實耐寶 (SNA) 2002 Q2 法說會逐字稿

Good day everyone, welcome to the Snap-on Incorporated second quarter earnings conference call. Today's call is being recorded. At this time, for opening remarks and introduction, I would like to turn the call over to Mr. William Pfund, Vice President, Investor Relations. Please go ahead.

Thank you operator and good morning everyone. As usual, we will begin with a brief review of Snap-on's quarterly performance and then open the discussion for your questions. With me this morning is Dale Elliott, Chairman and Chief Executive Officer. We encourage your questions during the call. Consistent with our policy and past practice, we will not disclose any undisclosed material information offline. Also, let me remind everyone that statements made during this conference call will state management expects or beliefs or otherwise states the company's plans or projections for the future are forward-looking statements and that actual results may differ materially from those made in such statements. Additional information concerning the factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the news release issued this morning by Snap-on and in the latest 8-K, 10-Q, 10-K and other periodic reports filed with the SEC. Additional supplemental data is contained in the Analysts Bulletin that is available on our website at www.snapon.com. In addition, this call is being recorded by Snap-On Incorporated in it' s copyrighted material. It is intended solely for the purpose of this audience; therefore, please note that it cannot be recorded, transcribed or rebroadcast by whatever by means without Snap-on's expressed permission. Your participation implies your consent to our recording this call. Should you not agree to these terms, simply drop off the line. Now I will turn the call over to Dale Elliot.

Thank you Bill, and good morning everyone. Let me start our view with a few general observations. Snap-on's overall performance in the second quarter was in line with the expectations. In spite of the difficult economic conditions in the industrial marketplace which still continue today, Snap-on made solid progress in improving operating profitability further strengthening the balance sheet and enhancing free cash flow.

We continue to do best and then support our organic growth initiatives and we are beginning to realize the benefits from these activities. First, saving from restructuring and additional fitness initiatives are being achieved. In particular, the earnings improvement in the commercial and industrial group fully illustrates the benefits of a leaner operation. These savings are being realized in spite of the difficult industrial and equipment marketplace worldwide. This group is now being led by Nicholas Pinchuk, who joined Snap-on as Senior Vice President and President Worldwide Commercial and Industrial Tools Group on June 24th. In general, in both Europe and North America, profitability in our equipment and diagnostic operations showed significant improvement year-over-year. The benefits from our rationalized footprint as well as the considerable array of new products introduced during the past year are contributing to that performance.

Let me briefly outline some of our accomplishments. During the second quarter, we transitioned our European Diagnostic business to a bill to order system, with product shipped direct to the customer. That transition allowed us to completely exit of a distribution center in the Netherlands. In North America, we consolidated certain elements of our equipment businesses. For example, our collision repair products are now being produced at our real product lift operation. The savings in plant untilization and administrative activities has led to a significant step up in profitability on continued weak volumes. Importantly as these markets begin to show recovery in the future we believe we are much better positioned in the marketplace today. Our leaner operating foot prints coupled with technologically advanced product platform are expected to provide the desired level of operating profitability and return on investments as volume rebounds. Second, these improvements in profitability translate in to further enhancement of our free cash flow. Free cash flow of $45.0 million dollars achieved in the second quarter, which typically has been a period of low cash generation, was particularly encouraging to us. In terms, the improvement in cash flow has been used to reduce debt and strengthen our balance sheet, which should bolster shareholder confidence in these uncertain times.

Third, as expected we are continuing to invest a significant portion of our savings in the key growth initiatives. The three primary areas of trageted organic growth remain one, support the expansion enhancement of our dealer base, two, increase the amount of innovative new product introductions and three, leverage our tool knowledge to better reach professional tool users in the industrial and commercial arena. At the same time some of the savings are offsetting the unfavorable near term impact that results from improving inventory return. In our dealer business the key initiative has been to increase support to our dealer base helping them be more successful and expand through second vans and second franchises. Year-to-date in the US we have added 116 net new feet on the street. That is an increase of 55 dealers in the second quarter. The support we have put behind this effort will enhance dealer success. Increased training and development for example will make our dealers better business people and help them to provide better service to customers and as they grow, Snap-on grows. The internal metrics re-mointored remain favorable. The business in the US and thes worldwide remain sound and the team purely has the right focus. We will continue to pursue our chosen course we believe there is no better time to be a Snap-on dealer. Another area of focus is our new products. In June our innovative Torque wrench received a gold industrial design excellence award but more importantly this patented product has been well received by customers and is selling briskly.

