UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 29, 2018,January 1, 2022, or
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 1-7724
Snap-on Incorporated
(Exact name of registrant as specified in its charter)
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| Delaware | | 39-0622040 |
| (State of incorporation) | | (I.R.S. Employer Identification No.) |
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Delaware | | 39-0622040 |
(State of incorporation) | | (I.R.S. Employer Identification No.) |
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2801 80th80th Street Kenosha, Wisconsin | Kenosha | Wisconsin | | 53143 |
| (Address of principal executive offices) | | (Zip code) |
(262) 656-5200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock, $1.00 par value | SNA | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in a definitive proxy or information statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”,filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐
Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of voting and non-voting common equity held by non-affiliates (excludes 626,160797,583 shares held by directors and executive officers) computed by reference to the price ($160.72)223.91) at which common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter (June 30, 2018)(July 3, 2021) was $9.0$11.9 billion.
The number of shares of Common Stock ($1.00 par value) of the registrant outstanding as of February 8, 2019,4, 2022, was 55,616,13753,438,639 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K incorporates by reference certain information that will be set forth in Snap-on’s Proxy Statement, which is expected to first be mailed to shareholders on or about March 11, 2019,2022, prepared for the Annual Meeting of Shareholders scheduled for April 25, 2019.
28, 2022.
TABLE OF CONTENTS
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PART I | |
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| PART II | |
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PART III | |
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| PART IV | |
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| Consent of Independent Registered Public Accounting Firm | 123 |
120 |
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| Certifications | 124121 |
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PART I
Safe Harbor
Statements in this document that are not historical facts, including statements that (i) are in the future tense;tense, (ii) include the words “expects,” “plans,” “targets,” “estimates,” “believes,” “anticipates,” or similar words that reference Snap-on Incorporated (“Snap-on” or “the company”) or its management;management, (iii) are specifically identified as forward-looking;forward-looking, or (iv) describe Snap-on’sSnap‑on’s or management’s future outlook, plans, estimates, objectives or goals, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Snap-on cautions the reader that any forward-looking statements included in this document that are based upon assumptions and estimates were developed by management in good faith and are subject to risks, uncertainties or other factors that could cause (and in some cases have caused) actual results to differ materially from those described in any such statement. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results or regarded as a representation by the company or its management that the projected results will be achieved. For those forward-looking statements, Snap-on cautions the reader that numerous important factors, such as those listed below, as well as those factors discussed in this Annual Report on Form 10-K, particularly those in “Item 1A: Risk Factors,” could affect the company’s actual results and could cause its actual consolidated results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, Snap-on.
These risks
Risks and uncertainties include, without limitation, uncertaintieslimitation:
•The evolving impact and unknown duration of the ongoing coronavirus (“COVID-19”) pandemic, as well as the effects of governmental actions related thereto on Snap-on’s business, which has the potential to amplify the impact of the other risks facing the company;
•Uncertainties related to estimates, statements, assumptions and projections generally, and thegenerally;
•The timing and progress with which Snap-on can attain value through its Snap-on Value Creation Processes, including its ability to (i) realize efficiencies and savings from its rapid continuous improvement and other cost reduction initiatives, (ii) improve workforce productivity, (iii) achieve improvements in the company’s manufacturing footprint and greater efficiencies in its supply chain, and (iv) enhance machine maintenance, plant productivity and manufacturing line set-up and change-over practices, any or all of which could result in production inefficiencies, higher costs and/or lost revenues. These risks also include uncertainties related to revenues;
•Snap-on’s capability to successfully implement future strategies with respect to its existing businesses, itsbusinesses;
•Snap-on’s ability to refine its brand and franchise strategies, retain and attract franchisees, and further enhance service and value to franchisees and therebyin order to help improve theirthe sales and profitability of franchisees;
•The company’s ability to introduce successful new products, successfully pursue, completeproducts;
•Risks related to pursuing, completing and integrate acquisitions, as well as itsintegrating acquisitions;
•Snap-on’s ability to withstand disruption arising from natural disasters, including climate-related events or other unusual occurrences, impacting our operations;
•The impact of labor interruptions or challenges;
•Snap-on’s ability to successfully manage planned facility closures or other labor interruptions, theto withstand disruptions from unexpected closures;
•The effects of external negativeeconomic factors, including adverse developments in world financial markets, weaknessdisruptions related to tariffs and other trade issues, and global supply chain interruptions;
•Weakness in certain geographic areas, of the global economy (includingincluding as a result of armed conflicts, localized recessions, and the impact of matters related to the United Kingdom’s pending exit from the European Union), and significantUnion;
•Significant changes in the current competitive environment, inflation,environment;
•Inflation, interest ratesrate changes and other monetary and market fluctuations, changesfluctuations;
•Changes in tax rates, laws and regulations as well as uncertainty surrounding potential changes;
•Price and supply fluctuations related to raw materials, components and certain purchased finished goods, such as steel, plastics, and electronics;
•Snap-on’s ability to successfully manage changes in prices and the impactavailability of energy and raw material supply and pricing,sources, including steel and gasoline, as well as tariffs and other trade protection measures put in place by the U.S. or other countries, thegasoline;
•The amount, rate and growth of Snap-on’s general and administrative expenses, including health care and postretirement costs, and continuing and potentially increasing required contributions to pension and postretirement plans, the impactsplans;
•The effects of non-strategic business and/or product line rationalizations, and the effects on business as a result of new requirements, legislation, regulations or government-related developments or issues, risksas well as third party actions, including those addressing climate change;
•Risks associated with data security and technological systems and protections, potentialincluding the effects of new legislation, regulations or government-related developments;
•Potential reputational damages and costs related to litigation as well as an inabilitylitigation;
•The ability to assure that costs will be reduced or eliminated on appeal,effectively manage human capital resources; and other
•Other world or local events outside Snap-on’s control, including terrorist disruptions. disruptions, other outbreaks of infectious diseases and civil unrest.
Snap-on disclaims any responsibility to update any forward-looking statement provided in this document, except as required by law.
In addition, investors should be aware that generally accepted accounting principles in the United States of America (“GAAP”) prescribe when a company should reserve for particular risks, including litigation exposures. Accordingly, results for a given reporting period could be significantly affected if and when a reserve is established for a major contingency. Reported results, therefore, may appear to be volatile in certain accounting periods.
Fiscal Year
Snap-on’s fiscal year ends on the Saturday that is on or nearest to December 31. Unless otherwise indicated, references in this document to “fiscal 2018”2021” or “2018”“2021” refer to the fiscal year ended January 1, 2022; references to “fiscal 2020” or “2020” refer to the fiscal year ended January 2, 2021; and references to “fiscal 2019” or “2019” refer to the fiscal year ended December 29, 2018; references28, 2019. References in this document to “fiscal 2017” or “2017”2021, 2020 and 2019 year end refer to the fiscal year endedJanuary 1, 2022, January 2, 2021, and December 30, 2017;28, 2019, respectively. Snap-on’s 2021 and references to “fiscal 2016” or “2016” refer to the fiscal year ended December 31, 2016. Snap-on’s 2018, 2017 and 20162019 fiscal years each contained 52 weeks of operating results. ReferencesSnap-on’s 2020 fiscal year contained 53 weeks of operating results with the extra week occurring in this document to 2018, 2017 and 2016 year end refer to December 29, 2018, December 30, 2017, and December 31, 2016, respectively.the fourth quarter.
Item 1: Business
Snap-on was incorporated under the laws of the state of Wisconsin in 1920 and reincorporated under the laws of the state of Delaware in 1930. Snap-on is a leading global innovator, manufacturer and marketer of tools, equipment, diagnostics, repair information and systems solutions for professional users performing critical tasks. Products and services include hand and power tools, tool storage, diagnosticsdiagnostic software, handheld and PC-basedcomputer-based diagnostic products, information and management systems, shop equipment and other solutions for vehicle dealerships and repair centers, as well as for customers in industries, such as aviation and aerospace, agriculture, construction, government and military, mining, natural resources, power generation and technical education. Snap-on also derives income from various financing programs designed to facilitate the sales of its products and support its franchise business.
Snap-on markets its products and brands worldwide through multiple sales distribution channels in more than 130 countries. Snap-on’s largest geographic markets include the United States, Europe, Canada and Asia Pacific. Snap-on reaches its customers through the company’s franchised, company-direct, distributor and internet channels.
The company began with the development of the original Snap-on interchangeable socket set in 1920 and subsequently pioneered mobile tool distribution in the automotive repair market, where well stockedwell-stocked vans sell to professional vehicle technicians at their place of business. Today, Snap-on defines its value proposition more broadly, extending its reach “beyond the garage” to deliver a broad array of unique solutions that make work easier for serious professionals performing critical tasks. The company’s “coherent growth” strategy focuses on developing and expanding its professional customer base in its legacy automotive market, as well as in adjacent markets, additional geographies and other areas, including in critical industries, where the cost and penalties for failure can be high. In addition to its coherent growth strategy, Snap-on is committed to its “Value Creation Processes” – a set of strategic principles and processes designed to create value and employed in the areas of (i) safety; (ii) quality; (iii) customer connection; (iv) innovation; and (v) rapid continuous improvement (“RCI”). Snap-on’s RCI initiatives employ a structured set of tools and processes across multiple businesses and geographies intended to eliminate waste and improve operations. Savings from Snap-on’s RCI initiatives reflect benefits from a wide variety of ongoing efficiency, productivity and process improvements, including savings generated from product design cost reductions, improved manufacturing line set-up and change-over practices, lower-cost sourcing initiatives and facility consolidations.
Snap-on’s primary customer segments include: (i) commercial and industrial customers, including professionals in critical industries and emerging markets; (ii) professional vehicle repair technicians who purchase products through the company’s mobile tool distribution network; and (iii) other professional customers related to vehicle repair, including owners and managers of independent and original equipment manufacturer (“OEM”) dealership service and repair shops (“OEM dealerships”). Snap-on’s Financial Services customer segment includes: (i) franchisees’ customers, principally serving vehicle repair technicians, and Snap-on customers who require financing for the purchase or lease of tools, and diagnostics, and equipment products on an extended-term payment plan; and (ii) franchisees who require financing options for vehicle leases and business loans.needs.
Snap-on’s business segments are based on the organization structure used by management for making operating and investment decisions and for assessing performance. Snap-on’s reportable business segments are: (i) the Commercial & Industrial Group; (ii) the Snap-on Tools Group; (iii) the Repair Systems & Information Group; and (iv) Financial Services. The Commercial & Industrial Group consists of business operations serving a broad range of industrial and commercial customers worldwide, including customers in the aerospace, natural resources, government, power generation, transportation and technical education market segments (collectively, “critical industries”), primarily through direct and distributor channels. The Snap-on Tools Group consists of business operations primarily serving vehicle service and repair technicians through the company’s worldwide mobile tool distribution channel. The Repair Systems & Information Group consists of business operations serving other professional vehicle repair customers worldwide, primarily owners and managers of independent repair shops and OEM dealerships, through direct and distributor channels. Financial Services consists of the business operations of Snap-on Credit LLC (“SOC”), the company’s financial services business in the United States, and Snap-on’s other financial services subsidiaries in those international markets where Snap-on has franchise operations. See Note 1920 to the Consolidated Financial Statements for information on business segments and foreign operations.
Snap-on evaluates the performance of its operating segments based on segment revenues, including both external and intersegment net sales, and segment operating earnings. Snap-on accounts for intersegment sales and transfers based primarily on standard costs with reasonable mark-ups established between the segments. Identifiable assets by segment are those assets used in the respective reportable segment’s operations. Corporate assets consist of cash and cash equivalents (excluding cash held at Financial Services), deferred income taxes and certain other assets. IntersegmentAll intersegment amounts are eliminated to arrive at Snap-on’s consolidated financial results.
Recent Acquisitions
On January 31, 2018,
Snap-on acquired substantially allhas continued to broaden its business through a series of the assets of George A. Sturdevant, Inc. (d/b/a Fastorq) for a cash purchase price of $3.0 million. Fastorq, based in New Caney, Texas, designs, assemblescoherent acquisitions, which have expanded and distributes hydraulic torque and hydraulic tensioning products for use in critical industries. The acquisition of the Fastorq product line complemented and increased Snap-on’s existing torque product offering and broadened its established capabilities in serving in critical industries. For segment reporting purposes, the results of operations and assets of Fastorq have been included in the Commercial & Industrial Group since the acquisition date.
On July 28, 2017, Snap-on acquired Torque Control Specialists Pty Ltd (“TCS”) for a cash purchase price of $3.6 million (or $3.5 million, net of cash acquired). TCS, based in Adelaide, Australia, distributes a full range of torque products, including wrenches, multipliers and calibrators, for use in critical industries. The acquisition of TCS enhanced and expanded Snap-on’s capabilities in providing solutions that address torque requirements, which are increasingly essential to critical mechanical performance. For segment reporting purposes, the results of operations and assets of TCS have been included in the Commercial & Industrial Group since the acquisition date.
On May 4, 2017, Snap-on acquired Norbar Torque Tools Holdings Limited, along with its U.S. and Chinese joint ventures (“Norbar”), for a cash purchase price of $71.6 million (or $69.9 million, net of cash acquired). Norbar, based in Banbury, U.K., designs and manufactures a full range of torque products, including wrenches, multipliers and calibrators, for use in critical industries. The acquisition of Norbar enhanced and expanded Snap-on’s capabilities in providing solutions that address torque requirements. For segment reporting purposes, the results of operations and assets of Norbar have been included in the Commercial & Industrial Group since the acquisition date.
On January 30, 2017, Snap-on acquired BTC Global Limited (“BTC”) for a cash purchase price of $9.2 million. BTC, based in Crewe, U.K., designs and implements automotive vehicle inspection and management software for OEM franchise repair shops. The acquisition of BTC enhanced Snap-on’s capabilities to grow enterprise revenues and add increased productivity for repair workshops. For segment reporting purposes, the results of operations and assets of BTC have been included in the Repair Systems & Information Group since the acquisition date.
On November 16, 2016, Snap-on acquired Ryeson Corporation (d/b/a Sturtevant Richmont) for a cash purchase price of $13.0 million (or $12.6 million, net of cash acquired). Sturtevant Richmont, based in Carol Stream, Illinois, designs, manufactures and distributes mechanical and electronic torque wrenches as well as wireless torque error proofing systems for a variety of industrial applications. The acquisition of Sturtevant Richmont enhancedcritical industries and expanded Snap-on’s capabilities in providing solutions that address torque requirements. For segment reporting purposes, the results ofits business operations and assets of Sturtevant Richmont have been included in the Commercial & Industrial Group since the acquisition date.
On October 31, 2016, Snap-on acquired Car-O-Liner Holding AB (“Car-O-Liner”) for a cash purchase price of $152.0 million (or $148.1 million, net of cash acquired). Car-O-Liner, based in Gothenburg, Sweden, designs and manufactures collision repair equipment, and information and truck alignment systems. The acquisition of Car-O-Liner complemented and increased Snap-on’s existing equipment and repair and service information product offerings, broadened its established capabilities in serving vehicle repair facilities and further expanded the company’s presence with repair shopprimarily owners and managers.managers of independent repair shops and OEM dealerships. For segment reporting purposes, substantially allinformation regarding recent acquisitions, see Item 7, “Management’s Discussion and Analysis of Car-O-Liner’s resultsFinancial Condition and Results of operationsOperations” and assets have been included inNote 3 to the Repair Systems & Information Group since the acquisition date, with the remaining portions included in the Commercial & Industrial Group.Consolidated Financial Statements.
Pro forma financial information has not been presented for any of these acquisitions as the net effects, individually and collectively, were neither significant nor material to Snap-on’s results of operations or financial position.
Information Available on the Company’s Website
Additional information regardingabout Snap-on, including its products and its productssustainability commitment, is available on the company’s website at www.snapon.com. Snap-on is not including the information contained on its website as a part of, or incorporating it by reference into, this Annual Report on Form 10-K. Snap-on’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Proxy Statements on Schedule 14A and Current Reports on Form 8-K, as well as any amendments to those reports, are made available to the public at no charge through the Investors“Investors” section of the company’s website at www.snapon.com. Snap-onSnap‑on makes such material available on its website as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the Securities and Exchange Commission (“SEC”). Copies of any materials the company files with the SEC can also be obtained free of charge through the SEC’s website at www.sec.gov. In addition, Snap-on’s (i) charters for the Audit, Corporate Governance and Nominating, and Organization and Executive Compensation Committees of the company’s Board of Directors; (ii) Corporate Governance Guidelines; and (iii) Code of Business Conduct and Ethics are available on the company’s website. Snap-on will also post any amendments to these documents, or information about any waivers granted to directors or executive officers with respect to the Code of Business Conduct and Ethics, on the company’s website at www.snapon.com.
Products and Services
Tools; Diagnostics, Information and Management Systems; and Equipment
Snap-on offers a broad line of products and complementary services that are grouped into three product categories: (i) tools; (ii) diagnostics, information and management systems; and (iii) equipment. Further product line information is not presented as it is not practicable to do so. The following table shows the consolidated net sales of these product categories for the last three years:
| | | | | Net Sales | | | Net Sales |
| (Amounts in millions) | | 2018 | | 2017 | | 2016 | (Amounts in millions) | | 2021 | | 2020 | | 2019 |
| Product Category: | | | | | | | Product Category: | | | | | | |
| Tools | | $ | 2,021.2 |
| | $ | 1,946.7 |
| | $ | 1,899.2 |
| Tools | | $ | 2,343.0 | | | $ | 1,984.7 | | | $ | 2,017.5 | |
| Diagnostics, information and management systems | | 797.9 |
| | 800.4 |
| | 748.2 |
| Diagnostics, information and management systems | | 892.5 | | | 783.8 | | | 827.5 | |
| Equipment | | 921.6 |
| | 939.8 |
| | 783.0 |
| Equipment | | 1,016.5 | | | 824.0 | | | 885.0 | |
| | | $ | 3,740.7 |
| | $ | 3,686.9 |
| | $ | 3,430.4 |
| | $ | 4,252.0 | | | $ | 3,592.5 | | | $ | 3,730.0 | |
The tools product category includes hand tools, power tools, tool storage products and other similar products. Hand tools include wrenches, sockets, ratchet wrenches, pliers, screwdrivers, punches and chisels, saws and cutting tools, pruning tools, torque measuring instruments and other similar products. Power tools include cordless (battery), pneumatic (air), hydraulic and corded (electric) tools, such as impact wrenches, ratchets, screwdrivers, drills, sanders, grinders and similar products. Tool storage includes tool chests, roll cabinets and other similar products. For many industrial customers, Snap-on creates specific, engineered solutions, including facility-level tool control and asset management hardware and software, custom kits in a wide range of configurations, and custom-built tools designed to meet customer requirements. The majority of products are manufactured by Snap-on and, in completing the product offering, other items are purchased from external manufacturers.
The diagnostics, information and management systems product category includes handheld and PC-basedcomputer-based diagnostic products, service and repair information products, diagnostic software solutions, electronic parts catalogs, business management systems and services, point-of-sale systems, integrated systems for vehicle service shops, OEM purchasing facilitation services, and warranty management systems and analytics to help OEM dealerships manage and track performance.
The equipment product category includes solutions for the service of vehicles and industrial equipment. Products include wheel alignment equipment, wheel balancers, tire changers, vehicle lifts, test lane systems,equipment, collision repair equipment, vehicle air conditioning service equipment, brake service equipment, fluid exchange equipment, transmission troubleshooting equipment, safety testing equipment, battery chargers and hoists.
Snap-on supports the sale of its diagnostics and vehicle service shop equipment by offering training programs as well as after-sales support for its customers, primarily focusing on the technologies and the application of specific products developed and marketed by Snap-on.
Products are marketed under a number of brand names and trademarks, many of which are well known in the vehicle service and industrial markets served. Some of the major trade names and trademarks and the products and services with which they are associated include the following:
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| Snap-on | | Hand tools, power tools, tool storage products (including tool control software and hardware), diagnostics, certain equipment and related accessories, mobile tool stores, websites, electronic parts catalogs, warranty analytics solutions, business management systems and services, OEM specialty tools and equipment development and distribution, and OEM facilitation services |
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| ATI | | Aircraft hand tools and machine tools |
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autoVHCAutoCrib | | Asset and tool control systems |
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| autoVHC | | Vehicle inspection and training services |
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| BAHCO | | Saw blades, cutting tools, pruning tools, hand tools, power tools and tool storage, including tool control systems |
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| Blackhawk | | Collision repair equipment |
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| Blue-Point | | Hand tools, power tools, tool storage, diagnostics, certain equipment and related accessories |
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| Cartec | | Safety testing, brake testers, test lane equipment, dynamometers, suspension testers, emission testers and other equipment |
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| Car-O-Liner | | Collision repair equipment, and information and truck alignment systems |
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| CDI | | Torque tools |
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| Challenger | | Vehicle lifts |
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EcotechnicsCognitran | | OEM SaaS products |
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| Dealer-FX | | Service operation solutions and OEM SaaS systems |
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| Ecotechnics | | Vehicle air conditioning service equipment |
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| Fastorq | | Hydraulic torque and tensioning products |
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| Fish and Hook | | Saw blades, cutting tools, pruning tools, hand tools, power tools and tool storage |
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| Hofmann | | Wheel balancers, vehicle lifts, tire changers, wheel aligners, brake testers and test lane equipment |
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| Irimo | | Saw blades, cutting tools, hand tools, power tools and tool storage |
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| John Bean | | Wheel balancers, vehicle lifts, tire changers, wheel aligners, brake testers and test lane equipment |
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| Josam | | Heavy duty alignment and collision repair solutions |
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| Lindström | | Hand tools |
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| Mitchell1 | | Repair and service information, shop management systems and business services |
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| Nexiq | | Diagnostic tools, information and program distributions for fleet and heavy duty equipment |
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| Norbar | | Torque tools |
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Pro-CutPower Hawk | | On-car brake lathes,Rescue tools and related equipment for military, government, fire and rescue |
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| Pro-Cut | | Brake service equipment and accessories |
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| Sandflex | | Hacksaw blades, bandsaws, saw blades, hole saws and reciprocating saw blades |
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| ShopKey | | Repair and service information, shop management systems and business services |
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| Sioux | | Power tools |
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| Sturtevant Richmont | | Torque tools |
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| Sun | | Diagnostic tools, wheel balancers, vehicle lifts, tire changers, wheel aligners, air conditioning products and emission testers |
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TruckCamTreadReader | | Automotive tire drive-over ramps and handheld devices |
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| TruckCam | | Commercial vehicle OEM factory solutions |
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| Williams | | Hand tools, tool storage, certain equipment and related accessories |
Financial Services
Snap-on also generates revenue from various financing programs that include: (i) installment sales and lease contracts arising from franchisees’ customers and Snap-on customers who require financing for the purchase or lease of tools, and diagnosticdiagnostics, and equipment products on an extended-term payment plan; and (ii) business and vehicle loans and vehicle leases to franchisees. The decision to finance through Snap-on or another financing source is solely by election of the customer. When assessing customers for potential financing, Snap-on considers various factors regarding ability to pay, including the customers’ financial condition, debt-servicing ability, past payment experience, and credit bureau and proprietary Snap-on credit model information, as well as the value of the underlying collateral.
Snap-on offers financing through SOC and the company’s international finance subsidiaries in thosemost markets where Snap-on has franchise operations. Financing revenue from contract originations is recognized over the life of the underlying contracts, with interest or finance charges computed primarily on the average daily balances of the underlying contracts.
Markets
Sales and Distribution
Snap-on markets and distributes its products and related services principally to professional tool and equipment users around the world. The two largest market sectors are the vehicle service and repair sector and the industrial sector.
Vehicle Service and Repair Sector
The vehicle service and repair sector has three main customer groups: (i) professional technicians who purchase tools, and diagnosticdiagnostics, and equipment products for use in their work; (ii) other professional customers related to vehicle repair, including owners and managers of independent repair shops and OEM dealerships who purchase tools, and diagnosticdiagnostics, and equipment products for use by multiple technicians within a service or repair facility; and (iii) OEMs.
Snap-on provides innovative tool, equipment and business solutions, as well as technical sales support and training, designed to meet technicians’ evolving needs. Snap-on’s mobile tool distribution system offers technicians the convenience of purchasing quality tools at their place of business with minimal disruption of their work routine. Snap-on also provides owners and managers of repair shops, where technicians work, with tools, diagnosticdiagnostics, equipment, and repair and service information, including electronic parts catalogs and shop management products. Snap-on’s OEM facilitation business provides OEMs with products and services including special and essential tools as well as consulting and facilitation services, which include product procurement, distribution and administrative support to customers for their dealership equipment programs.
The market for vehicle service and repair sector is characterizeddriven by an increasing rate of technological change, within motor vehicles, vehiclecar and truck population growth and increasing vehicleunit life, and the resulting effects of these changes on the businesses of both our suppliers and customers. In recent years, there has been an increase in the development and sales of electric and hybrid vehicles and this trend is expected to continue. Snap-on has historically benefited from the increasing complexity of car and truck fleets and the changing tools, technologies and data needed to monitor, calibrate, service and repair evolving vehicle platforms. While new technologies, including those associated with alternative energy drivetrains and greater vehicle autonomy, may alter the nature of certain service and repair for particular vehicle types, we believe many of these new technologies provide opportunities to fulfill requirements for enhanced solutions or increased precision. Snap-on believes it is a meaningful participantwell-positioned to innovate new products to address these changing needs and to extend its leadership position in the expanding vehicle service and repair market sector.
Industrial Sector
Snap-on markets its products and services globally to a broad cross-section of commercial and industrial customers, including maintenance and repair operations; manufacturing and assembly facilities; various government agencies, facilities and operations, including military operations; schools with vocational and technical programs; aviation and aerospace operations; oil and gas developers; mining operations; energy and power generation;generation operations, including those associated with alternative energies; equipment fabricators and operators; railroad manufacturing and maintenance; customers in agriculture; infrastructure construction companies; and other customers that require instrumentation, service tools and/or equipment for their products and business needs. The industrial sector for Snap-on focuses on providing value-added products and services to an increasingly expanding global base of customers in critical industries.
The industrial sector is characterized by a highly competitive environment with multiple suppliers offering either a full line or industry specificindustry-specific portfolios for tools and equipment. Industrial customers increasingly require specialized solutions that provide repeatability and reliability in performing tasks of consequence that are specific to the particular end market in which they operate. Snap-on believes it is a meaningful participant in the industrial tools and equipment market sector.
Distribution Channels
Snap-on serves customers primarily through the following channels of distribution: (i) the mobile van channel; (ii) company direct sales; (iii) distributors; and (iv) e-commerce. The following discussion summarizes Snap-on’s general approach for each channel and is not intended to be all-inclusive.
Mobile Van Channel
In the United States, a significant portion of sales to the vehicle service and repair sector is conducted through Snap-on’sSnap‑on’s mobile franchise van channel. Snap-on’s franchisees primarily serve vehicle repair technicians and vehicle service shop owners, generally providing weekly contact at the customer’s place of business. Franchisees’ sales are concentrated in hand and power tools, tool storage products, shop equipment, and diagnosticdiagnostics and repair information products, which can easily be transported in a van or trailer and demonstrated during a brief sales call. Franchisees purchase Snap-on’s products at a discount from suggested list prices and resell them at prices established by the franchisee. U.S. franchisees are provided a list of calls that serves as the basis of the franchisee’s sales route. Snap-on’s franchisees also have the opportunity to add a limited number of additional franchises.
Snap-on charges nominal initial and ongoing monthly franchise fees. Franchise fee revenue, including nominal, non-refundable initial and ongoing monthly fees (primarily for sales and business training, and marketing and product promotion programs)programs, and technology support), is recognized as the fees are earned. Franchise fee revenue totaled $17.3 million, $16.2 million $15.2 million and $13.9$15.4 million in fiscal 2018, 20172021, 2020 and 2016,2019, respectively.
Snap-on also has a company-owned route program that is designed to: (i) provide another pool of potential field organization personnel; (ii) service customers in select new and/or open routes not currently serviced by franchisees; and (iii) allow Snap-onSnap‑on to pilot new sales and promotional ideas prior to introducing them to franchisees. As of 20182021 year end, company-owned routes comprised less than 3%approximately 4% of the total route population;population. Snap-on may elect to increase or reduce the number of company-owned routes in the future.
In addition to its mobile van channel in the United States, Snap-on has replicated its U.S. franchise distribution modelmodels in certain other countries, including Canada, the United Kingdom, Canada, Japan, Australia, Germany, Netherlands, South Africa, New Zealand, Belgium and Ireland. In many of these markets, as in the United States, purchase decisions are generally made or influenced by professional vehicle service technicians as well as repair shop owners and managers. As of 20182021 year end, Snap-on’s worldwide route count was approximately 4,800,4,775, including approximately 3,4503,425 routes in the United States.
Through SOC, financing is available to U.S. franchisees, including financing for van leases, working capital loans and loans to help enable new franchisees to fund the purchase of the franchise or the expansion of an existing franchise. In many international markets, Snap-on offers a variety of financing options to its franchisees and/or customer networks through its international finance subsidiaries. The decision to finance through Snap-on or another financing source is solely at the customer’s election.
Snap-on supports its franchisees with a field organization of regional offices, franchise performance teams, customer care centers and distribution centers. Snap-on also provides sales and business training, and marketing and product promotion programs, as well as customer and franchisee financing programs through SOC and the company’s international finance subsidiaries, all of which are designed to strengthen franchisee sales. National Franchise Advisory Councils in the United States, the United Kingdom, Canada and Australia, composed primarily of franchisees that are elected by franchisees, assist Snap-on in identifying and implementing enhancements to the franchise program.
Company Direct Sales
A significant proportion of shop equipment sales in North America under the John Bean, Hofmann, Blackhawk, Car-O-Liner, Challenger and Pro-Cut brands, diagnostic products under the Snap-on brand, and information and shop management products under the Mitchell1 brand are made by direct and independent sales forces that have responsibility for national and other accounts. As the vehicle service and repair sector consolidates (with more business conducted by national chains and franchised service centers), Snap-on believes these larger organizations can be serviced most effectively by sales people who can demonstrate and sell the full line of diagnostic anddiagnostics, equipment, products and services. Snap-on also sells these products and services directly to OEMs and their franchised dealers.
Snap-on brand tools and equipment are marketed to industrial and governmental customers worldwide through both industrial sales associates and independent distributors. Selling activities focus on industrial customers whose main purchase criteria are quality and integrated solutions. As of 20182021 year end, Snap-on had industrial sales associates and independent distributors primarily in the United States, Canada and in various European, Latin American, Middle Eastern, Asian and African countries, with the United States representing the majority of Snap-on’s total industrial sales.
Snap-on also sells software, services and solutions to the automotive, commercial, heavy duty, agriculture, power equipment and power sports segments. Products and services are marketed to targeted groups, including OEMs and their dealerships, fleets and individual repair shops. To effectively reach OEMs, which frequently have a multi-national presence, Snap-on has deployed focused business teams globally.
Distributors
Sales of certain tools and equipment are made through independent distributors who purchase the items from Snap-on and resell them to end users. Hand tools sold under the BAHCO, Fish and Hook, Irimo, Lindström, CDI, ATI, Fastorq, Norbar, Sioux, Sturtevant Richmont and Williams brands and trade names, for example, are sold through distributors worldwide. Wheel service and other vehicle service equipment are sold through distributors primarily under brands including Hofmann, John Bean, Car-O-Liner, Challenger, Pro-Cut, Cartec, Blackhawk and Ecotechnics. DiagnosticDiagnostics and equipment products are marketed through distributors in South America and Asia, and through both a direct sales force and distributors in Europe under the Snap-on, Sun and Blue-Point brands.
E-commerce
Snap-on offers current and prospective customers online access to research and purchase products through its public website, at www.snapon.com. The site features an online catalog of Snap-on hand tools, power tools, tool storage units and diagnostic equipment available to customers in the United States, the United Kingdom, Canada and Australia. E-commerce and certain other system enhancement initiatives are designed to improve productivity and further leverage the one-on-one relationships and service Snap-on has with its current and prospective customers. Sales through the company’s e-commerce distribution channel were not significant in any of the last three years.
Competition
Snap-on competes on the basis of its product quality and performance, product line breadth and depth, service, brand awareness and imagery, technological innovation and availability of financing (through SOC or its international finance subsidiaries). While Snap-on does not believe that any single company competes with it across all of its product lines and distribution channels, various companies compete in one or more product categories and/or distribution channels.
Snap-on believes it is a leading manufacturer and distributor of professional tools, tool storage, diagnostic anddiagnostics, equipment products, and repair software and solutions, offering a broad line of these products to both vehicle service and industrial marketplaces. Various competitors target and sell to professional technicians in the vehicle service and repair sector through the mobile tool distribution channel. Snap-on also competes with companies that sell tools and equipment to vehicle service and repair technicians online and through retail stores, vehicle parts supply outlets and tool supply warehouses/distributorships. Within the power tools category and the industrial sector, Snap-on has various other competitors, including companies with offerings that overlap with other areas discussed herein. Major competitors selling diagnostics, shop equipment, and information to vehicle dealerships and independent repair shops include OEMs and their proprietary electronic parts catalogs and diagnostics and information systems, and other companies that offer products serving this sector.
Resources
Raw Materials and Purchased Product
Snap-on’s supply of raw materials, including steel, and purchased components are generally and readily available from numerous suppliers.suppliers and the company continuously works to expand and enhance supplier relationships to meet its supply needs. Snap-on believes it has secured an ample supplya sufficient amount of both barraw materials and coil steelpurchased components for the near future to ensure stable supplymeet the expected general sales demand. While the company does experience raw material and component cost fluctuations from time to meet material demands.time and from operation to operation, including during the ongoing COVID-19 pandemic, it endeavors to employ its RCI processes to improve efficiencies and reduce waste to minimize the impact of any cost increases. The company does not currently anticipate experiencing any significant impact in 20192022 from steel pricingraw material and purchased component cost or availability issues, though it is continuingissues. In addition, to monitordate, the impact of tariffs and other trade protection measures put in place by the U.S. and other countries.company has not observed any meaningful supply shortages or cost increases directly or indirectly resulting from climate change factors.
Patents, Trademarks and Other Intellectual Property
Snap-on vigorously pursues and relies on patent protection to protect its intellectual property and position in its markets. As of 20182021 year end, Snap-on and its subsidiaries held approximately 750850 active and pending patents in the United States and approximately 2,0002,550 active and pending patents outside of the United States. Sales relating to any single patent did not represent a material portion of Snap-on’s revenues in any of the last three years.
Examples of products that have features or designs that benefit from patent protection include hand tools (including sealed ratchets and ratcheting screwdrivers), power tools, wheel alignment systems, wheel balancers, tire changers, vehicle lifts, tool storage, tool control, collision measurement, test lanes,lane equipment, brake lathes, electronic torque instruments, emissions-sensing devices and diagnostic equipment.
Much of the technology used in the manufacture of vehicle service tools and equipment is in the public domain. Snap-on relies primarily on trade secret protection to protectfor proprietary processes used in manufacturing. Methods and processes are patented when appropriate. Copyright protection is also utilized when appropriate.
Trademarks used by Snap-on are of continuing importance to Snap-on in the marketplace. Trademarks have been registered in the United States and many other countries, and additional applications for trademark registrations are pending. Snap-on vigorously polices proper use of its trademarks. Snap-on’s right to manufacture and sell certain products is dependent upon licenses from others; however, these products under license do not represent a material portion of Snap-on’s net sales.
Domain names have becomeare a valuable corporate asset for companies around the world, including Snap-on. Domain names often contain a trademark or service mark or even a corporate name and are often considered intellectual property. The recognition and value of the Snap-on name, trademark and domain name are core strengths of the company.
Snap-on strategically licenses the Snap-on brand to carefully selected manufacturing and distribution companies for items such as apparel and a variety of other goods, in order to further build brand awareness and market presence for the company’s strongest brand.
EnvironmentalGovernment Regulations
Snap-on is subject to various federal, state and local laws, such as those related to international trade, data privacy, tax and government contracts, as well as environmental laws, ordinances, regulations, and other requirements of government authorities in the United States and other nations. At Snap-on, these environmental liabilities are managed through the Snap-on Environmental, Health and Safety Management System (“EH & SMS”), which is applied worldwide. The system is based upon continual improvement and is certified to ISO 14001:2015 and OHSAS 18001:2007,ISO 45001:2018, verified through Det Norske Veritas (DNV) Certification, Inc.
Snap-on believes that it complies with applicable environmental controland government requirements in its operations. Expenditures on environmental and governmental matters through EH & SMS have not had and Snap-on does not for the foreseeable future expect them to have, a material effect upon Snap-on’s capital expenditures, earnings or competitive position. However, the increasing global focus on climate change may result in new or more stringent environmental or climate-related regulations or standards. While such regulations have historically created select opportunities for our business operations, the company continually monitors developments in this area.
EmployeesHuman Capital Management
As of January 1, 2022, Snap-on employed approximately 12,60012,800 people worldwide, of which approximately 7,000 were employed in the United States and approximately 5,800 were outside the United States. Based on the most recently filed EEO-1 data, which is available in the “Investors” section on the company’s website at www.snapon.com, females constitute 25.8% and minorities constitute 22.4% of the end of both January 2019 and January 2018.
Approximately 2,650workforce in the United States. Additionally, on a global basis, approximately 2,700 employees or 21% of Snap-on’s worldwide workforce, are represented by unions and/or covered under collective bargaining agreements. The number of covered union employees whose contracts expire over the next five years approximates 875 employees in 2019, 975 employees in 2020, 575 employees in 2021, 175 employees in 2022, and 50 employees in 2023.agreements with varying expiration dates through 2023. In recent years, Snap-on has not experienced any significant work slowdowns, stoppages or other labor disruptions.
There can
Snap-on is guided by the beliefs and values in the company’s “Who We Are” mission statement and strives to be no assurance thatthe “employer of choice” for its current and future associates. Our “Who We Are” beliefs serve as the guidepost against which we evaluate performance in operating reviews throughout the company. Furthermore, through our Snap-on Value Creation Processes, a suite of principles we use every day, the company remains committed to the areas of safety, quality, customer connection, innovation and RCI, which are closely linked to and contribute to improving employee engagement, productivity, and efficiency.
Successful execution of our way forward is dependent on attracting, developing and retaining key employees and members of our management team, which we achieve through the following:
•Snap-on believes strongly in workplace safety. As a permanent priority agenda item at all operational meetings, safety comes first. Snap-on strives to maintain a safe workplace and expects its employees to broadly embrace the company’s safety programs. Snap-on invests in its strong safety culture and in elevating the importance of worker safety throughout all levels of the organization. For 2021, Snap-on had an overall safety incident rate of 1.01 (number of injuries and illnesses multiplied by 200,000, divided by hours worked).
•Snap-on is committed to its employees and provides developmental opportunities, as well as competitive pay and benefits. Leadership reviews to identify high potential talent in the organization are conducted on an ongoing basis with all business units and on an annual basis with the Board of Directors. Snap-on offers pension, postretirement health care benefits and stock-based compensation as well as other stock plans, including an employee stock purchase plan for associates in the United States and Canada. Additional information related to these plans is included in Notes 12, 13 and 14 to the Consolidated Financial Statements. Other benefits, including skill training and tuition assistance programs, are available to employees, but vary from location to location.
•Snap-on seeks to advance our progress on diversity and inclusion within our company and is committed to providing equal opportunities. The company does not tolerate discrimination. As part of our efforts, Snap-on has instituted company-wide training on inclusion and unconscious bias, and has expanded internship, mentorship and recruitment activities for underrepresented groups. Additionally, to further our support of makers and fixers, both within and outside our company, Snap-on is partnering with national nonprofit organizations and community colleges to leverage career and technical education to expand the opportunities for underrepresented groups in our facilities, as well as in the critical industries we serve and beyond. The company is also investing in and building relationships with several Historically Black Colleges and Universities (HBCUs) to help advance their missions and broaden the pipeline of Black engineers and other technically trained graduates.
•Snap-on’s people and the behaviors they display define our success, including integrity, respect and teamwork. Annual employee training is used to reinforce ethics, environmental matters, health and safety, information security and regulatory compliance, which includes anti-corruption training for all relevant employees.
Throughout the COVID-19 pandemic, Snap-on has generally maintained its headcount and has accommodated its operations to the virus environment. Snap-on has taken what it believes to be appropriate measures to ensure the health and safety of its personnel, including enhancing cleaning protocols, providing protective equipment and providing wages for quarantined associates. Refer to the “Impact of the COVID-19” included in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information on actions taken by the company in response to the COVID-19 pandemic.
Social Responsibility and Sustainability Commitment
Snap-on is deeply dedicated to honoring and celebrating the dignity of work. The company supports upskilling the workforce through collaborations with Career and Technical Education (CTE) schools across the United States and throughout the world, and with SkillsUSA and World Skills to engage youth in order to enable and promote technical careers. Additionally, the company is a founding partner of the National Coalition of Certification Centers (NC3), which aims to more effectively match technical school curricula with the precise needs of the current and future contractsworkplace by developing, implementing, and sustaining industry-recognized certifications with programs in automotive, aviation, energy, oil and gas, manufacturing and other critical industries. To date, nearly 200,000 students have earned Snap-on certifications, preparing them for successful and satisfying careers across various technical disciplines.
Snap-on is committed to conducting business and making decisions honestly, ethically, fairly and within the law, and is guided by the company’s “Who We Are” mission statement, which is translated into multiple languages and prominently displayed in our facilities around the world. Snap-on is dedicated to earning and keeping the trust and confidence of its shareholders, customers, franchisees, distributors, retirees and associates, as well as of the communities where the company does business. Snap-on’s unions will be renegotiated upon terms acceptableCode of Business Conduct and Ethics provides guidelines and a framework for conducting business in an ethical manner. These beliefs go beyond Snap-on and are expected of our suppliers as detailed in the company’s Supplier Code of Conduct. Snap-on has adopted policies that seek to Snap-on.eliminate human trafficking, slavery, forced labor and child labor from its global supply chain.
Snap-on prioritizes continuous improvement in all facets of its operations, including environmental matters and health and safety. The company strives to protect environmental quality and human welfare in its workplaces and in its communities by implementing sound policies designed to prevent, mitigate and reduce the company’s impact on the environment. The company has voluntarily reported Scope 1 and Scope 2 greenhouse gas (“GHG”) emissions to the CDP (formerly known as the Carbon Disclosure Project) on an annual basis since 2008. As reported to the CDP in 2021, the company’s total GHG emissions of 102,137 metric tons of carbon dioxide equivalent (“CO2e”) reflected an intensity of 28.4 (metric tons of CO2e, divided by net sales in millions), which is 30% lower than when initially reported in 2008.
Snap-on’s sustainability framework is focused on key areas impacting our industry, including energy management, employee health and safety, and material management, and is aligned with the standards of the Value Reporting Foundation (formerly known as the Sustainability Accounting Standards Board or “SASB”). Snap-on’s SASB Index, along with additional information regarding the company’s sustainability commitment, is available in the “Investors” section on the company’s website at www.snapon.com.
Customers and Seasonality
Snap-on does not have any single customer or government on which its business was substantially dependent in any of the indicated periods. Most of Snap-on’s businesses are not seasonal and their inventory needs are relatively constant. Snap-on did not have a significant backlog of orders at 2018 year end. In recent years, Snap-on has been using its working capital to fund, in part, the continued growth of the company’s financial services portfolio and the acquisitions discussed above.
Snap-on’s liquidity and capital resources and use of working capital are discussed herein in “Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
As of 2018 year end, neither Snap-on nor any of its segments depend on any single customer, small group of customers or government for any material part of its revenues.
Item 1A: Risk Factors
In evaluating the company, careful consideration should be given to the following risk factors, in addition to the other information included in this Annual Report on Form 10-K, including the Consolidated Financial Statements and the related notes. Each of these risk factors could adversely affect, and in some cases may have already affected, the company’s business, operating results, cash flows and/or financial condition, as well as adversely affect the value of an investment in the company’s common stock.
Risk related to COVID-19 and Other Infectious Diseases
Economic conditionsThe ongoing COVID-19 pandemic is expected to continue to pose risks to our business, results of operations, financial condition and world events could affect our operating results.cash flows, and other epidemics or outbreaks of infectious diseases may have a similar impact.
We our franchiseesface risks related to outbreaks of infectious diseases, including the ongoing COVID-19 pandemic. In response to COVID-19, national and our customers,local governments around the world instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, shelter-in-place orders and recommendations to practice social distancing. Existing measures may be adversely affected by changing economic conditions, including conditions thatextended in certain regions and additional measures may particularly impact specific regions. These conditions may result inbe imposed to combat the COVID-19 pandemic or future outbreaks of infectious diseases.
Among the effects of COVID-19, and potential effects of other similar outbreaks, on the company could include, but are not limited to, reduced consumer and investor confidence, instability in the credit and financial markets, volatile corporate profits, supply chain inefficiencies, and reduced business and consumer spending. We, our franchisees and our customers, and the economy as a whole, also may be affected by future world or local events outside our control, such as tariffs and other trade protection measures put in place by the United States or other countries, acts of terrorism, developments in the war on terrorism, conflicts in international situations, weather events and natural disasters, as well as government-related developments or issues. These factors mayspending, which could adversely affect our results of operations by reducing our sales, margins and/or net earningsincome as a result of rising costs, a slowdown in customer orders or order cancellations, impactcancellations. To the availability and/extent the COVID-19 pandemic, or pricing of raw materials and/or the supply chain, and could potentially lead toa future impairment of our intangible assets. In addition, political and social turmoil related to international conflicts and terrorist acts may put pressure on economic conditions abroad. Unstable political, social and economic conditions may make it difficult for our franchisees, customers, suppliers and us to accurately forecast and plan future business activities. If such conditions persist,outbreak, adversely affects our business, financial condition, results of operations and cash flows, it may also heighten many of the other risks described in this section. The ultimate impact of COVID-19, as well as future outbreaks of infectious diseases, is dependent on future developments, including the duration of the pandemic and the related length of its impact on the global economy, which are uncertain and cannot be predicted at this time.
Business Risks
The sales of many of our products are dependent on the health of the vehicle repair market and the changing requirements of vehicle repair.
We believe sales of many of our products are dependent on the changing vehicle repair requirements, the number of vehicles on the road, the general aging of vehicles and the number of miles driven. These factors affect the frequency, type and amount of service and repair performed on vehicles by technicians, and therefore affect the demand for the number of technicians, the prosperity of technicians and, consequently, the demand technicians have for our tools, other products and services, as well as the value technicians place on those products and services. The use of other methods of transportation, including more frequent use of public transportation in the future, could result in a decrease in the use of privately-operated vehicles. A decrease in the use of privately-operated vehicles may lead to fewer repairs and less demand for our products.
In addition, the number of electric and hybrid vehicles developed and sold has risen in recent years, and is expected to continue to increase in the future. While we believe that advances in vehicle technologies provide us with opportunities to provide innovative products and solutions to the vehicle repair market, if we are not able to execute on those possibilities, our business and results of operations could suffer.
The performance of Snap-on’s mobile tool distribution business depends on the success of its franchisees.
Approximately 42% of our consolidated net revenues in 2021 were generated by the Snap-on Tools Group, which consists of Snap-on’s business operations primarily serving vehicle service and repair technicians through the company’s worldwide mobile tool distribution channel. Snap-on’s success is dependent on its relationships with franchisees, individually and collectively, as they are the primary sales and service link between the company and vehicle service and repair technicians, who are an important class of end users for Snap-on’s products and services.
If our franchisees are not successful, or if we do not maintain an effective relationship with our franchisees, the delivery of products, the collection of receivables and/or our relationship with end users could be adversely affected and thereby negatively affected.impact our business, financial condition, results of operations and cash flows.
In 2016,addition, if we are unable to maintain effective relationships with franchisees, Snap-on or the franchisees may choose to terminate the relationship, which may result in: (i) open routes, in which end-user customers are not provided reliable service; (ii) litigation resulting from termination; (iii) reduced collections or increased charge-offs of franchisee receivables owed to Snap-on; and/or (iv) reduced collections or increased charge-offs of finance and contract receivables.
The inability to continue to introduce new products that respond to customer needs and achieve market acceptance could result in lower revenues and reduced profitability.
Sales from new products represent a significant portion of our net sales and are expected to continue to represent a significant component of our future net sales. We may not be able to compete effectively unless we continue to enhance existing products or introduce new products to the marketplace in a timely manner. Product improvements and new product introductions require significant financial and other resources, including significant planning, design, development, sourcing and testing at the technological, product and manufacturing process levels. Our competitors’ new products may beat our products to market, be more effective, contain more features, be less expensive than our products, and/or render our products obsolete. Any new products that we develop may not receive market acceptance or otherwise generate any meaningful net sales or profits for us relative to our expectations based on, among other things, existing and anticipated investments in manufacturing capacity and commitments to fund advertising, marketing, promotional programs and research and development.
Failure to adequately protect intellectual property, or claims of infringement, could adversely affect our business, reputation, financial condition, results of operations and cash flows.
Intellectual property rights are an important and integral component of our business and failure to obtain or maintain adequate protection of our intellectual property rights for any reason could have a material adverse effect on our business. We attempt to protect our intellectual property rights through a combination of patent, trademark, copyright and trade secret laws, as well as licensing agreements and third-party nondisclosure and assignment agreements. In addition, we have been, and in the future may be, subject to claims of intellectual property infringement against us by third parties; whether or not these claims have merit, we could be required to expend significant resources in defense of those claims. Adverse determinations in a judicial or administrative proceeding or via a settlement could prevent us from manufacturing and selling our products, prevent us from stopping others from manufacturing and selling competing products, and/or result in payments for damages. In the event of an infringement claim, we may also be required to spend significant resources to develop alternatives or obtain licenses, which may not be available on reasonable terms or at all, and may reduce our sales and disrupt our production. Failure to obtain or maintain adequate protection of our intellectual property rights for any reason could have a material adverse effect on our business.
The global tool, equipment, diagnostics, and repair information industries are competitive.
We face strong competition in all of our market segments. Price competition in our various industries is intense and pricing pressures from competitors and customers continue to increase. In general, as a manufacturer and marketer of premium products and services, the expectations of Snap-on’s customers and its franchisees are high and continue to increase. Any inability to maintain customer satisfaction could diminish Snap-on’s premium image and reputation and could result in a lessening of our ability to command premium pricing. We expect that the level of competition will remain high in the future, which could limit our ability to maintain or increase market share or profitability.
Foreign operations are subject to political, economic and other risks that could adversely affect our business, financial condition, results of operations and cash flows.
Approximately 31% of our revenues in 2021 were generated outside of the United States. Future growth rates and success of our business depends in large part on continued growth in our non-U.S. operations, including growth in emerging markets and critical industries. Numerous risks and uncertainties affect our non-U.S. operations. These include political, economic and social instability, such as acts of war, armed conflicts, civil disturbance or acts of terrorism, local labor conditions, trade relations with China, changes in government policies and regulations, including those intended to address climate change, imposition or increases in withholding and other taxes on remittances and other payments by international subsidiaries, as well as exposure to liabilities under anti-bribery and anti-corruption laws in various countries, such as the U.S. Foreign Corrupt Practices Act, currency volatility, transportation delays or interruptions, sovereign debt uncertainties and difficulties in enforcement of contract and intellectual property rights, reputational risks related to, among other factors, different standards and practices among countries, as well as natural disasters, weather events and outbreaks of infectious diseases. Should the economic environment in our non-U.S. markets deteriorate from current levels, our results of operations and financial position could be materially impacted, including as a result of the effects of potential impairment write-downs of goodwill and/or other intangible assets related to these businesses.
The United Kingdom voted in a referendum to exit(“U.K.”) has formally left the European Union (“Brexit”), which resulted in significant currency exchange rate fluctuations and volatility. Negotiations continue to determine. As part of the terms of Brexit. Givenagreement between the lack of comparable precedentU.K. and the statusEuropean Union regarding Brexit, there is a new series of customs and regulatory checks, including rules of origin and stringent local content requirements. There are also restrictions on the negotiations, thefree movement of people and temporary visas for work-related purposes have been re-introduced. The implications of Brexit, or how such implications might affect Snap-on, continueincluding disruptions to remain unclear at this time. Brexit could, among other impacts, disrupt trade and the movement of goods, services and people between the United KingdomU.K. and the European Union or other countries, may lead to additional cost, delays and volatility in currency exchange rates, as well as create legal and global economic uncertainty. These and other potential implications could adversely affect our business and results of operations.
In 2018, Canada, Mexico andOperational Risks
Risks associated with the United States negotiated the United States-Mexico-Canada Agreement (the “USMCA”), which is intended to update and replace the North American Free Trade Agreement (“NAFTA”). THE USMCA must be ratified by all three countries before it becomes fully effective and manydisruption of its provisions will not take effect until 2020. While the USMCA is somewhat similar to NAFTA, it contains several new compliance obligations addressing such issues as rules of origin, labor standard, certificate of origin documentation and de minimis thresholds, as well as new policies on labor and environmental standards, intellectual property protections and some digital trade provisions. The Company is currently analyzing the expected impact of the USMCA. While certain aspects of the USMCA are expected to be positive, others, including potentially higher regulatory compliance costs, may have an adverse impact on our business.
These and other matters significantly impacting the regulation of trademanufacturing operations could adversely affect our profitability or competitive position.
We manufacture a significant portion of the products we sell. Any prolonged disruption in the operations of our existing manufacturing facilities, whether due to technical or labor difficulties, facility consolidation or closure actions, lack of raw material or component availability, destruction of or damage to any facility (as a result of natural disasters, climate or weather events, use and storage of hazardous materials, acts of war, sabotage, terrorism, civil unrest or other events), or other reasons, including outbreaks of infectious diseases, such as the ongoing COVID-19 pandemic, could have a material adverse effect on our business, andfinancial condition, results of operations.operations and cash flows.
Raw material and energy price
Price fluctuations and shortages (including steelof raw materials, components, certain purchased finished goods and various fuel sources)energy sources could adversely affect the ability to obtain needed manufacturing materials or products and could adversely affect our results of operations.
