (3,210) (10,370)
- --------------------------------------------------------------------------------
Total other expense $(14,476) $(23,295) $(26,861)
================================================================================
INCOME TAXES: The Corporation's effective tax rate in 1999 and 1998,
excluding restructuring and other non-recurring charges, was 36.0%, compared
with 37.0% in 1997. The reported effective tax rate for 1999 was 35.7% and for
1998 was 144.1%. For additional information about the Corporation's tax position
and activities, see Note 7.
FOURTH QUARTER: Net sales for the fourth quarter of 1999 were $566.7
million, an increase of 18.9% compared with the same period in 1998. The growth
in sales benefited from strong dealer sales in North America and the
contribution from Bahco. Excluding Bahco and a negative 2% impact from currency
translation, net sales increased 5% for the quarter.
Net earnings were $27.4 million, an increase of 146.8% compared with
the $11.1 million earned in 1998. Earnings per diluted share were $.47 compared
with $.19 in the prior year. Earnings in 1999 included $22.9 million in pre-tax
restructuring and other non-recurring charges, or $.24 per share after tax. The
$22.9 million comprises $16.9 million for the discontinuance of an
emissions-testing equipment line, $4.8 million for the discontinuance of SKUs of
inventory, $7.2 million for other non-recurring costs ($0.4 million of employee
incentives, $3.9 million of relocation costs and $2.9 million in professional
services) less the reversal of reserves no longer needed of $6.0 million.
Earnings for the fourth quarter of 1998 included $19.3 million of restructuring
and other non-recurring charges pre-tax, or $.21 per share after tax. The $19.3
million comprises $2.6 million of additional restructuring charges ($0.6 million
for the write-down of assets of discontinued operations and $2.0 million of
additional severance), $6.7 million of other non-recurring costs ($2.5 million
of accelerated depreciation on abandoned computer equipment, $1.0 million for
employee incentives, $1.2 million for relocation costs and $2.0 million of
professional services) and a $10.0 million reversal of LIFO benefit on the
reduction of SKUs. This benefit was originally taken at the inception of Project
Simplify. However, since projected inventory reductions were not achieved, the
benefit was reversed. The increase in 1999 earnings and earnings per share was
largely due to cost savings from the Corporation's simplification actions, the
reduction in restructuring and other non-recurring charges, the increased level
of sales, and a pre-tax gain of $7.1 million from the sale of a 15% interest in
MRIC (see further discussion in Other Matters, Divestitures), partially offset
by expense related to the discontinuance of emissions-testing equipment and
acquisition-related charges. In 1998, earnings included a pre-tax gain on the
sale of a European facility, gains related to the sale of installment
receivables and pension curtailment benefits related to the Corporation's
restructuring actions.
<PAGE>
22 Snap-on Incorporated 1999 Annual Report
Management's Discussion and Analysis (continued)
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 8 for a discussion of the
Corporation's accounting policies for the use of derivative instruments.
Financial Condition
OVERVIEW: The Corporation's financial condition remains solid and the
Corporation has the resources necessary to meet future anticipated funding
needs. The Corporation has historically funded its growth through a combination
of cash provided by operating activities and debt financing. Net cash provided
by operating activities amounted to $235.6 million in 1999, $75.0 million in
1998 and $194.9 million in 1997. Net debt financing amounted to $274.2 million
in 1999, $148.8 million in 1998 and $2.8 million in 1997. As of January 1, 2000,
the ratio of total debt to total capital increased to 43.3% from 30.8% at the
end of 1998. The increase in 1999 was due primarily to the cash purchase of
Bahco, which was funded through debt assumption and an expansion of an existing
commercial paper credit facility.
Return on Net Assets Employed
Before Interest and Taxes
- -----------------------------
in percent
1995 - 21.1
1996 - 24.4
1997 - 25.1
1998 - 15.2*
1999 - 20.5*
*Excludes restructuring and other non-recurring charges
Net Cash Provided
by Operating Activities
- -----------------------
in $ millions
1995 - 173
1996 - 136
1997 - 195
1998 - 75
1999 - 236
LIQUIDITY: The Corporation's working capital in 1999 increased $131.8
million to $753.6 million, compared with a decrease of $47.4 million in 1998.
The increase in working capital was due primarily to the impact of the Bahco
acquisition completed during 1999. The sale of installment receivables during
1998 more than offset the negative effects of acquisitions and increased working
capital requirements, primarily inventories. The ratio of current assets to
current liabilities on January 1, 2000, was 2.7 to 1, compared with 2.4 to 1 at
the end of 1998. Cash and cash equivalents were $17.6 million at year-end 1999,
compared with $15.0 million at the end of 1998.
Accounts receivable increased $62.9 million as a result of the Bahco
acquisition. Excluding that impact, accounts receivable declined $9.5 million at
year-end 1999, compared with year-end 1998. In 1998, accounts receivable
increased $15.1 million, the result of acquisitions partially offset by the
installment receivables securitization program discussed previously and in Note
5. Exclusive of the asset securitizations effected in 1998, receivables
increased by $14.2 million due primarily to acquisitions. At the end of 1999,
installment receivables represented approximately 13% of the Corporation's total
accounts receivable, compared with 29% at year-end 1998. The majority of
accounts receivable at year-end 1999 included those from dealers, industrial
customers and governments. Total write-offs for bad debts represented 2.2% of
average accounts receivable in 1999, compared with 2.1% in 1998, reflecting a
slightly more difficult environment for credit collections. The Corporation's
bad-debt ratio remains significantly below that of the credit industry.
Inventories at year-end 1999 increased $79.4 million to $454.8
million, compared with year-end 1998, primarily reflecting the acquisition of
Bahco. Excluding the effect of Bahco, inventories declined $2.3 million. For
1998, inventories increased by $2.2 million, primarily because of acquisitions.
(Amounts in thousands) 1999 1998
- --------------------------------------------------------------------------------
Current assets $1,206,341 $1,079,832
Current liabilities 452,749 458,053
- --------------------------------------------------------------------------------
Working capital $ 753,592 $ 621,779
Current ratio 2.7 to 1 2.4 to 1
- --------------------------------------------------------------------------------
Short-term debt at the end of 1999 was $22.3 million, a decline from
$93.1 million at the end of 1998. Current maturities of long-term debt were $4.4
million and $2.2 million at year-end 1999 and 1998. At year-end 1999, the
Corporation had $498.7 million, compared with $100.0 million at year-end 1998,
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 revolving credit
facility. During 1999, the Corporation completed $600 million of multi-currency
revolving credit facilities to support its commercial paper program. A $200
million credit
<PAGE>
Snap-on Incorporated 1999 Annual Report 23
facility is effective for a five-year term and terminates August 2004. A $400
million credit facility is a 364-day arrangement with a one-year term-out
option, which allows the Corporation the capability to elect to borrow under the
credit facility for an additional year after termination date. At the end of
1999, there were no borrowings under either revolving credit commitment. 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, $100.0 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 1999, the Corporation's
long-term debt was rated Aa3 by Moody's Investor Service and A+ by Standard &
Poor's. The Corporation believes the strength of its balance sheet provides the
financial flexibility to respond to both internal growth opportunities and those
available through acquisition.
CAPITAL EXPENDITURES/DEPRECIATION AND AMORTIZATION: Capital
expenditures for 1999 were $35.4 million, a decrease of $11.4 million from the
$46.8 million in 1998. Investments for the year included additional upgrades to
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 2000 will total $55 million
to $60 million.
Total Debt to Total Capital
- ---------------------------
in percent
1995 - 18.5
1996 - 17.3
1997 - 16.4
1998 - 30.8
1999 - 43.3
Total Capital
- -------------
in $ millions
1995 - 921
1996 - 1,001
1997 - 1,067
1998 - 1,102
1999 - 1,455
Depreciation for 1999 was $41.3 million, an increase of $6.5 million
over the $34.8 million in 1998. In 1997, depreciation was $29.7 million. The
growth in both 1999 and 1998 was driven by increased capital spending in 1997
and 1996, and by the inclusion of acquired businesses. Amortization expense in
1999 was $14.1 million, up $3.9 million over 1998's $10.2 million. In 1997,
amortization was $8.7 million. Acquisitions accounted for the higher expense in
both 1999 and 1998.
(Amounts in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Capital expenditures $35,390 $46,779 $55,442
Depreciation 41,298 34,801 29,724
Amortization 14,067 10,184 8,653
- --------------------------------------------------------------------------------
DIVIDENDS: At its June 1999 meeting, the board of directors declared a
4.5% increase in the quarterly dividend on the Corporation's common stock,
raising the annual dividend rate to $.92 per share. The Corporation has paid
consecutive quarterly dividends since 1939.
1999 1998 1997
- --------------------------------------------------------------------------------
Cash dividends paid (in thousands) $52,671 $50,977 $49,888
Cash dividends paid
per common share $ .90 $ .86 $ .82
Cash dividends paid
as a % of net income 41.4% N/M 33.2%
- --------------------------------------------------------------------------------
N/M = not meaningful
STOCK REPURCHASE PROGRAM: At its January 1999 meeting, the board of
directors authorized the repurchase of up to $50.0 million of the Corporation's
common stock. This action followed the board's authorization in 1998 to
repurchase up to $100.0 million of common stock and its authorization in 1997
for up to $100.0 million of common stock. At the end of 1999, all of the 1999
authorization and substantially all of the 1998 authorization remained
available, or approximately $150 million. 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 employee and dealer stock purchase programs, options and
other similar issuances. The Corporation repurchased 492,800 shares of its
common stock in 1999, 2,279,400 shares in 1998 and 986,333 shares in 1997. Since
1995, the Corporation has repurchased 8,570,083 shares.
<PAGE>
24 Snap-on Incorporated 1999 Annual Report
Management's Discussion and Analysis (continued)
Other Matters
ACQUISITIONS: During 1999, the Corporation acquired Bahco, formerly
known as Sandvik Saws and Tools, from Sandvik AB for approximately $380 million
in a cash purchase transaction. The purchase included a number of brand names
and trademarks, facilities, and certain other assets and liabilities. Bahco is a
manufacturer and supplier of professional hand tools, including saws and other
cutting implements, files, wrenches, pliers, screwdrivers and pruning tools.