During the second quarter one of our most exciting new products introduced was our next generation and powerful hand held diagnostics. This product combines many of the capabilities needed today to diagnose and analyze complex vehicles systems. It is compatible with prior Snap-on diagnostics information and offers module capability in a windows format to provide clear advantages for the technician of today and tomorrow. It is the steady flow of new products bringing new benefits to our customers around the world that drives incremental sales and keeps our brand name strong and well respected. And it is the strength of the many brands around the world Snap-on, Brewco, Hofman, Sun, Mitchel 1, John Bean, Sue and many others that provides our company with a superior competitive edge. Leveraging the capabilities behind each of these brands and sharing best practices it's allowing us to take advantage each new customers and improve our market position despite the continued tough environment for capital goods equipment and weak demands for tools in the industrial market place.

Our focus on innovated new products with productivity enhancing benefits is providing better growth from the relevant industry averages. Having mentioned a few of the many improvements being made, let me also hasten that we are early in the game and we clearly recognise we have much to do. If you continue to impliment the driven to deliver business process across the compnay, we increase our ability to effectively utilize the skills and experience of our people. Our opportunities are expanding internally as we collaborate in purchasing activities to reduce cost, resourcing, and supplier initiatives and in other areas as we strive to lower working investment. Implimentation efforts are also opening up a new spirit of team work across the supply chain enchancing the process from our supplier's suppliers to our customer's customer. Now let me turn the call over to Bill Pfund, who will cover the financial performance of the company in a bit more detail. Bill?

Thanks Dale. Earnings per share is 51 cents before special charges was in line with the range of guidance provided. Steady growth in the US dealer business was maintained while the commercial and industrial group benefiting from the actions that have been made to rationalize certain of these operations showed significant earnings improvement year-over-year despite the continued difficult conditions in the industrial market place. Overall net sales were up 4.1 percent in the quarter primarily reflecting the solid performance of the dealer group and the contribution of new products throughout all of Snap-on's businesses. Currency translation in the second quarter had a negligible impact on consolidated net sales. Now let me turn to segments. In the dealers segment, the US dealer business had growth in the range of mid single digits reflecting continued solid demand for tools, tool storage, and hand-held diagnostic, as well as the expanding number of dealers. While there were no third signals of an overall market stregthenings for the larger big ticket diagnostics and equipments, sales through the tech rep organisation were up compared with the depressed results of the year ago. In international operations improved results in the UK, Japan, and Australia offsets some weakness being experienced in Canada. Segment earnings were up 6.2 percent year-over-year due to the sales gain and the improvement in operating margin to 10 percent. Earnings largely continued to reflect the higher cost related to the expansion of the dealer network and other support cost.

Additionally, earnings also reflect the impact from higher pension costs year-over-year and gross margins that compress near-term from the impact of reducing inventory in order to improve working investment terms. In the worldwide commercial and industrial group, sales for equipment and tools increased 3.1 percent for the quarter with about half of this segment's sales in international markets. Currency translation had a positive impact in the quarter of nearly one percent looking at some of the operations that contributed to the segment sales of professional tools worldwide for commercial and industrials user were largely flat. An improvement in international industrial markets was offset by the continued softness in the North American industrial marketplace. The manufacturing and industrial marketplace for tools has now been soft for over four quarters with some sectors such as aerospace and electronics even longer.

While the rate of order flow has begun to stabilize, we have not seen any clear signals of economic recovery contributing to an improved outlook in either North America or Europe, our primary geographic markets. In the area of diagnostics and information, both information based products and handheld diagnostics continue to post higher sales but these gains were largely offset by continued depressed demand for the large big box diagnostics in North America. Despite the weaker demand for capital goods, profitability particularly in Europe improved substantially. As you know the European diagnostics business has been a focus of restructuring the past year. From rationalizing the footprint to refocusing the product line to recalibrating distribution to a built order model all are contributing to significant improvements. The hard work of individuals in this group is becoming apparent in bottom line reslults. Equipment sales were largely flat. A modest pickup in Europe was offset by the weaker sales in North America. The appeal of the new products that were introduced during the past year contributed to the improvement in Europe as well as to opening up some new opportunities in North America, however the major factors still impacting the equipment marketplace were main due to lack of confidence regarding future economic opportunities.

