Good day ladies and gentlemen and welcome to the Snap-on Incorporated 2008 Fourth Quarter and Full Year Results Conference Call. At this time all participants are in a listen-only mode. At the conclusion of our remarks we will conduct a question-and-answer session. (Operator Instructions) As a reminder, today's call is being recorded. I would now like to introduce your host for today's conference, Mr. Marty Ellen, Chief Financial Officer, you may begin sir.

Thank you, Ms. Dean and good morning everyone. Thank you for joining us today to review Snap-on's fourth quarter 2008 results. By now you should have seen our press release issue this morning. Snap-on reported record earnings for the fourth quarter and the full year. That said, economic headwinds clearly increased during the fourth quarter. And as we enter into 2009, business conditions are clearly more challenging than we anticipated 90 days ago. We believe our businesses are reasonably well positioned to weather these challenges and that continued execution of our core business strategies and value added processes will continue to strengthen Snap-on over the long term. Joining me is Nick Pinchuk, Snap-on's President and CEO. Nick will kick off our call this morning with his perspective on our performance. I will then provide a more detailed review of our financial results and afterwards we will take your questions. Consistent with past practice, we will use slides to help illustrate our discussion. You can find the copy of these slides on our website next to the audio icon for this call. These slides will be archived on our website along with a transcript of today's call. Any statements made during this call relative to management's expectations, estimates or beliefs, or otherwise state management's or the company's outlook, plans or projections are forward-looking statements and actual results may differ materially from those made in such statements. Additional information and the factors that could cause our results to differ materially from those in the forward-looking statements are contained in our SEC filings. This call is copyrighted material by Snap-on Incorporated. It is intended solely for the purpose of this audience. Therefore, it cannot be recorded, transcribed or rebroadcast by any means without Snap-on's expressed permission. With that said, I will now turn the call over to Nick. Nick?

Thanks, Marty. Good morning, everybody. Speaking on the fourth quarter, I would say that we are encouraged by the performance, especially given the macroeconomic challenges of what I would call these very interesting times. I think I've said before that Snap-on is not immune to the difficulties of today. But, we believe that our business models are quite strong and when they are matched with our capable processes, the result is an operation which is resilient, which is positioned well and which can limit the impact of a difficult environment and which can emerge from the difficulties with an expanded strategic advantage. And I think we're seeing play out here. I'll highlight some of that as we review the fourth quarter performance. Speaking of fourth quarter, sales were down 10.1%, more than half of that decline was from currency translation resulting from the stronger U.S. dollar, and that change is pretty rapid, it was rapid in fact, primarily in the fourth quarter and with more than 40% of our sales outside the U.S., the impact on Snap-on was significant. Excluding currencies, the volume was still down, about 4.5%, I think the exact number is 4.4%. But despite lower sales, operating margins reached 14.2%, our brand positions, our product innovations and the improved processes embedded in the Snap-on way of creating value, all contributed to those profitability gains. And based on that, the earnings per share reached to $1.01, up from $0.98 in the fourth quarter of 2007. For the full year, sales were over $2.8 billion, that's an increase that's flat, it's an increase of less than 1%. But operating margin was 13.2%, up 200 basis points from the 11.2 reported last year. And that corresponded to about 20% increase in operating income. EPS for the year reached $4.07, up…

Thanks Nick. I will begin on slide six, Net sales of $668 million declined 10.1% from last year. However, excluding currency translation, sales were down 4.4%. The U.S. dollar rapidly strengthened during the fourth quarter against our key currencies, while strengthened by only 3% against the euro, the dollar strengthened against the pound, the Canadian dollar and Australian dollar by 15% or more just in September. In the balance of my remarks, any references to percentage changes in sales will be on a currency neutral basis. Looking at sales performance geographically, in the United States, sales declined 1%, with sales in our U.S. franchisee business down 5%. This business comprised 27% of this quarter's global sales. Sales in our U.S. industrial business, however, grew significantly double-digit, up 14.5% in the quarter. The declining economic conditions in Western Europe contributed to our 11% sales decline in this geography. Western Europe comprised about 25% of this quarter's global sales. Sales in our European tools and under-car equipment businesses faced increasing headwinds due to the slowing European economies. In our equipment business which sells more expensive capital equipments was again conflicted with the challenges of the economic slow-down as well as tight credit conditions. Consolidated gross profit of $300 million in the quarter was down $33.4 million, the reported gross profit margin of 44.9% was flat with last year. However, if we strip out the effects of LIFO inventory valuation which produced a $6 million gain last year, versus $300,000 of expense this year, gross margins on a FIFO basis improved to 45% this year, compared to 44.1% last year. This 90 basis point improvement resulted primarily from a combination of higher pricing, improved productivity and cost savings from RCI and lower year-over-year restructuring. These improvements were partially offset by $9.5 million of…