Bahco primarily utilizes outside distributors to sell its products. The
Corporation expects the acquisition to be modestly accretive in 2000. Also
during 1999, the Corporation acquired the remaining 40% of MRIC that it did not
previously own for $51.0 million, and the full ownership of three additional
businesses for an additional aggregate cash purchase price of $22.9 million.
During 1998, the Corporation acquired full or partial ownership of
five new business operations and an additional 10% interest in MRIC for an
aggregate cash purchase price of $79.5 million. Each of the acquisitions
provided the Corporation with a complementary product line, new customer
relationships, access to additional distribution and/or extended geographic
reach.
DIVESTITURES: During the fourth quarter of 1999, the Corporation sold
a 15% interest in MRIC to Genuine Parts Company ("GPC") in support of an
alliance to enhance and expand the e-business efforts of both companies. The
combined effort unites the replacement-parts catalog and online order interface
and procurement capabilities of GPC's Automotive Parts Group with the online
repair information, "voice and view" diagnostics help, labor rates and shop
management capabilities of MRIC.
YEAR 2000 COMPLIANCE: The Corporation has not experienced any
significant century date-related issues. Based on information currently known to
it, the Corporation believes that all critical areas of its business are Year
2000 compliant. The Corporation's Year 2000 efforts focused on ensuring that its
information systems, embedded systems, third-party systems and products would
achieve a Year 2000 date conversion with no disruption to the Corporation's
business operations and that contingency plans were developed to address most
likely worst case scenarios. Information systems, critical third-party suppliers
and date-related issues, if any, will continue to be monitored and contingency
plans will remain in place.
The Corporation projected that the total expenditures for all of its
Year 2000 compliance activities would not exceed $5.4 million. Through the end
of 1999, the Corporation spent $4.7 million on Year 2000 issues, with funding
provided by cash flows from operations. The Corporation does not anticipate any
further significant expenditures for these or other Year 2000 compliance
activities.
ACCOUNTING STANDARDS: In June 1999, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133." SFAS No. 137 defers the effective
date of SFAS No. 133 for one year to fiscal years beginning after June 15, 2000.
The Corporation is currently evaluating the impact of this pronouncement.
VALUE AT RISK: The Corporation uses derivative instruments to manage
well-defined interest rate and foreign currency exposures and to limit the
impact of interest rate and foreign currency rate changes on earnings and cash
flows. The Corporation does not use derivative instruments for trading purposes.
The Corporation utilizes a Value-at-Risk ("VAR") model to determine
the potential one-day loss in the fair value of its interest rate and foreign
exchange-sensitive financial instruments from adverse changes in market factors.
The VAR model estimates were made assuming normal market conditions and a 95%
confidence level. The Corporation's computations are based on the
interrelationships among movements in various currencies and interest rates
(variance/co-variance technique). These interrelationships were determined by
observing interest rate and foreign currency market changes over the preceding
quarter.
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. The Corporation also enters into interest rate swap
agreements to manage interest costs and risks associated with changing interest
rates.
The estimated maximum potential one-day loss in fair value, calculated
using the VAR model, at January 1, 2000, was $0.2 million on interest
rate-sensitive financial instruments and $1.2 million on foreign
currency-sensitive financial instruments.
The VAR model is a risk management tool and does not purport to
represent actual losses in fair value that will be incurred by the Corporation,
nor does it consider the potential effect of favorable changes in market
factors.
<PAGE>
Snap-on Incorporated 1999 Annual Report 25
EURO CONVERSION: On January 1, 1999, certain member countries of the
European Union established fixed conversion rates between their existing
currencies ("legacy currencies") and one common currency - the euro. The euro
trades on currency exchanges and may be used in business transactions. Beginning
in January 2002, new euro-denominated bills and coins will be used, and legacy
currencies will be withdrawn from circulation. The Corporation's operating
subsidiaries affected by the euro conversion have developed plans to address the
systems and business issues affected by the euro currency conversion. These
issues include, among others, (i) the need to adapt computer and other business
systems and equipment to accommodate euro-denominated transactions, and (ii) the
competitive impact of cross-border price transparency, which may affect pricing
strategies. The Corporation does not expect this conversion to have a material
impact on its financial condition or results of operations.
OUTLOOK: Overall, the Corporation believes that the fundamental trends
affecting its business remain sound. During 2000, the Corporation's investment
will be focused on technology and people to capture internal growth
opportunities and realize additional benefits from its simplification efforts
and recent acquisitions. Emphasis will remain on the Corporation's traditional
growth drivers: developing new, innovative products and services; enhancing the
delivery of value to its customers; and reinforcing its strong brand
recognition. The Corporation also expects to focus efforts on further
strengthening financial returns and cash flow and to continue to develop its
e-commerce initiatives.
As a result of the Corporation's emphasis on core product lines and
the Bahco acquisition, the mix of products is expected to be approximately 60%
tools and 40% equipment. Also, as a result of the Bahco acquisition, sales
outside the United States are expected to be approximately 40% of total sales.
The Corporation has set as its long-term financial targets the
attainment of 10% average annual sales growth, 15% average annual growth in
earnings per share and a 20% return on average equity for 2000. In addition, the
Corporation believes its effective tax rate in 2000 will increase to 36.5% as a
result of the additional amortization of goodwill arising from the Bahco
acquisition.
"SAFE HARBOR": Statements in this document that are not historical
facts, including statements that (i) include the words "believes," "expects,"
"anticipates," or "estimates" or words of similar importance with reference to
the Corporation or management; (ii) are specifically identified as
forward-looking; or (iii) describe the Corporation's or management's future
plans, objectives or goals, are forward-looking statements. 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. These factors may not constitute all
factors that could cause actual results to differ materially 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; general economic weakness; inflation; currency exchange
fluctuations or the material worsening of economic or political situations
around the world; 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 that currently
exists between the Corporation and its franchisees; the Corporation's ability to
retain franchisees and to recruit new franchisees; the continuation of good
relations with the Corporation's employees; the Corporation's ability to
manufacture, distribute and/or record the sale of products during any computer
systems-related changes or upgrades; and the ability to grow through successful
identification, negotiation and integration of new acquisitions, joint ventures
or strategic alliances.
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 Corporation disclaims
any responsibility to update any forward-looking statement provided in this
document.
<PAGE>
26 Snap-on Incorporated 1999 Annual Report
<TABLE>
Consolidated Statements of Earnings
<CAPTION>
(Amounts in thousands except per share data) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $1,945,621 $1,772,637 $1,672,215
Cost of goods sold (1,032,836) (948,761) (828,387)
Cost of goods sold - non-recurring charges (16,598) (60,562) -
Operating expenses (723,658) (705,811) (650,182)
Net finance income 60,476 65,933 71,891
Restructuring and other non-recurring charges (20,592) (89,301) -
Interest expense (27,358) (21,254) (17,654)
Other income (expense) - net 12,882 (2,041) (9,207)
- ----------------------------------------------------------------------------------------------------------------
Earnings before income taxes 197,937 10,840 238,676
Income taxes 70,710 15,619 88,310
- ----------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 127,227 $ (4,779) $ 150,366
================================================================================================================
Earnings (loss) per weighted average common share - basic $ 2.18 $ (.08) $ 2.47
Earnings (loss) per weighted average common share - diluted $ 2.16 $ (.08) $ 2.44
- ----------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding - basic 58,494 59,220 60,845
Effect of dilutive options 383 - 841
- ----------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding - diluted 58,877 59,220 61,686
- ----------------------------------------------------------------------------------------------------------------
The accompanying Notes are an integral part of these statements.
</TABLE>
<PAGE>
Snap-on Incorporated 1999 Annual Report 27
<TABLE>
Consolidated Balance Sheets
<CAPTION>
(Amounts in thousands except share data) Jan. 1, 2000 Jan. 2, 1999
- --------------------------------------------------------------------------------------------------------
Assets
Current assets
<S> <C> <C>
Cash and cash equivalents $ 17,617 $ 15,041
Accounts receivable, less allowance for
doubtful accounts of $27.8 million in
1999 and $29.2 million in 1998 617,645 554,703
Inventories 454,841 375,436
Prepaid expenses and other assets 116,238 134,652
- --------------------------------------------------------------------------------------------------------
Total current assets 1,206,341 1,079,832
Property and equipment - net 362,598 272,030
Deferred income tax benefits 54,652 60,139
Intangible and other assets 526,231 262,919
- --------------------------------------------------------------------------------------------------------
Total assets $2,149,822 $1,674,920
========================================================================================================
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ 146,422 $ 89,442
Notes payable and current maturities of
long-term debt 22,349 93,117
Accrued compensation 57,540 42,105
Dealer deposits 48,251 42,421
Deferred subscription revenue 42,056 34,793
Accrued restructuring reserves 4,500 26,165
Other accrued liabilities 131,631 130,010
- --------------------------------------------------------------------------------------------------------
Total current liabilities 452,749 458,053
Long-term debt 607,476 246,644
Deferred income taxes 26,989 9,587
Retiree health care benefits 91,391 89,124
Pension liability 96,238 75,040
Other long-term liabilities 49,718 34,205
- --------------------------------------------------------------------------------------------------------
Total liabilities 1,324,561 912,653
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 66,729,457 and 66,685,169 shares 66,729 66,685
Additional paid-in capital 62,292 117,384
Retained earnings 957,763 883,207
Accumulated other comprehensive income (loss) (35,814) (30,231)
Grantor stock trust at fair market value -
6,677,450 and 6,924,019 shares (177,373) (241,042)
Treasury stock at cost - 1,505,339 and 1,016,224 shares (48,336) (33,736)
- --------------------------------------------------------------------------------------------------------
Total shareholders' equity 825,261 762,267
- --------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $2,149,822 $1,674,920
========================================================================================================
The accompanying Notes are an integral part of
these statements.
