UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
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Date of Report
(Date of earliest
event reported): January 3, 1999
Snap-on Incorporated
(Exact name of registrant as specified in its charter)
Delaware 1-7724 39-0622040
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(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
10801 Corporate Drive, Kenosha, WI 53141-1430
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(Address of principal executive offices including zip code)
(414) 656-5200
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(Registrant's telephone number)
Item 2. Acquisition or Disposition of Assets.
On January 3, 1999, Snap-on Incorporated (the "Company") established a
joint venture with Newcourt Financial USA Inc. ("Newcourt") to provide financial
services to the Company's global dealer and customer network through a limited
liability company known as Snap-on Credit LLC (the "LLC"). As a result of the
establishment of the joint venture, the Company effectively outsourced to the
LLC its captive credit function. The captive credit function was previously
managed by the Company's wholly-owned subsidiary, Snap-on Credit Corporation.
The LLC will be the preferred provider of financial services to the Company's
global dealer and customer network. The Company will receive income from fees
paid by the LLC. The fees will be based primarily upon the volume of installment
receivables originated by the LLC. Newcourt will provide services and expertise
to the LLC with a view to increasing originations by the LLC. Newcourt will be
paid a fee by the LLC for such services. The management fees paid to Newcourt
will also be based primarily on the volume of installment receivables originated
by the LLC. Newcourt receives warehousing and securitization fees from the LLC
in connection with the purchased receivables.
The Company established the LLC with office equipment, prepaid assets
and cash having a combined book value of $1 million. Following the establishment
of Snap-on Credit LLC, Newcourt contributed to the LLC cash in the amount of $1
million. The Company and Newcourt each own, indirectly, a 50% membership
interest in the LLC. The amount of Newcourt's investment was negotiated on an
arm's-length basis. The LLC is governed by the terms of an Agreement Respecting
a Limited Liability Company dated December 1, 1998, and an Amended and Restated
Operating Agreement dated January 3, 1999 ("Operating Agreement").
The joint venture has an initial term of five years subject to
extension at the option of the Company for an additional five years. If the
joint venture is terminated prior January 3, 2009, as a result of certain events
("default events"), or if the joint venture is terminated after that date, then
the Company will have the option to purchase Newcourt's interest in the LLC at a
price based on Newcourt's capital investment. If the joint venture terminates
prior to January 3, 2009, other than as the result of a default event, then the
Company will purchase Newcourt's membership interest in the joint venture at an
agreed formula price as defined in the Operating Agreement.
The LLC has entered into various service agreements and royalty
agreements pursuant to which the LLC has the right to use the Snap-on name, to
purchase receivables from the Company and Snap-on dealers, and to receive
certain management and other services from Newcourt and the Company. The LLC has
entered into agreements with Newcourt pursuant to which Newcourt has committed
to purchase, on a regular basis, all installment receivables purchased by the
LLC from the Company and its dealers. Newcourt has engaged the LLC to service
receivables on behalf of Newcourt. The management and employees of Snap-on
Credit Corporation and select employees of Newcourt will act as managers and
employees of the LLC. The LLC will operate from regional service centers
previously operated in Company facilities by Snap-on Credit Corporation. The LLC
will enter into a Lease Agreement to establish a headquarters facility in
Gurnee, Illinois.
On January 4, 1999, in a separate transaction, another subsidiary of
the Company, Snap-on Financial Services, Inc. ("SFS"), sold to Newcourt its
entire portfolio of U.S. installment accounts receivable, including existing
extended customer accounts receivable, equipment lease receivables and dealer
loan receivables, for an aggregate sale price of $141.1 million resulting in a
net pretax gain of approximately $44.0 million of which approximately $17.0
million is deferred. These amounts are estimated and may be subject to
adjustment following review and verification of the portfolio. SFS sold the
existing portfolio of extended customer accounts receivable "with recourse" as
2
Newcourt has the right to cause SFS to repurchase, using the same pricing
formula applicable in the sale to Newcourt, the unpaid portion of this
portfolio.
Item 7. Financial Statements and Exhibits.
(b) Pro forma information.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The transaction that is the subject of this report is described in Item
2. The following Unaudited Pro Forma Condensed Consolidated Statements reflect
the effects of (i) the disposition of the Company's captive credit function,
(ii) the sale by the Company of existing extended customer accounts receivable,
equipment lease receivables, and dealer loan receivables to Newcourt, and (iii)
the acquisition of an equity position in a new joint venture established for the
origination and servicing of installment receivables to finance sales by the
Company. The effect of the execution and delivery by the Company of the
Operating Agreement and various service and royalty agreements and the payment
by the LLC of management and other fees pursuant to those agreements is not
reflected in the pro forma statements. The Unaudited Pro Forma Condensed
Consolidated Balance Sheet assumes that the disposition, sale and establishment
occurred on October 3, 1998 and the Unaudited Pro Forma Condensed Consolidated
Statements of Earnings assume that the disposition, sale and establishment
occurred on December 29, 1996.
