SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1 TO
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended October 2, 1999
Commission File Number 1-7724
SNAP-ON INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 39-0622040
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10801 Corporate Drive, Pleasant Prairie, Wisconsin 53158-1603
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (414) 656-5200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
Class Outstanding at October 30, 1999
Common stock, $1 par value 58,518,811 shares
<PAGE>
SNAP-ON INCORPORATED
Snap-on Incorporated hereby files Amendment number 1 to its Report on Form 10-Q
filed on November 16, 1999 for purposes of filing information under Part I
relating to the change in timing of $2.5 million pre-tax of
restructuring-related charges from the third quarter of 1998 to the fourth
quarter of 1998. This change reduced the net loss by $1.5 million after-tax for
the thirteen and thirty-nine weeks ended October 3, 1998 and reduced loss per
common share for basic and diluted by $0.01 for the thirteen weeks ended October
3, 1998 and by $0.02 for the thirty-nine weeks ended October 3, 1998. As a
result, the composition of the restructuring charges table was modified along
with related narrative.
INDEX
Page
Part I. Financial Information
Consolidated Statements of Earnings -
Thirteen and Thirty-nine Weeks Ended
October 2, 1999 and October 3, 1998 3
Consolidated Balance Sheets -
October 2, 1999 and January 2, 1999 4-5
Consolidated Statements of Cash Flows -
Thirty-nine Weeks Ended
October 2, 1999 and October 3, 1998 6
Notes to Consolidated Unaudited Financial Statements 7-14
Management's Discussion and Analysis of
Financial Condition and Results of Operations 15-21
Part II. Other Information 22-23
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
SNAP-ON INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in thousands except per share data)
(Unaudited)
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
October 2, October 3, October 2, October 3,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 453,157 $ 427,272 $ 1,378,895 $ 1,295,877
Cost of goods sold (234,738) (225,184) (716,310) (677,554)
Cost of goods sold -
discontinued products -- (50,562) -- (50,562)
Operating expenses (170,504) (176,366) (527,215) (525,346)
Restructuring and other
non-recurring charges (5,315) (80,059) (14,285) (80,059)
Net finance income 12,267 14,657 46,400 47,529
Interest expense (5,262) (5,883) (15,360) (15,365)
Other income (expense) - net 16,558 604 3,319 (1,624)
----------- ----------- ----------- -----------
Earnings (loss) before
income taxes 66,163 (95,521) 155,444 (7,104)
Income tax provision (benefit) 23,613 (23,061) 55,654 8,769
----------- ----------- ----------- -----------
Net earnings (loss) $ 42,550 $ (72,460) $ 99,790 $ (15,873)
=========== =========== =========== ===========
Earnings (loss) per weighted
average common share - basic $ .73 $ (1.23) $ 1.71 $ (.27)
=========== =========== =========== ===========
Earnings (loss) per weighted
average common share - diluted $ .72 $ (1.23) $ 1.69 $ (.27)
=========== =========== =========== ===========
Weighted average common shares
outstanding - basic 58,491 58,995 58,482 59,359
Effect of dilutive options 424 -- 424 --
----------- ----------- ----------- -----------
Weighted average common shares
outstanding - diluted 58,915 58,995 58,906 59,359
=========== =========== =========== ===========
Dividends declared per
common share $ -- $ -- $ .67 $ .64
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
SNAP-ON INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except share data)
(Unaudited)
October 2, January 2,
1999 1999
------------ --------------
ASSETS
Current Assets
Cash and cash equivalents $ 42,688 $ 15,041
Accounts receivable, less allowances 568,660 554,703
Inventories
Finished stock 453,489 359,358
Work in process 58,268 38,357
Raw materials 81,854 74,192
Excess of current cost over LIFO cost (95,541) (96,471)
------------ ------------
Total inventory 498,070 375,436
Prepaid expenses and other assets 189,536 134,652
------------ ------------
Total current assets 1,298,954 1,079,832
Property and equipment
Land 21,346 19,572
Buildings and improvements 216,139 175,385
Machinery and equipment 516,866 388,862
------------ ------------
754,351 583,819
Accumulated depreciation (403,349) (311,789)
------------ ------------
Total property and equipment 351,002 272,030
Deferred income tax benefits 48,197 60,139
Intangibles 454,256 172,517
Other assets 54,537 90,402
------------- -------------
Total assets $2,206,946 $1,674,920
============= =============
The accompanying notes are an integral part of these statements.
4
<PAGE>
SNAP-ON INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except share data)
(Unaudited)
October 2, January 2,
1999 1999
------------ -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 152,015 $ 89,442
Notes payable and current maturities
of long-term debt 37,018 93,117
Accrued compensation 41,267 42,105
Dealer deposits 40,367 42,421
Deferred subscription revenue 41,558 34,793
Accrued restructuring reserve 15,791 26,165
Other accrued liabilities 176,266 130,010
----------- -----------
Total current liabilities 504,282 458,053
Long-term debt 669,715 246,644
Deferred income taxes 18,128 9,587
Retiree health care benefits 91,525 89,124
Pension and other long-term liabilities 112,511 109,245
----------- -----------
Total liabilities 1,396,161 912,653
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 -
October 2, 1999 - 66,717,746 shares
January 2, 1999 - 66,685,169 shares 66,718 66,685
Additional paid-in capital 96,936 117,384
Retained earnings 943,787 883,207
Accumulated other comprehensive income (loss) (35,242) (30,231)
Grantor stock trust at fair market value -
6,694,196 and 6,924,019 shares (212,963) (241,042)
Treasury stock at cost - 1,509,140 and
1,016,224 shares (48,451) (33,736)
----------- -----------
Total shareholders' equity 810,785 762,267
----------- -----------
Total liabilities and shareholders'
equity $2,206,946 $1,674,920
=========== ===========
The accompanying notes are an integral part of these statements.