</TABLE>
<PAGE>
28 Snap-on Incorporated 1999 Annual Report
Consolidated Statements of Shareholders' Equity and Comprehensive Income
<TABLE>
<CAPTION>
Accumulated
Additional Other Grantor Total
(Amounts in thousands except Common Paid-in Retained Comprehensive Stock Treasury Shareholders'
share data) Stock Capital Earnings Income (Loss) Trust Stock Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 28, 1996 $65,972 $ 66,506 $838,484 $(13,930) $ - $(128,871) $828,161
Comprehensive income:
Net earnings for 1997 150,366
Foreign currency translation (16,455)
Total comprehensive income 133,911
Cash dividends - $.82 per share (49,887) (49,887)
Issuance of 19,764 shares under
dividend reinvestment plan 20 804 824
Issuance of 480,446 shares under
stock purchase and option plans 480 10,940 11,420
Purchase of 986,333 shares for
treasury (42,324) (42,324)
Reissuance of 216,570 shares
from treasury 2,380 5,524 7,904
Tax benefit from certain
stock options and other items 2,128 2,128
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at January 3, 1998 66,472 82,758 938,963 (30,385) - (165,671) 892,137
Comprehensive income:
Net loss for 1998 (4,779)
Foreign currency translation 2,694
Minimum pension liability (2,540)
Total comprehensive income (loss) (4,625)
Cash dividends - $.86 per share (50,977) (50,977)
Issuance of 33,620 shares under
dividend reinvestment plan 34 839 873
Issuance of 179,422 shares under
stock purchase and option plans 179 6,055 6,234
Establishment of grantor stock trust
with 7,100,000 shares from treasury 36,547 (255,156) 218,609 -
Issuance of 175,981 shares from
grantor stock trust under stock
purchase and option plans 3,774 3,774
Purchase of 2,279,400 shares for
treasury (90,357) (90,357)
Reissuance of 119,489 shares from
treasury 336 3,683 4,019
Tax benefit from certain
stock options and other items 1,189 1,189
Adjustment of grantor stock trust
to fair market value (10,340) 10,340 -
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at January 2, 1999 66,685 117,384 883,207 (30,231) (241,042) (33,736) 762,267
Comprehensive income:
Net earnings for 1999 127,227
Foreign currency translation (5,441)
Minimum pension liability (142)
Total comprehensive income 121,644
Cash dividends - $.90 per share (52,671) (52,671)
Issuance of 38,809 shares under
dividend reinvestment plan 39 1,210 1,249
Issuance of 5,479 shares under stock
compensation plan 5 172 177
Issuance of 246,569 shares from
grantor stock trust under stock
purchase and option plans 6,930 6,930
Purchase of 492,800 shares for
treasury (14,711) (14,711)
Reissuance of 3,685 shares from
treasury 3 111 114
Tax benefit from certain
stock options and other items 262 262
Adjustment of grantor stock trust
to fair market value (56,739) 56,739 -
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 2000 $66,729 $ 62,292 $957,763 $(35,814) $(177,373) $ (48,336) $825,261
====================================================================================================================================
The accompanying Notes are an
integral part of these statements.
</TABLE>
<PAGE>
Snap-on Incorporated 1999 Annual Report 29
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(Amounts in thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net earnings (loss) $127,227 $ (4,779) $ 150,366
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Depreciation 41,298 34,801 29,724
Amortization of intangibles 14,067 10,184 8,653
Deferred income tax provision 16,313 13,125 11,814
(Gain) loss on sale of assets (1,325) (7,312) 114
(Gain) on disposition of business (4,359) - -
Charges due to restructuring and other
non-recurring charges 23,255 107,628 -
Changes in operating assets and liabilities,
net of effects of acquisitions:
Decrease in receivables 21,628 11,789 133,171
(Increase) in inventories (5,749) (28,937) (87,502)
(Increase) decrease in prepaid and other assets 41,990 35,775 (21,188)
Increase (decrease) in accounts payable 7,429 (13,400) (16,562)
(Decrease) in accruals and other liabilities (46,170) (83,843) (13,696)
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 235,604 75,031 194,894
Investing activities
Capital expenditures (35,390) (46,779) (55,442)
Acquisitions of businesses - net of cash acquired (440,654) (79,543) (62,947)
Disposition of business 21,300 - -
Disposal of property and equipment 6,467 16,680 2,159
- ---------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (448,277) (109,642) (116,230)
Financing activities
Payment of long-term debt (48,734) (3,543) (7,802)
Increase in long-term debt 6,770 48,221 -
Increase in short-term borrowings - net 316,171 104,165 10,579
Purchase of treasury stock - net (14,600) (86,674) (36,800)
Proceeds from stock purchase and option plans 8,621 12,405 16,752
Cash dividends paid (52,671) (50,977) (49,888)
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 215,557 23,597 (67,159)
Effect of exchange rate changes on cash (308) 376 (1,176)
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 2,576 (10,638) 10,329
Cash and cash equivalents at beginning of year 15,041 25,679 15,350
- ---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 17,617 $ 15,041 $ 25,679
===============================================================================================================
The accompanying Notes are an integral part
of these statements.
</TABLE>
<PAGE>
30 Snap-on Incorporated 1999 Annual Report
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 marketer of tool, diagnostic and equipment solutions
for professional tool users. Product lines include hand tools, power tools, tool
storage products, shop equipment, saws and cutting tools, pruning tools,
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 commercial, 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, LLC
("MRIC"), Texo S.r.l., Cartec GmbH and Snap-on Tools/PST Africa (Pty.) Ltd.
Significant intercompany accounts and transactions have been eliminated. Snap-on
Credit LLC ("the LLC") is an unconsolidated joint venture with Newcourt
Financial USA Inc. ("Newcourt").
d. Accounting period: The Corporation's accounting period ends on the
Saturday nearest December 31. The 1999, 1998 and 1997 years ended on January 1,
2000, January 2, 1999, and January 3, 1998. The 1999 and 1998 years contained 52
weeks; 1997 was a 53-week year.
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. Manufactured
products include the costs of materials, labor and manufacturing overhead.
Inventories accounted for using the last-in, first-out (LIFO) method
approximated 39% and 60% of total inventory as of year-end 1999 and 1998.
Remaining inventories are generally determined using the first-in, first-out
(FIFO) cost method. For detailed inventory information, refer to Note 3.
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 4.
h. Intangibles: During 1999, the Corporation acquired full ownership
of the Bahco Group AB ("Bahco"), three other new business operations and the
remaining 40% interest in MRIC for a net cash price of $440.7 million. During
1998, the Corporation acquired full or partial ownership of five new business
operations and an additional interest in a business for an aggregate cash
purchase price of $79.5 million. Pro forma results of operations for the Bahco
acquisition are included in Note 2. Pro forma results of operations are not
presented for all other acquisitions, as the effects of these acquisitions are
not material individually or in aggregate.
In the first quarter of 1997, the Corporation acquired a 50% interest
in the MRIC business at a purchase price of $40.2 million. In the first quarter
of 1998, the Corporation acquired an additional 10% interest in MRIC at a
purchase price of $10.1 million. In 1999, the Corporation acquired the remaining
40% interest in MRIC at a purchase price of $51.0 million. In the fourth quarter
of 1999, the Corporation sold a 15% interest in MRIC to Genuine Parts Company
for $21.3 million.
Goodwill and other intangibles arising from business acquisitions are
included in Intangible and Other Assets in the accompanying Consolidated Balance
Sheets and are being amortized over 13 to 40 years on a straight-line basis.
Goodwill, net of accumulated amortization, was $389.2 million and $131.5 million
at the end of 1999 and 1998. Goodwill amortization was $11.8 million, $8.5
<PAGE>
Snap-on Incorporated 1999 Annual Report 31
million and $6.9 million for 1999, 1998 and 1997. Accumulated amortization of
goodwill was $27.6 million and $16.0 million at the end of 1999 and 1998. 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. Intangibles also include patents and
trademarks of $64.1 million and $41.0 million at year-end 1999 and 1998.
i. Research and engineering: Research and engineering costs are
charged to expense in the year incurred. For 1999, 1998 and 1997, these costs
were $50.2 million, $48.6 million and $46.5 million.
j. Income taxes: Deferred income taxes are provided for temporary
differences arising from differences in bases of assets and liabilities for tax
and financial reporting purposes. 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 7.
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.
m. Net finance income: Net finance income consists of installment
contract income, dealer start-up loan receivable income, and gains on the sale
of receivables, as well as origination fees paid by the LLC based on the volume
of installment receivables originated by the LLC, 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 in which the sale was recorded.
p. Accounting standards: In June 1999, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133." SFAS No. 137 defers the effective date of SFAS No. 133 for
one year to fiscal years beginning after June 15, 2000. The Corporation is
currently evaluating the impact of this pronouncement.
q. Reclassified prior-year amounts: Certain prior-year amounts have
been reclassified to conform with current-year presentation.
r. Per share data: Basic earnings per share calculations were
computed by dividing net earnings by the corresponding weighted average number
of common shares outstanding for the period. The dilutive effect of the
potential exercise of outstanding options to purchase common shares is
calculated using the treasury stock method. Diluted earnings per share is the
same as presented for basic earnings per share in periods where the effect is
anti-dilutive (that is, the calculation results in increased earnings per share
or reduces net loss per share). The Corporation had dilutive shares as of
January 1, 2000, and January 3, 1998, of 383,200 and 840,841. As of January 2,
1999, the Corporation had shares that were anti-dilutive of 576,000 and are
therefore not included in the 1998 calculations due to their anti-dilutive
nature.
Note 2 Acquisition
On September 30, 1999, the Corporation acquired the Sandvik Saws and
Tools business, formerly a wholly owned operating unit of Sandvik AB. The
Sandvik Saws and Tools business now operates as the Bahco Group AB. Bahco is a
manufacturer and supplier of professional tool products and employs
approximately 2,400 people. Of those, approximately 1,000 employees are in
Sweden. Products are manufactured at 11 plants in Sweden, Germany, Portugal,
France, England, the United States and Argentina.
