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 September 28, 1996 Commission File Number 1-7724 SNAP-ON INCORPOATED (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 October 26,1996 Common stock, $1 per value 60,906,026 shares
SNAP-ON INCORPORATED INDEX Page Part I. Financial Information Consolidated Statements of Earnings - Thirteen Weeks and Thirty-Nine Weeks Ended September 28, 1996 and September 30, 1995 3 Consolidated Balance Sheets - September 28, 1996 and December 30, 1995 4-5 Consolidated Statements of Cash Flows - Thirty-Nine Weeks Ended September 28, 1996 and September 30, 1995 6 Notes to Consolidated Financial Statements 7-8 Management's Discussion and Analysis of Financial Condition and Results of Operations 9-11 Part II. Other Information 12
PART I. FINANCIAL INFORMATION SNAP-ON INCORPORATED CONSOLIDATED STATEMENTS OF EARNINGS (Amounts in thousands except per share data) (Unaudited) Thirteen Weeks Ended Thirty-Nine Weeks Ended September 28, September 30, September 28, September 30, 1996 1995 1996 1995 Net sales $347,202 $309,065 $1,076,120 $944,988 Cost of goods sold 170,724 151,026 531,684 460,433 -------- -------- --------- -------- Gross profit 176,478 158,039 544,436 484,555 Operating expenses 141,398 129,227 432,828 396,063 Net finance income (16,424) (16,601) (47,948) (48,717) -------- -------- --------- -------- Operating earnings 51,504 45,413 159,556 137,209 Interest expense (3,060) (4,134) (9,312) (9,211) Other income 389 519 459 2,972 -------- -------- --------- -------- Earnings before income taxes 48,833 41,798 150,703 130,970 Income taxes 18,068 15,469 55,760 48,463 -------- -------- --------- -------- Net earnings $ 30,765 $ 26,329 $ 94,943 $ 82,507 ======= ======= ======== ======== Earnings per weighted average common share $ .51 $ .43 $ 1.56 $ 1.33 ======= ======= ======== ======== Dividends declared per common share $ - $ - $ .56 $ .54 ======= ======= ======== ======== Weighted average common shares outstanding 61,039 60,575 61,017 61,770 ======= ======= ======== ======== The accompanying notes are an integral part of these statements.
SNAP-ON INCORPORATED CONSOLIDATED BALANCE SHEETS (Amounts in thousands) (Unaudited) September 28, December 30, 1996 1995 ASSETS Current Assets Cash and cash equivalents $ 19,461 $ 16,211 Accounts receivable, less allowances 619,411 610,064 Inventories Finished stock 283,375 264,184 Work in process 45,774 39,977 Raw materials 61,833 56,191 Excess of current cost over LIFO cost (111,804) (109,918) -------- -------- Total inventory 279,178 250,434 Prepaid expenses and other assets 80,474 69,980 -------- -------- Total current assets 998,524 946,689 Property and equipment Land 25,749 22,875 Buildings and improvements 163,181 149,087 Machinery and equipment 315,961 296,916 -------- -------- 504,891 468,878 Accumulated depreciation (265,729) (248,811) -------- -------- Total property and equipment 239,162 220,067 Deferred income tax benefits 69,805 61,471 Intangible and other assets 216,606 132,746 --------- --------- Total assets $1,524,097 $1,360,973 ========= ========= The accompanying notes are an integral part of these statements.
SNAP-ON INCORPORATED CONSOLIDATED BALANCE SHEETS (Amounts in thousands) (Unaudited) September 28, December 30, 1996 1995 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable $ 75,562 $ 75,603 Notes payable 19,685 26,213 Accrued compensation 37,060 37,769 Dealer deposits 56,436 65,344 Accrued income taxes 34,581 16,106 Other accrued liabilities 132,365 115,040 -------- -------- Total current liabilities 355,689 336,075 Long-term debt 150,611 143,763 Deferred income taxes 5,604 4,760 Retiree health care benefits 83,618 80,665 Pension and other long-term liabilities 122,443 44,978 -------- -------- Total liabilities 717,965 610,241 SHAREHOLDERS' EQUITY Preferred stock - authorized 15,000,000 shares of $1 par value; none outstanding - - Common stock - authorized 187,500,000 shares of $1 par value; issued - September 28, 1996 - 65,935,159 shares December 30, 1995 - 65,357,045 shares 65,935 65,357 Additional contributed capital 64,743 52,464 Retained earnings 814,129 753,356 Foreign currency translation adjustment (14,676) (10,758) Treasury stock at cost - 5,036,550 and 4,570,800 shares (123,999) (109,687) -------- -------- Total shareholders' equity 806,132 750,732 -------- -------- Total liabilities and shareholders' equity $ 1,524,097 $ 1,360,973 ========= ========= The accompanying notes are an integral part of these statements.
