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 3, 1998 [ ] 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 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 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 nonaffiliates of the registrant at February 24, 1998: $2,475,359,776 Number of shares outstanding of each of the registrant's classes of common stock at February 24, 1998: Common stock, $1 par value, 60,005,182 shares Documents incorporated by reference Portions of the Corporation's Annual Report to Shareholders for the fiscal year ended January 3, 1998, are incorporated by reference into Parts I, II and IV of this report. Portions of the Corporation's Proxy Statement, dated March 13, 1998, prepared for the Annual Meeting of Shareholders scheduled for April 24, 1998, are incorporated by reference into Part III of this report.
TABLE OF CONTENTS Page PART I Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . 3 Item 2. Description of Properties . . . . . . . . . . . . . . . . 9 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . 10 Item 4. Submission of Matters to a Vote of Security Holders . . 10 Item 4.1. Executive Officers of the Registrant . . . . . . . . . . 10 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . 11 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . 11 Item 7. Management Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . 11 Item 8. Financial Statements and Supplementary Data . . . . . . 11 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . 11 PART III Item 10. Directors and Executive Officers of the Registrant . . . 11 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . 11 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . 11 Item 13. Certain Relationships and Related Transactions . . . . . 11 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . 12 Auditor's Reports . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Signature Pages . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
PART I Item I: Business Snap-on Incorporated (the "Corporation" or "Snap-on") is a leading manufacturer and distributor of high-quality hand tools, power tools, tool storage products, diagnostics equipment, shop equipment, emissions/safety equipment, collision repair equipment and systems, diagnostics software, business management software for automotive repair shops, and related products and services. Snap-on's mission is to create value by providing innovative solutions to the transportation service and industrial markets worldwide; therefore, the Corporation's products and services are used mainly by professional technicians and managers in vehicle service and industrial applications. Customers include professional technicians, independent automotive repair and body shops, franchised service centers, specialty repair shops, automotive dealerships, vehicle manufacturers, industrial and government entities, and other professional tool and equipment users. The Corporation was incorporated under the laws of the state of Wisconsin in 1920 and reincorporated under the laws of the state of Delaware in 1930. Its corporate headquarters are located in Kenosha, Wisconsin. The Corporation has operations throughout the world. Its largest markets include the United States, Australia, Brazil, Canada, France, Germany, Japan, Mexico, the Netherlands, Spain and the United Kingdom. Products and services are marketed and distributed in more than 150 countries through distribution channels that include dealer vans, direct sales forces and distributors. In 1997 the Corporation acquired business operations that expanded its product line, distribution channels and geographic reach. A 50% interest was acquired in The Thomson Corporation's Mitchell Repair Information business, 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 is obligated to purchase the remaining business over the next four years. A 70% interest was acquired in Texo S.r.l., an Italian manufacturer of lifts for motor vehicles. Several other businesses were acquired in their entirety. Service Equipment France, S.A. is a French distributor of automotive service and repair equipment; its subsidiary, JPL Services, S.A., provides service and repair for equipment products. Computer Aided Service, Inc. ("CAS") is a developer of repair shop management systems, point of sale systems and diagnostics equipment. CAS provides shop-wide connectivity by networking business management computers with diagnostics systems. Nu-Tech Industries, Inc., more commonly known as Brewco Collision Repair, is a manufacturer and supplier of frame straightening equipment, vehicle measuring systems, paint booths and other collision repair equipment. The acquisition of this company represents Snap-on's entry into the collision repair industry. Hofmann Werkstatt-Technik GmbH ("Hofmann"), a German company, is a leading producer of under-car equipment including wheel balancers, lifts, tire changers and aligners. Hofmann's products are sold in Europe, North America and the Asia/Pacific region. Products and Services The Corporation derives income from the manufacture, marketing and distribution of its products and related services, and the financing of certain of its products. The Corporation's manufacturing, marketing and distribution operation offers a broad line of products and complementary services which can be divided into two groups: tools and equipment and related services. 