5
<PAGE>
SNAP-ON INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Thirty-nine Weeks Ended
October 2, October 3,
1999 1998
----------- -----------
OPERATING ACTIVITIES
Net earnings (loss) $ 99,790 $ (15,873)
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Depreciation 28,751 25,715
Amortization 8,828 7,099
Deferred income taxes 20,364 (4,310)
(Gain) on sale of assets (1,183) (4,412)
(Gain) on currency hedge for purchase
price commitment, net of tax (1,085) -
Charges due to restructuring and other
non-recurring charges, net of tax 9,504 94,924
Changes in operating assets and liabilities:
Decrease in receivables 52,904 56,514
(Increase) in inventories (42,483) (66,935)
Decrease in prepaid and other assets 54,265 50,261
(Decrease) in accounts payable (24,296) (16,127)
(Decrease) in accruals and other liabilities (2,398) (53,882)
----------- ----------
Net cash provided by operating activities 202,961 72,974
INVESTING ACTIVITIES
Capital expenditures (27,189) (32,332)
Acquisitions of businesses (481,752) (76,155)
Disposal of property and equipment 6,276 7,115
---------- -----------
Net cash used in investing activities (502,665) (101,372)
FINANCING ACTIVITIES
Payment of long-term debt - (3,543)
Increase in long-term debt 6,743 47,412
Increase in short-term borrowings-net 346,296 78,830
Purchase of treasury stock (14,714) (75,723)
Proceeds from stock plans 7,663 7,333
Cash dividends paid (39,210) (38,030)
---------- ----------
Net cash provided by financing activities 306,778 16,279
Effect of exchange rate changes on cash (416) (90)
---------- ----------
Increase (decrease) in cash and cash equivalents 6,658 (12,209)
Cash and cash equivalents at beginning of period 15,041 25,679
---------- ----------
Cash and cash equivalents at end of period $ 21,699 $ 13,470
========== ==========
The accompanying notes are an integral part of these statements.
6
<PAGE>
SNAP-ON INCORPORATED
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
1. This report should be read in conjunction with the consolidated financial
statements and related notes included in Snap-on Incorporated's Annual
Report for the year ended January 2, 1999.
In the opinion of management, all adjustments (consisting of normal
recurring adjustments and adjustments related to restructuring and other
non-recurring charges) necessary to a fair statement of financial condition
and results of operations for the thirteen and thirty-nine weeks ended
October 2, 1999 have been made. Management also believes that the results of
operations for the thirteen and thirty-nine weeks ended October 2, 1999 are
not necessarily indicative of the results to be expected for the full year.
Certain prior-year amounts have been reclassified to conform with
current-year presentation.
2. Snap-on Incorporated (the "Corporation") normally declares and pays in cash
four regular, quarterly dividends. However, the third quarter dividend in
each year is declared in June, giving rise to two regular quarterly
dividends appearing in the second quarter and correspondingly, three regular
quarterly dividends appearing in the first twenty-six weeks' statements.
3. Income tax paid for the thirty-nine week period ended October 2, 1999 and
October 3, 1998 was $11.0 million and $43.4 million. Interest paid for the
thirty-nine week period ended October 2, 1999 and October 3, 1998 was $20.3
million and $16.9 million.
4. In 1998, the Corporation announced a simplification initiative ("Project
Simplify") which is a broad program of internal rationalizations,
consolidations and reorganizations. The goal is to make the Corporation's
business operations simpler and more effective. Project Simplify, upon
completion in the first quarter of 2000, will result in the closing of six
manufacturing facilities, seven warehouses and 47 small offices in North
America and Europe; the elimination of 1,100 positions; the discontinuance
of 12,000 stock keeping units ("SKUs") of inventory; and the consolidation
of certain business units. Total charges for Project Simplify are composed
of restructuring charges, other non-recurring charges and related
transitional costs.
For the third quarter of 1998, when Project Simplify was announced, the
Corporation recorded pre-tax charges of $130.6 million of restructuring and
other non-recurring charges. For the third quarter and first nine months of
1999, the Corporation recorded pre-tax charges of $5.3 million and $14.3
million, respectively, of other non-recurring charges related to Project
Simplify. Total charges for Project Simplify as of October 2, 1999 were
$164.1 million. This amount consists of $73.1 million of restructuring
charges and $91.0 million of other non-recurring charges.
7
<PAGE>
SNAP-ON INCORPORATED
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (continued)
The composition of the Corporation's restructuring charge activity for nine
months ended October 3, 1999 is as follows:
Restructuring Restructuring
Reserves as of Cash Reserves as of
(Amounts in thousands) January 2, 1999 Payments October 2, 1999
--------------- -------- ---------------
Expenditures for severance
and other exit costs $16,505 $(6,524) $9,981
Charges for warranty
provisions 9,660 (3,850) 5,810
--------- ----------- ---------
Total restructuring
reserves $26,165 $(10,374) $15,791
======= ======== =======
At January 2, 1999, the Corporation had remaining restructuring charges of $11.2
million for severance and of $5.3 million for non-cancelable lease agreements on
facilities to be closed and other exit costs associated with Project Simplify.