SNAP-ON INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) (Unaudited) Thirty-Nine Weeks Ended September 28, September 30, 1996 1995 OPERATING ACTIVITIES Net earnings $ 94,943 $ 82,507 Adjustments to reconcile net earnings to net cash provided by: Depreciation 21,420 19,670 Amortization 3,623 5,395 Deferred income taxes (2,317) (13,287) (Gain) loss on sale of assets 561 (203) Changes in operating assets and liabilities: (Increase) decrease in receivables 2,572 (70,718) Increase in inventories (20,429) (17,308) Increase in prepaid expenses (2,349) (9,001) Decrease in accounts payable (2,717) (15,614) Increase in accruals, deposits and other long-term liabilities 15,609 40,564 -------- -------- Net cash provided by operating activities 110,916 22,005 INVESTING ACTIVITIES Capital expenditures (40,075) (20,750) Acquisitions of businesses (38,649) (19,923) Disposal of property and equipment 2,544 4,940 (Increase) decrease in other noncurrent assets 5,814 (3,944) -------- --------- Net cash used in investing activities (70,366) (39,677) FINANCING ACTIVITIES Payment of long-term debt (39,715) (150) Increase in long-term debt 45,654 4,795 Increase (decrease) in notes payable (7,420) 142,043 Purchase of treasury stock (14,312) (100,375) Proceeds from stock plans 12,856 10,276 Cash dividends paid (34,169) (33,185) --------- --------- Net cash used in financing activities (37,106) 23,404 Effect of exchange rate changes (194) (474) --------- --------- Increase in cash and cash equivalents 3,250 5,258 Cash and cash equivalents at beginning of year 16,211 9,015 ---------- --------- Cash and cash equivalents at end of period $ 19,461 $ 14,273 ======== ======== 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 30, 1995. 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 and thirty-nine weeks ended September 28, 1996 have been made. Management also believes that the results of operations for the thirteen and thirty-nine weeks ended September 28, 1996 are not necessarily indicative of the results to be expected for the full year. 2. Snap-on Incorporated 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 statements and correspondingly, three regular quarterly dividends appearing in the first twenty-six weeks' statements. 3. Income tax paid for the thirty-nine week periods ended September 28, 1996 and September 30, 1995 was $50.1 million and $50.4 million. 4. Interest paid for the thirty-nine week periods ended September 28, 1996 and September 30, 1995 was $8.5 million and $10.4 million. 5. On March 31, 1996, the Corporation acquired certain assets and liabilities of the Automotive Service Equipment Division of FMC Corporation. The acquired division was renamed the John Bean Company. John Bean designs, manufactures, and sells high-quality products for the under-car market. Pro forma results of operations are not shown as the effect would not be material. 6. Distribution of shares in connection with the three-for-two split of the Corporation's common stock was made on September 10, 1996. All share-related amounts have been retroactively restated to reflect this three-for-two split. 7. Prior to the disposition of Systems Control, Inc. by a subsidiary of the Corporation on September 29, 1994, Systems Control, Inc.'s single-purpose subsidiaries, Tejas Testing Technology One, L.C. and Tejas Testing Technology Two, L.C. (the "Tejas Companies"), entered into two seven-year contracts with the Texas Natural Resources Conservation Commission ("TNRCC"), an agency of the State of Texas, to perform automotive emissions testing in the Dallas/Fort Worth and southeast regions of Texas in a centralized manner in accordance with the federal Environmental Protection Agency ("EPA") guidelines relating to "I/M 240" test-only facilities. The Corporation guaranteed payment (the "Guaranty") of the Tejas Companies' obligations under an Agreement for Lease and a seven-year Lease Agreement, each dated June 22, 1994, in the amount of approximately $98.8 million plus an interest factor (the "Lease Obligations"), pursuant to which the Tejas Companies leased the facilities (and associated testing equipment) necessary to perform the emissions- testing contracts. The Guaranty was assigned to the lessor's lenders (the "Lenders") as collateral. Pursuant to an Indemnity Agreement entered into as of September 29, 1994, the Tejas Companies agreed to reimburse the Corporation for any payments it made under the Guaranty. On May 1, 1995, the State of Texas enacted legislation designed to terminate the centralized testing program described in the emissions- testing contracts and directed the governor of the State of Texas to implement a new program after negotiations with the EPA. On September 12, 1995, the Tejas Companies filed bankruptcy petitions under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Western District of Texas (Austin Division). The Tejas Companies have commenced litigation against the TNRCC and related entities to assert their rights with respect to the emissions-testing contracts, and the Corporation has intervened in such litigation to protect its interests. In addition, the Corporation is a creditor in the Tejas Companies' bankruptcy proceedings and will continue to take steps to protect its interests in such proceedings. The Corporation believes that it is