SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended March 29, 1997
Commission File Number 1-7724
SNAP-ON INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 39-0622040
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10801 Corporate Drive, Kenosha, Wisconsin 53141-1430
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (414) 656-5200
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
Class Outstanding at April 26,1997
Common stock, $1 per value 60,895,421 shares
SNAP-ON INCORPORATED
INDEX
Page
Part I. Financial Information
Consolidated Statements of Earnings -
Thirteen Weeks Ended
March 29, 1997 and March 30, 1996 3
Consolidated Balance Sheets -
March 29, 1997 and December 28, 1996 4-5
Consolidated Statements of Cash Flows -
Thirteen Weeks Ended
March 29, 1997 and March 30, 1996 6
Notes to Consolidated Financial Statements 7-8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-10
Part II. Other Information 11
PART I. FINANCIAL INFORMATION
SNAP-ON INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in thousands except per share data)
(Unaudited)
Thirteen Weeks Ended
March 29, March 30,
1997 1996
Net sales $375,299 $344,364
Cost of goods sold 182,332 170,535
-------- --------
Gross profit 192,967 173,829
Operating expenses 151,319 139,699
Net finance income (17,465) (15,599)
-------- --------
Operating earnings 59,113 49,729
Interest expense (4,381) (2,942)
Other income (expense) - net (995) 277
-------- --------
Earnings before income taxes 53,737 47,064
Income taxes 19,883 17,414
-------- --------
Net earnings $ 33,854 $ 29,650
======== ========
Earnings per weighted average common share $ .56 $ .49
======== ========
Dividends declared per common share $ .20 $ .18
======== ========
Weighted average common shares outstanding 60,855 60,921
======== ========
The accompanying notes are an integral part of these statements.
SNAP-ON INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
March 29, December 28,
1997 1996
ASSETS
Current Assets
Cash and cash equivalents $ 9,129 $ 15,350
Accounts receivable, less allowances 657,677 651,739
Inventories
Finished stock 301,980 271,785
Work in process 44,133 42,483
Raw materials 59,689 62,057
Excess of current cost
over LIFO cost (106,599) (106,575)
---------- ----------
Total inventory 299,203 269,750
Prepaid expenses and other assets 86,037 80,485
---------- ----------
Total current assets 1,052,046 1,017,324
Property and equipment
Land 24,238 24,337
Buildings and improvements 164,666 166,764
Machinery and equipment 328,547 319,138
---------- ----------
517,451 510,239
Accumulated depreciation (270,069) (264,945)
---------- ----------
Total property and equipment 247,382 245,294
Deferred income tax benefits 63,256 55,413
Intangible and other assets 255,004 202,757
---------- ----------
Total assets $1,617,688 $1,520,788
========== ==========
The accompanying notes are an integral part of these statements.
SNAP-ON INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
March 29, December 28,
1997 1996
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 96,235 $ 89,310
Notes payable and current
maturities of long-term debt 12,119 23,274
Accrued compensation 31,013 36,467
Dealer deposits 46,850 51,036
Accrued income taxes 32,258 11,366
Other accrued liabilities 152,271 129,918
---------- ----------
Total current liabilities 370,746 341,371
Long-term debt 200,065 149,804
Deferred income taxes 7,255 7,027
Retiree health care benefits 85,399 84,593
Pension and other long-term
liabilities 110,117 109,832
---------- ----------
Total liabilities 773,582 692,627
SHAREHOLDERS' EQUITY
Preferred stock - authorized 15,000,000
shares of $1 par value; none
outstanding - -
Common stock - authorized 125,000,000
shares of $1 par value; issued -
March 29, 1997 - 66,083,003 shares
December 28, 1996 - 65,971,917 shares 66,083 65,972
Additional contributed capital 68,875 66,506
Retained earnings 860,165 838,484
Foreign currency translation adjustment (21,729) (13,930)
Treasury stock at cost - 5,197,146
and 5,186,550 shares (129,288) (128,871)
---------- ----------
Total shareholders' equity 844,106 828,161
---------- ----------
Total liabilities and
shareholders' equity $1,617,688 $1,520,788
========== ==========
The accompanying notes are an integral part of these statements.
