Snap-On, Incorporated

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Snap-On, Incorporated

10801 Corporate Drive
Kenosha, Wisconsin 53141-1430
U.S.A.
(414) 656-5200
Fax: (414) 656-5577
Web site: http://www.snapon.com

Public Company
Incorporated: 1920 as Snap-On Wrench Company
Employees: 11,700
Sales: $1.77 billion (1998)
Stock Exchanges: New York
Ticker Symbol: SNA
SICs: 3423 Hand & Edge Tools, Not Elsewhere Classified; 3546 Power-Driven Handtools; 3825 Instruments for Electrical Signal Measurement; 3559 Special Industry Machinery, Not Elsewhere Classified

Snap-On, Incorporated is one of the largest and most successful manufacturers and marketers of hand tools, power tools, shop equipment, diagnostic equipment, collision repair equipment, and emissions/safety equipment in the United States. The company makes hand tools such as wrenches, sockets, pliers, ratchets, screwdrivers; power tools such as pneumatic (air) and corded (electric) drills, sanders, and polishers; and a host of other items like wheel balancing and alignment equipment for cars, tool chests and cabinets for industrial, automotive, and aerospace storage applications, and engine and emission analyzing equipment. Snap-On markets its entire range of products through an extensive international network of subsidiaries, dealers, and representatives. The company considers itself the originator of the mobile van method of marketing hand tools.

Early History

Snap-On was founded in 1920 by Joe Johnson and William A. Seidemann. Prior to Johnson’s idea for “interchangeable sockets,” the socket wrenches used by mechanics were onepiece units. Professional auto mechanics quickly recognized the efficiency and flexibility that resulted from pairing many sockets with few handles. From the beginning, sales were generated by demonstrating the benefits of the novel tool sets directly to the customers. New tools were added to the line, and a catalog was published in 1923. By 1925, 165 salesmen were demonstrating and distributing Snap-On tools.

Stanton Palmer, a former factory sales representative, served as president of the corporation from 1921 until his death ten years later. At that time, Snap-On sought financial help from one of its principal creditors, Forged Steel Products Company, whose owner, William E. Myers, became Snap-On’s new president. When Myers died in 1939, Joe Johnson, the corporation’s conceptual founder, became the president of both Snap-On and Forged Steel.

Under Johnson’s leadership the sales force continued to grow. During World War II, when supplying the military’s needs caused tool shortages in the civilian market, Snap-On began releasing available stock to its sales force, in an attempt to maintain goodwill with the civilian customer base. By 1945 all salesmen were carrying stock and making immediate deliveries to their customers. Shortly thereafter, Snap-On made each seller an independent businessperson in an assigned territory.

The Postwar Era of Growth and Prosperity

Subsidiaries in Canada and Mexico aided growth in the 1950s. The Snap-On product line also was expanded. Corporate acquisitions of specialized companies brought products that addressed the mechanic’s need for increasingly complex diagnostic tune-up and maintenance equipment. During this period, Snap-On also acquired its system of branches (which had operated previously as independent outlets). Branch acquisitions permitted Snap-On greater control over the marketing and distribution systems.

Victor M. Cain became president upon Johnson’s retirement in 1959. In 1965 a Snap-On branch was opened in the United Kingdom. An important patent on the “flank drive” design of wrenches was also awarded in 1965, after years of legal debate. The “flank drive” design produced wrenches with a superior grip, less likely to round the corners of 12-point fasteners under high torque conditions.

Growth and Expansion in the 1970s and 1980s

Snap-On’s growth was dramatic in the period that followed. Sales increased from $66.2 million in 1969 to $373.6 million in 1979, while profits increased from $6 million to $42.6 million. Norman E. Lutz became president in 1974, overseeing growth in the worldwide sales force to more than 3,000. In 1978 Lutz became chair and chief executive officer (CEO), and Edwin C. Schindler became president. That year Snap-On stock was first listed on the New York Stock Exchange.