Snap-on’s supply of raw materials and purchased components are generally available from numerous suppliers, and the company continuously works to expand its supplier base to ensure availability. The principal raw material used in the manufacture of our products is steel, which we purchase in competitive, price-sensitive markets. To meet Snap-on’s high quality standards, our steel needs range from specialized alloys, which are available only from a limited group of approved suppliers, to common alloys, which are available from multiple suppliers. Some of these materials have been, and in the future may be, in short supply, particularly in the event of mill shutdowns or production cut backs. As some steel alloys require specialized manufacturing procedures, weIn addition, outbreaks of infectious diseases, weather events or other circumstances beyond our control could experience inventory shortages if we were required to use an alternative manufacturer on short notice. Thesealso impact the availability of raw materials and components. Physical risks of climate change may also impact the availability and cost of materials, sources and supply of energy and could also increase operating costs. Raw materials, components and certain purchased finished goods can exhibit price and demand cyclicality, including as a result of tariffs, and other trade protection measures, enacted in fiscal 2018inflationary factors, and which could continue to in fiscal 2019. Unexpected price increases for raw materialssupply chain inefficiencies. Associated unexpected variability could result in an erosion of the margins on our products or higherincrease in product costs and require Snap-on to increase prices to our customers.
We believe our ability to sell our products is also dependent on the number of vehicles on the road, the number of miles driven and the general aging of vehicles. These factors affect the frequency, type and amount of service and repair performed on vehicles by technicians, and therefore affect the demand for the number of technicians, the prosperity of technicians and, consequently, the demand technicians have for our tools, other products and services, and the value technicians place on those products and services. The use of other methods of transportation, including more frequent use of public transportation, could result in a decrease in the use of privately operated vehicles. A decrease in the use of privately operated vehicles may lead to fewer repairs and less demand for our products.
maintain margins.
We use various energy sources to transport, produce and distribute products, and some of our products have components that are petroleum based. Petroleum and energy prices have periodically increased significantly over short periods of time; future volatility and changes may be caused by market fluctuations, supply and demand, currency fluctuations, production and transportation disruptions, climate change regulations, world events and changes in governmental programs. Energy price increases raise both our operating costs and the costs of our materials, and we may not be able to increase our prices enough to offset these costs.costs in certain areas. Higher prices also may reduce the level of future customer orders and our profitability.
The performanceFailure to maintain effective distribution of Snap-on’s mobile toolproducts and services could adversely impact revenue, gross margin and profitability.
We use a variety of distribution business depends on the success of its franchisees.
Approximately 40% ofmethods to sell our consolidated net revenues in 2018 were generated by the Snap-on Tools Group, which consists of Snap-on’s business operations primarily serving vehicle service and repair technicians through the company’s worldwide mobile tool distribution channel. Snap-on’s success is dependent on its relationships with franchisees, individually and collectively, as they are the primary sales and service link between the company and vehicle service and repair technicians, who are an important class of end users for Snap-on’s products and services. IfSuccessfully managing the interaction of our franchisees are not successful, or if we do not maintain an effective relationship withdistribution efforts to reach various potential customer segments for our franchisees,products and services is a complex process. Moreover, since each distribution method has distinct risks, costs and gross margins, our failure to implement the most advantageous balance in the delivery ofmodel for our products the collection of receivables and/or our relationship with end users could be adversely affected and thereby negatively impact our business, financial condition, results of operations and cash flows.
In addition, if we are unable to maintain effective relationships with franchisees, Snap-on or the franchisees may choose to terminate the relationship, which may result in (i) open routes, in which end-user customers are not provided reliable service; (ii) litigation resulting from termination; (iii) reduced collections or increased charge-offs of franchisee receivables owed to Snap-on; and/or (iv) reduced collections or increased charge-offs of finance and contract receivables.
Exposure to credit risks of customers and resellers may make it difficult to collect receivables, and our allowances for credit losses for receivables may prove inadequate, whichservices could adversely affect operating results and financial condition.
Our financial services portfolio represents a significant portion of the company’s assets. A decline in industry and/or economic conditions could have the potential to weaken the financial position of some of our customers, including financial services customers. If circumstances surrounding our customers’ ability to repay their credit obligations were to deteriorate and result in the write-down or charge-off of such receivables, it would negatively affect our operating results for the period in which they occur and, if large, could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We maintain allowances for credit losses for receivables to provide for defaults and nonperformance, which represent an estimate of losses of our receivables portfolios. The determination of the appropriate levels of the allowances for credit losses inherently involves a high degree of subjectivity and judgment, and requires us to make estimates of current credit risks, which may undergo material changes. The allowances may not be adequate to cover actual losses, and future allowances for credit losses could materially and adversely affect our financial condition, results of operations and cash flows.
Our inability to provide acceptable financing alternatives to franchisees and other end-user customers could adversely impact our operating results.
An integral component of our business and profitability is our ability to offer competitive financing alternatives to franchisees and other end-user customers. The lack of our ability to offer such alternatives or obtain capital resources or other financing to support our receivables on terms that we believe are attractive, whether resulting from the state of the financial markets, our own operating performance, or other factors, would negatively affect our operating results and financial condition. Adverse fluctuations in interest rates and/or our ability to provide competitive financing programs could also have an adverse impact on our revenue, gross margins and profitability.
Adverse developments in the credit and financial markets could negatively impact the availability of credit that we and our customers need to operate our businesses.
We depend upon the availability of credit to operate our business, including the financing of receivables from end-user customers that are originated by our financial services businesses. Our end-user customers, franchisees and suppliers also require access to credit for their businesses. At times, world financial markets have been unstable and subject to uncertainty. Adverse developments in the credit and financial markets, or unfavorable changes in Snap-on’s credit rating, could negatively impact the availability of future financing and the terms on which it might be available to Snap-on, its end-user customers, franchisees and suppliers. Inability to access credit or capital markets, or a deterioration in the terms on which financing might be available, could have an adverse impact on our business, financial condition, results of operations and cash flows.
Increasing our financial leverage could affect our operations and profitability.
The maximum available credit under our multi-currency revolving credit facility is $700 million. The company’s leverage ratio may affect both our availability of additional capital resources as well as our operations in several ways, including:
The terms on which credit may be available to us could be less attractive, both in the economic terms of the credit and the covenants stipulated by the credit terms;
The possible lack of availability of additional credit or access to the commercial paper market;
The potential for higher levels of interest expense to service or maintain our outstanding debt;
The possibility of additional borrowings in the future to repay our indebtedness when it comes due; and
The possible diversion of capital resources from other uses.
While we believe we will have the ability to service our debt and obtain additional resources in the future if and when needed, that will depend upon our results of operations and financial position at the time, the then-current state of the credit and financial markets, and other factors that may be beyond our control. Therefore, we cannot give assurances that credit will be available on terms that we consider attractive, or at all, if and when necessary or beneficial to us.
Data security and information technology infrastructure and security are critical to supporting business objectives; failure of our systems to operate effectively could adversely affect our business and reputation.
We depend heavily on information technology infrastructure to achieve our business objectives and to protect sensitive information, and continually invest in improving such systems. Problems that impair or compromise this infrastructure, including natural disasters, power outages, major network failures, security breaches or malicious attacks, or during system upgrades and/or new system implementations, could impede our ability to record or process orders, manufacture and ship in a timely manner, manage our financial services operations including originating, processing, accounting for and collecting receivables, protect sensitive data of the company, our customers, our suppliers and business partners, or otherwise carry on business in the normal course. Any such events, if significant, could cause us to lose customers and/or revenue and could require us to incur significant expense to remediate, including as a result of legal or regulatory claims, proceedings, fines or penalties, and could also damage our reputation. While we have taken steps to maintain adequate data security and address these risks and uncertainties by implementing security technologies, internal controls, network and data center resiliency, and redundancy and recovery processes, as well as by securing insurance, these measures may be inadequate. These risks may be heightened when associates work remotely.
In association with initiatives to better integrate business units, rationalize our operating footprint and improve responsiveness to franchisees and customers, Snap-on is continually replacing and enhancing its global Enterprise Resource Planning (ERP) management information systems. As we integrate, implement and deploy new information technology processes and enhance our common information infrastructure across our global operations, we could experience disruptions in our business that could have an adverse effect on our business, financial condition, results of operations and cash flows.
Changes
Failure to legislationattract, retain and regulations mayeffectively manage qualified personnel could lead to a loss of revenue and/or profitability.
Snap-on’s success depends, in part, on the efforts and abilities of its senior management team and other key employees. Their skills, experience and industry contacts significantly benefit our operations and administration. The failure to attract and retain members of our senior management team and other key employees, to effectively develop personnel and to execute succession plans could have a negative effect on our operating results. In addition, transitions of important responsibilities to new individuals inherently include the possibility of disruptions to our business and operations, which could negatively affect our business, reputation,financial condition, results of operations and financial condition.cash flows.
Significant changes to legislative and regulatory activity and compliance burdens, including those associated with sales to our government, military and defense contractor customers, as well as the manner inWe may not successfully integrate businesses we acquire, which they are applied, could significantlyhave an adverse impact on our business, financial condition, results of operations and the economy as a whole.cash flows.
Financial services businessesThe pursuit of all kinds are subject togrowth through acquisitions, including participation in joint ventures, involves significant and complex regulations and enforcement. In addition to potentially increasing the costs of doing business due to compliance obligations, new laws and regulations, or changes to existing laws and regulations, as well as the enforcement thereof, may affect the relationships between creditors and debtors, inhibit the rights of creditors to collect amounts owed to them, expand liability for certain actions or inactions, or limit the types of financial products or services offered, any or all of whichrisks that could have a material adverse effect on our business, financial condition, results of operations and cash flows. These risks include:
•Loss of the acquired businesses’ customers;
•Inability to integrate successfully the acquired businesses’ operations;
•Inability to coordinate management and integrate and retain employees of the acquired businesses;
•Unforeseen or contingent liabilities of the acquired businesses;
•Large write-offs or write-downs, or the impairment of goodwill or other intangible assets;
•Difficulties in implementing and maintaining consistent standards, controls, procedures, policies and information systems;
•Failure to comply with anyrealize anticipated synergies, economies of these lawsscale or regulationsother anticipated benefits, or to maintain operating margins;
•Strain on our personnel, systems and resources, and diversion of attention from other priorities;
•Incurrence of additional debt and related interest expense; and
•The dilutive effect in the event of the issuance of additional equity securities.
The steps taken to restructure operations, rationalize operating footprint, lower operating expenses and achieve greater efficiencies in the supply chain could alsodisrupt business.
We have taken steps in the past, and may take additional steps in the future, intended to improve customer service and drive further efficiencies as well as reduce costs, some of which could be disruptive to our business. Future efforts to reduce components of expense could result in civil, criminal, monetary and/the recording of charges for inventory and technology-related write-offs, workforce reduction costs or non-monetary penalties, damageother charges relating to the consolidation or closure of facilities. If we were to incur a substantial charge or are unable to effectively manage our reputation, and/or the incurrence of remediation costs.
In fiscal 2018, Snap-on’scost reduction and restructuring efforts, our business, financial condition, results of operations were impacted, and in the futurecash flows could be furtheradversely affected by changes in the company’s effective tax rate as a result of changes in statutory tax rates, lawscertain periods.
Financial Risks
Our inability to provide acceptable financing alternatives to franchisees and regulations, as well as related guidance. The Tax Cuts and Jobs Act in the United States (the “Tax Act”), which made significant changes to the U.S. Tax Code and affects, among other items, the company’s tax rate, previously unremitted foreign earnings and valuations of deferred tax assets and liabilities. If new guidance is issued on the recently enacted tax revisions, depending on the circumstances, this (and other) tax legislationend-user customers could adversely impact our operating results.
An integral component of our business and profitability is our ability to offer competitive financing alternatives to franchisees and other end-user customers. The lack of our ability to offer such alternatives or obtain capital resources or other financing to support our receivables on terms that we believe are attractive, whether resulting from the state of the financial markets, our own operating performance, or other factors, would negatively affect our operating results of operations.and financial condition. Adverse fluctuations in interest rates and/or our ability to provide competitive financing programs could also have an adverse impact on our revenue and profitability.
Exposure to credit risks of customers and resellers may make it difficult to collect receivables, and our allowances for credit losses for receivables may prove inadequate, which could adversely affect operating results and financial condition.
A decline in industry and/or economic conditions could have the potential to weaken the financial position of some of our customers, including financial services customers. If circumstances surrounding our customers’ ability to repay their credit obligations were to deteriorate and result in the write-down or write-off of such receivables, it would negatively affect our operating results for the relevant period and, if large, could have a material adverse effect on our business, financial condition, results of operations and cash flows.
The company maintains allowances for credit losses for receivables to provide for defaults and nonperformance. These allowances represent an estimate of losses over the remaining contractual lives of our receivables which include current market conditions and estimates for reasonable and supportable forecasts, when appropriate. The determination of the appropriate levels of the allowances for credit losses involves a high degree of subjectivity and judgement, and requires the company to make estimates of credit risks, which may undergo material changes as a result of economic conditions and other factors. The company’s allowances may not be adequate to cover actual losses, and future allowances for credit losses could materially and adversely affect our financial condition, results of operations and cash flows.
Foreign operations are subject to currency exchange, inflation, interest and other risks that could adversely affect our business, financial condition, results of operations and cash flows.
The reporting currency for Snap-on’s consolidated financial statements is the U.S. dollar. Certain of the company’s assets, liabilities, expenses and revenues are denominated in currencies other than the U.S. dollar. In preparing Snap-on’s Consolidated Financial Statements, those assets, liabilities, expenses and revenues are translated into U.S. dollars at applicable exchange rates. Increases or decreases in exchange rates between the U.S. dollar and other currencies affect the U.S. dollar value of those items, as reflected in the Consolidated Financial Statements. Substantial fluctuations in the value of the U.S. dollar or other transactional currencies could have a significant impact on the company’s financial condition and results of operations.
We are also affected by changes in inflation rates and interest rates. Additionally, cash generated in certain non-U.S. jurisdictions may be difficult to repatriate to the United States in a tax-efficient manner. Our foreign operations are also subject to other risks and challenges, such as the need to staff and manage diverse workforces, respond to the needs of multiple national and international marketplaces, and differing business climates and cultures in various countries.
Adverse developments in the credit and financial markets could negatively impact the availability of credit that we and our customers need to operate our businesses.
We depend upon the availability of credit to operate our business, including the financing of receivables from end-user customers that are originated by our financial services businesses. Our end-user customers, franchisees and suppliers also require access to credit for their businesses. At times, world financial markets have been unstable and subject to uncertainty. Adverse developments in the credit and financial markets, or unfavorable changes in Snap-on’s credit rating, could negatively impact the availability of future financing and the terms on which it might be available to Snap-on, its end-user customers, franchisees and suppliers. Inability to access credit or capital markets, or a deterioration in the terms on which financing might be available, could have an adverse impact on our business, financial condition, results of operations and cash flows.
Increasing our financial leverage could affect our operations and profitability.
The maximum available credit under our multi-currency revolving credit facility is $800 million. The company’s leverage ratio may affect both our availability of additional capital resources as well as our operations in several ways, including:
•The terms on which credit may be available to us could be less attractive, both in the economic terms of the credit and the covenants stipulated by the credit terms;
•The possible lack of availability of additional credit or access to the commercial paper market;
•The potential for higher levels of interest expense to service or maintain our outstanding debt;
•The possibility of additional borrowings in the future to repay our indebtedness when it comes due; and
•The possible diversion of capital resources from other uses.
While we believe we will have the ability to service our debt and obtain additional resources in the future if and when needed, that will depend upon our results of operations and financial position at the time, the then-current state of the credit and financial markets, and other factors that may be beyond our control. Therefore, we cannot give assurances that credit will be available on terms that we consider attractive, or at all, if and when necessary or beneficial to us.
These developments, and other potential future legislation and regulations, as well as the factors in the strict regulatory environment, including the growing international regulation of privacy rights, may also adversely affect the customers to which, and the markets into which, we sell our products, and increase our costs and otherwise negatively affect our business, reputation, results of operations and financial condition, including in ways that cannot yet be foreseen.
Failure to achieve expected investment returns on pension plan assets, as well as changes in interest rates or plan demographics, could adversely impact our results of operations, financial condition and cash flows.
Snap-on sponsors various defined benefit pension plans (the “pension plans”). The assets of the pension plans are diversified in an attempt to mitigate the risk of a large loss. Required funding for the company’s domestic defined benefit pension plans is determined in accordance with guidelines set forth in the federal Employee Retirement Income Security Act (“ERISA”); foreign defined benefit pension plans are funded in accordance with local statutes or practice. Additional contributions to enhance the funded status of the pension plans can be made at the company’s discretion. However, there can be no assurance that the value of the pension plan assets, or the investment returns on those plan assets, will be sufficient to meet the future benefit obligations of such plans. In addition, during periods of adverse investment market conditions and declining interest rates, the company may be required to make additional cash contributions to the pension plans that could reduce our financial flexibility. Changes in plan demographics, including an increase in the number of retirements or changes in life expectancy assumptions, may also increase the costs and funding requirements of the obligations related to the company’s pension plans.
Our pension plan obligations are affected by changes in market interest rates. Significant fluctuations in market interest rates have added, and may further add, volatility to our pension plan obligations. In periods of declining market interest rates, our pension plan obligations generally increase; in periods of increasing market interest rates, our pension plan obligations generally decrease. While our plan assets are broadly diversified, there are inherent market risks associated with investments; if adverse market conditions occur, our plan assets could incur significant or material losses. Since we may need to make additional contributions to address changes in obligations and/or a loss in plan assets, the combination of declining market interest rates, past or future plan asset investment losses, and/or changes in plan demographics could adversely impact our results of operations, financial condition and cash flows.
The company’s pension plan expense is comprised of the following factors: (i) service cost; (ii) interest on projected benefit obligations; (iii) expected return on plan assets; (iv) the amortization of prior service costs and credits; (v) effects of actuarial gains and losses; and (vi) settlement/curtailment costs, when applicable. The accounting for pensions involves the estimation of a number of factors that are highly uncertain. Certain factors, such as the interest on projected benefit obligations and the expected return on plan assets, are impacted by changes in market interest rates and the value of plan assets. A significant decrease in market interest rates and a decrease in the fair value of plan assets would increase net pension expense and may adversely affect the company’s future results of operations. See Note 12 to the Consolidated Financial Statements for further information on the company’s pension plans.
Failure to maintain effective distributionThe recognition of products and services couldimpairment charges on goodwill or other intangible assets would adversely impact revenue, gross marginour future financial condition and profitability.results of operations.
We usehave a varietysubstantial amount of distribution methodsgoodwill and purchased intangible assets, almost all of which are booked in the Commercial & Industrial Group and in the Repair Systems & Information Group. We are required to sellperform impairment tests on our productsgoodwill and services. Successfully managingother intangibles annually or at any time when events occur that could impact the interactionvalue of our distribution efforts to reach various potential customer segments for our products and servicesbusiness segments. Our determination of whether impairment has occurred is based on a complex process. Moreover, sincecomparison of each distribution method has distinct risks, costs and gross margins, our failure to implement the most advantageous balance in the delivery model for our products and services could adversely affect our revenue and gross margins and therefore our profitability.
Risks associated with the disruption of manufacturing operations could adversely affect profitability or competitive position.
We manufacture a significant portion of the products we sell. Any prolonged disruption in the operations of our existing manufacturing facilities, whether due to technical reporting units’ fair market value with its carrying value.
Significant and unanticipated changes in circumstances, such as significant and long-term adverse changes in business climate, adverse actions by regulators, unanticipated competition, the loss of key customers, and/or labor difficulties, facility consolidationchanges in technology or closure actions, lackmarkets, could require a provision for impairment in a future period that could substantially impact our reported earnings and reduce our consolidated net worth and shareholders’ equity. Should the economic environment in these markets deteriorate, our results of raw material or component availability, destruction of or damage to any facility (asoperations and financial position could be materially impacted, including as a result of natural disasters, weather events, use and storagethe effects of hazardous materials, actspotential impairment write-downs of war, sabotage or terrorism, goodwill and/or other events),intangible assets related to these businesses.
Legal and Regulatory Risks
Legislation and regulations relating to our business and the countries where we operate, including those related to sustainability matters, as well as any changes to such legislation or regulations, in addition to new compliance obligations or a failure to maintain existing compliance requirements, may, if significant, affect our business, reputation, results of operations and financial condition.
Significant changes to legislative and regulatory activity, and compliance burdens, including those associated with: (i) sales to our government, military and defense contractor customers; and (ii) classification of third parties, including our franchisees, as independent from the company, as well as the manner in which they are applied, could significantly impact our business and the economy as a whole.
Financial services businesses of all kinds are subject to significant and complex regulations and enforcement. In addition to potentially increasing the costs and other reasons,requirements of doing business due to compliance obligations, new laws and regulations, or changes to existing laws and regulations, as well as the enforcement thereof, may affect the relationships between creditors and debtors, inhibit the rights of creditors to collect amounts owed to them, expand liability for certain actions or inaction, or limit the types of financial products or services offered, any or all of which could have a material adverse effect on our business, financial condition, results of operations and cash flows. Failure to comply with any of these laws or regulations could also result in civil, criminal, monetary and/or non-monetary penalties, damage to our reputation, and/or the incurrence of remediation costs.
In recent years there has been increased public awareness, concern and focus on environmental and sustainability issues, including matters related to global climate change. The current focus on these matters is expected to result in additional and/or more restrictive regulations, requirements and/or industry or third-party standards to reduce or mitigate global warming and other environmental or sustainability risks, though the timing is uncertain.
TheIncreased regulatory requirements or standards may result in increased compliance or input costs, including those related to energy or raw materials, for us and our suppliers. If environmental laws or regulations or industry standards are either changed or adopted, and impose significant operational restrictions and compliance requirements upon the company, the company's business, reputation, results of operations, financial condition and competitive position could be negatively impacted. For example, if significant increases in fuel economy requirements or changes to vehicle emissions requirements for internal combustion engine vehicles were imposed, there could be a decrease in demand for such vehicles and a reduction in miles driven, which could adversely impact the demand for certain of our products and services. Furthermore, an inability to continuesuccessfully manage climate change or sustainability matters, or to introduce new products thateffectively respond to customer needs and achieve market acceptancenew, or changes in, legal or regulatory requirements concerning sustainability matters, or increased operating or manufacturing costs due to changes in the regulatory environment, could result in lower revenues and reduced profitability.adversely affect our business.
Sales from new products represent a significant portion of our net sales and are expected to continue to represent a significant component of our future net sales. We may not be able to compete effectively unless we continue to enhance existing products or introduce new products to the marketplace in a timely manner. Product improvements and new product introductions require significant financialThese developments, and other resources,potential future legislation and regulations, including significant planning, design, development,the increasing global regulation of privacy rights, may also adversely affect the customers to which, and testing at the technological, product and manufacturing process levels. Our competitors’ new products may beatmarkets into which, we sell our products, to market,and increase our costs and otherwise negatively affect our business, reputation, results of operations and financial condition, including in ways that cannot yet be more effective with more features, be less expensive than our products, and/or render our products obsolete. Any new products that we develop may not receive market acceptance or otherwise generate any meaningful net sales or profits for us relative to our expectations based on, among other things, existing and anticipated investments in manufacturing capacity and commitments to fund advertising, marketing, promotional programs and research and development.
The global tool, equipment, and diagnostics and repair information industries are competitive.
We face strong competition in all of our market segments. Price competition in our various industries is intense and pricing pressures from competitors and customers are increasing. In general, as a manufacturer and marketer of premium products and services, the expectations of Snap-on’s customers and its franchisees are high and continue to increase. Any inability to maintain customer satisfaction could diminish Snap-on’s premium image and reputation and could result in a lessening of our ability to command premium pricing. We expect that the level of competition will remain high in the future, which could limit our ability to maintain or increase market share or profitability.foreseen.
Product liability claims and litigation could affect our business, reputation, financial condition, results of operations and cash flows.
The products that we design and/or manufacture, and/or the services we provide, can lead to product liability claims or other legal claims being filed against us. To the extent that plaintiffs are successful in showing that a defect in a product’s design, manufacture or warnings led to personal injury or property damage, or that our provision of services resulted in similar injury or damage, we may be subject to claims for damages. Although we are insured for damages above a certain amount, we bear the costs and expenses associated with defending claims, including frivolous lawsuits, and are responsible for damages up to the insurance retention amount. In addition to claims concerning individual products, as a manufacturer, we can be subject to costs, potential negative publicity and lawsuits related to product recalls, which could adversely impact our results of operations and damage our reputation.
Legal disputes could adversely affect our business, reputation, financial condition, results of operations and cash flows.
From time to time we are subject to legal disputes that are being litigated and/or settled in the ordinary course of business. Disputes or future lawsuits could result in the diversion of management’s time and attention away from business operations. Additionally, negative developments with respect to legal disputes and the costs incurred in defending ourselves, even if successful, could have an adverse impact on the company and its reputation. Successful outcomes, at trial or on appeal, can never be assured. Adverse outcomes or settlements could also require us to pay damages, potentially in excess of amounts reserved, or incur liability for other remedies that could have a material adverse effect on our business, reputation, financial condition, results of operations and cash flows.
Failure to adequately protect intellectual property, or claims of infringement, could adversely affect our business, reputation, financial condition, results of operations and cash flows.
Intellectual property rights are an important and integral component of our business and failure to obtain or maintain adequate protection of our intellectual property rights for any reason could have a material adverse effect on our business. We attempt to protect our intellectual property rights through a combination of patent, trademark, copyright and trade secret laws, as well as licensing agreements and third-party nondisclosure and assignment agreements. In addition, we have been, and in the future may be, subject to claims of intellectual property infringement against us by third parties; whether or not these claims have merit, we could be required to expend significant resources in defense of those claims. Adverse determinations in a judicial or administrative proceeding could prevent us from manufacturing and selling our products, prevent us from stopping others from manufacturing and selling competing products, and/or result in payments for damages. In the event of an infringement claim, we may also be required to spend significant resources to develop alternatives or obtain licenses which may not be available on reasonable terms or at all, and may reduce our sales and disrupt our production. Failure to obtain or maintain adequate protection of our intellectual property rights for any reason could have a material adverse effect on our business.
Foreign operations are subject to political, economic, currency exchange and other risks that could adversely affect our business, financial condition, results of operations and cash flows.
Approximately 33% of our revenues in 2018 were generated outside of the United States. Future growth rates and success of our business depends in large part on continued growth in our non-U.S. operations, including growth in emerging markets and critical industries. Numerous risks and uncertainties affect our non-U.S. operations. These risks and uncertainties include political, economic and social instability, such as acts of war, civil disturbance or acts of terrorism, local labor conditions, changes in government policies and regulations, including imposition or increases in withholding and other taxes on remittances and other payments by international subsidiaries, as well as the exposure to liabilities under anti-corruption laws in various countries, such as the U.S. Foreign Corrupt Practices Act, currency volatility, transportation delays or interruptions, sovereign debt uncertainties and difficulties in enforcement of contract and intellectual property rights, as well as natural disasters. Should the economic environment in our non-U.S. markets deteriorate from current levels, our results of operations and financial position could be materially impacted, including as a result of the effects of potential impairment write-downs of goodwill and/or other intangible assets related to these businesses.
The reporting currency for Snap-on’s consolidated financial statements is the U.S. dollar. Certain of the company’s assets, liabilities, expenses and revenues are denominated in currencies other than the U.S. dollar. In preparing Snap-on’s Consolidated Financial Statements, those assets, liabilities, expenses and revenues are translated into U.S. dollars at applicable exchange rates. Increases or decreases in exchange rates between the U.S. dollar and other currencies affect the U.S. dollar value of those items, as reflected in the Consolidated Financial Statements. Substantial fluctuations in the value of the U.S. dollar could have a significant impact on the company’s financial condition and results of operations.
We are also affected by changes in inflation rates and interest rates. Additionally, cash generated in certain non-U.S. jurisdictions may be difficult to repatriate to the United States in a tax-efficient manner. Our foreign operations are also subject to other risks and challenges, such as the need to staff and manage diverse workforces, respond to the needs of multiple national and international marketplaces, and differing business climates and cultures in various countries.
We may not successfully integrate businesses we acquire, which could have an adverse impact on our business, financial condition, results of operations and cash flows.
The pursuit of growth through acquisitions, including participation in joint ventures, involves significant risks that could have a material adverse effect on our business, financial condition, results of operations and cash flows. These risks include:
Loss of the acquired businesses’ customers;
Inability to integrate successfully the acquired businesses’ operations;
Inability to coordinate management and integrate and retain employees of the acquired businesses;
Unforeseen or contingent liabilities of the acquired businesses;
Large write-offs or write-downs, or the impairment of goodwill or other intangible assets;
Difficulties in implementing and maintaining consistent standards, controls, procedures, policies and information systems;
Failure to realize anticipated synergies, economies of scale or other anticipated benefits, or to maintain operating margins;
Strain on our personnel, systems and resources, and diversion of attention from other priorities;
Incurrence of additional debt and related interest expense; and
The dilutive effect in the event of the issuance of additional equity securities.
The recognition of impairment charges on goodwill or other intangible assets would adversely impact our future financial condition and results of operations.
We have a substantial amount of goodwill and purchased intangible assets, almost all of which are booked in the Commercial & Industrial Group and in the Repair Systems & Information Group. We are required to perform impairment tests on our goodwill and other intangibles annually or at any time when events occur that could impact the value of our business segments. Our determination of whether impairment has occurred is based on a comparison of each of our reporting units’ fair market value with its carrying value.
Significant and unanticipated changes in circumstances, such as significant and long-term adverse changes in business climate, adverse actions by regulators, unanticipated competition, the loss of key customers, and/or changes in technology or markets, could require a provision for impairment in a future period that could substantially impact our reported earnings and reduce our consolidated net worth and shareholders’ equity. Should the economic environment in these markets deteriorate, our results of operations and financial position could be materially impacted, including as a result of the effects of potential impairment write-downs of goodwill and/or other intangible assets related to these businesses.
Our operations expose us to the risk of environmental liabilities, costs, litigation and violations that could adversely affect our financial condition, results of operations and reputation.
Certain of our operations are subject to environmental laws and regulations in the jurisdictions in which they operate, which impose limitations on the discharge of pollutants into the ground, air and water and establish standards for the generation, treatment, use, storage and disposal of hazardous wastes. We must also comply with various health and safety regulations in the United States and abroad in connection with our operations. Failure to comply with any of these laws could result in civil and criminal, monetary and non-monetary penalties and damage to our reputation. In addition, we may incur costs related to remedial efforts or alleged environmental damage associated with past or current waste disposal practices. We cannot provide assurance that our costs of complying with current or future environmental protection and health and safety laws will not exceed our estimates.
The inability to successfully defend claims from taxing authorities could adversely affect our financial condition, results of operations and cash flows.
We conduct business in many countries, which requires us to interpret the income tax laws and rulings in each of those taxing jurisdictions. Due to the subjectivity of tax laws in and between those jurisdictions, as well as the subjectivity of factual interpretations, our estimates of income tax liabilities may differ from actual payments or assessments. Claims from taxing authorities related to these differences could have an adverse impact on our financial condition, results of operations and cash flows.
FailureGeneral Risk Factor
Economic conditions and world events could affect our operating results.
In addition to attractthe specific risks above, we, our franchisees and retain qualified personnel could lead toour customers, may be adversely affected by changing economic conditions, including conditions that may particularly impact specific regions. These conditions may result in reduced consumer and investor confidence, instability in the credit and financial markets, volatile corporate profits, and reduced business and consumer spending. We, our franchisees and our customers, and the economy as a loss of revenue and/whole, also may be affected by future world or profitability.
Snap-on’s success depends, in part, on the efforts and abilities of its senior management teamlocal events outside our control, such as tariffs and other key employees. Their skills, experiencetrade protection measures put in place by the United States or other countries, acts of terrorism, developments in the war on terrorism, armed conflicts, civil unrest, conflicts in international situations, weather events and industry contacts significantly benefit our operationsnatural disasters, outbreaks of infectious diseases such as the ongoing COVID-19 pandemic, as well as government-related developments or issues, including changes in tax laws and administration. The failureregulations, including regulations related to attract and retain members of our senior management teamclimate change and other key employees could have a negative effect on our operating results. In addition, transitions of important responsibilities to new individuals inherently includesustainability matters, and changes in financial accounting standards. These factors may affect the possibility of disruptions to our business and operations, which could negatively affect our business, financial condition, results of operations and cash flows.
The steps taken to restructure operations, rationalize operating footprint, lower operating expenses and achieve greater efficienciesby reducing our sales, margins and/or net earnings as a result of a slowdown in customer orders or order cancellations, impact the availability and/or pricing of raw materials and/or the supply chain, and could disrupt business.
We have taken steps in the past,potentially lead to future impairment of goodwill or other intangible assets. In addition, political, social turmoil, international conflicts and expect to take additional steps in the future, intended to improve customer serviceterrorist acts may put pressure on global economic conditions. Unstable political, social and drive further efficiencies and reduce costs, some of which could be disruptive to our business. These actions, collectively across our operating groups, are focused on the following:
Continuing to invest in initiatives focused on building a strong sales and operating presence in emerging growth markets;
Continuing to enhance service and value toeconomic conditions may make it difficult for our franchisees, customers, suppliers and customers;
Continuingus to implement efficiencyaccurately forecast and productivity initiatives throughout the company to drive further efficiencies and reduce costs;
Continuing on the company’s existing path to improve and transform global manufacturing and the supply chain into a market-demand-based replenishment system with lower costs;
Continuing to invest in developing and marketing new, innovative, higher-value-added products and advanced technologies;
Extending our products and services into additional and/or adjacent markets or to new customers; and
Continuing to provide financing for, and grow our portfolio of, receivables within our financial services businesses.
A failure to succeed in the implementation of any or all of these actions could result in an inability to achieve our financial goals and could be disruptive to the business.
In addition, anyplan future reductions to headcount and other cost reduction measures may result in the loss of technical expertise and could adversely affect our research and development efforts as well as our ability to meet product development schedules. Efforts to reduce components of expense could result in the recording of charges for inventory and technology-related write-offs, workforce reduction costs or other charges relating to the consolidation or closure of facilities.business activities. If we were to incur a substantial charge to further these efforts, our earnings per share would be adversely affected in such period. If we are unable to effectively manage our cost reduction and restructuring efforts,conditions persist, our business, financial condition, results of operations and cash flows could be negatively affected.
Item 1B: Unresolved Staff Comments
None.
Item 2: Properties
Snap-on maintains leased and owned manufacturing, software development, warehouse, distribution, research and development and office facilities throughout the world. Snap-on believes that its facilities currently in use are suitable and have adequate capacity to meet its present and foreseeable future demand. Snap-on’s facilities in the United States occupy approximately 3.53.9 million square feet, of which 71%74% is owned, including its corporate and general office facility located in Kenosha, Wisconsin. Snap-on’s facilities outside the United States occupy approximately 4.6 million square feet, of which approximately 72%74% is owned. Certain Snap-on facilities are leased through operating and capitalfinance lease agreements. See Note 1617 to the Consolidated Financial Statements for information on the company’s operating and capitalfinance leases. Snap-on management continually monitors the company’s capacity needs and makes adjustments as dictated by market and other conditions.
The following table provides information about our corporate headquarters and financial services operations, and each of Snap-on’s principal active manufacturing locations, distribution centers and software development locations (exceeding 50,000 square feet) as of 20182021 year end:
|
| | | | | | | | | | | | | | | | | | | |
| Location | | Principal Property Use | | Owned/Leased | | Segment* |
| U.S. Locations: | | | | | | |
| Elkmont, Alabama | | Manufacturing | | Owned | | SOT |
| Conway, Arkansas | | Manufacturing and distribution | | Owned | | RS&I |
| City of Industry, California | | Manufacturing | | Leased | | C&I |
Poway,San Diego, California | | Software development | | LeasedOwned | | RS&I |
| San Jose, California | | Software development | | Leased | | RS&I |
Columbus, GeorgiaTustin, California | | DistributionManufacturing and distribution | | OwnedLeased | | C&I |
| Columbus, Georgia | | Distribution | | Owned | | C&I |
| Crystal Lake, Illinois | | Distribution | | Owned and leased | | SOT |
| Libertyville, Illinois | | Financial services | | Leased | | FS |
| Algona, Iowa | | Manufacturing and distribution | | Owned | | SOT |
| Louisville, Kentucky | | Manufacturing and distribution | | Leased | | RS&I |
| Olive Branch, Mississippi | | Distribution | | Owned | | SOT |
| Carson City, Nevada | | Distribution | | Owned and leased | | SOT |
Louisville, KentuckyMurphy, North Carolina | | Manufacturing and distribution | | Leased | | RS&I |
Olive Branch, Mississippi | | Distribution | | Owned | | SOT |
Carson City, Nevada | | Distribution | | Owned and leased | | SOTC&I |
Murphy, North CarolinaRichfield, Ohio | | Manufacturing and distributionSoftware development | | Owned | | CRS&I |
Richfield, OhioRobesonia, Pennsylvania | | Software developmentDistribution | | Owned | | RS&ISOT |
Robesonia, PennsylvaniaElizabethton, Tennessee | | DistributionManufacturing | | Owned | | SOT |
Elizabethton, Tennessee | | Manufacturing | | Owned | | SOT |
| Kenosha, Wisconsin | | Distribution and corporate | | Owned | | SOT, C&I, RS&I |
| Milwaukee, Wisconsin | | Manufacturing | | Owned | | SOT |
| Pleasant Prairie, Wisconsin | | Distribution | | Owned | | SOT, C&I, RS&I |
Non-U.S. Locations: | | | | | | |
| Non-U.S. Locations: | | | | | | |
| Santo Tome, Argentina | | Manufacturing | | Owned | | C&I |
| New South Wales, Australia | | Distribution and financial services | | Leased | | SOT, FS |
| Minsk, Belarus | | Manufacturing | | Owned | | C&I |
| Santa Bárbara d’Oeste, Brazil | | Manufacturing and distribution | | Owned | | RS&I |
| Calgary, Canada | | Distribution | | Leased | | SOT |
| Mississauga, Canada | | Distribution | | Leased | | SOT, RS&I |
| Beijing, China | | Manufacturing and distribution | | Leased | | C&I |
| Kunshan, China | | Manufacturing | | Owned | | C&I |
| Xiaoshan, China | | Manufacturing | | Owned | | C&I |
| Banbury, England | | Manufacturing and distribution | | Owned | | C&I |
| Bramley, England | | Manufacturing | | Owned | | C&I |
| Kettering, England | | Distribution and financial services | | Owned and leased | | SOT, C&I, FS |
Sopron, HungaryBauge-en-Anjou, France | | Manufacturing | | Owned | | RSC&I |
Correggio, ItalySopron, Hungary | | Manufacturing | | Owned | | RS&I |
Tokyo, JapanCorreggio, Italy | | DistributionManufacturing | | LeasedOwned | | CRS&I |
Helmond, NetherlandsTokyo, Japan | | Distribution | | OwnedLeased | | C&I |
| Helmond, Netherlands | | Distribution | | Owned | | C&I |
| Vila do Conde, Portugal | | Manufacturing | | Owned | | C&I |
| Irun, Spain | | Manufacturing | | Owned | | C&I |
| Placencia, Spain | | Manufacturing | | Owned | | C&I |
| Vitoria, Spain | | Manufacturing and distribution | | Owned | | C&I |
| Bollnäs, Sweden | | Manufacturing | | Owned | | C&I |
| Edsbyn, Sweden | | Manufacturing | | Owned | | C&I |
| Kungsör, Sweden | | Manufacturing and distribution | | Owned | | RS&I |
| Lidköping, Sweden | | Manufacturing | | Owned | | C&I |
| | | | | | |
C&I – Commercial & Industrial Group
SOT – Snap-on Tools Group
RS&I – Repair Systems & Information Group
FS – Financial Services
Item 3: Legal Proceedings
Snap-on is involved in various legal matters that are being litigated and/or settled in the ordinary course of business. Although it is not possible to predict the outcome of these legal matters, management believes that the results of these legal matters will not have a material impact on Snap-on’s consolidated financial position, results of operations or cash flows.
Item 4: Mine Safety Disclosures
Not applicable.
PART II
Item 5: Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Snap-on had 55,610,78153,429,650 shares of common stock outstanding as of 20182021 year end. Snap-on’s stock is listed on the New York Stock Exchange under the ticker symbol “SNA.” At February 8, 2019,4, 2022, there were 4,7044,226 registered holders of Snap-on common stock.
Issuer Purchases of Equity Securities
The following chart discloses information regarding the shares of Snap-on’s common stock repurchased by the company during the fourth quarter of fiscal 2018,2021, all of which were purchased pursuant to the Board’s authorizations that the company has publicly announced. Snap-on has undertaken stock repurchases from time to time to offset dilution created by shares issued for employee and franchisee stock purchase plans, and equity plans, and for other corporate purposes, as well as when the company believes market conditions are favorable. The repurchase of Snap-on common stock is at the company’s discretion, subject to prevailing financial and market conditions.
|
| | | | | | | | |
| Period | | Shares purchased | | Average price per share | | Shares purchased as part of publicly announced plans or programs | | Approximate value of shares that may yet be purchased under publicly announced plans or programs* |
| 09/30/18 to 10/27/18 | | 90,000 | | $149.28 | | 90,000 | | $292.4 million |
| 10/28/18 to 11/24/18 | | 335,000 | | $159.35 | | 335,000 | | $239.1 million |
| 11/25/18 to 12/29/18 | | 205,000 | | $160.20 | | 205,000 | | $215.7 million |
| Total/Average | | 630,000 | | $158.19 | | 630,000 | | N/A |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Shares
purchased | | Average price
per share | | Shares purchased as
part of publicly
announced plans or
programs | | Approximate
value of shares
that may yet be
purchased under
publicly
announced plans
or programs* |
| 10/03/21 to 10/30/21 | | 40,000 | | $206.07 | | 40,000 | | $188.8 million |
| 10/31/21 to 11/27/21 | | 155,000 | | $215.30 | | 155,000 | | $476.9 million |
| 11/28/21 to 01/01/22 | | 160,000 | | $212.06 | | 160,000 | | $454.9 million |
| Total/Average | | 355,000 | | $212.80 | | 355,000 | | N/A |
______________________
N/A: Not applicable
* Subject to further adjustment pursuant to the 1996 Authorization described below, as of December 29, 2018,January 1, 2022, the approximate value of shares that may yet be purchased pursuant to the outstanding Board authorizations discussed below is $215.7$454.9 million.
•In 1996, the Board authorized the company to repurchase shares of the company’s common stock from time to time in the open market or in privately negotiated transactions (“the 1996 Authorization”). The 1996 Authorization allows the repurchase of up to the number of shares issued or delivered from treasury from time to time under the various plans the company has in place that call for the issuance of the company’s common stock. Because the number of shares that are purchased pursuant to the 1996 Authorization will change from time to time as (i) the company issues shares under its various plans; and (ii) shares are repurchased pursuant to this authorization, the number of shares authorized to be repurchased will vary from time to time. The 1996 Authorization will expire when terminated by the Board. When calculating the approximate value of shares that the company may yet purchase under the 1996 Authorization, the company assumed a price of $148.71, $161.00$203.23, $211.30 and $144.25$215.38 per share of common stock as of the end of the fiscal 20182021 months ended October 30, 2021, November 27, 2018, November 24, 2018,2021, and December 29, 2018,January 1, 2022, respectively.
In 2017,•On February 14, 2019, the Board authorized the repurchase of an aggregate of up to $500 million of the company’s common stock (“(the “2019 Authorization”). On November 4, 2021, the 2017Board authorized the repurchase of up to $500 million of the company’s common stock (the “2021 Authorization”). The 20172021 Authorization replaced the 2019 Authorization (under which approximately $179 million remained available at the time of replacement) and, will expire when the aggregate repurchase price limit is met, unless terminated earlier by the Board.
Other Purchases or Sales of Equity Securities
The following chart discloses information regarding transactions in shares of Snap-on’s common stock by Citibank, N.A. (“Citibank”) during the fourth quarter of 20182021 pursuant to a prepaid equity forward agreement (the “Agreement”) with Citibank that is intended to reduce the impact of market risk associated with the stock-based portion of the company’s deferred compensation plans. The company’s stock-based deferred compensation liabilities, which are impacted by changes in the company’s stock price, increase as the company’s stock price rises and decrease as the company’s stock price declines. Pursuant to the Agreement, Citibank may purchase or sell shares of the company’s common stock (for Citibank’s account) in the market or in privately negotiated transactions. The Agreement has no stated expiration date and does not provide for Snap-on to purchase or repurchase its shares.
Citibank PurchasesSales of Snap-on Stock
| | | | | | | | | | | | | | |
| Period | | Shares Sold | | Average Price
per Share |
| 10/03/21 to 10/30/21 | | — | | — |
| 10/31/21 to 11/27/21 | | 5,000 | | $203.00 |
| 11/28/21 to 01/01/22 | | 3,900 | | $209.99 |
| Total/Average | | 8,900 | | $206.06 |
|
| | | | |
| Period | | Shares purchased | | Average price per share |
| 09/30/18 to 10/27/18 | | 2,800 | | $149.19 |
| 10/28/18 to 11/24/18 | | — | | — |
| 11/25/18 to 12/29/18 | | 1,000 | | $152.45 |
| Total/Average | | 3,800 | | $150.05 |
Five-year Stock Performance Graph
The graph below illustrates the cumulative total shareholder return on Snap-on common stock since December 31, 2013,2016, of a $100 investment, assuming that dividends were reinvested quarterly. The graph compares Snap-on’s performance to that of the Standard & Poor’s 500 Industrials Index (“S&P 500 Industrials”) and Standard & Poor’s 500 Stock Index (“S&P 500”).
| | | | | | | | | | | | | | | | | | | | |
Fiscal Year Ended (1) | | Snap-on
Incorporated | | S&P 500
Industrials | | S&P 500 |
| December 31, 2016 | | $100.00 | | $100.00 | | $100.00 |
| December 31, 2017 | | $103.65 | | $121.03 | | $121.83 |
| December 31, 2018 | | $88.26 | | $104.95 | | $116.49 |
| December 31, 2019 | | $105.50 | | $135.77 | | $153.17 |
| December 31, 2020 | | $109.73 | | $150.79 | | $181.35 |
| December 31, 2021 | | $141.38 | | $182.63 | | $233.41 |
|
| | | | | | |
Fiscal Year Ended (1) | | Snap-on Incorporated | | S&P 500 Industrials | | S&P 500 |
| December 31, 2013 | | $100.00 | | $100.00 | | $100.00 |
| December 31, 2014 | | 126.77 | | 109.83 | | 113.69 |
| December 31, 2015 | | 161.15 | | 107.04 | | 115.26 |
| December 31, 2016 | | 163.63 | | 127.23 | | 129.05 |
| December 31, 2017 | | 169.61 | | 153.99 | | 157.22 |
| December 31, 2018 | | 144.41 | | 133.53 | | 150.33 |
_______________________________
(1) The company’s fiscal year ends on the Saturday that is on or nearest to December 31 of each year; for ease of calculation, the fiscal year end is assumed to be December 31.
Item 6: [Reserved]
Item 6: Selected Financial Data
The selected financial data presented below has been derived from, and should be read in conjunction with, the respective historical consolidated financial statements of the company, including the notes thereto, and “Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Impact of Accounting Standards Update (“ASU”) No. 2017-07
At the beginning of fiscal 2018, Snap-on adopted ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715) - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The ASU requires changes to be applied retrospectively; as such, prior periods have been adjusted to reflect this adoption and conform to the 2018 presentation. See Note 1 to the Consolidated Financial Statements for further information on the effect of adoption of this ASU.
|
| | | | | | | | | | | | | | | | | | | | |
| Five-year Data | | | | | | | | | | |
| (Amounts in millions, except per share data) | | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
| Results of Operations | | | | | | | | | | |
| Net sales | | $ | 3,740.7 |
| | $ | 3,686.9 |
| | $ | 3,430.4 |
| | $ | 3,352.8 |
| | $ | 3,277.7 |
|
| Gross profit | | 1,870.0 |
| | 1,825.9 |
| | 1,710.4 |
| | 1,649.3 |
| | 1,585.3 |
|
| Operating expenses | | 1,144.0 |
| | 1,161.3 |
| | 1,048.0 |
| | 1,041.3 |
| | 1,042.3 |
|
| Operating earnings before financial services | | 726.0 |
| | 664.6 |
| | 662.4 |
| | 608.0 |
| | 543.0 |
|
| Financial services revenue | | 329.7 |
| | 313.4 |
| | 281.4 |
| | 240.3 |
| | 214.9 |
|
| Financial services expenses | | 99.6 |
| | 95.9 |
| | 82.7 |
| | 70.1 |
| | 65.8 |
|
| Operating earnings from financial services | | 230.1 |
| | 217.5 |
| | 198.7 |
| | 170.2 |
| | 149.1 |
|
| Operating earnings | | 956.1 |
| | 882.1 |
| | 861.1 |
| | 778.2 |
| | 692.1 |
|
| Interest expense | | 50.4 |
| | 52.4 |
| | 52.2 |
| | 51.9 |
| | 52.9 |
|
| Earnings before income taxes and equity earnings | | 909.9 |
| | 821.9 |
| | 801.4 |
| | 710.5 |
| | 630.9 |
|
| Income tax expense | | 214.4 |
| | 250.9 |
| | 244.3 |
| | 221.2 |
| | 199.5 |
|
| Earnings before equity earnings | | 695.5 |
| | 571.0 |
| | 557.1 |
| | 489.3 |
| | 431.4 |
|
| Equity earnings, net of tax | | 0.7 |
| | 1.2 |
| | 2.5 |
| | 1.3 |
| | 0.7 |
|
| Net earnings | | 696.2 |
| | 572.2 |
| | 559.6 |
| | 490.6 |
| | 432.1 |
|
| Net earnings attributable to noncontrolling interests | | (16.3 | ) | | (14.5 | ) | | (13.2 | ) | | (11.9 | ) | | (10.2 | ) |
| Net earnings attributable to Snap-on | | 679.9 |
| | 557.7 |
| | 546.4 |
| | 478.7 |
| | 421.9 |
|
| | | | | | | | | | | |
| Financial Position | |
| |
| |
| |
| |
|
| Cash and cash equivalents | | $ | 140.9 |
| | $ | 92.0 |
| | $ | 77.6 |
| | $ | 92.8 |
| | $ | 132.9 |
|
| Trade and other accounts receivable – net | | 692.6 |
| | 675.6 |
| | 598.8 |
| | 562.5 |
| | 550.8 |
|
| Finance receivables – net (current) | | 518.5 |
| | 505.4 |
| | 472.5 |
| | 447.3 |
| | 402.4 |
|
| Contract receivables – net (current) | | 98.3 |
| | 96.8 |
| | 88.1 |
| | 82.1 |
| | 74.5 |
|
| Inventories – net | | 673.8 |
| | 638.8 |
| | 530.5 |
| | 497.8 |
| | 475.5 |
|
| Property and equipment – net | | 495.1 |
| | 484.4 |
| | 425.2 |
| | 413.5 |
| | 404.5 |
|
| Long-term finance receivables – net | | 1,074.4 |
| | 1,039.2 |
| | 934.5 |
| | 772.7 |
| | 650.5 |
|
| Long-term contract receivables – net | | 344.9 |
| | 322.6 |
| | 286.7 |
| | 266.6 |
| | 242.0 |
|
| Total assets | | 5,373.1 |
| | 5,249.1 |
| | 4,723.2 |
| | 4,331.1 |
| | 4,162.0 |
|
| Notes payable and current maturities of long-term debt | | 186.3 |
| | 433.2 |
| | 301.4 |
| | 18.4 |
| | 56.6 |
|
| Accounts payable | | 201.1 |
| | 178.2 |
| | 170.9 |
| | 148.3 |
| | 145.0 |
|
| Long-term debt | | 946.0 |
| | 753.6 |
| | 708.8 |
| | 861.7 |
| | 862.7 |
|
| Total debt | | 1,132.3 |
| | 1,186.8 |
| | 1,010.2 |
| | 880.1 |
| | 919.3 |
|
| Total shareholders’ equity attributable to Snap-on | | 3,098.8 |
| | 2,953.9 |
| | 2,617.2 |
| | 2,412.7 |
| | 2,207.8 |
|
| | | | | | | | | | | |
| Common Share Summary | |
| |
| |
| |
| |
|
| Weighted-average shares outstanding – diluted | | 57.3 |
| | 58.6 |
| | 59.4 |
| | 59.1 |
| | 59.1 |
|
| Net earnings per share attributable to Snap-on: | |
| |
| |
| |
| |
|
| Basic | | $ | 12.08 |
| | $ | 9.72 |
| | $ | 9.40 |
| | $ | 8.24 |
| | $ | 7.26 |
|
| Diluted | | 11.87 |
| | 9.52 |
| | 9.20 |
| | 8.10 |
| | 7.14 |
|
| Cash dividends paid per share | | 3.41 |
| | 2.95 |
| | 2.54 |
| | 2.20 |
| | 1.85 |
|
| Shareholders’ equity per basic share | | 55.04 |
| | 51.46 |
| | 45.05 |
| | 41.53 |
| | 38.00 |
|
|
| | |
| | |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management Overview
References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “organic sales” refer to sales from continuing operations calculated in accordance with generally accepted accounting principles in the United States of America (“GAAP”), excluding acquisition-related sales and the impact of foreign currency translation. Management evaluates the company’s sales performance based on organic sales growth, which primarily reflects growth from the company’s existing businesses as a result of increased output, customer base and geographic expansion, new product development and/or pricing, and excludes sales contributions from acquired operations the company did not own as of the comparable prior-year reporting period. The company’s organic sales disclosures also exclude the effects of foreign currency translation as foreign currency translation is subject to volatility that can obscure underlying business trends. Management believes that the non-GAAP financial measure of organic sales is meaningful to investors as it provides them with useful information to aid in identifying underlying growth trends in our businesses and facilitating comparisons of our sales performance with prior periods.