Businesses are still reluctant to invest in new equipment even it helps productivity and provides a positive return. Our challenge is to overcome their preference to simply repair what they already own. Facilitation sales were up in the quarter and we have a new focus underway to get more of our new products approved under these corporate equipment programs. Earnings for the commercial and industrial segment reflect the savings now being attained from the restructuring efforts that had been underway in many of these operations during the past year as well as the elimination of goodwill and other intangible amortizations. I should point out that last year's earnings were unfavorably impacted by special charges, excluding those charges there was 300 basis point improvement in margin. While we have not seen the improvement in incoming orders that would lead us to believe that economic recovery is on its way. We still expect to see continued benefits from our past actions.

Turning now to the consolidated gross profit margin for the quarter gross margin was 45.9 percent of sales up slightly from 45.8 percent in the year ago quarter which excludes the one and half million dollars as special charges last year. This increase reflects the savings improvement being achieved from under, excuse me, from operational fitness initiatives and pricing discipline which are offsetting the negative impacts of unfavorable product mix and from the negative variances experienced as we work to improve inventory returns.

Operating expenses were 37.1 percent of sales compared with some 3 percent in the year ago quarter which excludes the 4.6 million of special charges incurred last year. The lower expense ratio reflects the positive leverage gained on the higher sale. That productivity was facilitated by the benefits of our operational fitness activities. Operating expenses also reflect the positive impact from the elimination of 3.8 million dollars of amortization required by the adoption of FAS 142, which is partially offset by the higher cost related to the dealer expansion program and increased year-over-year pension expense. While on the subject of FAS 142 we have completed the transitional review of remaining goodwill on Snap-on's blance sheet. That review produced no indicated impairment and we will continue to review it on an annual basis as required by the standard. Net finance income increased 11.4 percent year-over-year in the quarter reflecting a double-digit increase in extended credit originations, which are benefiting from the growth in the dealer business as well as the continued favorable stability in the interest rate environment. Interest expense in the quarter decline to 7.5 million from 9.2 million in the prior year reflecting lower debt levels as well as slightly lower interest rates.

The effective tax rate on earnings was 36 percent in the quarter and is expected to remain at 36 percent for the full year. On of the strong highlights of the quarter as Dale mentioned was the free cash flow. The second quarter as well as the first half of the year typically reflects a build up in seasonal working capital and thus has historically been a low point for cash generation. This year greater focus on and better management of those working capital elements notably inventories and trade payables contributed to the further strengthening of free cash flow, which we define as cash generated by operation plus capital expenditure. For the quarter free cash flow was 44.6 million up from 2.1 million a year ago. I would also remind you that in looking at the cash flow results for the 6 months it should be kept in mind that those results include the one time dispersment of 44 million dollars paid in the resolution of Parton Arbitration (Phonetic) matter at year end 2001. As 44 million has been partially offset by 10 million dollars year-to-date of tax benefits. Inventories are a primary area of focus for us.

While inventories increase seasonally in the quarter the increase is down from the prior 2 years and at the increase it should be noted 2/3 or nearly 20 million dollars is currency related. During the quarter our strong cash flow was directed towards debt reduction and as a result total debt decreased in the quarter by 38 million dollars to 450 million. On a year-over-year basis this is down 96 million or nearly 18 percent from last year at this time. For the balance of this year and as part of our longer-term emphasis we remained dedicated to reducing working investment through increased inventor returns, improved receivables DSOs and the efficient use of payables. Now let me turn the discussion back to Dale.

Thank you Bill. Snap-on is making progress and we expect to see this translate into positive EPS comparisons in the second half of 2002. Having said that the ability to predict market conditions has not improved. Since orders in North America during this period are not very indicative of general trend and much of Europe is on holiday during the summer. This year was the ongoing debate above the outlook for the second half recovery. The crystal ball is even cloudier. While there are still favorable signs being seen and the thought of business is leading towards improvement, much is still only talked but is yet to materialize into orders. Therefore with the uncertainties surrounding the strength of the economic recovery amply illustrated by recent events in the financial market place. We are taking a cautious approach in our sales outlook. Even so as noted in the press release we expect to achieve margin improvements from operational fitness activities. Based on this outlook Snap-on is expected typical sequential seasonal decline in sales as well as the anticipated margin improvement. Leads us to expect earnings in the range of 45-50 cents per share in the third quarter. This range includes the expected impact of an estimated 1 to 2 million dollars in remaining transition cost as we complete our previously announced restructuring actions. For the balance of the year we will maintain our drive for continuous improvement and the enhancement of financial returns. We will balance our operational fitness efforts with continued focus on strengthening our leadership in the product development and on growing our dealer business. As a result we are confident that Snap-on will emerge as a more profitable company with a stronger market position enhanced by real competitive advantages. Thank you and now we will be pleased to take your questions.