<PAGE>
32 Snap-on Incorporated 1999 Annual Report
Notes to Consolidated Financial Statements (continued)
The acquisition is being accounted for as a purchase and the results
of Bahco have been included in the accompanying consolidated financial
statements since the date of acquisition. The total purchase price of
approximately $380 million includes the purchase of facilities, a number of
brand names and trademarks, and certain other assets and liabilities. The
Corporation funded the acquisition through working capital and an expansion of
an existing commercial paper credit facility.
A preliminary goodwill allocation in accordance with the criteria
established under Accounting Principles Board ("APB") Opinion No. 16, "Business
Combinations," has been performed. The cost of the acquisition has been
allocated on the basis of the fair market value of the assets acquired and the
liabilities assumed. This preliminary allocation results in goodwill of $215
million being recorded. The purchase price allocation will be finalized during
2000 upon completion of asset valuations and any post-closing purchase price
adjustments.
The preliminary allocation of the purchase price of $380 million,
which includes direct acquisition costs of approximately $9 million, is as
follows:
(Amounts in millions)
-------------------------------------------------------------
Fair value of property and equipment $ 98
Fair value of patents and trademarks 25
Other net assets acquired 42
Goodwill 215
-------------------------------------------------------------
Purchase price $380
=============================================================
Assigned useful lives are as follows:
-------------------------------------------------------------
Patents 13 years
Trademarks 40 years
Goodwill 40 years
-------------------------------------------------------------
The following unaudited pro forma summary gives effect to the
acquisition of Bahco as if the acquisition had occurred on January 1, 1998,
after giving effect to certain adjustments for depreciation, amortization,
interest expense, and income taxes associated with the purchase method of
accounting as performed at the time of the acquisition. The unaudited pro forma
summary is based on historical financial data and on assumptions and adjustments
that may be inherently subject to significant uncertainty and contingencies. It
can be expected that some or all of the assumptions on which the following
unaudited pro forma summary is based will prove to be inaccurate. As a result,
the unaudited pro forma summary does not purport to represent what the
Corporation's results of operations would have been if the acquisition of Bahco
had occurred on January 1, 1998, and is not intended to project the Company's
results of operations for any future period. The final purchase price
allocation, when completed in 2000, will result in changes to the amount of
recorded assets and goodwill included in the pro forma amounts.
(Amounts in thousands except
per share data) 1999 1998
- --------------------------------------------------------------------------------
Net sales:
As reported $1,945,621 $1,772,637
Pro forma (unaudited) 2,174,567 2,096,545
Net earnings (loss):
As reported $ 127,227 $ (4,779)
Pro forma (unaudited) 123,709 (482)
Earnings (loss) per share - basic:
As reported $ 2.18 $ (.08)
Pro forma (unaudited) 2.11 (.01)
Earnings (loss) per share - diluted:
As reported $ 2.16 $ (.08)
Pro forma (unaudited) 2.10 (.01)
Note 3 Inventories
The components of the Corporation's inventory were as follows:
(Amounts in thousands) 1999 1998
- --------------------------------------------------------------------------------
Finished stock $418,490 $359,358
Work in process 47,869 38,357
Raw materials 81,856 74,192
Excess of current cost over LIFO cost (93,374) (96,471)
- --------------------------------------------------------------------------------
Total inventory $454,841 $375,436
================================================================================
Note 4 Property and Equipment
The Corporation's property and equipment values, which are carried at
cost, were as follows:
(Amounts in thousands) 1999 1998
- --------------------------------------------------------------------------------
Land $ 26,753 $ 19,572
Buildings and improvements 207,959 175,385
Machinery and equipment 454,089 388,862
- --------------------------------------------------------------------------------
688,801 583,819
Less: accumulated depreciation (326,203) (311,789)
- --------------------------------------------------------------------------------
Property and equipment - net $362,598 $272,030
================================================================================
The estimated service lives of property and equipment are principally
as follows:
------------------------------------------------------
Buildings and improvements 3 to 50 years
Machinery and equipment 2 to 15 years
Computer software 2 to 7 years
Transportation vehicles 2 to 6 years
------------------------------------------------------
<PAGE>
Snap-on Incorporated 1999 Annual Report 33
Note 5 Receivables
Accounts receivable include installment receivable amounts that are
due beyond one year from balance sheet dates. These amounts were approximately
$8.5 million and $16.5 million at the end of 1999 and 1998. Gross installment
receivables amounted to $98.4 million and $176.9 million at the end of 1999 and
1998. Of these amounts, $16.0 million and $17.3 million represented unearned
finance charges at the end of 1999 and 1998.
On January 3, 1999, the Corporation established a joint venture with
Newcourt to provide financial services to the Corporation's global dealer and
customer network through a limited liability company known as Snap-on Credit LLC
("the LLC"). As a result of the establishment of the joint venture, the
Corporation effectively outsourced to the LLC its captive credit function. The
captive credit function was previously managed by the Corporation's wholly owned
subsidiary, Snap-on Credit Corporation.
The LLC is the preferred provider of financial services to the
Corporation's global dealer and customer network. The Corporation receives
income from fees paid by the LLC. The fees are based primarily upon the volume
of installment receivables originated by the LLC. Newcourt provides services and
expertise to the LLC with a view toward increasing originations by the LLC.
Newcourt is paid a fee by the LLC for such services. The management fee paid to
Newcourt is also based primarily on the volume of installment receivables
originated by the LLC. Newcourt receives warehousing and securitization fees
from the LLC in connection with the purchased receivables.
On January 4, 1999, CreditCorp SPC, LLC ("CreditCorp"), whose sole
member is Snap-on Financial Services, Inc., repurchased previously sold loans
from a third-party financial institution and then sold to Newcourt this entire
pool of $337.0 million of interest-bearing installment accounts receivable and
$68.3 million of dealer finance loan receivables. In addition, in a separate
transaction, CreditCorp sold to Newcourt its entire remaining on-balance sheet
portfolio of U.S. installment accounts receivable, including existing extended
credit installment receivables, equipment lease receivables and dealer loan
receivables, for an aggregate sale price of $141.1 million, resulting in a
pre-tax gain of approximately $40 million. Newcourt has the right to put back to
the Corporation the unpaid portion of the extended credit installment receivable
portfolio based on the same pricing formula. As a result, this gain is being
recognized over a two-year period. The Corporation continues to provide
financing internationally through its dealer and customer network.
Prior to January 4, 1999, and since 1997, CreditCorp sold to various
financial institutions, under agreements, dealer loan receivables, extended
credit installment receivables and equipment lease receivables that were secured
by the underlying inventory, tools or equipment financed. Generally, the
recourse provisions for securitizations as they existed at year-end required 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 does not receive collateral from any party to the securitizations,
nor does it have any risk of counterparty non-performance.
During 1998, the Corporation sold the U.S. equivalent of $29.4 million
of secured dealer loan receivables, $54.1 million of equipment lease receivables
with no recourse, and $27.6 million of equipment lease receivables with limited
recourse to third-party financial institutions.
During 1997, the Corporation sold the U.S. equivalent of $31.5 million
of secured dealer loan receivables, $50.9 million of equipment lease receivables
with no recourse, and $86.7 million of equipment lease receivables with limited
recourse to third-party financial institutions.
CreditCorp had entered into a facility that provided for the sale,
with limited recourse, of an undivided interest in a pool of secured extended
credit installment receivables to a third-party financial institution. At the
end of 1998 and 1997, $337.0 million and $300.0 million of interest-bearing
installment receivables were outstanding under this facility on a revolving
basis. The agreement for revolving purchases terminated in January 1999.
All transactions were 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 gains on
these sales are included in net finance income on the accompanying Consolidated
Statements of Earnings.
<PAGE>
34 Snap-on Incorporated 1999 Annual Report
Notes to Consolidated Financial Statements (continued)
Note 6 Short-term and Long-term Debt
Notes payable to banks under bank lines of credit totaled $17.9
million and $34.9 million at the end of 1999 and 1998.
Commercial notes payable totaled $498.7 million and $156.0 million at
the end of 1999 and 1998. At the end of 1999, this payable was classified as
long-term debt, since it is the Corporation's intent, and it has the ability
(supported by $600.0 million of long-term revolving credit facilities), to
refinance the debt on a long-term basis. In 1998, the first $100.0 million of
commercial notes payable was classified as long-term debt, and the remainder was
considered short-term debt.
In August 1999, the Corporation arranged $600 million of multicurrency
revolving credit facilities to support its commercial paper program. A $200
million revolving credit facility is effective for a five-year term and
terminates on August 23, 2004. A $400 million credit facility is a 364-day
facility with a one-year term-out option that terminates on August 23, 2000. The
term-out option allows the Corporation to elect to borrow under the credit
facility for an additional year after the termination date. At the end of 1999
and 1998, the Corporation was in compliance with all covenants of the revolving
credit facilities, and there were no borrowings under either revolving credit
commitment.
The average commercial paper and bank notes outstanding was $243.0
million in 1999 and $165.2 million in 1998. The weighted average interest rate
on these instruments was 5.3% in 1999 and 5.6% in 1998. As of January 1, 2000,
and January 2, 1999, commercial paper and bank notes outstanding had a weighted
average interest rate of 6.0% and 6.3%.
The Corporation's long-term debt consisted of the following:
(Amounts in thousands) 1999 1998
- --------------------------------------------------------------------------------
Senior unsecured indebtedness $100,000 $100,000
Borrowings supported by a
revolving credit commitment 498,725 100,000
Canadian long-term debt - 39,210
Other long-term debt 13,143 9,679
- --------------------------------------------------------------------------------
611,868 248,889
Less: current maturities (4,392) (2,245)
- --------------------------------------------------------------------------------
Total long-term debt $607,476 $246,644
The annual maturities of the Corporation's long-term debt due in the
next five years are $4.4 million in 2000, $303.2 million in 2001, $2.6 million
in 2002, $1.6 million in 2003, and $200.0 million in 2004.