We believe our 20182021 operating results demonstrate the continued momentum of our commitmentoperations and confirms the resilience of our markets and our considerable capabilities to overcome the challenges of the COVID environment. Throughout the turbulence, we maintained and further developed our ongoing advantages in providing repeatabilityour products, brands and reliabilitypeople. At the same time, we leveraged existing proficiencies to a wide range of professional customers performing critical tasks in workplaces of consequence. Leveraging capabilities already demonstrated in the automotive repair arena, our “coherent growth” strategy focusesfocus on developing and expanding our professional customer base, not only in automotive repair, but in adjacent markets, additional geographies and other areas, including in critical industries, where the cost and penalties for failure can be high. Snap-on’s value proposition of making work easier for serious professionals in workplaces of consequence is an ongoing strength as we move forward along our runways for coherent growth:
•Enhancing the franchise network, where we continued to focus on helping our franchisees extend their reach through innovative selling processes and productivity initiatives that break the traditional time and space barriers inherent in a mobile van;
•Expanding in the vehiclewith repair garage,shop owners and managers, where we continued to make progress in connecting with customers and translating the resulting insights into innovation that solves specific challenges in the repair facility;
•Further extending into critical industries, where we continued to grow our lines of products customized for specific industries, including through further integration of acquisitions; and
•Building in emerging markets, where we continued to buildmaintain manufacturing capacity, focusedas well as refine product lines and distribution capability.capabilities.
Our strategic priorities and plans for 2019 will continue2022 involve continuing to build on our Snap-on Value Creation Processes – our suite of strategic principles and processes we employ every day designed to create value, and employed in the areas of safety, quality, customer connection, innovation and rapid continuous improvement (“Rapid Continuous Improvement” or “RCI”). We expect to continue to deploy these processes in our existing operations as well as into our recently acquired businesses.
Snap-on’s RCI initiatives employ a structured set of tools and processes across multiple businesses and geographies intended to eliminate waste and improve operations. Savings from Snap-on’s RCI initiatives reflect benefits from a wide variety of ongoing efficiency, productivity and process improvements, including savings generated from product design cost reductions, improved manufacturing line set-up and change-over practices, lower-cost sourcing initiatives and facility consolidations. Unless individually significant, it is not practicable to disclose each RCI activity that generated savings and/or segregate RCI savings embedded in sales volume increases.
Our global financial services operations continue to serve a significant strategic role in offering financing options to our franchisees, to their customers, and to customers in other parts of our business. We expect that our global financial services business, which includes both Snap-on Credit LLC (“SOC”) in the United States and our other international finance subsidiaries, will continue to be a meaningful contributor to our operating earnings going forward.
Snap-on has significant international operations and is subject to risks inherent with foreign operations, including foreign currency translation fluctuations.
Recent Acquisitions
On August 1, 2021, Snap-on acquired AutoCrib EMEA GmbH (“AutoCrib Germany”), for a cash purchase price of $4.4 million (or $4.2 million, net of cash acquired). AutoCrib Germany, based in Hamburg, Germany, distributes asset and tool control solutions for a variety of aerospace, automotive, military, natural resources and general industry operations. The acquisition of AutoCrib Germany, a former independent distributor, enhanced and expanded Snap-on’s capabilities in providing solutions for the company’s existing tool control offerings.
On July 1, 2021, Snap-on exchanged its 35% equity interest in Deville S.A., valued at $21.8 million, for 100% ownership of Secateurs Pradines (“Pradines”), a wholly owned subsidiary of Deville S.A. with a fair value of $20.7 million (or $16.2 million, net of cash acquired), and cash of $1.1 million. Pradines, located in Bauge-en-Anjou, France, designs and manufactures horticultural hand tools for professionals and individuals. Pradines has been the primary supplier of pruning products to Snap‑on and the acquisition allows the company to improve and expand its pruning tool offering.
Recent AcquisitionsOn February 26, 2021, Snap-on acquired Dealer-FX Group, Inc. (“Dealer-FX”) for a cash purchase price of $200.1 million (or $200.0 million, net of cash acquired). Dealer-FX, based in Markham, Ontario, is a leading developer, marketer and provider of service-operations software solutions for automotive original equipment manufacturer (“OEM”) customers and their dealers. Dealer-FX specializes in software as a service (SaaS) management systems, communications platforms, extensive data integrations, and offers a digitalized solution that increases productivity and enhances the vehicle owners’ experience. The acquisition of Dealer-FX complemented and expanded Snap-on’s existing OEM and dealership business that provides electronic parts catalogs, essential tool and diagnostic programs, and custom analytics to OEMs and dealerships.
On January 31, 2018,September 28, 2020, Snap-on acquired substantially all of the assets of George A. Sturdevant,AutoCrib, Inc. (d/b/a Fastorq)(“AutoCrib”) for a cash purchase price of $3.0$35.4 million. Fastorq,AutoCrib, based in New Caney, Texas,Tustin, California, designs, assemblesmanufactures and distributes hydraulic torquemarkets asset and hydraulic tensioning productstool control solutions. The acquisition of AutoCrib complemented and expanded Snap-on’s existing tool control offering to customers in a variety of industrial applications, including aerospace, automotive, military, natural resources and general industry.
On January 31, 2020, Snap-on acquired substantially all of the assets related to the TreadReader product line from Sigmavision Limited (“Sigmavision”) for a cash purchase price of $5.9 million. Sigmavision designs and manufactures handheld devices and drive-over ramps that provide tire information for use in critical industries.the automotive industry. The acquisition of the FastorqTreadReader product line complementedenhanced and increasedexpanded Snap-on’s existing torque product offering and broadened its established capabilities in serving in critical industries. vehicle repair facilities and expanded the company’s presence with repair shop owners and managers.
For segment reporting purposes, the results of operations and assets of Fastorq have been included in the Commercial & Industrial Group since the acquisition date.
On July 28, 2017, Snap-on acquired Torque Control Specialists Pty Ltd (“TCS”) for a cash purchase price of $3.6 million (or $3.5 million, net of cash acquired). TCS, based in Adelaide, Australia, distributes a full range of torque products, including wrenches, multipliersDealer-FX and calibrators, for use in critical industries. The acquisition of TCS enhanced and expanded Snap-on’s capabilities in providing solutions that address torque requirements, which are increasingly essential to critical mechanical performance. For segment reporting purposes, the results of operations and assets of TCS have been included in the Commercial & Industrial Group since the acquisition date.
On May 4, 2017, Snap-on acquired Norbar Torque Tools Holdings Limited, along with its U.S. and Chinese joint ventures (“Norbar”), for a cash purchase price of $71.6 million (or $69.9 million, net of cash acquired). Norbar, based in Banbury, U.K., designs and manufactures a full range of torque products, including wrenches, multipliers and calibrators, for use in critical industries. The acquisition of Norbar enhanced and expanded Snap-on’s capabilities in providing solutions that address torque requirements. For segment reporting purposes, the results of operations and assets of Norbar have been included in the Commercial & Industrial Group since the acquisition date.
On January 30, 2017, Snap-on acquired BTC Global Limited (“BTC”) for a cash purchase price of $9.2 million. BTC, based in Crewe, U.K., designs and implements automotive vehicle inspection and management software for original equipment manufacturer (“OEM”) franchise repair shops. The acquisition of BTC enhanced Snap-on’s capabilities to grow enterprise revenues and add increased productivity for repair workshops. For segment reporting purposes, the results of operations and assets of BTCSigmavision have been included in the Repair Systems & Information Group since the respective acquisition date.
On November 16, 2016, Snap-on acquired Ryeson Corporation (d/b/a Sturtevant Richmont) for a cash purchase price of $13.0 million (or $12.6 million, net of cash acquired). Sturtevant Richmont, based in Carol Stream, Illinois, designs, manufacturesdates, and distributes mechanical and electronic torque wrenches as well as wireless torque error proofing systems for a variety of industrial applications. The acquisition of Sturtevant Richmont enhanced and expanded Snap-on’s capabilities in providing solutions that address torque requirements. For segment reporting purposes, the results of operations and assets of Sturtevant RichmontAutoCrib Germany, Pradines, and AutoCrib have been included in the Commercial & Industrial Group since the respective acquisition date.
On October 31, 2016, Snap-on acquired Car-O-Liner Holding AB (“Car-O-Liner”) for a cash purchase price of $152.0 million (or $148.1 million, net of cash acquired). Car-O-Liner, based in Gothenburg, Sweden, designs and manufactures collision repair equipment, and information and truck alignment systems. The acquisition of Car-O-Liner complemented and increased Snap-on’s existing equipment and repair and service information product offerings, broadened its established capabilities in serving vehicle repair facilities and further expanded the company’s presence with repair shop owners and managers. For segment reporting purposes, substantially all of Car-O-Liner’s results of operations and assets have been included in the Repair Systems & Information Group since the acquisition date, with the remaining portions included in the Commercial & Industrial Group.dates.
Pro forma financial information has not been presented for any of these acquisitions as the net effects, individually and collectively, were neither significant nor material to Snap-on’s results of operations or financial position.
Impact of Accounting Standards Update No. 2017-07Fiscal Year
AtSnap-on’s fiscal year ends on the beginning of fiscal 2018, Snap-on adopted ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715) - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The ASU requires changesSaturday that is on or nearest to be applied retrospectively; as such, prior periods have been adjustedDecember 31. Unless otherwise indicated, references in this document to reflect this adoption and conform“fiscal 2021” or “2021” refer to the 2018 presentation. See Notefiscal year ended January 1, 2022; references to “fiscal 2020” or “2020” refer to the Consolidatedfiscal year ended January 2, 2021; and references to “fiscal 2019” or “2019” refer to the fiscal year ended December 28, 2019. References in this document to 2021, 2020 and 2019 year end refer to January 1, 2022, January 2, 2021, and December 28, 2019, respectively.
Snap-on’s 2021 and 2019 fiscal years each contained 52 weeks of operating results. Snap-on’s 2020 fiscal year contained 53 weeks of operating results with the extra week occurring in the fourth quarter. The impact of the additional week of operations in fiscal 2020 was not material to Snap-on’s full year or fourth quarter total revenues or net earnings.
Fiscal 2020 as Compared to Fiscal 2019
A discussion regarding our financial condition and results of operations for fiscal 2020 compared to fiscal 2019 can be found under “Part II, Item 7: Management’s Discussion and Analysis of Financial Statements for further informationCondition and Results of Operations,” in our Annual Report on the effectForm 10-K for the fiscal year ended January 2, 2021, which was filed with the SEC on February 11, 2021, and is available on the SEC’s website at www.sec.gov as well as in the “Investors” section of adoption of this ASU.our corporate website at www.snapon.com.
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | |
Non-GAAP Measures
SummaryReferences in this Management’s Discussion and Analysis of Consolidated Performance
Consolidated netFinancial Condition and Results of Operations to “organic sales” refer to sales from continuing operations calculated in accordance with generally accepted accounting principles in the United States of $3,740.7 million in 2018 increased $53.8 million, or 1.5%America (“GAAP”), from 2017 levels, reflecting a $19.3 million, or 0.5%, increase in organic sales (a non-GAAP financial measure that excludesadjusted to exclude acquisition-related sales and the impact of foreign currency translation)translation. Management evaluates the company’s sales performance based on organic sales growth, which primarily reflects growth from the company’s existing businesses as a result of increased output, expanded customer base, geographic expansion, new product development and pricing changes, and excludes sales contributions from acquired operations the company did not own as of the comparable prior-year reporting period. Organic sales also exclude the effects of foreign currency translation as foreign currency translation is subject to volatility that can obscure underlying business trends. Management believes that the non-GAAP financial measure of organic sales is meaningful to investors as it provides them with useful information to aid in identifying underlying growth trends in the company’s businesses and facilitates comparisons of its sales performance with prior periods.
Effect of COVID-19
Our markets and our operations possess and, indeed, have demonstrated considerable resilience against the effects of the pandemic. During 2021, the impact on sales and the need for remediating costs associated with the pandemic have lessened, particularly from the heavily-impacted second quarter of 2020. The company sustained the accommodation of its operations to the virus environment, continuing without significant disruption to serve its franchisees and other professional customers as they performed their essential work, while taking what it believes to be appropriate measures to ensure the health and safety of its people. Throughout the pandemic, Snap-on has generally maintained its workforce and manufacturing capacity, as well as its investments in brand building and product development. As the global supply chain inefficiencies and associated cost increases caused by the COVID-19 pandemic have developed, the company has taken steps to ensure access to raw materials, components and purchased finished goods, and to provide for counterbalancing price and efficiency offsets. See also Part I, Item 1A: Risk Factors - Risk related to COVID-19 and Other Infectious Diseases.
Summary of Consolidated Performance
Consolidated net sales of $4,252.0 million in 2021 increased $659.5 million, or 18.4%, $24.2from 2020 levels, reflecting a $550.5 million, or 15.1%, organic gain, $62.6 million of acquisition-related sales and $10.3$46.4 million of favorable foreign currency translation.
Operating earnings before financial services of $726.0$851.5 million in 2018, including $4.42021 increased $219.6 million, or 34.8%, compared to $631.9 million in 2020, which included $12.5 million of favorable foreign currency effects, increased $61.4 million, or 9.2%, as compared to $664.6 million last year. Fiscal 2018 results included a $4.3 million benefit related to a settlement in an employment-related litigation matter that was being appealed (the “legal settlement”). Fiscal 2017 results included $45.9 million of charges related to the judgment that was the subject of the legal settlementexit and a judgment in a patent-related litigation matter that is being appealed (collectively the “legal charges”disposal (“restructuring”). The company can provide no assurance as to the result of the appeal. charges. As a percentage of net sales, operating earnings before financial services of 19.4% in 201820.0% compared to 18.0%17.6% last year.
Operating earnings of $956.1$1,123.5 million in 2018, including the $4.32021 increased $243.0 million, benefit for the legal settlement and $4.7or 27.6%, compared to $880.5 million last year, which included $12.5 million of favorable foreign currency effects, increased $74.0 million, or 8.4% from $882.1 million last year. In 2017, operating earnings included $45.9 million of expensecharges for the legal charges.restructuring actions. As a percentage of revenues, operating earnings of 23.5%24.4%, compared to 22.1%22.3% last year.
In 2018, net earnings attributable to Snap-on were $679.9 million, or $11.87 per diluted share, increased $122.2 million, or $2.35 per diluted share, from $557.7 million, or $9.52 per diluted share, in 2017. In 2018, net earnings attributable to Snap-on included a $4.1 million, or $0.07 per diluted share, benefit from an after-tax net gain of $4.1 million associated with a treasury lock settlement of $10.0 million related to the issuance of debt, partially offset by $5.9 million of expense related to the early extinguishment of debt (collectively, the “net debt items”), as well as $3.2 million, or $0.06 per diluted share, for the after-tax benefit related to the legal settlement, partially offset by $3.9 million, or $0.07 per diluted share, of tax expense for newly issued guidance associated with the U.S. Tax Cuts and Jobs Act (the “Tax Act”) or (“tax charge”). Net earnings attributable to Snap-on in 2017 included $28.42021 of $820.5 million, or $0.48$14.92 per diluted share, for theincreased $193.5 million, or $3.48 per diluted share, from 2020 levels. Net earnings attributable to Snap-on in 2020 were $627.0 million, or $11.44 per diluted share and included a $10.3 million, or $0.19 per diluted share, after-tax expensecharge related to the legal charges, and $7.0 million, or $0.12 per diluted share, of tax expense as a result of the implementation of the Tax Act.restructuring actions.
Impact of the Tax Act
On December 22, 2017, the U.S. government passed the Tax Act. The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to: (i) reducing the future U.S. federal corporate tax rate from 35 percent to 21 percent; (ii) requiring companies to pay a one-time transition tax on certain unremitted earnings of foreign subsidiaries; and (iii) bonus depreciation that will allow for full expensing of qualified property.
The Tax Act also established new tax laws that affected 2018, including, but not limited to: (i) the reduction of the U.S. federal corporate tax rate discussed above; (ii) a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries; (iii) a new provision designed to tax global intangible low-taxed income (“GILTI”); (iv) the repeal of the domestic production activity deductions; (v) limitations on the deductibility of certain executive compensation; (vi) limitations on the use of foreign tax credits to reduce the U.S. income tax liability; and (vii) a new provision that allows a domestic corporation an immediate deduction for a portion of its foreign derived intangible income (“FDII”).
The Securities and Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118, which provides guidance on accounting for the tax effects of the Tax Act, for the company’s year ended December 30, 2017. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the related accounting under Accounting Standards Codification (“ASC”) 740, Accounting for Income Taxes. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for a certain income tax effect of the Tax Act is incomplete, but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.
The company’s accounting for certain elements of the Tax Act was incomplete as of December 30, 2017. However, the company was able to make reasonable estimates of the effects and, therefore, recorded provisional estimates for these items. In connection with its initial analysis of the impact of the Tax Act, the company recorded a provisional discrete net tax expense of $7.0 million in the fiscal year ended December 29, 2017. This provisional estimate consists of a net expense of $13.7 million for the one-time transition tax and a net benefit of $6.7 million related to revaluation of deferred tax assets and liabilities, caused by the new lower corporate tax rate. To determine the transition tax, the company must determine the amount of post-1986 accumulated earnings and profits of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. While the company was able to make a reasonable estimate of the transition tax for 2017, it continued to gather additional information to more precisely compute the final amount reported on its 2017 U.S. federal tax return which was filed in October 2018. The actual transition tax reported was $8.3 million greater than the company’s initial estimate and was included in income tax expense for 2018. Likewise, while the company was able to make a reasonable estimate of the impact of the reduction to the corporate tax rate, it was affected by other analyses related to the Tax Act, including, but not limited to, the state tax effect of adjustments made to federal temporary differences. During 2018, the company recorded additional net tax benefits of $4.4 million attributable to pension contributions made in 2018 that were deductible for 2017 at the higher 35% federal tax rate and other changes to the 2017 tax provision related to the Tax Act and subsequently issued tax guidance. Due to the complexity of the new GILTI tax rules, the company continued to evaluate this provision of the Tax Act and the application of ASC 740 throughout 2018. Under GAAP, the company is allowed to make an accounting policy choice to either: (i) treat taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”); or (ii) factor in such amounts into a company’s measurement of its deferred taxes (the “deferred method”). The company selected to apply the “period cost method” to account for the new GILTI tax, and treated it as a current-period expense for 2018. The company will continue to analyze the full effects of the Tax Act on its financial statements in 2019 as additional guidance is issued and interpretations evolve.
Summary of Segment Performance
The Commercial & Industrial Group consists of business operations serving a broad range of industrial and commercial customers worldwide, including customers in the aerospace, natural resources, government, power generation, transportation and technical education market segments (collectively, “critical industries”), primarily through direct and distributor channels. Segment net sales of $1,343.3$1,406.3 million in 20182021 increased $78.3$171.7 million, or 6.2%13.9%, from 20172020 levels, reflecting a $52.1$131.9 million, or 4.1%10.5%, organic sales gain, $23.5increase, $22.5 million of acquisition-related sales and $2.7$17.3 million of favorable foreign currency translation. The organic sales increasegain reflects higher activity in all of the segment’s operations and includes highermid single-digit increases in sales to customers in critical industries, in the Asia Pacific operations, in power tools operations and in the European-based hand tools business. industries. Operating earnings of $199.3$209.9 million in 2018, increased $12.8 million, or 6.9%, from 2017 levels, primarily due to increased organic sales volume and acquisitions, partially offset by $2.52021, including $3.8 million of unfavorable foreign currency effects.
effects, increased $56.2 million, or 36.6%, compared to $153.7 million in 2020, which included $6.4 million of restructuring charges.
The Commercial & Industrial Group intends to continue building on the following strategic priorities in 2019:2022:
•Continuing to invest in emerging market growth initiatives;
•Expanding our business with existing customers and reaching new customers in critical industries and other market segments;
•Broadening our product offering designed particularly for critical industry segments;
•Increasing our customer-connection-driven understanding of work across multiple industries;
•Investing in innovation that, guided by that understanding of work, delivers an ongoing stream of productivity-enhancing custom engineered solutions; and
•Continuing to reduce structural and operating costs, as well as improve efficiencies, through RCI initiatives.
The Snap-on Tools Group consists of business operations primarily serving vehicle service and repair technicians through the company’s worldwide mobile tool distribution channel. Segment net sales of $1,613.8$1,938.6 million in 2018 decreased $11.32021 increased $294.7 million, or 0.7%17.9%, from 20172020 levels, reflecting a $15.6$274.4 million, or 1.0%16.5%, organic sales decrease, partially offset by $4.3gain and $20.3 million of favorable foreign currency translation. The organic sales decrease includes a declineincrease reflects double-digit gains in the company’s international franchise operations while sales inboth the U.S. franchise operations were essentially flat.and international operations. Operating earnings of $264.2$411.1 million in 2018 decreased $10.5 million, or 3.8%, from 2017 levels primarily due to the impact of lower sales volumes and higher costs, partially offset by $7.72021, including $17.0 million of favorable foreign currency effects, and benefits from the company’s RCI initiatives.increased $143.4 million, or 53.6%, compared to $267.7 million in 2020.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | |
Despite the sales challenges in 2018, the Snap-on Tools Group remained focused on its fundamental, strategic initiatives to strengthen the franchise network and enhance franchisee profitability. In 2019,2022, the Snap-on Tools Group intends to continue these initiatives, with specific focus on the following:
•Continuing to improve franchisee satisfaction, productivity, profitability and commercial health;
•Developing new programs and products to expand market coverage, reaching new technician customers and increasing penetration with existing customers;
•Increasing investment in new product innovation and development; and
•Increasing customer service levels and productivity in back office support functions, manufacturing and the supply chain through RCI initiatives and investment.
By focusing on these areas, we believe that Snap-on, as well as its franchisees, will have the opportunity to continue to serve more customers, more effectively, more profitably and with improved satisfaction.
The Repair Systems &Information Group consists of business operations serving other professional vehicle repair customers worldwide, primarily owners and managers of independent repair shops and OEM dealershipsdealership service and repair shops (“OEM dealerships”) through direct and distributor channels. Segment net sales of $1,334.4$1,503.1 million in 2018 decreased $12.82021 increased $264.9 million, or 1.0%,21.4% from 20172020 levels, reflecting a $19.6$211.3 million, or 1.4%16.9%, organic sales decline, partially offset by $0.7increase, $40.1 million of acquisition-related sales and $6.1$13.5 million of favorable foreign currency translation. The organic sales decrease primarilygain reflects lower sales to OEM dealerships andan increase of more than 25% in sales of undercar equipment, partially offset by increasedas well as double-digit gains in both sales of diagnostic and repair information products to independent repair shop owners and managers.managers and in activity focused on OEM dealerships. Operating earnings of $342.6$348.6 million in 2018 increased $7.3 million, or 2.2%, from 2017 levels, primarily due to benefits from the company’s RCI initiatives, partially offset by $0.82021, including $1.6 million of unfavorable foreign currency effects.effects, increased $50.6 million, or 17.0%, from $298.0 million in 2020, which included $5.5 million of restructuring charges.
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | |
The Repair Systems & Information Group intends to focus on the following strategic priorities in 2019:2022:
•Expanding the product offering with new products and services, thereby providing more to sell to repair shop owners and managers;
•Continuing software and hardware upgrades to further improve functionality, performance and efficiency;
•Leveraging integration of software solutions;
•Continuing productivity advancements through RCI initiatives and leveraging of resources; and
•Increasing penetration in geographic markets, including emerging markets.
Financial Servicesgenerates revenue from various financing programs and is a strategic partner of the company’s mobile franchise van channel. Financial services revenue was $329.7$349.7 million in 2018both 2021 and $313.42020. Originations of $1,073.2 million in 2017; originations of $1,057.5 million in 2018 decreased $14.52021 increased $36.6 million, or 1.4%3.5%, from 20172020 levels. In 2018, operatingOperating earnings from financial services in 2021 of $230.1$272.0 million, including $0.3$2.3 million of favorable foreign currency effects, increased $12.6$23.4 million, or 5.8%9.4%, from $217.5compared to $248.6 million last year. In recent years, Snap-on has steadily grown its financial services portfolio by providing financing for new finance and contract receivables originated by our global financial services operations.
Financial Services intends to focus on the following strategic priorities in 2019:2022:
•Delivering financial products and services that attract and sustain profitable franchisees and support Snap-on’sSnap‑on’s strategies for expanding market coverage and penetration;
•Improving productivity levels and ensuring high quality in all financial products and processes through the use of RCI initiatives; and
•Maintaining healthy portfolio performance levels.
Cash Flows
Net cash provided by operating activities of $764.5$966.6 million in 2018 increased $156.02021 decreased $42.0 million from $608.5$1,008.6 million in 2017.2020. The $156.0$42.0 million increasedecrease is primarily due to $124.0a $253.6 million of higherchange in net earnings and $34.0 million from net changes in operating assets and liabilities. Net cash providedliabilities, partially offset by operating activities was $576.1a $195.0 million increase in 2016. net earnings.
Net cash used by investing activities of $210.2$290.4 million in 20182021 included additions to finance receivables of $865.6$878.1 million, partially offset by collections of $747.7$854.2 million, as well as $3.0a total of $199.7 million for the acquisitionacquisitions of Fastorq.Dealer-FX, AutoCrib Germany and Pradines. Net cash used by investing activities of $341.4$187.8 million in 20172020 included additions to finance receivables of $892.0$835.0 million, partially offset by collections of $712.7$750.3 million, as well as a total of $82.9$41.5 million (net of $1.8 million of cash acquired) for the acquisitions of BTC, Norbar,Sigmavision and TCS,AutoCrib, and a $0.2 million working capital adjustmentsadjustment for the Car-O-Liner and Sturtevant Richmont acquisitions. Net cash used by investing activities of $473.4 million in 2016 included additions to finance receivables of $915.0 million, partially offset by collections of $671.7 million, as well as, on a preliminary basis, $160.4 million (net of $4.3 million of cash acquired) for the acquisitions of Car-O-Liner and Sturtevant Richmont.2019 Cognitran acquisition. Capital expenditures in 2018, 20172021 and 20162020 totaled $90.9 million, $82.0$70.1 million and $74.3$65.6 million, respectively. Capital expenditures in all threeboth years included continued investments related to support the company’s execution of its strategic growth initiatives and Value Creation Processes around safety, quality, customer connection, innovation and RCI.
Net cash used by financing activities of $502.2$818.8 million in 20182021 included repayments$431.3 million for the repurchase of $2501,943,900 shares of Snap-on’s common stock, $275.8 million for dividend payments to shareholders and the September 2021 repayment of $250.0 million of the6.125% unsecured 4.25% notes due January 16, 2018upon maturity (the “2018“2021 Notes”), at maturity, and $200 million of the unsecured 6.70% notes that were scheduled to mature on March 1, 2019 (the “2019 Notes”), and a $7.8 million loss on early extinguishment of debt.. These amounts were partially offset by Snap-on’s sale, on February 20, 2018, of $400 million of unsecured 4.10% notes that mature on March 1, 2048 (the “2048 Notes”) at a discount, from which Snap-on received $395.4 million of net proceeds, reflecting $3.5 million of transaction costs. Net cash used by financing activities in 2018 also included $284.1 million for the repurchase of 1,769,000 shares of Snap-on’s common stock and $192.0 million for dividend payments to shareholders, partially offset by $55.5$162.4 million of proceeds from stock purchase and option plan exercises and $4.9 million ofnet proceeds from a net increase in notes payable and other short-term borrowings.borrowings of $3.3 million. Net cash used by financing activities of $256.1$84.3 million in 20172020 included $243.3 million for dividend payments to shareholders, $187.2 million for repayments of notes payable and other short-term borrowings and $174.3 million for the January 2017 repaymentrepurchase of $150 million1,109,000 shares of 5.5% unsecured notes upon maturity (the “2017 Notes”).Snap-on’s common stock. These amounts were partially offset by Snap-on’s sale, on February 15, 2017,April 27, 2020, of $300$500 million of unsecured 3.25%3.10% notes that mature on MarchMay 1, 20272050 (the “2027“2050 Notes”), at a discount, from which Snap-on received $297.8$489.9 million of net proceeds, reflecting $1.9$4.4 million of transaction costs. Net cash used by financing activities in 2017 also included $287.9 million for the repurchase of 1,820,000 shares of Snap-on’s common stock,costs, and $169.4 million for dividend payments to shareholders, partially offset by $46.2 million of proceeds from stock purchase and option plan exercises and $30.6 million of proceeds from a net increase in notes payable and other short-term borrowings. Net cash used by financing activities of $116.0 million in 2016 included $147.5 million for dividend payments to shareholders and $120.4 million for the repurchase of 758,000 shares of Snap-on’s common stock, partially offset by $134.2 million of proceeds from a net increase in notes payable and other short-term borrowings and $41.8$55.8 million of proceeds from stock purchase and option plan exercises.
Fiscal Year
Snap-on’s fiscal year ends on the Saturday that is on or nearest to December 31. Unless otherwise indicated, references in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “fiscal 2018” or “2018” refer to the fiscal year ended December 29, 2018; references to “fiscal 2017” or “2017” refer to the fiscal year ended December 30, 2017; and references to “fiscal 2016” or “2016” refer to the fiscal year ended December 31, 2016. References in this document to 2018, 2017 and 2016 year end refer to December 29, 2018, December 30, 2017, and December 31, 2016, respectively.
Snap-on’s 2018, 2017 and 2016 fiscal years each contained 52 weeks of operating results.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | |
Results of Operations
20182021 vs. 20172020
Results of operations for 20182021 and 20172020 are as follows:
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| (Amounts in millions) | | 2018 | | 2017 | | Change |
| Net sales | | $ | 3,740.7 |
| | 100.0 | % | | $ | 3,686.9 |
| | 100.0 | % | | $ | 53.8 |
| | 1.5 | % |
| Cost of goods sold | | (1,870.7 | ) | | (50.0 | )% | | (1,861.0 | ) | | (50.5 | )% | | (9.7 | ) | | (0.5 | )% |
| Gross profit | | 1,870.0 |
| | 50.0 | % | | 1,825.9 |
| | 49.5 | % | | 44.1 |
| | 2.4 | % |
| Operating expenses | | (1,144.0 | ) | | (30.6 | )% | | (1,161.3 | ) | | (31.5 | )% | | 17.3 |
| | 1.5 | % |
| Operating earnings before financial services | | 726.0 |
| | 19.4 | % | | 664.6 |
| | 18.0 | % | | 61.4 |
| | 9.2 | % |
| | | | | | | | | | | | | |
| Financial services revenue | | 329.7 |
| | 100.0 | % | | 313.4 |
| | 100.0 | % | | 16.3 |
| | 5.2 | % |
| Financial services expenses | | (99.6 | ) | | (30.2 | )% | | (95.9 | ) | | (30.6 | )% | | (3.7 | ) | | (3.9 | )% |
| Operating earnings from financial services | | 230.1 |
| | 69.8 | % | | 217.5 |
| | 69.4 | % | | 12.6 |
| | 5.8 | % |
| | | | | | | | | | | | | |
| Operating earnings | | 956.1 |
| | 23.5 | % | | 882.1 |
| | 22.1 | % | | 74.0 |
| | 8.4 | % |
| Interest expense | | (50.4 | ) | | (1.2 | )% | | (52.4 | ) | | (1.3 | )% | | 2.0 |
| | 3.8 | % |
| Other income (expense) – net | | 4.2 |
| | 0.1 | % | | (7.8 | ) | | (0.3 | )% | | 12.0 |
| | NM |
|
| Earnings before income taxes and equity earnings | | 909.9 |
| | 22.4 | % | | 821.9 |
| | 20.5 | % | | 88.0 |
| | 10.7 | % |
| Income tax expense | | (214.4 | ) | | (5.3 | )% | | (250.9 | ) | | (6.2 | )% | | 36.5 |
| | 14.5 | % |
| Earnings before equity earnings | | 695.5 |
| | 17.1 | % | | 571.0 |
| | 14.3 | % | | 124.5 |
| | 21.8 | % |
| Equity earnings, net of tax | | 0.7 |
| | — |
| | 1.2 |
| | — |
| | (0.5 | ) | | (41.7 | )% |
| Net earnings | | 696.2 |
| | 17.1 | % | | 572.2 |
| | 14.3 | % | | 124.0 |
| | 21.7 | % |
| Net earnings attributable to noncontrolling interests | | (16.3 | ) | | (0.4 | )% | | (14.5 | ) | | (0.4 | )% | | (1.8 | ) | | (12.4 | )% |
| Net earnings attributable to Snap-on Inc. | | $ | 679.9 |
| | 16.7 | % | | $ | 557.7 |
| | 13.9 | % | | $ | 122.2 |
| | 21.9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2021 | | 2020 | | Change |
| Net sales | | $ | 4,252.0 | | | 100.0 | % | | $ | 3,592.5 | | | 100.0 | % | | $ | 659.5 | | | 18.4 | % |
| Cost of goods sold | | (2,141.2) | | | (50.4) | % | | (1,844.0) | | | (51.3) | % | | (297.2) | | | (16.1) | % |
| Gross profit | | 2,110.8 | | | 49.6 | % | | 1,748.5 | | | 48.7 | % | | 362.3 | | | 20.7 | % |
| Operating expenses | | (1,259.3) | | | (29.6) | % | | (1,116.6) | | | (31.1) | % | | (142.7) | | | (12.8) | % |
| Operating earnings before financial services | | 851.5 | | | 20.0 | % | | 631.9 | | | 17.6 | % | | 219.6 | | | 34.8 | % |
| | | | | | | | | | | | |
| Financial services revenue | | 349.7 | | | 100.0 | % | | 349.7 | | | 100.0 | % | | — | | | — | |
| Financial services expenses | | (77.7) | | | (22.2) | % | | (101.1) | | | (28.9) | % | | 23.4 | | | 23.1 | % |
| Operating earnings from financial services | | 272.0 | | | 77.8 | % | | 248.6 | | | 71.1 | % | | 23.4 | | | 9.4 | % |
| | | | | | | | | | | | |
| Operating earnings | | 1,123.5 | | | 24.4 | % | | 880.5 | | | 22.3 | % | | 243.0 | | | 27.6 | % |
| Interest expense | | (53.1) | | | (1.2) | % | | (54.0) | | | (1.3) | % | | 0.9 | | | 1.7 | % |
| Other income (expense) – net | | 16.5 | | | 0.4 | % | | 8.7 | | | 0.2 | % | | 7.8 | | | 89.7 | % |
| Earnings before income taxes and equity earnings | | 1,086.9 | | | 23.6 | % | | 835.2 | | | 21.2 | % | | 251.7 | | | 30.1 | % |
| Income tax expense | | (247.0) | | | (5.3) | % | | (189.1) | | | (4.8) | % | | (57.9) | | | (30.6) | % |
| Earnings before equity earnings | | 839.9 | | | 18.3 | % | | 646.1 | | | 16.4 | % | | 193.8 | | | 30.0 | % |
| Equity earnings, net of tax | | 1.5 | | | — | | | 0.3 | | | — | | | 1.2 | | | NM |
| Net earnings | | 841.4 | | | 18.3 | % | | 646.4 | | | 16.4 | % | | 195.0 | | | 30.2 | % |
| Net earnings attributable to noncontrolling interests | | (20.9) | | | (0.5) | % | | (19.4) | | | (0.5) | % | | (1.5) | | | (7.7) | % |
| Net earnings attributable to Snap-on Inc. | | $ | 820.5 | | | 17.8 | % | | $ | 627.0 | | | 15.9 | % | | $ | 193.5 | | | 30.9 | % |
| | | | | |
| |
| NM: Not meaningful | |
| |
| Percentage Disclosure: All income statement line item percentages below “Operating earnings from financial services” are calculated as a percentage of the sum of Net sales and Financial services revenue. |
Net sales of $3,740.7$4,252.0 million in 20182021 increased $53.8$659.5 million, or 1.5%18.4%, from 20172020 levels, reflecting a $19.3$550.5 million, or 0.5%15.1%, organic sales gain, $24.2$62.6 million of acquisition-related sales and $10.3$46.4 million of favorable foreign currency translation.
Gross profit of $1,870.0$2,110.8 million in 20182021 increased $362.3 million, or 20.7%, compared to $1,825.9$1,748.5 million last year. Gross margin (gross profit as a percentage of net sales) of 50.0%49.6% in 20182021 improved 5090 basis points (100 basis points (“bps”) equals 1.0 percent) from 49.5% last year primarily due to a shift inhigher sales that included increased volumes, of higher gross margin products and savingspricing actions, benefits from the company’s RCI initiatives and 20 basis points from lower costs related to $7.1 million of restructuring charges recorded last year, partially offset by higher material and other costs.
Operating expenses of $1,144.0$1,259.3 million in 2018, including a $4.3 million benefit for the legal settlement,2021 compared to $1,161.3$1,116.6 million including $45.9 million for the legal charges, in 2017. The operating expense margin (operating2020. Operating expenses as a percentage of net sales)sales of 30.6%29.6% in 20182021 improved 90150 bps from 31.5% last year primarily due to 130 bps for the legal charges that occurred in 2017higher sales volumes and 10 bps for the legal settlement,from lower costs related to $5.4 million of restructuring actions recorded in 2020. These items were partially offset by 10costs associated with higher stock-based expenses and 50 bps of operating expenses from acquisitions and higher costs.unfavorable acquisition effects.
Operating earnings before financial services of $726.0$851.5 million in 2018, including $4.42021 increased $219.6 million, or 34.8%, compared to $631.9 million in 2020, which included $12.5 million of favorable foreign currency effects, increased $61.4 million, or 9.2%, as compared to $664.6 million last year. Fiscal 2018 results included a $4.3 million benefitcharges for the legal settlement. Fiscal 2017 results included $45.9 million for the legal charges.restructuring actions. As a percentage of net sales, operating earnings before financial services including the legal settlement, of 19.4% compared to 18.0%20.0% improved 240 bps from 17.6% last year, which included the legal charges.30 bps of costs from restructuring actions.
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | |
| | |
| |
Financial services revenue of $329.7$349.7 million in 2018 compared to revenue of $313.4 million last year.2021 was unchanged from 2020. Financial services operating earnings of $230.1$272.0 million including $0.3 million of favorable foreign currency effects in 2018, increased $12.6 million, or 5.8%, as2021 compared to $217.5$248.6 million last year. The year-over-year increases in both revenue and operating earnings primarily reflect continued growth of the company’s financial services portfolio.
Operating earnings of $956.1$1,123.5 million in 2018, including $4.72021 increased $243.0 million, or 27.6%, compared to $880.5 million last year, which included $12.5 million of favorable foreign currency effects, increased $74.0 million, or 8.4%, from $882.1 million last year. Fiscal 2018 results included a $4.3 million benefitcharges for the legal settlement. Fiscal 2017 included $45.9 million of expense for the legal charges.restructuring actions. As a percentage of revenues, operating earnings of 23.5% compared to 22.1%24.4% improved 210 bps from 22.3% last year.year, which included 30 bps of costs from restructuring actions.
Interest expense of $50.4in 2021 decreased $0.9 million in 2018 decreased $2.0 million from $52.4 million last year. See Note 10 to the Consolidated Financial Statements for information on Snap-on’s debt and credit facilities.
Other income (expense) – net was income of $4.2 million in 2018 and expense of $7.8 million in 2017. Other income (expense) – net in fiscal 2018 includes a net gain of $5.5 million for the net debt items. Other income (expense) - net also includes net gains and losses associated with hedging and currency exchange rate transactions, non-service components of net periodic benefit costs, and interest income. See Note 1718 to the Consolidated Financial Statements for information on other income (expense) – net.
Snap-on’sThe effective income tax rate on earnings attributable to Snap-on in both 2021 and 2020 was 24.0% in 2018, including23.2%. The 2020 effective tax rate included a 5010 bps chargeincrease related to the newly issued guidance associated with the Tax Act, as compared to 31.1% in 2017, which included a 40 bps benefit from the legal charges, and a net $7.0 million charge, or 90 bps impact, from the implementation of the Tax Act.restructuring actions. See Note 9 to the Consolidated Financial Statements for information on income taxes.
Net earnings attributable to Snap-on in 20182021 of $679.9$820.5 million, or $11.87$14.92 per diluted share, increased $122.2$193.5 million, or $2.35$3.48 per diluted share, from $557.7 million, or $9.52 per diluted share, in 2017. In 2018, net earnings attributable to Snap-on included a $4.1 million, or $0.07 per diluted share, benefit from the after-tax net debt items, as well as a $3.2 million, or $0.06 per diluted share, after-tax benefit related to the legal settlement, and $3.9 million, or $0.07 per diluted share, for the tax charge.2020 levels. Net earnings attributable to Snap-on in 2017 included $28.42020 were $627.0 million, or $0.48$11.44 per diluted share, of after-tax legal charges, and $7.0which included a $10.3 million, or $0.12$0.19 per diluted share, of tax expense as a resultafter-tax charge related to the restructuring actions.
Exit and Disposal Activities
Snap-on did not record any costs for exit and disposal activities in 2021. Snap-on recorded costs for exit and disposal activities outside of the implementationUnited States of $12.5 million in 2020. See Note 8 to the Tax Act.Consolidated Financial Statements for information on Snap-on’s exit and disposal activities.
Segment Results
Snap-on’s business segments are based on the organization structure used by management for making operating and investment decisions and for assessing performance. Snap-on’s reportable business segments are: (i) the Commercial & Industrial Group; (ii) the Snap-on Tools Group; (iii) the Repair Systems & Information Group; and (iv) Financial Services. The Commercial & Industrial Group consists of business operations serving a broad range of industrial and commercial customers worldwide, including customers in the aerospace, natural resources, government, power generation, transportation and technical education market segments, primarily through direct and distributor channels. The Snap-on Tools Group consists of business operations primarily serving vehicle service and repair technicians through the company’s worldwide mobile tool distribution channel. The Repair Systems & Information Group consists of business operations serving other professional vehicle repair customers worldwide, primarily owners and managers of independent repair shops and OEM dealerships, through direct and distributor channels. Financial Services consists of the business operations of Snap-on’s finance subsidiaries.
Snap-on evaluates the performance of its operating segments based on segment revenues, including both external and intersegment net sales, and segment operating earnings. Snap-on accounts for intersegment sales and transfers based primarily on standard costs with reasonable mark-ups established between the segments. Identifiable assets by segment are those assets used in the respective reportable segment’s operations. Corporate assets consist of cash and cash equivalents (excluding cash held at Financial Services), deferred income taxes and certain other assets. All significant intersegment amounts are eliminated to arrive at Snap-on’s consolidated financial results.
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| | |
| | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | |
Commercial & Industrial Group
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2021 | | 2020 | | Change |
| External net sales | | $ | 1,095.6 | | | 77.9 | % | | $ | 951.4 | | | 77.1 | % | | $ | 144.2 | | | 15.2 | % |
| Intersegment net sales | | 310.7 | | | 22.1 | % | | 283.2 | | | 22.9 | % | | 27.5 | | | 9.7 | % |
| Segment net sales | | 1,406.3 | | | 100.0 | % | | 1,234.6 | | | 100.0 | % | | 171.7 | | | 13.9 | % |
| Cost of goods sold | | (868.9) | | | (61.8) | % | | (781.2) | | | (63.3) | % | | (87.7) | | | (11.2) | % |
| Gross profit | | 537.4 | | | 38.2 | % | | 453.4 | | | 36.7 | % | | 84.0 | | | 18.5 | % |
| Operating expenses | | (327.5) | | | (23.3) | % | | (299.7) | | | (24.3) | % | | (27.8) | | | (9.3) | % |
| Segment operating earnings | | $ | 209.9 | | | 14.9 | % | | $ | 153.7 | | | 12.4 | % | | $ | 56.2 | | | 36.6 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2018 | | 2017 | | Change |
| External net sales | | $ | 1,051.6 |
| | 78.3 | % | | $ | 986.1 |
| | 78.0 | % | | $ | 65.5 |
| | 6.6 | % |
| Intersegment net sales | | 291.7 |
| | 21.7 | % | | 278.9 |
| | 22.0 | % | | 12.8 |
| | 4.6 | % |
| Segment net sales | | 1,343.3 |
| | 100.0 | % | | 1,265.0 |
| | 100.0 | % | | 78.3 |
| | 6.2 | % |
| Cost of goods sold | | (817.7 | ) | | (60.9 | )% | | (766.4 | ) | | (60.6 | )% | | (51.3 | ) | | (6.7 | )% |
| Gross profit | | 525.6 |
| | 39.1 | % | | 498.6 |
| | 39.4 | % | | 27.0 |
| | 5.4 | % |
| Operating expenses | | (326.3 | ) | | (24.3 | )% | | (312.1 | ) | | (24.7 | )% | | (14.2 | ) | | (4.5 | )% |
| Segment operating earnings | | $ | 199.3 |
| | 14.8 | % | | $ | 186.5 |
| | 14.7 | % | | $ | 12.8 |
| | 6.9 | % |
Segment net sales of $1,343.3$1,406.3 million in 20182021 increased $78.3$171.7 million, or 6.2%13.9%, from 20172020 levels, reflecting a $52.1$131.9 million, or 4.1%10.5%, organic sales gain, $23.5increase, $22.5 million of acquisition-related sales and $2.7$17.3 million of favorable foreign currency translation. The organic sales increase primarilygain reflects higher activity in all of the segment’s operations and includes mid single-digit gainsincreases in sales to customers in both critical industries and in the segment’s Asia Pacific operations, as well as low single-digit gains in sales in the power tools operations and in the European-based hand tools business.industries.
Segment gross profitmargin in 2021 of $525.6 million in 2018 compared to $498.6 million last year. Gross margin of 39.1% in 2018 declined 3038.2% improved 150 bps from 39.4% last year, primarily due to 10benefits from higher sales volumes and 60 bps from lower costs related to $6.4 million of restructuring actions recorded in 2020, partially offset by 40 bps of unfavorable foreign currency effects and higher material and other costs, partially offset by benefits from the company’s RCI initiatives.effects.
Segment operating expenses as a percentage of $326.3 millionnet sales in 20182021 of 23.3% improved 100 bps as compared to $312.1 million last year. The operating expense margin of 24.3% in 2018 improved 40 bps from 24.7% last year as benefits from2020 primarily reflecting the higher sales volumes were partially offset by 10 bps of unfavorable foreign currency effects.sales.
As a result of these factors, segment operating earnings of $199.3$209.9 million in 2018,2021, including $2.5$3.8 million of unfavorable foreign currency effects, increased $12.8$56.2 million, from 2017 levels.or 36.6%, compared to $153.7 million in 2020, which included $6.4 million of restructuring charges. Operating margin (segment operating earnings as a percentage of segment net sales) for the Commercial & Industrial Group was 14.8% and 14.7%,of 14.9% in 2018 and 2017, respectively.2021 compared to 12.4% last year.
Snap-on Tools Group
| | | (Amounts in millions) | | 2018 | | 2017 | | Change | (Amounts in millions) | | 2021 | | 2020 | | Change |
| Segment net sales | | $ | 1,613.8 |
| | 100.0 | % | | $ | 1,625.1 |
| | 100.0 | % | | $ | (11.3 | ) | | (0.7 | )% | Segment net sales | | $ | 1,938.6 | | | 100.0 | % | | $ | 1,643.9 | | | 100.0 | % | | $ | 294.7 | | | 17.9 | % |
| Cost of goods sold | | (910.8 | ) | | (56.4 | )% | | (930.9 | ) | | (57.3 | )% | | 20.1 |
| | 2.2 | % | Cost of goods sold | | (1,055.0) | | | (54.4) | % | | (932.1) | | | (56.7) | % | | (122.9) | | | (13.2) | % |
| Gross profit | | 703.0 |
| | 43.6 | % | | 694.2 |
| | 42.7 | % | | 8.8 |
| | 1.3 | % | Gross profit | | 883.6 | | | 45.6 | % | | 711.8 | | | 43.3 | % | | 171.8 | | | 24.1 | % |
| Operating expenses | | (438.8 | ) | | (27.2 | )% | | (419.5 | ) | | (25.8 | )% | | (19.3 | ) | | (4.6 | )% | Operating expenses | | (472.5) | | | (24.4) | % | | (444.1) | | | (27.0) | % | | (28.4) | | | (6.4) | % |
| Segment operating earnings | | $ | 264.2 |
| | 16.4 | % | | $ | 274.7 |
| | 16.9 | % | | $ | (10.5 | ) | | (3.8 | )% | Segment operating earnings | | $ | 411.1 | | | 21.2 | % | | $ | 267.7 | | | 16.3 | % | | $ | 143.4 | | | 53.6 | % |
Segment net sales of $1,613.8$1,938.6 million in 2018 decreased $11.32021 increased $294.7 million, or 0.7%17.9%, from 20172020 levels, reflecting a $15.6$274.4 million, or 1.0%16.5%, organic sales decrease, partially offset by $4.3gain and $20.3 million of favorable foreign currency translation. The organic sales decline reflects a low single-digit declineincrease is due to double-digit gains in the company’s international franchise operations while sales inboth the U.S. operations were essentially flat.and international operations.
Segment gross profitmargin in 2021 of $703.0 million in 2018 compared to $694.2 million last year. Gross margin of 43.6% in 201845.6% improved from 42.7% last year primarily due to increased sales of higher gross margin products, benefits from the company’s RCI initiatives and 40230 bps of favorable foreign currency effects.
Segment operating expenses of $438.8 million in 2018 compared to $419.5 million last year. The operating expense margin of 27.2% in 2018 increased 140 bps from 25.8% last year primarily due to higher sales volumes, pricing actions, benefits from RCI initiatives, and 70 bps of favorable foreign currency effects, partially offset by higher material and other costs.
Segment operating expenses as a percentage of net sales in 2021 of 24.4% improved 260 bps from last year primarily reflecting the higher sales, partially offset by higher stock-based expenses related to the company’s franchisee stock purchase plan.
As a result of these factors, segment operating earnings of $264.2$411.1 million in 2018,2021, including $7.7$17.0 million of favorable foreign currency effects, decreased $10.5increased $143.4 million, from 2017 levels.or 53.6%, compared to $267.7 million in 2020. Operating margin for the Snap-onSnap‑on Tools Group of 16.4%21.2% in 20182021 compared to 16.9%16.3% last year.
|
| Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | |
| | |
| |
Repair Systems & Information Group
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2021 | | 2020 | | Change |
| External net sales | | $ | 1,217.8 | | | 81.0 | % | | $ | 997.2 | | | 80.5 | % | | $ | 220.6 | | | 22.1 | % |
| Intersegment net sales | | 285.3 | | | 19.0 | % | | 241.0 | | | 19.5 | % | | 44.3 | | | 18.4 | % |
| Segment net sales | | 1,503.1 | | | 100.0 | % | | 1,238.2 | | | 100.0 | % | | 264.9 | | | 21.4 | % |
| Cost of goods sold | | (813.3) | | | (54.1) | % | | (654.9) | | | (52.9) | % | | (158.4) | | | (24.2) | % |
| Gross profit | | 689.8 | | | 45.9 | % | | 583.3 | | | 47.1 | % | | 106.5 | | | 18.3 | % |
| Operating expenses | | (341.2) | | | (22.7) | % | | (285.3) | | | (23.0) | % | | (55.9) | | | (19.6) | % |
| Segment operating earnings | | $ | 348.6 | | | 23.2 | % | | $ | 298.0 | | | 24.1 | % | | $ | 50.6 | | | 17.0 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2018 | | 2017 | | Change |
| External net sales | | $ | 1,075.3 |
| | 80.6 | % | | $ | 1,075.7 |
| | 79.8 | % | | $ | (0.4 | ) | | — |
|
| Intersegment net sales | | 259.1 |
| | 19.4 | % | | 271.5 |
| | 20.2 | % | | (12.4 | ) | | (4.6 | )% |
| Segment net sales | | 1,334.4 |
| | 100.0 | % | | 1,347.2 |
| | 100.0 | % | | (12.8 | ) | | (1.0 | )% |
| Cost of goods sold | | (693.0 | ) | | (51.9 | )% | | (714.1 | ) | | (53.0 | )% | | 21.1 |
| | 3.0 | % |
| Gross profit | | 641.4 |
| | 48.1 | % | | 633.1 |
| | 47.0 | % | | 8.3 |
| | 1.3 | % |
| Operating expenses | | (298.8 | ) | | (22.4 | )% | | (297.8 | ) | | (22.1 | )% | | (1.0 | ) | | (0.3 | )% |
| Segment operating earnings | | $ | 342.6 |
| | 25.7 | % | | $ | 335.3 |
| | 24.9 | % | | $ | 7.3 |
| | 2.2 | % |
Segment net sales of $1,334.4$1,503.1 million in 2018 decreased $12.82021 increased $264.9 million, or 1.0%21.4%, from 20172020 levels, reflecting a $19.6$211.3 million, or 1.4%16.9%, organic sales decline, partially offset by $0.7increase, $40.1 million of acquisition-related sales and $6.1$13.5 million of favorable foreign currency translation. The organic sales decrease includes low single-digit decreases in sales to OEM dealerships andgain is comprised of an increase of more than 25% in sales of undercar equipment, partially offset by a low single-digit increaseas well as double-digit gains both in sales of diagnostic and repair information products to independent repair shop owners and managers.managers and in activity focused on OEM dealerships.
Segment gross profitmargin in 2021 of $641.4 million in 2018 compared to $633.1 million last year. Gross margin of 48.1% in 2018 improved 11045.9% declined 120 bps from 47.0% last year, primarily as a result of a shift in sales that included lower volumes of lower gross margin products and savings from the company’s RCI initiatives, partially offset by 20 bps of unfavorable foreign currency effects.
Segment operating expenses of $298.8 million in 2018 compared to $297.8 million last year. The operating expense margin of 22.4% in 2018 increased 30 bps from 22.1% last year primarily due to the effectimpact of higher sales in lower sales volumes,gross margin businesses, increased material and other costs, and 20 bps of unfavorable foreign currency effects. These declines were partially offset by 60 bps of benefits from acquisitions.
Segment operating expenses as a percentage of net sales in 2021 of 22.7% improved 30 bps from last year primarily due to the company’s RCI initiatives.higher sales volumes and 30 bps from lower costs related to $4.8 million of restructuring actions recorded in 2020, partially offset by 150 bps of unfavorable acquisition effects.
As a result of these factors, segment operating earnings of $342.6$348.6 million in 2018,2021, including $0.8$1.6 million of unfavorable foreign currency effects, increased $7.3$50.6 million, or 17.0%, from 2017 levels.$298.0 million in 2020, which included $5.5 million of restructuring charges. Operating margin for the Repair Systems & Information Group of 25.7%23.2% in 20182021 compared to 24.9%24.1% last year.