Thank you, the question and answer session will be conducted electronically today. If you do have a question please press the star key followed by the digit 1 on your touch-tone telephone. We will proceed in the order that you signal as and take as many questions as time permits. Once again if you do have a question please press the star key followed by the digit 1. We will pause for one moment to assemble our roster. And our first question comes from Michael P. Ward, Salomon Smith Barney.

Good morning Dale, good morning Bill.

Good morning Michael.

A couple of things, could you talk a little bit about raw materials and what is the most important raw material of you guys, what percentage your cost is that what's the pricing environment is like?

It is a good question Mike, we have been spending a lot of time as many people do because of our affiliation to steel. We have been engaged in that activity for the better part of a year. As it stands today, we have good contract coverage to the end of the year and have several continuity plans in place already to offset any potential increase that are out there. We do anticipate some impact after the first of the year, but as I said the containment plans are still not complete, so we are hopeful that it would be minimal going forward.

Okay. What is steel as a percentage of your total cost structure?

I don't have that number of the top of my head given the diversity in the group, I think it would be sufficient to say that it is a major part of our overall spend.

Okay and now, when you are talking about some increase, are we talking 5 percent, 10 percent, or we talking the numbers are really 20, 30?

Right, it depends on the type of buy that we have because we buy such a wide variety of steel, some are fairly common if you sheets deal for toll storage for example as suppose to somewhat more specialized steel for hand tools. But it is suffices to say we think there is about a half a million dollar increase in cost associated with every 1 percent increase in real cost on raw material.

Okay.

So, I think again that is pre-containment activity

So, pre-containment you are looking at if it is a 10 percent increase you have got a 5 million type cost, if you are able to offset some of that half containment that's about where you stand?

Right and then we do have some usage capability and inventory as supposed to having a spot coalition so I think that outlook as, may be the last point was that affect has been factored into our third and fourth quarter outlook.

Okay, the savings from operational fitness, if I did the math right in the second quarter at roughly 3 million dollars?

That's correct. We are on track to achieve the 40 million dollars reduction that we have talked about earlier in prior conferences.

Okay, and then lastly, are there any cash cost associated with the restructuring activities in the second half?

Yes there was on the order of about 10 to 12 million of cash costs, which were basically a rise from the utilization of reserves that were established for those costs taken last year.

Okay and does that start to tail off now, so that should be another positive flip on the cash flow front?

Yeah, yes for the remaining year there is probably slightly smaller amount stretched out over the whole last two quarters.

Thanks Bill, thanks Dale.

Thanks Mike.

And we will continue on with Jim Lucas, Janney Montgomery Scott.

Thanks a lot good morning.

Good morning.

First question is the house keeping on the balance sheet; your paid in capital was down from year-end by about 27 million, what accounts for that decline?

That's an accounting adjustment that arises because of changes in the Granter stock program. As the market price of the stock goes up and down we have to change the value of the Granter stock trust and that has a corresponding offset in the paid in capital.

Okay, I just wanted to make sure. From a finance income outlook for the second half of the year, do you see the second quarter rate continuing given, if you were to assume a flat interest rate environment?

Well its hard to say given the return if you know Jim on the mixed businesses in the credit company as you know because of the equipments, well, we haven't been funding that side of it nearly as well as we'd hoped. It's been down to double digits for example in that segment. I think from conservatism standpoint I would assume around 8 million-dollar range for the last two quarters. And again a lot of it depends on the shape of this recovery if it continues to bump a long the bottom or we all get lucky and we see a rather significant up .

And if we get some seasonal lift in the fourth quarter you know the dealer business seasonality wise in the fourth quarter is good that would provide some upside potential to that number.

Okay and you gave the third quarter outlook but you didn't comment about the full year. Is that just because of lack of visibility and you're just going to play it very cautious?

Yeah, that's really where we're at again, given the uncertainty, if crashed I would say that I'm still working to achieve the current estimate for the output for today for the full year. But again given the uncertainty in general and in particular to the last 7 days or so it's becoming increasingly difficult to step into anything more bullish than that. So as per our normal practice we are going to stay conservative and maintain that outlook.