SNAP-ON INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Thirteen Weeks Ended
March 29, March 30,
1997 1996
OPERATING ACTIVITIES
Net earnings $ 33,854 $ 29,650
Adjustments to reconcile net earnings
to net cash provided by:
Depreciation 7,829 7,388
Amortization 1,383 1,168
Deferred income taxes (9,535) (3,861)
(Gain) loss on sale of assets (39) 140
Changes in operating assets and
liabilities:
Decrease in receivables 1,395 33,603
(Increase) decrease in inventories (28,272) 7,322
(Increase) decrease in prepaid expenses (1,216) 3,417
Increase in other noncurrent assets (7,740) (1,229)
Increase (decrease) in accounts payable 6,392 (17,706)
Increase in accruals, deposits and
other long-term liabilities 21,066 2,274
-------- --------
Net cash provided by operating activities 25,117 62,166
INVESTING ACTIVITIES
Capital expenditures (11,459) (12,282)
Acquisitions of businesses (48,965) -
Disposal of property and equipment 368 1,088
-------- --------
Net cash used in investing activities (60,056) (11,194)
FINANCING ACTIVITIES
Payment of long-term debt (7,755) (6,631)
Increase in long-term debt - 2,095
Increase (decrease) short-term
borrowings-net 46,861 (31,772)
Purchase of treasury stock (417) -
Proceeds from stock plans 2,481 3,512
Cash dividends paid (12,173) (10,963)
-------- --------
Net cash provided by (used in)
financing activities 28,997 (43,759)
Effect of exchange rate changes (279) 125
-------- --------
Increase (decrease) in cash and
cash equivalents (6,221) 7,338
Cash and cash equivalents at
beginning of year 15,350 16,211
-------- --------
Cash and cash equivalents at end of period $ 9,129 $ 23,549
======== ========
The accompanying notes are an integral part of these statements.
SNAP-ON INCORPORATED
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
1. This report should be read in conjunction with the consolidated
financial statements and related notes included in Snap-on
Incorporated's Annual Report for the year ended December 28, 1996.
In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) necessary to a fair statement of
financial condition and results of operations for the thirteen weeks
ended March 29, 1997 have been made. Management also believes that
the results of operations for the thirteen weeks ended March 29, 1997
are not necessarily indicative of the results to be expected for the
full year.
2. Income tax paid for the thirteen week period ended March 29, 1997 and
March 30, 1996 was $6.6 million and $3.8 million.
3. Interest paid for the thirteen week period ended March 29, 1997 and
March 30, 1996 was $2.6 million and $4.9 million.
4. During the first quarter, the Corporation acquired a 50 percent
interest in The Thomson Corporation's Mitchell Repair Information
business. The Corporation is obligated to purchase the remainder of
the newly formed Mitchell Repair Information Company ("MRIC") within
the next five years. MRIC is a provider of print and electronic
versions of vehicle mechanical and electrical system repair
information to vehicle repair and service establishments throughout
North America. The Corporation also acquired Computer Aided Service,
Inc., a developer of repair shop management and point of sale
systems, and diagnostics equipment.
5. Distribution of shares in connection with the three-for-two split of
the Corporation's common stock was made on September 10, 1996 to
shareholders of record on August 20, 1996. All prior year per share
and weighted average share amounts have been restated.
6. In the first quarter, a change, which had no material effect on net
sales or net earnings, was made in accounting for European
diagnostics results.
7. In October 1995, the Corporation entered into agreements that provide
for the sale, without recourse, of an undivided interest in a pool of
certain of its accounts receivable to a third-party financial
institution. These agreements, which include subsequent amendments,
provide for a maximum of $200 million of such accounts receivable to
be sold and remain outstanding at any one time.