Financial Services
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2021 | | 2020 | | Change |
| Financial services revenue | | $ | 349.7 | | | 100.0 | % | | $ | 349.7 | | | 100.0 | % | | $ | — | | | — | |
| Financial services expenses | | (77.7) | | | (22.2) | % | | (101.1) | | | (28.9) | % | | 23.4 | | | 23.1 | % |
| Segment operating earnings | | $ | 272.0 | | | 77.8 | % | | $ | 248.6 | | | 71.1 | % | | $ | 23.4 | | | 9.4 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2018 | | 2017 | | Change |
| Financial services revenue | | $ | 329.7 |
| | 100.0 | % | | $ | 313.4 |
| | 100.0 | % | | $ | 16.3 |
| | 5.2 | % |
| Financial services expenses | | (99.6 | ) | | (30.2 | )% | | (95.9 | ) | | (30.6 | )% | | (3.7 | ) | | (3.9 | )% |
| Segment operating earnings | | $ | 230.1 |
| | 69.8 | % | | $ | 217.5 |
| | 69.4 | % | | $ | 12.6 |
| | 5.8 | % |
Financial services revenue is generally dependent on the size of the average financial services portfolio during the period, as well as on the average yield on receivables in the period. Financial services revenue of $329.7$349.7 million in 2018 increased $16.3 million, or 5.2%,2021 was unchanged from $313.4 million last year primarily reflecting $18.9 million of higher revenue2020, as a result of continued growththe size of the company’saverage financial services portfolio partially offset by $2.6 million of decreased revenue from lowerand the average yields on finance receivables. receivables were largely the same in both years. In 2018both 2021 and 2017,2020, the respective average yieldsyield on finance receivables werewas 17.7% and 17.9%, and the average yield on contract receivables was 9.2% in both years.8.5%. Originations of $1,057.5$1,073.2 million in 2018 decreased $14.52021 increased $36.6 million, or 1.4%3.5%, from 20172020 levels.
Financial services expenses primarily include personnel-related and other general and administrative costs, as well as provisionsexpenses for credit losses. These expenses are generally more dependent on changes in the financial services portfolio than they are on the revenue of the segment. Financial services expenses of $99.6in 2021 decreased $23.4 million in 2018 increased from $95.9 million last year primarily due to increases in both thelower provisions for credit losses andas compared to those recorded in 2020, which included a $2.6 million charge related to higher credit reserves resulting from the size ofeconomic uncertainty associated with the portfolio.COVID-19 pandemic. As a percentage of the average financial services portfolio, financial services expenses were 4.9%3.5% and 5.0%4.6% in 20182021 and 2017,2020, respectively.
Financial servicesAs a result of these factors, segment operating earnings of $230.1$272.0 million in 2018,2021, including $0.3$2.3 million of favorable foreign currency effects, increased $12.6$23.4 million, or 5.8%9.4%, from 20172020 levels.
See Note 1 and Note 4 to the Consolidated Financial Statements for further information on financial services.
Corporate
Snap-on’s general corporate expenses in 2021 of $118.1 million compared to $87.5 million last year. The year-over-year increase primarily reflects higher stock-based and performance-based compensation, including costs associated with the company’s employee stock purchase plan, and increased brand-building expenses.
Quarterly Data
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions, except per share data) | | First
Quarter | | Second
Quarter | | Third
Quarter | | Fourth
Quarter | | Total |
| 2021 | | | | | | | | | | |
| Net sales | | $ | 1,024.6 | | | $ | 1,081.4 | | | $ | 1,037.7 | | | $ | 1,108.3 | | | $ | 4,252.0 | |
| Gross profit | | 513.6 | | 543.1 | | 520.7 | | 533.4 | | | 2,110.8 | |
| Financial services revenue | | 88.6 | | 86.9 | | 87.3 | | 86.9 | | | 349.7 | |
| Financial services expenses | | (23.3) | | | (18.0) | | | (16.7) | | | (19.7) | | | (77.7) | |
| Net earnings | | 197.6 | | 213.2 | | 201.5 | | 229.1 | | | 841.4 | |
| Net earnings attributable to Snap-on Incorporated | | 192.6 | | 208.0 | | 196.2 | | 223.7 | | | 820.5 | |
| Earnings per share – basic* | | 3.55 | | 3.85 | | 3.65 | | 4.18 | | 15.22 |
| Earnings per share – diluted* | | 3.50 | | 3.76 | | 3.57 | | 4.10 | | 14.92 |
| Cash dividends paid per share | | 1.23 | | 1.23 | | 1.23 | | 1.42 | | 5.11 |
| | | | | | | | | | |
| | First
Quarter | | Second
Quarter | | Third
Quarter | | Fourth
Quarter | | Total |
| 2020 | | | | | | | | | | |
| Net sales | | $ | 852.2 | | | $ | 724.3 | | | $ | 941.6 | | | $ | 1,074.4 | | | $ | 3,592.5 | |
| Gross profit | | 421.6 | | 341.2 | | 469.5 | | 516.2 | | | 1,748.5 | |
| Financial services revenue | | 85.9 | | 84.6 | | 85.8 | | 93.4 | | | 349.7 | |
| Financial services expenses | | (29.0) | | | (27.0) | | | (20.2) | | | (24.9) | | | (101.1) | |
| Net earnings | | 142.0 | | 105.9 | | 184.7 | | 213.8 | | | 646.4 | |
| Net earnings attributable to Snap-on Incorporated | | 137.2 | | 101.2 | | 179.7 | | 208.9 | | | 627.0 | |
| Earnings per share – basic* | | 2.52 | | 1.86 | | 3.31 | | 3.85 | | 11.55 | |
| Earnings per share – diluted* | | 2.49 | | 1.85 | | 3.28 | | 3.82 | | 11.44 | |
| Cash dividends paid per share | | 1.08 | | 1.08 | | 1.08 | | 1.23 | | 4.47 | |
| | | | | | | | | | | |
| | |
| * | Amounts may not total to annual earnings per share because each quarter and year are calculated separately based on basic and diluted weighted-average common shares outstanding during each respective period. |
| | | | | | | | |
| | |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | |
Corporate
Snap-on’s general corporate expenses in 2018 of $80.1 million decreased $51.8 million from $131.9 million last year. The year-over-year decrease in general corporate expenses primarily reflects a $4.3 million benefit in 2018 from the legal settlement and $45.9 million in 2017 for the legal charges.
Fourth Quarter
Results of operations for the fourth quarters of 20182021 and 20172020 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fourth Quarter | | |
| (Amounts in millions) | | 2021 | | 2020 | | Change |
| Net sales | | $ | 1,108.3 | | | 100.0 | % | | $ | 1,074.4 | | | 100.0 | % | | $ | 33.9 | | | 3.2 | % |
| Cost of goods sold | | (574.9) | | | (51.9) | % | | (558.2) | | | (52.0) | % | | (16.7) | | | (3.0) | % |
| Gross profit | | 533.4 | | | 48.1 | % | | 516.2 | | | 48.0 | % | | 17.2 | | | 3.3 | % |
| Operating expenses | | (301.2) | | | (27.1) | % | | (300.0) | | | (27.9) | % | | (1.2) | | | (0.4) | % |
| Operating earnings before financial services | | 232.2 | | | 21.0 | % | | 216.2 | | | 20.1 | % | | 16.0 | | | 7.4 | % |
| | | | | | | | | | | | |
| Financial services revenue | | 86.9 | | | 100.0 | % | | 93.4 | | | 100.0 | % | | (6.5) | | | (7.0) | % |
| Financial services expenses | | (19.7) | | | (22.7) | % | | (24.9) | | | (26.7) | % | | 5.2 | | | 20.9 | % |
| Operating earnings from financial services | | 67.2 | | | 77.3 | % | | 68.5 | | | 73.3 | % | | (1.3) | | | (1.9) | % |
| | | | | | | | | | | | |
| Operating earnings | | 299.4 | | | 25.1 | % | | 284.7 | | | 24.4 | % | | 14.7 | | | 5.2 | % |
| Interest expense | | (11.3) | | | (0.9) | % | | (15.4) | | | (1.3) | % | | 4.1 | | | 26.6 | % |
| Other income (expense) – net | | 5.1 | | | 0.3 | % | | 2.4 | | | 0.2 | % | | 2.7 | | | NM |
| Earnings before income taxes and equity earnings | | 293.2 | | | 24.5 | % | | 271.7 | | | 23.3 | % | | 21.5 | | | 7.9 | % |
| Income tax expense | | (64.1) | | | (5.3) | % | | (58.2) | | | (5.0) | % | | (5.9) | | | (10.1) | % |
| Earnings before equity earnings | | 229.1 | | | 19.2 | % | | 213.5 | | | 18.3 | % | | 15.6 | | | 7.3 | % |
| Equity earnings, net of tax | | — | | | — | | | 0.3 | | | — | | | (0.3) | | | NM |
| Net earnings | | 229.1 | | | 19.2 | % | | 213.8 | | | 18.3 | % | | 15.3 | | | 7.2 | % |
| Net earnings attributable to noncontrolling interests | | (5.4) | | | (0.5) | % | | (4.9) | | | (0.4) | % | | (0.5) | | | (10.2) | % |
| Net earnings attributable to Snap-on Inc. | | $ | 223.7 | | | 18.7 | % | | $ | 208.9 | | | 17.9 | % | | $ | 14.8 | | | 7.1 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| | | Fourth Quarter | | |
| (Amounts in millions) | | 2018 | | 2017 | | Change |
| Net sales | | $ | 952.5 |
| | 100.0 | % | | $ | 974.6 |
| | 100.0 | % | | $ | (22.1 | ) | | (2.3 | )% |
| Cost of goods sold | | (495.1 | ) | | (52.0 | )% | | (509.0 | ) | | (52.2 | )% | | 13.9 |
| | 2.7 | % |
| Gross profit | | 457.4 |
| | 48.0 | % | | 465.6 |
| | 47.8 | % | | (8.2 | ) | | (1.8 | )% |
| Operating expenses | | (275.3 | ) | | (28.9 | )% | | (307.6 | ) | | (31.6 | )% | | 32.3 |
| | 10.5 | % |
| Operating earnings before financial services | | 182.1 |
| | 19.1 | % | | 158.0 |
| | 16.2 | % | | 24.1 |
| | 15.3 | % |
| | |
| |
| |
| |
| |
| |
|
| Financial services revenue | | 82.7 |
| | 100.0 | % | | 79.9 |
| | 100.0 | % | | 2.8 |
| | 3.5 | % |
| Financial services expenses | | (26.6 | ) | | (32.2 | )% | | (25.5 | ) | | (31.9 | )% | | (1.1 | ) | | (4.3 | )% |
| Operating earnings from financial services | | 56.1 |
| | 67.8 | % | | 54.4 |
| | 68.1 | % | | 1.7 |
| | 3.1 | % |
| | |
| |
| |
| |
| |
| |
|
| Operating earnings | | 238.2 |
| | 23.0 | % | | 212.4 |
| | 20.1 | % | | 25.8 |
| | 12.1 | % |
| Interest expense | | (12.4 | ) | | (1.2 | )% | | (13.6 | ) | | (1.3 | )% | | 1.2 |
| | 8.8 | % |
| Other income (expense) – net | | 3.0 |
| | 0.3 | % | | (1.8 | ) | | (0.1 | )% | | 4.8 |
| | NM |
|
| Earnings before income taxes and equity earnings | | 228.8 |
| | 22.1 | % | | 197.0 |
| | 18.7 | % | | 31.8 |
| | 16.1 | % |
| Income tax expense | | (49.5 | ) | | (4.8 | )% | | (63.8 | ) | | (6.1 | )% | | 14.3 |
| | 22.4 | % |
| Earnings before equity earnings | | 179.3 |
| | 17.3 | % | | 133.2 |
| | 12.6 | % | | 46.1 |
| | 34.6 | % |
| Equity earnings, net of tax | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Net earnings | | 179.3 |
| | 17.3 | % | | 133.2 |
| | 12.6 | % | | 46.1 |
| | 34.6 | % |
| Net earnings attributable to noncontrolling interests | | (4.3 | ) | | (0.4 | )% | | (3.7 | ) | | (0.3 | )% | | (0.6 | ) | | (16.2 | )% |
| Net earnings attributable to Snap-on Inc. | | $ | 175.0 |
| | 16.9 | % | | $ | 129.5 |
| | 12.3 | % | | $ | 45.5 |
| | 35.1 | % |
|
| | | | |
| NM: Not meaningful | |
| |
| Percentage Disclosure: All income statement line item percentages below “Operating earnings from financial services” are calculated as a percentage of the sum of Net sales and Financial services revenue. |
Net sales of $952.5$1,108.3 million in the fourth quarter of 2018 decreased $22.12021 increased $33.9 million, or 3.2%, from 2020 levels, reflecting a $24.7 million, or 2.3%, from 2017 levels, reflecting a $5.4organic gain and $12.2 million or 0.6%, organicof acquisition-related sales, decrease and $17.1partially offset by $3.0 million of unfavorable foreign currency translation, partially offset by $0.4 million of acquisition-related sales.translation.
Gross profit of $457.4$533.4 million in the fourth quarter of 20182021 increased $17.2 million, or 3.3%, compared to $465.6$516.2 million last year. Gross margin of 48.0%48.1% in the quarter improved 2010 bps from 47.8% last yearthe fourth quarter of 2020 primarily due to savingshigher sales volumes, pricing actions, 30 bps of favorable foreign currency effects, and benefits from the company’s RCI initiatives, partiallywhich offset by higher material and other costs.
Operating expenses of $275.3$301.2 million in the fourth quarter of 20182021 compared to $307.6$300.0 million last year,year. Operating expenses as 2018 included a $4.3 million benefit for the legal settlement, while 2017 included a $30.9 million legal charge. The operating expense marginpercentage of 28.9%net sales of 27.1% in the quarter improved 27080 bps from 31.6% last year primarily due to 320higher sales volumes and 10 bps from lower costs related to $1.0 million of restructuring actions recorded in the legal charge occurring in fiscal 2017 and 40 bps for the 2018 legal settlement,fourth quarter of 2020. These items were partially offset by 1040 bps of unfavorable foreign currency effects and higher costs.
acquisition effects.
Operating earnings before financial services of $182.1$232.2 million in the fourth quarter of 2018, including a $4.32021 increased $16.0 million, benefit foror 7.4%, compared to $216.2 million in the legal settlement and $4.2fourth quarter of 2020, which included $1.0 million of unfavorable foreign currency effects, increased $24.1 million, or 15.3%, as compared to $158.0 million last year, which included $30.9 millioncharges for the legal charge.restructuring actions. As a percentage of net sales, operating earnings before financial services of 19.1% in the quarter, including the legal settlement, compared to 16.2%21.0%, improved 90 bps from 20.1% last year, including the legal charge.year.
Financial services revenue of $82.7$86.9 million in the fourth quarter of 20182021 compared to revenue of $79.9$93.4 million last year. Financial services operating earnings of $56.1$67.2 million in the period compared to $68.5 million in 2020.
Operating earnings of $299.4 million in the fourth quarter of 2018, including $0.3 million of unfavorable foreign currency effects,2021, increased $1.7$14.7 million, or 3.1%5.2%, as compared to $54.4 million last year. The year-over-year increases in both revenue and operating earnings primarily reflect continued growth of the company’s financial services portfolio.
Operating earnings of $238.2 million in the fourth quarter of 2018, including a $4.3 million benefit for the legal settlement and $4.5 million of unfavorable foreign currency effects, increased $25.8 million, or 12.1%, from $212.4$284.7 million last year, which included $30.9$1.0 million of expensecharges for the legal charge.restructuring actions. As a percentage of revenues, operating earnings of 23.0%25.1% in the quarter compared to 20.1%24.4% last year.
Interest expense of $12.4 million in the fourth quarter of 20182021 decreased $1.2$4.1 million from $13.6 million last year. year primarily as a result of lower year-over-year outstanding debt levels. See Note 10 to the Consolidated Financial Statements for information on Snap-on’s debt and credit facilities.
Other income (expense) – net was incomeincludes net gains and losses associated with hedging and currency exchange rate transactions, non-service components of $3.0 millionnet periodic benefit costs, and expense of $1.8 million in the respective fourth quarters of 2018 and 2017.interest income. See Note 1718 to the Consolidated Financial Statements for information on other income (expense) – net.
Snap-on’s fourth quarter 2021 effective income tax rate on earnings attributable to Snap-on was 22.0% in 2018 compared to 33.0% in 2017,22.3%. The 2020 effective income tax rate was 21.8%, which included a 12010 bps benefit from the legal charge, and $7.0 million, or 360 bps impact,increase related to the implementation of the Tax Act.restructuring actions. See Note 9 to the Consolidated Financial Statements for information on income taxes.
Net earnings attributable to Snap-on in the fourth quarter of 20182021 of $175.0$223.7 million, or $3.09$4.10 per diluted share, increased $45.5$14.8 million, or $0.85$0.28 per diluted share, from $129.5 million or $2.24 per diluted share2020 levels. Net earnings attributable to Snap-on in 2017. The fourth quarter of 2018, included $3.2 million, or $0.06 per diluted share, for the after-tax benefit from the legal settlement, while the fourth quarter of 2017 included $19.12020 were $208.9 million, or $0.33$3.82 per diluted share, for the after-tax expense associated with the legal charge, andwhich included a $7.0$1.0 million, or $0.12$0.02 per diluted share, after-tax charge related to the Tax Act.restructuring actions.
Exit and Disposal Activities
Snap-on did not record any exit and disposal costs for the three months ended January 1, 2022. Snap-on recorded costs for exit and disposal activities in Europe of $1.0 million in the three months ended January 2, 2021. See Note 8 to the Consolidated Financial Statements for information on Snap-on’s exit and disposal activities.
Segment Results
Commercial & Industrial Group | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fourth Quarter | | |
| (Amounts in millions) | | 2021 | | 2020 | | Change |
| External net sales | | $ | 278.1 | | | 77.5 | % | | $ | 284.2 | | | 78.0 | % | | $ | (6.1) | | | (2.1) | % |
| Intersegment net sales | | 80.6 | | | 22.5 | % | | 80.2 | | | 22.0 | % | | 0.4 | | | 0.5 | % |
| Segment net sales | | 358.7 | | | 100.0 | % | | 364.4 | | | 100.0 | % | | (5.7) | | | (1.6) | % |
| Cost of goods sold | | (227.8) | | | (63.5) | % | | (226.6) | | | (62.2) | % | | (1.2) | | | (0.5) | % |
| Gross profit | | 130.9 | | | 36.5 | % | | 137.8 | | | 37.8 | % | | (6.9) | | | (5.0) | % |
| Operating expenses | | (80.8) | | | (22.5) | % | | (81.6) | | | (22.4) | % | | 0.8 | | | 1.0 | % |
| Segment operating earnings | | $ | 50.1 | | | 14.0 | % | | $ | 56.2 | | | 15.4 | % | | $ | (6.1) | | | (10.9) | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| | | Fourth Quarter | | |
| (Amounts in millions) | | 2018 | | 2017 | | Change |
| External net sales | | $ | 270.0 |
| | 78.6 | % | | $ | 273.2 |
| | 80.0 | % | | $ | (3.2 | ) | | (1.2 | )% |
| Intersegment net sales | | 73.7 |
| | 21.4 | % | | 68.5 |
| | 20.0 | % | | 5.2 |
| | 7.6 | % |
| Segment net sales | | 343.7 |
| | 100.0 | % | | 341.7 |
| | 100.0 | % | | 2.0 |
| | 0.6 | % |
| Cost of goods sold | | (211.3 | ) | | (61.5 | )% | | (207.5 | ) | | (60.7 | )% | | (3.8 | ) | | (1.8 | )% |
| Gross profit | | 132.4 |
| | 38.5 | % | | 134.2 |
| | 39.3 | % | | (1.8 | ) | | (1.3 | )% |
| Operating expenses | | (81.6 | ) | | (23.7 | )% | | (82.9 | ) | | (24.3 | )% | | 1.3 |
| | 1.6 | % |
| Segment operating earnings | | $ | 50.8 |
| | 14.8 | % | | $ | 51.3 |
| | 15.0 | % | | $ | (0.5 | ) | | (1.0 | )% |
Segment net sales of $343.7$358.7 million in the fourth quarter of 2018 increased $2.02021 decreased $5.7 million, or 0.6%1.6%, from 20172020 levels, reflecting an $11.5including a $1.6 million, or 3.5%0.4%, organic sales gaindecline and $0.4 million of acquisition-related sales, partially offset by $9.9$4.1 million of unfavorable foreign currency translation. The organic sales increasedecrease primarily includes double-digit gains in both the segment’s Asia Pacific operations and specialty tools business, as well asreflects a low single-digit gains in sales in the European-based hand tools business anddecline in sales to customers in critical industries.industries, including lower sales to the military.
Segment gross profitmargin in the fourth quarter of $132.42021 of 36.5% declined 130 bps primarily due to higher material and other costs and 10 bps of unfavorable foreign currency effects, partially offset by benefits from the segment’s RCI initiatives.
Segment operating expenses as a percentage of net sales of 22.5% in the fourth quarter of 2021 compared to 22.4% last year.
As a result of these factors, segment operating earnings of $50.1 million in the fourth quarter of 2018 compared to $134.22021, including $1.2 million last year. Grossof unfavorable foreign currency effects, decreased $6.1 million from 2020 levels. Operating margin for the Commercial & Industrial Group of 38.5%14.0% in the quarter declined 80 bps from 39.3%compared to 15.4% last year primarily due to higher sales volumes of lower gross margin products and higher material and other costs, partially offset by benefits from the company’s RCI initiatives.
year.
|
| | |
| | |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | |
Snap-on Tools Group | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fourth Quarter | | |
| (Amounts in millions) | | 2021 | | 2020 | | Change |
| Segment net sales | | $ | 504.8 | | | 100.0 | % | | $ | 494.9 | | | 100.0 | % | | $ | 9.9 | | | 2.0 | % |
| Cost of goods sold | | (283.3) | | | (56.1) | % | | (282.8) | | | (57.1) | % | | (0.5) | | | (0.2) | % |
| Gross profit | | 221.5 | | | 43.9 | % | | 212.1 | | | 42.9 | % | | 9.4 | | | 4.4 | % |
| Operating expenses | | (111.0) | | | (22.0) | % | | (118.5) | | | (24.0) | % | | 7.5 | | | 6.3 | % |
| Segment operating earnings | | $ | 110.5 | | | 21.9 | % | | $ | 93.6 | | | 18.9 | % | | $ | 16.9 | | | 18.1 | % |
Segment operating expensesnet sales of $81.6$504.8 million in the fourth quarter of 2018 compared2021 increased $9.9 million, or 2.0%, from 2020 levels, reflecting a $7.9 million, or 1.6%, organic sales increase and $2.0 million of favorable foreign currency translation. The organic increase is due to $82.9 million last year. The operating expense margin of 23.7%a low single-digit gain in the U.S. franchise business, partially offset by a low single-digit decline in the segment’s international operations.
Segment gross margin in the fourth quarter of 43.9% improved 60100 bps from 24.3% last year primarily due to higher sales volumes, pricing actions, and 60 bps of favorable foreign currency effects, which offset higher material and other costs.
Segment operating expenses as a percentage of net sales of 22.0% in the fourth quarter improved 200 bps from last year primarily reflecting the higher sales, as well as benefits from ongoing cost containment efforts.
As a result of these factors, segment operating earnings of $110.5 million in the fourth quarter of 2021, including $3.6 million of favorable foreign currency effects, increased $16.9 million, or 18.1%, from 2020 levels. Operating margin for the Snap‑on Tools Group of 21.9% in the quarter compared to 18.9% last year.
Repair Systems & Information Group | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fourth Quarter | | |
| (Amounts in millions) | | 2021 | | 2020 | | Change |
| External net sales | | $ | 325.4 | | | 82.9 | % | | $ | 295.3 | | | 81.8 | % | | $ | 30.1 | | | 10.2 | % |
| Intersegment net sales | | 67.1 | | | 17.1 | % | | 65.8 | | | 18.2 | % | | 1.3 | | | 2.0 | % |
| Segment net sales | | 392.5 | | | 100.0 | % | | 361.1 | | | 100.0 | % | | 31.4 | | | 8.7 | % |
| Cost of goods sold | | (211.5) | | | (53.9) | % | | (194.8) | | | (53.9) | % | | (16.7) | | | (8.6) | % |
| Gross profit | | 181.0 | | | 46.1 | % | | 166.3 | | | 46.1 | % | | 14.7 | | | 8.8 | % |
| Operating expenses | | (83.8) | | | (21.3) | % | | (76.3) | | | (21.2) | % | | (7.5) | | | (9.8) | % |
| Segment operating earnings | | $ | 97.2 | | | 24.8 | % | | $ | 90.0 | | | 24.9 | % | | $ | 7.2 | | | 8.0 | % |
Segment net sales volume leverage.of $392.5 million in the fourth quarter of 2021 increased $31.4 million, or 8.7%, from 2020 levels, reflecting a $19.7 million, or 5.5%, organic sales increase and $12.2 million of acquisition-related sales, partially offset by $0.5 million of unfavorable foreign currency translation. The organic gain is comprised of a double-digit increase in sales of undercar equipment and a mid single-digit gain in sales of diagnostic and repair information products to independent repair shop owners and managers, partially offset by a low single-digit decrease in sales to OEM dealerships.
Segment gross margin in the fourth quarter of 46.1% was unchanged from last year. Benefits from pricing actions and 60 bps from acquisitions were offset by increased material and other costs.
Segment operating expenses as a percentage of net sales in the fourth quarter of 21.3%, increased 10 bps from last year primarily due to 150 bps of unfavorable acquisition effects in 2021, partially offset by the impact of higher sales volumes and 30 bps from lower costs related to $1.0 million of restructuring actions recorded in the fourth quarter of 2020.
As a result of these factors, segment operating earnings of $50.8$97.2 million in the fourth quarter of 2018,2021, including $1.5$0.3 million of unfavorable foreign currency effects, decreased $0.5 million from 2017 levels. Operating margin for the Commercial & Industrial Group of 14.8% in the fourth quarter of 2018 compared to 15.0% last year.
Snap-on Tools Group
|
| | | | | | | | | | | | | | | | | | | | | |
| | | Fourth Quarter | | |
| (Amounts in millions) | | 2018 | | 2017 | | Change |
| Segment net sales | | $ | 407.4 |
| | 100.0 | % | | $ | 409.2 |
| | 100.0 | % | | $ | (1.8 | ) | | (0.4 | )% |
| Cost of goods sold | | (243.7 | ) | | (59.8 | )% | | (239.9 | ) | | (58.6 | )% | | (3.8 | ) | | (1.6 | )% |
| Gross profit | | 163.7 |
| | 40.2 | % | | 169.3 |
| | 41.4 | % | | (5.6 | ) | | (3.3 | )% |
| Operating expenses | | (106.7 | ) | | (26.2 | )% | | (102.0 | ) | | (25.0 | )% | | (4.7 | ) | | (4.6 | )% |
| Segment operating earnings | | $ | 57.0 |
| | 14.0 | % | | $ | 67.3 |
| | 16.4 | % | | $ | (10.3 | ) | | (15.3 | )% |
Segment net sales of $407.4 million in the fourth quarter of 2018 decreased $1.8 million, or 0.4%, from 2017 levels, reflecting a $1.6 million, or 0.4%, organic sales increase, which was more than offset by $3.4 million of unfavorable foreign currency translation. The organic sales increase reflects a low single-digit increase in the company’s U.S. franchise operations, partially offset by a low single-digit decline in the segments international operations.
Segment gross profit of $163.7 million in the fourth quarter of 2018 compared to $169.3 million last year. Gross margin of 40.2%, in the quarter declined 120 bps from 41.4% primarily due to 20 bps of unfavorablefavorable foreign currency effects, increased sales of lower gross margin products, and higher material and other costs.
Segment operating expenses of $106.7$7.2 million, or 8.0%, from $90.0 million in the fourth quarter of 2018 increased from $102.0 million last year. The operating expense margin of 26.2% in the quarter increased 120 bps from 25.0% last year primarily due to efforts to provide increased levels of field and technical support to franchisees.
As a result of these factors, segment operating earnings of $57.0 million in the fourth quarter of 2018, including $1.42020, which included $1.0 million of unfavorable foreign currency effects, decreased $10.3 million from 2017 levels. Operating margin for the Snap-on Tools Group of 14.0% in the fourth quarter of 2018 compared to 16.4% last year.
Repair Systems & Information Group
|
| | | | | | | | | | | | | | | | | | | | | |
| | | Fourth Quarter | | |
| (Amounts in millions) | | 2018 | | 2017 | | Change |
| External net sales | | $ | 275.1 |
| | 80.9 | % | | $ | 292.2 |
| | 81.9 | % | | $ | (17.1 | ) | | (5.9 | )% |
| Intersegment net sales | | 64.8 |
| | 19.1 | % | | 64.6 |
| | 18.1 | % | | 0.2 |
| | 0.3 | % |
| Segment net sales | | 339.9 |
| | 100.0 | % | | 356.8 |
| | 100.0 | % | | (16.9 | ) | | (4.7 | )% |
| Cost of goods sold | | (178.6 | ) | | (52.5 | )% | | (194.7 | ) | | (54.6 | )% | | 16.1 |
| | 8.3 | % |
| Gross profit | | 161.3 |
| | 47.5 | % | | 162.1 |
| | 45.4 | % | | (0.8 | ) | | (0.5 | )% |
| Operating expenses | | (73.9 | ) | | (21.8 | )% | | (71.9 | ) | | (20.1 | )% | | (2.0 | ) | | (2.8 | )% |
| Segment operating earnings | | $ | 87.4 |
| | 25.7 | % | | $ | 90.2 |
| | 25.3 | % | | $ | (2.8 | ) | | (3.1 | )% |
Segment net sales of $339.9 million in the fourth quarter of 2018 decreased $16.9 million, or 4.7%, from 2017 levels, reflecting a $12.2 million, or 3.5%, organic sales decline and $4.7 million of unfavorable foreign currency translation. The organic sales decrease includes a high single-digit decline in sales to OEM dealerships and a low single-digit decline in sales of undercar equipment.
Segment gross profit of $161.3 million in the fourth quarter of 2018 compared to $162.1 million last year. Gross margin of 47.5% in the quarter improved 210 bps from 45.4% last year as a result of a shift in sales that included decreased volumes of lower gross margin products and savings from the company’s RCI initiatives.
Segment operating expenses of $73.9 million in the fourth quarter of 2018 compared to $71.9 million last year. The operating expense margin of 21.8% increased 170 bps from 20.1% last year primarily due to the effect of lower sales volume and higher costs.
As a result of these factors, segment operating earnings of $87.4 million in the fourth quarter of 2018, including $1.3 million of unfavorable foreign currency effects, decreased $2.8 million from 2017 levels.restructuring charges. Operating margin for the Repair Systems & Information Group of 25.7%24.8% in the fourth quarter of 2018 compared to 25.3%24.9% last year.
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| | | | | | | | | | | | | | | | | | | | | |
| | | Fourth Quarter | | |
| (Amounts in millions) | | 2018 | | 2017 | | Change |
| Financial services revenue | | $ | 82.7 |
| | 100.0 | % | | $ | 79.9 |
| | 100.0 | % | | $ | 2.8 |
| | 3.5 | % |
| Financial services expenses | | (26.6 | ) | | (32.2 | )% | | (25.5 | ) | | (31.9 | )% | | (1.1 | ) | | (4.3 | )% |
| Segment operating earnings | | $ | 56.1 |
| | 67.8 | % | | $ | 54.4 |
| | 68.1 | % | | $ | 1.7 |
| | 3.1 | % |
Financial Services
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fourth Quarter | | |
| (Amounts in millions) | | 2021 | | 2020 | | Change |
| Financial services revenue | | $ | 86.9 | | | 100.0 | % | | $ | 93.4 | | | 100.0 | % | | $ | (6.5) | | | (7.0) | % |
| Financial services expenses | | (19.7) | | | (22.7) | % | | (24.9) | | | (26.7) | % | | 5.2 | | | 20.9 | % |
| Segment operating earnings | | $ | 67.2 | | | 77.3 | % | | $ | 68.5 | | | 73.3 | % | | $ | (1.3) | | | (1.9) | % |
Financial services revenue of $82.7$86.9 million in the fourth quarter of 2018 increased $2.82021 decreased $6.5 million, or 3.5%7.0%, from $79.9$93.4 million last year, primarily reflecting $3.1 million of higher revenue as a result of continued growthan additional week of interest income from the company’s financial services portfolio, partially offset by $0.3 million of decreased revenue from lower average yields on finance receivables.53-week 2020 fiscal year. In the fourth quarters of 2018both 2021 and 2017,2020, the respective average yieldsyield on finance receivables werewas 17.7% and 17.8%, and the average yieldsyield on contract receivables were 9.2% in both periods. was 8.5%. Originations of $267.1$256.3 million in the fourth quarter of 2018 increased $2.12021 decreased $16.1 million, or 0.8%5.9%, from 20172020 levels.
Financial services expenses primarily include personnel-related and other general and administrative costs, as well as provisions for credit losses. These expenses are generally more dependent on changes in the financial services portfolio than they are on the revenue of the segment. Financial services expenses of $26.6 million in the fourth quarter of 2018 increased2021 decreased $5.2 million from $25.5 million last year primarily due to increases in both thelower provisions for credit losses andas compared to those recorded in the sizefourth quarter of the portfolio.2020. As a percentage of the average financial services portfolio, financial services expenses were 1.3%0.9% and 1.1% for both the fourth quarters of 20182021 and 2017.2020, respectively.
Financial services
As a result of these factors, segment operating earnings of $56.1$67.2 million in the fourth quarter of 2018,2021, including $0.3$0.2 million of unfavorablefavorable foreign currency effects, increased $1.7decreased $1.3 million, or 3.1%1.9%, from 20172020 levels.
See Note 1 and Note 4 to the Consolidated Financial Statements for further information on financial services.
Corporate
Snap-on’s fourth quarter 20182021 general corporate expenses of $13.1$25.6 million decreased $37.7 million from $50.8compared to $23.6 million last year. The year-over-year decrease in general corporate expenses primarily reflects a $4.3 million benefit in 2018 from the legal settlement and a $30.9 million legal charge in 2017.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | |
2017 vs. 2016
Results of operations for 2017 and 2016 are as follows:
|
| | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2017 | | 2016 | | Change |
| Net sales | | $ | 3,686.9 |
| | 100.0 | % | | $ | 3,430.4 |
| | 100.0 | % | | $ | 256.5 |
| | 7.5 | % |
| Cost of goods sold | | (1,861.0 | ) | | (50.5 | )% | | (1,720.0 | ) | | (50.1 | )% | | (141.0 | ) | | (8.2 | )% |
| Gross profit | | 1,825.9 |
| | 49.5 | % | | 1,710.4 |
| | 49.9 | % | | 115.5 |
| | 6.8 | % |
| Operating expenses | | (1,161.3 | ) | | (31.5 | )% | | (1,048.0 | ) | | (30.6 | )% | | (113.3 | ) | | (10.8 | )% |
| Operating earnings before financial services | | 664.6 |
| | 18.0 | % | | 662.4 |
| | 19.3 | % | | 2.2 |
| | 0.3 | % |
| | |
| |
| |
| |
| |
| |
|
| Financial services revenue | | 313.4 |
| | 100.0 | % | | 281.4 |
| | 100.0 | % | | 32.0 |
| | 11.4 | % |
| Financial services expenses | | (95.9 | ) | | (30.6 | )% | | (82.7 | ) | | (29.4 | )% | | (13.2 | ) | | (16.0 | )% |
| Operating earnings from financial services | | 217.5 |
| | 69.4 | % | | 198.7 |
| | 70.6 | % | | 18.8 |
| | 9.5 | % |
| | |
| |
| |
| |
| |
| |
|
| Operating earnings | | 882.1 |
| | 22.1 | % | | 861.1 |
| | 23.2 | % | | 21.0 |
| | 2.4 | % |
| Interest expense | | (52.4 | ) | | (1.3 | )% | | (52.2 | ) | | (1.4 | )% | | (0.2 | ) | | (0.4 | )% |
| Other income (expense) – net | | (7.8 | ) | | (0.3 | )% | | (7.5 | ) | | (0.2 | )% | | (0.3 | ) | | (4.0 | )% |
| Earnings before income taxes and equity earnings | | 821.9 |
| | 20.5 | % | | 801.4 |
| | 21.6 | % | | 20.5 |
| | 2.6 | % |
| Income tax expense | | (250.9 | ) | | (6.2 | )% | | (244.3 | ) | | (6.6 | )% | | (6.6 | ) | | (2.7 | )% |
| Earnings before equity earnings | | 571.0 |
| | 14.3 | % | | 557.1 |
| | 15.0 | % | | 13.9 |
| | 2.5 | % |
| Equity earnings, net of tax | | 1.2 |
| | — |
| | 2.5 |
| | 0.1 | % | | (1.3 | ) | | NM |
|
| Net earnings | | 572.2 |
| | 14.3 | % | | 559.6 |
| | 15.1 | % | | 12.6 |
| | 2.3 | % |
| Net earnings attributable to noncontrolling interests | | (14.5 | ) | | (0.4 | )% | | (13.2 | ) | | (0.4 | )% | | (1.3 | ) | | (9.8 | )% |
| Net earnings attributable to Snap-on Inc. | | $ | 557.7 |
| | 13.9 | % | | $ | 546.4 |
| | 14.7 | % | | $ | 11.3 |
| | 2.1 | % |
|
| |
NM: Not meaningful | |
| |
Percentage Disclosure: All income statement line item percentages below “Operating earnings from financial services” are calculated as a percentage of the sum of Net sales and Financial services revenue. |
Net sales of $3,686.9 million in 2017 increased $256.5 million, or 7.5%, from 2016 levels, reflecting a $115.0 million, or 3.4%, organic sales gain and $141.5 million of acquisition-related sales. Foreign currency translation had no effect on net sales in 2017.
Gross profit of $1,825.9 million in 2017 compared to $1,710.4 million in 2016. Gross margin of 49.5% in 2017 decreased 40 basis points from 49.9% in 2016 due to 20 bps of unfavorable foreign currency effects and a 20 bps impact from acquisitions. Restructuring costs included in gross profit were $0.8 million in 2016.
Operating expenses of $1,161.3 million in 2017 compared to $1,048.0 million in 2016, as 2017 included $45.9 million for the legal charges. The operating expense margin (operating expenses as a percentage of net sales) of 31.5% in 2017 increased 90 bps from 30.6% in 2016 as 130 bps for the legal charges and 30 bps of operating expenses from acquisitions were partially offset by benefits from sales volume leverage. Restructuring costs included in operating expenses were $0.1 million in 2016.
Operating earnings before financial services of $664.6 million in 2017, including $45.9 million of expense for the legal charges and $8.6 million of unfavorable foreign currency effects, increased $2.2 million, or 0.3%, as compared to $662.4 million in 2016. As a percentage of net sales, operating earnings before financial services of 18.0%, including 130 bps impact from the legal charges, compared to 19.3% in 2016.
Financial services revenue of $313.4 million in 2017 compared to revenue of $281.4 million in 2016. Financial services operating earnings of $217.5 million in 2017 increased $18.8 million, or 9.5%, as compared to $198.7 million in 2016, including $0.4 million of unfavorable foreign currency effects. The year-over-year increases in both revenue and operating earnings primarily reflect continued growth of the company’s financial services portfolio.
Operating earnings of $882.1 million in 2017, including $45.9 million of expense related to the legal charges and $9.0 million of unfavorable foreign currency effects, increased $21.0 million, or 2.4%, from $861.1 million in 2016. As a percentage of revenues, operating earnings of 22.1% compared to 23.2% in 2016.
Interest expense of $52.4 million in 2017 increased $0.2 million from $52.2 million in 2016. See Note 10 to the Consolidated Financial Statements for information on Snap-on’s debt and credit facilities.
Other income (expense) - net was expense of $7.8 million and $7.5 million in 2017 and 2016, respectively. Other income (expense) - net reflects net losses and gains associated with hedging and currency exchange rate transactions, non-service cost components of net periodic pension and postretirement costs, and interest income. See Note 17 to the Consolidated Financial Statements for information on other income (expense) - net.
Snap-on’s effective income tax rate on earnings attributable to Snap-on was 31.1% in 2017, including a 0.4% benefit from the legal charges, compared to 31.0% in 2016. The 2017 tax rate includes a net $7.0 million charge, or 90 bps impact, from the implementation of the Tax Act, including the estimated transition tax of $13.7 million on previously unremitted foreign earnings, partially offset by a $6.7 million estimated tax benefit related to revaluation of deferred tax assets and liabilities. See Note 9 to the Consolidated Financial Statements for information on income taxes.
Net earnings attributable to Snap-on of $557.7 million, or $9.52 per diluted share, in 2017, including $28.4 million, or $0.48 per diluted share, for the after-tax expense related to the legal charges, and $7.0 million, or $0.12 per diluted share related to the Tax Act, increased $11.3 million, or $0.32 per diluted share, from 2016 levels. Net earnings attributable to Snap-on in 2016 were $546.4 million or $9.20 per diluted share.
Segment Results
Commercial & Industrial Group
|
| | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2017 | | 2016 | | Change |
| External net sales | | $ | 986.1 |
| | 78.0 | % | | $ | 863.0 |
| | 75.2 | % | | $ | 123.1 |
| | 14.3 | % |
| Intersegment net sales | | 278.9 |
| | 22.0 | % | | 285.3 |
| | 24.8 | % | | (6.4 | ) | | (2.2 | )% |
| Segment net sales | | 1,265.0 |
| | 100.0 | % | | 1,148.3 |
| | 100.0 | % | | 116.7 |
| | 10.2 | % |
| Cost of goods sold | | (766.4 | ) | | (60.6 | )% | | (697.8 | ) | | (60.8 | )% | | (68.6 | ) | | (9.8 | )% |
| Gross profit | | 498.6 |
| | 39.4 | % | | 450.5 |
| | 39.2 | % | | 48.1 |
| | 10.7 | % |
| Operating expenses | | (312.1 | ) | | (24.7 | )% | | (281.7 | ) | | (24.5 | )% | | (30.4 | ) | | (10.8 | )% |
| Segment operating earnings | | $ | 186.5 |
| | 14.7 | % | | $ | 168.8 |
| | 14.7 | % | | $ | 17.7 |
| | 10.5 | % |
Segment net sales of $1,265.0 million in 2017 increased $116.7 million, or 10.2%, from 2016 levels, reflecting a $52.0 million or 4.5%, organic sales gain and $65.5 million of acquisition-related sales, partially offset by $0.8 million of unfavorable foreign currency translation. The organic sales increase primarily includes a high single-digit gain in sales to customers in critical industries, and a mid single-digit gain in the segment’s European-based hand tools business. These organic sales gains were partially offset by a low single-digit decline in sales in the segment’s power tools operations.
Segment gross profit of $498.6 million in 2017 compared to $450.5 million in 2016. Gross margin of 39.4% in 2017 improved 20 bps from 39.2% in 2016 primarily due to savings from RCI and other cost reduction initiatives.
Segment operating expenses of $312.1 million in 2017 compared to $281.7 million in 2016. The operating expense margin of 24.7% in 2017 increased 20 bps from 24.5% in 2016 as 40 bps of operating expenses from acquisitions and increased costs for research and engineering activities were partially offset by benefits from sales volume leverage.
As a result of these factors, segment operating earnings of $186.5 million in 2017, including $0.4 million of favorable foreign currency effects, increased $17.7 million from 2016 levels. Operating margin (segment operating earnings as a percentage of segment net sales) for the Commercial & Industrial Group was 14.7% in both years.
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| | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | |
Snap-on Tools Group
|
| | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2017 | | 2016 | | Change |
| Segment net sales | | $ | 1,625.1 |
| | 100.0 | % | | $ | 1,633.9 |
| | 100.0 | % | | $ | (8.8 | ) | | (0.5 | )% |
| Cost of goods sold | | (930.9 | ) | | (57.3 | )% | | (929.9 | ) | | (56.9 | )% | | (1.0 | ) | | (0.1 | )% |
| Gross profit | | 694.2 |
| | 42.7 | % | | 704.0 |
| | 43.1 | % | | (9.8 | ) | | (1.4 | )% |
| Operating expenses | | (419.5 | ) | | (25.8 | )% | | (423.6 | ) | | (25.9 | )% | | 4.1 |
| | 1.0 | % |
| Segment operating earnings | | $ | 274.7 |
| | 16.9 | % | | $ | 280.4 |
| | 17.2 | % | | $ | (5.7 | ) | | (2.0 | )% |
Segment net sales of $1,625.1 million in 2017 decreased $8.8 million, or 0.5%, from 2016 levels, reflecting a $6.9 million, or 0.4%, organic sales decrease and $1.9 million of unfavorable foreign currency translation. The organic sales decrease reflects a low single-digit decline in the company’s U.S. franchise operations partially offset by a high single-digit gain in the international franchise operations.
Segment gross profit of $694.2 million in 2017 compared to $704.0 million in 2016. Gross margin of 42.7% in 2017 decreased from 43.1% in 2016 due to 40 bps of unfavorable foreign currency effects.
Segment operating expenses of $419.5 million in 2017 compared to $423.6 million in 2016. The operating expense margin of 25.8% in 2017 improved 10 bps from 25.9% in 2016.
As a result of these factors, segment operating earnings of $274.7 million in 2017, including $7.9 million of unfavorable foreign currency effects, decreased $5.7 million from 2016 levels. Operating margin for the Snap-on Tools Group of 16.9% in 2017 compared to 17.2% in 2016.
Repair Systems & Information Group
|
| | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2017 | | 2016 | | Change |
| External net sales | | $ | 1,075.7 |
| | 79.8 | % | | $ | 933.5 |
| | 79.1 | % | | $ | 142.2 |
| | 15.2 | % |
| Intersegment net sales | | 271.5 |
| | 20.2 | % | | 246.4 |
| | 20.9 | % | | 25.1 |
| | 10.2 | % |
| Segment net sales | | 1,347.2 |
| | 100.0 | % | | 1,179.9 |
| | 100.0 | % | | 167.3 |
| | 14.2 | % |
| Cost of goods sold | | (714.1 | ) | | (53.0 | )% | | (624.0 | ) | | (52.9 | )% | | (90.1 | ) | | (14.4 | )% |
| Gross profit | | 633.1 |
| | 47.0 | % | | 555.9 |
| | 47.1 | % | | 77.2 |
| | 13.9 | % |
| Operating expenses | | (297.8 | ) | | (22.1 | )% | | (257.3 | ) | | (21.8 | )% | | (40.5 | ) | | (15.7 | )% |
| Segment operating earnings | | $ | 335.3 |
| | 24.9 | % | | $ | 298.6 |
| | 25.3 | % | | $ | 36.7 |
| | 12.3 | % |
Segment net sales of $1,347.2 million in 2017 increased $167.3 million, or 14.2%, from 2016 levels, reflecting an $89.6 million, or 7.6%, organic sales gain, $76.0 million of acquisition-related sales and $1.7 million of favorable foreign currency translation. The organic sales increase includes a double-digit gain in sales to OEM dealerships, a high single-digit gain in sales of diagnostic and repair information products to independent repair shop owners and managers, and mid single-digit increases in sales of undercar equipment.
Segment gross profit of $633.1 million in 2017 compared to $555.9 million in 2016. Gross margin of 47.0% in 2017 decreased 10 bps from 47.1% in 2016, as the impact from higher sales of lower gross margin products were partially offset by savings from RCI initiatives and 20 bps of benefits from acquisitions. Restructuring costs included in gross profit were $0.8 million in 2016.
Segment operating expenses of $297.8 million in 2017 compared to $257.3 million in 2016. The operating expense margin of 22.1% in 2017 increased 30 bps from 21.8% in 2016 primarily due to a 120 bps impact from acquisitions, partially offset by benefits from sales volume leverage. Restructuring costs included in operating expenses were $0.1 million in 2016.
As a result of these factors, segment operating earnings of $335.3 million in 2017, including $1.1 million of unfavorable foreign currency effects, increased $36.7 million from 2016 levels. Operating margin for the Repair Systems & Information Group of 24.9% in 2017 compared to 25.3% in 2016.
Financial Services
|
| | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2017 | | 2016 | | Change |
| Financial services revenue | | $ | 313.4 |
| | 100.0 | % | | $ | 281.4 |
| | 100.0 | % | | $ | 32.0 |
| | 11.4 | % |
| Financial services expenses | | (95.9 | ) | | (30.6 | )% | | (82.7 | ) | | (29.4 | )% | | (13.2 | ) | | (16.0 | )% |
| Segment operating earnings | | $ | 217.5 |
| | 69.4 | % | | $ | 198.7 |
| | 70.6 | % | | $ | 18.8 |
| | 9.5 | % |
Financial services revenue of $313.4 million in 2017 increased $32.0 million, or 11.4%, from $281.4 million in 2016 primarily reflecting $34.9 million of higher revenue as a result of continued growth of the company’s financial services portfolio, partially offset by $2.9 million of decreased revenue from lower average yields on finance and contract receivables. In 2017 and 2016, the respective average yields on finance receivables were 17.9% and 18.0%, and the respective average yield on contract receivables were 9.2% and 9.4%. Originations of $1,072.0 million in 2017 decreased $3.7 million, or 0.3%, from 2016 levels.
Financial services expenses primarily include personnel-related and other general and administrative costs, as well as provisions for credit losses. These expenses are generally more dependent on changes in the financial services portfolio than they are on the revenue of the segment. Financial services expenses of $95.9 million in 2017 increased from $82.7 million in 2016 primarily due to changes in both the provisions for credit losses and in the size of the portfolio. As a percentage of the average financial services portfolio, financial services expenses were 5.0% and 4.9% in 2017 and 2016, respectively.
Financial services operating earnings of $217.5 million in 2017, including $0.4 million of unfavorable foreign currency effects, increased $18.8 million, or 9.5%, from 2016 levels.
See Note 1 and Note 4 to the Consolidated Financial Statements for further information on financial services.
Corporate
Snap-on’s general corporate expenses in 2017 of $131.9 million increased $46.5 million from $85.4 million in 2016. The year-over-year increase in general corporate expenses is primarily reflects $45.9 million of expense for the legal charges.due to higher performance-based compensation costs.
Non-GAAP Supplemental Data
The following non-GAAP supplemental data is presented for informational purposes to provide readers with insight into the information used by management for assessing the operating performance of Snap-on Incorporated’s (“Snap-on”)Snap-on’s non-financial services (“Operations”) and “Financial Services” businesses.
The supplemental Operations data reflects the results of operations and financial position of Snap-on’s tools, diagnostic anddiagnostics, equipment products, software, and other non-financial services operations with Financial Services presented on the equity method. The supplemental Financial Services data reflects the results of operations and financial position of Snap-on’s U.S. and international financial services operations. The financing needs of Financial Services are met through intersegment borrowings and cash generated from Operations; Financial Services is charged interest expense on intersegment borrowings at market rates. Income taxes are charged to Financial Services on the basis of the specific tax attributes generated by the U.S. and international financial services businesses. Transactions between the Operations and Financial Services businesses were eliminated to arrive at the Consolidated Financial Statements.