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 1997 1996 1995 Tools Hand tools 38% 40% 40% Power tools 8% 8% 10% Tool storage 9% 10% 10% ---- ---- ---- 55% 58% 60% Equipment and Related Services 45% 42% 40% ---- ---- ---- 100% 100% 100% The tools product group includes hand tools, power tools and tool storage products. Hand tools include wrenches, screwdrivers, sockets, pliers, ratchets and other similar products, and instruments developed for medical applications and for the manufacture and servicing of electronic equipment. 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 for automotive, industrial, aerospace and other storage applications. The majority of products are manufactured by Snap-on; to complete the product line, some items are purchased from external manufacturers. The equipment and related services group includes hardware and software solutions for the diagnosis and service of automotive and industrial equipment. Products include engine and emissions analyzers, air conditioning service equipment, brake service equipment, wheel balancing and alignment equipment, transmission troubleshooting equipment, vehicle safety testing equipment, battery chargers, lifts and hoists, diagnostics equipment and collision repair equipment. Also included are service and repair information products, on-line diagnostics services, management systems, point of sale systems, integrated systems for automotive 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 to technician customers. 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 and related services are marketed under a number of brand names and trademarks, many of which are well known in the automotive 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: Trade Names/Trademarks Products and Services Snap-on Hand tools, power tools, tool storage units, and certain equipment Blue Point Hand tools, power tools Wheeltronic Hoists and lifts for vehicle service shops J. H. Williams (Williams) Hand tools A. T. I. Tools (ATI) Tools and equipment for aerospace and industrial applications Sioux Tools (Sioux) Power tools Snap-on Medical Products Tools for orthopedic applications Sun Electric (Sun) Diagnostics and service equipment Balco Engine diagnostics and wheel balancers CAS Repair shop management systems, point of sale systems, diagnostics equipment John Bean Under-car and other service equipment Hofmann Wheel balancers, lifts, tire changers and aligners Brewco Frame straightening equipment, vehicle measuring systems, paint booths and other collision repair equipment Mitchell Repair and service information and shop management systems Edge Diagnostic Systems Software to diagnose vehicle computer systems ShopKey Repair and service information and shop management software Equipment Solutions Custom programs for vehicle manufacturers and their dealerships Equiserve Equipment repair services The Corporation's financing activities are conducted primarily through its Snap-on Credit Corporation ("Credit Corp") subsidiary. The Credit Corp is responsible for certain credit and non-credit services used to support sales and to provide dealer financing options. Currently, the majority of its revenues are derived from the automotive service industry in North America. Credit programs facilitate the sale of many of the Corporation's products and services. Through a contractual arrangement, 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. Credit Corp also makes available financing 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, particularly inventory and customer receivables. Market Sectors Served The Corporation markets and distributes its products and related services primarily to professional users around the world in two market sectors: the vehicle service and repair sector, and the industrial sector. Additional information about the Corporation's international and domestic operations is provided in Note 13 on page 35 of the Corporation's 1997 Annual Report, incorporated herein by reference. Vehicle Service and Repair Sector The vehicle service and repair sector has three main customer groups: professional technicians, primarily in the vehicle service industry, 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 (OEMs). 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 evolution in the conduct of business by 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; industrial distributors; government facilities; schools; and original equipment manufacturers ("OEMs") who require instrumentation or service tools and equipment for their products. Major challenges in the industrial market 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 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 automotive repair industry are conducted through the Corporation's dealer/tech rep network; the market served by this network centers on professional technicians and shop owners. Snap-on's mobile dealer van system covers automotive technicians and independent shop owners, calling weekly at the customer's place of business. Dealers' sales are concentrated in hand and power tools and some small equipment, which can easily be transported in a van and demonstrated during a brief sales call, as well as in tool storage units. 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. The dealer sales force is supported by the Snap-on/Sun Tech Systems employee sales force ("Tech Specialists"), who work with dealers in the demonstration and sale of diagnostics equipment and also sell higher-end diagnostics and shop equipment on their own. Tech Specialists are compensated primarily on the basis of commission; dealers receive a commission for referring business to Tech Specialists. Most products sold through the dealer/tech rep organization are sold under the Snap-on or Sun brand names. 