Thanks, Marty. Clearly, the economic challenges have increased. They appear to be spreading geographically and reaching more industries. I believe we said in the press release that as a result of the macroeconomic conditions and the financial headwinds of pensions and foreign exchange. We expect earnings to be down from last year in the first quarter, probably not a surprise. But we do enter 2009 in full throttle against those difficulties. Our RCI initiatives enabled us to offset rampant rises in commodity cost last year, and we see more opportunity for improvements in 2009. We are confident in the strength of those processes. We are confident that they can help us to limit the impact of the environment. So, we do see challenges going forward, but we also see opportunity, opportunity for strategic progress, just as we've made in recent quarters. So in 2009 we'll continue to maintain and strengthen our dealer network. And we believe gain share with technicians. We'll continue to role the Snap-on brand out of the garage, reaching more new customers and critical industries. We'll use our imaging technology and electronic parts catalogs and diagnostic products to gain share in automotive repair garages around the world. We'll become stronger in emerging market of the Asia Pacific and Eastern Europe. And I think most importantly, we're going to continue to build our innovation capabilities, because we've learned that that sells in any market. So going forward, we know we have challenges, but we also believe that our extraordinary business models, our brands and our capable processes will allow us to strike an effective balance. A balance between the long and short-term and allow us to emerge from these difficulties with an even stronger operation and stronger strategic positions than we enjoy today. Now I will turn the call over to the operator. Operator?

Thank you. (Operator Instructions). We will take our first question from David Leiker. Please go ahead sir.

This is actually Keith on the line for David. I just wanted to set off by diving into the CapEx number. If you do decide to eventually dial back on some of the things that you identified, I mean how much could that number fall versus the $75 million to $80 million guidance?

Keith, this number could fall in $20 million to $30 million range.

Right. But we're not considering dialing back at this point. I want to emphasize that.

Okay. And can you just elaborate some more on some of the expenses in China and Eastern Europe that are driving the year-over-year increase?

Yes. Keith in, let's just start in the quarter, we spent about $25 million and if you look at our growth investments, as I said in Belarus and Kunshan, they alone were $6 million to $7 million of the $25 million and that was somewhat accelerated from our original plan. The balance we've got still manufacturing improvements and capacity expansions going on in other plan, both in Europe and the U.S and those were another $4 million to $5 million in the quarter and then of course, you've got a base level of normal maintenance CapEx.

Okay. If we look at the SG&A or the operating expenses line, at a pretty sizeable year-over-year decline in the fourth quarter. Obviously, the portion of that that's related to currencies and always going to be at the same magnitude and we are not going to get the contingency adjustment again. But is there any reason to believe that sort of base pace of decline can't continue or accelerate through 2009?

No, I mean, you said the word decline. We'll continue to remind you that, again our business model as we've sort of marched towards the mid single digit operating profitability target for the entire corporation, always included a structure that had us at mid 40s gross margin, about where we are and a lower 30s SG&A which is wherein recent periods, we've been making the improvements and we are going to continue to try to hold to that, even though the top line is going to be more challenged.

Okay.

I think what we've said is. This is Nick, Keith, this is Nick Pinchuk.

Yes.

I think, if you look at our results over the past several years, I don't think, I don't want to tie it to any percentage decrease, because that's associated with where the sales goes of course and that impacts somewhat. But we've been able to drive down our SG&A cost pretty effectively from quarter-to-quarter to quarter, because we believe strongly in the rapid continuous improvement process. And as I said on calls before, one of the great things about Snap-on is, it's a strong company. But everywhere Marty and I go, we see things that can be improved. Even today, after we've taken quite a few points out of SG&A. So, we see opportunity in the next quarter and for the foreseeable future in that line.

Okay. And if we look at just the year-over-year contribution margin across the businesses, and again we normalize for restructuring in the LIFO variances year-over-year. Was there anything in the quarter that was unusual or can you quantify the impacts on the manufacturing slowdowns?

Keith, our best estimate looks to be about $5 million of additional cost in the quarter due to production slowdowns.

Okay.

Obviously, you know our business, and as you think about modeling going forward, obviously the margin contribution, the variable contribution affects really depend on the business unit, because obviously they have different margins structures.

Okay.

