News Release
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Snap-on Reports EPS of $0.44 for the First Quarter and Operating Cash Flow Improvements, Before One-time Items and Special Charges
-- Earnings from continuing operations for the first quarter of
2002 were $25.6 million, or $0.44 per share, compared with
$29.4 million, or $0.51 per share, in 2001 before special
charges and cumulative effects from accounting changes in both
years. In 2002, Snap-on realized a one-time gain of $2.8
million, or $0.05 per share, for the cumulative effect of
adopting SFAS No. 142, and special charges of $3.9 million, or
$0.07 per share. Additionally, Snap-on ceased amortizing
goodwill and certain other intangibles at the beginning of its
2002 fiscal year as prescribed by this standard. Had SFAS No.
142 been in effect for the first quarter of 2001, earnings
from continuing operations would have been $0.56 per share. In
2001, Snap-on incurred a charge of $2.5 million, or $0.05 per
share, for the cumulative effect of adopting SFAS No. 133. Net
earnings in 2002 were $24.5 million, or $0.42 per share,
compared with $26.9 million, or $0.46 per share, in 2001.
-- Special charges in the first quarter of 2002 of $6.0 million
($3.9 million after tax or $0.07 per share) include $3.4
million of transition costs associated with restructuring
activities initiated in 2001 and the resignation of Snap-on's
former chief financial officer, and $2.6 million for the
write-down of a customer receivable related to the April 2002
closure of auto service centers associated with a major
retailer's bankruptcy. At year-end 2001, Snap-on announced
that it expected to incur $7-$8 million in transition-related
charges in 2002 to complete its restructuring and other
activities initiated in 2001.
-- Net sales were $510.0 million in the first quarter of 2002, a
3.3% decline from the $527.4 million in the prior year. A 2%
sales increase in the U.S. dealer business was more than
offset by continued soft demand for equipment and a decline in
sales of tools in the commercial and industrial sector.
Currency translation had a negative impact of 2% on 2002
consolidated sales.
-- Cash flow from operating activities was $5.4 million in the
quarter. A significant improvement in working capital
management was offset by the one-time cash outflow related to
a previously announced resolution of an arbitration matter.
Free cash flow, excluding the impact of the arbitration
payment, would have been approximately $30 million. Total debt
was $488.2 million at the end of the first quarter, $58.6
million or 11% lower than the prior year.
"Snap-on continues to make progress in improving its operating performance and
cash flow, in spite of the continued soft economic conditions that existed in
the first quarter," said Dale F. Elliott, Snap-on president and chief executive
officer. "We believe a cautious approach remains the prudent course in the near
term, but there are indications that business confidence and a resulting demand
for our products should improve as the year progresses. Our solid finances,
market-leading brands and improving operations provide us with cautious optimism
for the year in total."
First Quarter ResultsIn the first quarter of 2002, sales continued to be adversely impacted by the same soft economic conditions that have influenced demand for big-ticket products for the prior 18 months, along with the unfavorable impact of currency translations. Sales declines in the worldwide industrial sector and in equipment for the vehicle-repair market offset higher U.S. dealer sales. Gross profit margin, at 46.2% of sales, was stable year over year. Benefits from restructuring activities were offset by unfavorable operating leverage from the lower sales and Snap-on's emphasis on increased inventory turnover compared to last year. Operating profit margin, at 7.9% before special charges, increased slightly compared with 2001 due to lower operating expenses. Operating expenses decreased $7.2 million compared with the prior year as restructuring benefits, lower discretionary spending and the elimination of goodwill amortization more than offset higher pension costs and a year-over-year increase in expenses associated with the company's "More Feet on the Street" dealer expansion initiative.
2002 first-quarter results reflect the adoption of SFAS No. 142, "Goodwill and Other Intangible Assets." The adoption of this statement resulted in a favorable year-over-year operating expenses comparison due to the elimination of goodwill and certain intangible amortization totaling $3.7 million that was included in 2001 operating expense. The adoption also resulted in a $2.8 million cumulative effect gain from the accelerated recognition of negative goodwill as prescribed by this statement. In 2001, the adoption of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," resulted in a cumulative effect loss of $2.5 million after tax.
In the Snap-on Dealer Group, worldwide sales were essentially flat as a 2% improvement in U.S. dealer operations was offset by a decline in international sales, primarily from the impact of unfavorable currency translation. Operating margins in the segment improved to 11.7% for the first quarter 2002 from 10.9% in the prior year.