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.
At the end of 1998, the Corporation had a Cdn$60.0 million (equivalent
of U.S. $39.2 million) five-year floating rate loan outstanding. The loan
requires payment of interest quarterly based on the Canadian Bankers Acceptance
rate plus 17.5 basis points. This loan was paid off during the fourth quarter of
1999.
Interest payments on debt and on other interest-bearing obligations
were $27.4 million, $20.9 million and $17.5 million for 1999, 1998 and 1997.
Note 7 Income Taxes
Earnings before income taxes consisted of the following:
(Amounts in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
U.S. $171,538 $(12,128) $210,966
Foreign 26,399 22,968 27,710
- --------------------------------------------------------------------------------
Total $197,937 $ 10,840 $238,676
================================================================================
The provision for income taxes consisted of the following:
(Amounts in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Current:
Federal $38,189 $31,516 $60,551
Foreign 13,945 8,078 7,555
State 5,411 3,701 8,390
- --------------------------------------------------------------------------------
Total current 57,545 43,295 76,496
Deferred:
Federal 9,750 (25,067) 8,493
Foreign 1,428 769 1,865
State 1,987 (3,378) 1,456
- --------------------------------------------------------------------------------
Total deferred 13,165 (27,676) 11,814
- --------------------------------------------------------------------------------
Total income tax provision $70,710 $15,619 $88,310
================================================================================
<PAGE>
Snap-on Incorporated 1999 Annual Report 35
A reconciliation of the Corporation's effective income tax rate to the
statutory federal tax rate follows:
1999 1998 1997
- --------------------------------------------------------------------------------
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 2.4 3.0 2.8
Foreign sales corporation tax benefit (1.2) (1.7) (1.2)
Restructuring and other non-recurring charges (0.3) 108.1 -
Other (0.2) (0.3) 0.4
- --------------------------------------------------------------------------------
Effective tax rate 35.7% 144.1% 37.0%
================================================================================
Temporary differences that give rise to the net deferred tax benefit
are as follows:
<TABLE>
<CAPTION>
(Amounts in thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current deferred income tax benefits:
Inventories $ 18,366 $ 21,309 $ 18,294
Accruals and reserves not currently deductible 32,796 24,702 26,820
Restructuring and other non-recurring accruals 3,431 23,379 -
Other 4,987 (2,551) (491)
- -----------------------------------------------------------------------------------------------------
Total current (included in prepaid expenses) 59,580 66,839 44,623
Long-term deferred income tax benefits:
Employee benefits 66,672 61,870 61,017
Net operating losses 27,593 38,300 23,277
Depreciation (41,645) (21,721) (22,363)
Restructuring and other non-recurring accruals (3,034) 2,638 -
Other 2,228 (1,163) (3,398)
Valuation allowance (24,151) (29,372) (14,658)
- -----------------------------------------------------------------------------------------------------
Total long-term 27,663 50,552 43,875
- -----------------------------------------------------------------------------------------------------
Net deferred income tax benefit $ 87,243 $117,391 $ 88,498
=====================================================================================================
</TABLE>
At January 1, 2000, the Corporation had tax net operating loss
carryforwards ("NOLs") totaling $82.4 million as follows:
(Amounts in millions) U.S. Foreign Total
- --------------------------------------------------------------------------------
Year of expiration:
2000 - 2002 $ - $ 8.0 $ 8.0
2003 - 2006 21.4 9.4 30.8
2007 - 2011 - 0.1 0.1
Indefinite - 43.5 43.5
- --------------------------------------------------------------------------------
$21.4 $61.0 $82.4
================================================================================
A valuation allowance totaling $24.2 million, $29.4 million and $14.7
million in 1999, 1998 and 1997 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 $3.3 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 $112.8 million,
$121.7 million and $117.0 million at the end of 1999, 1998 and 1997. The
Corporation does not expect that additional income taxes will be incurred on
future distributions of such earnings and no deferred income taxes have been
provided for the distribution of these earnings to the parent company.
The Corporation made income tax payments of $26.4 million, $66.2
million and $76.0 million in 1999, 1998 and 1997.
Note 8 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.
<PAGE>
36 Snap-on Incorporated 1999 Annual Report
Notes to Consolidated Financial Statements (continued)
At January 1, 2000, the Corporation had outstanding foreign exchange
forward contracts totaling $194.1 million comprising $107.2 million in euros,
$48.9 million in British pounds, $15.7 million in Canadian dollars, $18.1
million in Swedish kronor, $2.3 million in Singaporean dollars, $1.2 million in
Australian dollars, and $0.7 million in Norwegian kroner. At January 2, 1999,
the Corporation had outstanding foreign exchange forward contracts totaling
$113.9 million comprising $23.0 million in British pounds, $10.0 million in
Canadian dollars, $21.7 million in German marks, $3.5 million in Spanish
pesetas, $5.9 million in French francs, $21.5 million in Italian liras, $12.1
million in Dutch guilders, $3.7 million in Australian dollars, $2.7 million in
Singaporean dollars, and $9.8 million in Irish punts.
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/or
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
1, 2000, and January 2, 1999, the notional principal amount outstanding of these
agreements was $100.0 million and $167.0 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 sells primarily 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: 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 1, 2000, and January 2, 1999, the fair value was
approximately $93.0 million and $168.9 million versus a book value of $82.4
million and $159.6 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 1, 2000, the Corporation would have
realized a gain of $1.3 million upon termination of the agreements. As of
January 2, 1999, the Corporation would have realized a loss of $6.1 million
upon termination of the agreements.
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 9 Pension Plans
The Corporation has several noncontributory pension plans covering
most U.S. employees and certain employees in foreign countries. The Corporation
also has foreign contributory plans covering certain foreign employees.
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 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.
<PAGE>
Snap-on Incorporated 1999 Annual Report 37
The Corporation's net pension expense included the following
components:
(Amounts in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Service cost - benefits
earned during year $ 18,744 $ 15,865 $ 14,630
Interest cost on projected benefits 33,996 29,653 28,047
Less: actual return on plan assets (37,235) (39,551) (76,768)
Curtailment gain (3,277) (2,731) -
Net amortization and deferral:
Actual return on plan assets in
excess of projected return (599) 5,532 46,641
Amortization of net
assets at transition (1,207) (1,268) (1,193)
Other 1,317 1,096 1,170
- --------------------------------------------------------------------------------
Net pension expense $ 11,739 $ 8,596 $ 12,527
================================================================================
The status of the Corporation's pension plans was as follows:
(Amounts in thousands) 1999 1998
- --------------------------------------------------------------------------------
Change in projected benefit obligation
Benefit obligation at beginning of year $ 492,076 $405,666
Service cost 18,744 15,865
Interest cost 33,996 29,653
Plan amendments 1,415 1,159
Benefits paid (20,275) (19,264)
Plan participant contributions 387 461
Curtailment gain (3,277) (2,731)
Effect of plan reorganizations 4,718 -
Effect of business acquisitions 26,995 -
Effect of divestitures (2,935) -
Actuarial (gain) loss (60,471) 61,267
- --------------------------------------------------------------------------------
Benefit obligation at end of year 491,373 492,076
- --------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at beginning of year 503,962 467,835
Actual return on plan assets 36,320 48,212
Contributions by employer 6,680 6,718
Contributions by plan participants 387 461
Effect of plan reorganizations 4,401 -
Effect of business acquisitions (1,740) -
Effect of divestitures (3,421) -
Benefits paid (19,849) (19,264)
- --------------------------------------------------------------------------------
Fair value of plan assets at end of year 526,740 503,962
- --------------------------------------------------------------------------------
Funded status 35,367 11,886
Unrecognized net assets at year-end (3,925) (4,757)
Unrecognized net gain from
experience different than assumed (130,305) (76,530)
Unrecognized prior service cost 9,456 9,272
- --------------------------------------------------------------------------------
Net amount recognized $ (89,407) $(60,129)
================================================================================
(Amounts in thousands) 1999 1998
- --------------------------------------------------------------------------------
Amounts recognized in the consolidated
balance sheets consist of:
Prepaid benefit cost $ 19,665 $ 16,383
Accrued benefit liability (112,161) (79,532)
Intangible asset 407 480
Accumulated other comprehensive income 2,682 2,540
- --------------------------------------------------------------------------------
Net amount recognized $ (89,407) $(60,129)
================================================================================
The weighted average rate assumptions used in determining pension
costs and the projected benefit obligation were:
1999 1998
- --------------------------------------------------------------------------------
Discount rate used to determine
present value of projected benefit
obligation at end of year 7.4% 7.0%
Expected long-term rate of return
on plan assets for the year 9.3% 9.0%
Expected rate of increase in future
compensation levels 4.9% 5.0%
Plan assets are stated at market value and primarily consist of
corporate equities and various debt securities.
The Corporation has pension plans in which the accumulated benefit
obligation exceeds the fair value of plan assets. At the end of 1999 and 1998,
the Corporation had two such plans with an aggregate accumulated benefit
obligation of $15.1 million and $13.3 million with no plan assets.
Note 10 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,
contributions are 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.
<PAGE>
38 Snap-on Incorporated 1999 Annual Report
Notes to Consolidated Financial Statements (continued)
The Corporation recognizes postretirement health care expense in
accordance with SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions."