Severance costs provided for worldwide salaried and hourly employees relate to
facility closures, elimination of staffing redundancies and operational
streamlining. As of October 2, 1999, 959 employees of an estimated 1,100 have
separated from the Corporation, and severance payments of $4.0 million have been
made during 1999. The elimination of the remaining positions is expected by the
first quarter of 2000.
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 of which $3.9 million in
cash payments have been made during 1999. The majority of this charge relates to
Computer Aided Services, Inc. and Edge Diagnostic Systems. 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.
Other non-recurring Charges: As part of Project Simplify, the Corporation has
recorded other non-recurring charges in the amount of $90.1 million which do not
qualify for restructuring accrual treatment and are therefore expensed when
incurred. These charges include the elimination of $50.9 million of discontinued
SKUs of inventory, costs to resolve certain legal matters in the amount of $18.7
million and other transitional costs in the amount of $18.8 million. For the
third quarter of 1999, the Corporation recorded other non-recurring charges of
$5.3 million. These charges consisted of employee incentives ($.2 million),
relocation costs ($3.3 million) and professional services ($1.8 million). For
the first nine months of 1999, total non-recurring charges were $14.3 million.
These charges consisted of employee incentives ($1.1 million), relocation costs
($7.0 million) and professional services ($6.2 million). The non-recurring
charge related to the reduction of SKUs has 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.
8
<PAGE>
SNAP-ON INCORPORATED
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (continued)
The charge for certain legal matters includes legal costs to conclude these
matters. The non-recurring charge related to the reduction of SKUs has 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.
5. On September 30, 1999, the Corporation completed its acquisition of the
Sandvik Saws and Tools business, formerly a wholly-owned operating unit of
Sandvik AB, for approximately US$400 million (SEK 3,300 million) in cash.
Pursuant to the Share Purchase Agreement, the Corporation acquired 100% of
the voting securities of SB Tools S.a.r.l. ("SB Tools"), a controlled entity
of CTT Cutting Tool Technology B.V., a wholly-owned subsidiary of Sandvik
AB. Pursuant to a reorganization which occurred within the Sandvik group of
companies and at the time of closing, SB Tools was the owner, directly and
indirectly, of the companies within the Sandvik group conducting the line of
business known as the Sandvik Saws and Tools business. The acquired business
will operate within the Corporation as the Bahco Group. The acquisition was
financed through internally generated funds and an expansion of an existing
commercial paper credit facility supported by a recently completed $600
million multi-currency revolving credit facility. The acquisition is being
accounted for under the purchase method of accounting. The purchase includes
facilities, a number of brand names and trademarks, and certain other assets
and liabilities, all of which have been included in the October 2, 1999
consolidated balance sheet. The assets and liabilities have been recorded at
historical cost until an audited financial statement and estimated fair
market values of the assets acquired and the liabilities assumed are
available and final purchase price adjustments are made. As a result,
goodwill of $240.0 million has been recorded representing the difference
between the purchase price and the historical cost of the assets and
liabilities assumed. Upon determination of the estimated fair market values
of the assets acquired and liabilities assumed, the cost of the acquisition
will be allocated in accordance with criteria established under Accounting
Principles Board Opinion No. 16, "Business Combinations", and goodwill will
be adjusted accordingly. It is anticipated that the resulting goodwill is to
be assigned a 40 year life. Because the purchase occurred at the end of the
quarter, there was no effect recorded to the consolidated statement of
earnings for the quarter or nine months ended October 2, 1999.
The Bahco Group 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
business had 1998 sales of US$325 million (SEK 2,700 million) (60% Europe,
26% U.S. and Latin America, and 14% in Asia/Pacific and the rest of the
world). The Corporation anticipates this transaction to be neutral to
earnings in the fourth quarter of 1999 and accretive thereafter.
6. 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 shares of common stock is calculated using the treasury
stock method.
9
<PAGE>
SNAP-ON INCORPORATED
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (continued)
7. In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which establishes accounting and reporting standards for
derivative instruments and for hedging activities. The Statement of
Financial Accounting Standards ("SFAS") No. 133 was effective for fiscal
years beginning after June 15, 1999. In June 1999, the 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.
8. Total comprehensive income, consisting of net earnings and foreign currency
translation adjustments, for the thirteen and thirty-nine week periods ended
October 2, 1999 and October 3, 1998, was as follows:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
October 2, October 3, October 2, October 3,
(Amounts in thousands) 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings (loss) $ 42,550 $ (72,460) $ 99,790 $ (15,873)
Foreign currency translation 4,216 5,185 (5,011) 4,331
-------- --------- -------- ----------
Total comprehensive income (loss) $ 46,766 $ (67,275) $ 94,779 $ (11,542)
======== ========= ======== =========
</TABLE>
9. 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.
Interest Rate Derivative Instruments: The Corporation enters into interest
rate swap agreements to manage interest costs and risks associated with
changing interest rates. The differentials paid or received on interest rate
agreements are accrued and recognized as adjustments to interest expense.
Gains and losses realized upon settlement of these agreements are deferred
and amortized to interest expense over a period relevant to the agreement if
the underlying hedged instrument remains outstanding, or immediately if the
underlying hedged instrument is settled.
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. In the second quarter of 1999, the Corporation entered into a
forward currency hedge to buy 3.2 billion of Swedish Krona on the US$400
million equivalent purchase price commitment for the Sandvik acquisition.