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, for up to one year prior to making an investment in a franchise. In addition, through Snap-on Financial Services, Inc. and its subsidiary, Snap-on Credit Corporation, the Corporation provides financial assistance for newly converted franchise dealers and other new franchise dealers, which could include financing for initial license fees, inventory, revolving accounts receivable acquisition, equipment, fixtures, other expenses and an initial checking account deposit. At year end 1997, approximately 88 percent of all U.S. dealers were enrolled as franchisees. 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 help maximize 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. The Corporation has replicated its dealer van method of distribution in certain countries, including Australia, Canada, Germany, Mexico, the Netherlands, Japan and the United Kingdom. In these markets, as in the United States, purchase decisions are generally made by professional technicians. 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 Snap-on and Sun equipment 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 and for the medical profession in the United States through industrial sales representatives, who are employees, and independent industrial 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 1997, the Corporation had industrial sales representatives in the United States, Canada, Australia, Japan, Mexico, Puerto Rico, and some European countries, with the United States representing the majority of the Corporation's total industrial sales. Tools and equipment for the U.S. industrial and government markets are sold through a direct sales force as well as through industrial distributors. In most markets outside the United States, industrial sales are conducted through distributors. Distributors Sales of certain tools and equipment are made through automotive and industrial distributors, who purchase the items from Snap-on and resell them to the end users. Products sold through distributors in North America, Europe and select other parts of the world include under-car and other service equipment. These products are sold under brands including John Bean, Hofmann, Irimo, Palmero and Acesa, and are differentiated from those 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. 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 The Stanley Works, Sears, Roebuck and Co., and Strafor Facom. In the industrial sector, major competitors include Armstrong (Danaher Corporation), Cooper Industries and Proto (The Stanley Works). The major competitors selling diagnostics and shop equipment to shop owners in the vehicle service and repair sector include SPX Corporation and Hunter Engineering. Raw Material & Purchased Product The Corporation's supply of raw materials (various grades of steel bars and sheets) and purchased components are readily available from numerous suppliers. The majority of 1997 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 1997 consolidated net sales. Patents and Trademarks The Corporation vigorously pursues and relies on patent protection to protect its inventions and its position in the market. As of January 3, 1998, the Corporation and its subsidiaries held over 721 patents worldwide, with more than 466 pending patent applications. No sales relating to any single patent represent a material portion of the Corporation's revenues. 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 automotive 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 72 other countries, and additional applications for trademark registrations are pending. The Corporation rigorously 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. The Corporation's use of working capital to extend credit to its dealers and to purchase installment credit receivables from dealers is discussed in "Management's Discussion and Analysis of Results of Operations and Financial Condition," which is found on pages 16 to 20 of the Corporation's 1997 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 a material effect upon the Corporation's capital expenditures, earnings or competitive position. Employees At the end of 1997, the Corporation employed approximately 11,700 people, of whom approximately 40 percent are engaged in manufacturing activities. Item 2: Description of 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 U.S. facilities occupy approximately 4.5 million square feet, of which approximately 78 percent is owned. The Corporation's facilities outside the U.S. contain approximately 1.9 million square feet, of which approximately 70 percent is owned. 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 Sunnyvale, California Manufacturing Leased Columbus, Georgia Manufacturing Owned Crystal Lake, Illinois Distribution and manufacturing Owned Mt. Carmel, Illinois Manufacturing Owned Ottawa, Illinois Distribution Owned Algona, Iowa Manufacturing Owned Sioux City, Iowa Manufacturing Owned Central City, Kentucky Manufacturing Leased Natick, Massachusetts Manufacturing Owned Olive Branch, Mississippi Distribution Leased and owned Carson City, Nevada Distribution Leased and owned Robesonia, Pennsylvania Distribution Owned Johnson City, Tennessee Manufacturing Owned Elizabethton, Tennessee Manufacturing Owned East Troy, Wisconsin Manufacturing Owned Elkhorn, Wisconsin Manufacturing Owned Kenosha, Wisconsin Manufacturing Owned Milwaukee, Wisconsin Manufacturing Owned Sydney, Australia Distribution Leased Barbara D'oeste, Brazil Manufacturing Owned Calgary, Canada Distribution Leased Mississagua, Canada Manufacturing Leased Newmarket, Canada Distribution and manufacturing Owned Kettering, England Distribution Owned King's Lynn, England