In the Commercial and Industrial Group, sales declined 6.3% compared with the prior year, reflecting continued soft demand for big-ticket capital goods equipment and weaker demand for professional tools in many sectors associated with the manufacturing and industrial marketplace. Margins decreased from 4.9% a year ago to 3.1%, primarily reflecting the $2.6 million special charge for the receivable write-down. Savings from restructuring activities were largely offset by the unfavorable impact of lower sales.
Net finance income declined $4.8 million in the first quarter compared with a year ago. The prior-year results benefited from the highly favorable interest-rate conditions that had existed during the first quarter of 2001. Originations increased over the prior year reflecting growth in the U.S. dealer business, but declined on a seasonal basis compared with the fourth quarter.
Strong cash flow resulted from an improvement in working capital management compared with the prior year, but was offset by a one-time cash outflow of $44 million from the previously announced resolution of an arbitration matter. Working capital was $621.2 million at the 2002 first-quarter end, $39.5 million lower than a year ago, largely reflecting a $43.5 million reduction in inventory levels. Free cash flow in the quarter was a negative $8.5 million. However, excluding the impact of the arbitration payment, net of its tax benefit received in the quarter, free cash flow would have been approximately $30 million positive.
OutlookSnap-on expects that the prudent course near term is to maintain a cautious view on recovery. Even so, with savings from its Operational Fitness initiatives, the company expects to realize both sequential and year-over-year improvements in profitability in the second quarter. Based on flat sales year over year, Snap-on expects to earn $0.49 to $0.54 per share in the second quarter, while continuing to invest in its growth initiatives for the longer term. Snap-on also expects to incur special charges of approximately $4 million for remaining transition costs related to its previously announced restructuring actions. For the balance of the year, Snap-on expects to achieve its targeted $40 million in savings, with approximately one-half of these savings to be reinvested to support increased development of innovative new products and initiatives for profitable growth.
"Across Snap-on, the priority continues to be enhancing operational performance and improving working investment turnover," said Elliott. "We expect that benefits from the acceleration of new product development will strengthen our worldwide product line-up, providing us with the opportunity to further enhance our position as the marketplace recovers."
A discussion of today's announcement will be broadcast via webcast at www.snapon.com today at 10 a.m. CDT. Additional detail is available on Snap-on's Web site in the analyst bulletin.
Snap-on Incorporated is a leading global innovator, manufacturer and marketer of tool, diagnostic and equipment solutions for professional tool users. Product lines include hand and power tools, diagnostics and shop equipment, tool storage, diagnostics software and other solutions for vehicle-service, industrial, government and agricultural customers, and commercial applications, including construction and electrical. Products are sold through its franchised dealer van, company-direct sales and distributor channels, as well as over the Internet. Founded in 1920, Snap-on is a $2+ billion, S&P 500 company headquartered in Kenosha, Wisconsin, and employs approximately 13,500 people worldwide.
Statements in this news release that are not historical facts, including statements (i) that include the words "expects," "targets," "believes," "anticipates," or "estimates" or similar words that reference Snap-on or its management; (ii) specifically identified as forward-looking; or (iii) describing Snap-on's or management's future outlook, plans, objectives or goals, are forward-looking statements. Snap-on or its representatives may also make similar forward-looking statements from time to time orally or in writing. Snap-on 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 validity of the assumptions set forth above and the timing and progress with which Snap-on can continue to achieve further cost reductions and achieve savings from its restructuring initiatives; Snap-on's ability to retain and attract dealers and to withstand external negative factors including terrorist disruptions on business; consequences of a potential change in public accounting firms; changes in trade, monetary and fiscal policies, laws and regulations, or other activities of governments or their agencies; and the absence of significant changes in the current competitive environment, inflation, energy supply or pricing, legal proceedings, supplier disruptions, currency fluctuations or the material worsening of economic and political situations around the world. These factors may not constitute all factors that could cause actual results to differ materially from those discussed in any forward-looking statement. Snap-on operates in a continually changing business environment and new factors emerge from time to time. Snap-on cannot predict such factors nor can it assess the impact, if any, of such factors on Snap-on's financial position or its results of operations. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results. Snap-on disclaims any responsibility to update any forward-looking statement provided in this news release.