The hedge was marked to market at the end of the second quarter resulting in
a $13.6 million pre-tax unrealized loss. At the end of the third quarter, a
$15.3 million pre-tax gain was recognized at the close of the Sandvik
acquisition on September 30, 1999. For the thirty-nine weeks ended September
30, 1999, a $1.7 million pre-tax
10
<PAGE>
SNAP-ON INCORPORATED
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (continued)
gain was realized. The pre-tax gain is included in the consolidated
statements of earnings under other income (expense) - net. Other than the
forward currency hedge related to the Sandvik acquisition, gains and/or
losses from foreign currency hedges have not been material to the
consolidated financial statements.
10. Tejas Testing Technology One, L.C. and Tejas Testing Technology Two, L.C.
(the "Tejas Companies"), former subsidiaries of the Corporation, previously
entered into contracts with the Texas Natural Resources Conservation
Commission ("TNRCC"), an agency of the State of Texas, to perform automotive
emissions testing services. The Corporation guaranteed payment (the
"Guaranty") of the Tejas Companies' obligations under a seven-year lease
agreement in the amount of approximately $98.8 million plus an interest
factor, pursuant to which the Tejas Companies leased the facilities
necessary to perform the contracts. The Guaranty was assigned to the
lessor's lenders. The Tejas Companies agreed to indemnify the Corporation
for any payments it must make under the Guaranty.
The State of Texas subsequently terminated the emissions program described
in the contracts. The Tejas companies filed for bankruptcy and commenced
litigation in state and federal court against the TNRCC and related
entities. The Corporation had recorded as assets the net amounts the
Corporation paid under the Guaranty that it expected to receive from the
State of Texas pursuant to a settlement agreement approved by the U.S.
Bankruptcy Court. Under this settlement agreement, the obligation under the
Guaranty previously recorded as a contingent liability in the amount of
$38.5 million was satisfied, leaving an expected receivable of $55.2
million. In 1998, the Corporation received $18.2 million, leaving a net
receivable balance of $37.0 million prior to the third quarter of 1999. 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.
The $1.0 million charge is included in the consolidated statements of
earnings under other income (expense) - net.
In April 1996, the Corporation filed a complaint against SPX Corporation
("SPX") 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.
11. In 1998, the Corporation created a Grantor Stock Trust ("GST"). 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
11
<PAGE>
SNAP-ON INCORPORATED
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (continued)
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 directions of non-director
employees holding vested options and certain employee and dealer
participants in those stock purchase plans, as set forth in the GST
Agreement. 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.
12. In January 1999, the Corporation recorded a gain in accordance with SFAS No.
125. of $40 million (reported in the Corporation's 1998 annual report as a
preliminary estimate of $44 million before post-closing adjustments) pre-tax
that resulted from the sale of $141.1 million of U.S. installment accounts
receivables to Newcourt Financial USA Inc. ("Newcourt"). A significant
portion of the receivables sold to Newcourt were previously securitized with
a third party. The Corporation reacquired these previously securitized
receivables through an arm's length transaction and they were recorded at
cost. These receivables, along with previously unsecuritized receivables,
were sold to Newcourt resulting in a pre-tax gain of $40 million. The gain
is being recognized over a two-year period.
13. In 1998, the Corporation adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which changes the way the Corporation reports information
about its operating segments. The information for 1998 has been restated
from the prior years' presentation in order to conform to the 1999
presentation.
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 five reportable segments: North America Transportation, North America
Other, Europe, International and Financial Services. The North America
Transportation segment consists of the Corporation's business operations
serving primarily the franchised dealer channel in the United States and
Canada. The North America Other segment consists of the Corporation's
business operations serving the direct sales and distributor channels in the
United States and Canada, as well as the Corporation's exports from the
United States. The Europe segment consists of the Corporation's operations
in Europe and Africa. The International segment consists of the
Corporation's operations in the Asia/Pacific region and Latin America. These
four segments derive revenues primarily from the sale of tools and
equipment. The Financial Services segment derives royalty income, based on
new loan originations, and management fees from Snap-on Credit LLC, a 50%
owned joint venture with Newcourt. Earnings from this segment also includes
a portion of the amortization of the approximately $40 million pre-tax gain
that resulted from the Corporation's sale of installment accounts
receivables to Newcourt. The overall gain is being recognized over a two
year period. The Financial Services segment also provides limited financing
to technicians, shop owners and dealers.
The Corporation evaluates the performance of its operating segments based on
earnings before taxes, interest expense, other income/expense-net and
restructuring and other non-recurring charges. The
12
<PAGE>
SNAP-ON INCORPORATED
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (continued)
Corporation accounts for intersegment sales and transfers based on
established sales prices between the segments, which represent 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. The Corporation has charged license fees to
its North America segments based on their percentages of certain North
America sales. Expenses related to restructuring and other non-recurring
charges are not allocated to the reportable segments.