The Unaudited Pro Forma Condensed Consolidated Statement of Earnings
for the year ended January 3, 1998 reflects the audited income statement of the
Company for the year ended January 3, 1998, and the effects described above on
the historical results of operations as set forth in the notes thereto.
The Unaudited Pro Forma Condensed Consolidated Statement of Earnings
for the period ended October 3, 1998 reflects the unaudited income statement of
the Company for the period ended October 3, 1998, and the effects described
above on the historical results of operations as set forth in the notes thereto.
The Pro Forma Unaudited Condensed Consolidated Balance Sheet at October
3, 1998 reflects the unaudited balance sheet of the Company at October 3, 1998,
and the effects described above on the historical financial position as set
forth in the notes thereto.
The pro forma financial information is a presentation of historical
results with pro forma accounting and other adjustments to reflect the effects
described.
THE PRO FORMA STATEMENTS ARE UNAUDITED, ARE PROVIDED FOR INFORMATIONAL
PURPOSES ONLY AND SHOULD NOT BE CONSTRUED TO BE INDICATIVE OF THE COMPANY'S
FINANCIAL POSITION OR RESULTS OF OPERATIONS HAD THE TRANSACTIONS BEEN
CONSUMMATED ON THE DATES ASSUMED AND DO NOT PROJECT THE COMPANY'S RESULTS OF
OPERATIONS FOR ANY FUTURE PERIOD.
3
SNAP-ON INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Amounts in Thousands)
Historical
Oct. 3 1998 Adjustments Pro Forma
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ASSETS
Cash and cash equivalents $ 13,470 $ (745) (5) $ 12,725
Accounts receivable less allowances 507,784 (79,212) (6) 428,572
Inventories 420,512 0 420,512
Prepaid expenses and other assets 127,180 6,078 (5) (7) 133,258
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Total current assets 1,068,946 (73,879) 995,067
Property and equipment - net 272,391 (91) (5) 272,300
Deferred income tax benefits 67,082 0 67,082
Intangible and other assets 262,928 (16,576) (5) (6) 246,352
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TOTAL ASSETS $ 1,671,347 $ (90,546) $ 1,580,801
============ ========= ===========
LIABILITIES
Accounts payable $ 85,240 $ 0 $ 85,240
Notes payable 61,988 (39,820) (8) 22,168
Accrued compensation 39,897 0 39,897
Dealer deposits 38,495 0 38,495
Accrued income taxes 20,816 16,387 (7) 37,203
Deferred subscription revenue 31,668 0 31,668
Other accrued liabilities 161,882 16,870 (7) 178,752
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Total current liabilities 439,986 (6,563) 433,423
Long-term debt 246,096 (101,256) (8) 144,840
Deferred subscription revenue 12,249 0 12,249
Other accrued liabilities 88,800 0 88,800
Pension and other long-term liabilities 111,577 0 111,577
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TOTAL LIABILITIES $ 898,708 $ (107,819) $ 790,889
=========== ========= ===========
SHAREHOLDERS' EQUITY
Common stock - $1 par value 66,675 0 66,675
Additional paid in capital 89,708 0 89,708
Retained earnings 883,523 17,273 (7) 900,796
Foreign currency translation adjustment (26,054) 0 (26,054)
Employee benefits trust at fair
market value (218,428) 0 (218,428)
Treasury stock at cost (22,785) 0 (22,785)
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TOTAL SHAREHOLDERS' EQUITY $ 772,639 $ 17,273 $ 789,912
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TOTAL LIABILITIES & SHAREHOLDERS'
EQUITY $ 1,671,347 $ (90,546) $ 1,580,801
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4
SNAP-ON INCORPORATED
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
Nine Months Ended October 3, 1998
(Amounts in Thousands)
Historical
Nine Months Ended Adjustments Pro Forma
Net sales $ 1,295,877 $ - $ 1,295,877
Cost of goods sold 677,554 677,554
Cost of goods sole - discontinued
products 50,562 - 50,562
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Gross profit 567,761 567,761
Operating expenses 525,346 (5,631) (1) 519,715
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Operating profit (loss) 42,415 5,631 48,046
Net finance income 47,529 (37,030) (2) 10,499
Restructuring and other non-
recurring charges (82,559) - (82,559)
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Operating income (loss) 7,385 (31,399) (24,014)
Interest expense (15,365) 6,211 (3) (9,154)
Other income (expense) - net (1,624) - (1,624)
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Earnings (loss) before income taxes (9,604) (25,188) (34,792)
Income tax provision (benefit) 7,806 (9,320) (4) (1,514)
Net earnings (loss) $ (17,410) $ (15,868) $ (33,278)
============ ========== ============
Earnings (loss) per weighted average $ (0.29) $ (0.27) $ (0.56)
common share - basic
Earnings (loss) per weighted average $ (0.29) $ (0.27) $ (0.56)
common share - diluted
Weighted average common shares 59,359 59,359 59,359
outstanding - basic
Effect of dilutive options 0 0 0
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Weighted average common shares
outstanding - diluted 59,359 59,359 59,359
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5
SNAP-ON INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
Fiscal 1997
(Amounts in Thousands)
Historical
1997 Adjustments Pro Forma
Net sales $ 1,672,215 $ - $ 1,672,215
Cost of goods sold
828,387 - 828,387
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Gross profit 843,828 843,828
