Snap-on Inc. Reports Results for the Q3 and First Nine Months
22 October 1998
Snap-on Incorporated Reports Results for the Third Quarter and First Nine Months; Records Restructuring and Other Non-recurring Charges; Provides Fourth Quarter Update
KENOSHA, Wis.--October 22, 1998--Snap-on Incorporated today announced record sales, but lower earnings and earnings per share for the third quarter and first nine months of 1998. The third quarter performance was consistent with the company's pre-announcement statement of September 3, 1998. The company also recorded restructuring and other non-recurring charges related to its Project Simplify initiative, the plans for which were initially announced on June 29, 1998. This initiative is a broad program of internal rationalizations, consolidations and reorganizations that will make the company's business operations simpler and more effective.Excluding the charges, net earnings for the third quarter declined to $22.5 million from $35.5 million in the same year-ago period, a decrease of 36.7%. Diluted earnings per share declined 34.5% to $0.38, from $0.58 in the third quarter a year ago. Third quarter net sales increased 9.2% to $427.3 million, compared with $391.2 million in the third quarter of 1997.
Two internal process issues were primarily responsible for the lower earnings, with the economic weakness in Asia also negatively affecting results. The first issue relates to the company's realignment of processes to synchronize with its new enterprise-wide computer system, which had an adverse effect on sales, expenses and productivity. The second issue affecting results is the complexity that developed in the company's business structure as it rapidly expanded its capabilities. The restructuring initiative is addressing this complexity.
While there have been substantial benefits realized from the system's process-related corrective actions, it has become increasingly evident that more time will be required to complete implementation of those solutions. This and other factors have led the company to expect that 1998 fourth quarter earnings might be approximately 10 to 15% below last year's $0.68 per diluted share.
"Snap-on's employees have been exerting extraordinary effort during the last five months to offer solutions and address the issues, and we are making good progress," said Robert A. Cornog, chairman, president and chief executive officer of Snap-on Incorporated. "We continue to expect the combination of the full resolution of these issues by the 1998 year end, revenue growth and the positive contributions of Project Simplify to return Snap-on to its characteristic growth and profitability in 1999."
Excluding restructuring and other non-recurring charges, net earnings for the first nine months declined 27.0% to $79.1 million, versus $108.3 million in the same period a year ago. Diluted earnings per share were $1.32, compared with $1.76 for the first nine months of 1997, a decrease of 25.0%. Net sales for the first nine months of 1998 increased 10.2% to $1.296 billion, compared with $1.176 billion for the first nine months of 1997.
North American net sales increased 3.2% in the quarter, as higher tool sales offset difficult comparisons in equipment versus last year, when Pennsylvania emissions-testing equipment sales were recorded. European sales excluding acquisitions and the effects of currency grew 15%, with strength in both tool and equipment products. Reported sales for Europe were up 52.0%, as several acquisitions contributed to the increase. Other Non-U.S. sales, which includes the Asia/Pacific region, declined 15.7% due to the negative effects of foreign currency translation; excluding these effects sales rose 2%.
Restructuring and Other Non-recurring Charges
Of the expected total charge of $175 million related to Project Simplify, $133.1 million in pre-tax charges were recorded in the third quarter. The remainder of the charges are expected to be recorded over the next year. Approximately 50% of the total restructuring and other non- recurring charges is expected to represent actual cash costs. The after-tax charge in the quarter totaled $96.5 million, or $1.62 per share. Third quarter net loss after the charge was $(74.0) million, or $(1.24) per diluted share.
Snap-on expects to realize annual cost savings of approximately $60 million from the initiative. On an annual run-rate basis, half of these savings are expected to be achieved in 1999, with the full amount achieved in the year 2000.
The overall actions of Project Simplify will lead to the closing of 6 manufacturing facilities, 7 warehouses, and 47 small offices in North America and Europe, representing 17% of the Corporation's total square footage and 29% of the total number of current facilities; the elimination of over 1,100 positions out of a workforce of about 12,000; and the elimination of nearly 12,000 stock keeping units, representing approximately 16% of the total; and the consolidation of certain business units.
In addition, Snap-on's pursuit of a partnership or joint venture format to optimize the returns on its financial services business has resulted in the signing of a letter of intent with a partner, and negotiations for this venture are proceeding.
Snap-on Incorporated is a $1.7 billion leading global developer, manufacturer and distributor of tool and equipment solutions for professional technicians, motor service shop owners, specialty repair centers, original equipment manufacturers, and industrial tool users worldwide. Product lines include hand and power tools, diagnostics and shop equipment, tool storage units, diagnostics software, and other solutions for the transportation service industry.
Statements in this news release 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 Corporation's ability to manufacture, distribute, and/or record the sale of products during the implementation of a new computer system involving the replacement of hardware and software components and the enterprise-wide linking of all functions; the timing or speed with which the Corporation can implement the Project Simplify initiatives and the absence of unanticipated complications; 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; currency fluctuations or the material worsening of the economic and political situation in Asia; 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 news release.