Financial data by segment for the thirteen and thirty-nine weeks ended:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
October 2, October 3, October 2, October 3,
(Amounts in thousands) 1999 1998 1999 1998
---- ---- ---- ----
Revenues from external customers:
<S> <C> <C> <C> <C>
North America Transportation $ 210,377 $ 207,040 $ 655,762 $ 629,596
North America Other 127,777 105,412 360,650 330,828
Europe 93,527 96,711 301,977 279,612
International 21,476 18,109 60,506 55,841
----------- ------------ ----------- -----------
Total from reportable segments $ 453,157 $ 427,272 $ 1,378,895 $ 1,295,877
=========== ============ =========== ===========
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
October 2, October 3, October 2, October 3,
(Amounts in thousands) 1999 1998 1999 1998
---- ---- ---- ----
Intersegment revenues:
<S> <C> <C> <C> <C>
North America Transportation $ -- $ -- $ -- $ 11
North America Other 60,291 56,870 192,401 171,262
Europe 2,188 1,931 7,403 5,293
International 2 1 5 48
----------- ------------ ----------- -----------
Total from reportable segments 62,481 58,802 199,809 176,614
Elimination of intersegment
revenue (62,481) (58,802) (199,809) (176,614)
----------- ------------ ----------- -----------
Total consolidated intersegment
revenue $ -- $ -- $ -- $ --
=========== ============ =========== ===========
Earnings:
North America Transportation $ 25,838 $ 18,451 $ 73,252 $ 47,509
North America Other 25,093 11,237 64,019 52,553
Europe (1,800) (2,786) 1,298 (2,884)
International (1,216) (1,180) (3,199) (4,201)
Financial Services 12,267 14,657 46,400 47,529
----------- ------------ ----------- -----------
Total from reportable segments 60,182 40,379 181,770 140,506
Restructuring and other
non-recurring charges (5,315) (133,121) (14,285) (133,121)
Interest expense (5,262) (5,883) (15,360) (15,365)
Other income (expense) - net 16,558 604 3,319 (1,624)
----------- ------------ ----------- -----------
Total consolidated earnings before taxes $ 66,163 $ (98,021) $ 155,444 $ (9,604)
=========== ============ =========== ===========
</TABLE>
13
<PAGE>
SNAP-ON INCORPORATED
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (continued)
Financial data by segment as of: October 2, January 2,
(Amounts in thousands) 1999 1999
---- ----
Total assets:
North America Transportation $ 520,473 $ 516,372
North America Other 615,687 591,831
Europe 988,781 407,663
International 65,822 56,293
Financial Services 132,577 231,092
---------- ----------
Total from reportable segments $2,323,340 $1,803,251
========== ==========
14. In 1998, In August 1999, the corporation completed a $600 million revolving
credit facility to support its commercial paper program. A $200 million
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 which allows the Corporation to elect to borrow
under the credit facility for an additional year after the termination
date. These facilities were used to finance the Sandvik Saws and Tools
acquisition.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview: The Corporation posted record net sales, earnings and earnings per
share for the third quarter and first nine months of 1999. Net sales increased
6.1% to $453.2 million for the third quarter and increased 6.4% to $1.4 billion
for the first nine months of 1999 as compared to the comparable 1998 periods of
$427.3 million and $1.3 billion. The increase in net sales in the third quarter
and first nine months of 1999 over 1998 was driven by increases across all
business segments in North America. Reported net earnings for the third quarter
and first nine months of 1999 were $42.6 million and $99.8 million as compared
to $72.5 million net loss and $15.9 million net loss in the comparable prior
year periods. Reported diluted earnings per share for the third quarter and
first nine months of 1999 were $0.72 per share and $1.69 per share as compared
to a loss of $1.23 per share and a loss of $0.27 per share in the comparable
prior year periods.
Net earnings for the third quarter, excluding other non-recurring charges
related to Project Simplify of $3.2 million after-tax, a gain on the forward
currency hedge on the US$400 million equivalent purchase price commitment for
the Sandvik acquisition of $9.8 million after-tax and a non-recurring $0.7
million after-tax charge resulting from settlement of litigation with the State
of Texas ("non-recurring items"), improved to $36.6 million from $22.5 million,
an increase of 63.1% from the same year-ago period. Net earnings for the first
nine months of 1999, excluding other non-recurring charges related to Project
Simplify of $8.8 million after-tax, a gain on a currency hedge of $1.1 million
after-tax and the settlement of litigation with the State of Texas of $0.7
million after-tax, increased 36.9% to $108.2 million, versus $79.1 million in
the same period a year ago. Net earnings for the third quarter of $22.5 million
and first nine months of 1998 of $79.1 million excludes $51.3 million after-tax
of restructuring charges and $43.6 million after-tax of non-recurring charges
related to the announcement of Project Simplify in the third quarter of 1998.
Diluted earnings per share for the 1999 third quarter were $0.62, excluding
non-recurring items. For the first nine months of 1999, diluted earnings per
share were $1.84, excluding non-recurring items.
Operating expenses as a percentage of net sales decreased to 37.6% in the third
quarter of 1999 from 41.3% in prior year period. For the nine month period,
operating expenses as a percentage of net sales decreased to 38.2% in 1999 from
40.5% in the prior year period. The declines in operating expenses as a
percentage of net sales reflect favorable operating leverage and the effects of
savings from Project Simplify.
The Corporation's simplification initiative, Project Simplify, is a broad
program of internal rationalizations, consolidations and reorganizations
intended to make the Corporation's business operations simpler and more
effective. The actions associated with Project Simplify, upon completion in the
first quarter of 2000, are expected to lead to the closing of six manufacturing
facilities, seven warehouses and 47 small offices in North America and Europe;
the elimination of more than 1,100 positions; the elimination of nearly 12,000
SKUs; and the consolidation of certain business units. As of the end of the
third quarter of 1999, 959 positions were eliminated, 50 facilities were closed
and the SKU reduction activities have yielded in excess of the planned 12,000
target. The closing of the remaining 10 facilities and the elimination of the
remaining 141 positions is expected to be completed by the first quarter of
2000. The Corporation expects to realize annual cost savings of approximately
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
$60 million from the initiative. The Corporation expects to achieve $30 million
in 1999 and $60 million in 2000.