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| | |
| | |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | |
Non-GAAP Supplemental Consolidating Data – Supplemental Statements of Earnings information for 2018, 20172021, 2020 and 20162019 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Operations* | | Financial Services |
| (Amounts in millions) | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
| Net sales | | $ | 4,252.0 | | | $ | 3,592.5 | | | $ | 3,730.0 | | | $ | — | | | $ | — | | | $ | — | |
| Cost of goods sold | | (2,141.2) | | | (1,844.0) | | | (1,886.0) | | | — | | | — | | | — | |
| Gross profit | | 2,110.8 | | | 1,748.5 | | | 1,844.0 | | | — | | | — | | | — | |
| Operating expenses | | (1,259.3) | | | (1,116.6) | | | (1,127.6) | | | — | | | — | | | — | |
| Operating earnings before financial services | | 851.5 | | | 631.9 | | | 716.4 | | | — | | | — | | | — | |
| | | | | | | | | | | | |
| Financial services revenue | | — | | | — | | | — | | | 349.7 | | | 349.7 | | | 337.7 | |
| Financial services expenses | | — | | | — | | | — | | | (77.7) | | | (101.1) | | | (91.8) | |
| Operating earnings from financial services | | — | | | — | | | — | | | 272.0 | | | 248.6 | | | 245.9 | |
| | | | | | | | | | | | |
| Operating earnings | | 851.5 | | | 631.9 | | | 716.4 | | | 272.0 | | | 248.6 | | | 245.9 | |
| Interest expense | | (53.0) | | | (53.8) | | | (48.8) | | | (0.1) | | | (0.2) | | | (0.2) | |
| Intersegment interest income (expense) – net | | 57.1 | | | 68.5 | | | 70.5 | | | (57.1) | | | (68.5) | | | (70.5) | |
| Other income (expense) – net | | 16.4 | | | 8.5 | | | 8.9 | | | 0.1 | | | 0.2 | | | (0.1) | |
| Earnings before income taxes and equity earnings | | 872.0 | | | 655.1 | | | 747.0 | | | 214.9 | | | 180.1 | | | 175.1 | |
| Income tax expense | | (193.3) | | | (142.7) | | | (166.6) | | | (53.7) | | | (46.4) | | | (45.2) | |
| Earnings before equity earnings | | 678.7 | | | 512.4 | | | 580.4 | | | 161.2 | | | 133.7 | | | 129.9 | |
| Financial services – net earnings attributable to Snap-on | | 161.2 | | | 133.7 | | | 129.9 | | | — | | | — | | | — | |
| Equity earnings, net of tax | | 1.5 | | | 0.3 | | | 0.9 | | | — | | | — | | | — | |
| Net earnings | | 841.4 | | | 646.4 | | | 711.2 | | | 161.2 | | | 133.7 | | | 129.9 | |
| Net earnings attributable to noncontrolling interests | | (20.9) | | | (19.4) | | | (17.7) | | | — | | | — | | | — | |
| Net earnings attributable to Snap-on | | $ | 820.5 | | | $ | 627.0 | | | $ | 693.5 | | | $ | 161.2 | | | $ | 133.7 | | | $ | 129.9 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Operations* | | Financial Services |
| (Amounts in millions) | | 2018 | | 2017 | | 2016 | | 2018 | | 2017 | | 2016 |
| Net sales | | $ | 3,740.7 |
| | $ | 3,686.9 |
| | $ | 3,430.4 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Cost of goods sold | | (1,870.7 | ) | | (1,861.0 | ) | | (1,720.0 | ) | | — |
| | — |
| | — |
|
| Gross profit | | 1,870.0 |
| | 1,825.9 |
| | 1,710.4 |
| | — |
| | — |
| | — |
|
| Operating expenses | | (1,144.0 | ) | | (1,161.3 | ) | | (1,048.0 | ) | | — |
| | — |
| | — |
|
| Operating earnings before financial services | | 726.0 |
| | 664.6 |
| | 662.4 |
| | — |
| | — |
| | — |
|
| | |
| |
| |
| |
| |
| |
|
| Financial services revenue | | — |
| | — |
| | — |
| | 329.7 |
| | 313.4 |
| | 281.4 |
|
| Financial services expenses | | — |
| | — |
| | — |
| | (99.6 | ) | | (95.9 | ) | | (82.7 | ) |
| Operating earnings from financial services | | — |
| | — |
| | — |
| | 230.1 |
| | 217.5 |
| | 198.7 |
|
| | |
| |
| |
| |
| |
| |
|
| Operating earnings | | 726.0 |
| | 664.6 |
| | 662.4 |
| | 230.1 |
| | 217.5 |
| | 198.7 |
|
| Interest expense | | (50.1 | ) | | (52.1 | ) | | (51.9 | ) | | (0.3 | ) | | (0.3 | ) | | (0.3 | ) |
| Intersegment interest income (expense) – net | | 69.7 |
| | 70.8 |
| | 72.2 |
| | (69.7 | ) | | (70.8 | ) | | (72.2 | ) |
| Other income (expense) – net | | 4.1 |
| | (7.8 | ) | | (7.6 | ) | | 0.1 |
| | — |
| | 0.1 |
|
| Earnings before income taxes and equity earnings | | 749.7 |
| | 675.5 |
| | 675.1 |
| | 160.2 |
| | 146.4 |
| | 126.3 |
|
| Income tax expense | | (173.1 | ) | | (196.8 | ) | | (197.7 | ) | | (41.3 | ) | | (54.1 | ) | | (46.6 | ) |
| Earnings before equity earnings | | 576.6 |
| | 478.7 |
| | 477.4 |
| | 118.9 |
| | 92.3 |
| | 79.7 |
|
| Financial services – net earnings attributable to Snap-on | | 118.9 |
| | 92.3 |
| | 79.7 |
| | — |
| | — |
| | — |
|
| Equity earnings, net of tax | | 0.7 |
| | 1.2 |
| | 2.5 |
| | — |
| | — |
| | — |
|
| Net earnings | | 696.2 |
| | 572.2 |
| | 559.6 |
| | 118.9 |
| | 92.3 |
| | 79.7 |
|
| Net earnings attributable to noncontrolling interests | | (16.3 | ) | | (14.5 | ) | | (13.2 | ) | | — |
| | — |
| | — |
|
| Net earnings attributable to Snap-on | | $ | 679.9 |
| | $ | 557.7 |
| | $ | 546.4 |
| | $ | 118.9 |
| | $ | 92.3 |
| | $ | 79.7 |
|
* Snap-on with Financial Services presented on the equity method.
Non-GAAP Supplemental Consolidating Data – Supplemental Balance Sheet Information as of 20182021 and 20172020 year end is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Operations* | | Financial Services |
| (Amounts in millions) | | 2021 | | 2020 | | 2021 | | 2020 |
| ASSETS | | | | | | | | |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 779.9 | | | $ | 923.2 | | | $ | 0.1 | | | $ | 0.2 | |
| Intersegment receivables | | 12.5 | | | 14.6 | | | — | | | 0.2 | |
| Trade and other accounts receivable – net | | 681.7 | | | 639.7 | | | 0.6 | | | 1.0 | |
| Finance receivables – net | | — | | | — | | | 542.3 | | | 530.2 | |
| Contract receivables – net | | 6.4 | | | 7.0 | | | 104.0 | | | 105.5 | |
| Inventories – net | | 803.8 | | | 746.5 | | | — | | | — | |
| Prepaid expenses and other assets | | 136.8 | | | 131.1 | | | 7.4 | | | 7.8 | |
| Total current assets | | 2,421.1 | | | 2,462.1 | | | 654.4 | | | 644.9 | |
| | | | | | | | |
| Property and equipment – net | | 516.5 | | | 524.4 | | | 1.7 | | | 1.8 | |
| Operating lease right-of-use assets | | 50.0 | | | 49.7 | | | 1.9 | | | 2.2 | |
| Investment in Financial Services | | 350.6 | | | 349.8 | | | — | | | — | |
| Deferred income tax assets | | 26.5 | | | 27.6 | | | 23.0 | | | 22.7 | |
| Intersegment long-term notes receivable | | 570.1 | | | 316.9 | | | — | | | — | |
| Long-term finance receivables – net | | — | | | — | | | 1,114.0 | | | 1,136.3 | |
| Long-term contract receivables – net | | 9.7 | | | 12.4 | | | 368.5 | | | 362.3 | |
| Goodwill | | 1,116.5 | | | 982.4 | | | — | | | — | |
| Other intangibles – net | | 301.7 | | | 260.8 | | | — | | | — | |
| Other assets | | 188.6 | | | 103.9 | | | 0.1 | | | 0.1 | |
| Total assets | | $ | 5,551.3 | | | $ | 5,090.0 | | | $ | 2,163.6 | | | $ | 2,170.3 | |
|
| | | | | | | | | | | | | | | | |
| | | Operations* | | Financial Services |
| (Amounts in millions) | | 2018 | | 2017 | | 2018 | | 2017 |
| ASSETS | | | | | | | | |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 140.5 |
| | $ | 91.8 |
| | $ | 0.4 |
| | $ | 0.2 |
|
| Intersegment receivables | | 15.1 |
| | 17.1 |
| | — |
| | — |
|
| Trade and other accounts receivable – net | | 692.1 |
| | 674.9 |
| | 0.5 |
| | 0.7 |
|
| Finance receivables – net | | — |
| | — |
| | 518.5 |
| | 505.4 |
|
| Contract receivables – net | | 6.6 |
| | 9.4 |
| | 91.7 |
| | 87.4 |
|
| Inventories – net | | 673.8 |
| | 638.8 |
| | — |
| | — |
|
| Prepaid expenses and other assets | | 100.2 |
| | 117.6 |
| | 0.5 |
| | 0.7 |
|
| Total current assets | | 1,628.3 |
| | 1,549.6 |
| | 611.6 |
| | 594.4 |
|
| | | | | | | | | |
| Property and equipment – net | | 493.5 |
| | 482.4 |
| | 1.6 |
| | 2.0 |
|
| Investment in Financial Services | | 329.5 |
| | 317.4 |
| | — |
| | — |
|
| Deferred income tax assets | | 45.8 |
| | 25.2 |
| | 18.9 |
| | 26.8 |
|
| Intersegment long-term notes receivable | | 701.3 |
| | 583.7 |
| | — |
| | — |
|
| Long-term finance receivables – net | | — |
| | — |
| | 1,074.4 |
| | 1,039.2 |
|
| Long-term contract receivables – net | | 11.9 |
| | 13.2 |
| | 333.0 |
| | 309.4 |
|
| Goodwill | | 902.2 |
| | 924.1 |
| | — |
| | — |
|
| Other intangibles – net | | 232.9 |
| | 253.7 |
| | — |
| | — |
|
| Other assets | | 51.9 |
| | 63.1 |
| | 0.1 |
| | — |
|
| Total assets | | $ | 4,397.3 |
| | $ | 4,212.4 |
| | $ | 2,039.6 |
| | $ | 1,971.8 |
|
* Snap-on with Financial Services presented on the equity method.
|
| | |
| | |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | |
Non-GAAP Supplemental Consolidating Data – Supplemental Balance Sheet Information (continued):
| | | | | Operations* | | Financial Services | | | Operations* | | Financial Services |
| (Amounts in millions) | | 2018 | | 2017 | | 2018 | | 2017 | (Amounts in millions) | | 2021 | | 2020 | | 2021 | | 2020 |
| LIABILITIES AND EQUITY | | | | | | | | | LIABILITIES AND EQUITY | | | | | | | | |
| Current liabilities: | | | | | | | | | Current liabilities: | |
| Notes payable and current maturities of long-term debt | | $ | 186.3 |
| | $ | 183.2 |
| | $ | — |
| | $ | 250.0 |
| Notes payable and current maturities of long-term debt | | $ | 17.4 | | | $ | 18.5 | | | $ | — | | | $ | 250.0 | |
| Accounts payable | | 199.6 |
| | 177.1 |
| | 1.5 |
| | 1.1 |
| Accounts payable | | 276.6 | | | 222.3 | | | 1.0 | | | 0.6 | |
| Intersegment payables | | — |
| | — |
| | 15.1 |
| | 17.1 |
| Intersegment payables | | — | | | — | | | 12.5 | | | 14.8 | |
| Accrued benefits | | 52.0 |
| | 55.8 |
| | — |
| | — |
| Accrued benefits | | 67.4 | | | 59.7 | | | — | | | — | |
| Accrued compensation | | 66.8 |
| | 67.8 |
| | 4.7 |
| | 3.7 |
| Accrued compensation | | 110.9 | | | 87.2 | | | 3.9 | | | 2.7 | |
| Franchisee deposits | | 67.5 |
| | 66.5 |
| | — |
| | — |
| Franchisee deposits | | 80.7 | | | 78.4 | | | — | | | — | |
| Other accrued liabilities | | 355.4 |
| | 366.0 |
| | 26.1 |
| | 29.7 |
| Other accrued liabilities | | 407.1 | | | 418.8 | | | 26.8 | | | 35.9 | |
| Total current liabilities | | 927.6 |
| | 916.4 |
| | 47.4 |
| | 301.6 |
| Total current liabilities | | 960.1 | | | 884.9 | | | 44.2 | | | 304.0 | |
| | | | | | | | | | |
| Long-term debt and intersegment long-term debt | | — |
| | — |
| | 1,647.3 |
| | 1,337.3 |
| Long-term debt and intersegment long-term debt | | — | | | — | | | 1,753.0 | | | 1,499.0 | |
| Deferred income tax liabilities | | 41.4 |
| | 28.4 |
| | — |
| | — |
| Deferred income tax liabilities | | 122.7 | | | 70.4 | | | — | | | — | |
| Retiree health care benefits | | 31.8 |
| | 36.0 |
| | — |
| | — |
| Retiree health care benefits | | 31.1 | | | 34.5 | | | — | | | — | |
| Pension liabilities | | 171.3 |
| | 158.9 |
| | — |
| | — |
| Pension liabilities | | 104.9 | | | 127.1 | | | — | | | — | |
| Operating lease liabilities | | Operating lease liabilities | | 32.5 | | | 31.6 | | | 1.7 | | | 2.4 | |
| Other long-term liabilities | | 106.6 |
| | 100.4 |
| | 15.4 |
| | 15.5 |
| Other long-term liabilities | | 96.2 | | | 94.9 | | | 14.1 | | | 15.1 | |
| Total liabilities | | 1,278.7 |
| | 1,240.1 |
| | 1,710.1 |
| | 1,654.4 |
| Total liabilities | | 1,347.5 | | | 1,243.4 | | | 1,813.0�� | | | 1,820.5 | |
| | Total shareholders’ equity attributable to Snap-on | | 3,098.8 |
| | 2,953.9 |
| | 329.5 |
| | 317.4 |
| Total shareholders’ equity attributable to Snap-on | | 4,181.9 | | | 3,824.9 | | | 350.6 | | | 349.8 | |
| Noncontrolling interests | | 19.8 |
| | 18.4 |
| | — |
| | — |
| Noncontrolling interests | | 21.9 | | | 21.7 | | | — | | | — | |
| Total equity | | 3,118.6 |
| | 2,972.3 |
| | 329.5 |
| | 317.4 |
| Total equity | | 4,203.8 | | | 3,846.6 | | | 350.6 | | | 349.8 | |
| Total liabilities and equity | | $ | 4,397.3 |
| | $ | 4,212.4 |
| | $ | 2,039.6 |
| | $ | 1,971.8 |
| Total liabilities and equity | | $ | 5,551.3 | | | $ | 5,090.0 | | | $ | 2,163.6 | | | $ | 2,170.3 | |
* Snap-on with Financial Services presented on the equity method.
Liquidity and Capital Resources
Snap-on’s growth has historically been funded by a combination of cash provided by operating activities and debt financing. On February 20, 2018, the company issued $400 million (with net proceeds of $395.4 million) of the 2048 Notes; the company used the proceeds from the offering to repay, prior to maturity, $200 million of the 2019 Notes, as well as to reduce outstanding commercial paper borrowings. In addition, on January 16, 2018, Snap-on repaid $250 million of the 2018 Notes upon maturity with available cash and cash generated from issuances of commercial paper. Snap-on believes that its cash from operations and collections of finance receivables, coupled with its sources of borrowings and available cash on hand, are sufficient to fund its currently anticipated requirements for scheduled debt repayments, payments of interest and dividends, new receivables originated by our financial services businesses, capital expenditures, working capital, the funding of pension plans, and funding for share repurchases and acquisitions, if and as they arise.
Due to Snap-on’s credit rating over the years, external funds have been available at an acceptable cost. As of the close of business on February 8, 2019,4, 2022, Snap-on’s long-term debt and commercial paper were rated, respectively, A2 and P-1 by Moody’s Investors Service; A- and A-2 by Standard & Poor’s; and A and F1 by Fitch Ratings. Snap-on believes that its current credit arrangements are sound and that the strength of its balance sheet affords the company the financial flexibility, including through access to financial markets for potential new financing, to respond to both internal growth opportunities and those available through acquisitions. However, Snap-on cannot provide any assurances ofassurance that financing will be available in the availability of future financing or theon acceptable terms, on which it might be available, or that its debt ratings maywill not decrease.
The following discussion focuses on information included in the accompanying Consolidated Balance Sheets.
As of 20182021 year end, working capital (current assets less current liabilities) of $1,264.9$2,071.2 million increased $338.9$153.1 million from $926.0$1,918.1 million as of 20172020 year end primarily as a result of other net changes in working capital discussed below.
The following represents the company’s working capital position as of 20182021 and 20172020 year end:
| | | | | | | | | | | | | | |
| (Amounts in millions) | | 2021 | | 2020 |
| Cash and cash equivalents | | $ | 780.0 | | | $ | 923.4 | |
| Trade and other accounts receivable – net | | 682.3 | | | 640.7 | |
| Finance receivables – net | | 542.3 | | | 530.2 | |
| Contract receivables – net | | 110.4 | | | 112.5 | |
| Inventories – net | | 803.8 | | | 746.5 | |
| Prepaid expenses and other assets | | 134.6 | | | 129.7 | |
| Total current assets | | 3,053.4 | | | 3,083.0 | |
| | | | |
| Notes payable and current maturities of long-term debt | | (17.4) | | | (268.5) | |
| Accounts payable | | (277.6) | | | (222.9) | |
| Other current liabilities | | (687.2) | | | (673.5) | |
| Total current liabilities | | (982.2) | | | (1,164.9) | |
| Working capital | | $ | 2,071.2 | | | $ | 1,918.1 | |
|
| | | | | | | | |
| (Amounts in millions) | | 2018 | | 2017 |
| Cash and cash equivalents | | $ | 140.9 |
| | $ | 92.0 |
|
| Trade and other accounts receivable – net | | 692.6 |
| | 675.6 |
|
| Finance receivables – net | | 518.5 |
| | 505.4 |
|
| Contract receivables – net | | 98.3 |
| | 96.8 |
|
| Inventories – net | | 673.8 |
| | 638.8 |
|
| Prepaid expenses and other assets | | 92.8 |
| | 110.7 |
|
| Total current assets | | 2,216.9 |
| | 2,119.3 |
|
| | | | | |
| Notes payable and current maturities of long-term debt | | (186.3 | ) | | (433.2 | ) |
| Accounts payable | | (201.1 | ) | | (178.2 | ) |
| Other current liabilities | | (564.6 | ) | | (581.9 | ) |
| Total current liabilities | | (952.0 | ) | | (1,193.3 | ) |
| Working capital | | $ | 1,264.9 |
| | $ | 926.0 |
|
Cash and cash equivalents of $140.9$780.0 million as of 20182021 year end increased $48.9decreased $143.4 million from 20172020 year-end levels primarily due to: (i) $764.5the funding of $878.1 million of new finance receivables; (ii) the repurchase of 1,943,900 shares of the company’s common stock for $431.3 million; (iii) dividend payments to shareholders of $275.8 million; (iv) the repayment of $250.0 million of the 2021 Notes; (v) the funding of $199.7 million for acquisitions; and (vi) the funding of $70.1 million for capital expenditures. These decreases in cash and cash equivalents were partially offset by: (i) $966.6 million of cash generated from operations, net of $50.0 million of discretionary cash contributions to the company’s domestic pension plans;operations; (ii) $747.7$854.2 million of cash from collections of finance receivables; (iii) $395.4 million of net proceeds from the 2048 Notes; (iv) $55.5$162.4 million of cash proceeds from stock purchase and option plan exercises; and (v) $4.9(iv) $3.3 million of net proceeds from notes payable and other short-term borrowings. These increases in cash and cash equivalents were partially offset by: (i) the funding of $865.6 million of new finance receivables; (ii) the repurchase of 1,769,000 shares of the company’s common stock for $284.1 million; (iii) the repayment of $250 million of the 2018 Notes; (iv) the repayment of $200 million of the 2019 Notes; (v) dividend payments to shareholders of $192.0 million; (vi) the funding of $90.9 million of capital expenditures; and (vii) the funding of $3.0 million for acquisitions.
|
| | |
| | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | |
Of the $140.9$780.0 million of cash and cash equivalents as of 20182021 year end, $121.4$293.1 million was held outside of the United States. Snap-on maintains non-U.S. funds in its foreign operations to: (i) provide adequate working capital; (ii) satisfy various regulatory requirements; and/or (iii) take advantage of business expansion opportunities as they arise. Although the Tax Cuts and Jobs Act (“Tax Act”) generally eliminateseliminated U.S. federal taxation onof dividends from foreign subsidiaries, such dividends may still be subject to state income taxation and foreign withholding taxes. Snap-on periodically evaluates its cash held outside the United States and may pursue opportunities to repatriate certain foreign cash amounts to the extent that it can be accomplished in a tax efficient manner.
| | | | | | | | |
| | |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | |
Trade and other accounts receivable – net of $692.6$682.3 million as of 20182021 year end increased $17.0$41.6 million from 20172020 year-end levels primarily due to an increase in dayshigher sales outstanding and $0.2$9.7 million of receivables related to the Fastorq acquisition,from acquisitions, partially offset by $20.8$12.5 million of unfavorable foreign currency translation. Days sales outstanding (trade and other accounts receivable – net as of the respective period end, divided by the respective trailing 12 months sales, times 360 days) was 6758 days and 64 days at 2018the respective 2021 and 2020 year end and 66 days at 2017 year end.ends.
The current portions of net finance and contract receivables of $616.8$652.7 million as of 20182021 year end compared to $602.2$642.7 million at 20172020 year end. The long-term portions of net finance and contract receivables of $1,419.3$1,492.2 million as of 20182021 year end compared to $1,361.8$1,511.0 million at 20172020 year end. The combined $72.1$8.8 million increasedecrease in net current and long-term finance and contract receivables over 2017compared to 2020 year-end levels is primarily due to continued growth$36.6 million of the company’s financial services portfolio, partiallyhigher originations more than offset by $16.8collections and other reductions as well as $2.6 million of unfavorable foreign currency translation.
Inventories – net of $673.8$803.8 million as of 20182021 year end increased $35.0$57.3 million from 20172020 year-end levels primarily due to $20.9 million related to the adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), continued support forhigher customer demand, new product introductions, as well as $0.7innovations and $2.8 million of inventories related to the Fastorq acquisition,from acquisitions, partially offset by $23.2$16.1 million of foreign currency translation. As of 20182021 and 20172020 year end, inventory turns (trailing 12 months of cost of goods sold, divided by the average of the beginning and ending inventory balance for the trailing 12 months) were 2.92.8 turns and 3.22.4 turns, respectively. Inventories accounted for using the first-in, first-out (“FIFO”) method as of both 20182021 and 20172020 year end approximated 61%60% and 57% of total inventories.inventories, respectively. All other inventories are accounted for using the last-in, first-out (“LIFO”) method. The company’s LIFO reserve was $78.4$87.2 million and $75.1$84.0 million at 20182021 and 20172020 year end, respectively.
Notes
As of 2021 year end, notes payable and current maturities of long-term debt consisted of $186.3 million as of 2018 year end included $177.1 million of commercial paper borrowings and $9.2$17.4 million of other notes. Notes payable and current maturities of long-term debt of $433.2$268.5 million as of 20172020 year end consisted of $250$250.0 million of the 20182021 Notes (which were subsequently repaid), $151 million of commercial paper borrowings and $32.2$18.5 million of other notes.
Average notes payable outstanding, including commercial paper borrowings in 2020 and short-term credit facility borrowings in both years, were $167.7$16.7 million and $126.8$68.4 million in 20182021 and 2017,2020, respectively. The 2021 weighted-average interest rate on such borrowings of 2.84%8.39% compared with 2.98% in 2018 increased from 2.45% last year primarily due to the impact of higher rates on2020. There were no commercial paper borrowings.borrowings during 2021. Average commercial paper borrowings were $154.9 million and $103.3$41.0 million in 2018 and 2017, respectively, and the2020 with a weighted-average interest rate of 2.03%1.53%. No commercial paper was outstanding as of year-end 2021 or 2020. There were no amounts borrowed under the short-term credit facility during 2021. Average short-term credit facility borrowings were $13.9 million in 2018 increased from 1.14% last year.2020 with a weighted-average interest rate of 1.7%. No amounts were outstanding under the short-term credit facility as of year-end 2021 or 2020. At 20182021 year end, the weighted-average interest rate on outstanding notes payable of 3.21%8.39% compared with 2.34% at 2017 year end.8.87% in 2020. The 20182021 year-end rate increaseddecreased primarily due to higherlower rates on commercial borrowings.local borrowings in emerging markets.
Accounts payable of $201.1$277.6 million as of 20182021 year end increased $22.9$54.7 million from 20172020 year-end levels, primarily due to the timing of payments and $3.4 million from acquisitions, partially offset by $5.0$3.4 million of foreign currency translation.
Other accrued liabilities of $373.6$424.3 million as of 20182021 year end decreased $14.5$21.2 million from 20172020 year-end levels primarily due to lower income tax accruals the settlement of an employment-related litigation matter and $8.7$7.1 million of foreign currency translation.translation, partially offset by $3.7 million from acquisitions.
Long-term debt of $946.0$1,182.9 million as of 20182021 year end consisted of: (i) $250.0$300.0 million of unsecured 6.125%3.25% notes that mature in 2021;on March 1, 2027 (the “2027 Notes”); (ii) $300.0$400.0 million of unsecured 4.10% notes that mature on March 1, 2048 (“the 2027 Notes;2048 Notes”); and (iii) $400$500.0 million of the 2048 Notes,3.10% notes that mature on May 1, 2050 (the “2050 Notes”), partially offset by $4.0$17.1 million from the net effects of fair value adjustments related to interest rate swaps.debt amortization costs.
Snap-on has a five-year, $700an $800 million multi-currency revolving credit facility that terminates on December 15, 2020September 16, 2024 (the “Credit Facility”); no amounts were outstanding under the Credit Facility as of December 29, 2018.January 1, 2022. Borrowings under the Credit Facility bear interest at varying rates based on either: (i) Snap-on’s then-current, long-term debt ratings.ratings; or (ii) Snap-on’s then-current ratio of consolidated debt net of certain cash adjustments (“Consolidated Net Debt”) to earnings before interest, taxes, depreciation, amortization and certain other adjustments for the preceding four fiscal quarters then ended (the “Consolidated Net Debt to EBITDA Ratio”). The Credit Facility’s financial covenant requires that Snap-on maintain, as of each fiscal quarter end, either (i) a ratio not greater than 0.60 to 1.00 of consolidated net debt (consolidated debt net of certain cash adjustments)Consolidated Net Debt to the sum of such consolidated net debtConsolidated Net Debt plus total equity and less accumulated other comprehensive income or loss (the “Debt“Leverage Ratio”); or (ii) a ratioConsolidated Net Debt to EBITDA Ratio not greater than 3.50 to 1.00 of such consolidated net debt to earnings before interest, taxes, depreciation, amortization and certain other adjustments for the preceding four fiscal quarters then ended (the “Debt to EBITDA Ratio”).1.00. Snap-on may, up to two times during any five-year period during the term of the Credit Facility (including any extensions thereof), elect to increase the maximum DebtLeverage Ratio to 0.65 to 1.00 and/or increase the maximum Consolidated Net Debt to EBITDA Ratio to 3.754.00 to 1.00 for four consecutive fiscal quarters in connection with certain material acquisitions (as defined in the related credit agreement). As of 2018 year end,January 1, 2022, the company’s actual ratios of 0.230.09 and 0.99,0.37 respectively, were both within the permitted ranges set forth in this financial covenant. Snap-on generally issues commercial paper to fund its financing needs on a short-term basis and uses the Credit Facility as back-up liquidity to support such commercial paper issuances.
Snap-on’s Credit Facility and other debt agreements also contain certain usual and customary borrowing, affirmative, negative and maintenance covenants. As of 20182021 year end, Snap-on was in compliance with all covenants of its Credit Facility and other debt agreements.
Snap-on believes it has sufficient available cash and access to both committed and uncommitted credit facilities to cover its expected funding needs on both a short-term and long-term basis. Snap-on manages its aggregate short-term borrowings so as not to exceed its availability under the revolving Credit Facility. Snap-on believes that it can access short-term debt markets, predominantly through commercial paper issuances and existing lines of credit, to fund its short-term requirements and to ensure near-term liquidity. Snap-on regularly monitors the credit and financial markets and, if it believes conditions are favorable, it may take advantage of what it believes are favorable marketsuch conditions to issue long-term debt to further improve its liquidity and capital resources. Near-term liquidity requirements for Snap-on include scheduled debt payments, payments of interest and dividends, funding to support new receivables originated by our financial services businesses, capital expenditures, working capital, the funding of pension plans, and funding for share repurchases and acquisitions, if and as they arise. Snap-on intends to make contributions of $9.4 million to its foreign pension plans and $1.9$9.5 million to its domestic pension plans in 2019,2022, as required by law. Depending on market and other conditions, Snap-on may make additional discretionary cash contributions to its pension plans in 2019.2022.
Snap-on’s long-term financing strategy is to maintain continuous access to the debt markets to accommodate its liquidity needs, including the potential use of commercial paper, additional fixed-term debt and/or securitizations.
The following discussion focuses on information included in the accompanying Consolidated Statements of Cash Flows.
Operating Activities
Net cash provided by operating activities of $764.5$966.6 million in 2018 increased $156.02021 decreased $42.0 million from $608.5$1,008.6 million in 2017.2020. The $156.0$42.0 million increasedecrease is primarily due to $124.0a $253.6 million of higherchange in net earnings and $34.0 million from net changes in operating assets and liabilities. Net cash providedliabilities, partially offset by operating activities was $576.1a $195.0 million increase in 2016.net earnings.
Depreciation expense was $68.8$75.6 million in 2018, $65.62021 and $73.3 million in 2017 and $61.4 million in 2016.2020. Amortization expense was $25.3$29.2 million in 2018, $27.62021 and $23.4 million in 2017 and $24.2 million in 2016.2020. See Note 7 to the Consolidated Financial Statements for information on goodwill and other intangible assets.
Investing Activities
Net cash used by investing activities of $210.2$290.4 million in 20182021 included additions to finance receivables of $865.6$878.1 million, partially offset by collections of $747.7$854.2 million. Net cash used by investing activities of $341.4$187.8 million in 20172020 included additions to finance receivables of $892.0$835.0 million, partially offset by collections of $712.7 million. Net cash used by investing activities of $473.4 million in 2016 included additions to finance receivables of $915.0 million, partially offset by collections of $671.7$750.3 million. Finance receivables are comprised of extended-term installment payment contracts to both technicians and independent shop owners (i.e., franchisees’ customers) to enable them to purchase tools, and diagnosticdiagnostics, and equipment products on an extended-term payment plan, generally with average payment terms of approximately four years.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | |
Net cash used by investing activities in 20182021 also included a total of $3.0$199.7 million for the acquisitionacquisitions of Fastorq.Dealer-FX, AutoCrib Germany and Pradines. Net cash used by investing activities in 20172020 included a total of $82.9$41.5 million (net of $1.8 million of cash acquired) for the acquisitions of BTC, NorbarSigmavision and TCS, as well asAutoCrib and a $0.2 million working capital adjustmentsadjustment for the Car-O-Liner and Sturtevant Richmont acquisitions. Net cash used by investing activities in 2016 included, on a preliminary basis, $160.4 million (net of $4.3 million of cash acquired) for the acquisitions of Car-O-Liner and Sturtevant Richmont.2019 Cognitran acquisition. See Note 3 to the Consolidated Financial Statements for information onabout acquisitions.
Capital expenditures in 2018, 20172021 and 20162020 totaled $90.9 million, $82.0$70.1 million and $74.3$65.6 million, respectively. Capital expenditures in all threeboth years included continued investments related to the company’s execution of its strategic Value Creation Processes and strategic growth initiatives.Processes. The company also invested in: (i) new product, efficiency, safety and cost reduction initiatives that are intended to expand and improve its manufacturing and distribution capabilities worldwide; (ii) new production and machine tooling to enhance manufacturing operations, as well as ongoing replacements of manufacturing and distribution equipment, particularly in the United States; and (iii) the ongoing replacement and enhancement of the company’s global enterprise resource planning (ERP) management information systems; and (iv) improvements to the company’s research and development facilities and corporate headquarters in Kenosha, Wisconsin.systems. Snap-on believes that its cash generated from operations, as well as its available cash on hand and funds available from its credit facilities will be sufficient to fund the company’s capital expenditure requirements in 2019.2022.
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | |
Financing Activities
Net cash used by financing activities of $502.2$818.8 million in 20182021 included repayments of $250the $250.0 million repayment of the 20182021 Notes at maturity and $200net proceeds from notes payable and other short-term borrowings of $3.3 million. Net cash used by financing activities of $84.3 million in 2020 included Snap-on’s sale, on April 27, 2020, of $500 million of the 2019 Notes prior to maturity, as well as a $7.8 million loss on early extinguishment of debt. These amounts were partially offset by Snap-on’s sale, on February 20, 2018, of $400 million of the 20482050 Notes at a discount, from which Snap-on received $395.4$489.9 million of net proceeds, reflecting $3.5$4.4 million of transaction costs, and $4.9 millionpartially offset by repayments of proceeds from the net increase in notes payable and other short-term borrowings. Net cash used by financing activitiesborrowings of $256.1 million in 2017 included the January 2017 repayment of $150 million of the 2017 Notes. These amounts were partially offset by Snap-on’s sale, on February 15, 2017, of $300 million of the 2027 Notes sold at a discount, from which Snap-on received $297.8 million of net proceeds, reflecting $1.9 million of transaction costs, and $30.6 million of proceeds from a net increase in notes payable and other short-term borrowings. Net cash used by financing activities of $116.0 million in 2016 included $134.2 million of proceeds from a net increase in notes payable and other short-term borrowings.$187.2 million.
Proceeds from stock purchase and option plan exercises totaled $55.5$162.4 million in 2018, $46.22021 and $55.8 million in 2017 and $41.8 million in 2016.2020. Snap-on has undertaken stock repurchases from time to time to offset dilution created by shares issued for employee and franchisee stock purchase plans, as well as stock options, and for other corporate purposes. In 2018,2021, Snap-on repurchased 1,769,0001,943,900 shares of its common stock for $284.1$431.3 million under its previously announced share repurchase programs. As of 20182021 year end, Snap-on had remaining availability to repurchase up to an additional $215.7$454.9 million in common stock pursuant to its Board of Directors’ (the “Board”)Board’s authorizations. The purchase of Snap-on common stock is at the company’s discretion, subject to prevailing financial and market conditions. Snap-on repurchased 1,820,0001,109,000 shares of its common stock for $287.9$174.3 million in 2017 and Snap-on repurchased 758,000 shares of its common stock for $120.4 million in 2016.2020. Snap-on believes that its cash generated from operations, available cash on hand, and funds available from its credit facilities, will be sufficient to fund the company’s additional share repurchases, if any, in 2019.any.
Snap-on has paid consecutive quarterly cash dividends, without interruption or reduction, since 1939. Cash dividends paid in 2018, 20172021 and 20162020 totaled $192.0 million, $169.4$275.8 million and $147.5$243.3 million, respectively. On November 8, 2018,4, 2021, the company announced that its Board increased the quarterly cash dividend by 15.9%15.4% to $0.95$1.42 per share ($3.805.68 per share annualized). Quarterly dividends in 20182021 were $0.95$1.42 per share in the fourth quarter and $0.82$1.23 per share in the first three quarters ($3.415.11 per share for the year). Quarterly dividends in 20172020 were $0.82$1.23 per share in the fourth quarter and $0.71$1.08 per share in the first three quarters ($2.95 per share for the year). Quarterly dividends in 2016 were $0.71 per share in the fourth quarter and $0.61 per share in the first three quarters ($2.544.47 per share for the year).
| | | | | 2018 | | 2017 | | 2016 | | 2021 | | 2020 |
| Cash dividends paid per common share | | $ | 3.41 |
| | $ | 2.95 |
| | $ | 2.54 |
| Cash dividends paid per common share | | $ | 5.11 | | | $ | 4.47 | |
| Cash dividends paid as a percent of prior-year retained earnings | | 5.1 | % | | 5.0 | % | | 4.9 | % | |
| Cash dividends paid as a percentage of prior-year retained earnings | | Cash dividends paid as a percentage of prior-year retained earnings | | 5.3 | % | | 5.1 | % |
Snap-on believes that its cash generated from operations, available cash on hand, and funds available from its credit facilities, will be sufficient to pay dividends in 2019.2022.
Contractual Obligations and Commitments
Off-Balance-Sheet Arrangements
Except as included belowSnap-on’s contractual obligations for long-term debt and operating and finance leases are reflected in the section labeled “Contractual Obligations and Commitments”Consolidated Balance Sheets; see Note 10 and Note 1617 to the Consolidated Financial Statements for information on the company’s long-term debt and leases. Snap-on also enters into contracts for future purchases in the normal course of business. As of year-end 2021, the company had no off-balance-sheet arrangements as of 2018 year end.$147.5 million in purchase commitments to be paid in 2022 and $17.3 million to be paid thereafter.
Contractual Obligations and Commitments
A summary of Snap-on’s future contractual obligations and commitments as of 2018 year end are as follows:
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| (Amounts in millions) | | Total | | 2019 | | 2020-2021 | | 2022-2023 | | 2024 and thereafter |
| Contractual obligations: | | | | | | | | | | |
| Notes payable and current maturities of long-term debt | | $ | 186.3 |
| | $ | 186.3 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Long-term debt | | 946.0 |
| | — |
| | 254.0 |
| | — |
| | 692.0 |
|
| Interest on fixed rate debt | | 598.7 |
| | 41.5 |
| | 77.8 |
| | 52.3 |
| | 427.1 |
|
| Operating leases | | 77.0 |
| | 25.6 |
| | 32.3 |
| | 14.7 |
| | 4.4 |
|
| Capital leases | | 16.0 |
| | 3.3 |
| | 6.1 |
| | 4.7 |
| | 1.9 |
|
| Purchase obligations | | 72.5 |
| | 65.2 |
| | 7.1 |
| | — |
| | 0.2 |
|
| Total | | $ | 1,896.5 |
| | $ | 321.9 |
| | $ | 377.3 |
| | $ | 71.7 |
| | $ | 1,125.6 |
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Snap-on intends to make contributions of $9.4 million to its foreign pension plans and $1.9$9.5 million to its domestic pension plans in 2019,2022, as required by law. Depending on market and other conditions, Snap-on may make additional discretionary cash contributions to its pension plans in 2019. Snap-on has not presented estimated pension and postretirement funding contributions in the table above as the funding can vary from year to year based on changes in the fair value of the plan assets and actuarial assumptions;2022; see Note 12 and Note 13 to the Consolidated Financial Statements for information on the company’s benefit plans and payments.
Due to the uncertainty of the timing of settlements with taxing authorities, Snap-on is unable to make reasonably reliable estimates of the period of cash settlement of unrecognized tax benefits totaling $8.9 million for its remaining uncertain tax liabilities. As a result, $11.1 million of unrecognized tax benefits have been excluded from the table above; seeSee Note 9 to the Consolidated Financial Statements for information on income taxes.
Environmental Matters
Snap-on is subject to various federal, state and local government requirements regulating the discharge of materials into the environment or otherwise relating to the protection of the environment. Snap-on’s policy is to comply with these requirements and the company believes that, as a general matter, its policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage, and of resulting financial liability, in connection with its business. Some risk of environmental damage is, however, inherent in some of Snap-on’s operations and products, as it is with other companies engaged in similar businesses.
Snap-on is and has been engaged in the handling, manufacture, use and disposal of many substances classified as hazardous or toxic by one or more regulatory agencies. Snap-on believes that, as a general matter, its handling, manufacture, use and disposal of these substances are in accordance with environmental laws and regulations. It is possible, however, that future knowledge or other developments, such as improved capability to detect substances in the environment or increasingly strict environmental laws and standards and enforcement policies, could bring into questionaffect the company’s handling, manufacture, use or disposal of these substances.
In recent years there has been increased public awareness, concern and focus on environmental and sustainability issues, including matters related to global climate change.The current focus on these matters is expected to result in additional and/or more restrictive regulations, requirements and/or industry or third-party standards to reduce or mitigate global warming and other environmental or sustainability risks, though the timing is uncertain.Snap-on is monitoring developments in this area.
New Accounting Standards
See Note 1 to the Consolidated Financial Statements for information on new accounting standards.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | |
Critical Accounting Policies and Estimates
The Consolidated Financial Statements and related notes contain information that is pertinent to management’s discussion and analysis. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates are generally based on historical experience, current conditions and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources, as well as identifying and assessing our accounting treatment with respect to commitments and contingencies. Actual results could differ from those estimates.
In addition to the company’s significant accounting policies described in Note 1 to the Consolidated Financial Statements, Snap-on considers the following policies and estimates to be the most critical in understanding the judgments that are involved in the preparation of the company’s consolidated financial statements and the uncertainties that could impact the company’s financial position, results of operations and cash flows.
Allowance for Credit Losses on Finance Receivables: The allowance for credit losses on finance receivables is maintained at a level management believes is adequate to cover expected losses in Snap-on’s finance receivables portfolio as of the reporting date. The allowance represents management’s estimate of the expected losses in the company’s finance receivables portfolio based on ongoing assessments and evaluations of credit losses over the expected contractual life of the receivables portfolio considering collectability, historical loss experience, current conditions and future market changes. Determination of the proper level of allowance requires management to exercise judgment about the timing, frequency and severity of credit losses that could materially affect the provision for credit losses and, as a result, net earnings. The allowance takes into consideration numerous quantitative and qualitative factors that include receivable type, historical loss experience, delinquency trends, collection experience, current and future economic conditions and credit risk characteristics. Some of these factors are influenced by items such as the customers’ financial condition, past payment experience, credit bureau and proprietary Snap-on credit model information, as well as the value of the underlying collateral. Changes in economic conditions and assumptions, including the resulting credit quality metrics relative to the performance of the finance receivables portfolio, create uncertainty and could result in changes to both the allowance for credit losses and provision for credit losses.
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | |
Management utilizes established policies and procedures in an effort to ensure the estimates and assumptions are well controlled, reviewed and consistently applied. As of January 1, 2022, the ratio of the allowance for credit losses to finance receivables was 3.90%. As of January 2, 2021, the allowance ratio was 4.38%. While management believes it exercises prudent judgment and applies reasonable assumptions in establishing its estimates for allowances for finance receivables, there can be no assurance that changes in economic conditions or other factors would not adversely impact the financial health of our customers and result in changes to the estimates used in the allowance calculation. For reference, a 100 bps increase in the allowance ratios for finance receivables as of January 1, 2022, would have increased Snap-on’s 2021 provision for credit losses and related allowance for credit losses by approximately $17.2 million.
For additional information on Snap-on’s allowances for credit losses, see Note 1 and Note 4 to the Consolidated Financial Statements.
Impairment of Goodwill:Goodwill and Other Indefinite-lived Intangible Assets: Goodwill and other indefinite-lived intangible assets areis tested for impairment annually or more frequently if events or changes in circumstances indicate that the assets might be impaired. Annual impairment tests are performed by the company in the second quarter of each year using information available as of fiscal April month end.
Snap-on evaluates the recoverability of goodwill by estimating the future discounted cash flows of the businesses to which the goodwill relates. Estimated cash flows and related goodwill are grouped at the reporting unit level. The company has determined that its reporting units for testing goodwill impairment are its operating segments or components of an operating segment that constitute a business for which discrete financial information is available and for which segment management regularly reviews the operating results. Within its four reportable operating segments, the company has identified 11 reporting units.
Snap-on evaluates the recoverability of goodwill by utilizing an income approach that estimates the fair value of the future discounted cash flows of the reporting units to which the goodwill relates. The future projections, which are based on both past performance and the projections and assumptions used in the company’s operating plans, are subject to change as a result of changing economic and competitive conditions. This approach reflects management’s internal outlook at the reporting units, which management believes provides the best determination of value due to management’s insight and experience with the reporting units. Significant estimates used by management in the discounted cash flows methodology include estimates of future cash flows based on expected growth rates, price increases, working capital levels, expected benefits from RCI initiatives, and a weighted-average cost of capital that reflects the specific risk profile of the reporting unit being tested. The company’s methodologies for valuing goodwill are applied consistently on a year-over-year basis; the assumptions used in performing the second quarter 20182021 impairment calculations were evaluated in light of then-current market and business conditions. Snap-on continues to believe that the future discounted cash flow valuation model provides the most reasonable and meaningful fair value estimate based upon the reporting units’ projections of future operating results and cash flows and replicates how market participants would value the company’s reporting units in an orderly transaction.
In the event the fair value of a reporting unit is less than the carrying value, including goodwill, the company would then record an impairment charge based on the excess of a reporting units carrying amount over its fair value.
Snap-on also evaluates the recoverability of its indefinite-lived trademarks by utilizing an income approach that estimates the fair value of the future discounted cash flows of each of its trademarks. The future projections, which are based on both past performance and the projections and assumptions used in the company’s operating plans, are subject to change as a result of changing economic and competitive conditions. Significant estimates used by management in the discounted cash flows methodology include estimates of future cash flows based on expected growth and royalty rates, expected synergies, and a weighted-average cost of capital that reflects the specific risk profile of the trademark being tested. The company’s methodologies for valuing trademarks are applied consistently on a year-over-year basis; the assumptions used in performing the second quarter 2018 impairment calculations were evaluated in light of then-current market and business conditions. Snap-on continues to believe that the future discounted cash flow valuation model provides the most reasonable and meaningful fair value estimate based upon the trademarks’ projected future cash flows and replicates how market participants would value the company’s trademarks in an orderly transaction.
Inherent in fair value determinations are significant judgments and estimates, including material assumptions about future revenue, profitability and cash flows, the company’s operational plans and its interpretation of current economic indicators. Should the operations of the businesses with which goodwill or other indefinite-lived intangible assets areis associated incur significant declines in profitability and cash flow due to significant and long-term deterioration in macroeconomic, industry and market conditions, the loss of key customers, changes in technology or markets, significant changes in key personnel or litigation, a significant and sustained decrease in share price and/or other events, including effects from the sale or disposal of a reporting unit, some or all of the recorded goodwill or other indefinite-lived intangible assets could be subject to impairment and could result in a material adverse effect on Snap-on’s financial position or results of operations.
Snap-on completed its annual impairment testing of goodwill and other indefinite-lived intangible assets in the second quarter of 2018,2021, which did not result in any impairment. As of 20182021 year end, the company has no accumulated impairment losses. Although the company consistently uses the same methods in developing the assumptions and estimates underlying the fair value calculations, such estimates are uncertain by nature and can vary from actual results. In performing its annual impairment testing the company performed a sensitivity analysis on the material assumptions used in the discounted cash flow valuation models for each of its 11 reporting units. Based on the company’s second quarter 20182021 impairment testing, and assuming a hypothetical 10% decrease in the estimated fair values of each of its 11 reporting units, the hypothetical fair value of each of the company’s 11 reporting units would have been greater than its carrying value. See Note 7 to the Consolidated Financial Statements for further information about goodwill and other intangible assets.goodwill.
Pension Benefits: The pension benefit obligation and related pension expense are calculated in accordance with GAAP and are impacted by certain actuarial assumptions. Changes in these assumptions are primarily influenced by factors outside of Snap-on’s control, such as changes in economic conditions, and can have a significant effect on the amounts reported in the financial statements. Snap-on believes that the two most critical assumptions are (i) the expected return on plan assets; and (ii) the assumed discount rate.
Snap-on’s domestic pension plans have a long-term investment horizon and a total return strategy that emphasizes a capital growth objective. In 2018,2021, the long-term investment performance objective for Snap-on’s domestic plans’ assets was to achieve net of expense returns that met or exceeded the 7.45%6.75% domestic expected return on plan assets assumption. Snap-on uses a three-year, market-related value asset method of amortizing the difference between actual and expected returns on its domestic plans’ assets. As of 20182021 year end, Snap-on’s domestic pension plans’ assets comprised approximately 86% of the company’s worldwide pension plan assets.
Based on forward-looking capital market expectations, Snap-on selected an expected return on plan assets assumption for its U.S. pension plans of 7.45%6.50%, the same as 2018,a decrease of 25 bps from 2021, to be used in determining pension expense for 2019.2022. In estimating the domestic expected return on plan assets, Snap-on utilizes a nominal returns forecasting method. For each asset class, future returns are estimated by identifying the premium of riskier asset classes over lower risk alternatives. The methodology constructs expected returns using a “building block” approach to the individual components of total return. These forecasts are stated in both nominal and real (after inflation) terms. This process first considers the long-term historical return premium based on the longest set of data available for each asset class. These premiums, calculated using the geometric mean, are then adjusted based on current relative valuation levels, macro-economic conditions, and the expected alpha related to active investment management. The asset return assumption is also adjusted by an implicit expense load for estimated administrative and investment-related expenses. Since asset allocation is a key determinant of expected investment returns, the current and expected mix of plan assets are also considered when setting the assumption.
Pension expense increases as the expected rate of return on plan assets decreases. Lowering the expected rate of return assumption for Snap-on’s domestic pension plans’ assets by 50 bps would have increased Snap-on’s 20182021 domestic pension expense by approximately $5.3$6.2 million.
The objective of Snap-on’s discount rate assumption is to reflect the rate at which the pension benefits could be effectively settled. In making this determination, the company takes into account the timing and amount of benefits that would be available under the plans. The domestic discount rate as of 20182021 and 20172020 year end was selected based on a cash flow matching methodology developed by the company’s outside actuaries and which incorporates a review of current economic conditions. This methodology matches the plans’ yearly projected cash flows for benefits and service costs to those of hypothetical bond portfolios using high-quality, AA rated or better, corporate bonds from either Moody’s Investors Service or Standard & Poor’s credit rating agencies available at the measurement date. This technique calculates bond portfolios that produce adequate cash flows to pay the plans’ projected yearly benefits and then selects the portfolio with the highest yield and uses that yield as the recommended discount rate.
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | |
The selection of the 4.4%2.9% weighted-average discount rate for Snap-on’s domestic pension plans as of 20182021 year end (compared to 3.9%2.7% as of 20172020 year end) represents the single rate that produces the same present value of cash flows as the estimated benefit plan payments. Lowering Snap-on’s domestic discount rate assumption by 50 bps would have increased Snap-on’s 20182021 domestic pension expense and projected benefit obligation by approximately $3.7$4.0 million and $62.9$77.0 million, respectively. As of 20182021 year end, Snap-on’s domestic projected benefit obligation comprised approximately 83%82% of Snap-on’s worldwide projected benefit obligation. The weighted-average discount rate for Snap-on’s foreign pension plans of 3.0%2.0% (compared to 2.7%1.7% as of 20172020 year end) represents the single rate that produces the same present value of cash flows as the estimated benefit plan payments. Lowering Snap-on’s foreign discount rate assumption by 50 bps would have increased Snap-on’s 20182021 foreign pension expense and projected benefit obligation by approximately $1.9$2.4 million and $21.0$27.8 million, respectively.
Actuarial gains and losses in excess of 10 percent of the greater of the projected benefit obligation or market-related value of assets are amortized on a straight-line basis over the average remaining service period of active participants or over the average remaining life expectancy for plans with primarily inactive participants. Prior service costs and credits resulting from plan amendments are amortized in equal annual amounts over the average remaining service period of active participants or over the average remaining life expectancy for plans with primarily inactive participants.
To determine the 20192022 net periodic benefit cost, Snap-on is using weighted-average discount rates for its domestic and foreign pension plans of 4.4%2.9% and 3.0%2.0%, respectively, and an expected return on plan assets for its domestic pension plans of 7.45%6.50%. The expected returns on plan assets for foreign pension plans ranged from 2.0% and 6.1%1.3% to 5.6% as of 20182021 year end. TheDue to the net change in these two key assumptions, from those used in 2018 is expectedaddition to decreasethe overall benefit plan status, Snap-on expects to have pension expenseincome in 2019.2022. Other factors, such as changes in plan demographics and discretionary contributions, may further increase or decrease pension expenseincome in 2019.2022. See Note 12 to the Consolidated Financial Statements for further information on pension plans.
Allowance for Doubtful Accounts on Finance Receivables: The allowance for doubtful accounts on finance receivables is maintained at a level management believes is adequate to cover probable losses inherent in Snap-on’s finance receivables portfolio as of the measurement date. The allowance represents management’s estimate of the losses inherent in the company’s receivables portfolio based on ongoing assessments and evaluations of collectability and historical loss experience. Determination of the proper level of the allowance requires management to exercise judgment about the timing, frequency and severity of credit losses that could materially affect the provision for credit losses and, as a result, net earnings. The allowance takes into consideration numerous quantitative and qualitative factors that include receivable type, historical loss experience, loss migration, delinquency trends, collection experience, current economic conditions and credit risk characteristics. Some of these factors are influenced by items such as the customers’ financial condition, debt-servicing ability, past payment experience, and credit bureau and proprietary Snap-on credit model information,Outlook
COVID-19, its subsequent variants, as well as related supply chain inefficiencies, continue to impact economic activity worldwide in 2022. Snap-on is accommodating to the valuevirus-related turbulence and is capitalizing on opportunities in this mixed environment. The company believes that our markets and our operations possess and, indeed, have demonstrated considerable resilience against the impact of the underlying collateral. Changesvirus and that there will be ongoing advancement even in economic conditions and assumptions, including the resulting credit quality metrics relativemidst of the pandemic. The trajectory, however, may be uncertain due to the performanceevolving nature and duration of the finance receivable portfolio create uncertainty and could result in a change to both the allowance for doubtful accounts and provision for credit losses.situation.
Management utilizes established policies and procedures in an effort to ensure the estimates and assumptions are well controlled, reviewed and consistently applied. As of December 29, 2018, the ratio of the allowance for doubtful accounts for finance receivables was 3.71%. As of December 30, 2017, the allowance ratio was 3.53%. While management believes it exercises prudent judgment and applies reasonable assumptions in establishing its estimate for the allowance for finance receivables, there can be no assurance that changes in economic conditions or other factors would not adversely impact the financial health of our customers and result in changes to the estimates used in the allowance calculation. For reference, a 100 bps increase in the allowance ratio for finance receivables as of December 29, 2018, would have increased Snap-on’s 2018 provision expense and related allowance for doubtful accounts by approximately $16.5 million.
For additional information on Snap-on’s allowances for doubtful accounts, see Note 1 and Note 4 to the Consolidated Financial Statements.
Outlook
Snap-on expects to make continued progress in 20192022 along its defined runways for coherent growth, leveraging capabilities already demonstrated in the automotive repair arena and developing and expanding its professional customer base, not only in automotive repair, but in adjacent markets, additional geographies and other areas, including extending in critical industries, where the cost and penalties for failure can be high. In pursuit of these initiatives, Snap-on expectsit is projected that capital expenditures in 20192022 will be in a range of $90 million to $100 million. Snap-on continues to respond to global macroeconomic challenges through its RCI process and other cost reduction initiatives.
Snap-on currently anticipates that its full year 20192022 effective income tax rate will be comparablein the range of 23% to its full year 2018 effective tax rate of 24.0% 24%.
Item 7A: Quantitative and Qualitative Disclosures About Market Risk
Market, Credit and Economic Risks
Market risk is the potential economic loss that may result from adverse changes in the fair value of financial instruments. Snap-on is exposed to market risk from changes in interest rates and foreign currency exchange rates. Snap-on is also exposed to market risk associated with the stock-based portion of its deferred compensation plans. Snap-on monitors its exposure to these risks and attempts to manage the underlying economic exposures through the use of financial instruments such as foreign currency forward contracts, interest rate swap agreements, treasury lock agreements and prepaid equity forward agreements (“equity forwards”). Snap-on does not use derivative instruments for speculative or trading purposes. Snap-on’s broad-based business activities help to reduce the impact that volatility in any particular area or related areas may have on its operating earnings as a whole. Snap-on’s management takes an active role in the risk management process and has developed policies and procedures that require specific administrative and business functions to assist in the identification, assessment and control of various risks.
Foreign Currency Risk Management
Snap-on has significant international operations and is subject to certain risks inherent with foreign operations that include currency fluctuations. Foreign currency exchange risk exists to the extent that Snap-on has payment obligations or receipts denominated in currencies other than the functional currency, including intercompany loans denominated in foreign currencies. To manage these exposures, Snap-on identifies naturally offsetting positions and then purchases hedging instruments to protect the residual net exposures. See Note 11 to the Consolidated Financial Statements for information on foreign currency risk management.
