Snap-on Incorporated Reports Record Sales for 1998
3 February 1999
Snap-on Incorporated Reports Record Sales for 1998; Reports Results for the Fourth Quarter and Year-end 1998; Announces Additional $50 Million Share Repurchase Authorization
KENOSHA, Wis.--Feb. 3, 1999--Snap-on Incorporated today announced financial results for the fourth quarter and year ended January 2, 1999. The quarter included restructuring charges and other non-recurring charges related to the company's previously announced Project Simplify initiative, which it began implementing late in the third quarter of 1998. The fourth quarter also included an inventory adjustment.Fourth quarter net sales decreased 4.0% to $476.8 million, compared with $496.5 million in the fourth quarter of 1997. Excluding all restructuring charges, non-recurring charges and inventory adjustments (which collectively will be referred to as "1998 charges"), net earnings for the fourth quarter declined 21.9% to $32.8 million from $42.0 million in the 1997 fourth-quarter period. Diluted earnings per share, excluding all 1998 charges, declined to $.55 from $.68 in the same year-ago period, a decrease of 19.1%. Reported diluted earnings per share were $.21.
Net sales for the 1998 year reached a record $1.773 billion, compared with $1.672 billion in 1997, an increase of 6.0%. North America sales, on a comparable basis (excluding acquisitions, emissions sales, the extra accounting week in 1997 and the effects of currency), increased 8% in 1998 over 1997. Excluding 1998 charges, year-end net earnings declined 25.6% to $111.9 million, from $150.4 million reported in 1997. Diluted earnings per share were $1.87, excluding 1998 charges, compared with the previous year's $2.44, a decrease of 23.4%. Including 1998 charges, the company reported a loss of $.08 per share for 1998.
U.S. dealer sales remained healthy in the fourth quarter, increasing 7% on a comparable basis. Partially offsetting this performance were soft sales in the company's Canada and Asia/Pacific operations. In addition, fourth-quarter revenues were affected by anticipated difficult comparisons against 1997's fourth quarter, which included an extra accounting week and contained significant emissions-testing equipment sales. Also, expected modest emissions sales for the quarter did not materialize due to delays in various programs. The sales shortfall negatively affected earnings per share expectations in the quarter.
The company is making the anticipated progress on resolving the remaining process issues related to the implementation of its new enterprise-wide computer system. "Thanks to the efforts of our employees, dealer order fill rates have returned to historical levels and costs related to the achievement of those rates are finally declining," said Robert A. Cornog, Snap-on chairman, president and chief executive officer. "The trend in improving results on a quarter-over-quarter basis continues. With the computer systems process issues behind us for the most part, we feel very good about the fundamentals within our Heritage dealer business, and we are off to an excellent start in implementing Project Simplify."
Restructuring and Other Non-recurring Charges
On a pre-tax basis, restructuring and transition costs related to Project Simplify totaled $6.7 million ($.09 per share after tax) in the quarter. In addition, a portion of the charge taken in the third quarter for the reduction of SKUs included an estimated $10 million ($.10 per share after tax) LIFO benefit. The benefit was not realized, and was reversed in the fourth quarter.
Inventory Adjustment
Cost of goods sold in the fourth quarter includes a $14.1 million ($.15 per share after tax) reduction in inventory related to the conversion to the new enterprise-wide computer system. The new system provides for much improved visibility at an item level on field inventory.
1999 Outlook
The current range of published analyst estimates for diluted earnings per share is $2.60 to $2.95. The company believes that the lower half of the range is more appropriate at this time as it takes a more conservative approach due to the economic uncertainty in some regions of the world. The company also said it currently anticipates first quarter 1999 diluted earnings per share to be approximately even with last year's first quarter, which would represent another improvement in its quarter-over-quarter trends. The company's comments about earnings exclude the effects of the remaining anticipated non-recurring charges related to the previously announced Project Simplify initiative.
Share Repurchase
At its January 22, 1999, meeting, the Snap-on Incorporated board of directors approved an additional $50 million share repurchase authorization. The company's outstanding authorizations now total in excess of $150 million, purchases under which will be made from time to time through the open market and other purchases.
"Early in January, we received cash proceeds of $141.1 million from the partial sale of installment receivables to Newcourt Credit Group as part of the formation of Snap-on Credit LLC. The board increased its authorization to give management the flexibility to apply a portion of these proceeds to share repurchases," Cornog said. "With the progress we're making in creating a more effective, efficient Snap-on and long-term opportunities offered by the marketplace, we feel very good about the company's future."