In the third quarter and first nine months of 1999, $5.3 million ($3.2 million
or $0.06 per share after-tax) and $14.3 million ($8.8 million or $0.16 per share
after-tax) of other non-recurring charges were taken in connection with Project
Simplify, primarily for reassignment of personnel and costs for facilities
consolidation. Of the expected total charge of approximately $185.0 million to
be recorded through the first quarter of 2000, a total of $164.1 million in
pre-tax charges have been recorded through the third quarter of 1999 (including
$130.6 million in the third quarter of 1998, $19.3 million in the fourth quarter
of 1998, $1.9 million in the first quarter of 1999, $7.0 million in the second
quarter of 1999 and $5.3 million in the third quarter 1999). Approximately
one-half of the total charges will be non-cash with the remaining costs
requiring cash outflows which will be and are being provided from operations.
Finance income for the third quarter of 1999 was $12.3 million, a decrease of
16.3% from third quarter 1998 of $14.7 million, reflecting the expected decline
resulting from the reduced level of extended credit receivables. This lower
level is the result of the sale of extended credit receivables in the first
quarter of 1999 to Snap-on Credit LLC. Finance income for the first nine months
of 1999 was $46.4 million, a decrease of 2.4% from the comparable 1998 period of
$47.5 million. The decrease in finance income for the nine month period is due
to reduced level of extended credit receivables in the second and third quarters
of 1999 as compared to 1998, partially offset by gains on the initial sale of
non-recourse receivables to Snap-on Credit LLC and strong originations in the
first quarter of 1999.
Segment Results: North America Transportation sales consist of business
operations serving the dealer channel in the U.S. and Canada. For the third
quarter of 1999, sales were $210.4 million, an increase of 1.6% over third
quarter 1998 sales of $207.0 million. For the first nine months of 1999, sales
were $655.8 million, an increase of 4.2% over nine-month 1998 sales of $629.6
million. Renewed focus on Snap-on's traditional product lines - hand tools, tool
storage and power tools - resulted in a significantly better product mix during
the quarter and nine month periods. Lower emission related sales in the third
quarter contributed to a smaller increase in the third quarter than for the
nine-month period over last year.
North America Other sales consist of business operations serving the direct
sales and distributor channels in the U.S. and Canada, as well as exports from
the U.S. For the third quarter of 1999, sales were $127.8 million, an increase
of 21.2% over third quarter 1998 sales of $105.4 million. For the first nine
months of 1999, sales were $360.7 million, an increase of 9.0% over nine-month
1998 sales of $330.8 million. These increases reflect growth in diagnostics and
equipment sales to the Corporation's growing base of national and OEM accounts
as well as continued consistent growth in sales of information products. The
increase for the nine month period includes the negative effect of the reduction
in emissions sales and a discontinued product line during 1999.
Europe sales consist of business operations in Europe and Africa. For the third
quarter of 1999, sales were $93.5 million, an decrease of 3.3% over third
quarter 1998 sales of $96.7 million, reflecting the result of a negative
currency impact and continued weakness in exports (particularly in equipment) to
distributors in Eastern Europe and Asia, partially offset by sales from small
acquisitions completed
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
during the third quarter last year. For the first nine months of 1999, sales
were $302.0 million, an increase of 8.0% over nine-month 1998 sales of $279.6
million, reflecting sales from small acquisitions completed during the third
quarter last year, partially offset by negative currency impacts and continued
weakness in exports to distributors in Eastern Europe and Asia.
International sales consist of business operations in the Asia/Pacific and Latin
America markets, with the majority derived from Japan and Australia. For the
third quarter of 1999, sales were $21.5 million, an increase of 18.6% over third
quarter 1998 sales of $18.1 million. For the first nine months of 1999, sales
were $60.5 million, an increase of 8.4% over nine-month 1998 sales of $55.8
million. Although reported results increased year over year, operations continue
to be affected by the weakened business conditions in the Asia/Pacific region.
Sandvik Acquisition: On September 30, 1999, the Corporation completed its
acquisition of the Sandvik Saws and Tools business, formerly a wholly-owned
operating unit of Sandvik AB, for approximately US$400 million (SEK 3,300
million) in cash. Pursuant to the Share Purchase Agreement, the Corporation
acquired 100% of the voting securities of SB Tools S.a.r.l. ("SB Tools"), a
controlled entity of CTT Cutting Tool Technology B.V., a wholly-owned subsidiary
of Sandvik AB. Pursuant to a reorganization which occurred within the Sandvik
group of companies and at the time of closing, SB Tools was the owner, directly
and indirectly, of the companies within the Sandvik group conducting the line of
business known as the Sandvik Saws and Tools business. The acquired business
will operate within the Corporation as the Bahco Group. The acquisition was
financed through working capital and an expansion of an existing commercial
paper credit facility supported by a recently completed $600 million
multi-currency revolving credit facility. The acquisition is being accounted for
under the purchase method of accounting. The purchase includes facilities, a
number of brand names and trademarks, and certain other assets and liabilities,
all of which have been included in the October 2, 1999 consolidated balance
sheet. The assets and liabilities have been recorded at historical cost until an
audited financial statement and estimated fair market values of the assets
acquired and the liabilities assumed are available and final purchase price
adjustments are made. As a result, goodwill of $240.0 million has been recorded
representing the difference between the purchase price and the historical cost
of the assets and liabilities assumed. Upon determination of the estimated fair
market values of the assets acquired and liabilities assumed, the cost of the
acquisition will be allocated in accordance with criteria established under
Accounting Principles Bulletin No. 16 "Business Combinations" and goodwill will
be adjusted accordingly. Because the purchase occurred at the end of the
quarter, there was no effect recorded to the consolidated statement of earnings
for the quarter or nine months ended October 2, 1999.
