Snap-on Inc. has notified CIT of termination of the operating agreement between CIT and Snap-on relating to the parties’ Snap-on Credit LLC joint venture, pursuant to Snap-on's rights to terminate under the agreement.
Snap-on and CIT are partners in Snap-on Credit LLC, which provides a broad range of financial services to Snap-on’s U.S. franchisees and customers. The joint venture was established in 1999, and CIT has been the exclusive purchaser of the financing contracts originated by Snap-on Credit.
Snap-on and CIT have been in ongoing discussions concerning a longer term new joint venture agreement. Both parties have agreed to continue these discussions. To the extent a mutually acceptable agreement can be reached, including CIT resolving its liquidity issues over a longer term, it is possible the parties could, at a later date, enter into a new joint venture agreement.
As a consequence of this termination, Snap-on will acquire CIT’s interest in the joint venture for approximately $8.2 million, Snap-on Credit will become a wholly owned subsidiary of Snap-on Inc. and Snap-on Credit will continue to service the existing portfolio of contracts owned by CIT.
The approximate outstanding balance of this portfolio is $834 million. Snap-on has no obligation to purchase the existing portfolio of contracts owned by CIT, the company states. The operations of Snap-on Credit are expected to be uninterrupted by this event and all activities surrounding the financing of extended credit contracts to customers, leases of shop equipment and loans to franchisees will continue without change.
With respect to new contract originations, Snap-on Inc. will provide the financing. Over the next 12 months, Snap-on estimates these incremental financing needs to approximate $450 million. Snap-on believes it has adequate financial resources to fully provide for the financing needs of Snap-on Credit including:
* Cash on hand as of July 4, 2009 of $525 million; Snap-on believes it will continue to generate free cash flow which could be deployed for financing Snap-on Credit;
* A $500 million bank credit facility, which also serves as a backup credit facility for Snap-on’s issuance of commercial paper. There is presently no commercial paper outstanding nor any amounts outstanding under these credit facilities; and
* Snap-on believes it has further access to the public debt markets, should additional borrowings be necessary and Snap-on believes it could secure additional bank revolving credit capacity to fund Snap-on Credit should this be necessary.
Snap-on also anticipates that it will continue its regular quarterly cash dividend of $0.30 per share, which is subject to regular determination by the Board of Directors. Snap-on has paid consecutive quarterly cash dividends, without interruption or reduction, since 1939.
Snap-on will provide additional financial information as part of its second quarter earnings conference call scheduled for July 31, 2009.
For more information, visit www.snapon.com.