Operating expenses 650,182 (5,731) (1) 644,451
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Operating profit before net
finance income 193,646 5,731 199,377
Net finance income 71,891 (58,065) (2) 13,826
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Operating income 265,537 (52,334) 213,203
Interest expense (17,654) 8,281 (3) (9,373)
Other income (expense) - net (9,207) - (9,207)
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Earnings before income taxes 238,676 (44,053) 194,623
Income taxes 88,310 (16,300) (4) 72,010
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Net earnings $ 150,366 $ (27,753) $ 122,613
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Earnings per weighted average
common share - basic $ 2.47 $ (0.46) $ 2.01
Earnings per weighted average
common share - diluted $ 2.44 $ (0.45) $ 1.99
Weighted average common shares
outstanding - basic 60,845,467 60,845,467 60,845,467
Common stock equivalents 840,841 840,841 840,841
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Weighted average common shares
outstanding - diluted 61,686,308 61,686,308 61,686,308
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6
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
The following two items are not reflected in the unaudited pro forma condensed
consolidated statements of earnings:
* Fees from contractual arrangements with the new joint venture for
origination of installment receivables. Based on historic origination
volume at the contractual rate, Snap-on would have earned approximately
$19.1 million and approximately $15.4 million of fees for Fiscal 1997
and the nine months ended October 3, 1998, respectively.
* A pretax gain of approximately $44.0 million on the sale of the
receivables, of which approximately $17.0 million is deferred.
The following notes identify the pro forma adjustments made to the historical
amounts in the pro forma unaudited condensed consolidated financial statements
for Fiscal 1997 and as of and for the nine months ended October 3, 1998.
1. Represents the elimination of credit losses allocated to operating expenses
due to the disposition of installment receivables.
2. Represents the elimination of finance income net of related operating
expenses (salaries, credit loss expense etc.) due to the disposition of the
Company's captive credit function.
3. Represents a reduction of historical interest expense from the assumed
application of the proceeds of $141.1 million from the sale of receivables to
reduce outstanding debt.
4. Represents the income tax effects of the pro forma adjustments. The Company's
pro forma income tax rate is 37% for the year ended January 3, 1998 and 37% for
the nine months ended October 3, 1998.
5. Represents the Company's $1 million investment in the joint venture.
6. Represents the elimination of receivables due to the sale of the extended
customer accounts receivable, equipment lease receivables, and dealer loan
receivables ($79.2 million) and the elimination of the related long-term assets
($17.6 million).
7. Represents the gain of approximately $44.0 million on the sale of the
extended customer accounts receivable, equipment lease receivables, and dealer
loan receivables to Newcourt, net of income taxes. Approximately 17.0 million of
the gain is deferred until certain put rights of Newcourt expire.
8. Represents a reduction of both long and short term debt from the assumed use
of the proceeds from the sale of the extended customer accounts receivable,
equipment lease receivables, and dealer loan receivables to Newcourt.
(c) Exhibits.
The exhibits listed in the accompanying Exhibit Index are filed as part
of this Current Report on Form 8-K.
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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 hereunto duly authorized.
SNAP-ON INCORPORATED
Date: January 3, 1999 By:/s/Susan F. Marrinan
Susan F. Marrinan
Vice President, Secretary and
General Counsel
SNAP-ON INCORPORATED
EXHIBIT INDEX TO FORM 8-K
Report Dated January 4, 1999
Exhibit
No. Description
2.1*+ Agreement Respecting a Limited Liability Company Dated as of December
1, 1998, between Snap-on Incorporated and Newcourt Financial USA Inc.
2.2*+ Amended and Restated Operating Agreement dated January 3, 1999, between
SCL Holding Company and Snap-on Capital Corp.
2.3* Addendum To Amended And Restated Operating Agreement dated January 3,
1999, between SCL Holding Company and Snap-on Capital Corp.
2.4*+ License and Royalty Agreement dated January 3, 1999, between Snap-on
Financial Services, Inc., and Snap-on Credit LLC
2.5*+ Newcourt Management Services Agreement dated January 3, 1999, between
Newcourt Financial USA Inc., and Snap-on Credit LLC
2.6*+ Snap-on Management Services Agreement dated January 3, 1999, between
Snap-on Credit LLC and Snap-on Incorporated
- --------
* Portions of this exhibit have been redacted and are subject to a
confidential treatment request filed with the Secretary of the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of
1934, as amended. The redacted material is being filed separately with the
Securities and Exchange Commission.
+ The schedules and exhibits to this document are not filed herewith.
The registrant agrees to furnish supplementally a copy of any such schedule or
exhibit to the Securities and Exchange Commission upon request.