For additional information, visit www.snapon.com or please contact:
Media: Investors:
Richard Secor William Pfund
262/656-5561 262/656-6488
SNAP-ON INCORPORATED
Consolidated Statements of Earnings
(Amounts in millions, except per share data)
FIRST QUARTER ENDED
-----------------------------
March 30, March 31,
2002 2001
------------- ------------
Net sales $510.0 $527.4
Cost of goods sold (274.3) (283.7)
Operating expenses (197.9) (202.5)
------------- ------------
Operating profit before net finance income 37.8 41.2
Net finance income 7.3 12.1
Restructuring and other non-recurring charges (3.4) -
Interest expense (7.8) (8.9)
Other income (expense) - net (0.1) 1.9
------------- ------------
Earnings from continuing operations
before income taxes 33.8 46.3
Income taxes from continuing operations 12.1 16.9
------------- ------------
Earnings from continuing operations $21.7 $29.4
Cumulative effect of a change in accounting
principle, net of tax 2.8 (2.5)
------------- ------------
Net earnings $24.5 $26.9
============= ============
Earnings per share - basic:
Earnings from continuing operations $0.37 $0.51
Cumulative effect of a change in
accounting principle, net of tax 0.05 (0.05)
------------- ------------
Net earnings $0.42 $0.46
============= ============
Earnings per share - diluted:
Earnings from continuing operations $0.37 $0.51
Cumulative effect of a change in
accounting principle, net of tax 0.05 (0.05)
------------- ------------
Net earnings $0.42 $0.46
============= ============
Weighted-average shares outstanding:
Basic 58.0 57.8
Effect of dilutive options 0.7 0.4
------------- ------------
Diluted 58.7 58.2
============= ============
see attached Notes to Consolidated Financial Statements
SNAP-ON INCORPORATED
Notes to Consolidated Financial Statements
(Amounts in millions, except per share data)
Following is a reconciliation of net income and earnings per share
reflecting the implementation of SFAS No. 142, "Goodwill and Other
Intangible Assets":
First Quarter Ended
March 31, 2001
--------------
Earnings before cumulative effect of a
change in accounting principle: $29.4
Add back: Goodwill amortization, net of tax 2.9
Add back: Trademark amortization, net of tax 0.2
--------------
Adjusted earnings before cumulative effect item $32.5
==============
Net earnings $26.9
Add back: Goodwill amortization, net of tax 2.9
Add back: Trademark amortization, net of tax 0.2
--------------
Adjusted net earnings $30.0
==============
Earnings per share before cumulative effect of
a change in accounting principle:
Basic $0.51
Diluted 0.51
Adjusted earnings per share before cumulative
effect item:
Basic $0.56
Diluted 0.56
Net earnings per share:
Basic $0.46
Diluted 0.46
Adjusted earnings per share:
Basic $0.51
Diluted 0.51
SNAP-ON INCORPORATED
Consolidated Balance Sheets
(Amounts in millions)
March 30, December 29,
2002 2001
------------- ------------
Assets
Cash and cash equivalents $ 5.4 $ 6.7
Accounts receivable - net of allowances 633.1 615.2
Inventories 386.8 375.2
Prepaid expenses and other assets 135.8 142.3
------------- ------------
Total current assets 1,161.1 1,139.4
Property and equipment - net 320.2 327.7
Deferred income tax benefits 26.9 27.7
Goodwill - net 332.6 331.2
Other intangibles - net 61.3 60.7
Other assets 81.8 87.6
------------- ------------
Total Assets $ 1,983.9 $1,974.3
============= ============
Liabilities
Accounts payable $ 177.4 $ 141.2
Notes payable and current maturities
of long-term debt 29.1 29.1
Accrued compensation 51.0 58.7
Dealer deposits 50.6 42.0
Deferred subscription revenue 45.4 45.0
Accrued restructuring reserves 15.4 23.1
Other accrued liabilities 171.0 210.3
------------- ------------
Total current liabilities 539.9 549.4
Long-term debt 459.1 445.5
Deferred income taxes 25.9 24.7
Retiree health care benefits 92.8 92.7
Pension liability 55.4 54.5
Other long-term liabilities 25.1 31.7
------------- ------------
Total Liabilities $ 1,198.2 $1,198.5
Shareholders' Equity
Common stock - $1 par value $ 66.9 $ 66.8
Additional paid-in capital 107.6 108.0
Retained earnings 1,025.2 1,014.7
Accumulated other comprehensive
income (loss) (125.6) (120.6)
Grantor stock trust at fair market value (195.1) (203.0)
Treasury stock at cost (93.3) (90.1)
------------- ------------
Total Shareholders' Equity $ 785.7 $ 775.8
------------- ------------
Total Liabilities and
Shareholders' Equity $ 1,983.9 $1,974.3
============= ============
CONTACT: Snap-on Incorporated
Richard Secor (Media), 262/656-5561
William Pfund (Investor), 262/656-6488
URL: www.snapon.com
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