Distribution and manufacturing Owned Altmittweida, Germany Distribution Owned Pfungstadt, Germany Manufacturing Leased Sopron, Hungary Manufacturing Owned Cork, Ireland Manufacturing Leased Shannon, Ireland Manufacturing Leased Tokyo, Japan Distribution Leased Amsterdam, the Netherlands Distribution Owned Irun, Spain Manufacturing Owned Soria, Spain Manufacturing Owned Urretxu, Spain Manufacturing Owned Vitoria, Spain Distribution and manufacturing Owned Item 3: Legal Proceedings The Corporation intervened in litigation commenced by Tejas Testing Technology One, L.C. and Tejas Testing Technology Two, L.C. (the "Tejas Companies"), as described in Note 12 to the Financial Statements of the Corporation on pages 34 and 35 of its 1997 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 3, 1998. Item 4.1: Executive Officers of the Registrant The executive officers of the Corporation, their ages as of January 3, 1998, and their current titles and positions held during the last five years are listed below. Robert A. Cornog (57) - Chairman, President and Chief Executive Officer since July 1991. A Director since 1982. Branko M. Beronja (63) - Senior Vice President - Diagnostics since February 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 (53) - Senior Vice President - Transportation since February 1996. 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. Donald S. Huml (51) - 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 (49) - Senior Vice President - Financial Services and Administration since August 1994. 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. Jay H. Schnabel (55) - Senior Vice President - Europe since April 1996. Senior Vice President - Diagnostics from April 1994 to April 1996. Senior Vice President - Administration from April 1990 to April 1994. A Director since August 1989. Neil T. Smith (43) - 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 (49) - 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 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. PART II Item 5: Market for Registrant's Common Equity and Related Stockholder Matters At January 3, 1998, the Corporation had 60,515,814 shares of common stock outstanding. On June 27, 1997, the Corporation's board of directors authorized the repurchase of $100 million of the Corporation's common stock over a two- year period. At the end of 1997, substantially all of the authorization remained available. In 1996, the Corporation's board of directors approved an ongoing authorization to repurchase stock in an amount equivalent to that necessary to prevent dilution created by shares issued for stock options, employee and dealer stock purchase plans, and other corporate purposes. In 1997, the Corporation repurchased 986,333 shares of its common stock at an average price of $42.91. Additional information required by Item 5 is contained on pages 37 and 41 of the Corporation's 1997 Annual Report and is incorporated herein by reference to said Annual Report. Item 6: Selected Financial Data The information required by Item 6 is contained on pages 36 and 37 of the Corporation's 1997 Annual Report and is incorporated herein by reference to said Annual Report. Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations The information required by Item 7 is contained on pages 16 to 20 of the Corporation's 1997 Annual Report and is incorporated herein by reference to said Annual Report. Item 8: Financial Statements and Supplementary Data The information required by Item 8 is contained on pages 21 to 35 of the Corporation's 1997 Annual Report and is incorporated herein by reference to said Annual Report. 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 13, 1998, and is incorporated herein by reference to said Proxy Statement. 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 of late filers pursuant to Item 405 of Regulation S-K is contained on page 19 of the Corporation's Proxy Statement, dated March 13, 1998, and is incorporated herein by reference to said Proxy Statement. Item 11: Executive Compensation The information required by Item 11 is contained on pages 10 to 18 of the Corporation's Proxy Statement, dated March 13, 1998, and is incorporated herein by reference to said Proxy Statement. Item 12: Security Ownership of Certain Beneficial Owners and Management The information required by Item 12 is contained on pages 8 to 9 of the Corporation's Proxy Statement, dated March 13, 1998, and is incorporated herein by reference to said Proxy Statement. Item 13: Certain Relationships and Related Transactions None. 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 Auditors' Report thereon, each included in the 1997 Annual Report of the Corporation to its shareholders for the year ended January 3, 1998, are incorporated by reference in Item 8 of this report: Consolidated Balance Sheets as of January 3, 1998 and December 28, 1996. Consolidated Statements of Earnings for the years ended January 3, 1998, December 28, 1996 and December 30, 1995. Consolidated Statements of Shareholders' Equity for the years ended January 3, 1998, December 28, 1996 and December 30, 1995. Consolidated Statements of Cash Flows for the years ended January 3, 1998, December 28, 1996 and December 30, 1995. Notes to Consolidated Financial Statements. 