The Bahco Group 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 business had 1998 sales of
US$325 million (SEK 2,700 million) (60% Europe, 26% U.S. and Latin America, and
14% in Asia/Pacific and the rest of the world). The Corporation anticipates this
transaction to be neutral to earnings in the fourth quarter of 1999 and
accretive thereafter.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
FINANCIAL CONDITION
The following discussion of financial condition excludes the effects of the
Bahco Group acquisition.
Liquidity: Cash and cash equivalents increased to $21.7 million at the end of
the third quarter from $15.0 million at the end of 1998. Working capital
increased to $683.0 million at third quarter end, from $621.8 million at the end
of 1998.
In September 1994, the Corporation filed a registration statement with the
Securities and Exchange Commission that allows the Corporation to issue from
time to time up to $300 million of unsecured indebtedness. In October 1995, the
Corporation issued $100 million of its notes to the public. The shelf
registration gives the Corporation financing flexibility to operate the
business.
In August 1999, the corporation completed a $600 million revolving credit
facility to support its commercial paper program. A $200 million 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
which allows the Corporation to elect to borrow under the credit facility for an
additional year after the termination date. These facilities were used to
finance the Sandvik Saws and Tools acquisition.
The Corporation believes it has sufficient sources of liquidity to support
working capital requirements, finance capital expenditures, pay dividends and
provide for costs of Project Simplify.
Accounts receivable less allowances: Accounts receivable less allowances
decreased 9.6% to $501.2 million at the end of the third quarter, compared with
$554.7 million at the end of 1998, mainly reflecting the sale of additional
non-securitized receivables to Snap-on Credit LLC in the first quarter of 1999.
Inventories: Inventories increased 10.8% to $415.9 million in the 1999 third
quarter, compared with $375.4 million at the end of 1998, reflecting normal
seasonal increases to support the higher fourth quarter level of seasonal sales
activity.
Liabilities: Total short-term and long-term debt was $692.6 million at the end
of the third quarter, compared with $339.8 million at the end of 1998,
reflecting the cash purchase of Sandvik Saws and Tools at the end of the third
quarter of 1999.
Average shares outstanding: Average shares outstanding for diluted EPS and basic
EPS in 1999's third quarter were 58.9 million and 58.5 million shares versus
60.0 million for both diluted EPS and basic EPS in last year's third quarter.
Average shares outstanding for diluted EPS and basic EPS in the first nine
months of 1999 were 58.9 million and 58.5 million shares versus 59.4 million for
both diluted EPS and basic EPS in last year's nine month period.
Share repurchase: In 1996, the Corporation's board of directors approved an
ongoing authorization to repurchase stock in an amount equivalent to that
necessary to prevent dilution created by shares issued for stock options,
employee and dealer stock purchase plans, and other corporate purposes. On June
27, 1997, the Corporation's board of directors authorized the repurchase of
$100.0 million of the Corporation's common stock over a two-year period. On June
26, 1998, the Corporation's board of directors authorized an additional share
repurchase program aggregating $100.0 million of the
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Corporation's common stock. In the first quarter of 1999, the Corporation's
board of directors authorized an additional share repurchase program of $50.0
million. The Corporation repurchased $14.7 million or 492,800 shares in the
first quarter of 1999. The Corporation did not repurchase any additional shares
of its common stock in the second or third quarter of 1999. The Corporation's
outstanding authorizations are approximately $140 million.
Foreign currency: The Corporation operates in a number of countries and, as a
result, is exposed to changes in foreign currency 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 9 for a discussion of the
Corporation's accounting policies for the use of derivative instruments and for
a discussion of the purchase price commitment hedge used in the Bahco Group
acquisition.
Year 2000 Update: The Corporation is engaged in a comprehensive project
involving its information systems, embedded systems, third-party systems, and
products. The objective of this project is to identify, develop, implement and
test any modifications that are required so that these systems and products will
achieve a Year 2000 date conversion with no disruption to the Corporation's
business operations. A committee has been established and given the
responsibility for achieving this objective.
For the Corporation's information systems, the committee has completed the risk
assessment phase of this project. In North America, the implementation of the
BaaN enterprise-wide system, which is Year 2000 compliant, has been completed.
The remediation and testing of the Corporation's critical business systems have
been completed. No significant issues have been identified. The Corporation
believes its critical business systems will continue to function properly
before, during, and after the century date change.
The Corporation has completed the risk assessment, remediation and testing of
the critical embedded systems at its facilities and manufacturing plants
worldwide. No significant issues have been identified. The Corporation believes
it will be able to manufacture and distribute products without disruption due to
date related problems with internal systems.
For third-party systems, the Corporation has communicated with suppliers,
dealers, financial institutions and others with which the Corporation does
business. Substantially all of those contacted indicated that they either are or
plan on a timely basis to be Year 2000 compliant.