The Corporation's net postretirement health care benefits expense
included the following components:
(Amounts in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Net periodic cost
Service cost - benefits attributed
to service during the period $2,012 $1,966 $1,945
Interest cost on accumulated
postretirement benefit obligation 5,900 5,494 5,467
Curtailment gain (206) (403) -
Amortization of unrecognized
net gain (71) (572) (527)
- --------------------------------------------------------------------------------
Net postretirement health
care expense $7,635 $6,485 $6,885
================================================================================
The status of the Corporation's U.S. postretirement plans was as
follows:
(Amounts in thousands) 1999 1998
- --------------------------------------------------------------------------------
Change in projected benefit obligation
Benefit obligation at beginning of year $ 83,551 $ 77,780
Service cost 2,012 1,966
Interest cost 5,900 5,494
Plan participants' contributions 1,020 656
Benefits paid (6,135) (4,378)
Curtailment gain (206) (403)
Actuarial loss (2,988) 2,436
- --------------------------------------------------------------------------------
Benefit obligation at end of year 83,154 83,551
================================================================================
Change in plan assets
Fair value of plan assets at beginning of year - -
Plan participants' contributions 1,020 656
Contributions by employer 5,115 3,722
Benefits paid (6,135) (4,378)
- --------------------------------------------------------------------------------
Fair value of plan assets at end of year - -
- --------------------------------------------------------------------------------
Funded status (83,154) (83,551)
Unrecognized actuarial gain (12,949) (10,032)
- --------------------------------------------------------------------------------
Postretirement liability $(96,103) $(93,583)
================================================================================
The accumulated postretirement benefit obligation at the end of 1999
consists of a current liability of $4.7 million and a long-term liability of
$91.4 million. The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 7.5% at the end of 1999 and
7.0% at the end of 1998.
The actuarial calculation assumes a health care trend rate of 7.0% in
2000, decreasing gradually to 4.5% in the year 2005 and thereafter.
As of January 1, 2000, a one percentage point increase in the health
care cost trend rate for future years would increase the accumulated
postretirement benefit obligation by $1.2 million and the service cost and
interest cost components by $0.1 million. Conversely, a one percentage point
decrease in the health care cost trend rate for future years would decrease the
accumulated postretirement benefit obligation by $1.1 million and the service
cost and interest cost components by $0.1 million.
Note 11 Stock Options and Purchase Plans
The Corporation has a stock option plan for directors, officers and
key employees, with expiration dates on the options ranging from 2000 to 2009.
The plan provides that options be granted at exercise prices equal to market
value on the date the option is granted. Under the plan, certain executives
received restricted stock or share units with vesting tied to the meeting of
certain Project Simplify initiatives.
Non-employee directors receive a mandatory minimum of 50% 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 1999, 1998 and 1997, shares issued under the Directors' Fee
Plan totaled 5,846, 5,060 and 3,008. Additionally, receipt of 6,886, 3,951 and
3,226 shares was deferred in 1999, 1998 and 1997. At January 1, 2000, shares
totaling 246,353 were reserved for issuance to directors under this plan.
Employees of the Corporation are eligible 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. For 1999, 1998 and 1997,
shares issued under the employee stock ownership plan totaled 53,082, 81,114 and
120,978. At January 1, 2000, shares totaling 656,409 were reserved for issuance
to employees under this plan, and the Corporation held contributions of
approximately $1.2 million for the purchase of common stock.
Franchised dealers are eligible 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. For 1999, 1998 and 1997, shares issued under
the dealer stock ownership plan totaled 65,630, 117,825 and 133,679. At January
1, 2000, shares totaling 447,529 were reserved for issuance to franchised
dealers under this plan, and the Corporation held contributions of approximately
$1.9 million for the purchase of common stock.
<PAGE>
Snap-on Incorporated 1999 Annual Report 39
Under the 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 new investors and
current shareholders to make additional contributions. For 1999, 1998 and 1997,
shares issued under the dividend reinvestment and stock purchase plan totaled
38,809, 33,620 and 19,764. At January 1, 2000, shares totaling 1,906,661 were
available for purchase under this plan.
The Corporation continues to account for stock-based compensation
plans in accordance with APB Opinion No. 25. 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 1999, 1998 and 1997:
expected volatility of 32.1%, 21.2% and 17.9%; risk-free interest rates of 4.7%,
5.5% and 6.4%; dividend yield of 2.5%, 2.5% and 2.8%; and expected option lives
of 5.6 years, 5.8 years and 5.8 years. If the Corporation had elected to
recognize compensation ost for stock-based compensation consistent with the
methodology prescribed by SFAS No. 123, net earnings (loss) and earnings (loss)
per share for 1999, 1998 and 1997 would have changed to the following pro forma
amounts:
(Amounts in thousands
except per share data) 1999 1998 1997
- --------------------------------------------------------------------------------
Net earnings (loss):
As reported $127,227 $(4,779) $150,366
Pro forma 122,778 (7,896) 148,354
Earnings (loss) per share - diluted:
As reported $ 2.16 $ (.08) $ 2.44
Pro forma 2.09 (.13) 2.41
Stock option activity was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period 2,398,136 $29.21 2,114,228 $25.37 2,007,423 $21.90
Granted 785,800 34.41 585,950 39.77 480,125 37.13
Exercised (132,254) 22.27 (280,020) 21.84 (364,802) 21.64
Canceled (74,215) 31.86 (22,022) 34.74 (8,518) 31.24
- -------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of period 2,977,467 $30.83 2,398,136 $29.21 2,114,228 $25.37
===============================================================================================================================
Exercisable at end of period 1,982,416 $28.31 1,641,296 $24.71 1,663,253 $22.18
Available for grant at end of period 1,796,233 2,507,818 3,071,746
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
As calculated using the Black-Scholes option pricing model, the weighted average
fair value of options granted during the years ended January 1, 2000, January 2,
1999, and January 3, 1998, were $9.64, $8.92 and $7.86. The following table
summarizes information about stock options outstanding as of January 1, 2000:
<TABLE>
<CAPTION>
1999 Options Outstanding 1999 Options Exercisable
---------------------------------------------- -------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Range of Exercise Prices Outstanding Life (Years) Price Exercisable Price
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$19 to $25 1,122,283 3.4 $21.38 1,122,283 $21.38
$25 to $31 53,059 6.1 29.84 53,059 29.84
$31 to $38 1,250,425 8.1 35.33 513,075 36.54
$38 to $46 551,700 8.1 39.95 293,999 40.15
- -------------------------------------------------------------------------------------------------------------------------------
Totals 2,977,467 6.3 $30.83 1,982,416 $28.31
===============================================================================================================================
</TABLE>
<PAGE>
40 Snap-on Incorporated 1999 Annual Report
Notes to Consolidated Financial Statements (continued)
Note 12 Capital Stock
Since 1995, the Corporation has undertaken stock repurchases from time
to time to prevent dilution created by shares issued for employee and dealer
stock purchase plans, stock options and other corporate purposes, as well as to
repurchase shares when market conditions are favorable. At its January 1999
meeting, the board of directors authorized the repurchase of up to $50.0 million
of the Corporation's common stock. This action followed the board's
authorization in 1998 to repurchase up to $100.0 million of common stock and its
authorization in 1997 for up to $100.0 million of common stock. At the end of
1999, all of the 1999 authorization and substantially all of the 1998
authorization remained available. The Corporation repurchased 492,800 shares of
its common stock in 1999, 2,279,400 shares in 1998 and 986,333 shares in 1997.
Since 1995, the Corporation has repurchased 8,570,083 shares.
The board of directors declared on August 22, 1997, 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.
The Corporation created a Grantor Stock Trust ("GST") in 1998 that was
subsequently amended. In conjunction with the formation of the GST, the
Corporation sold 7.1 million shares of treasury stock to the GST. The sale of
these shares had no net impact on shareholders' equity or on the Corporation's
Consolidated Statements of Earnings. The GST is a funding mechanism for certain
benefit programs and compensation arrangements, including the incentive stock
program and employee and franchised dealer stock purchase plans. The Northern
Trust Company, as trustee of the GST, will vote the common stock held by the GST
based on the terms set forth in the GST Agreement as amended. The GST is
recorded as Grantor Stock Trust at Fair Market Value on the accompanying
Consolidated Balance Sheets. Shares owned by the GST are accounted for as a
reduction to shareholders' equity until used in connection with employee
benefits. Each period, the shares owned by the GST are valued at the closing
market price, with corresponding changes in the GST balance reflected in
additional paid-in capital. At January 1, 2000, the GST held 6,677,450 shares of
common stock.
Note 13 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)
-----------------------------------------------------------
2000 $26,989
2001 18,227
2002 12,655
2003 9,135
2004 6,873
2005 and thereafter 20,454
-----------------------------------------------------------
Rent expense for worldwide facilities and computer equipment was $26.7
million, $22.7 million and $18.6 million in 1999, 1998 and 1997.
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
<PAGE>
Snap-on Incorporated 1999 Annual Report 41
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 and
the Tejas Companies filed for bankruptcy. Under a settlement agreement approved
by the U.S. Bankruptcy Court, the Corporation received $18.2 million in 1998,
leaving a net receivable balance of $37.0 million. In September 1999, the
Corporation received a $36.0 million cash payment in early and final settlement.
As a result, the Corporation recorded a non-recurring $1.0 million charge
against the $37.0 million net receivable previously included in the Consolidated
Balance Sheets under Other Assets.
In April 1996, the Corporation filed a complaint against SPX
Corporation alleging infringement of the Corporation's patents and asserting
claims relating to SPX's hiring of the former president of Sun Electric. SPX
filed a counterclaim, alleging infringement of certain SPX patents. Upon the
Corporation's request for reexamination, the U.S. Patent and Trademark Office
initially rejected SPX's patents as invalid, but recently reconfirmed them.
Neither the complaint nor the counterclaim contains specific allegations of
damages; however, the parties' claims could involve multiple millions of
dollars. It is not possible at this time to assess the outcome of any of the
claims.
The Corporation is involved in various legal matters, which are being
defended and handled in the ordinary course of business. Although it is not
possible to predict the outcome of these matters, management believes that the
results will not have a material impact on the Corporation's financial
statements.
Note 14 Restructuring
In the third quarter of 1998, the Corporation's board of directors
approved Project Simplify, a broad program of internal rationalizations,
consolidations and reorganizations to make the Corporation's business operations
simpler and more effective.
The expected $185 million in total charges for the 18-month program
included the cost of closing facilities, employee severance costs associated
with a reduction in staffing, impaired asset write-downs, costs to revalue
discontinued stock keeping units ("SKUs"), legal matters and other non-recurring
costs. The Corporation expected to realize annual cost savings of approximately
$60 million from the initiative, with one-half of the savings expected to be
realized in 1999.