Interest Rate Risk Management
Snap-on aims to control funding costs by managing the exposure created by the differing maturities and interest rate structures of Snap-on’s borrowings through the use of interest rate swap agreements. Treasury lock agreements are used from time to time to manage the potential change in interest rates in anticipation of the possible issuance of fixed rate debt. See Note 11 to the Consolidated Financial Statements for information on interest rate risk management.
Snap-on utilizes a Value-at-Risk (“VAR”) model to determine the potential one-day loss in the fair value of its interest rate and foreign exchange-sensitive financial instruments from adverse changes in market factors. The VAR model estimates were made assuming normal market conditions and a 95% confidence level. Snap-on’s computations are based on the inter-relationships among movements in various currencies and interest rates (variance/co-variance technique). These inter-relationships were determined by observing interest rate and foreign currency market changes over the preceding quarter.
The estimated maximum potential net one-day loss in fair value, calculated using the VAR model, as of 20182021 and 20172020 year end was $7.7$20.6 million and $1.5$13.9 million, respectively, on interest rate-sensitive financial instruments, and zero$0.3 million and $0.1 million, respectively, on foreign currency-sensitive financial instruments. The VAR model is a risk management tool and does not purport to represent actual losses in fair value that will be incurred by Snap-on, nor does it consider the potential effect of favorable changes in market factors.
Stock-based Deferred Compensation Risk Management
Snap-on aims to manage market risk associated with the stock-based portion of its deferred compensation plans through the use of equity forwards. Equity forwards are used to aid in offsetting the potential mark-to-market effect on stock-based deferred compensation from changes in Snap-on’s stock price. Since stock-based deferred compensation liabilities increase as the company’s stock price rises and decrease as the company’s stock price declines, the equity forwards are intended to mitigate the potential impact on deferred compensation expense that may result from such mark-to-market changes. See Note 11 to the Consolidated Financial Statements for additional information on stock-based deferred compensation risk management.
Credit Risk
Credit risk is the possibility of loss from a customer’s failure to make payments according to contract terms. Prior to extending credit, each customer is evaluated, taking into consideration various factors, including the customer’s financial condition, debt-servicing ability, past payment experience, credit bureau information, and other financial and qualitative factors that may affect the customer’s ability to repay, as well as the value of the underlying collateral. FinancialFinance receivable credit risk is also monitored regularly through the use of internal proprietary custom scoring models to evaluate each transaction at the time of the application for credit. Snap-onSnap‑on evaluates credit quality through the use of an internal proprietary measuring system that provides a framework to analyze finance receivables on the basis of risk factors of the individual obligor as well as transaction specific risk. The finance receivables are typically monitored through an asset quality review process that closely monitors past due accounts and initiates a progressive collection action process when appropriate.
Counterparty Risk
Snap-on is exposed to credit losses in the event of non-performance by the counterparties to its various financial agreements, including its foreign currency forward contracts, interest rate swap agreements, treasury lock agreements and prepaid equity forward agreements. Snap-on does not obtain collateral or other security to support financial instruments subject to credit risk, but monitors the credit standing of the counterparties and generally enters into agreements with financial institution counterparties with a credit rating of A- or better. Snap-on does not anticipate non-performance by its counterparties, but cannot provide assurances.
Economic Risk
Economic risk is the possibility of loss resulting from economic instability in certain areas of the world. Snap-on continually monitors its exposure in these markets; formarkets. For example, the company is monitoring the potential effectsimpact of and developments related to the ongoing COVID-19 pandemic, which continues to have an impact on the global economy. While inflation has become more prevalent in the world economy, Snap-on has taken steps to control and offset associated cost increases through its supply chain management, pricing actions, and deployment of Rapid Continuous Improvement (“RCI”). In addition, the company continues to monitor developments related to the United Kingdom’s pending exit from the European Union, although it is too soon to know whatand the effects this mightmay have on the world economy orand the company. Inflation has not had a significant impact on the company.
As a result of the above market, credit and economic risks, net earnings and revenues in any particular period may not be representative of full-year results and may vary significantly from year to year.
Commodity Risk
Snap-on is a purchaser of certain commodities such as steel, natural gas and electricity. The company is also a purchaser of components and parts that are integrated into the company’s end products, as well as the purchaser of certain finished goods, all of which may contain various commodities including steel, aluminum, nickel, copper and others. Snap-on’s supply of raw materials and purchased components are generally and readily available from numerous suppliers.suppliers, and the company continuously works to expand and enhance supplier relationships to meet its supply needs.
The principal raw material used in the manufacture of the company’s products is steel, which the company purchases in competitive, price-sensitive markets. To meet Snap-on’s high quality standards, the company’s steel needsrequirements range from specialized alloys, which are available only from a limited group of approved suppliers, to common alloys, which are available from multiple suppliers. These raw materials have historically exhibited price and demand cyclicality. Some of these materials have been, and in the future may be, in short supply, particularly in the event of mill shutdowns or production cut backs.backs, as well as from supply chain disruptions or inefficiencies, some of which may be associated with significant weather or climate-related events. As some steel alloys require specialized manufacturing procedures, Snap-on could experience inventory shortages if it were required to use an alternative manufacturer on short notice. Additionally,Steel and other raw materials, components and certain finished goods can exhibit price increases for raw materials,and demand cyclicality, including as a result of tariffs and other trade protection measures put in place by the United States or other countries, such as those the company experienced in fiscal 2018 and expects to continue to experience in fiscal 2019,measures. Associated unexpected price increases could result in higher prices to Snap-on’s customers or an erosion of theproduct margins on its products.
or require Snap-on believes its ability to sell product is also dependent on the number of vehicles on the road, the number of miles driven and the general aging of vehicles. These factors affect the frequency, type and amount of service and repair performed on vehicles by technicians, and therefore affect the demand for the number of technicians, the prosperity of the technicians and, consequently, the demand technicians have for the company’s tools, other products and services, and the value technicians place on those products and services. The use of other methods of transportation, including more frequent use of public transportation, could result in a decrease in the use of privately operated vehicles. A decrease in the use of privately operated vehicles may leadincrease prices to fewer repairs and less demand for the company’s products.customers to maintain margins.
To the extent that commodity prices increase and the company does not have firm pricing agreements with its suppliers, the company may experience margin declines to the extent that it is not able to increase the selling prices of its products.
Item 8: Financial Statements and Supplementary Data
The financial statements and schedules are listed in Part IV, Item 15(a) and are incorporated by reference into this Item 8.
Item 9: Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A: Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Snap-on maintains a system of disclosure controls and procedures that is designed to provide reasonable assurance that material information relating to the company and its consolidated subsidiaries is timely communicated to the officers who certify Snap-on’s financial reports and to other members of senior management and the Board, as appropriate.
In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), the company’s management evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of the company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 29, 2018.January 1, 2022. Based upon their evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of December 29, 2018,January 1, 2022, to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission rules and forms, and to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control
DuringThere has not been any change in the quarter ended December 29, 2018, the company implemented a plan that calls for modifications and additions tocompany’s internal control over financial reporting related to the accounting for leases as a result of the new lease standard, ASC 842. The modified and new controls have been designed to address risks associated with gathering the lease information for recognizing a “right-of- use” asset and the related liability required by the new standard. The company has added additional controls over financial reporting by implementing a company-wide lease system to gather lessee information required for financial statement presentation, as well as to provide for the additional disclosure information required by the new standard. There were no other changes in internal controls during the quarter ended December 29, 2018,January 1, 2022, that havehas materially affected, or areis reasonably likely to materially affect, the company’s internal control over financial reporting (as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)).
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our internal control over financial reporting based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013). The company’s February 26, 2021, acquisition of Dealer-FX Group, Inc. (which represented 3% of total assets at January 1, 2022, and 0.9% of 2021 net sales) was excluded from the scope of management’s assessment of internal control over financial reporting as of January 1, 2022. Based on this assessment, the company’s management believes that, as of December 29, 2018,January 1, 2022, our internal control over financial reporting was effective at a reasonable assurance level. The company’s internal control over financial reporting as of December 29, 2018,January 1, 2022, has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in its attestation report, which is included herein.
Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our internal control over financial reporting will prevent all errorerrors or fraud. Because of inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors and Shareholders of Snap-on Incorporated:
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Snap-on Incorporated and subsidiaries (the “Company”) as of December 29, 2018,January 1, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 29, 2018,January 1, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements as of and for the year ended December 29, 2018,January 1, 2022, of the Company and our report dated February 14, 2019,10, 2022, expressed an unqualified opinion on those financial statements.statements and included an explanatory paragraph regarding the Company’s adoption of Accounting Standard Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326).
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
As described in Management’s Report on Internal Control over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Dealer-FX Group, Inc. (“Dealer-FX”), which was acquired on February 26, 2021, and whose financial statements represents 3% of total assets and 0.9% of net sales of the consolidated financial statement amounts as of and for the year ended January 1, 2022. Accordingly, our audit did not include the internal control over financial reporting at Dealer-FX.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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| /s/ DELOITTE & TOUCHE LLP | | |
| Milwaukee, Wisconsin | | |
| February 10, 2022 | | |
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/s/ DELOITTE & TOUCHE LLP | | |
Milwaukee, Wisconsin | | |
February 14, 2019 | | |
Item 9B: Other Information
None.
Item 9C: Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable
PART III
Item 10: Directors, Executive Officers and Corporate Governance
Incorporated by reference to the sections entitled “Item 1: Election of Directors,” “Corporate Governance Practices and Board Information” and “Other Information” in Snap-on’s 20192022 Annual Meeting Proxy Statement, which is expected to be mailed to shareholders on or about March 11, 20192022 (the “2019“2022 Proxy Statement”).
The Section 16(a) filing compliance disclosure pursuant to Item 405 of Regulation S-K is contained in Snap-on’s 20192022 Proxy Statement in the section entitled “Other Information – Delinquent Section 16(a) Beneficial Ownership Reporting Compliance,Reports,” and is incorporated herein by reference.
Information about our Executive Officers
Information regarding Snap-on’s executive officers, including their ages, business experience (for at least the last five years) and titles as of December 29, 2018,January 1, 2022, is presented below:
Nicholas T. Pinchuk (72) (75) – Chairman of the Board of Directors since 2009, President and Chief Executive Officer since December 2007, and President and Chief Operating Officer during 2007. Senior Vice President and President – Worldwide Commercial & Industrial Group from 2002 to 2007. Prior to joining Snap-on, Mr. Pinchuk held various positions, including President of Global Refrigeration Operations and President of Asia Pacific Operations, at Carrier Corporation, a producer of air conditioning, heating and refrigeration systems, and a subsidiary of United Technologies Corporation. Mr. Pinchuk serves on the board of directors of Columbus McKinnon Corporation. Mr. Pinchuk served as an officer of the U.S. Army in Vietnam.
Aldo J. Pagliari (64) (67) – Senior Vice President – Finance and Chief Financial Officer since 2010.
Anup R. Banerjee (68)Jesus M. Arregui (56) – Senior Vice President and President – Commercial Group since 2019. President of SNA Europe from 2015 to 2019.
Anup R. Banerjee (71) – Senior Vice President – Human Resources and Chief Development Officer since 2015, and President, Commercial Group from 2011 to 2015.
Iain Boyd (56) (59) – Vice President – Operations Development since 2015. Vice President – Human Resources from 2007 to 2015.
Thomas L. Kassouf (66)Timothy L. Chambers (57) – Senior Vice President and President – Snap-on Tools Group since 2010.2019. President of Commercial Group from 2015 to 2019.
June C. Lemerand (56) (59) – Vice President and Chief Information Officer since 2017. Vice President of Information Technology Services from 2015 to 2017, and Senior Director, Information Technology Sales and Marketing Applications from 2005 to 2015.2017.
Richard T. Miller (48) (51) – Vice President, General Counsel and Secretary since July 2018. Associate General Counsel from 2012 to 2018.
Richard K. Strege (61)Marty V. Ozolins (50) – Vice President and Controller since 2017.2021. Vice President, and formerly Director, of Internal Audit Controls and Compliance from 20072016 to 2017.2021.
Thomas J. Ward (66) (69) – Senior Vice President and President – Repair Systems & Information Group since 2010.
There
Snap-on’s executive officers include a woman, a veteran of the U.S. Army, and two executives who are ethnically diverse.
Additionally, there is no family relationship among the executive officers and there has been no involvement in legal proceedings during the past ten years that would be material to the evaluation of the ability or integrity of any of the executive officers. Executive officers may either be elected by the Board or may be appointed by the Chief Executive Officer at the regular meeting of the Board that follows the Annual Shareholders’ Meeting, which is ordinarily held in April each year, or at such other times as new positions are created or vacancies must be filled.
Code of Ethics and Website Disclosure
Snap-on has adopted a written code of ethics that applies to its Chief Executive Officer, Chief Financial Officer, Vice President and Controller, and all other financial officers and executives performing similar functions. Snap-on has posted a copy of the code of ethics in the Investors/Corporate Governance“Investors” section on the company’s website at www.snapon.com. Snap-on will also post any amendments to these documents, or information about any waivers granted to directors or executive officers with respect to the Code of Business Conduct and Ethics, on the company’s website at www.snapon.com.
Snap-on intends to satisfy the disclosure requirements under Item 10 of Form 8-K regarding amendments to, or waivers from, the code of ethics by posting such information in the “Investors” section of its corporate website at www.snapon.com.
Item 11: Executive Compensation
The information required by Item 11 is contained in Snap-on’s 20192022 Proxy Statement in the sections entitled “Executive Compensation,” “Board Compensation,” “Compensation Committee Report,” and “Other Information” and is incorporated herein by reference.
Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth information about Snap-on’s equity compensation plans at 20182021 year end:
| | | | | | | | | | | | | | | | | | | | |
| Plan Category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | | Weighted-average exercise price of outstanding options, warrants and rights (b) | | Number securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) |
| | | | | | |
Plan category | | Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a)
| | Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
| | Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding securities
reflected in column (a))
(c)
|
| Equity compensation plans approved by security holders | | 3,539,442 2,874,019 (1)
| | $ 129.68 152.55 (2) | | 3,561,6424,430,957 (3)
|
| Equity compensation plans not approved by security holders | | 70,657 54,920 (4)
| | Not Applicable | | – - (5)
|
| Total | | 3,610,0992,928,939 | | $ 129.68 152.55 (2) | | 3,561,642 4,430,957 (5)
|
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(1)Includes (i) options and stock appreciation rights (“SARs”) to acquire 2,828,710 shares granted under the 2011 Incentive Stock and Awards Plan (the “2011 Plan”); (ii) 32,265 shares represented by time-based restricted stock units granted under the 2011 Plan; and (iii) 13,044 shares represented by deferred share units under the Directors’ Fee Plan. Excludes 229,106 shares issuable in connection with the vesting of performance share awards under the 2011 Plan. Also excludes shares of common stock that may be issuable under the employee and franchisee stock purchase plans.
| |
(1) | Includes (i) options to acquire 306,839 shares granted under the 2001 Incentive Stock and Awards Plan (the “2001 Plan”); (ii) options and stock appreciation rights to acquire 3,195,879 shares granted under the 2011 Incentive Stock and Awards Plan (the “2011 Plan,” and collectively with the 2001 Plan, the “Incentive Plans”); and (iii) 36,724 shares represented by deferred share units under the Directors’ Fee Plan. Excludes 50,528 shares issuable in connection with the vesting of restricted stock units and restricted stock under the 2001 Plan, and 170,673 shares issuable in connection with the vesting of performance share awards, restricted stock units and restricted stock under the 2011 Plan. Also excludes shares of common stock that may be issuable under the employee and franchisee stock purchase plans. |
| |
(2) | Reflects only the weighted-average exercise price of outstanding stock options and stock appreciation rights granted under the Incentive Plans and does not include shares represented by deferred share units under the Directors’ Fee Plan and shares issuable in connection with the vesting of restricted stock units or performance units under the Incentive Plans for which there are no exercise prices. Also excludes shares of common stock that may be issuable under the employee and franchisee stock purchase plans. |
| |
(3) | Includes (i) 2,654,112 shares reserved for issuance under the 2011 Plan; (ii) 176,724 shares reserved for issuance under the Directors’ Fee Plan; and (iii) 730,806 shares reserved for issuance under the employee stock purchase plan. |
| |
(4) | Consists of deferred share units under Snap-on’s Deferred Compensation Plan, which allows elected and appointed officers of Snap-on to defer all or a percentage of their respective annual salary and/or incentive compensation. The deferred share units are payable in shares of Snap-on common stock on a one-for-one basis and are calculated at fair market value. Shares of common stock delivered under the Deferred Compensation Plan are previously issued shares reacquired and held by Snap-on. |
| |
(5) | The Deferred Compensation Plan provides that Snap-on will make available, as and when required, a sufficient number of shares of common stock to meet the needs of the plan. It further provides that such shares shall be previously issued shares reacquired and held by Snap-on. |
(2)Reflects only the weighted-average exercise price of outstanding stock options and SARs granted under the 2011 Plan and does not include shares represented by deferred share units under the Directors’ Fee Plan and shares issuable in connection with the vesting of restricted stock units or performance units under the 2011 Plan for which there are no exercise prices. Also excludes shares of common stock that may be issuable under the employee and franchisee stock purchase plans.
(3)Includes (i) 3,643,845 shares reserved for issuance under the 2011 Plan; (ii) 189,837 shares reserved for issuance under the Directors’ Fee Plan; and (iii) 597,275 shares reserved for issuance under the employee stock purchase plan.
(4)Consists of deferred share units under Snap-on’s Deferred Compensation Plan, which allows elected and appointed officers of Snap-on to defer all or a percentage of their respective annual salary and/or incentive compensation. The deferred share units are payable in shares of Snap-on common stock on a one-for-one basis and are calculated at fair market value. Shares of common stock delivered under the Deferred Compensation Plan are previously issued shares reacquired and held by Snap-on.
(5)The Deferred Compensation Plan provides that Snap-on will make available, as and when required, a sufficient number of shares of common stock to meet the needs of the plan. It further provides that such shares shall be previously issued shares reacquired and held by Snap-on.
The additional information required by Item 12 is contained in Snap-on’s 20192022 Proxy Statement in the sections entitled “Executive Compensation,” “Security Ownership of Certain Beneficial Owners and Management,” and “Other Information,” and is incorporated herein by reference.
Item 13: Certain Relationships and Related Transactions, and Director Independence
Incorporated by reference to the sections entitled “Corporate Governance Practices and Board Information – Board Information” and “Other Information – Transactions with the Company” in Snap-on’s 20192022 Proxy Statement.
Item 14: Principal Accounting Fees and Services
Incorporated by reference to the section entitled “Deloitte & Touche LLP Fee Disclosure” in Snap-on’s 20192022 Proxy Statement.
PART IV
Item 15: Exhibits, Financial Statement Schedules
Item 15(a): Documents Filed as Part of This Report:
1. List of Financial Statements
Unless otherwise indicated, references to “fiscal 2018”2021” or “2018”“2021” refer to the fiscal year ended January 1, 2022; references to “fiscal 2020” or “2020” refer to the fiscal year ended January 2, 2021; and references to “fiscal 2019” or “2019” refer to the fiscal year ended December 29, 2018; references to “fiscal 2017” or “2017” refer to the fiscal year ended December 30, 2017; and references to “fiscal 2016” or “2016” refer to the fiscal year ended December 31, 2016.28, 2019. References to 2018, 20172021, 2020 and 20162019 year end refer to December 29, 2018, December 30, 2017,January 1, 2022, January 2, 2021, and December 31, 2016,28, 2019, respectively.
The following consolidated financial statements of Snap-on and the Report of Independent Registered Public Accounting Firm thereon, are filed as part of this report:
•Report of Independent Registered Public Accounting Firm.Firm (PCAOB ID No. 34)
•Consolidated Statements of Earnings for the 2018, 20172021, 2020 and 20162019 fiscal years.
•Consolidated Statements of Comprehensive Income for the 2018, 20172021, 2020 and 20162019 fiscal years.
•Consolidated Balance Sheets as of 20182021 and 20172020 year end.
•Consolidated Statements of Equity for the 2018, 20172021, 2020 and 20162019 fiscal years.
•Consolidated Statements of Cash Flows for the 2018, 20172021, 2020 and 20162019 fiscal years.
•Notes to Consolidated Financial Statements.
2. Financial Statement Schedules
All schedules are omitted because they are not applicable, or the required information is included in the consolidated financial statements or notes thereto.
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| (3) | | (a) | | |
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| (4) | | (a) | | |
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| | (e) | | Description of Securities |
| | (e)(1) | | |
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| | (e)(4) | | |
Except for the foregoing, Snap-on and its subsidiaries have no unregistered long-term debt agreement for which the related outstanding debt exceeds 10% of consolidated total assets as of December 29, 2018.January 1, 2022. Copies of debt instruments for which the related debt is less than 10% of consolidated total assets will be furnished to the Commission upon request.
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| (10) | | Material Contracts | |
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(10) | | Material Contracts |
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| 58 | SNAP-ON INCORPORATED | (n) |
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| | (o) | | Third Amended and Restated Five Year Credit Agreement, dated as of December 15, 2015,September 16, 2019, among Snap-on Incorporated and the lenders and agents listed on the signature pages thereof, and J.P. Morgan Securities LLC, Citigroup Global Markets Inc.JPMorgan Chase Bank, N.A., Citibank N.A. and U.S. Bank National Association as joint lead arrangers and joint bookrunners (incorporated by reference to Exhibit 10.1 to Snap-on’s Current Report on Form 8-K dated December 15, 2015September 16, 2019 (Commission File No. 1-7724)) | |
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| (14) | | (p) | | |
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| (101.INS) | | Inline XBRL Instance Document***Document - the instance document does not appear in the Interactive Data File because its XBRL (Extensible Business Reporting Language) tags are embedded within the Inline XBRL document | |
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| (101.SCH) | | Inline XBRL Taxonomy Extension Schema Document***Document | |
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| (101.CAL) | | Inline XBRL Taxonomy Extension Calculation Linkbase Document***Document | |
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| (101.DEF) | | Inline XBRL Taxonomy Extension Definition Linkbase Document***Document | |
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| (101.LAB) | | Inline XBRL Taxonomy Extension Label Linkbase Document***Document | |
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| (101.PRE) | | Inline XBRL Taxonomy Extension Presentation Linkbase Document***Document |
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| (104) | | |
| Cover Page Interactive Data File (contained in Exhibit 101) | |
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| * | Filed electronically or incorporated by reference as an exhibit to this Annual Report on Form 10-K. Copies of any materials the company files with the SEC can also be obtained free of charge through the SEC’s website at www.sec.gov. |
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| ** | Represents a management compensatory plan or agreement. |
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*** | Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Earnings for the twelve months ended December 29, 2018, December 30, 2017, and December 31, 2016; (ii) Consolidated Statements of Comprehensive Income for the twelve months ended December 29, 2018, December 30, 2017, and December 31, 2016; (iii) Consolidated Balance Sheets as of December 29, 2018, and December 30, 2017; (iv) Consolidated Statements of Equity for the twelve months ended December 29, 2018, December 30, 2017, and December 31, 2016; (v) Consolidated Statements of Cash Flows for the twelve months ended December 29, 2018, December 30, 2017, and December 31, 2016; and (vi) Notes to Consolidated Financial Statements. |
Item 16: Form 10-K Summary
None.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors and Shareholders and of Snap-on Incorporated:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Snap-on Incorporated and subsidiaries (the “Company”) as of December 29, 2018,January 1, 2022, and December 30, 2017,January 2, 2021, and the related consolidated statements of earnings, comprehensive income, equity, and cash flows for each of the three years in the period ended December 29, 2018,January 1, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 29, 2018,January 1, 2022, and December 30, 2017,January 2, 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 29, 2018,January 1, 2022, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 29, 2018,January 1, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 14, 2019,10, 2022, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Change in Accounting Principles
As discussed in Note 4 to the consolidated financial statements, the Company changed its method of accounting for credit losses in the year ended January 2, 2021, due to the adoption of Accounting Standard Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326) under the modified retrospective adoption method.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Finance Receivables - Net - Refer to Notes 1 and 4 to the financial statements
Critical Audit Matter Description
The Company’s finance receivables are comprised of extended-term installment payment contracts to both technicians and independent shop owners (i.e., franchisees’ customers) to enable them to purchase tools, diagnostics, and equipment products on an extended-term payment plan, generally with average payment terms of approximately four years. The receivables are generally secured by the underlying tools, diagnostics and/or equipment products financed. At January 1, 2022, these loans totaled $1,723.6 million with an allowance of $67.3 million recorded against the receivables. Determining the proper level of allowance requires management to exercise judgment about the timing, frequency and severity of credit losses expected to occur over the life of the contracts. The Company estimates and records an allowance for credit losses over the expected contractual life of their contracts considering collectability, historical loss experience, current conditions and future market changes.
Evaluating the judgments related to the finance receivable allowance for credit losses is subjective and requires auditor judgment to effectively evaluate whether management’s judgments were reasonable.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the finance receivables allowance for credit losses balance included the following procedures, among others:
•We tested the design, implementation and operating effectiveness of management’s controls over the allowance for credit losses including controls over the completeness and accuracy of underlying data.
•Where appropriate, we assessed the reasonableness of, and evaluated support for, qualitative adjustments based on market conditions and/or portfolio performance metrics.
•We tested the completeness and accuracy and evaluated the relevance of the key data used as inputs in management’s allowance for credit losses calculation, including loan balances, recoveries, charge-offs, portfolio characteristics and other data.
•We tested the mathematical accuracy of the allowance for credit losses calculation and developed an expectation of the allowance for credit losses and compared it to the recorded balance.
•We performed a retrospective review based on net losses as compared to estimates in the Company’s allowance to highlight any inconsistencies.
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| /s/ DELOITTE & TOUCHE LLP | | |
Milwaukee, Wisconsin | | |
February 14, 201910, 2022 | | |
We have served as the Company’s auditor since 2002.
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| 20182021 ANNUAL REPORT | 6561 |
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Snap-on Incorporated – Consolidated Statements of Earnings | |
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| (Amounts in millions, except per share data) | | 2018 | | 2017 | | 2016 | (Amounts in millions, except per share data) | | 2021 | | 2020 | | 2019 |
| Net sales | | $ | 3,740.7 |
| | $ | 3,686.9 |
| | $ | 3,430.4 |
| Net sales | | $ | 4,252.0 | | | $ | 3,592.5 | | | $ | 3,730.0 | |
| Cost of goods sold | | (1,870.7 | ) | | (1,861.0 | ) | | (1,720.0 | ) | Cost of goods sold | | (2,141.2) | | | (1,844.0) | | | (1,886.0) | |
| Gross profit | | 1,870.0 |
| | 1,825.9 |
| | 1,710.4 |
| Gross profit | | 2,110.8 | | | 1,748.5 | | | 1,844.0 | |
| Operating expenses | | (1,144.0 | ) | | (1,161.3 | ) | | (1,048.0 | ) | Operating expenses | | (1,259.3) | | | (1,116.6) | | | (1,127.6) | |
| Operating earnings before financial services | | 726.0 |
| | 664.6 |
| | 662.4 |
| Operating earnings before financial services | | 851.5 | | | 631.9 | | | 716.4 | |
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| Financial services revenue | | 329.7 |
| | 313.4 |
| | 281.4 |
| Financial services revenue | | 349.7 | | | 349.7 | | | 337.7 | |
| Financial services expenses | | (99.6 | ) | | (95.9 | ) | | (82.7 | ) | Financial services expenses | | (77.7) | | | (101.1) | | | (91.8) | |
| Operating earnings from financial services | | 230.1 |
| | 217.5 |
| | 198.7 |
| Operating earnings from financial services | | 272.0 | | | 248.6 | | | 245.9 | |
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| Operating earnings | | 956.1 |
| | 882.1 |
| | 861.1 |
| Operating earnings | | 1,123.5 | | | 880.5 | | | 962.3 | |
| Interest expense | | (50.4 | ) | | (52.4 | ) | | (52.2 | ) | Interest expense | | (53.1) | | | (54.0) | | | (49.0) | |
| Other income (expense) – net | | 4.2 |
| | (7.8 | ) | | (7.5 | ) | Other income (expense) – net | | 16.5 | | | 8.7 | | | 8.8 | |
| Earnings before income taxes and equity earnings | | 909.9 |
| | 821.9 |
| | 801.4 |
| Earnings before income taxes and equity earnings | | 1,086.9 | | | 835.2 | | | 922.1 | |
| Income tax expense | | (214.4 | ) | | (250.9 | ) | | (244.3 | ) | Income tax expense | | (247.0) | | | (189.1) | | | (211.8) | |
| Earnings before equity earnings | | 695.5 |
| | 571.0 |
| | 557.1 |
| Earnings before equity earnings | | 839.9 | | | 646.1 | | | 710.3 | |
| Equity earnings, net of tax | | 0.7 |
| | 1.2 |
| | 2.5 |
| Equity earnings, net of tax | | 1.5 | | | 0.3 | | | 0.9 | |
| Net earnings | | 696.2 |
| | 572.2 |
| | 559.6 |
| Net earnings | | 841.4 | | | 646.4 | | | 711.2 | |
| Net earnings attributable to noncontrolling interests | | (16.3 | ) | | (14.5 | ) | | (13.2 | ) | Net earnings attributable to noncontrolling interests | | (20.9) | | | (19.4) | | | (17.7) | |
| Net earnings attributable to Snap-on Incorporated | | $ | 679.9 |
| | $ | 557.7 |
| | $ | 546.4 |
| Net earnings attributable to Snap-on Incorporated | | $ | 820.5 | | | $ | 627.0 | | | $ | 693.5 | |
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| Net earnings per share attributable to Snap-on Incorporated: | | | | | | | Net earnings per share attributable to Snap-on Incorporated: | |
| Basic | | $ | 12.08 |
| | $ | 9.72 |
| | $ | 9.40 |
| Basic | | $ | 15.22 | | | $ | 11.55 | | | $ | 12.59 | |
| Diluted | | 11.87 |
| | 9.52 |
| | 9.20 |
| Diluted | | 14.92 | | | 11.44 | | | 12.41 | |
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| Weighted-average shares outstanding: | | | | | | | Weighted-average shares outstanding: | |
| Basic | | 56.3 |
| | 57.4 |
| | 58.1 |
| Basic | | 53.9 | | | 54.3 | | | 55.1 | |
| Effect of dilutive securities | | 1.0 |
| | 1.2 |
| | 1.3 |
| Effect of dilutive securities | | 1.1 | | | 0.5 | | | 0.8 | |
| Diluted | | 57.3 |
| | 58.6 |
| | 59.4 |
| Diluted | | 55.0 | | | 54.8 | | | 55.9 | |
See Notes to Consolidated Financial Statements.
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| Snap-on Incorporated – Consolidated Statements of Comprehensive Income |
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| (Amounts in millions) | | 2018 | | 2017 | | 2016 | (Amounts in millions) | | 2021 | | 2020 | | 2019 |
| Comprehensive income (loss): | | | | | | | Comprehensive income (loss): | | | | | | |
| Net earnings | | $ | 696.2 |
| | $ | 572.2 |
| | $ | 559.6 |
| Net earnings | | $ | 841.4 | | | $ | 646.4 | | | $ | 711.2 | |
| Other comprehensive income (loss): | | | | | | | Other comprehensive income (loss): | |
| Foreign currency translation* | | (95.4 | ) | | 135.2 |
| | (99.2 | ) | |
| Foreign currency translation | | Foreign currency translation | | (69.4) | | | 112.7 | | | (9.5) | |
| Reclassification of foreign currency translation loss from sale of equity interest to net earnings | | Reclassification of foreign currency translation loss from sale of equity interest to net earnings | | (1.0) | | | — | | | — | |
| Unrealized cash flow hedges, net of tax: | | | | | | | Unrealized cash flow hedges, net of tax: | |
| Other comprehensive income (loss) before reclassifications | | (0.8 | ) | | 6.9 |
| | 8.8 |
| |
| Other comprehensive income before reclassifications | | Other comprehensive income before reclassifications | | — | | | 1.4 | | | — | |
| Reclassification of cash flow hedges to net earnings | | (1.5 | ) | | (1.6 | ) | | (0.3 | ) | Reclassification of cash flow hedges to net earnings | | (1.6) | | | (1.6) | | | (1.5) | |
| Defined benefit pension and postretirement plans: | | | | | | | Defined benefit pension and postretirement plans: | |
| Net prior service costs and credits and unrecognized (loss) gain | | (79.0 | ) | | 15.9 |
| | (93.3 | ) | |
| Net prior service costs and credits and unrecognized gain (loss) | | Net prior service costs and credits and unrecognized gain (loss) | | 85.1 | | | 3.8 | | | (6.7) | |
| Income tax (expense) benefit | | 20.0 |
| | (4.1 | ) | | 30.7 |
| Income tax (expense) benefit | | (18.6) | | | (0.3) | | | 0.2 | |
| Net of tax | | (59.0 | ) | | 11.8 |
| | (62.6 | ) | Net of tax | | 66.5 | | | 3.5 | | | (6.5) | |
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| Amortization of net prior service costs and credits and unrecognized loss included in net periodic benefit cost | | 31.1 |
| | 26.6 |
| | 30.1 |
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| Amortization of unrecognized loss and net prior service costs included in net periodic benefit cost | | Amortization of unrecognized loss and net prior service costs included in net periodic benefit cost | | 36.4 | | | 34.5 | | | 23.5 | |
| Income tax benefit | | (7.6 | ) | | (9.4 | ) | | (11.1 | ) | Income tax benefit | | (9.0) | | | (8.4) | | | (5.8) | |
| Net of tax | | 23.5 |
| | 17.2 |
| | 19.0 |
| Net of tax | | 27.4 | | | 26.1 | | | 17.7 | |
| Total comprehensive income | | 563.0 |
| | 741.7 |
| | 425.3 |
| Total comprehensive income | | 863.3 | | | 788.5 | | | 711.4 | |
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| Comprehensive income attributable to noncontrolling interests | | (16.3 | ) | | (14.5 | ) | | (13.2 | ) | Comprehensive income attributable to noncontrolling interests | | (20.9) | | | (19.4) | | | (17.7) | |
| Comprehensive income attributable to Snap-on Incorporated | | $ | 546.7 |
| | $ | 727.2 |
| | $ | 412.1 |
| Comprehensive income attributable to Snap-on Incorporated | | $ | 842.4 | | | $ | 769.1 | | | $ | 693.7 | |
* There is no reclassification adjustment as there was no sale or liquidation of any foreign entity during any period presented.
See Notes to Consolidated Financial Statements.
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| 20182021 ANNUAL REPORT | 6763 |
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| Snap-on Incorporated – Consolidated Balance Sheets | |
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| | | Fiscal Year End | | | Fiscal Year End |
| (Amounts in millions, except share data) | | 2018 | | 2017 | (Amounts in millions, except share data) | | 2021 | | 2020 |
| ASSETS | | | | | ASSETS | | | | |
| Current assets: | | | | | Current assets: | |
| Cash and cash equivalents | | $ | 140.9 |
| | $ | 92.0 |
| Cash and cash equivalents | | $ | 780.0 | | | $ | 923.4 | |
| Trade and other accounts receivable – net | | 692.6 |
| | 675.6 |
| Trade and other accounts receivable – net | | 682.3 | | | 640.7 | |
| Finance receivables – net | | 518.5 |
| | 505.4 |
| Finance receivables – net | | 542.3 | | | 530.2 | |
| Contract receivables – net | | 98.3 |
| | 96.8 |
| Contract receivables – net | | 110.4 | | | 112.5 | |
| Inventories – net | | 673.8 |
| | 638.8 |
| Inventories – net | | 803.8 | | | 746.5 | |
| Prepaid expenses and other assets | | 92.8 |
| | 110.7 |
| Prepaid expenses and other assets | | 134.6 | | | 129.7 | |
| Total current assets | | 2,216.9 |
| | 2,119.3 |
| Total current assets | | 3,053.4 | | | 3,083.0 | |
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| Property and equipment – net | | 495.1 |
| | 484.4 |
| Property and equipment – net | | 518.2 | | | 526.2 | |
| Operating lease right-of-use assets | | Operating lease right-of-use assets | | 51.9 | | | 51.9 | |
| Deferred income tax assets | | 64.7 |
| | 52.0 |
| Deferred income tax assets | | 49.5 | | | 50.3 | |
| Long-term finance receivables – net | | 1,074.4 |
| | 1,039.2 |
| Long-term finance receivables – net | | 1,114.0 | | | 1,136.3 | |
| Long-term contract receivables – net | | 344.9 |
| | 322.6 |
| Long-term contract receivables – net | | 378.2 | | | 374.7 | |
| Goodwill | | 902.2 |
| | 924.1 |
| Goodwill | | 1,116.5 | | | 982.4 | |
| Other intangibles – net | | 232.9 |
| | 253.7 |
| Other intangibles – net | | 301.7 | | | 260.8 | |
| Other assets | | 42.0 |
| | 53.8 |
| Other assets | | 176.3 | | | 91.7 | |
| Total assets | | $ | 5,373.1 |
| | $ | 5,249.1 |
| Total assets | | $ | 6,759.7 | | | $ | 6,557.3 | |
| LIABILITIES AND EQUITY | | | | | LIABILITIES AND EQUITY | | | | |
| Current liabilities: | | | | | Current liabilities: | |
| Notes payable and current maturities of long-term debt | | $ | 186.3 |
| | $ | 433.2 |
| Notes payable and current maturities of long-term debt | | $ | 17.4 | | | $ | 268.5 | |
| Accounts payable | | 201.1 |
| | 178.2 |
| Accounts payable | | 277.6 | | | 222.9 | |
| Accrued benefits | | 52.0 |
| | 55.8 |
| Accrued benefits | | 67.4 | | | 59.7 | |
| Accrued compensation | | 71.5 |
| | 71.5 |
| Accrued compensation | | 114.8 | | | 89.9 | |
| Franchisee deposits | | 67.5 |
| | 66.5 |
| Franchisee deposits | | 80.7 | | | 78.4 | |
| Other accrued liabilities | | 373.6 |
| | 388.1 |
| Other accrued liabilities | | 424.3 | | | 445.5 | |
| Total current liabilities | | 952.0 |
| | 1,193.3 |
| Total current liabilities | | 982.2 | | | 1,164.9 | |
| | | | | | |
| Long-term debt | | 946.0 |
| | 753.6 |
| Long-term debt | | 1,182.9 | | | 1,182.1 | |
| Deferred income tax liabilities | | 41.4 |
| | 28.4 |
| Deferred income tax liabilities | | 122.7 | | | 70.4 | |
| Retiree health care benefits | | 31.8 |
| | 36.0 |
| Retiree health care benefits | | 31.1 | | | 34.5 | |
| Pension liabilities | | 171.3 |
| | 158.9 |
| Pension liabilities | | 104.9 | | | 127.1 | |
| Operating lease liabilities | | Operating lease liabilities | | 34.2 | | | 34.0 | |
| Other long-term liabilities | | 112.0 |
| | 106.6 |
| Other long-term liabilities | | 97.9 | | | 97.7 | |
| Total liabilities | | 2,254.5 |
| | 2,276.8 |
| Total liabilities | | 2,555.9 | | | 2,710.7 | |
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| Commitments and contingencies (Note 16) | |
| |
| Commitments and contingencies (Note 16) | | 0 | | 0 |
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| Equity | | | | | Equity | |
| Shareholders’ equity attributable to Snap-on Incorporated: | | | | | Shareholders’ equity attributable to Snap-on Incorporated: | |
| Preferred stock (authorized 15,000,000 shares of $1 par value; none outstanding) | | — |
| | — |
| Preferred stock (authorized 15,000,000 shares of $1 par value; none outstanding) | | — | | | — | |
| Common stock (authorized 250,000,000 shares of $1 par value; issued 67,415,091 and 67,407,704 shares, respectively) | | 67.4 |
| | 67.4 |
| |
| Common stock (authorized 250,000,000 shares of $1 par value; issued 67,438,129 and 67,430,958 shares, respectively) | | Common stock (authorized 250,000,000 shares of $1 par value; issued 67,438,129 and 67,430,958 shares, respectively) | | 67.4 | | | 67.4 | |
| Additional paid-in capital | | 359.4 |
| | 343.2 |
| Additional paid-in capital | | 472.7 | | | 391.7 | |
| Retained earnings | | 4,257.6 |
| | 3,772.3 |
| Retained earnings | | 5,699.9 | | | 5,156.9 | |
| Accumulated other comprehensive loss | | (462.2 | ) | | (329.0 | ) | Accumulated other comprehensive loss | | (343.9) | | | (365.8) | |
| Treasury stock at cost (11,804,310 and 10,717,455 shares, respectively) | | (1,123.4 | ) | | (900.0 | ) | |
| Treasury stock at cost (14,008,479 and 13,328,859 shares, respectively) | | Treasury stock at cost (14,008,479 and 13,328,859 shares, respectively) | | (1,714.2) | | | (1,425.3) | |
| Total shareholders’ equity attributable to Snap-on Incorporated | | 3,098.8 |
| | 2,953.9 |
| Total shareholders’ equity attributable to Snap-on Incorporated | | 4,181.9 | | | 3,824.9 | |
| Noncontrolling interests | | 19.8 |
| | 18.4 |
| Noncontrolling interests | | 21.9 | | | 21.7 | |
| Total equity | | 3,118.6 |
| | 2,972.3 |
| Total equity | | 4,203.8 | | | 3,846.6 | |
| Total liabilities and equity | | $ | 5,373.1 |
| | $ | 5,249.1 |
| Total liabilities and equity | | $ | 6,759.7 | | | $ | 6,557.3 | |
See Notes to Consolidated Financial Statements.
|
| | | | | | | |
| Snap-on Incorporated – Consolidated Statements of Equity | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | Shareholders’ Equity Attributable to Snap-on Incorporated | | | | |
| (Amounts in millions, except share data) | | Common
Stock | | Additional
Paid-in
Capital | | Retained
Earnings | | Accumulated
Other
Comprehensive
Income (Loss) | | Treasury
Stock | | Noncontrolling
Interests | | Total
Equity |
| Balance at December 29, 2018 | | $ | 67.4 | | | $ | 359.4 | | | $ | 4,257.6 | | | $ | (462.2) | | | $ | (1,123.4) | | | $ | 19.8 | | | $ | 3,118.6 | |
Impact of the Tax Act on Accumulated Other Comprehensive Income (ASU No. 2018-02) | | — | | | — | | | 45.9 | | | (45.9) | | | — | | | — | | | — | |
| Balance at December 30, 2018 | | 67.4 | | | 359.4 | | | 4,303.5 | | | (508.1) | | | (1,123.4) | | | 19.8 | | | 3,118.6 | |
| Net earnings for 2019 | | — | | | — | | | 693.5 | | | — | | | — | | | 17.7 | | | 711.2 | |
| Other comprehensive income | | — | | | — | | | — | | | 0.2 | | | — | | | — | | | 0.2 | |
| Cash dividends – $3.93 per share | | — | | | — | | | (216.6) | | | — | | | — | | | — | | | (216.6) | |
| Stock compensation plans | | — | | | 19.7 | | | — | | | — | | | 52.6 | | | — | | | 72.3 | |
| Share repurchases – 1,495,000 shares | | — | | | — | | | — | | | — | | | (238.4) | | | — | | | (238.4) | |
| Other | | — | | | — | | | (0.7) | | | — | | | — | | | (15.8) | | | (16.5) | |
| Balance at December 28, 2019 | | 67.4 | | | 379.1 | | | 4,779.7 | | | (507.9) | | | (1,309.2) | | | 21.7 | | | 3,430.8 | |
| Impact of the Credit Loss Standard (ASU No. 2016-13) | | — | | | — | | | (6.1) | | | — | | | — | | | — | | | (6.1) | |
| Balance at December 29, 2019 | | 67.4 | | | 379.1 | | | 4,773.6 | | | (507.9) | | | (1,309.2) | | | 21.7 | | | 3,424.7 | |
| Net earnings for 2020 | | — | | | — | | | 627.0 | | | — | | | — | | | 19.4 | | | 646.4 | |
| Other comprehensive income | | — | | | — | | | — | | | 142.1 | | | — | | | — | | | 142.1 | |
| Cash dividends – $4.47 per share | | — | | | — | | | (243.3) | | | — | | | — | | | — | | | (243.3) | |
| Stock compensation plans | | — | | | 12.6 | | | — | | | — | | | 58.2 | | | — | | | 70.8 | |
| Share repurchases – 1,109,000 shares | | — | | | — | | | — | | | — | | | (174.3) | | | — | | | (174.3) | |
| Other | | — | | | — | | | (0.4) | | | — | | | — | | | (19.4) | | | (19.8) | |
| Balance at January 2, 2021 | | 67.4 | | | 391.7 | | | 5,156.9 | | | (365.8) | | | (1,425.3) | | | 21.7 | | | 3,846.6 | |
| Net earnings for 2021 | | — | | | — | | | 820.5 | | | — | | | — | | | 20.9 | | | 841.4 | |
| Other comprehensive income | | — | | | — | | | — | | | 21.9 | | | — | | | — | | | 21.9 | |
| Cash dividends – $5.11 per share | | — | | | — | | | (275.8) | | | — | | | — | | | — | | | (275.8) | |
| Stock compensation plans | | — | | | 81.0 | | | — | | | — | | | 142.4 | | | — | | | 223.4 | |
| Share repurchases – 1,943,900 shares | | — | | | — | | | — | | | — | | | (431.3) | | | — | | | (431.3) | |
| Other | | — | | | — | | | (1.7) | | | — | | | — | | | (20.7) | | | (22.4) | |
| Balance at January 1, 2022 | | $ | 67.4 | | | $ | 472.7 | | | $ | 5,699.9 | | | $ | (343.9) | | | $ | (1,714.2) | | | $ | 21.9 | | | $ | 4,203.8 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | Shareholders’ Equity Attributable to Snap-on Incorporated | | | | |
| (Amounts in millions, except share data) | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Noncontrolling Interests | | Total Equity |
| Balance at January 2, 2016 | | $ | 67.4 |
| | $ | 296.3 |
| | $ | 2,986.9 |
| | $ | (364.2 | ) | | $ | (573.7 | ) | | $ | 18.0 |
| | $ | 2,430.7 |
|
| Net earnings for 2016 | | — |
| | — |
| | 546.4 |
| | — |
| | — |
| | 13.2 |
| | 559.6 |
|
| Other comprehensive loss | | — |
| | — |
| | — |
| | (134.3 | ) | | — |
| | — |
| | (134.3 | ) |
| Cash dividends – $2.54 per share | | — |
| | — |
| | (147.5 | ) | | — |
| | — |
| | — |
| | (147.5 | ) |
| Stock compensation plans | | — |
| | 21.0 |
| | — |
| | — |
| | 40.2 |
| | — |
| | 61.2 |
|
| Share repurchases – 758,000 shares | | — |
| | — |
| | — |
| | — |
| | (120.4 | ) | | — |
| | (120.4 | ) |
| Other | | — |
| | — |
| | (0.9 | ) | | — |
| | — |
| | (13.2 | ) | | (14.1 | ) |
| Balance at December 31, 2016 | | 67.4 |
| | 317.3 |
| | 3,384.9 |
| | (498.5 | ) | | (653.9 | ) | | 18.0 |
| | 2,635.2 |
|
| Net earnings for 2017 | | — |
| | — |
| | 557.7 |
| | — |
| | — |
| | 14.5 |
| | 572.2 |
|
| Other comprehensive income | | — |
| | — |
| | — |
| | 169.5 |
| | — |
| | — |
| | 169.5 |
|
| Cash dividends – $2.95 per share | | — |
| | — |
| | (169.4 | ) | | — |
| | — |
| | — |
| | (169.4 | ) |
| Stock compensation plans | | — |
| | 25.9 |
| | — |
| | — |
| | 41.8 |
| | — |
| | 67.7 |
|
| Share repurchases – 1,820,000 shares | | — |
| | — |
| | — |
| | — |
| | (287.9 | ) | | — |
| | (287.9 | ) |
| Other | | — |
| | — |
| | (0.9 | ) | | — |
| | — |
| | (14.1 | ) | | (15.0 | ) |
| Balance at December 30, 2017 | | 67.4 |
| | 343.2 |
| | 3,772.3 |
| | (329.0 | ) | | (900.0 | ) | | 18.4 |
| | 2,972.3 |
|
| Net earnings for 2018 | | — |
| | — |
| | 679.9 |
| | — |
| | — |
| | 16.3 |
| | 696.2 |
|
| Other comprehensive loss | | — |
| | — |
| | — |
| | (133.2 | ) | | — |
| | — |
| | (133.2 | ) |
| Cash dividends – $3.41 per share | | — |
| | — |
| | (192.0 | ) | | — |
| | — |
| | — |
| | (192.0 | ) |
| Stock compensation plans | | — |
| | 16.2 |
| | — |
| | — |
| | 60.7 |
| | — |
| | 76.9 |
|
| Share repurchases – 1,769,000 shares | | — |
| | — |
| | — |
| | — |
| | (284.1 | ) | | — |
| | (284.1 | ) |
| Other | | — |
| | — |
| | (2.6 | ) | | — |
| | — |
| | (14.9 | ) | | (17.5 | ) |
| Balance at December 29, 2018 | | $ | 67.4 |
| | $ | 359.4 |
| | $ | 4,257.6 |
| | $ | (462.2 | ) | | $ | (1,123.4 | ) | | $ | 19.8 |
| | $ | 3,118.6 |
|
See Notes to Consolidated Financial Statements.
|
| | | | | | | |
| 20182021 ANNUAL REPORT | 6965 |
|
| | | | | | | |
| Snap-on Incorporated – Consolidated Statements of Cash Flows | |
| | | | | | | | | | |
| (Amounts in millions) | | 2018 | | 2017 | | 2016 | (Amounts in millions) | | 2021 | | 2020 | | 2019 |
| Operating activities: | | | | | | | Operating activities: | | | | | | |
| Net earnings | | $ | 696.2 |
| | $ | 572.2 |
| | $ | 559.6 |
| Net earnings | | $ | 841.4 | | | $ | 646.4 | | | $ | 711.2 | |
| Adjustments to reconcile net earnings to net cash provided (used) by operating activities: | | | | | | | Adjustments to reconcile net earnings to net cash provided (used) by operating activities: | |
| Depreciation | | 68.8 |
| | 65.6 |
| | 61.4 |
| Depreciation | | 75.6 | | | 73.3 | | | 70.1 | |
| Amortization of other intangibles | | 25.3 |
| | 27.6 |
| | 24.2 |
| Amortization of other intangibles | | 29.2 | | | 23.4 | | | 22.3 | |
| Provision for losses on finance receivables | | 57.5 |
| | 54.6 |
| | 44.0 |
| Provision for losses on finance receivables | | 32.1 | | | 54.6 | | | 49.9 | |
| Provision for losses on non-finance receivables | | 12.8 |
| | 10.5 |
| | 7.5 |
| Provision for losses on non-finance receivables | | 16.3 | | | 22.7 | | | 18.3 | |
| Stock-based compensation expense | | 27.2 |
| | 30.3 |
| | 31.0 |
| Stock-based compensation expense | | 41.4 | | | 19.5 | | | 23.8 | |
| Deferred income tax provision | | 13.7 |
| | 12.3 |
| | 1.3 |
| |
| Loss (gain) on sales of assets | | 0.5 |
| | (0.2 | ) | | 0.2 |
| |
| Deferred income tax provision (benefit) | | Deferred income tax provision (benefit) | | 8.4 | | | (8.2) | | | 34.2 | |
| Loss on sales of assets | | Loss on sales of assets | | 1.7 | | | 1.4 | | | 0.9 | |
| Settlement of treasury lock | | — |
| | 14.9 |
| | — |
| Settlement of treasury lock | | — | | | 1.4 | | | — | |
| Loss on early extinguishment of debt | | 7.8 |
| | — |
| | — |
| |
| | Changes in operating assets and liabilities, net of effects of acquisitions: | | | | | | | Changes in operating assets and liabilities, net of effects of acquisitions: | |
| Increase in trade and other accounts receivable | | (47.7 | ) | | (55.5 | ) | | (41.0 | ) | |
| Increase in contract receivables | | (30.9 | ) | | (41.8 | ) | | (31.9 | ) | |
| Increase in inventories | | (38.6 | ) | | (76.0 | ) | | (32.7 | ) | |
| (Increase) decrease in prepaid and other assets | | 10.4 |
| | (10.0 | ) | | (11.9 | ) | |
| Increase (decrease) in accounts payable | | 27.5 |
| | (2.2 | ) | | 16.3 |
| |
| Increase (decrease) in accruals and other liabilities | | (66.0 | ) | | 6.2 |
| | (51.9 | ) | |
| Trade and other accounts receivable | | Trade and other accounts receivable | | (61.4) | | | 47.9 | | | (15.7) | |
| Contract receivables | | Contract receivables | | (3.1) | | | (29.9) | | | (20.9) | |
| Inventories | | Inventories | | (75.4) | | | 34.2 | | | (97.0) | |
| Prepaid and other assets | | Prepaid and other assets | | (10.7) | | | 8.5 | | | (22.2) | |
| Accounts payable | | Accounts payable | | 56.8 | | | 17.8 | | | (2.6) | |
| Accruals and other liabilities | | Accruals and other liabilities | | 14.3 | | | 95.6 | | | (97.7) | |
| Net cash provided by operating activities | | 764.5 |
| | 608.5 |
| | 576.1 |
| Net cash provided by operating activities | | 966.6 | | | 1,008.6 | | | 674.6 | |
| | | | | | | | | | | | | |
| Investing activities: | | | | | | | Investing activities: | |
| Additions to finance receivables | | (865.6 | ) | | (892.0 | ) | | (915.0 | ) | Additions to finance receivables | | (878.1) | | | (835.0) | | | (841.9) | |
| Collections of finance receivables | | 747.7 |
| | 712.7 |
| | 671.7 |
| Collections of finance receivables | | 854.2 | | | 750.3 | | | 754.3 | |
| Capital expenditures | | (90.9 | ) | | (82.0 | ) | | (74.3 | ) | Capital expenditures | | (70.1) | | | (65.6) | | | (99.4) | |
| Acquisitions of businesses, net of cash acquired | | (3.0 | ) | | (82.9 | ) | | (160.4 | ) | Acquisitions of businesses, net of cash acquired | | (199.7) | | | (41.5) | | | (38.6) | |
| Disposals of property and equipment | | 0.7 |
| | 1.5 |
| | 2.2 |
| Disposals of property and equipment | | 2.1 | | | 1.8 | | | 1.7 | |
| Other | | 0.9 |
| | 1.3 |
| | 2.4 |
| Other | | 1.2 | | | 2.2 | | | 1.8 | |
| Net cash used by investing activities | | (210.2 | ) | | (341.4 | ) | | (473.4 | ) | Net cash used by investing activities | | (290.4) | | | (187.8) | | | (222.1) | |
| | | | | | | | | | | | | |
| Financing activities: | | | | | | | Financing activities: | |
| Proceeds from issuance of long-term debt | | 395.4 |
| | 297.8 |
| | — |
| Proceeds from issuance of long-term debt | | — | | | 489.9 | | | — | |
| Repayments of long-term debt | | (457.8 | ) | | (150.0 | ) | | — |
| Repayments of long-term debt | | (250.0) | | | — | | | — | |
| Proceeds from notes payable | | — |
| | 16.8 |
| | 4.5 |
| |
| Repayments of notes payable | | (16.8 | ) | | (4.5 | ) | | (5.3 | ) | |
| Net increase in other short-term borrowings | | 21.7 |
| | 18.3 |
| | 135.0 |
| |
| | Net increase (decrease) in other short-term borrowings | | Net increase (decrease) in other short-term borrowings | | 3.3 | | | (187.2) | | | 17.6 | |
| Cash dividends paid | | (192.0 | ) | | (169.4 | ) | | (147.5 | ) | Cash dividends paid | | (275.8) | | | (243.3) | | | (216.6) | |
| Purchases of treasury stock | | (284.1 | ) | | (287.9 | ) | | (120.4 | ) | Purchases of treasury stock | | (431.3) | | | (174.3) | | | (238.4) | |
| Proceeds from stock purchase and option plans | | 55.5 |
| | 46.2 |
| | 41.8 |
| Proceeds from stock purchase and option plans | | 162.4 | | | 55.8 | | | 51.4 | |
| Other | | (24.1 | ) | | (23.4 | ) | | (24.1 | ) | Other | | (27.4) | | | (25.2) | | | (23.4) | |
| Net cash used by financing activities | | (502.2 | ) | | (256.1 | ) | | (116.0 | ) | Net cash used by financing activities | | (818.8) | | | (84.3) | | | (409.4) | |
| | | | | | | | | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | (3.2 | ) | | 3.4 |
| | (1.9 | ) | Effect of exchange rate changes on cash and cash equivalents | | (0.8) | | | 2.4 | | | 0.5 | |
| Increase (decrease) in cash and cash equivalents | | 48.9 |
| | 14.4 |
| | (15.2 | ) | Increase (decrease) in cash and cash equivalents | | (143.4) | | | 738.9 | | | 43.6 | |
| Cash and cash equivalents at beginning of year | | 92.0 |
| | 77.6 |
| | 92.8 |
| Cash and cash equivalents at beginning of year | | 923.4 | | | 184.5 | | | 140.9 | |
| Cash and cash equivalents at end of year | | $ | 140.9 |
| | $ | 92.0 |
| | $ | 77.6 |
| Cash and cash equivalents at end of year | | $ | 780.0 | | | $ | 923.4 | | | $ | 184.5 | |
| | | | | | | | | | | | | |
| Supplemental cash flow disclosures: | | | | | | | Supplemental cash flow disclosures: | |
| Cash paid for interest | | $ | (51.5 | ) | | $ | (51.2 | ) | | $ | (51.0 | ) | Cash paid for interest | | $ | (55.9) | | | $ | (49.8) | | | $ | (46.3) | |
| Net cash paid for income taxes | | (188.0 | ) | | (228.1 | ) | | (247.3 | ) | Net cash paid for income taxes | | (249.0) | | | (188.4) | | | (191.2) | |
See Notes to Consolidated Financial Statements.
|
| | |
| | |
| Notes to Consolidated Financial Statements | | |
Note 1: Summary of Accounting Policies
Principles of consolidation and presentation: The Consolidated Financial Statements include the accounts of Snap-onSnap‑on Incorporated and its wholly-owned and majority-owned subsidiaries (collectively, “Snap-on” or “the company”).