The Corporation tested its current product line for Year 2000 compliance and no
date-related issues have been reported in these products. The Corporation also
tested its previously manufactured products likely to still be in use and has
established mechanisms to address any date related issues found and to
communicate with customers regarding the handling of these issues, whether or
not covered by the product warranty. The Corporation does not expect any costs
associated with these product efforts to be material.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The Corporation could potentially experience disruptions to some mission
critical operations as a result of Year 2000 problems. The Corporation believes
that its most reasonably likely worst-case Year 2000 scenarios would relate to
problems outside of the Corporation's control rather than with its own products
or internal systems. These problems might include failure by suppliers,
customers and other third parties to remediate their own potential year 2000
problems, as well as risks related to infrastructure (e.g., electricity supply
and water and sewer service). Nonetheless, the Corporation has developed
contingency plans for its critical business systems and processes to deal with
potential internal issues. These plans include the following:
o Enhanced support for the information technology infrastructure and
systems, including twenty-four hours, seven days a week support for the
corporate data center operations which includes the corporate enterprise
BaaN system, with arrangements for additional support from external
resources, if necessary.
o Procedures to deal with unanticipated date-related problems at
significant suppliers, including assistance with manual workarounds and
the use of alternate suppliers. In limited situations, the Corporation
could not identify an alternate supplier.
o Procedures for routing customer orders to and shipping product from
alternate distribution centers.
o Creation of a central issues management process to monitor, manage and
communicate regarding any issues or disruptions arising in the period
before, during and after the century date change, with special
arrangements for staff to be on-site or on-call in this period to react
quickly to any critical issues that may arise.
The Corporation's contingency plans cannot guarantee that mission critical
systems or business functions will not be affected by Year 2000 problems,
especially those outside the Corporation's control.
Based on information currently known to it, the Corporation believes that all
critical areas of its business are Year 2000 compliant and expects the
non-business critical areas to be Year 2000 compliant by the end of the fourth
quarter of 1999. None of the Corporation's other information technology projects
have been delayed as a result of these issues. The Corporation believes that
total costs for all of its Year 2000 compliance activities will approximate
between $4 million and $5.4 million through December 1999. Through the end of
the third quarter of 1999, the Corporation has spent $3.7 million on these Year
2000 issues, with funding provided by cash flows from operations. The estimated
costs do not include any potential costs related to customer or other claims, or
potential amounts related to executing contingency plans, such as costs incurred
as a result of an infrastructure or supplier failure. All cost estimates are
based on the current assessment of the projects and are subject to change as the
projects progress. Based on currently available information, the Corporation
does not believe that the Year 2000 matters discussed above related to internal
systems, embedded systems or products sold to customers will have a material
adverse effect on the Corporation's financial condition or its results of
operations. There can be no assurance that the failure to ensure Year 2000
capability by a supplier, customer or another party would not have a material
adverse effect on the Corporation's financial condition or its results of
operations.
On September 30, 1999, the Corporation acquired the Sandvik Saws and Tools
Division of Sandvik AB, now known as the Bahco Group. The Corporation has
reviewed information relative to Bahco's
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Year 2000 compliance program during its pre-closing due diligence and
subsequently and has found a limited degree of non-compliance. The Corporation
has entered into an Information Technology Agreement with Sandvik AB and has
assurances that any Year 2000 issues will be resolved in a timely manner. The
Corporation does not expect this to have a material adverse effect on the
Corporation's financial condition or its results of operations.
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, the 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 are developing 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.
Safe Harbor: Statements in this document that are not historical facts,
including statements (i) that include the words "believes," "expects,"
"anticipates," or "estimates" or words of similar importance with reference to
the Corporation or management; (ii) specifically identified as forward-looking;
or (iii) describing 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 or other factors that could cause (and in some cases
have caused) actual results to differ materially from those described in any
such statement. Those important factors include the timing and progress with
which the Corporation can continue to implement the Project Simplify
initiatives; the Year 2000 issue; the Corporation's ability to withstand
external negative factors including changes in trade, monetary and fiscal
policies, laws and regulations, or other activities of governments or their
agencies; significant changes in the current competitive environment, inflation
or employee and labor relations; currency fluctuations or the material worsening
of the economic and political situation in Asia or other parts of the world; and
the achievement of productivity improvements and cost reductions. 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 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.
Item 3: Qualitative and Qualitative Disclosures About Market Risk
Pursuant to Item 305 of Regulation S-K, there were no material changes for the
quarter ended October 2, 1999.
21
<PAGE>
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
Item 6(a): Exhibits
Exhibit 10(a) Five Year Credit Agreement between the Corporation and Salomon
Smith Barney Inc, Banc One Capital Markets Inc. and The First
National Bank of Chicago. [X]
Exhibit 10(b) 364-Day Credit Agreement between the Corporation and Salomon
Smith Barney Inc, Banc One Capital Markets Inc. and The First
National Bank of Chicago. [X]
Exhibit 27 Financial Data Schedule [X]
[X] Previously filed
Item 6(b): Reports on Form 8-K Filed During the Reporting Period
Date Filed Date of Report Item
October 15, 1999 September 30, 1999 Item 2. The Corporation filed a
report outlining the
completion of its
acquisition of Sandvik
Saws and Tools.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Snap-on
Incorporated has duly caused this report to be signed on its behalf by the
undersigned duly authorized persons.
SNAP-ON INCORPORATED
Date: January 28, 2000 /s/ N. T. Smith
--------------------------------------------
N. T. SMITH
(Principal Accounting Officer and Controller)
23
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
Exhibit 10(a) Five Year Credit Agreement between the Corporation and Salomon
Smith Barney Inc, Banc One Capital Markets Inc. and The First
National Bank of Chicago. [X]
Exhibit 10(b) 364-Day Credit Agreement between the Corporation and Salomon
Smith Barney Inc, Banc One Capital Markets Inc. and The First
National Bank of Chicago. [X]
Exhibit 27 Financial Data Schedule [X]
[X] Previously filed