Okay, and kind of, just a big picture question here when you entered into the joint venture of the finance side a couple of years ago, part of the plan was to add hopefully some additional financial products to go through the dealer channel and have you been able to realize any of that and what's the outlook for that going forward.

Yes we have Jim I think a couple of things we were trying to do with the JV and one of which you pointed out, the other was to utilize the JV to get us into a world class back off circumstance. We've clearly achieved that and we think we've got one of the best operating groups in the credit area in the country, really. As far as new products we have worked through a lot of new products over the past few years and we've got one currently that's very exciting with our dealers and that's having a great impact called the Platinum program but we've also utilized the credit facility in the second band second franchise area and several other areas across the company. So we're happy on that side, obviously now with the recent public offering on CIP we think it'll be a little more stable circumstance going forward and we're encouraged by those results.

What is the Platinum program?

It's a way for our dealers to have a closer control and decision-making around who we grant credit to, where there's an equal exposure on their part to extending credits to certain individuals. It's been a very effective program to allow our closer to customer decision making on credit decisions

And final question, could you give me an update on the CFO search.

Sure. We are in the interview process, as a matter of fact, well into it, we are moving that along as quickly as we possibly can, but as you could imagine, given the importance of that position to the company, we are making sure that we have the right person. So, we are on schedule as far as our plan, but obviously, we'd like to move it along as quickly as practical.

And I think we all agree that, patience is a virtue in this case.

Well, I think the other side is that we have a very capable staff here, under our control of Blaine Metzger and others in the finance group, I think we should be low concerned in any degree of distress because of the absence.

Okay. Thanks a lot.

Reminder to the phone audience, if you do have a question, please press the star key followed by the digit one. Once again, press the star key followed by the digit one. Our next question comes from David Leiker, Robert.W.Baird

Hi. Good Morning.

Good Morning David.

What I?d like to talk a little bit, in the last quarter, is the inventory reduction and the impact it's having on gross margins under absorption, any way you can quantify that for us?

It's pretty difficult David, given the mix of businessess, So if I had to say, the absorption problems are where you'd expect. With primarily, and the High-End diagnostics and equipment side. I think, there's a lot of clean-up going on out there as you might imagine in the market place. I think we feel pretty comfortable, or proud I guess would say, might be able to maintain the gross margin rate in face of that, and also the inventory adjustments. As you know, we get aggressive on inventory, that, those pressure on margins, and we're doing our best to offset that obviously.

That's all, and there's no way you can.....

Yeah, it's significant that but again you work up with grand total mix of you, it's hard to give you a hard number there.

Okay. The you're 116 year-to-date. what does that bring you to cumulative?

Well, its, I'm trying to take the final numbers, I haven't seen this morning. It's around 4000.

Well, if we achieved about 50 to 60 shy of the total 400 that we were looking for. So we ended up, at this point we're up 9 percent, versus our target of 10 percent.

Would you expect that makes up the balance by the end of the year?

Yes. That's the latest target update we got from the guys, saying that we?ll be, what we want to be by the end of the year. But I think, we're still more than 4000 as we mentioned last quarter. I would say somewhere around 4100 - 4150. Excuse me, I'm sorry to have that number not with me.

4150 Okay.

And just for any new people on the call, when September 11 set in and travel, kind of, disappeared for a lot of people, that's when we, kind of, slipped of the target and we did remind people of back then that we?d probably, lose about our actual quarter in the time line, and I thinks that's about what it looks like. So sometime around, end of the third or the fourth quarter is when we'll hit that target. I can tell you, the training classes are all full and we've got a very active training group right now.

And then on the pension costs If you can get a little bit back on, if you changed your assumptions from where you were at the end of the year and last year you were running on the income side of the swing. Is there some way you can quantify that?

Yeah David. We haven't made any long term changes since the begining of the year and so the outlook that we gave at the end of the year was that it would be roughly something probably on a year-over-year additional expense of about 10 million, which was swinging from 8 million of income to something on the expense side and I think through the first 6 months of the year, we?re hanging in pretty close to that kind of a market. So, we are still in that 10 million annualized run rate, give or take at this stage.

But, doesn't that change from what you have been doing. It is just a comparison year-over-year.

That's correct.

And then lastly, the other expense item and they are being pretty larger in the quarter, realized a little things, but is there anything in particular there?