Certain prior year amounts have been reclassified on the Consolidated Statements of Earnings to conform to the 2018 presentation following the retrospective adoption of Accounting Standards Update (“ASU”) No. 2017-07, Compensation - Retirement Benefits (Topic 715) - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The following items were reclassified to “Other income (expense) - net” in the indicated fiscal year: income of $1.0 million and $0.8 million for 2017 and 2016, respectively, that was previously included in “Cost of goods sold” and expense of $0.4 million for 2017 and income of $6.1 million for 2016, that were previously included in “Operating expenses.” As a result, previously reported “Cost of goods sold” of $1,862.0 million and $1,720.8 million are now $1,861.0 million and $1,720.0 million for 2017 and 2016, respectively, “Operating expenses” of $1,160.9 million and $1,054.1 million are now $1,161.3 million and $1,048.0 million for 2017 and 2016, respectively, and “Other income (expense) - net” of $7.2 million and $0.6 million of expense are now $7.8 million and $7.5 million of expense for 2017 and 2016, respectively. Additionally, prior year “Operating earnings” for certain reportable business segments have been restated to reflect these reclassifications. See Note 19 for information on Snap-on’s reportable business segments.
Snap-on accounts for investments in unconsolidated affiliates where Snap-on has a non-significant ownership interest under the equity method of accounting. Investments in unconsolidated affiliates of $18.5 million as of December 29, 2018, and $18.6 million as of December 30, 2017, are included in “Other assets” on the accompanying Consolidated Balance Sheets; no equity investment dividends were received in any period presented. In the normal course of business, the company may purchase products or services from, or sell products or services to, unconsolidated affiliates. Purchases from unconsolidated affiliates were $11.2 million, $11.6 million and $12.9 million in 2018, 2017 and 2016, respectively, and sales to unconsolidated affiliates were $0.8 million in 2018, $0.5 million in 2017 and $0.2 million in 2016. The Consolidated Financial Statements do not include the accounts of the company’s independent franchisees. Snap-on’s Consolidated Financial Statements are prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”). Intercompany accounts and transactions have been eliminated.
Snap-on accounts for investments in unconsolidated affiliates where the company has a non-significant ownership interest under the equity method of accounting. An investment in an unconsolidated affiliate of $21.8 million as of July 1, 2021, was exchanged for 100% ownership of a wholly owned subsidiary of the unconsolidated affiliate. Investments in unconsolidated affiliates of $21.0 million as of January 2, 2021, are included in “Other assets” on the accompanying Consolidated Balance Sheets; no equity investment dividends were received in any period presented. See Note 3 for further information on acquisitions.
In the normal course of business, the company may purchase products or services from, or sell products or services to, unconsolidated affiliates. Purchases from unconsolidated affiliates were $7.7 million, $9.3 million and $10.4 million in 2021, 2020 and 2019, respectively, and sales to unconsolidated affiliates were $0.6 million in 2021, $0.5 million in 2020 and $0.6 million in 2019.
Fiscal year accounting period: Snap-on’s fiscal year ends on the Saturday that is on or nearest to December 31. The 20182021 fiscal year ended on January 1, 2022 (“2021”) and contained 52 weeks of operating results. The 2020 fiscal year ended on January 2, 2021 (“2020”) and contained 53 weeks of operating results, with the additional week occurring in the fourth quarter; the impact of the additional week of operations was not material to Snap-on’s 2020 total revenues or net earnings. The 2019 fiscal year ended on December 29, 201828, 2019 (“2018”2019”). The 2017 fiscal year ended on December 30, 2017 (“2017”). The 2016 fiscal year ended on December 31, 2016 (“2016”). The 2018, 2017 and 2016 fiscal years each contained 52 weeks of operating results.
Use of estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Financial instruments: The fair value of the company’s derivative financial instruments is generally determined using quoted prices in active markets for similar assets and liabilities. The carrying value of the company’s non-derivative financial instruments either approximates fair value, due to their short-term nature, or the amount disclosed for fair value is based upon a discounted cash flow analysis or quoted market values. See Note 11 for further information on financial instruments.
Revenue recognition: Snap-on recognizes revenue from the sale of tools, diagnosticdiagnostics, and equipment products and related services based on when control of the product passes to the customer or the service is provided and is recognized at an amount that reflects the consideration expected to be received in exchange for such goods or services. See Note 2 for information on revenue recognition.
Financial services revenue: Snap-on also generates revenue from various financing programs that include: (i) installment sales and lease contracts arising from franchisees’ customers and Snap-on customers who require financing for the purchase or lease of tools, and diagnosticdiagnostics, and equipment products on an extended-term payment plan; and (ii) business and vehicle loans and vehicle leases to franchisees. These financing programs are offered through Snap-on’s wholly owned finance subsidiaries. Financial services revenue consists primarily of interest income on finance and contract receivables and is recognized over the life of the underlying contracts, with interest computed primarily on the average daily balances of the underlying contracts.
|
| | |
| | |
Notes to Consolidated Financial Statements (continued) | | |
The decision to finance through Snap-on or another financing source is solely at the election of the customer. When assessing customers for potential financing, Snap-on considers various factors regarding ability to pay, including the customers’ financial condition, debt-servicing ability, past payment experience, and credit bureau and proprietary Snap-on credit model information, as well as the value of the underlying collateral. For finance and contract receivables, Snap-on assesses thesequantitative and qualitative factors through the use of credit quality indicators consisting primarily of customer credit risk scores combined with internal credit risk grades, collection experience franchise input and otherrelated internal metrics. For contract receivables, Snap-on assesses these factors throughDelinquency is the useprimary indicator of credit quality indicators consisting primarilyfor finance and contract receivables. Snap-on conducts monthly reviews of customer credit risk scores combined with internal credit risk grades,and collection experienceperformance for both the finance and other internal metrics.contract receivable portfolios, focusing on data such as delinquency trends, nonaccrual receivables, and write-off and recovery activity.
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
Financial services lease arrangements: Snap-on accounts for its financial services leases as direct financing or sales-type leases. The company determinesrecognizes the grossnet investment in the lease as the present value of the minimum lease payments not yet received plus the present value of the unguaranteed residual value, using the interest rate implicit in the lease, net of amounts, if any, included therein for executor costs to be paid by Snap-on, together with any profit thereon.lease. The difference between the grossundiscounted lease payments received over the lease term and the related net investment in the lease and the related undiscounted minimum lease payments for the leased property is reported as unearned finance charges. Unearned finance charges are amortized to income over the life of the contract. The default covenants included in the lease arrangements are usual and customary, consistent with industry practice, and do not impact the lease classification. Except in circumstances where the company has concluded that a lessee’s financial condition has deteriorated, the other default covenants under Snap-on’s lease arrangements are objectively determinable. See Notes 4 and 17 for further information on finance and contract receivables and lessor accounting.
Research and engineering: Snap-on incurred research and engineering costs of $61.2$61.1 million, $60.9$57.4 million and $53.4$59.1 million in 2018, 20172021, 2020 and 2016,2019, respectively. Research and engineering costs are included in “Operating expenses” on the accompanying Consolidated Statements of Earnings.
Internally developed software: Costs incurred in the development of software that will ultimately be sold are capitalized from the time technological feasibility has been attained and capitalization ceases when the related product is ready for general release. During 2018, 20172021, 2020 and 2016,2019, Snap-on capitalized $9.7$10.9 million, $11.3$12.0 million and $10.8$12.6 million, respectively, of such costs. Amortization of capitalized software development costs, which is included in “Cost of goods sold” on the accompanying Consolidated Statements of Earnings, was $13.4$11.4 million in 2018, $14.72021, $10.5 million in 20172020 and $13.8$10.1 million in 2016.2019. Unamortized capitalized software development costs of $40.2 million as of 2018 year end and $43.6 million as of 20172021 year end and $44.2 million as of 2020 year end are included in “Other intangibles – net” on the accompanying Consolidated Balance Sheets.
Internal-use software: Costs that are incurred in creating software solutions and enhancements to those solutions are capitalized only for the application development stage of the project.
Shipping and handling: Amounts billed to customers for shipping and handling are included as a component of sales. Costs incurred by Snap-on for shipping and handling are included as a component of cost of goods sold when the costs relate to manufacturing activities. In 2018, 20172021, 2020 and 2016,2019, Snap-on incurred shipping and handling charges of $69.9 million, $53.7 million $49.7 million and $43.1$56.5 million, respectively, that were recorded in “Cost of goods sold” on the accompanying Consolidated Statements of Earnings. Shipping and handling costs incurred in conjunction with selling or distribution activities are included as a component of operating expenses. Shipping and handling charges were $84.3$100.9 million in 2018, $82.32021, $94.2 million in 20172020 and $81.2$88.7 million in 2016;2019; these charges were recorded in “Operating expenses” on the accompanying Consolidated Statements of Earnings.
Advertising and promotion: Production costs of future media advertising are deferred until the advertising occurs. All other advertising and promotion costs are expensed when incurred. For 2018, 20172021, 2020 and 2016,2019, advertising and promotion expenses totaled $55.6$33.2 million, $55.7$38.0 million and $52.6$47.7 million, respectively. Advertising and promotion costs are included in “Operating expenses” on the accompanying Consolidated Statements of Earnings.
Warranties: Snap-on provides product warranties for specific product lines and accrues for estimated future warranty costs in the period in which the sale is recorded. See Notes 2 and 16 for information on warranties.
Foreign currency: The financial statements of Snap-on’s foreign subsidiaries are translated into U.S. dollars. Assets and liabilities of foreign subsidiaries are translated at current rates of exchange, and income and expense items are translated at the average exchange rates for the period. The resulting translation adjustments are recorded directly into “Accumulated other comprehensive loss” on the accompanying Consolidated Balance Sheets. Foreign exchange transactions, net of foreign currency hedges, resulted in pretax losses of $1.2 million, $3.9 million $7.0 million and $1.3$3.6 million in 2018, 20172021, 2020 and 2016,2019, respectively. Foreign exchange transaction gains and losses are reported in “Other income (expense) – net” on the accompanying Consolidated Statements of Earnings.
Change in Functional Currency: Argentina’s economy has been determined to be highly inflationary effective July 1, 2018. As a result the functional currency for the company’s subsidiary in Argentina changed from the Argentinian Peso to the U.S. Dollar. The impact of the change in functional currency did not have a material impact on the company’s consolidated financial statements.
Income taxes: Current tax assets and liabilities are based upon an estimate of taxes refundable or payable for each of the jurisdictions in which the company is subject to tax. In the ordinary course of business, there is inherent uncertainty in quantifying income tax positions. Snap-on assesses income tax positions and records tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances and information available at the reporting dates. For those tax positions where it is more-likely-than-not that a tax benefit will be sustained, Snap-on records the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more-likely-than-not that a tax benefit will be sustained, no tax benefit is recognized in the financial statements. When applicable, associated interest and penalties are recognized as a component of income tax expense. Accrued interest and penalties are included within the related tax asset or liability on the accompanying Consolidated Balance Sheets.
Deferred income taxes are provided for temporary differences arising from differences in bases of assets and liabilities for tax and financial reporting purposes. Deferred income taxes are recorded on temporary differences using enacted tax rates in effect for the year in which the temporary differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. See Note 9 for further information on income taxes.
Per share data: Basic earnings per share calculations were computed by dividing net earnings attributable to Snap-onSnap‑on Incorporated by the corresponding weighted-average number of common shares outstanding for the period. The dilutive effect of the potential exercise of outstanding options and stock-settled stock appreciation rights (“SARs”) to purchase common shares is calculated using the treasury stock method. As of December 29, 2018,January 1, 2022, there were 685,533no awards outstanding that were anti-dilutive; as of December 30, 2017,January 2, 2021, there were 722,7152,207,411 awards outstanding that were anti-dilutive; and as of December 31, 201628, 2019 there were 1,6001,215,695 awards outstanding that were anti-dilutive. Performance-based equity awards are included in the diluted earnings per share calculation based on the attainment of the applicable performance metrics to date. Snap-on had dilutive securities totaling 986,9841,058,553 shares, 1,207,285473,196 shares and 1,307,914748,395 shares, as of the end of 2018, 20172021, 2020 and 2016,2019, respectively. See Note 14 for further information on equity awards.
Stock-based compensation: Snap-on recognizes the cost of employee services in exchange for awards of equity instruments based on the grant date fair value of those awards. That cost, based on the estimated number of awards that are expected to vest, is recognized on a straight-line basis over the period during which the employee is required to provide the service in exchange for the award. No compensation cost is recognized for awards for which employees do not render the requisite service. The grant date fair value of employee stock options and similar instruments is estimated using the Black-Scholes valuation model.
The Black-Scholes valuation model requires the input of subjective assumptions, including the expected life of the stock-based award and stock price volatility. The assumptions used are management’s best estimates, but the estimates involve inherent uncertainties and the application of management judgment. As a result, if other assumptions had been used, the recorded stock-based compensation expense could have been materially different from that depicted in the financial statements. See Note 14 for further information on stock-based compensation.
Derivatives: Snap-on utilizes derivative financial instruments, including foreign currency forward contracts, interest rate swap agreements, treasury lock agreements and prepaid equity forward agreements to manage its exposures to foreign currency exchange rate risks, interest rate risks, and market risk associated with the stock-based portion of its deferred compensation plans. Snap-on accounts for its derivative instruments at fair value. Snap-on does not hold or issueuse financial instruments for speculative or trading purposes. See Note 11 for further information on derivatives.
Cash equivalents: Snap-on considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. There were noCash and cash equivalents asconsisted of 2018investments in money market funds and 2017 year ends.bank deposits at January 1, 2022 and January 2, 2021.
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Notes to Consolidated Financial Statements (continued) | | |
Receivables and allowances for doubtful accounts:credit losses: All trade, finance and contract receivables are reported on the Consolidated Balance Sheets at their outstanding principal balanceamortized cost adjusted for any charge-offswrite-offs and net of allowances for doubtful accounts. Financecredit losses. The amortized costs for finance and contract receivables also includeis the amount originated adjusted for applicable accrued interest and contract acquisitionnet of deferred fees or costs, net of contract acquisition fees.collections and write-offs.
Snap-on maintains allowances for doubtful accounts to absorb probablecredit losses, inherent in its portfolio of receivables. The allowances for doubtful accountswhich represent management’san estimate of expected losses over the losses inherent inremaining contractual life of its receivables considering current market conditions and supportable forecasts when appropriate. The estimate is a result of the company’s receivables portfolio based on ongoing assessments and evaluations of collectability, and historical loss experience. Inexperience, and future expectations in estimating credit losses inherent in each of its receivable portfolios (trade, finance and contract receivables),. For trade receivables, Snap-on uses historical loss experience rates by portfolio and applies them to a related aging analysis while also considering customer and/or economic risk where appropriate. For finance receivables, Snap-on uses a vintage loss experience analysis. For contract receivables, a weighted-average remaining maturity method is primarily used. Determination of the proper levelamount of allowances by portfolio requires management to exercise judgment about the timing, frequency and severity of credit losses that could materially affect the provision for credit losses and, as a result, net earnings. The allowances take into consideration numerous quantitative and qualitative factors that include receivable type, historical loss experience, loss migration, delinquency trends, collection experience, current economic conditions, supportable forecasts, when appropriate, and credit risk characteristics as follows:characteristics.
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| Notes to Consolidated Financial Statements (continued) | | |
Snap-on evaluates the collectabilitycredit risk of receivablesthe customer when extending credit based on a combination of various financial and qualitative factors that may affect its customers’ ability to pay. These factors may include customers’the customer’s financial condition, debt-servicing ability, past payment experience, and credit bureau and proprietary Snap-on credit model information, as well as the value of the underlying collateral.
For finance and contract receivables, Snap-on assesses quantitative and qualitative factors through the use of credit quality indicators consisting primarily of collection experience and other internal metrics as follows:
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◦ | Collection experience – Snap-on conducts monthly reviews of credit and collection performance for each of its finance and contract receivable portfolios focusing on data such as delinquency trends, non-performing assets, and charge-off and recovery activity. These reviews allow for the formulation of collection strategies and potential collection policy modifications in response to changing risk profiles in the finance and contract receivable portfolios. |
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◦ | Other internal metrics – Snap-on maintains a system that aggregates credit exposure by customer, risk classification and geographical area, among other factors, to further monitor changing risk profiles. |
Management performs detailed reviews of its receivables on a monthly and/or quarterly basis to assess the adequacy of the allowances based on historical and current trends and other factors affecting credit losses and to determine if any impairment has occurred. Monthly reviews of credit and collection performance are conducted for both its finance and contract receivable portfolios focusing on data such as delinquency trends, non-performing assets, and write-off and recovery activity. These reviews allow for the formulation of collection strategies and potential collection policy modifications in response to changing risk profiles in the finance and contract receivable portfolios. A receivable is impairedgenerally has credit losses when it is probableexpected that all amounts related to the receivable will not be collected according to the contractual terms of the agreement. Additions to the allowances for doubtful accounts are maintained through adjustments to the provision for credit losses, which are charged to current period earnings; amountsAmounts determined to be uncollectable are charged directly against the allowances,allowance, while amounts recovered on previously charged-offwritten-off accounts increase the allowances. Net charge-offsallowance. For both finance and contract receivables, net write-offs include the principal amount of losses charged-offwritten off as well as charged-offwritten-off accrued interest and fees.fees, and recourse from franchisees on finance receivables. Recovered interest and fees previously charged-offwritten off are recorded through the allowancesallowance for doubtful accountscredit losses and increase the allowances.allowance. Finance receivables are assessed for charge-offwrite-off when an account becomes 120 days past due and are charged-offwritten off typically within 60 days of asset repossession. Contract receivables related to equipment leases are generally charged-offwritten off when an account becomes 150 days past due, while contract receivables related to franchise finance and van leases are generally charged-offwritten off up to 180 days past the asset return date. For finance and contract receivables, customer bankruptcies are generally charged-offwritten off upon notification that the associated debt is not being reaffirmed or, in any event, no later than 180 days past due. Changes to the allowances for credit losses are maintained through adjustments to the provision for credit losses, which are charged to current period earnings.
Actual amounts as of the balance sheet dates may be materially different than the amounts reported in future periods due to the uncertainty in the estimation process. Also, future amounts could differ materially from those estimates due to changes in circumstances after the balance sheet date.
Snap-on does not believe that its trade, accounts, finance or contract receivables represent significant concentrations of credit risk because of the diversified portfolio of individual customers and geographical areas. See Note 4 for further information on receivables and allowances for doubtful accounts.credit losses.
Other accrued liabilities: Supplemental balance sheet information for “Other accrued liabilities” as of 20182021 and 20172020 year end is as follows:
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| (Amounts in millions) | | 2021 | | 2020 |
| Income taxes | | $ | 18.9 | | | $ | 32.8 | |
| Accrued warranty | | 17.3 | | | 17.6 | |
| Operating lease liability | | 19.6 | | | 19.3 | |
| Deferred subscription revenue | | 56.4 | | | 53.6 | |
| Accrued new tool return | | 55.0 | | | 56.3 | |
| Accrued property, payroll and other taxes | | 43.8 | | | 62.8 | |
| Accrued selling and promotion expense | | 41.0 | | | 33.2 | |
| Accrued restructuring expense | | 7.0 | | | 10.0 | |
| Other | | 165.3 | | | 159.9 | |
| Total other accrued liabilities | | $ | 424.3 | | | $ | 445.5 | |
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| (Amounts in millions) | | 2018 | | 2017 |
| Income taxes | | $ | 34.4 |
| | $ | 41.6 |
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| Accrued warranty | | 17.1 |
| | 17.2 |
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| Deferred subscription revenue | | 47.3 |
| | 38.9 |
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| Accrued new tool return | | 43.7 |
| | 23.9 |
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| Accrued property, payroll and other taxes | | 40.1 |
| | 45.4 |
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| Accrued selling and promotion expense | | 28.7 |
| | 28.6 |
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| Accrued legal charges | | 30.9 |
| | 45.9 |
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| Other | | 131.4 |
| | 146.6 |
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| Total other accrued liabilities | | $ | 373.6 |
| | $ | 388.1 |
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Inventories: Snap-on values its inventory at the lower of cost or market and adjusts for the value of inventory that is estimated to be excess, obsolete or otherwise unmarketable. Snap-on records allowances for excess and obsolete inventory based on historical and estimated future demand and market conditions. Allowances for raw materials are largely based on an analysis of raw material age and actual physical inspection of raw material for fitness for use. As part of evaluating the adequacy of allowances for work-in-progress and finished goods, management reviews individual product stock-keeping units (SKUs) by product category and product life cycle. Cost adjustments for each product category/product life-cycle state are generally established and maintained based on a combination of historical experience, forecasted sales and promotions, technological obsolescence, inventory age and other actual known conditions and circumstances. Should actual product marketability and raw material fitness for use be affected by conditions that are different from management estimates, further adjustments to inventory allowances may be required.
Snap-on adopted the “last-in, first-out” (“LIFO”) inventory valuation method in 1973 for its U.S. locations. Snap-on’s U.S. inventories accounted for on a LIFO basis consist of purchased product and inventory manufactured at the company’s heritage U.S. manufacturing facilities (primarily hand tools and tool storage). Since Snap-on began acquiring businesses in the 1990’s, the company has used the “first-in, first-out” (“FIFO”) inventory valuation methodology for acquisitions; the company does not adopt the LIFO inventory valuation methodology for new acquisitions. See Note 5 for further information on inventories.
Property and equipment: Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization are provided on a straight-line basis over estimated useful lives. Major repairs that extend the useful life of an asset are capitalized, while routine maintenance and repairs are expensed as incurred. Capitalized software included in property and equipment reflects costs related to internally developed or purchased software for internal use and is amortized on a straight-line basis over their estimated useful lives. Long-lived assets, including operating lease right-of-use assets, are evaluated for impairment when events or circumstances indicate that the carrying amount of the long-lived asset may not be recoverable. See Note 6 for further information on property and equipment.
Goodwill and other intangible assets: Goodwill and other indefinite-lived assets are tested for impairment annually or more frequently if events or changes in circumstances indicate that the assets might be impaired. Annual impairment tests are performed by the company in the second quarter of each year using information available as of fiscal April month end. Snap-onSnap‑on evaluates the existence of goodwill and indefinite-lived intangible asset impairment on the basis of whether the assets are fully recoverable from projected, discounted cash flows of the related reportable unit or asset. Intangible assets with finite lives are amortized over their estimated useful lives using straight-line and accelerated methods depending on the nature of the particular asset. Intangible assets with finite lives are evaluated for impairment when events or circumstances indicate that the carrying amount of the intangible asset may not be recoverable. See Note 7 for further information on goodwill and other intangible assets.
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Notes to Consolidated Financial Statements (continued) | | |
New accounting standards
The following new accounting pronouncements were adopted in fiscal year 2018:
In March 2017, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715) - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Retirement Benefit Cost, which provides additional guidance on the presentation of net periodic pension and postretirement benefit costs in the income statement and on the components eligible for capitalization. The amendments in this ASU require that an employer report the service cost component of the net periodic benefit costs in the same income statement line item as other compensation costs arising from services rendered by employees during the period. The non-service-cost components of net periodic benefit costs are to be presented in the income statement separately from the service cost components and outside a subtotal of income from operations. The ASU also allows for the capitalization of the service cost components, when applicable (i.e., as a cost of internally manufactured inventory or a self-constructed asset).
Snap-on adopted this ASU atOn January 3, 2021, the beginning of its 2018Snap-on’s 2021 fiscal year, with the changes relatedcompany adopted ASU No. 2019-12, Simplifying the Accounting for Income Taxes, which is designed to simplify the accounting for income taxes by removing certain exceptions to the presentationgeneral principles in the statements of earnings of the service cost and non-service-cost components of net periodic benefit costs applied retrospectively, using the practical expedient permitting the use of the amounts disclosed in pension and other postretirement benefit plan notes as the estimation basis for the presentation of the prior comparative periods. For fiscal 2018 and all comparative periods, the non-service cost components of net periodic benefit costs are included in “Other income (expense) - net” on the accompanying Consolidated Statements of Earnings. Beginning in fiscal 2018, changes related to the capitalization in assets of the service cost component of net periodic benefit costs were applied prospectively.Topic 740. The adoption of this ASU did not have a significant impact on the company’s Consolidated Statements of Earnings.Financial Statements.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740) - Intra-Entity Transfers of Assets Other Than Inventory. The ASU eliminates the requirement to defer the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. Under the new guidance, an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The amendments in this ASU were to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings at the time of adoption. The adoption of this ASU did not have an impact on the company’s consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), which adds and/or clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows. The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of this ASU did not have a significant impact to the designations of operating, investing and financing activities on the company’s Consolidated Statements of Cash Flows.
On December 31, 2017, the beginning of Snap-on’s 2018 fiscal year, Snap-on adopted ASU No. 2014-09, Revenue from Contractswith Customers (Topic 606), which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. Topic 606 is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Topic 606 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. Snap-on adopted Topic 606 using the modified retrospective approach applied to those contracts that were not completed as of December 31, 2017, which means Topic 606 has been applied to the fiscal 2018 financial statements and disclosures going forward, but that prior period financial statements and disclosures reflect the prior revenue recognition standard. See Note 2 for additional information on revenue recognition.
Snap-on’s revenues are primarily from the selling of products that are shipped and billed, services provided to customers and from subscriptions, including software subscriptions. Approximately 90% of net sales are earned at a point in time through ship-and bill performance obligations. The remaining performance obligations that are recorded over time relate primarily to software subscriptions and to a lesser extent extended warranty and other subscription agreements. Revenues are recognized when control is transferred to customers, in an amount that reflects the consideration Snap-on expects to be entitled to in exchange for those goods and services. Revenue recognition is evaluated through the following five steps: (i) identification of the contract, or contracts, with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when or as a performance obligation is satisfied.
Revenue related to software subscriptions, as well as extended warranty and other subscription agreements, is generally recognized over time on a ratable basis over the contract term beginning on the date that our service is made available to the customer. Contracts with customers may include multiple performance obligations related to sales of hardware, software and software-related services. For these contracts, individual performance obligations are recorded separately if they are distinct. The transaction price, including any discounts, is allocated to each separate performance obligation based on its relative standalone selling price. The standalone selling prices are determined based on the prices charged to customers or by using an expected cost plus margin approach. The amount assigned to the products or services is recognized when the product is delivered and/or when the services are performed. In instances where the product and/or services are performed over an extended period, as is the case with subscription agreements, revenue is generally recognized over time on a ratable basis using a time-based output method applied over the contract term beginning on the date that the service is made available to the customer. These contracts are generally for 12 months but can be for a term up to 60 months.
The following new accounting pronouncements, and related impacts on adoption, are being evaluated by the company:
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which is designed to improve the effectiveness of disclosures by removing, modifying and adding disclosures related to fair value measurements. ASU No. 2018-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years; the ASU allows for early adoption in any interim period after issuance of the update. The adoption of this ASU is not expected to have a significant impact on the company’s consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General Subtopic 715-20 - Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans,which is designed to improve the effectiveness of disclosures by removing and adding disclosures related to defined benefit plans. ASU No. 2018-14 is effective for fiscal years ending after December 15, 2020; the ASU allows for early adoption in any year end after issuance of the update. The adoption of this ASU is not expected to have a significant impact on the company’s consolidated financial statements.
In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income - Reclassification
of Certain Tax Effects from Accumulated Other Comprehensive Income (Topic 220), which allows for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”). ASU No. 2018-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The adoption of this ASU will reclassify approximately $46 million from accumulated other comprehensive income to retained earnings on the company’s consolidated financial statements.
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging Activities, which improves the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The amendments in this update also make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. ASU No. 2017-12 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The adoption of this ASU is not expected to have a significant impact on the company’s consolidated financial statements.
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Notes to Consolidated Financial Statements (continued) | | |
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), to require the measurement of expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable forecasts. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years; the ASU allows for early adoption as of the beginning of an interim or annual reporting period beginning after December 15, 2018. The company is currently assessing the impact this ASU will have on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The ASU is intended to represent an improvement over previous GAAP, which did not require lease assets and lease liabilities to be recognized for most leases. This ASU, which supersedes most current lease guidance, affects any entity that enters into a lease (as that term is defined in the ASU), with some specified scope exemptions. ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018.
Snap-on commenced its assessment of Topic 842 during the second half of 2017 and developed a comprehensive project plan that included representatives from across the company’s business segments. The project plan included evaluating Snap-on’s lease information, analyzing the standard’s impact on the company’s various types of lease contracts and identifying the reporting requirements of the new standard. The company identified and implemented appropriate changes to its business processes, systems and controls to support lease accounting and disclosures under Topic 842.
As of December 29, 2018, and subject to the company’s ongoing evaluation of new lease contracts, the company has substantially completed its evaluation of the expected impact of adopting Topic 842 and anticipates that the adoption of this standard will not have a significant impact on the company’s consolidated financial statements. As a result of the adoption of this standard, a right-of-use asset and a related lease liability of approximately $61 million will be established to reflect the present value of the future lease payments.
The company will adopt Topic 842 at the beginning of 2019 using the modified retrospective approach with prior periods following existing guidance.
Note 2: Revenue Recognition
Snap-on recognizes revenue from the sale of tools, diagnostic anddiagnostics, equipment, products and related services based on when control of the product passes to the customer or the service is provided and is recognized at an amount that reflects the consideration expected to be received in exchange for such goods or services.
The effects of adjustments to the December 30, 2017 Consolidated Balance Sheet for the adoption of Topic 606 were as follows:
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| | | Balance at | | Topic 606 | | Opening Balance at |
| (Amounts in millions) | | December 30, 2017 | | Adjustments | | December 31, 2017 |
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| Assets | | | | | | |
| Inventories - net | | $ | 638.8 |
| | $ | 20.9 |
| | $ | 659.7 |
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| Deferred income tax assets | | 52.0 |
| | 0.6 |
| | 52.6 |
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| Liabilities and Equity | | | | | | |
| Other accrued liabilities | | $ | 388.1 |
| | $ | 23.3 |
| | $ | 411.4 |
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| Retained earnings | | 3,772.3 |
| | (1.8 | ) | | 3,770.5 |
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The adoption of Topic 606 did not have a significant impact on the company’s consolidated financial statements. The adoption resulted in the recognition of an inventory asset related to certain product returns by increasing the returns liability and recognizing an inventory asset for the anticipated value of the returns to recognize Snap-on’s contractual obligation to recover products from customers; this gross up had no corresponding impact on the Consolidated Statement of Earnings. For the anticipated value of the returns, the adoption resulted in the recognition of an increase in the inventory obsolescence reserve of $2.4 million with a corresponding adjustment to fiscal 2018 beginning retained earnings. Other than the amounts recorded for the adoption of Topic 606 on the Consolidated Balance Sheets, there were no other changes since the adoption that would be materially different from previous accounting standards that would affect the Consolidated Statements of Earnings, Balance Sheets, or Cash Flows.
Revenue Disaggregationdisaggregation
The following table shows the consolidated revenues by revenue source: | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2021 | | 2020 |
| Revenue from contracts with customers | | $ | 4,228.3 | | | $ | 3,569.3 | |
| Other revenues | | 23.7 | | | 23.2 | |
| Total net sales | | 4,252.0 | | | 3,592.5 | |
| Financial services revenue | | 349.7 | | | 349.7 | |
| Total revenues | | $ | 4,601.7 | | | $ | 3,942.2 | |
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| (Amounts in millions) | | 2018 |
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| Revenue from contracts with customers | | $ | 3,719.6 |
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| Other revenues | | 21.1 |
|
| Total net sales | | 3,740.7 |
|
| Financial services revenue | | 329.7 |
|
| Total revenues | | $ | 4,070.4 |
|
Snap-on evaluates the performance of its operating segments based on segment revenues, including both external and intersegment net sales, and segment operating earnings. Snap-on accounts for both intersegment sales and transfers based primarily on standard costs with reasonable mark-ups established between the segments. Intersegment amounts are eliminated to arrive at Snap-on’s consolidated financial results.
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
The following table represents external net sales disaggregated by geography, based on the customers’ billing addresses:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2021 |
| | Commercial & | | Snap-on | | Repair Systems | | | | | | |
| | Industrial | | Tools | | & Information | | Financial | | | | Snap-on |
| (Amounts in millions) | | Group | | Group | | Group | | Services | | Eliminations | | Incorporated |
| Net sales: | | | | | | | | | | | | |
| North America* | | $ | 494.9 | | | $ | 1,680.0 | | | $ | 896.1 | | | $ | — | | | $ | — | | | $ | 3,071.0 | |
| Europe | | 325.5 | | | 164.7 | | | 249.7 | | | — | | | — | | | 739.9 | |
| All other | | 275.2 | | | 93.9 | | | 72.0 | | | — | | | — | | | 441.1 | |
| External net sales | | 1,095.6 | | | 1,938.6 | | | 1,217.8 | | | — | | | — | | | 4,252.0 | |
| Intersegment net sales | | 310.7 | | | — | | | 285.3 | | | — | | | (596.0) | | | — | |
| Total net sales | | 1,406.3 | | | 1,938.6 | | | 1,503.1 | | | — | | | (596.0) | | | 4,252.0 | |
| Financial services revenue | | — | | | — | | | — | | | 349.7 | | | — | | | 349.7 | |
| Total revenue | | $ | 1,406.3 | | | $ | 1,938.6 | | | $ | 1,503.1 | | | $ | 349.7 | | | $ | (596.0) | | | $ | 4,601.7 | |
| | | | | | | | | | | | |
| |
|
| 2018 | | 2020 |
|
| Commercial & |
| Snap-on |
| Repair Systems |
|
|
|
|
|
| | Commercial & | | Snap-on | | Repair Systems | |
|
| Industrial |
| Tools |
| & Information |
| Financial |
|
|
| Snap-on | | Industrial | | Tools | | & Information | | Financial | | Snap-on |
| (Amounts in millions) |
| Group |
| Group |
| Group |
| Services |
| Eliminations |
| Incorporated | (Amounts in millions) | | Group | | Group | | Group | | Services | | Eliminations | | Incorporated |
| Net sales: |
|
|
|
|
|
|
|
|
|
|
|
| Net sales: | | | | | | | | | | | | |
| North America* |
| $ | 466.5 |
|
| $ | 1,378.7 |
|
| $ | 747.1 |
|
| $ | — |
|
| $ | — |
|
| $ | 2,592.3 |
| North America* | | $ | 432.3 | | | $ | 1,442.8 | | | $ | 720.7 | | | $ | — | | | $ | — | | | $ | 2,595.8 | |
| Europe |
| 311.9 |
|
| 151.3 |
|
| 255.2 |
|
| — |
|
| — |
|
| 718.4 |
| Europe | | 276.2 | | | 125.7 | | | 214.9 | | | — | | | — | | | 616.8 | |
| All other |
| 273.2 |
|
| 83.8 |
|
| 73.0 |
|
| — |
|
| — |
|
| 430.0 |
| All other | | 242.9 | | | 75.4 | | | 61.6 | | | — | | | — | | | 379.9 | |
| External net sales |
| 1,051.6 |
|
| 1,613.8 |
|
| 1,075.3 |
|
| — |
|
| — |
|
| 3,740.7 |
| External net sales | | 951.4 | | | 1,643.9 | | | 997.2 | | | — | | | — | | | 3,592.5 | |
| Intersegment net sales |
| 291.7 |
|
| — |
|
| 259.1 |
|
| — |
|
| (550.8 | ) |
| — |
| Intersegment net sales | | 283.2 | | | — | | | 241.0 | | | — | | | (524.2) | | | — | |
| Total net sales |
| 1,343.3 |
|
| 1,613.8 |
|
| 1,334.4 |
|
| — |
|
| (550.8 | ) |
| 3,740.7 |
| Total net sales | | 1,234.6 | | | 1,643.9 | | | 1,238.2 | | | — | | | (524.2) | | | 3,592.5 | |
| Financial services revenue |
| — |
|
| — |
|
| — |
|
| 329.7 |
|
| — |
|
| 329.7 |
| Financial services revenue | | — | | | — | | | — | | | 349.7 | | | — | | | 349.7 | |
| Total revenue |
| $ | 1,343.3 |
|
| $ | 1,613.8 |
|
| $ | 1,334.4 |
|
| $ | 329.7 |
|
| $ | (550.8 | ) |
| $ | 4,070.4 |
| Total revenue | | $ | 1,234.6 | | | $ | 1,643.9 | | | $ | 1,238.2 | | | $ | 349.7 | | | $ | (524.2) | | | $ | 3,942.2 | |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
* North America is comprised of the United States, Canada and Mexico.
|
| | |
| | |
Notes to Consolidated Financial Statements (continued) | | |
The following table represents external net sales disaggregated by customer type: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2021 |
| | Commercial & | | Snap-on | | Repair Systems | | | | | | |
| | Industrial | | Tools | | & Information | | Financial | | | | Snap-on |
| (Amounts in millions) | | Group | | Group | | Group | | Services | | Eliminations | | Incorporated |
| Net sales: | | | | | | | | | | | | |
| Vehicle service professionals | | $ | 99.9 | | | $ | 1,938.6 | | | $ | 1,217.8 | | | $ | — | | | $ | — | | | $ | 3,256.3 | |
| All other professionals | | 995.7 | | | — | | | — | | | — | | | — | | | 995.7 | |
| External net sales | | 1,095.6 | | | 1,938.6 | | | 1,217.8 | | | — | | | — | | | 4,252.0 | |
| Intersegment net sales | | 310.7 | | | — | | | 285.3 | | | — | | | (596.0) | | | — | |
| Total net sales | | 1,406.3 | | | 1,938.6 | | | 1,503.1 | | | — | | | (596.0) | | | 4,252.0 | |
| Financial services revenue | | — | | | — | | | — | | | 349.7 | | | — | | | 349.7 | |
| Total revenue | | $ | 1,406.3 | | | $ | 1,938.6 | | | $ | 1,503.1 | | | $ | 349.7 | | | $ | (596.0) | | | $ | 4,601.7 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 |
| | Commercial & | | Snap-on | | Repair Systems | | | | | | |
| | Industrial | | Tools | | & Information | | Financial | | | | Snap-on |
| (Amounts in millions) | | Group | | Group | | Group | | Services | | Eliminations | | Incorporated |
| Net sales: | | | | | | | | | | | | |
| Vehicle service professionals | | $ | 87.2 | | | $ | 1,643.9 | | | $ | 997.2 | | | $ | — | | | $ | — | | | $ | 2,728.3 | |
| All other professionals | | 864.2 | | | — | | | — | | | — | | | — | | | 864.2 | |
| External net sales | | 951.4 | | | 1,643.9 | | | 997.2 | | | — | | | — | | | 3,592.5 | |
| Intersegment net sales | | 283.2 | | | — | | | 241.0 | | | — | | | (524.2) | | | — | |
| Total net sales | | 1,234.6 | | | 1,643.9 | | | 1,238.2 | | | — | | | (524.2) | | | 3,592.5 | |
| Financial services revenue | | — | | | — | | | — | | | 349.7 | | | — | | | 349.7 | |
| Total revenue | | $ | 1,234.6 | | | $ | 1,643.9 | | | $ | 1,238.2 | | | $ | 349.7 | | | $ | (524.2) | | | $ | 3,942.2 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2018 |
| | | Commercial & | | Snap-on | | Repair Systems | | | | | | |
| | | Industrial | | Tools | | & Information | | Financial | | | | Snap-on |
| (Amounts in millions) | | Group | | Group | | Group | | Services | | Eliminations | | Incorporated |
| Net sales: | | | | | | | | | | | | |
| Vehicle service professionals | | $ | 91.1 |
| | $ | 1,613.8 |
| | $ | 1,075.3 |
| | $ | — |
| | $ | — |
| | $ | 2,780.2 |
|
| All other professionals | | 960.5 |
| | — |
| | — |
| | — |
| | — |
| | 960.5 |
|
| External net sales | | 1,051.6 |
| | 1,613.8 |
| | 1,075.3 |
| | — |
| | — |
| | 3,740.7 |
|
| Intersegment net sales | | 291.7 |
| | — |
| | 259.1 |
| | — |
| | (550.8 | ) | | — |
|
| Total net sales | | 1,343.3 |
| | 1,613.8 |
| | 1,334.4 |
| | — |
| | (550.8 | ) | | 3,740.7 |
|
| Financial services revenue | | — |
| | — |
| | — |
| | 329.7 |
| | — |
| | 329.7 |
|
| Total revenue | | $ | 1,343.3 |
| | $ | 1,613.8 |
| | $ | 1,334.4 |
| | $ | 329.7 |
| | $ | (550.8 | ) | | $ | 4,070.4 |
|
| | | | | | | | | | | | | |
Nature of Goodsgoods and Services
services: Snap-on derives net sales from a broad line of products and complementary services that are grouped into three categories: (i) tools; (ii) diagnostics, information and management systems; and (iii) equipment. The tools product category includes hand tools, power tools, tool storage products and other similar products. The diagnostics, information and management systems product category includes handheld and PC-basedcomputer-based diagnostic products, service and repair information products, diagnostic software solutions, electronic parts catalogs, business management systems and services, point-of-sale systems, integrated systems for vehicle service shops, original equipment manufacturer (“OEM”) purchasing facilitation services, and warranty management systems and analytics to help OEM dealership service and repair shops (“OEM dealerships”) manage and track performance. The equipment product category includes solutions for the service of vehicles and industrial equipment. Snap-on supports the sale of its diagnostics and vehicle service shop equipment by offering training programs as well as after-sales support to its customers. Through its financial services businesses, Snap-on alsoSnap‑on derives revenue from various financing programs designed to facilitate the sales of its products and support its franchise business.
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
Approximately 90% of Snap-on’s net sales are products sold at a point in time through ship-and-bill performance obligations that also includes serviceinclude repair services. The remaining sales revenue is earned over time primarily on a subscription basis including software, extended warranty and other subscription service agreements.
Snap-on enters into contracts related to the selling of tools, diagnostic anddiagnostics, repair information, and equipment products and related services. At contract inception, an assessment of the goods and services promised in the contracts with customers is performed and a performance obligation is identified for each distinct promise to transfer to the customer a good or service (or bundle of goods or services). To identify the performance obligations, Snap-on considers all of the goods or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. Contracts with customers are comprised of customer purchase orders, invoices and written contracts.
For certain performance obligations related to software subscriptions, extended warranty and other subscription agreements that are settled over time, Snap-on has elected not to disclose the value of unsatisfied performance obligations for: (i) contracts that have an original expected length of one year or less; (ii) contracts where revenue is recognized as invoiced; and (iii) contracts with variable consideration related to unsatisfied performance obligations. The remaining duration of these unsatisfied performance obligations range from one month up to 60 months. Snap-on had approximately $190.0 million of long-term contracts that have fixed consideration that extends beyond one year as of January 1, 2022. Snap-on expects to recognize approximately 75% of these contracts as revenue by the end of fiscal 2023, an additional 20% by the end of fiscal 2025 and the balance thereafter.
Snap-on typically expenses incremental direct costs of obtaining a contract (sales commissions) when incurred because the amortization period is generally 12 months or less. Capitalized long-term contract costs are not significant. Contract costs are expensed or amortized in “Operating expenses” on the accompanying Consolidated Statements of Earnings.
When Performance Obligations Are Satisfied
performance obligations are satisfied: For performance obligations related to the majority of ship-and-bill products, including repair services contracts, control transfers at a point in time when title transfers upon shipment of the product to the customer, and for some sales, control transfers when title is transferred at time of receipt by customer. Once a product or repaired product has shipped or has been delivered, the customer is able to direct the use of, and obtain substantially all of the remaining benefits from the asset, revenue is recognized. Snap-on considers control to have transferred upon shipment or delivery when Snap-on has a present right to payment, the customer has legal title to the asset, Snap-on has transferred physical possession of the asset, and the customer has significant risk and rewards of ownership of the asset.
For performance obligations related to software subscriptions, extended warranties and other subscription agreements, Snap-on transfers control and recognizes revenue over time on a ratable basis using a time-based output method. The performance obligations are typically satisfied as services are rendered on a straight-line basis over the contract term, which is generally for 12 months but can be for a term up to 60 months.
Significant Payment Terms
payment terms: For ship-and-bill type contracts with customers, the contract states the final terms of the sale, including the description, quantity, and price of each product or service purchased. Payment terms are typically due upon delivery or up to 30 days after delivery but can range up to 120 days after delivery.
For subscription contracts, payment terms are in advance or in arrears of services on a monthly, quarterly or annual basis over the contract term, which is generally for 12 months but can be for a term up to 60 months depending on the product or service. The customer typically agrees to a stated rate and price in the contract that does not vary over the contract term. In some cases, customers prepay for their licenses, or in other cases, pay on a monthly or quarterly basis. When the timing of the payment made by the customer precedes the delivery of the performance obligation, a contract liability is recognized.
Variable Consideration
consideration: In some cases, the nature of Snap-on’s contracts give rise to variable consideration, including rebates, credits, allowances for returns or other similar items that generally decrease the transaction price. These variable amounts generally are credited to the customer, based on achieving certain levels of sales activity, product returns and making payments within specific terms.
In the normal course of business, Snap-on allows franchisees to return product per the provisions in the franchise agreement that allow for the return of product in a saleable condition. For other customers, product returns are generally not accepted unless the item is defective as manufactured. Where applicable, Snap-on establishes provisions for estimated sales returns. Estimated product returns are recorded as a reduction in reported revenues at the time of sale based upon historical product return experience and is adjusted for known trends to arrive at the amount of consideration to whichthat Snap-on expects to receive.
Variable consideration is estimated at the most likely amount that is expected to be earned. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the anticipated performance and all information (historical, current and forecasted) that is reasonably available.
Warranties
Warranties: Snap-on allows customers to return product when the product is defective as manufactured. Where applicable, Snap-on establishes provisions for estimated warranties. Estimated product warranties are provided for specific product lines and Snap-on accrues for estimated future warranty cost in the period in which the sale is recorded. The costs are included in “Cost of goods sold” on the accompanying Consolidated Statements of Earnings. Snap-on calculates its accrual requirements based on historic warranty loss experience that is periodically adjusted for recent actual experience, including the timing of claims during the warranty period and actual costs incurred. Snap-on does not typically provide customers with the right to a refund.
Practical Expedients and Exemptions
Snap-on typically expenses incremental direct costs of obtaining a contract (sales commissions) when incurred because the amortization period is generally 12 months or less. Capitalized long-term contract costs are not significant. Contract costs are expensed or amortized in “Operating expenses” on the accompanying Consolidated Statements of Earnings.
Snap-on elected to account for shipping and handling activities that occur after control of the related good transfers to the customer as fulfillment activities and are therefore recognized upon shipment of the goods.
Snap-on has applied the portfolio approach to its ship-and-bill contracts that have similar characteristics as it reasonably expects that the effects on the financial statements of applying this guidance to the portfolio of contracts would not differ materially from applying this guidance to the individual contracts within the portfolio.
Snap-on typically excludes from its sales transaction price any amounts collected from customers for sales (and similar) taxes.
For certain performance obligations related to software subscriptions, extended warranty and other subscription agreements that are settled over time, Snap-on has elected not to disclose the value of unsatisfied performance obligations for: (i) contracts that have an original expected length of one year or less; (ii) contracts where revenue is recognized as invoiced; and (iii) contracts with variable consideration related to unsatisfied performance obligations. The remaining duration of these unsatisfied performance obligations generally range from one month up to 60 months. Snap-on had approximately $221.0 million of long-term contracts that have fixed consideration that extends beyond one year as of December 29, 2018. Snap-on expects to recognize approximately 50% of these contracts as revenue by the end of fiscal 2020, an additional 40% by the end of fiscal 2022 and the balance thereafter.
|
| | |
| | |
Notes to Consolidated Financial Statements (continued) | | |
Contract Liabilities (Deferred Revenues)
liabilities: Contract liabilities are recorded when cash payments are received in advance of Snap-on’s performance. The timing of payment is typically on a monthly, quarterly or annual basis. The balance of total contract liabilities at December 29, 2018, was $63.8 million and was $49.4$61.0 million at the beginning of fiscal 2018.January 1, 2022, and January 2, 2021, respectively. The current portion of contract liabilities and the non-current portion areis included in “Other accrued liabilities” and the non-current portion of such liabilities is included in “Other long-term liabilities”, respectively, on the accompanying Consolidated Balance Sheets. In 2018,2021, Snap-on recognized revenue of $37.4$52.3 million that was included in the contract liability balance as of December 30, 2017,at January 2, 2021, which was primarily from the amortization of software subscriptions, extended warranties and other subscription agreements. The increase in the total contract liabilities balance is primarily driven by the timing of cash payments received or due in advance of satisfying Snap-on’s performance obligations and growth in certain software subscriptions, partially offset by revenues recognized that were included in the contract liability balance at the beginning of the year.
Franchise fee revenue, including nominal, non-refundable initial fees, wasis recognized upon the granting of a franchise, which wasis when the company has performed substantially all initial services required by the franchise agreement. Franchise fee revenue also includedincludes ongoing monthly fees (primarily for sales and business training as well as marketing and product promotion programs) that wereare recognized as the fees wereare earned. Franchise fee revenue in 2018, 20172021, 2020 and 20162019 totaled $17.3 million, $16.2 million $15.2 million and $13.9$15.4 million, respectively.
Revenue Recognition Prior to 2018
Revenue recognition prior to 2018, as presented, is based on Revenue Recognition (Topic 605). Snap-on recognized revenue from the sale of tools and diagnostic and equipment products when contract terms were met, the price was fixed or determinable, collectability was reasonably assured and a product was shipped or risk of ownership had been transferred to and accepted by the customer. For sales contingent upon customer acceptance, revenue recognition was deferred until such obligations were fulfilled. Estimated product returns were recorded as a reduction in reported revenues at the time of sale based upon historical product return experience and gross profit margin was adjusted for known trends. Provisions for customer volume rebates, discounts and allowances were also recorded as a reduction in reported revenues at the time of sale based on historical experience and known trends. Revenue related to extended warranty and subscription agreements was recognized over the terms of the respective agreements.