The early 1980s saw rapid changes in the company’s management. In 1982 Lutz retired and was replaced by Schindler as chairperson, while William B. Rayburn became president; the following year Schindler died, and Rayburn became the company’s chairperson and CEO. A slight decrease in both revenue and earnings in 1982 was attributed to that year’s recession. Snap-On examined operations and took measures to improve profitability through reducing expenses as well as marketing more aggressively. Even in this disappointing year, however, net earnings were significant at $37.3 million on $430.5 million in net sales, or 8.7 percent of sales.

Snap-On continued to cultivate its image as the foremost supplier of well-crafted products and customer-oriented service. During the 1980s, Snap-On became the sole supplier of tools to NASA for the space shuttles. In 1984 Snap-On acquired an equity stake of approximately 34 percent in Balco, Inc., a developer of engine diagnostic and wheel service equipment. The frequency of visits to customers had increased to weekly in some cases, and the vans carried $50,000 to $200,000 of hand tools and equipment inventory. Additional services provided by dealers, such as cleaning previously purchased Snap-On tools every six months, allowed dealers to identify and recommend replacement of worn-out tools. Although Snap-on was beginning to face competition from a variety of sources, including Sears, Roebuck & Co., the Mac Tools subsidiary of Stanley Works, the Matco Tools subsidiary of Chicago Pneumatic, and various Japanese companies, Snap-On was able to maintain its premium prices because of the services it offered and the customer relationships in place.

Snap-On has stated that its market share cannot be determined, but in October 1986, Forbes estimated that “with its long head start and 49 percent of the market, Snap-On has as many dealers tooling about as all of its competitors combined.” At this time, Snap-On was distributing two million catalogs each year. The 350-page catalogs were considered Snap-On’s “most valuable single marketing tool” by Rayburn, who told Forbes that “our industrial people leave them with buyers, purchasing agents and requisition people. Our dealers leave them with shop owners and mechanics. When there is a mechanical problem, they look in the catalog for a tool that can solve it.”

In 1988 new Chairperson Marion Gregory faced a new challenge for Snap-On. An increasing number of lawsuits were filed by former and current dealers in state courts around the United States. The claims included allegations of misrepresentation, contract violations, and causing emotional distress. In an early case, George Owens, a former dealer, claimed that he was pressured to divide his territory with another dealer. A California jury awarded $6.9 million in damages, an amount later reduced in settlement. Other lawsuits claimed misrepresentation of potential profits to dealers, automatic billing of dealers by Snap-On for certain tools provided to the dealers for promotional purposes, and pressure to extend credit.

Snap-On’s general policy was to consider settlement as preferable to litigation; the company accrued or paid a total of $7.9 million, $16.6 million, and $16.2 million for litigation-related costs in 1989, 1990, and 1991, respectively, before “determining to pursue more cases to final determination and apply a more stringent policy toward settlement,” per Snap-On’s 1991 Annual Report. Snap-On also asserted claims of its own against its insurance carriers with respect to coverage on certain dealer claims.

The 1990s and Beyond

In 1991 Robert A. Cornog, formerly the president of Mac-whyte Company, became chairperson, president, and CEO of Snap-On, ending a long tradition of filling these positions from within the company. Also that year, Snap-On began to enroll all new U.S. dealers as franchisees and offered the option of applying for a franchise to existing dealers. Snap-On viewed the conversion to a franchise program as an opportunity to establish greater control over the marketing and business activities of its dealers. The program was not designed to increase revenues, and costs in new group insurance programs, stock purchase programs, and special volume-purchase discounts were expected to offset franchise fees. As an inducement to convert, Snap-On waived initial and some recurring franchise fees for existing dealers. Nonetheless, most existing dealers did not elect to apply for franchises.

Snap-On issued common stock valued at approximately $21.2 million to acquire the remaining interest in Balco, Inc. in 1991. The corporation also announced its intention to consolidate product inventories from 51 branch warehouses to four regional distribution centers. By this time, operations were conducted in subsidiaries located in Canada, the United Kingdom, Mexico, Germany, Australia, Japan, and The Netherlands. Sales in other countries accounted for 17 percent of total revenue, though only five percent of operating income.