There was actually some good news, a kind of hidden in there, which is obviously, that is where we take the minority adjustment for Mitchell continues to grow and continues its profitablity success. The offset there, a kind of keeps growing up on foreign exchange with a little bit of swing factor in the quarter. There is also lower interest income that was there and obviously with interest rate being as low as they are , that number is just about down to absolutely nothing at this stage. So, as you have corrected, basically a bunch of little things and I think, given the run rate that we?re at probably an expensive 1 to 2 million pre quarter is probably a more consistent run rate going forward.

What is the minority interest number, the actual number of Mitchell?

I don't have that in front of me to that degree Dave.

Okay.

We will have to do that. That is one thing that we were actually taking a fresh look at and looking at what we do and realizing that it has become more significant. We will probably want to bring some greater visibility to that.

Yeah, then I think that will be great. I'll clean of that line item a little bit.

And we?ll continue on with Speez Borson Capitals

Yes can you talk about the progress on the inventory turns the DUS or receivables and then the commercial industrial, you?ve done a lot of work there. Where would those margins be mid-cycle versus the previous mid-cycle?

On your first question, Fred, the inventory activities are across the entire company. Each individual operating unit has specific goals and targets for inventory. Accounts payable and receivable for the year we visit that monthly on progress and activity. Relevant to the day sales outstanding and the receivables, we are working on that again, we have seen some upward pressure due to the European circumstance. As you may be aware in Europe the terms average much higher than they are in the US, so we?ve been fighting some geographic transports in terms of Europe. As effect to say we are looking at good balance between inventory balance and payables, such that we can maintain paying the south division going forward. So hopefully that?ll answer your questions.

The turn you had as very ambitious goal, which was almost doubling return?

That's right. That's still an effect.

Can you quantify where you are today?

Yeah. We are on target right now, mid way through this year as you know what is a multiyear estimate, what we are looking for, it is four times return by 2005. We saw a nice increase in terms, of less than roughly 2 to 2.15 measured on 12-month rolling average. So, we are largely in good progress, in particular better progress on a 90-day horizon, but again it is a multiyear effort and we are comfortable that we are on the right track.

But your last point on equipment, I am not sure, I understand the industrial commercial division operating margins are low single digit now?

Right.

Mid cycle with all the work you have done can it exceed 10 percent or what's your longer term goal right now?

Our goal is to get all of our operating units to a 10 percent operating profit minimum and I don't think that there is we have seen in that area which structurally prevents us from achieving that over time. Obviously, we will need some help from that markets to get back to what would be a normalized area of business in those markets. We are really into a second, we are actually into our third year now on the recessionary environment in the equipment business and while indications are this is the worst slump we?ve ever seen by many who has been around the business for 30 years in the equipment area. So, allowing to that we are pleased that we are making progress in a very soft market and the new products that we are launching out there has really almost in good stand. We are going to need some help from the markets to be up with the range as I mentioned earlier.

One more allowance with double accounts, do you need adjustments there, I assume it is going up?

We are taking a conservative approach there especially in light of our circumstance which tensed the earlier of the year. Again, I think we are in good shape there, but we are taking the cautions and improved of course.

How much was charged year-to-date during the quarter?

I don't have that data in front of me, let me look here.

That's okay. I can get it later.

Okay. Let us get back to you. I don't have that in front of me right now.

Thank you.

And we will continue with Darren Kimball with Lehman Brothers.

Hi its Roger Freeman. I was wondering if you could give us a little more clarity on the sales comparison in the tools and equipment, what were the biggest swing factors, was it Europe proving more or was it North America you have a pretty strong sales there, for the five quarters

Yeah as we said earlier we are working on a low base, which is helping us to some degree. I think the shape of the improvement is dominated by better European circumstance and the impact of new products on a worldwide basis. Our facilitation business is significant in that mix as well, we?ve done particularly well in expanding the business last year and that?s also a key factor.

How big is the business from a revenue standpoint, can you give a ball park number on that?

Hi Rogers. Yes. If you kind of want to frame it in the size, of roughly kind of a 100-million dollar business give or take, that's kind of a reasonable size.

And that's up what from a year ago.

That would be on the range of mid single digits.

Okay. All right. Thank you.