You see a lot of different things occur. This is Nick again. You see a quite a few different things across the businesses. Big ticket items are down substantially, tool storage boxes are down almost 30%. However, I'd like to point out that just recently in the journal, they talked about, there was a article about sole revival, about the shoemakers having a boom. And at the same time the shoemakers in repairing shoes are having a boom, new shoe companies are lying off people. We're in automotive repair and our hand tools that are supporting that basic automotive repair are doing pretty well. They're pretty much flat year-over-year, even in the fourth quarter. It's the big ticket items that are hurting us. So when talk about production and absorption impacts, it's relatively complex question for us here.

Okay. And then if we just look across each of the three business units, how are the things trended so far in January, versus sort of the reported numbers that we saw, organic growth numbers that we saw in the fourth quarter?

Well, the January numbers are about consistent with December actually, in terms of sales on an overall basis. Now December was a little squeezed, compared to the overall fourth quarter, but we didn't see a dramatic drop-off in volume in January. However, I'll hasten to say that for Snap-on January is a very narrow month historically. So we never make judgments based on January, positive or negative.

That's great. Thank you very much.

Thanks Keith.

And we'll take our next question from Seaver Wang with Utendahl Capital.

Hi, good morning.

Good morning.

Hi. You said on the call, I think Nick, that you got... you encouraged franchisees to lower inventory that was proved and prudent? So, is there... I guess what would be the catalyst for them to try to have their inventory back at regular levels, just to being more comfortable with the outlook of the environment or, I mean what would be that?

I think so I said, I think that the situation here of course the U.S. sales are down 5%. We would like to see them, see a little more comfortable on that situation. I think they are sitting like any independent businessman and saying, we believe in our business model. They're feeling instinctively the same the Wall Street Journal is reporting with the shoemaker repair. That repair keeps going on. We are not in automotive manufacturing, we're in repair. But they get up every morning and eat bad news for breakfast when they see CNN and they start worrying about things. So they try to reduce, there not a little bit, because they worry that perhaps it could worse. And so, I think what we'll is when people believe, when generally, when I say people, I think the environment as the recession has bottomed out. We have measured the bottom and we now feel confident, we can start to build our inventories back up. I think that will be the signal point.

And you can tell us, some of the magnitude was down maybe 10%, did you have a suggestion of 10% or 20% or and an idea of what they reduce their inventories by?

I think, it's probably I'd say, you can say between somewhere approaching $10 million.

Okay. Alright and then just a quick question on acquisitions, your CapEx kind of keeping that mid $70 million to $80 million level and I guess if nothing changes, the acquisition strategy is still the same or do you think the activity will increase?

Well, I think it's still the same. We remain alert for opportunities in critical areas where we think there might be acquisitions available that would further our strategic intent. In places like critical industries, in places like the automotive repair garage, in emerging markets things like that I think, I said it in my call. I actually, of course we're concerned and we are vigilant about the balance. But we see this situation as; in this situation we still see opportunities for share gain and perhaps the acquisition. I am not saying we're going to go on an acquisition binge, but we haven't changed our profile.

Okay. Thank you.

Seaver, if it's more than this area (ph), CapEx as well because our guidance is $75 million to $80 million which is larger than we historically run at. Because we are building this facility in Ohio for business solution, that project get completes in '09, Had it not been for that project, our guidance probably would have be under $65 million, may be $70 million range. So, it's really a one-time expenditure and it completes in 2009.

Okay. Thank you.

(Operator Instructions) And we'll take our next question from Sarah Hunt with Alpine.

Hi, good morning. Gentlemen.

Hey, Sarah.

My question is more of a larger one. Instead of given what's going on in the macro world and the political world and how much outsourcing you as well as a lot of other folks have done. If we start to get some trade legislation that looks like, we've got U.S. content laws or something along those lines, what it that due to the basic philosophy of outsourcing in lower cost countries, is that something that you guys have been talking about yet or is that just something we're hoping doesn't happen?

Well, No. I think; look I think there aren't many companies. There aren't many manufacturing companies today in industries like ours that are sourcing as much in the United States. So I believe, if they pass legislation that requires U.S. sourcing, we'll be advantaged. Not disadvantaged. That doesn't mean we are not alert for... from a microeconomic sense, opportunities to outsource in Asia and so on. But Snap-on product, Snap-on brand is still by and large sourced in United States.

Okay.

So I'd say we are among the most foremost in that situation. So bring it on.

Okay. Thank you.

Sure.

And with no further questions in queue, I'd like to turn it back over to Mr. Ellen for additional comments and closing remarks.

Thank you Ms. Dean and thank you everyone for joining us this morning and thank you for your interest in Snap-on. Good day.

This concludes today's conference. Thank you for joining us and have a wonderful day.