During the first quarter of 1997, the Corporation sold an additional
$25.0 million of interest-bearing receivables. Under these
aforementioned agreements, an aggregate of $200.0 million of
interest-bearing installments have been sold on a revolving basis.
The proceeds were used to pay down short-term debt, and for working
capital and general corporate purposes. The sale is reflected as a
reduction of accounts receivable in the accompanying Consolidated
Balance Sheets and as an increase to operating cash flows in the
accompanying Consolidated Statements of Cash Flows.
8. In the first quarter of 1997, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings per Share," which is effective for fiscal
years ending after December 15, 1997. The Corporation does not
anticipate that the adoption of this statement will have any impact
on its consolidated financial statements.
9. Certain prior year amounts have been restated on the accompanying
Consolidated Statements of Cash Flows to conform with current year
presentations. This change resulted in a reduction of "Net cash
provided by operating activities" of $1.2 million and an increase in
"Net cash used in investing activities" of the same amount.
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
"Lenders"). The Tejas Companies agreed to indemnify the Corporation
for any payments it must make under the Guaranty.
The State of Texas subsequently enacted legislation designed to
terminate the emissions testing program described in the contracts.
On September 12, 1995, the Tejas Companies filed bankruptcy petitions
in the United States Bankruptcy Court for the Western District of
Texas (Austin Division). The Corporation has filed its claim for
indemnification in such bankruptcy. The Tejas Companies commenced
litigation in state and federal court against the TNRCC and related
entities, and the Corporation intervened in such litigation to
protect its interests. On April 21, 1997, a state court judge in the
345th Judicial District Court of Travis County, Texas entered a
judgment in favor of the Tejas Companies in the net amount of $179
million, and the TNRCC and related entities have appealed such
judgment. Payment of such judgment requires an appropriation of funds
by the Texas Legislature, which is subject to the political process.
The Lenders have agreed to forbear until at least June 30, 1997 from
exercising their rights under the terms of the Guaranty to cause the
Corporation to pay all lease obligations to the Lenders on an
accelerated basis, and the Corporation is discussing an extension of
such agreement with the Lenders. The Corporation continues to make
payments under the Guaranty of approximately $1.8 million per month,
which have totaled $39.8 million through March 29, 1997. The
Corporation previously recognized the remaining net obligation under
the Guaranty, which as of March 29, 1997 is $50.5 million, in Other
Long-term Liabilities. In addition, the Corporation has recorded as
assets the net amounts paid or payable under the Guaranty, which
amounts are expected to be received from the Tejas Companies under
their obligation to indemnify the Corporation. These net receivables
total $90.3 million as of March 29, 1997 and are included in
Intangible and Other Assets. The Corporation believes that ultimate
recovery of the net receivables from the Tejas Companies is probable,
and it will make an ongoing assessment of the likelihood of
realization of such receivables.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview: The Corporation posted record first quarter sales, net earnings
and earnings per share. Net earnings for the first quarter of 1997
increased 14.2% over the year ago quarter on a net sales increase of 9.0%.
Earnings per share for the first quarter increased 14.3% over the 1996
comparable period. The first quarter's results benefited from several
focused acquisitions.
Sales: Net sales for the first quarter of 1997 were $375.3 million, an
increase of 9.0% over first quarter 1996 sales of $344.4 million.
North American sales for the first quarter of 1997 were $281.2 million, an
increase of 8.5% over first quarter 1996 sales of $259.1 million.
Contributions from the John Bean Company and Mitchell Repair Information
acquisitions were responsible for the gain. Sales excluding acquisitions
were even with a year ago, following a very strong fourth quarter.
European sales for the first quarter of 1997 were $75.3 million, an
increase of 12.7% over first quarter 1996 sales of $66.8 million.
Excluding acquisitions, sales increased 7% for the first quarter. The
effects of foreign currency translations into the U.S. dollar negatively
affected sales. The strength in Europe was the result of good performance
in the United Kingdom and the Netherlands in both the tool and equipment
product categories.