probable that there will be developments, prior to the end of the 1997 Texas legislative session (approximately May 1997) to enable the Lease Obligations to ultimately be satisfied. The 1997 legislative session is scheduled to begin January 14, 1997. The primary basis for such a development arises under the original contracts to perform centralized emissions testing. Those contracts obligate the TNRCC to reimburse costs that the Tejas Companies incurred in the construction and implementation of the centralized testing program and have not recovered through the sale of the testing facilities to a third party. Fulfillment of such obligations requires an appropriation of funds by the Texas Legislature, which is subject to the political process. The TNRCC is contractually obligated to seek such appropriation and has affirmed such obligation. The Tejas Companies are pursuing the cost reimbursement process described in the emissions-testing contracts. A second potential basis is that the Lease Obligations could be satisfied in part in various other ways including a sale of some or all of the facilities. The Corporation and the Lenders have been engaged in continuing discussions concerning this matter, and they have reached an agreement whereby the Lenders will forbear until at least December 31, 1996 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. The Corporation continues to make advances under the Guaranty of approximately $1.8 million per month, which have totaled $30.3 million through September 28, 1996. The Corporation is discussing with the Lenders extending beyond December 31, 1996 the Lender s existing agreement to forbear from accelerating the Lease Obligations. While the Lenders have agreed to forbear until at least December 31, 1996, given the delay in resolving this matter and other factors, the Corporation at June 29, 1996 recognized the remaining net obligation under the Guaranty, which as of September 28, 1996 is $63.5 million. This is included in Other Long- term Liabilities on the accompanying consolidated balance sheet. In addition, the Corporation has recorded as assets the monthly advances and the other amounts expected to be received from the Tejas Companies under the Indemnity Agreement. These net receivables total $93.8 million as of September 28, 1996 and are included in Intangible and Other Assets. Described previously are mechanisms by which the Tejas Companies may receive funds to enable them to satisfy their contractual obligation to the Corporation under the Indemnity Agreement. The Corporation believes that 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 third quarter and nine-month sales, net earnings, and earnings per share. Net earnings for the third quarter of 1996 increased 16.8% over the year ago quarter on a net sales increase of 12.3%. For the first nine months, 1996 net earnings increased 15.1% over the comparable 1995 period on a net sales increase of 13.9%. Earnings per share for the third quarter and first nine months increased 18.6% and 17.3% over 1995 comparable periods. The third quarter's results benefited from several focused acquisitions, higher U.S. dealer van channel sales, and strong sales growth in the company's European segment. The quarter's results also reflected continuing improvements in operating efficiencies. Sales: Net sales for the third quarter of 1996 were $347.2 million, an increase of 12.3% over third quarter 1995 sales of $309.1 million. Net sales for the first nine months of 1996 were $1.076 billion, an increase of 13.9% over 1995 nine-month sales of $945.0 million. North American sales for the third quarter of 1996 were $268.4 million, an increase of 6.9% over third quarter 1995 sales of $251.1 million. North American sales for the first nine months of 1996 were $822.0 million, an increase of 8.8% over nine-month 1995 sales of $755.8 million. Excluding the acquisitions of the John Bean Company and Consolidated Devices, Inc., sales increased 1% in the third quarter. Sales increases in the dealer van channel were offset by the weakness in the Industrial business. European sales for the third quarter of 1996 were $59.4 million, an increase of 55.9% over third quarter 1995 sales of $38.1 million. For the first nine months of 1996, European sales were $195.7 million, an increase of 51.9% over nine-month 1995 sales of $128.8 million. Excluding the acquisitions of Herramientas Eurotools S.A. and the John Bean Company, sales increased 16% for the third quarter. Emissions-testing equipment sales in the United Kingdom and growth in sales through the dealer van channel both contributed to the increase. Other International sales for the third quarter of 1996 were $19.4 million, a decrease of 2.4% from third quarter 1995 sales of $19.8 million. Other International sales for the first nine months of 1996 were $58.4 million, a decrease of 3.3% from nine-month 1995 sales of $60.4 million. For the third quarter, sales in Japan were negatively affected by the strengthening of the U.S. dollar relative to the yen, and general weakness in the Japanese economy. Australia continued to record sales gains. Earnings: Earnings for the third quarter of 1996 were $30.8 million, an increase of 16.8% over third quarter 1995 earnings of $26.3 million. Third quarter earnings per share increased to $.51, an 18.6% increase over third quarter 1995 earnings per share of $.43. Earnings for the first nine months of 1996 were $94.9 million, an increase of 15.1% over nine-month 1995 earnings of $82.5 million. Earnings per share for the first nine months of 1996 rose to $1.56 per share, a 17.3% increase over nine-month 1995 earnings per share of $1.33. Operating expenses: As a percentage of net sales, third quarter total operating expenses decreased to 40.7% in 1996 from 41.8% in 1995. As a percentage of net sales, nine-month operating expenses decreased to 40.2% in 1996 from 41.9% in 1995. Benefits from continuing general cost reduction activities, from facilities consolidations implemented over the past several years, and from a change in business mix because of recent acquisitions all contributed to the improvement. FINANCIAL CONDITION Liquidity: Cash and cash equivalents increased to $19.5 million at the end of the third quarter from $16.2 million at the end of 1995. Working capital was $642.8 million at the end of the third quarter versus $610.6 million at the end of 1995. At the end of the quarter, the Corporation had a $100 million 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 has sufficient sources of liquidity to support current and future working capital requirements, finance capital expenditures and pay dividends. Accounts receivable: Accounts receivable increased to $619.4 million at the end of the third quarter from $610.1 million at the end of 1995. In the first quarter of 1996, the Corporation executed an additional $50.0 million securitization of its receivables discussed below. 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 financing 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. Under these agreements, $100.0 million of interest- bearing installments were sold, on a revolving basis, in October 1995. During the first quarter of 1996, the Corporation sold an additional $50.0 million of interest-bearing receivables under these agreements on a revolving basis. The proceeds were used to pay down debt, and for working capital and general corporate purposes. 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 by 11.5% to $279.2 million at the end of the third quarter from $250.4 million at the end of 1995. The increase was due to acquisitions and to several operations preparing for fourth quarter promotions and product rollouts. Liabilities: Total short-term and long-term debt was $170.3 million at the end of the third quarter compared with $170.9 million at the end of 1995. Average shares outstanding: Average shares outstanding increased slightly to 61.0 million in 1996's third quarter compared with 60.6 million in last year's third quarter. For the first nine months of 1996, average shares outstanding declined to 61.0 million versus 61.8 million in the comparable nine months of 1995. The Corporation repurchased 373,500 shares of its common stock in the third quarter of 1996. Year-to-date, the company has acquired 465,750 shares. Stock split and dividend increase: On June 28, 1996, the Corporation's Board of Directors declared an 11.1% increase in the quarterly dividend on common stock and approved a three- for-two stock split. The new quarterly dividend, paid on September 10, 1996, to shareholders of record on August 20, 1996, is $.20 per share (post-split), or $.80 per share on an annualized basis. The three-for-two stock split, which resulted in one additional share issued for every two shares of the Corporation's stock outstanding, was distributed on September 10, 1996, to shareholders of record on August 20, 1996. Cash was distributed in lieu of fractional shares. Other matters: Refer to Note 7 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 10 (a) Amendment No. 1, dated as of March 29, 1996, to the Receivables Purchase and Sale Agreement, dated as of October 6, 1995, among Snap-on Credit Corporation, as Seller, Corporate Asset Funding Company, Inc., as Investor, and Citicorp North America, Inc. individually and as Agent. (b) Amendment No. 1, dated as of March 29, 1996, to the Receivables Purchase and Sale Agreement, dated as of October 6, 1995, among Snap-on Credit Corporation, as Seller, the banks set forth on the signature page thereof, and Citicorp North America, Inc., individually and as Agent. Exhibit 27 Financial Data Schedule Item 6(b): Reports on Form 8-K No reports on Form 8-K for the three months ended September 28, 1996 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: November 12, 1996 /s/ R. A. Cornog R. A. CORNOG (Chairman, President and Chief Executive Officer) Date: November 12, 1996 /s/ G. D. Johnson G. D. JOHNSON (Principal Accounting Officer and Controller)
EXHIBIT INDEX Exhibit No. Description 10a Amendment No. 1, dated as of March 29, 1996, to the Receivables Purchase and Sale Agreement, dated as of October 6, 1995, among Snap-on Credit Corporation, as Seller, Corporate Asset Funding Company, Inc., as Investor, and Citicorp North America, Inc. individually and as Agent. 10b Amendment No. 1, dated as of March 29, 1996, to the Receivables Purchase and Sale Agreement, dated as of October 6, 1995, among Snap-on Credit Corporation, as Seller, the banks set forth on the signature page thereof, and Citicorp North America, Inc., individually and as Agent. 27 Financial Data Schedule