Snap-on Incorporated is a $1.8 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 roll-out of Snap-on Credit LLC without 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 or other parts of the world; and the achievement of productivity improvements and cost reductions. These factors may not constitute all factors that could cause actual results to differ materially from those discussed in any forward-looking statement. The Corporation operates in a continually changing business environment and new factors emerge from time to time. The Corporation cannot predict such factors nor can it assess the impact, if any, of such factors on the Corporation or its results. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results. The Corporation disclaims any responsibility to update any forward-looking statement provided in this news release.
SNAP-ON INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in Thousands)
FOURTH QUARTER ENDED TWELVE MONTHS ENDED
------------------------- ---------------------------
% %
Jan. 2, Jan. 3, INCR. Jan. 2, Jan. 3, INCR.
1999 1998 (DECR.) 1999 1998 (DECR.)
-------- -------- ------ ---------- ---------- -----
Net sales $476,760 $496,523 (4.0) $1,772,637 $1,672,215 6.0
Cost of goods
sold 271,207 252,623 948,761 828,387
Restructuring and
other non-recurring
charges 10,000 - 60,562 -
-------- -------- ------ ---------- ---------- -----
Gross profit 195,553 243,900 (19.8) 763,314 843,828 (9.5)
Operating
expenses 180,465 185,407 705,811 650,182
-------- -------- ------ ---------- ---------- -----
Operating profit 15,088 58,493 (74.2) 57,503 193,646 (70.3)
Net finance
income 18,404 17,938 65,933 71,891
Restructuring and
other non-recurring
charges (6,742) - (89,301) -
-------- -------- ------ ---------- ---------- -----
Operating income 26,750 76,431 (65.0) 34,135 265,537 (87.1)
Interest expense (5,889) (4,675) (21,254) (17,654)
Other expense -
net (417) (5,047) (2,041) (9,207)
-------- -------- ------ ---------- ---------- -----
Earnings before
income taxes 20,444 66,709 (69.4) 10,840 238,676 (95.5)
Income taxes 7,813 24,682 15,619 88,310
-------- -------- ------ ---------- ---------- -----
Net earnings
(loss) $12,631 $42,027 (69.9) $(4,779) $150,366(103.2)
-------- -------- ------ ---------- ---------- -----
-------- -------- ------ ---------- ---------- -----
Earnings (loss)
per weighted
average common
share - basic $0.21 $0.69 (69.6) $(0.08) $2.47(103.2)
-------- -------- ------ ---------- ---------- -----
-------- -------- ------ ---------- ---------- -----
Earnings (loss)
per weighted
average common
share -
diluted(1) $0.21 $0.68 (69.1) $(0.08) $2.44(103.3)
-------- -------- ------ ---------- ---------- -----
-------- -------- ------ ---------- ---------- -----
Weighted average
common shares
outstanding -
basic 58,803 60,649 (3.0) 59,220 60,845 (2.7)
Weighted average
common shares
outstanding -
diluted(1) 59,379 61,490 (3.4) 59,220 61,686 (4.0)
(1) Diluted earnings per share for the twelve months ended January 2,
1999 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
antidulitive.
SNAP-ON INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
Jan. 2, 1999 Jan. 3, 1998
------------- -------------
ASSETS
Cash and cash equivalents $ 15,041 $ 25,679
Accounts receivable less allowances 554,703 539,589
Inventories 375,436 373,155
Prepaid expenses and other assets 134,652 83,286
------------- -------------
Total current assets 1,079,832 1,021,709
Property and equipment - net 272,030 265,765
Deferred income tax benefits 60,139 55,699
Intangible and other assets 262,919 298,184
------------- -------------
TOTAL ASSETS $ 1,674,920 $ 1,641,357
------------- -------------
------------- -------------
LIABILITIES
Accounts payable $ 89,442 $ 91,553
Notes payable and current
maturities of long-term debt 93,117 23,951
Accrued compensation 42,105 43,712
Dealer deposits 42,421 43,848
Deferred subscription revenue 34,793 29,265
Accrued restructuring charges 43,442 -
Other accrued liabilities 112,733 120,201
------------- -------------
Total current liabilities 458,053 352,530
Long-term debt 246,644 151,016
Deferred income taxes 9,587 11,824
Retiree health care benefits 89,124 86,936
Pension and other long-term liabilities 109,245 146,914
------------- -------------
TOTAL LIABILITIES $ 912,653 $ 749,220
SHAREHOLDERS' EQUITY
Common stock - $1 par value 66,685 66,472
Additional paid in capital 117,384 82,758
Retained earnings 883,207 938,963
Accumulated other comprehensive income (30,231) (30,385)
Employee benefits trust at fair
market value (241,042) -
Treasury stock at cost (33,736) (165,671)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 762,267 892,137
------------- -------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 1,674,920 $ 1,641,357
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