Other Non-U.S. sales for the first quarter of 1997 were $18.8 million, an
increase of 1.8% from first quarter 1996 sales of $18.4 million. For the
first quarter, sales in Japan were negatively affected by the
strengthening of the U.S. dollar relative to the yen. Excluding the
translation impact of the currencies in this geographic segment, sales
increased 9%.
Earnings: Earnings for the first quarter of 1997 were $33.9 million, an
increase of 14.2% over first quarter 1996 earnings of $29.7 million.
First quarter earnings per share increased to $.56, a 14.3% increase over
first quarter 1996 earnings per share of $.49.
Operating expenses: As a percentage of net sales, first quarter total
operating expenses decreased to 40.3% in 1997 from 40.6% in the same
period of 1996.
Finance income: Finance income for the first quarter of 1997 was $17.5
million, an increase of 12.0% over first quarter 1996 finance income of
$15.6 million. The major factor for the increase was the growth in
extended credit financings resulting from strong sales in previous
quarters, especially fourth quarter 1996. Partially offsetting this
increase was the securitization of an additional $25.0 million of extended
credit receivables as discussed in Note 7.
FINANCIAL CONDITION
Liquidity: Cash and cash equivalents decreased to $9.1 million at the end
of the first quarter from $15.4 million at the end of 1996. Working
capital was $681.3 million at the end of the first quarter versus $676.0
million at the end of 1996. At the end of the quarter, the Corporation
had a $100 million long-term revolving credit facility to support the
issuance of commercial paper.
In September 1994, the Corporation filed a registration statement with the
Securities and Exchange Commission that allows the Corporation to issue
from time to time up to $300 million of unsecured indebtedness. In
October 1995, the Corporation issued $100 million of its notes to the
public. The shelf registration gives the Corporation financing flexibility
to operate the business.
The Corporation believes it has sufficient sources of liquidity to support
working capital requirements, finance capital expenditures and pay
dividends.
Accounts receivable: Accounts receivable increased to $657.7 million at
the end of the first quarter from $651.7 million at the end of 1996. In
the first quarter of 1997, the Corporation executed an additional $25.0
million securitization of its receivables as discussed in Note 7.
The majority of the Corporation's accounts receivable involve customers'
extended credit and lease purchases of higher-value products. Other
receivables include those from dealers, industrial customers, and
government entities.
Inventories: Inventories increased to $299.2 million at the end of the
first quarter from $269.8 million at the end of 1996. Excluding
acquisitions, inventories increased by $24.8 million in anticipation of
several new product introductions and planned promotional programs for the
second quarter.
Liabilities: Total short-term and long-term debt was $212.2 million at
the end of the first quarter compared with $173.1 million at the end of
1996. The increase is attributable to the funding of acquisitions
completed in the quarter.
Average shares outstanding: Average shares outstanding in 1997's first
quarter were equal to the 60.9 million shares in the same quarter of last
year. The Corporation repurchased 10,596 shares of its common stock in the
first quarter.
Other matters: Refer to Note 10 for discussion of a guaranty of lease
obligations relating to emissions testing facilities that were to be used
under a contract with the State of Texas to perform testing services.
Texas has terminated the program to conduct such testing services, and the
Corporation is making payments monthly under such guaranty.
PART II. OTHER INFORMATION
Item 6: Exhibits and reports on Form 8-K
Item 6(a): Exhibits
Exhibit 27 Financial Data Schedule
Item 6(b): Reports on Form 8-K
No reports on Form 8-K for the three months ended March 29, 1997 were
required to be filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Snap-on Incorporated has duly caused this report to be signed on its
behalf by the undersigned duly authorized persons.
SNAP-ON INCORPORATED
Date: May 13, 1997 /s/ R. A. Cornog
R. A. CORNOG
(Chairman, President and Chief Executive Officer)
Date: May 13, 1997 /s/ G. D. Johnson
G. D. JOHNSON
(Principal Accounting Officer and Controller)