2. Financial Statement Schedule The following consolidated financial statement schedule of Snap-on Incorporated is included in Item 14(d) as a separate section of this report. Schedule II Valuation and Qualifying Accounts and Reserves Page 17 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 1997 Annual Report in the Notes to Consolidated Financial Statements for the years ended January 3, 1998, December 28, 1996 and December 30, 1995, 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. Page 16 Item 14(B): Reports on Form 8-K No reports on Form 8-K were filed during the last quarter of the period covered by this report. Subsequent to year-end, the Corporation reported on Form 8-K dated February 17, 1998 that the Corporation and Tejas Testing Technologies have completed an agreement, approved by the U.S. Bankruptcy Court in Austin, Texas, that will fully satisfy the Corporation's liability related to a loan guaranty by the Corporation of certain Tejas lease obligations. Subsequent to year-end, the Corporation reported on Form 8-K dated March 17, 1998 those portions of its fiscal 1997 Annual Report to Shareholders that the Corporation has incorporated by reference herein.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE We have audited, in accordance with generally accepted auditing standards, 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 January 27, 1998. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed on page 18 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 January 27, 1998 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included (or incorporated by reference) in this Form 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. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Chicago, Illinois March 27, 1998
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 27, 1998 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 27, 1998 R. A. Cornog, Chairman of the Board of Directors, President and Chief Executive Officer /s/ D. S. Huml Date: March 27, 1998 D. S. Huml, Principal Financial Officer, and Senior Vice President - Finance /s/ N. T. Smith Date: March 27, 1998 N. T. Smith, Principal Accounting Officer, and Controller
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 27, 1998 B. M. Beronja, Director By: /s/ D. W. Brinckman Date: March 27, 1998 D. W. Brinckman, Director By: /s/ B. S. Chelberg Date: March 27, 1998 B. S. Chelberg, Director By: /s/ R. J. Decyk Date: March 27, 1998 R. J. Decyk, Director By: /s/ R. F. Farley Date: March 27, 1998 R. F. Farley, Director By: /s/ L. A. Hadley Date: March 27, 1998 L. A. Hadley, Director By: /s/ A. L. Kelly Date: March 27, 1998 A. L. Kelly, Director By: /s/ G. W. Mead Date: March 27, 1998 G. W. Mead, Director By: /s/ E. H. Rensi Date: March 27, 1998 E. H. Rensi, Director By: /s/ J. H. Schnabel Date: March 27, 1998 J. H. Schnabel, Director By: /s/ R. F. Teerlink Date: March 27, 1998 R. F. Teerlink, Director
<TABLE> <CAPTION> SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES Balance of Balance at Subsidiary Charged to beginning of at time of Costs and Deductions Balance at Description year acquisition expenses (1) end of year Allowance for doubtful accounts <S> <C> <C> <C> <C> <C> Year ended January 3, 1998 $16,902,581 $ 2,220,474 $21,039,748 $19,518,127 $20,644,676 Year ended December 28, 1996 $14,650,458 $ 296,140 $13,611,414 $11,655,431 $16,902,581 Year ended December 30, 1995 $13,180,862 $ 205,414 $12,999,732 $11,735,550 $14,650,458 (1) This amount represents write-offs of bad debts. </TABLE>
EXHIBIT INDEX Item 14(c): Exhibits (3) (a) Restated Certificate of Incorporation of the Corporation as amended through April 25, 1997 (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 3, 1998. 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 (incorporated by reference to Exhibit (10)(a) to the Corporation's Annual Report on Form 10-K for the fiscal year ended December 28, 1996 (Commission File No. 1-7724))* (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, Michael F. Montemurro and Jay H. Schnabel (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 Richard V. Caskey, Dan G. Craighead, Dale F. Elliott, Gregory D. Johnson, Nicholas L. Loffredo, Denis J. Loverine, Susan F. Marrinan, Lynn L. McHugh, Neil T. Smith and William R. Whyte (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) 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* (e) Amended and Restated Snap-on Incorporated Directors' 1993 Fee Plan (incorporated by reference to Exhibit (10)(e) to the Corporation's Annual Report on Form 10-K for the fiscal year ended December 28, 1996 (Commission File No. 1-7724))* (f) Snap-on Incorporated Deferred Compensation Plan (incorporated by reference to Exhibit (10)(f) to the Corporation's Annual Report on Form 10-K for the fiscal year ended December 28, 1996 (Commission File No. 1-7724))* (g) Snap-on Incorporated Supplemental Retirement Plan for Officers (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))* (12) Computation of Ratio of Earnings to Fixed Charges (13) Annual Report to Shareholders (incorporated by reference to Exhibit 99 to the Corporations Current Report on Form 8-K date March 17, 1998 (Commission File No. 1-7724)) (21) Subsidiaries of the Corporation (23) Consent of Independent Public Accountants (included in Report of Independent Public Accountants on Financial Statement Schedule) (27.1) Restated Fiscal 1995 Financial Data Schedule. (27.2) Restated Financial Data Schedule for the first quarter of 1996. (27.3) Restated Financial Data Schedule for the second quarter of 1996. (27.4) Restated Financial Data Schedule for the third quarter of 1996. (27.5) Restated Fiscal 1996 Financial Data Schedule. (27.6) Restated Financial Data Schedule for the first quarter of 1997. (27.7) Restated Financial Data Schedule for the second quarter of 1997. (27.8) Restated Financial Data Schedule for the third quarter of 1997. (27.9) Fiscal 1997 Financial Data Schedule. * Denotes management contract or compensatory plan or arrangement