Company Perspectives:

Snap-On’s mission is to create value by providing innovative solutions to the transportation service and industrial markets worldwide. Snap-On’s mission will be fulfilled through a customer focused set of strategies: leverage the Snap-On dealer channel with extended product and service offerings; continue technology leadership through innovation; pursue new channels, new customers and new partners; expand globally.

Net earnings, which had been down from earlier levels for three years in a row, were still $34.3 million on net revenue of $881.7 million or 8.3 percent of net revenue in 1991, despite the recession in the United States and Canada. This translated to an after-tax return on average shareholders’ equity of 11.4 percent, considerably below the 18 to 23 percent level that Snap-On had enjoyed in the years 1983-89. In response, Snap-On reorganized its management structure to allow separate accountability for its three business areas: Finance, Manufacturing and Technology, and Marketing and Distribution.

As Snap-On management looked to the end of the 20th century, management recognized that the corporation would have to adjust to fundamental changes in its business to achieve the high levels of return it sought. Believing that improved automotive quality and warranty programs had caused slower repair volume growth and had shifted work to the auto dealers, Snap-On determined to develop new products and services for existing customers while reaching out to the new markets as well.

Snap-On management began to consider whether other services, such as a credit card for general use, might profitably be offered to its credit-proven customers, who were in weekly contact with Snap-On dealers. Outside sourcing of products, which already accounted for 35 percent of Snap-On’s manufacturing, was considered an opportunity for cost savings. International and industrial markets were seen as offering a possible means toward the growth to which Snap-On had always been accustomed.

In maintaining its strategy in searching for new markets, during the late 1990s management at Snap-On decided to enter into a licensing agreement with Stylus Writing Instruments to manufacture and market office products under its own brand name. Snap-On office tools, such as staples, staple removers, and tape dispensers, were marketed with the designation, “Made in the USA.” In reaching the agreement, management at Stylus promised that all Snap-On office tools would be “ergonomic and durable, with unique styling and colors.” At the same time, Snap-On made an about-face and ventured into direct consumer retail sales by reaching a private label pact with Lowe’s Home Improvement Warehouse. Inaugurating a private label tool line known as Kobalt, the two companies were positioning themselves to compete against Sears’ Craftsman brand, Wal-Mart’s Popular Mechanics, and Home Depot’s Husky brand name tool line. The expansion into retail sales was expected to increase the company’s 1997 revenues of $1.7 billion by at least five percent, perhaps more. Since sales of Snap-On hand tools was estimated to increase at 1.5 percent, management considered the entry into retail sales well worth the effort and risk.

Snap-On announced a comprehensive plan to restructure its entire operation during the summer of 1998, including the elimination of more than 1,000 jobs to increase profitability. The plan was designed to close five manufacturing facilities and five warehouses, discontinue a number of product lines, consolidate some business units, and close more than 40 small sales offices throughout North America and Europe.

With more than 200 patents and numerous pending patent applications, Snap-On continues to encourage its research and development team to challenge the ordinary way of doing things. The company has been at the forefront of designing new tools for many industrial, medical diagnostic, automotive, and aerospace applications and also will remain one of the most innovative marketers within the tool manufacturing industry for years to come.

Principal Subsidiaries

Snap-On Tools of Canada Ltd.; Snap-On Tools Limited; Snap-On Tools International, Ltd. (F.S.C.); Herramientas Snap-On de Mexico, S.A.; Snap-On Tools GmbH (Germany); Snap-On Tools Import and Wholesale Pty. Ltd.; Snap-On Tools Netherlands B.V.; Snap-On Tools Japan, K.K.; Snap-On Tools (Europe) Limited; Snap-On AG (Germany); ATI Industries, Inc.; Balco, Inc.; Sun Electric Corp; Sioux Tools, Inc.; Wheeltronic, Ltd.; Edge Diagnostic Systems; Consolidated Devices, Inc.; John Bean Company; Credit Corp SPC LLC; Hoffman Werk-statt-Technik GmbH (Germany); Nu-Tech Industries, Inc.