Let me respond to the question that Fred had asked earlier regarding the size of what we were doing in terms of expenses for loan losses suffered? We had something a little over 2 million for the Penske adjustment back in the first quarter and if you look at the first 6 months of this year, we are up about 6 million dollars year-over-year. So inside of our numbers there is higher expenses of 6 million including Penske. Sorry to interrupt there, but do you have any follow on?

Now we will continue on with David Leiker of Robert W Baird for followup question.

The finance income number on a going forward basis, I mean, where do you think that number runs?

Yeah again I think a resonable number would be 8 to 9, David, again depending on the seasonal adjustment in the fourth quarter.

Okay. I know that. That's running higher than where you were before. Are you just referring or are you more successful in referring people? CIT or what's it?

I think we are seeing a combination of things. One is the more speed on the street impact, more dealers out there and more business being done and I think risks and benefits from the interest rate environment.

Okay. I guess this is an origination business how is the interest rate environment helping up?

Well, I got to, I am just taking the overall, the affordability and that is what I am talking about.

Okay. I understand now.

Right, if that's the net number that is the profit.

I understand. Can you give us any sense of the sales number that you are looking forward Q3? There?s a seasonal decline there normally but would you expect to see your year-over-year gain comparable for Q2?

Yeah. but we would, but no not on the order or magnitude of the second quarter. Its very tough to put a number out of it. I would say be much more modest compared to the second quarter.

But it would be, positive year-over-year?

We believe so. Again, the uncertainity in the economy is going to be very difficult. We are not projecting again a big number at this time, again not to be repetitive, but the European situations in particulars, you may know.

Yeah.

We basically have one month to determine the quarter and given the uncertainity and expense in the European markets these days it is made a difficult situation, even more so. So we have taken, we had a cautious support and looking for a very flattish third quarter.

Okay and lastly with relation to what we?ve been modeling we?re looking for another 60 million in cash or debt reduction or generation of cash in the second half. Does that number is it in the pipeline.

That number is a little high, again given the uncertainty in some of the moves we?re making.

Okay, great thank you.

We have an additional follow up question from Fred Speez, Speez Borson Capital

Yes, the dealer, the dealers you have a 116 new and you told us at one time they sort of hit stride 9 months and can you tell us were the group is in that sense and also in 2003 how much training expense won't occur, how much the training expense go down because of this ageing.

Related to your first question, I assuming your point of 116 we have added year-to-date

Yes sir.

It is very tough to give you an overall perspective because they come in over the course of the quarter they do not come in all at the end of the quarter or beginning of the quarter. But it will be tough for me to, to kind of conceptualize except to take some estimate of a 25 percent, 25-25 if you will.

Sure, sure.

I think what we are seeing here in the second quarter is the benefit of last years actions and we are starting to see very close dealers come up to that productivity curve as you mentioned before. So it is, it is a, we still agree on the 6 to 9 month delay if you look at the productivity hits from the benefit of last years reduction. Our increase is rather and we think we can handle it for the rest of the year.

Suppose at some point out there you are going to get productivity going up and training going down there should be some significant leverage there.

Yeah, I think the training is going to be continuous. I would not forecast how far in the training area, I think that is one area that we believe in very strongly and there is some as such we believe can be had across the entire group if we continue our training regiment. So I would not expect to fall back on that position

Lastly, the Harley Davidson brand is that gaining traction as well.

Yes, we have been very happy with the response, we had a fathers day group of products that was launched that sold very well and we are continuing discussions with Sears right now on the future of the Harley .

Great, Thank you.

Let me add one additional perspective just for clarification regarding the more feet on the street, while we had set our target at what we hoped to get to here through this year that program will be an ongoing program on into 2003 and beyond. So to the point that Fred just raised about training expenses, one of the reasons those will be ongoing is, we are going to be continuing to refresh the dealer base to fill in open rows and as the dynamics of the market place we are extremely pleased with, with the benefit that having second bands and second franchises available does for the overall dealer base and the feedback we get back from the street and from the national dealer advisory council is clearly that we are on the right race on the right road to success. We are helping our dealer base become more success full and I think the feedback is you know, again the feeling on the street is, is their just thrilled to be part of the Snap-on family. Any, next question.

And there appears there are no further questions at this time. I will turn the conference back over to Mr. Pfund for any additional or closing remarks.

Thank you very much for joining the call. We have hoped we have addressed to your questions and if anybody has any follow up I will be around my office all day. Thank you very much.

And that concludes today's conference call. On behalf of Snap-on Incorporated and Premier conferencing we thank you for your participation and wish you a wonderful day.