SNAP-ON INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in Thousands)
THIRD QUARTER ENDED NINE MONTHS ENDED
------------------------- ---------------------------
%INCR. %INCR.
Oct. 3, Sept. 27, (DECR.) Oct. 3, Sept. 27, (DECR.)
1998 1997 1998 1997
-------- -------- ------- ------- --------- ------
Net sales $427,272 $391,162 9.2 $1,295,877 $1,175,692 10.2
Cost of goods
sold 225,184 191,868 677,554 575,764
Restructuring
and other non-
recurring
charges 50,562 - 50,562 -
--------- --------- ------ ---------- ---------- -----
Gross profit 151,526 199,294 (24.0) 567,761 599,928 (5.4)
Operating
expenses 176,366 154,344 525,346 464,775
--------- --------- ------ ---------- ---------- -----
Operating profit
(loss) (24,840) 44,950 (155.3) 42,415 135,153 (68.6)
Net finance
income 14,657 18,126 47,529 53,953
Restructuring and
other non-
recurring
charges (82,559) - (82,559) -
--------- --------- ------ ---------- ---------- -----
Operating income
(loss) (92,742) 63,076 (247.0) 7,385 189,106 (96.1)
Interest expense (5,883) (4,119) (15,365) (12,979)
Other income
(expense)-net 604 (2,585) (1,624) (4,160)
--------- --------- ------ ---------- ---------- ----
Earnings (loss)
before income
taxes (98,021) 56,372 (273.9) (9,604) 171,967 (105.6)
Income taxes (24,024) 20,858 7,806 63,628
--------- --------- ------ ---------- ---------- ----
Net earnings
(loss) $(73,997) $35,514 (308.4) $(17,410) $108,339 (116.1)
--------- --------- ------ ---------- ---------- ----
--------- --------- ------ ---------- ---------- ----
Earnings per
weighted average
common share-
basic $(1.24) $0.58 (313.8) $(0.29) $1.78 (116.3)
--------- ------- ------ -------- ------- -------
--------- ------- ------ -------- ------- -------
Earnings per
weighted average
common share-
diluted(1) $(1.24) $0.58 (313.8) $(0.29) $1.76 (116.5)
--------- ------- ------ -------- ------- -------
--------- ------- ------ -------- ------- -------
Weighted average
common shares
outstanding
- basic 58,995 60,969 (3.2) 59,359 60,916 (2.6)
Weighted average
common shares
outstanding-
diluted(1) 58,995 61,797 (4.5) 59,359 61,744 (3.9)
(1) Diluted earnings per share in 1998 is the same as presented for
basic earnings per share since the effect of stock options on the
dilutive weighted average common shares outstanding calculation
would be considered anti-dulitive.
-0-
SNAP-ON INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
Oct. 3, Jan. 3, Sept. 27,
1998 1998 1997
--------- --------- ----------
ASSETS
Cash and cash
equivalents $ 13,470 $ 25,679 $ 15,422
Accounts receivable
less allowances 507,784 539,589 600,291
Inventories 420,512 373,155 367,314
Prepaid expenses
and other
assets 127,180 83,286 87,758
------------ ------------ ------------
Total current
assets 1,068,946 1,021,709 1,070,785
Property and
equipment -
net 272,391 265,765 255,511
Deferred income
tax benefits 67,082 55,699 60,741
Intangible
and other
assets 262,928 298,184 271,197
------------ ------------ ------------
TOTAL ASSETS $ 1,671,347 $ 1,641,357 $ 1,658,234
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES
Accounts
payable $ 85,240 $ 91,553 $ 101,491
Notes payable
and current maturities
of long-term
debt 61,988 23,951 29,937
Accrued
compensation 39,897 43,712 37,265
Dealer deposits 38,495 43,848 38,000
Accrued
income taxes 20,816 14,831 14,545
Deferred
subscription
revenue 31,668 29,265 22,121
Other accrued
liabilities 161,882 105,370 120,368
------------ ------------ ------------
Total current
liabilities 439,986 352,530 363,727
Long-term debt 246,096 151,016 200,061
Deferred income
taxes 12,249 11,824 7,731
Retiree health
care benefits 88,800 86,936 87,544
Pension and
other long-term
liabilities 111,577 146,914 113,676
------------ ------------ ------------
TOTAL LIABILITIES $ 898,708 $ 749,220 $ 772,739
SHAREHOLDERS'
EQUITY
Common stock - $1
par value 66,675 66,472 66,330
Additional paid
in capital 89,708 82,758 77,644
Retained earnings 883,523 938,963 909,672
Foreign currency
translation
adjustment (26,054) (30,385) (24,719)
Employee benefits
trust at fair
market value (218,428) - -
Treasury stock
at cost (22,785) (165,671) (143,432)
------------ ------------ ------------
TOTAL SHAREHOLDERS'
EQUITY $ 772,639 $ 892,137 $ 885,495
------------ ------------ ------------
TOTAL LIABILITIES
& SHAREHOLDERS'
EQUITY $1,671,347 $1,641,357 $1,658,234
------------ ------------ ------------
------------ ------------ ------------