Project Simplify was essentially completed and fully provided for as
of January 1, 2000. The Corporation achieved its original targets of closing 60
facilities, eliminating approximately 1,100 positions and discontinuing more
than 12,000 SKUs of inventory, along with the consolidation of certain business
units. Total charges for Project Simplify, which are composed of restructuring
charges and other non-recurring charges, amounted to $187.1 million. This amount
consists of $67.1 million of restructuring charges and $120.0 million of other
non-recurring charges.
The Corporation recorded in its Consolidated Statements of Earnings,
$37.2 million in 1999 and $149.9 million in 1998 in pre-tax charges related to
Project Simplify actions.
During 1999, the Corporation recorded net pre-tax charges of $37.2
million. This charge consists of $43.2 million of additional other non-recurring
charges, partially offset by $6.0 million of previously recorded restructuring
reserves, which were no longer needed and reversed.
The composition of the Corporation's restructuring charge activity for
the year ended January 1, 2000, was as follows:
<TABLE>
<CAPTION>
Restructuring Restructuring
Reserves as of Reversal of Reserves as of
(Amounts in thousands) January 2, 1999 Reserves Cash Payments January 1, 2000
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Expenditures for severance
and other exit costs $16,505 $ (902) $(11,103) $4,500
Charges for warranty provisions 9,660 (5,065) (4,595) -
- ---------------------------------------------------------------------------------------------------------------
Total restructuring reserves $26,165 $(5,967) $(15,698) $4,500
===============================================================================================================
</TABLE>
<PAGE>
42 Snap-on Incorporated 1999 Annual Report
Notes to Consolidated Financial Statements (continued)
As part of the Corporation's restructuring efforts, charges of $15.5
million were recorded in 1998 for severance and $7.6 million for non-cancelable
lease agreements on facilities to be closed and other exit costs associated with
Project Simplify. As of January 1, 2000, 1,029 employees of an estimated 1,100
have separated from the Corporation, and severance payments of $7.1 million were
made during 1999. Severance costs for worldwide salaried and hourly employees
relate to facility closures, elimination of staffing redundancies and
operational streamlining. The elimination of the remaining positions is expected
by the end of the first quarter of 2000. As of January 1, 2000, the Corporation
has remaining restructuring reserves of $4.5 million for expected severance,
non-cancelable lease agreements on facilities to be closed and other exit costs.
Also, as part of the restructuring efforts, the Corporation recorded a
charge in the amount of $9.7 million in 1998 to provide additional warranty
support, at no cost to the customer, for products already sold, relating to the
elimination of discontinued business units and their product lines. During 1999,
the Corporation made $4.6 million in cash payments under these warranties. The
extended warranty period expired in 1999 and the remaining reserve of $5.1
million was reversed. The warranty reserve has been included in Cost of Goods
Sold - Discontinued Products, while all remaining restructuring charges have
been included in Restructuring and Other Non-recurring Charges on the
accompanying Consolidated Statements of Earnings.
As part of Project Simplify, the Corporation recorded other
non-recurring charges in the amount of $120.0 million. These charges include the
elimination of $55.7 million of discontinued SKUs of inventory, costs to resolve
certain legal matters in the amount of $18.7 million, which represents
attorneys' fees and, in some cases, the likely cost to settle certain disputes
which predated the commencement of Project Simplify, the discontinuance of an
emissions-testing equipment line of $16.9 million and other non-recurring costs
in the amount of $28.7 million.
During 1999, the Corporation recorded other non-recurring charges of
$43.2 million. A total of $4.8 million was recorded for the discontinuance of
SKUs of inventory. This initiative is an effort to reduce the transaction costs
and working capital intensity of the Corporation's product offering and refocus
on high-volume growth products. The Corporation also recorded $16.9 million in
charges for the discontinuance of an emissions-testing equipment line as part of
the Corporation's refocus on high-volume growth products.
In 1999, additional other non-recurring charges in the amount of $21.5
million consisted of employee incentives of $1.5 million, relocation costs of
$10.9 million and professional services of $9.1 million. In 1998, additional
other non-recurring charges in the amount of $7.2 million consisted of $2.5
million of accelerated depreciation of computer equipment that was abandoned
during the fourth quarter, employee incentives of $1.0 million, relocation costs
of $1.2 million and professional services of $2.5 million. The non-recurring
charges related to the reduction of SKUs and discontinuance of product lines
have been included as part of Cost of Goods Sold - Discontinued Products, while
the remaining non-recurring charges have been included in Restructuring and
Other Non-recurring Charges on the accompanying Consolidated Statements of
Earnings.
Note 15 Segments
During 1999, the Corporation adopted a new management organization
structure, which changed the manner in which the Corporation reports its
operating segments. The information for 1998 and 1997 has been restated from the
prior years' presentation in order to conform to the 1999 presentation.
The Corporation's segments are based on the new organization structure
that is used by management for making operating and investment decisions and for
assessing performance. Based on this management approach, the Corporation has
two reportable segments: Global Transportation and Global Operations. The Global
Transportation segment consists of the Corporation's business operations serving
the dealer van channel worldwide. The Global Operations segment consists of the
business operations serving the direct sales and distributor channels worldwide.
These two segments derive revenues primarily from the sale of tools and
equipment.
The accounting policies of the reportable segments are the same as
those described in Note 1. The Corporation evaluates the performance of its
operating segments based on segment net sales and earnings. The Corporation
accounts for intersegment sales and transfers based primarily on standard costs
established between the segments. Prior to 1999, the Corporation accounted for
intersegment sales and transfers based on established sales prices between the
segments, which represented standard cost plus an intercompany markup. The
Corporation allocates shared service expenses to those segments that utilize the
services based on their percentage of revenues from external sources.
Restructuring and other non-recurring charges are not allocated to the
reportable segments.
Neither the Corporation nor any of its segments depends on any single
customer, small group of customers or government for more than 10% of its sales.
<PAGE>
Snap-on Incorporated 1999 Annual Report 43
Financial data by segment was as follows:
<TABLE>
<CAPTION>
(Amounts in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales from external customers
Global Transportation $1,050,922 $1,009,863 $1,001,078
Global Operations 894,699 762,774 671,137
- ----------------------------------------------------------------------------------------------------
Total from reportable segments $1,945,621 $1,772,637 $1,672,215
====================================================================================================
(Amounts in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------
Intersegment sales
Global Transportation $ 36 $ 81 $ 77
Global Operations 414,773 503,756 520,877
- ----------------------------------------------------------------------------------------------------
Total from reportable segments 414,809 503,837 520,954
Elimination of intersegment sales ( 414,809) (503,837) (520,954)
- ----------------------------------------------------------------------------------------------------
Total consolidated intersegment sales $ - $ - $ -
====================================================================================================
(Amounts in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------
Earnings
Global Transportation $ 120,020 $ 90,169 $ 130,646
Global Operations 69,107 27,896 63,000
- ----------------------------------------------------------------------------------------------------
Total from reportable segments 189,127 118,065 193,646
Net finance income 60,476 65,933 71,891
Restructuring and other
non-recurring charges (37,190) (149,863) -
Interest expense (27,358) (21,254) (17,654)
Other income (expense) - net 12,882 (2,041) (9,207)
- ----------------------------------------------------------------------------------------------------
Total consolidated earnings before taxes $ 197,937 $ 10,840 $ 238,676
====================================================================================================
(Amounts in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------
Depreciation and amortization
Global Transportation $ 20,473 $ 20,540 $ 18,440
Global Operations 34,892 23,918 19,632
- ----------------------------------------------------------------------------------------------------
Total from reportable segments 55,365 44,458 38,072
Financial Services - 527 305
- ----------------------------------------------------------------------------------------------------
Total depreciation
and amortization $ 55,365 $ 44,985 $ 38,377
====================================================================================================
(Amounts in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------
Total assets
Global Transportation $ 789,201 $ 758,813 $ 811,955
Global Operations 1,308,365 760,765 653,299
- ----------------------------------------------------------------------------------------------------
Total from reportable segments 2,097,566 1,519,578 1,465,254
Financial Services 97,267 189,111 213,036
Elimination of intersegment receivables (45,011) (33,769) (36,933)
- ----------------------------------------------------------------------------------------------------
Total consolidated assets $2,149,822 $1,674,920 $1,641,357
====================================================================================================
(Amounts in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------
Capital expenditures
Global Transportation $ 16,245 $ 17,095 $ 23,885
Global Operations 19,145 28,455 29,444
- ----------------------------------------------------------------------------------------------------
Total from reportable segments 35,390 45,550 53,329
Financial Services - 1,229 2,113
- ----------------------------------------------------------------------------------------------------
Total consolidated
capital expenditures $ 35,390 $ 46,779 $ 55,442
====================================================================================================
(Amounts in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------
Geographic information
Net sales*
United States $1,306,684 $1,239,970 $1,221,790
Europe 434,336 361,071 259,453
All other countries 204,601 171,596 190,972
- ----------------------------------------------------------------------------------------------------
Total consolidated net sales $1,945,621 $1,772,637 $1,672,215
====================================================================================================
Long-lived assets
United States $ 218,822 $ 218,523 $ 216,264
Europe 117,776 37,707 31,971
All other countries 26,000 15,800 17,530
- ----------------------------------------------------------------------------------------------------
Total consolidated
long-lived assets $ 362,598 $ 272,030 $ 265,765
====================================================================================================
*Net sales are attributed to countries based on the origin of the sale.
