SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
_______________________
Date of Report
(Date of earliest
event reported): September 26, 1995
Snap-on Incorporated
(Exact name of registrant as specified in its charter)
Delaware 1-7724 39-0622040
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
2801-80th Street, Kenosha, Wisconsin 53141-1410
(Address of principal executive offices, including zip code)
(414) 656-5200
(Registrant's telephone number)
Item 5. Other Events.
Snap-on Incorporated (the "Corporation") has made previous
disclosures with respect to a guarantee of certain lease obligations in
Note 12 of Notes to Consolidated Financial Statements in the Corporation's
1994 Annual Report on Form 10-K, Note 5 of Notes to Consolidated Unaudited
Financial Statements in the Corporation's Quarterly Report on Form 10-Q
for the period ended April 1, 1995 and Note 6 of Notes to Consolidated
Financial Statements in the Corporation's Quarterly Report on Form 10-Q
for the period ended July 1, 1995. The following summarizes and updates
the prior disclosure:
Prior to the disposition of Systems Control, Inc. by a subsidiary
of the Corporation on September 29, 1994, Systems Control Inc.'s single-
purpose subsidiaries, Tejas Testing Technology One, L.C. and Tejas Testing
Technology Two, L.C. (the "Tejas Companies"), entered into two seven-year
contracts with the Texas Natural Resources Conservation Commission, an
agency of the State of Texas ("TNRCC"), to perform automotive emissions
testing in the Dallas/Fort Worth and Southeast regions of Texas in a
centralized manner in accordance with the federal Environmental Protection
Agency ("EPA") guidelines relating to "I/M 240" test-only facilities. The
Corporation guaranteed payment (the "Guaranty") of the Tejas Companies'
obligations under an Agreement for Lease and a seven year Lease Agreement,
each dated June 22, 1994, in the amount of approximately $98.8 million
plus an interest factor (the "Lease Obligations"), pursuant to which the
Tejas Companies leased the facilities (and associated testing equipment)
necessary to perform the emission testing contracts. The Guaranty was
assigned to the lessor's lenders (the "Lenders") as collateral.
On February 1, 1995, the State of Texas suspended the centralized
emissions testing program described in the emissions testing contracts.
On May 1, 1995, the State of Texas enacted legislation that terminated the
centralized testing program and directed the Governor of the State of
Texas to implement a new program after negotiations with the EPA. On
September 12, 1995, the Tejas Companies filed bankruptcy petitions under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court
for the Western District of Texas (Austin Division).
The Corporation and the Lenders have been engaged in continuing
discussions concerning this matter, and the Lenders have not exercised
their rights under the terms of the Guaranty to cause the Corporation to
pay all Lease Obligations to the Lenders on an accelerated basis.
Further, the Corporation has reached an agreement whereby the Lenders will
forebear from accelerating the Lease Obligations until at least December
31, 1995. The Corporation has been making monthly payments on the Lease
Obligations since May 1995 and has paid approximately $8.8 million to
date. It is expected that these payments will total approximately $14
million through December 31, 1995.
The Corporation believes it is probable that there will be
developments, prior to December 31, 1995, to enable the Tejas Companies to
have the ability to ultimately satisfy the Lease Obligations. One
potential basis for such a development arises under the original contracts
to perform centralized emissions testing. Those contracts obligate the
TNRCC to purchase the Tejas Companies' testing facilities or to reimburse
costs that the Tejas Companies incurred in the construction and
implementation of the centralized testing program and have not recovered
through the sale of the testing facilities to a third party. However,
fulfillment of the TNRCC's purchase or reimbursement obligation requires
an appropriation of funds by the Texas Legislature. The TNRCC is
contractually obligated to seek such appropriation. A second potential
basis is that the TNRCC's obligation could be satisfied in whole or in
part in various other ways including (i) an arrangement negotiated among
the State of Texas, the Tejas Companies and the Corporation under which,
for example, State agencies would use the testing facilities and/or some
or all of the facilities would be used in a new emissions testing program
developed in accordance with the May legislation or (ii) issuance of bonds
to purchase the testing facilities (which would also require legislative
action). Whether or not the new emissions testing program to be created
by the Governor will include substantial use of the testing facilities is
currently unknown and depends, among other things, on negotiations between
the EPA and the State of Texas concerning the manner in which the new
program will satisfy federal requirements, EPA policies that have
reflected a strong preference for test-only testing facilities and
potential federal legislation that may impact those policies. The
Corporation is discussing with the Tejas Companies and Texas officials the
potential involvement of the Tejas Companies in a new emissions testing
program and the various ways for the TNRCC to fulfill its obligations
under the emissions testing contracts.
If the Lenders exercise acceleration rights or the Corporation
determines it is probable they will do so, then the remaining Lease
Obligations will be treated as a liability of the Corporation until they
are discharged. However, in such event, the Corporation believes there
are ways by which it will have the opportunity to recover funds it
delivers under the Guaranty. Two ways are those described above by which
the Tejas Companies may receive funds to enable them to discharge the
Lease Obligations, pursuant to which the Corporation, rather than the
Lenders, would benefit to the extent the Corporation satisfied the Lease
Obligations. In addition, if the Corporation must satisfy the Lease
Obligations and the TNRCC does not purchase the test facilities, reimburse
costs or otherwise honor its contractual obligations, then the value of
the testing facilities and equipment accrues to the Corporation.
Accordingly, the Corporation has not established any liability on
its balance sheet in respect of its obligations under the Guaranty. Based
upon discussions with Texas officials and management's belief that the
State of Texas will take sufficient action favorable to the Corporation
(by implementing a program that makes sufficient use of the testing
facilities, appropriating funds to enable the TNRCC to fulfill its
contractual obligations or otherwise) to enable the State of Texas to
honor in all material respects the TNRCC's contractual obligations, it is
management's opinion that the Guaranty (and a related Capital Subscription
Agreement that relates to the same obligation) is not likely to have a
material adverse effect on the Corporation's financial condition or
results of operations.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SNAP-ON INCORPORATED
Date: September 26, 1995 By: /s/ Donald S. Huml
Donald S. Huml
Senior Vice President - Finance and
Chief Financial Officer