</TABLE>
Products and services: The Corporation derives revenue from a broad
line of products and complementary services that can be divided into two groups:
tools and equipment. The following table shows the consolidated sales of these
product groups in the last three years:
<TABLE>
<CAPTION>
(Amounts in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tools $1,149,275 $ 918,492 $ 918,238
Equipment 796,346 854,145 753,977
- ----------------------------------------------------------------------------------------------------
Total $1,945,621 $1,772,637 $1,672,215
====================================================================================================
</TABLE>
<PAGE>
44 Snap-on Incorporated 1999 Annual Report
<TABLE>
<CAPTION>
Quarterly Financial Information
Unaudited
(Amounts in thousands except per share data) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------
Net sales
<S> <C> <C> <C>
First quarter $ 452,585 $ 426,429 $ 375,299
Second quarter 473,153 442,176 409,231
Third quarter 453,157 427,272 391,162
Fourth quarter 566,726 476,760 496,523
- ----------------------------------------------------------------------------------------------------
$1,945,621 $1,772,637 $1,672,215
====================================================================================================
Net earnings (loss)
First quarter $ 32,241 $ 33,926 $ 33,854
Second quarter 24,999 22,661 38,971
Third quarter 42,550 (72,460) 35,514
Fourth quarter 27,437 11,094 42,027
- ----------------------------------------------------------------------------------------------------
$ 127,227 $ (4,779) $ 150,366
====================================================================================================
Earnings (loss) per weighted average common share - basic*
First quarter $ .55 $ .57 $ .56
Second quarter .43 .38 .64
Third quarter .73 (1.23) .58
Fourth quarter .47 .19 .69
- ----------------------------------------------------------------------------------------------------
$ 2.18 $ (.08) $ 2.47
====================================================================================================
Earnings (loss) per weighted average common share - diluted*
First quarter $ .55 $ .56 $ .55
Second quarter .42 .38 .63
Third quarter .72 (1.23) .58
Fourth quarter .47 .19 .68
- ----------------------------------------------------------------------------------------------------
$ 2.16 $ (.08) $ 2.44
====================================================================================================
Cash dividends paid per share
First quarter $ .22 $ .21 $ .20
Second quarter .22 .21 .20
Third quarter .23 .22 .21
Fourth quarter .23 .22 .21
- ----------------------------------------------------------------------------------------------------
$ .90 $ .86 $ .82
====================================================================================================
*Earnings per share are calculated on a quarterly basis and, as such, the
amounts may not total the calculated full-year earnings (loss) per share.
</TABLE>
Sales per Employee Depreciation & Amortization
- ------------------ ---------------------------
in $ thousands in $ millions
1995 - 137 1995 - 32
1996 - 142 1996 - 32
1997 - 149 1997 - 38
1998 - 151 1998 - 45
1999 - 157 1999 - 55
Shareholders' Equity
Capital Expenditures per Share
- -------------------- --------------------
in $ millions in dollars
1995 - 32 1995 - 12.35
1996 - 52 1996 - 13.62
1997 - 55 1997 - 14.74
1998 - 47 1998 - 12.98
1999 - 35 1999 - 14.10
<PAGE>
Snap-on Incorporated 1999 Annual Report 45
<TABLE>
Six-year Data
<CAPTION>
(Amounts in thousands
except per share data) 1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Summary of operations
Net sales $1,945,621 $1,772,637 $1,672,215 $1,485,279 $1,292,125 $1,194,296
Gross profit 896,187 763,314 843,828 750,784 663,491 608,837
Operating expenses 723,658 705,811 650,182 594,527 538,021 510,361
Net finance income 60,476 65,933 71,891 64,269 63,174 60,458
Interest expense 27,358 21,254 17,654 12,649 13,327 10,806
Other income (expense) - net 12,882 (2,041) (9,207) 776 4,572 5,541
Pre-tax earnings 197,937 10,840 238,676 208,653 179,889 153,669
Income taxes 70,710 15,619 88,310 77,202 66,559 55,355
Net earnings (loss) 127,227 (4,779) 150,366 131,451 113,330 98,314
- ------------------------------------------------------------------------------------------------------------------------------------
Financial position
Current assets $1,206,341 $1,079,832 $1,021,709 $1,017,324 $ 946,689 $ 873,020
Current liabilities 452,749 458,053 352,530 341,371 336,075 237,869
Working capital 753,592 621,779 669,179 675,953 610,614 635,151
Total capital 1,455,086 1,102,028 1,067,104 1,001,239 920,708 886,009
Accounts receivable 617,645 554,703 539,589 651,739 610,064 568,378
Inventories 454,841 375,436 373,155 269,750 250,434 229,037
Property and equipment - net 362,598 272,030 265,765 245,294 220,067 209,142
Total assets 2,149,822 1,674,920 1,641,357 1,520,788 1,360,973 1,234,905
Long-term debt 607,476 246,644 151,016 149,804 143,763 108,980
Shareholders' equity 825,261 762,267 892,137 828,161 750,732 766,398
- ------------------------------------------------------------------------------------------------------------------------------------
Common share summary*
Net earnings (loss) per share - diluted $ 2.16 $ (.08) $ 2.44 $ 2.13 $ 1.83 $ 1.53
Cash dividends paid per share .90 .86 .82 .76 .72 .72
Shareholders' equity per share 14.10 12.98 14.74 13.62 12.35 11.91
Weighted average common
shares outstanding - diluted 58,877 59,220 61,686 61,593 61,905 64,368
- ------------------------------------------------------------------------------------------------------------------------------------
Other financial statistics
Cash dividends paid $ 52,671 $ 50,977 $ 49,888 $ 46,323 $ 44,113 $ 46,197
Dividends paid as a percent
of net earnings 41.4% N/M 33.2% 35.2% 38.9% 47.0%
Net cash provided
by operating activities 235,604 75,031 194,894 136,400 172,900 107,175
Capital expenditures 35,390 46,779 55,442 52,333 31,581 41,788
Depreciation and amortization 55,365 44,985 38,377 31,879 31,534 29,632
Current ratio 2.7 2.4 2.9 3.0 2.8 3.7
Percent of total debt to total capital 43.3% 30.8% 16.4% 17.3% 18.5% 13.5%
Effective tax rate 35.7% 144.1% 37.0% 37.0% 37.0% 36.0%
Net earnings (loss) as a percent
of net sales 6.5% (0.3)% 9.0% 8.9% 8.8% 8.2%
Return on average
shareholders' equity 16.0% (0.6)% 17.5%% 16.7% 14.9% 13.4%
Shareholders of record 11,271 11,514 10,738 10,556 9,657 9,292
Common stock price range* 37.81-26.44 46.44-25.50 46.31-34.25 38.25-27.33 31.50-20.67 29.58-19.33
Year-end share price* 26.56 34.81 42.38 36.38 30.17 22.17
- ------------------------------------------------------------------------------------------------------------------------------------
*Adjusted for the three-for-two stock split in 1996.
1998 results include $149.9 million of pre-tax restructuring and other
non-recurring charges ($107.6 million after tax). Earnings per share impact was
$1.82 after tax.
1999 results include $37.2 million of pre-tax restructuring and other
non-recurring charges ($23.3 million after tax). Earnings per share impact was
$.40 after tax.
N/M = not meaningful.
</TABLE>
<PAGE>
46 Snap-on Incorporated 1999 Annual Report
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. 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.
/s/ Robert A. Cornog /s/ Donald S. Huml
- ----------------------------- ---------------------------------
Robert A. Cornog Donald S. Huml
Chairman, President and Senior Vice President -
Chief Executive Officer Finance and Chief
Financial Officer
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 1,
2000, and January 2, 1999, and the related consolidated statements of earnings,
shareholders' equity and comprehensive income, and cash flows for each of the
three years in the period ended January 1, 2000. 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 auditing standards
generally accepted in the United States. 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 1, 2000, and
January 2, 1999, and the consolidated results of its operations and cash flows
for each of the three years in the period ended January 1, 2000, in conformity
with accounting principles generally accepted in the United States.
/s/ Arthur Andersen LLP
- -----------------------------
Arthur Andersen LLP
Chicago, Illinois
February 1, 2000
Exhibit (21)
SUBSIDIARIES OF THE CORPORATION
As of January 1, 2000
State or other jurisdiction
Name of organization
---- ---------------------------
CreditCorp SPC, LLC Wisconsin
IDSC Holdings, Inc. Wisconsin
Luxembourg SB Tools SARL Luxembourg
Snap-on Capital Corp. Delaware
Snap-on Credit, LLC Delaware
Snap-on Engineering Services Company Wisconsin
Snap-on Financial Services, Inc. Nevada
Snap-on Global Holdings, Inc. Delaware
Snap-on International Finance Company Ireland
Snap-on Logistics Company Wisconsin
Snap-on Technologies, Inc. Illinois
Snap-on Tools Company Wisconsin
Snap-on Tools Limited United Kingdom
Exhibit (23)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports dated February 1, 2000 incorporated by reference in this Form 10-K, into
the Corporation's previously filed Registration Statement File Nos. 2-53663,
2-53578, 33-7471, 33-22417, 33-37924, 33-39660, 33-57898, 33-55607, 33-58939,
33-58943, 333-14769, 333-21277, 333-21285 and 333-41359. It should be noted that
we have not audited any financial statements of the Corporation subsequent to
January 1, 2000 or performed any audit procedures subsequent to the date of our
report.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 22, 2000
<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
YEAR ENDED JANUARY 1, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-02-1999
<PERIOD-END> JAN-01-2000
<CASH> 17,617
<SECURITIES> 0
<RECEIVABLES> 645,431
<ALLOWANCES> 27,786
<INVENTORY> 454,841
<CURRENT-ASSETS> 1,206,341
<PP&E> 688,801
<DEPRECIATION> 326,203
<TOTAL-ASSETS> 2,149,822
<CURRENT-LIABILITIES> 452,749
<BONDS> 607,476
0
0
<COMMON> 66,729
<OTHER-SE> 758,532
<TOTAL-LIABILITY-AND-EQUITY> 2,149,822
<SALES> 1,945,621
<TOTAL-REVENUES> 1,945,621
<CGS> 1,032,836
<TOTAL-COSTS> 1,049,434
<OTHER-EXPENSES> 723,658
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,358
<INCOME-PRETAX> 197,937
<INCOME-TAX> 70,710
<INCOME-CONTINUING> 127,227
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 127,227
<EPS-BASIC> 2.18
<EPS-DILUTED> 2.16
</TABLE>