Snap-on also recognized revenue related to multiple element arrangements, including sales of hardware, software and software-related services. When a sales arrangement contained multiple elements, such as hardware and software products and/or services, Snap-on used the relative selling price method to allocate revenues between hardware and software elements. For software elements that were not essential to the hardware’s functionality and related software post-contract customer support, vendor specific objective evidence (“VSOE”) of fair value was used to further allocate revenue to each element based on its relative fair value and, when necessary, the residual method was used to assign value to the delivered elements when VSOE only existed for the undelivered elements. The amount assigned to the products or services was recognized when the product was delivered and/or when the services were performed. In instances where the product and/or services were performed over an extended period, as is the case with subscription agreements or the providing of ongoing support, revenue was generally recognized on a straight-line basis over the term of the agreement, which generally ranged from 12 months to 60 months.
Note 3: Acquisitions
On January 31, 2018,August 1, 2021, Snap-on acquired substantially all of the assets of George A. Sturdevant, Inc. (d/b/AutoCrib EMEA GmbH (“AutoCrib Germany”), a Fastorq)former independent distributor, for a cash purchase price of $3.0 million. Fastorq,$4.4 million (or $4.2 million, net of cash acquired). AutoCrib Germany, based in New Caney, Texas, designs, assemblesHamburg, Germany, distributes asset and distributes hydraulic torquetool control solutions for a variety of aerospace, automotive, military, natural resources and hydraulic tensioning products for use in critical industries.
general industry operations. In fiscal 2018,2021, the company recorded, on a preliminary basis, the $3.3 million excess of the purchase price over the fair value of the net assets acquired in “Goodwill” on the accompanying Consolidated Balance Sheets. The company anticipates completing the purchase accounting for the acquired net assets of AutoCrib Germany in first half of 2022.
On July 1, 2021, Snap-on exchanged its 35% equity interest in Deville S.A., valued at $21.8 million, for 100% ownership of Secateurs Pradines (“Pradines”), a wholly owned subsidiary of Deville S.A. with a fair value of $20.7 million (or $16.2 million, net of cash acquired), and cash of $1.1 million. Pradines, located in Bauge-en-Anjou, France, designs and manufactures horticultural hand tools for professionals and individuals. In fiscal 2021, the company recorded, on a preliminary basis, the $10.7 million excess of the purchase price over the fair value of net assets acquired in “Goodwill” in the accompanying Consolidated Balance Sheets. The company anticipates completing the purchase accounting for the acquired net assets of Pradines in the first half of 2022.
On February 26, 2021, Snap-on acquired Dealer-FX Group, Inc. (“Dealer-FX”) for a cash purchase price of $200.1 million (or $200.0 million, net of cash acquired). Dealer-FX, based in Markham, Ontario, is a leading developer, marketer and provider of service-operations software solutions for automotive OEM customers and their dealers. Dealer-FX specializes in software as a service (SaaS) management systems, communications platforms, extensive data integrations, and offers a digitalized solution that increases productivity and enhances the vehicle owners’ experience. In fiscal 2021, the company substantially completed the purchase accounting valuations for the acquired net assets of Fastorq.Dealer-FX, including identifiable intangible assets. Final purchase accounting valuations are expected to be completed in the first quarter of 2022, including the evaluation of tax benefits associated with net operating loss carryforwards. The $2.6preliminary $150.8 million excess of the purchase price over the fair value of the net assets acquired was recorded in “Goodwill” on the accompanying Consolidated Balance Sheets. For segment reporting purposes,
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
On September 28, 2020, Snap-on acquired substantially all of the results of operations and assets of Fastorq have been included in the Commercial & Industrial Group since the acquisition date.
On July 28, 2017, Snap-on acquired Torque Control Specialists Pty LtdAutoCrib, Inc. (“TCS”AutoCrib”) for a cash purchase price of $3.6 million (or $3.5 million, net of cash acquired). TCS,$35.4 million. AutoCrib, based in Adelaide, Australia, distributesTustin, California, designs, manufactures and markets asset and tool control solutions for a full rangevariety of torque products, including wrenches, multipliersaerospace, automotive, military, natural resources and calibrators, for use in critical industries.
general industry operations. In fiscal 2018,2021, the company completed the purchase accounting valuations for the acquired net assets of TCS.AutoCrib, including intangible assets. The $2.0$18.3 million excess of the purchase price over the fair value of the net assets acquired was recorded in “Goodwill” on the accompanying Consolidated Balance Sheets. For segment reporting purposes, the results of operations and assets of TCS have been included in the Commercial & Industrial Group since the acquisition date.
On May 4, 2017,January 31, 2020, Snap-on acquired Norbar Torque Tools Holdingssubstantially all of the assets related to the TreadReader product line from Sigmavision Limited along with its U.S. and Chinese joint ventures (“Norbar”Sigmavision”), for a cash purchase price of $71.6 million (or $69.9 million, net of cash acquired). Norbar, based in Banbury, U.K.,$5.9 million. Sigmavision designs and manufactures a full range of torque products, including wrenches, multipliershandheld devices and calibratorsdrive-over ramps that provide tire information for use in critical industries.
the automotive industry. In fiscal 2018,2020, the company completed the purchase accounting valuations for the acquired net assets of Norbar,Sigmavision, including intangible assets. The $25.1$5.6 million excess of the purchase price over the fair value of the net assets acquired was recorded in “Goodwill” on the accompanying Consolidated Balance Sheets. For segment reporting purposes, the results of operations and assets of Norbar have been included in the Commercial & Industrial Group since the acquisition date.
On January 30, 2017,August 7, 2019, Snap-on acquired BTC GlobalCognitran Limited (“BTC”Cognitran”) for a cash purchase price of $9.2 million. BTC,$30.6 million (or $29.6 million, net of cash acquired), which reflects a $0.2 million working capital adjustment finalized in fiscal 2020. Cognitran, based in Crewe,Chelmsford, U.K., designsspecializes in flexible, modular and implements automotivehighly scalable “Software as a Service” (SaaS) products for OEM customers and their dealers, focused on the creation and delivery of service, diagnostics, parts and repair information to the OEM dealers and connected vehicle inspection and management software for original equipment manufacturer (“OEM”) franchise repair shops.
platforms. In fiscal 2017,2020, the company completed the purchase accounting valuations for the acquired net assets of BTC,Cognitran, including intangible assets. The $5.9$14.5 million excess of the purchase price over the fair value of the net assets acquired in “Goodwill” on the accompanying Consolidated Balance Sheets.
On April 2, 2019, Snap-on acquired Power Hawk Technologies, Inc. (“Power Hawk”) for a cash purchase price of $7.9 million. Power Hawk, based in Rockaway, New Jersey, designs, manufactures and distributes rescue tools and related equipment for a variety of military, governmental, fire and rescue, and emergency operations. In fiscal 2019, the company completed the purchase accounting valuations for the acquired net assets of Power Hawk, including intangible assets. The $6.4 million excess of the purchase price over the fair value of the net assets acquired was recorded in “Goodwill” on the accompanying Consolidated Balance Sheets. For segment reporting purposes,
On January 25, 2019, Snap-on acquired substantially all of the results of operations and assets of BTC have been included in the Repair Systems and Information Group since the acquisition date.
On November 16, 2016, Snap-on acquired Ryeson Corporation (d/b/a Sturtevant Richmont)TMB GeoMarketing Limited (“TMB”) for a cash purchase price of $13.0 million (or $12.6 million, net of cash acquired). Sturtevant Richmont,$1.3 million. TMB, based in Carol Stream, Illinois,Dorking, U.K., designs manufacturesplanning software used by OEMs to optimize dealer locations and distributes mechanical and electronic torque wrenches as well as wireless torque error proofing systems for a varietymanage the performance of industrial applications.
dealer outlets. In fiscal 2017,2019, the company completed the purchase accounting valuations for the acquired net assets of Sturtevant Richmont, including intangible assets. The $5.0 million excessTMB. Substantially all of the purchase price over the fair value of the net assets acquired was recorded in “Goodwill” on the accompanying Consolidated Balance Sheets.
For segment reporting purposes, the results of operations and assets of Sturtevant Richmont have been included in the Commercial & Industrial Group since the acquisition date.
On October 31, 2016, Snap-on acquired Car-O-Liner Holding AB (“Car-O-Liner”) for a cash purchase price of $152.0 million (or $148.1 million, net of cash acquired). Car-O-Liner, based in Gothenburg, Sweden, designsDealer-FX, Sigmavision, Cognitran and manufactures collision repair equipment, and information and truck alignment systems.
In fiscal 2017, the company completed the purchase accounting valuations for the acquired net assets of Car-O-Liner, including intangible assets. The $77.3 million excess of purchase price over the fair value of the net assets acquired was recorded in “Goodwill” on the accompanying Consolidated Balance Sheets. For segment reporting purposes, substantially all of Car-O-Liner’s results of operations and assetsTMB have been included in the Repair Systems & Information Group since the respective acquisition date, withdates, and the remaining portionsresults of operations and assets of AutoCrib Germany, Pradines, AutoCrib and Power Hawk have been included in the Commercial & Industrial Group.
Group since the respective acquisition dates.
Pro forma financial information has not been presented for any of these acquisitions as the net effects, individually and collectively, were neither significant nor material to Snap-on’s results of operations or financial position. See Note 7 for further information on goodwill and other intangible assets.
Note 4: Receivables
At the beginning of fiscal 2020, Snap-on adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326). The adoption did not have a significant impact on the company’s consolidated financial statements. Under ASU No. 2016-13, Snap-on is required to determine expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable forecasts.
Trade and Other Accounts Receivable
Receivable: Snap-on’s trade and other accounts receivable primarily arise from the sale of tools, and diagnosticdiagnostics, and equipment products to a broad range of industrial and commercial customers and to Snap-on’s independent franchise van channel on a non-extended-term basis with payment terms generally ranging from 30 to 120 days.
The components of Snap-on’s trade and other accounts receivable as of 20182021 and 20172020 year end are as follows:
| | | | | | | | | | | |
| (Amounts in millions) | 2021 | | 2020 |
| Trade and other accounts receivable | $ | 709.6 | | | $ | 667.0 | |
| Allowances for credit losses | (27.3) | | | (26.3) | |
| Total trade and other accounts receivable – net | $ | 682.3 | | | $ | 640.7 | |
|
| | | | | | | | |
| (Amounts in millions) | | 2018 | | 2017 |
| Trade and other accounts receivable | | $ | 710.1 |
| | $ | 690.2 |
|
| Allowances for doubtful accounts | | (17.5 | ) | | (14.6 | ) |
| Total trade and other accounts receivable – net | | $ | 692.6 |
| | $ | 675.6 |
|
The following is a rollforward of the allowances for credit losses related to trade and other accounts receivable for 2021 and 2020:
| | | | | | | | | | | |
| (Amounts in millions) | 2021 | | 2020 |
| Allowances for credit losses: | | | |
| Beginning of period | $ | 26.3 | | | $ | 20.9 | |
| Provision for credit losses | 15.5 | | | 18.9 | |
| Charge-offs | (13.6) | | | (13.6) | |
| Recoveries | — | | | 0.2 | |
| Currency translation | (0.9) | | | (0.1) | |
| End of period | $ | 27.3 | | | $ | 26.3 | |
|
| | |
| | |
Notes to Consolidated Financial Statements (continued) | | |
Finance and Contract Receivables
Receivables: Snap-on Credit LLC (“SOC”), the company’s financial services operation in the United States, originates extended-term finance and contract receivables on sales of Snap-on’s products sold through the U.S. franchisee and customer network and to certain other customers of Snap-on; Snap-on’s foreign finance subsidiaries provide similar financing internationally. Interest income on finance and contract receivables is included in “Financial services revenue” on the accompanying Consolidated Statements of Earnings.
Snap-on’s finance receivables are comprised of extended-term installment payment contracts to both technicians and independent shop owners (i.e., franchisees’ customers) to enable them to purchase tools, and diagnosticdiagnostics, and equipment products on an extended-term payment plan, generally with average payment terms of approximately four years. Finance receivables are generally secured by the underlying tools and/or diagnostic or equipment products financed.
Snap-on’s contractContract receivables, with payment terms of up to 10 years, are comprised of extended-term installment payment contracts to a broad base of customers worldwide, including shop owners, both independents and national chains, for their purchase of tools, and diagnosticdiagnostics, and equipment products. Contract receivables also includeproducts, as well as extended-term installment loanscontracts to franchisees to meet a number of financing needs, including working capital loans, loans to enable new franchisees to fund the purchase of the franchise and van leases, or the expansion of an existing franchise. ContractFinance and contract receivables are generally secured by the underlying tools, diagnostics and/or diagnostic or equipment products financed and, for installment loanscontracts to franchisees, other franchisee assets.
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
The components of Snap-on’s current finance and contract receivables as of 20182021 and 20172020 year end are as follows:
| | | | | | | | | | | |
| (Amounts in millions) | 2021 | | 2020 |
| Finance installment receivables | $ | 557.0 | | | $ | 533.9 | |
| Finance lease receivables, net of unearned finance charges of $1.3 million and $4.4 million, respectively | 7.1 | | | 20.2 | |
| Total finance receivables | 564.1 | | | 554.1 | |
| | | |
| Contract installment receivables | 55.2 | | | 59.1 | |
| Contract lease receivables, net of unearned finance charges of $18.7 million and $18.2 million, respectively | 57.3 | | | 55.7 | |
| Total contract receivables | 112.5 | | | 114.8 | |
| Total | 676.6 | | | 668.9 | |
| | | |
| Allowances for credit losses: | | | |
| Finance installment receivables | (21.7) | | | (23.6) | |
| Finance lease receivables | (0.1) | | | (0.3) | |
| Total finance allowance for credit losses | (21.8) | | | (23.9) | |
| | | |
| Contract installment receivables | (0.9) | | | (1.4) | |
| Contract lease receivables | (1.2) | | | (0.9) | |
| Total contract allowance for credit losses | (2.1) | | | (2.3) | |
| Total allowance for credit losses | (23.9) | | | (26.2) | |
| Total current finance and contract receivables – net | $ | 652.7 | | | $ | 642.7 | |
| | | |
| Finance receivables – net | $ | 542.3 | | | $ | 530.2 | |
| Contract receivables – net | 110.4 | | | 112.5 | |
| Total current finance and contract receivables – net | $ | 652.7 | | | $ | 642.7 | |
|
| | | | | | | | |
| (Amounts in millions) | | 2018 | | 2017 |
| Finance receivables | | $ | 538.1 |
| | $ | 523.1 |
|
| Contract receivables | | 99.5 |
| | 98.1 |
|
| Total | | 637.6 |
| | 621.2 |
|
| Allowances for doubtful accounts: | | | | |
| Finance receivables | | (19.6 | ) | | (17.7 | ) |
| Contract receivables | | (1.2 | ) | | (1.3 | ) |
| Total | | (20.8 | ) | | (19.0 | ) |
| Total current finance and contract receivables – net | | $ | 616.8 |
| | $ | 602.2 |
|
| | | | | |
| Finance receivables – net | | $ | 518.5 |
| | $ | 505.4 |
|
| Contract receivables – net | | 98.3 |
| | 96.8 |
|
| Total current finance and contract receivables – net | | $ | 616.8 |
| | $ | 602.2 |
|
The components of Snap-on’s finance and contract receivables with payment terms beyond one year as of 20182021 and 20172020 year end are as follows:
| | | | | | | | | | | |
| (Amounts in millions) | 2021 | | 2020 |
| Finance installment receivables | $ | 1,155.3 | | | $ | 1,173.1 | |
| Finance lease receivables, net of unearned finance charges of $0.5 million and $2.5 million, respectively | 4.2 | | | 15.6 | |
| Total finance receivables | 1,159.5 | | | 1,188.7 | |
| | | |
| Contract installment receivables | 197.1 | | | 199.7 | |
| Contract lease receivables, net of unearned finance charges of $30.3 million and $30.2 million, respectively | 187.4 | | | 181.7 | |
| Total contract receivables | 384.5 | | | 381.4 | |
| Total | 1,544.0 | | | 1,570.1 | |
| | | |
| Allowances for credit losses: | | | |
| Finance installment receivables | (45.4) | | | (52.1) | |
| Finance lease receivables | (0.1) | | | (0.3) | |
| Total finance allowance for credit losses | (45.5) | | | (52.4) | |
| | | |
| Contract installment receivables | (3.2) | | | (3.1) | |
| Contract lease receivables | (3.1) | | | (3.6) | |
| Total contract allowance for credit losses | (6.3) | | | (6.7) | |
| Total allowance for credit losses | (51.8) | | | (59.1) | |
| Total long-term finance and contract receivables – net | $ | 1,492.2 | | | $ | 1,511.0 | |
| | | |
| Finance receivables – net | $ | 1,114.0 | | | $ | 1,136.3 | |
| Contract receivables – net | 378.2 | | | 374.7 | |
| Total long-term finance and contract receivables – net | $ | 1,492.2 | | | $ | 1,511.0 | |
|
| | | | | | | | |
| (Amounts in millions) | | 2018 | | 2017 |
| Finance receivables | | $ | 1,116.2 |
| | $ | 1,078.0 |
|
| Contract receivables | | 348.0 |
| | 325.9 |
|
| Total | | 1,464.2 |
| | 1,403.9 |
|
| Allowances for doubtful accounts: | | | | |
| Finance receivables | | (41.8 | ) | | (38.8 | ) |
| Contract receivables | | (3.1 | ) | | (3.3 | ) |
| Total | | (44.9 | ) | | (42.1 | ) |
| Total long-term finance and contract receivables – net | | $ | 1,419.3 |
| | $ | 1,361.8 |
|
| | | | | |
| Finance receivables – net | | $ | 1,074.4 |
| | $ | 1,039.2 |
|
| Contract receivables – net | | 344.9 |
| | 322.6 |
|
| Total long-term finance and contract receivables – net | | $ | 1,419.3 |
| | $ | 1,361.8 |
|
|
| Notes to Consolidated Financial Statements (continued) | | |
| | |
| |
Long-term finance and contract receivables installments, net of unearned finance charges, as of 20182021 and 20172020 year end are scheduled as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2021 | | 2020 |
| (Amounts in millions) | | Finance
Receivables | | Contract
Receivables | | Finance
Receivables | | Contract
Receivables |
| Due in Months: | | | | | | | | |
| 13 – 24 | | $ | 428.1 | | | $ | 91.7 | | | $ | 444.6 | | | $ | 92.0 | |
| 25 – 36 | | 361.3 | | | 81.3 | | | 360.3 | | | 78.9 | |
| 37 – 48 | | 246.2 | | | 66.6 | | | 250.9 | | | 67.1 | |
| 49 – 60 | | 119.8 | | | 52.2 | | | 132.9 | | | 51.3 | |
| Thereafter | | 4.1 | | | 92.7 | | | — | | | 92.1 | |
| Total | | $ | 1,159.5 | | | $ | 384.5 | | | $ | 1,188.7 | | | $ | 381.4 | |
|
| | | | | | | | | | | | | | | | |
| | | 2018 | | 2017 |
| (Amounts in millions) | | Finance Receivables | | Contract Receivables | | Finance Receivables | | Contract Receivables |
| Due in Months: | | | | | | | | |
| 13 – 24 | | $ | 428.7 |
| | $ | 82.2 |
| | $ | 415.1 |
| | $ | 77.6 |
|
| 25 – 36 | | 345.0 |
| | 72.5 |
| | 333.3 |
| | 67.6 |
|
| 37 – 48 | | 232.8 |
| | 60.5 |
| | 225.5 |
| | 56.5 |
|
| 49 – 60 | | 109.7 |
| | 48.8 |
| | 104.1 |
| | 42.8 |
|
| Thereafter | | — |
| | 84.0 |
| | — |
| | 81.4 |
|
| Total | | $ | 1,116.2 |
| | $ | 348.0 |
| | $ | 1,078.0 |
| | $ | 325.9 |
|
Credit quality: The company’s receivable portfolio is comprised of 2 portfolio segments, finance and contract receivables, which are the same segments used to estimate expected credit losses reported in the allowance for credit losses. The amortized cost basis for finance and contract receivables is the amount originated adjusted for applicable accrued interest and net of deferred fees or costs, collection of cash, and write-offs. The company monitors and assesses credit risk based on the characteristics of each portfolio segment.
When extending credit, Snap-on evaluates the collectability of the receivables based on a combination of various financial and qualitative factors that may affect a customer’s ability to pay. These factors may include the customer’s financial condition, past payment experience, and credit bureau and proprietary Snap-on credit model information, as well as the value of the underlying collateral.
For finance and contract receivables, Snap-on assesses quantitative and qualitative factors through the use of credit quality indicators consisting primarily of collection experience and related internal metrics. Delinquency is the primary indicator of credit quality for finance and contract receivables. Snap-on conducts monthly reviews of credit and collection performance for both the finance and contract receivable portfolios focusing on data such as delinquency trends, nonaccrual receivables, and write-off and recovery activity. These reviews allow for the formulation of collection strategies and potential collection policy modifications in response to changing risk profiles in the finance and contract receivable portfolios. The entireother internal metrics include credit exposure by customer and delinquency classification to further monitor changing risk profiles. The company maintains a system that aggregates credit exposure and provides delinquency data by days past due aging categories. A receivable balance of a contract30 days or more past due is considered delinquent when contractual payments becomedelinquent. However, customers are monitored prior to becoming 30 days past due.
The amortized cost basis of finance and contract receivables by origination year as of 2021 year end is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Total |
| Finance Receivables: | | | | | | | | | | | | | |
| Delinquent | $ | 12.8 | | | $ | 16.4 | | | $ | 8.2 | | | $ | 4.4 | | | $ | 2.1 | | | $ | 0.6 | | | $ | 44.5 | |
| Non-delinquent | 1,070.7 | | | 392.4 | | | 144.1 | | | 54.4 | | | 14.9 | | | 2.6 | | | 1,679.1 | |
| Total Finance receivables | $ | 1,083.5 | | | $ | 408.8 | | | $ | 152.3 | | | $ | 58.8 | | | $ | 17.0 | | | $ | 3.2 | | | $ | 1,723.6 | |
| | | | | | | | | | | | | |
| Contract receivables: | | | | | | | | | | | | | |
| Delinquent | $ | 0.7 | | | $ | 1.3 | | | $ | 0.6 | | | $ | 0.7 | | | $ | 0.1 | | | $ | 0.1 | | | $ | 3.5 | |
| Non-delinquent | 172.0 | | | 121.5 | | | 87.8 | | | 56.9 | | | 30.5 | | | 24.8 | | | 493.5 | |
| Total Contract receivables | $ | 172.7 | | | $ | 122.8 | | | $ | 88.4 | | | $ | 57.6 | | | $ | 30.6 | | | $ | 24.9 | | | $ | 497.0 | |
Allowance for credit losses: The allowance for credit losses utilizes an expected credit loss objective for the recognition of credit losses on receivables over the contractual life using historical experience, asset specific risk characteristics, current conditions, reasonable and supportable forecasts, and the appropriate reversion period, when applicable.
The allowance for credit losses is maintained at a level that is considered adequate to cover credit-related losses on the receivables. Management performs detailed reviews of its receivables on a monthly and/or quarterly basis to assess the adequacy of the allowance and determine if any impairment has occurred. A receivable may have credit losses when it is expected that all amounts related to the receivable will not be collected according to the contractual terms of the agreement. Amounts determined to be uncollectable are charged directly against the allowance, while amounts recovered on previously written-off accounts increase the allowance. For both finance and contract receivables, net write-offs include the principal amount of losses written off as well as written-off accrued interest and fees, and recourse from franchisees on finance receivables. Recovered interest and fees previously written off are recorded through the allowance for credit losses and increase the allowance. Finance receivables are assessed for write-off when an account becomes 120 days past due and are written off typically within 60 days of asset repossession. Contract receivables related to equipment leases are generally written off when an account becomes 150 days past due, while contract receivables related to franchise finance and van leases are generally written off up to 180 days past the asset return date. For finance and contract receivables, customer bankruptcies are generally written off upon notification that the associated debt is not being reaffirmed or, in any event, no later than 180 days past due. Changes to the allowances for credit losses are maintained through adjustments to the provision for credit losses.
For finance receivables, the company uses a vintage loss rate methodology to determine expected losses. Vintage analysis aims to calculate losses based on the timing of the losses relative to the origination of the receivables. The finance receivable portfolio contains a substantial amount of homogeneous contracts which fits well with the vintage analysis.
For contract receivables the company primarily uses a Weighted-Average Remaining Maturity methodology (“WARM”). The WARM methodology calculates the average annual write-off rate and applies it to the remaining term of the receivables. The WARM method is used since the contract receivables have limited loss experience over generally longer terms and, therefore, the predictive loss patterns are more difficult to estimate.
The company performed a correlation analysis to compare historical losses to many economic factors. The primary economic factors considered were real gross domestic product, civilian unemployment, industrial production index, and repair and maintenance employment rate; the company determined that there is limited correlation between the historical losses and economic factors. As a result, consideration was given to qualitative factors to adjust the reserve balance for asset specific risk characteristics, current conditions and future expectations. Similar qualitative factors are considered for both finance and contract receivables. The qualitative factors used in determining the estimate of expected credit losses are influenced by the changes in the composition of the portfolio, underwriting practices, and other relevant conditions that were different from the historical periods, which included considering the impact of the coronavirus (“COVID-19”) pandemic.
The allowance for credit losses is adjusted each period for changes in the credit risk and expected lifetime credit losses.
The following is a rollforward of the allowances for credit losses for finance and contract receivables for 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2021 | | 2020 |
| (Amounts in millions) | | Finance
Receivables | | Contract
Receivables | | Finance
Receivables | | Contract
Receivables |
| Allowances for credit losses: | | | | | | | | |
| Beginning of year | | $ | 76.3 | | | $ | 9.0 | | | $ | 61.9 | | | $ | 5.6 | |
| Impact of adopting ASU No. 2016-13 | | — | | | — | | | 5.2 | | | 2.9 | |
| Provision for credit losses | | 32.1 | | | 0.8 | | | 54.6 | | | 3.8 | |
| Charge-offs | | (50.9) | | | (1.8) | | | (53.8) | | | (3.8) | |
| Recoveries | | 9.8 | | | 0.4 | | | 8.2 | | | 0.4 | |
| Currency translation | | — | | | — | | | 0.2 | | | 0.1 | |
| End of year | | $ | 67.3 | | | $ | 8.4 | | | $ | 76.3 | | | $ | 9.0 | |
Past due: Depending on the contract, payments for finance and contract receivables are due on a monthly or weekly basis. Weekly payments are converted into a monthly equivalent for purposes of calculating delinquency. Delinquencies are assessed at the end of each month following the monthly equivalent contractual payment due date. The entire receivable balance of a contract is considered delinquent when contractual payments become 30 days past due. Removal from delinquent status occurs when the cumulative numberamount of monthly equivalentcontractual payments then due hashave been received by the company.
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
It is the general practice of Snap-on’s financial services business not to engage in contract or loan modifications. In limited instances, Snap-on’s financial services business may modify certain receivables in troubled debt restructurings. The amount and number of restructured finance and contract receivables as of 2021 and 2020 year end were immaterial to both the financial services portfolio and the company’s results of operations and financial position.
The aging of finance and contract receivables as of 2021 and 2020 year end is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 30-59
Days Past
Due | | 60-90
Days Past
Due | | Greater
Than 90
Days Past
Due | | Total Past
Due | | Total Not Past
Due | | Total | | Greater
Than 90
Days Past
Due and
Accruing |
| 2021 year end: | | | | | | | | | | | | | | |
| Finance receivables | | $ | 16.0 | | | $ | 10.5 | | | $ | 18.0 | | | $ | 44.5 | | | $ | 1,679.1 | | | $ | 1,723.6 | | | $ | 16.0 | |
| Contract receivables | | 1.7 | | | 0.9 | | | 0.9 | | | 3.5 | | | 493.5 | | | 497.0 | | | 0.1 | |
| | | | | | | | | | | | | | |
| 2020 year end: | | | | | | | | | | | | | | |
| Finance receivables | | $ | 18.4 | | | $ | 12.2 | | | $ | 21.1 | | | $ | 51.7 | | | $ | 1,691.1 | | | $ | 1,742.8 | | | $ | 18.2 | |
| Contract receivables | | 1.3 | | | 0.6 | | | 1.5 | | | 3.4 | | | 492.8 | | | 496.2 | | | 0.2 | |
Nonaccrual: SOC maintains the accrual of interest income during the progression through the various stages of delinquency prior to processing for write-off. At the time of write-off, the entire balance including the accrued but unpaid interest income amount is recorded as a loss.
Finance receivables are generally placed on nonaccrual status (nonaccrual of interest and other fees): (i) when a customer is placed on repossession status; (ii) upon receipt of notification of bankruptcy; (iii) upon notification of the death of a customer; or (iv) in other instances in which management concludes collectability is not reasonably assured. Finance receivables that are considered nonperforming include receivables that are on nonaccrual status and receivables that are generally more than 90 days past due.
Contract receivables are generally placed on nonaccrual status: (i) when a receivable is more than 90 days past due or at the point a customer’s account is placed on terminated status regardless of its delinquency status; (ii) upon notification of the death of a customer; or (iii) in other instances in which management concludes collectability is not reasonably assured. Contract receivables that are considered nonperforming include receivables that are on nonaccrual status and receivables that are generally more than 90 days past due.
The accrual of interest and other fees is resumed when the finance or contract receivable becomes contractually current and collection of all remaining contractual amounts due is reasonably assured. Finance and contract receivables are evaluated for impairment on a collective basis. A receivable is impairedmay have credit losses when it is probableexpected that all amounts related to the receivable will not be collected according to the contractual terms of the applicable agreement. ImpairedSuch finance and contract receivables are covered by the company’s respective allowances for doubtful accountscredit losses and are charged-offwritten-off against the allowances when appropriate. As of 2018 and 2017 year end, there were $27.9 million and $28.0 million, respectively, of impaired finance receivables, and there were $6.0 million and $2.3 million, respectively, of impaired contract receivables.
It is the general practice of Snap-on’s financial services business to not engage in contract or loan modifications. In limited instances, Snap-on’s financial services business may modify certain impaired receivables in troubled debt restructurings. The amount and number of restructured finance and contract receivables as of 2018 and 2017 year end were immaterial to both the financial services portfolio and the company’s results of operations and financial position.
|
| | |
| | |
Notes to Consolidated Financial Statements (continued) | | |
The aging of finance and contract receivables as of 2018 and 2017 year end is as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 30-59 Days Past Due | | 60-90 Days Past Due | | Greater Than 90 Days Past Due | | Total Past Due | | Total Not Past Due | | Total | | Greater Than 90 Days Past Due and Accruing |
| 2018 year end: | | | | | | | | | | | | | | |
| Finance receivables | | $ | 19.4 |
| | $ | 12.1 |
| | $ | 20.3 |
| | $ | 51.8 |
| | $ | 1,602.5 |
| | $ | 1,654.3 |
| | $ | 15.9 |
|
| Contract receivables | | 1.7 |
| | 1.2 |
| | 5.2 |
| | 8.1 |
| | 439.4 |
| | 447.5 |
| | 0.2 |
|
| | | | | | | | | | | | | | | |
| 2017 year end: | | | | | | | | | | | | | | |
| Finance receivables | | $ | 19.3 |
| | $ | 13.9 |
| | $ | 20.1 |
| | $ | 53.3 |
| | $ | 1,547.8 |
| | $ | 1,601.1 |
| | $ | 15.4 |
|
| Contract receivables | | 1.2 |
| | 0.6 |
| | 1.9 |
| | 3.7 |
| | 420.3 |
| | 424.0 |
| | 0.6 |
|
The amount of performing and nonperforming finance and contract receivables based on payment activity as of 2018 and 2017 year end is as follows: |
| | | | | | | | | | | | | | | | |
| | | 2018 | | 2017 |
| (Amounts in millions) | | Finance Receivables | | Contract Receivables | | Finance Receivables | | Contract Receivables |
| Performing | | $ | 1,626.4 |
| | $ | 441.5 |
| | $ | 1,573.1 |
| | $ | 421.7 |
|
| Nonperforming | | 27.9 |
| | 6.0 |
| | 28.0 |
| | 2.3 |
|
| Total | | $ | 1,654.3 |
| | $ | 447.5 |
| | $ | 1,601.1 |
| | $ | 424.0 |
|
The amount of finance and contract receivables on nonaccrual status as of 20182021 and 20172020 year end is as follows:
|
| | | | | | | | |
| (Amounts in millions) | | 2018 | | 2017 |
| Finance receivables | | $ | 12.0 |
| | $ | 12.6 |
|
| Contract receivables | | 5.8 |
| | 1.7 |
|
The following is a rollforward of the allowances for doubtful accounts for finance and contract receivables for 2018 and 2017:
|
| | | | | | | | | | | | | | | | |
| | | 2018 | | 2017 |
| (Amounts in millions) | | Finance Receivables | | Contract Receivables | | Finance Receivables | | Contract Receivables |
| Allowances for doubtful accounts: | | | | | | | | |
| Beginning of year | | $ | 56.5 |
| | $ | 4.6 |
| | $ | 48.6 |
| | $ | 3.9 |
|
| Provision | | 57.5 |
| | 2.0 |
| | 54.6 |
| | 2.7 |
|
| Charge-offs | | (59.4 | ) | | (2.5 | ) | | (53.3 | ) | | (2.5 | ) |
| Recoveries | | 7.1 |
| | 0.4 |
| | 6.6 |
| | 0.4 |
|
| Currency translation | | (0.3 | ) | | (0.2 | ) | | — |
| | 0.1 |
|
| End of year | | $ | 61.4 |
| | $ | 4.3 |
| | $ | 56.5 |
| | $ | 4.6 |
|
The following is a rollforward of the combined allowances for doubtful accounts related to trade and other accounts receivable, as well as finance and contract receivables, for 2018, 2017 and 2016:
|
| | | | | | | | | | | | | | | | |
| (Amounts in millions) | | Balance at Beginning of Year | | Expenses | | Deductions (1) | | Balance at End of Year |
| Allowances for doubtful accounts: | | | | | | | | |
| 2018 | | $ | 75.7 |
| | $ | 70.3 |
| | $ | (62.8 | ) | | $ | 83.2 |
|
| 2017 | | 66.5 |
| | 65.1 |
| | (55.9 | ) | | 75.7 |
|
| 2016 | | 59.3 |
| | 51.5 |
| | (44.3 | ) | | 66.5 |
|
| | | | | | | | | |
| | | | | | | | | | | | | | |
| (Amounts in millions) | | 2021 | | 2020 |
| Finance receivables | | $ | 7.7 | | | $ | 9.6 | |
| Contract receivables | | 2.7 | | | 2.4 | |
(1) Represents write-offs of bad debts, net of recoveries, and the net impact of currency translation.
Note 5: Inventories
Inventories by major classification as of 20182021 and 20172020 year end are as follows:
| | | | | | | | | | | | | | |
| (Amounts in millions) | | 2021 | | 2020 |
| Finished goods | | $ | 686.5 | | | $ | 643.4 | |
| Work in progress | | 64.3 | | | 61.6 | |
| Raw materials | | 140.2 | | | 125.5 | |
| Total FIFO value | | 891.0 | | | 830.5 | |
| Excess of current cost over LIFO cost | | (87.2) | | | (84.0) | |
| Total inventories – net | | $ | 803.8 | | | $ | 746.5 | |
|
| | | | | | | | |
| (Amounts in millions) | | 2018 | | 2017 |
| Finished goods | | $ | 577.0 |
| | $ | 541.9 |
|
| Work in progress | | 51.7 |
| | 49.3 |
|
| Raw materials | | 123.5 |
| | 122.7 |
|
| Total FIFO value | | 752.2 |
| | 713.9 |
|
| Excess of current cost over LIFO cost | | (78.4 | ) | | (75.1 | ) |
| Total inventories – net | | $ | 673.8 |
| | $ | 638.8 |
|
Inventories accounted for using the FIFO method approximated 61%60% and 57% of total inventories as of both 20182021 and 20172020 year end.end, respectively. The company accounts for its non-U.S. inventory on the FIFO method. As of 20182021 year end, approximately 35%33% of the company’s U.S. inventory was accounted for using the FIFO method and 65%67% was accounted for using the LIFO method. There were no LIFO inventory liquidations in 2018, 20172021, 2020 or 2016.2019.
Note 6: Property and Equipment
Property and equipment (which are carried at cost) as of 20182021 and 20172020 year end are as follows:
| | | | | | | | | | | | | | |
| (Amounts in millions) | | 2021 | | 2020 |
| Land | | $ | 33.8 | | | $ | 34.0 | |
| Buildings and improvements | | 434.4 | | | 432.0 | |
| Machinery, equipment and computer software | | 1,059.2 | | | 1,033.4 | |
| Property and equipment – gross | | 1,527.4 | | | 1,499.4 | |
| Accumulated depreciation and amortization | | (1,009.2) | | | (973.2) | |
| Property and equipment – net | | $ | 518.2 | | | $ | 526.2 | |
|
| | | | | | | | |
| (Amounts in millions) | | 2018 | | 2017 |
| Land | | $ | 31.7 |
| | $ | 24.5 |
|
| Buildings and improvements | | 368.6 |
| | 357.4 |
|
| Machinery, equipment and computer software | | 944.4 |
| | 889.2 |
|
| Property and equipment – gross | | 1,344.7 |
| | 1,271.1 |
|
| Accumulated depreciation and amortization | | (849.6 | ) | | (786.7 | ) |
| Property and equipment – net | | $ | 495.1 |
| | $ | 484.4 |
|
The estimated service lives of property and equipment are principally as follows:
|
| | | | | | | |
| Buildings and improvements | | 3 to 50 years |
| Machinery, equipment and computer software | | 2 to 15 years |
The cost and accumulated depreciation of property and equipment under capital leases as of 2018 and 2017 year end are as follows:
|
| | | | | | | | |
| (Amounts in millions) | | 2018 | | 2017 |
| Buildings and improvements | | $ | 21.8 |
| | $ | 21.4 |
|
| Accumulated depreciation | | (15.4 | ) | | (14.0 | ) |
| Net book value | | $ | 6.4 |
| | $ | 7.4 |
|
Depreciation expense was $68.8$75.6 million, $65.6$73.3 million and $61.4$70.1 million in 2018, 20172021, 2020 and 2016,2019, respectively.
Note 7: Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill by segment for 20182021 and 20172020 are as follows:
|
| | | | | | | | | | | | | | | | |
| (Amounts in millions) | | Commercial & Industrial Group | | Snap-on Tools Group | | Repair Systems & Information Group | | Total |
| Balance as of 2016 year end | | $ | 242.4 |
| | $ | 12.5 |
| | $ | 640.6 |
| | $ | 895.5 |
|
| Currency translation | | 30.3 |
| | — |
| | 15.8 |
| | 46.1 |
|
| Acquisitions | | 25.7 |
| | — |
| | (43.2 | ) | | (17.5 | ) |
| Balance as of 2017 year end | | $ | 298.4 |
| | $ | 12.5 |
| | $ | 613.2 |
| | $ | 924.1 |
|
| Currency translation | | (16.3 | ) | | — |
| | (9.7 | ) | | (26.0 | ) |
| Acquisitions | | 4.1 |
| | — |
| | — |
| | 4.1 |
|
| Balance as of 2018 year end | | $ | 286.2 |
| | $ | 12.5 |
| | $ | 603.5 |
| | $ | 902.2 |
|
|
| | |
| | |
Notes to Consolidated Financial Statements (continued) | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | Commercial
& Industrial
Group | | Snap-on
Tools Group | | Repair Systems
& Information
Group | | Total |
| Balance as of 2019 year end | | $ | 286.2 | | | $ | 12.5 | | | $ | 615.1 | | | $ | 913.8 | |
| Currency translation | | 26.7 | | | (0.1) | | | 15.0 | | | 41.6 | |
| Acquisitions | | 18.3 | | | — | | | 8.7 | | | 27.0 | |
| Balance as of 2020 year end | | $ | 331.2 | | | $ | 12.4 | | | $ | 638.8 | | | $ | 982.4 | |
| Currency translation | | (19.4) | | | — | | | (11.3) | | | (30.7) | |
| Acquisitions | | 14.0 | | | — | | | 150.8 | | | 164.8 | |
| Balance as of 2021 year end | | $ | 325.8 | | | $ | 12.4 | | | $ | 778.3 | | | $ | 1,116.5 | |
Goodwill of $902.2$1,116.5 million as of 20182021 year end includes: (i) $25.1included $150.8 million, on a preliminary basis, from the acquisition of Norbar, (ii) $2.6Dealer-FX, $10.7 million, on a preliminary basis, from the acquisition of Fastorq,Pradines and (iii) $2.0$3.3 million, on a preliminary basis, from the acquisition of TCS.AutoCrib Germany. The goodwill from Dealer-FX is included in the Norbar, FastorqRepair Systems & Information Group and TCS acquisitionsthe goodwill from AutoCrib Germany and Pradines is included in the Commercial & Industrial Group.
Goodwill of $924.1$982.4 million as of 20172020 year end includes the following from 2017 acquisitions:includes: (i) $23.7 million, on a preliminary basis, from the acquisition of Norbar, (ii) $5.9$5.6 million from the acquisition of BTC, and (iii) $1.9 million, on a preliminary basis, from the acquisitioncertain assets of TCS. As of 2017 year end goodwill also includes, from 2016 acquisitions: (i) $77.3Sigmavision, (ii) $14.5 million from the acquisition of Car-O-Liner;Cognitran; and (ii) $5.0(iii) $18.3 million, from the acquisition of Sturtevant Richmont.
AutoCrib. During 2018, the purchase accounting valuation for the acquired net assets, including intangible assets, of Norbar and TCS were completed resulting in an increase in goodwill of $1.4 million for Norbar and $0.1 million for TCS from 2017 year end. During 2017,2020, the purchase accounting valuations for the acquired net assets, including intangible assets, of Car-O-LinerSigmavision and Cognitran were completed, resulting in a reduction of goodwill of $50.8 million from 2016 year end, with a $49.1 million reduction in the Repair Systems & Information Group and $1.7 million in the Commercial & Industrial Group. Additionally, purchase accounting for Sturtevant Richmont was also completed in 2017, resulting in a $1.8 millionan increase in goodwill from 2016 year end.
of $3.1 million for Cognitran. The remaining purchase accounting valuations for the acquired net assets, including intangible assets, of AutoCrib were completed in the first quarter of 2021. The goodwill from the Car-O-Liner acquisition is distributed as follows: $76.5 million in the Repair Systems & Information GroupSigmavision and $0.8 million in the Commercial & Industrial Group. The goodwill from Sturtevant Richmont is included in the Commercial & Industrial Group and the goodwill from the BTC acquisitionCognitran acquisitions is included in the Repair Systems & Information Group. The goodwill from the AutoCrib acquisition is included in the Commercial & Industrial Group.
See Note 3 for additional information on acquisitions.
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
Additional disclosures related to other intangible assets as of 20182021 and 20172020 year end are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2021 | | 2020 |
| (Amounts in millions) | | Gross
Carrying Value | | Accumulated
Amortization | | Gross
Carrying Value | | Accumulated
Amortization |
| Amortized other intangible assets: | | | | | | | | |
| Customer relationships | | $ | 217.8 | | | $ | (142.1) | | | $ | 191.5 | | | $ | (130.1) | |
| Developed technology | | 36.6 | | | (23.2) | | | 21.8 | | | (19.9) | |
| Internally developed software | | 182.7 | | | (139.1) | | | 172.2 | | | (128.0) | |
| Patents | | 45.7 | | | (25.1) | | | 43.2 | | | (25.3) | |
| Trademarks | | 3.9 | | | (2.3) | | | 3.9 | | | (2.4) | |
| Other | | 8.3 | | | (4.1) | | | 8.2 | | | (3.9) | |
| Total | | 495.0 | | | (335.9) | | | 440.8 | | | (309.6) | |
| Non-amortized trademarks | | 142.6 | | | — | | | 129.6 | | | — | |
| Total other intangible assets | | $ | 637.6 | | | $ | (335.9) | | | $ | 570.4 | | | $ | (309.6) | |
|
| | | | | | | | | | | | | | | | |
| | | 2018 | | 2017 |
| (Amounts in millions) | | Gross Carrying Value | | Accumulated Amortization | | Gross Carrying Value | | Accumulated Amortization |
| Amortized other intangible assets: | | | | | | | | |
| Customer relationships | | $ | 172.2 |
| | $ | (107.6 | ) | | $ | 175.2 |
| | $ | (98.2 | ) |
| Developed technology | | 18.5 |
| | (18.3 | ) | | 18.9 |
| | (18.4 | ) |
| Internally developed software | | 156.6 |
| | (116.6 | ) | | 177.0 |
| | (133.4 | ) |
| Patents | | 35.7 |
| | (22.9 | ) | | 34.1 |
| | (22.7 | ) |
| Trademarks | | 3.2 |
| | (2.0 | ) | | 3.0 |
| | (2.0 | ) |
| Other | | 7.3 |
| | (2.9 | ) | | 7.7 |
| | (2.7 | ) |
| Total | | 393.5 |
| | (270.3 | ) | | 415.9 |
| | (277.4 | ) |
| Non-amortized trademarks | | 109.7 |
| | — |
| | 115.2 |
| | — |
|
| Total other intangible assets | | $ | 503.2 |
| | $ | (270.3 | ) | | $ | 531.1 |
| | $ | (277.4 | ) |
There were no acquisitions during 2018 that resulted in the recognition of other intangible assets asAs of year-end 2018. As of year- end 2017,2021, the gross carrying value of theintangible assets includes $28.4 million of customer relationships, includes $28.8$14.8 million of developed technology and a $17.7 million non-amortized trademark related to the Car-O-Liner acquisition, $1.2 million related toDealer-FX acquisition. As of year-end 2020, the BTC acquisition and $1.1 million related to the Norbar acquisition. The gross carrying value of intangible assets includes $4.6 million of customer relationships, $1.7 million of developed technology and a $7.4 million non-amortized trademarkstrademark from the AutoCrib acquisition, as well as $0.3 million of 2018 year end includes $29.8 millionpatents related to the Car-O-Liner acquisition, $16.9 million relatedSigmavision acquisition.
Provision for impairment of goodwill and/or other intangible assets could arise in a future period due to the Norbar acquisition and $2.1 million related to the BTC acquisition.
Significantsignificant and unanticipated changes in circumstances, such as declines in profitability and cash flow due to significant and long-term deterioration in macroeconomic, industry and market conditions, the loss of key customers, changes in technology or markets, significant changes in key personnel or litigation, a significant and sustained decrease in share price and/or other events, including effects from the sale or disposal of a reporting unit, could require a provision for impairment of goodwill and/or other intangible assets in a future period.unit. As of 20182021 year end, the company had no accumulated impairment losses.
The weighted-average amortization periods related to other intangible assets are as follows:
|
| | | | | | | |
| | In Years |
| Customer relationships | | 1514 |
| Developed technology | | 35 |
| Internally developed software | | 56 |
| Patents | | 814 |
| Trademarks | | 69 |
| Other | | 39 |
Snap-on is amortizing its customer relationships on both an accelerated and straight-line basis over a 1514 year weighted-average life; the remaining intangibles are amortized on a straight-line basis. The weighted-average amortization period for all amortizable intangibles on a combined basis is 1112 years.
The company’s customer relationships generally have contractual terms of three to five years and are typically renewed without significant cost to the company. The weighted-average 1514 year life for customer relationships is based on the company’s historical renewal experience. Intangible asset renewal costs are expensed as incurred.
The aggregate amortization expense was $25.3$29.2 million in 2018, $27.62021, $23.4 million in 20172020 and $24.2$22.3 million in 2016.2019. Based on current levels of amortizable intangible assets and estimated weighted-average useful lives, estimated annual amortization expense is expected to be $21.5 million in 2019, $17.5 million in 2020, $14.8 million in 2021, $12.6$28.0 million in 2022, and $12.0$24.5 million in 2023.2023, $18.8 million in 2024, $14.0 million in 2025, and $10.8 million in 2026.
Note 8: Exit and Disposal Activities
In 2018 and 2017, Snap-on did not record any costs for exit and disposal activities. In 2016, the company’s Repair Systems & Information Groupactivities during fiscal 2021. Snap-on recorded $0.9$12.5 million of severance costs forassociated with exit and disposal activities allduring fiscal 2020. The costs associated with disposal activities by operating segment are as follows:
| | | | | | | | | | | | | | |
| (Amounts in millions) | | 2021 | | 2020 |
| Exit and disposal costs | | | | |
| Cost of goods sold: | | | | |
| Commercial & Industrial Group | | $ | — | | | $ | 6.4 | |
| Repair System & Information Group | | — | | | 0.7 | |
| Total cost of goods sold | | $ | — | | | $ | 7.1 | |
| | | | |
| Operating Expenses: | | | | |
| Snap-on Tools Group | | $ | — | | | $ | 0.6 | |
| Repair System & Information Group | | — | | | 4.8 | |
| Total operating expenses | | $ | — | | | $ | 5.4 | |
| | | | |
| Total exit and disposal costs: | | | | |
| Commercial & Industrial Group | | $ | — | | | $ | 6.4 | |
| Snap-on Tools Group | | — | | | 0.6 | |
| Repair System & Information Group | | — | | | 5.5 | |
| Total exit and disposal costs | | $ | — | | | $ | 12.5 | |
Of the $12.5 million of whichcosts incurred in 2020, $12.2 million qualified for accrual treatment. TheCosts associated with exit and disposal activities in 2020 primarily related to headcount reductions from the ongoing optimization of the company’s cost structure in Europe and various other management and realignment actions.
Snap-on’s exit and disposal accrual activity for 2021 and 2020 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Balance at | | | | Balance at | | | | | | Balance at |
| (Amounts in millions) | | 2019 Year End | | Provision in 2020 | | Usage in 2020 | | 2020 Year End | | Provision in 2021 | | Usage in 2021 | | 2021 Year End |
| Severance costs: | | | | | | | | | | | | | | |
| Commercial & Industrial Group | | $ | — | | | $ | 6.4 | | | $ | (0.6) | | | $ | 5.8 | | | $ | — | | | $ | (1.5) | | | $ | 4.3 | |
| Snap-on Tools Group | | — | | | 0.6 | | | (0.2) | | | 0.4 | | | — | | | (0.1) | | | 0.3 | |
| Repair System & Information Group | | — | | | 5.2 | | | (1.4) | | | 3.8 | | | — | | | (1.4) | | | 2.4 | |
| Total | | $ | — | | | $ | 12.2 | | | $ | (2.2) | | | $ | 10.0 | | | $ | — | | | $ | (3.0) | | | $ | 7.0 | |
As of $0.6January 1, 2022, the company expects that approximately $5.2 million as of 2017 year end was fullythe $7.0 million exit and disposal accrual will be utilized in 2018.2022, and the remainder thereafter, primarily for longer-term severance payments.
Snap-on expects to fund the remaining cash requirements of its exit and disposal activities with available cash on hand, cash flows from operating activities and borrowings under the company’s existing credit facilities. The estimated costs for the exit and disposal activities were based on management’s best business judgement under prevailing circumstances.
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
Note 9: Income Taxes
The source of earnings before income taxes and equity earnings consisted of the following:
| | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2021 | | 2020 | | 2019 |
| United States | | $ | 911.4 | | | $ | 715.9 | | | $ | 765.3 | |
| Foreign | | 175.5 | | | 119.3 | | | 156.8 | |
| Total | | $ | 1,086.9 | | | $ | 835.2 | | | $ | 922.1 | |
|
| | | | | | | | | | | | |
| (Amounts in millions) | | 2018 | | 2017 | | 2016 |
| United States | | $ | 735.4 |
| | $ | 645.5 |
| | $ | 644.0 |
|
| Foreign | | 174.5 |
| | 176.4 |
| | 157.4 |
|
| Total | | $ | 909.9 |
| | $ | 821.9 |
| | $ | 801.4 |
|
The provision (benefit) for income taxes consisted of the following:
| | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2021 | | 2020 | | 2019 |
| Current: | | | | | | |
| Federal | | $ | 152.9 | | | $ | 136.8 | | | $ | 110.0 | |
| Foreign | | 48.2 | | | 29.9 | | | 38.1 | |
| State | | 37.5 | | | 30.6 | | | 29.5 | |
| Total current | | 238.6 | | | 197.3 | | | 177.6 | |
| Deferred: | | | | | | |
| Federal | | 6.1 | | | (10.0) | | | 26.6 | |
| Foreign | | (0.3) | | | 3.0 | | | 1.5 | |
| State | | 2.6 | | | (1.2) | | | 6.1 | |
| Total deferred | | 8.4 | | | (8.2) | | | 34.2 | |
| Total income tax provision | | $ | 247.0 | | | $ | 189.1 | | | $ | 211.8 | |
|
| | | | | | | | | | | | |
| (Amounts in millions) | | 2018 | | 2017 | | 2016 |
| Current: | | | | | | |
| Federal | | $ | 117.9 |
| | $ | 166.9 |
| | $ | 175.9 |
|
| Foreign | | 52.4 |
| | 41.1 |
| | 39.9 |
|
| State | | 30.4 |
| | 30.6 |
| | 27.2 |
|
| Total current | | 200.7 |
| | 238.6 |
| | 243.0 |
|
| Deferred: | | | | | | |
| Federal | | 18.7 |
| | 8.7 |
| | 6.3 |
|
| Foreign | | (8.4 | ) | | 2.9 |
| | (6.7 | ) |
| State | | 3.4 |
| | 0.7 |
| | 1.7 |
|
| Total deferred | | 13.7 |
| | 12.3 |
| | 1.3 |
|
| Total income tax provision | | $ | 214.4 |
| | $ | 250.9 |
| | $ | 244.3 |
|
|
| | |
| | |
Notes to Consolidated Financial Statements (continued) | | |
The following is a reconciliation of the statutory federal income tax rate to Snap-on’s effective tax rate:
| | | | | 2018 | | 2017 | | 2016 | | 2021 | | 2020 | | 2019 |
| Statutory federal income tax rate | | 21.0% | | 35.0% | | 35.0% | Statutory federal income tax rate | | 21.0% | | 21.0% | | 21.0% |
| Increase (decrease) in tax rate resulting from: | | Increase (decrease) in tax rate resulting from: | |
| State income taxes, net of federal benefit | | 2.9 | | 2.4 | | 2.4 | State income taxes, net of federal benefit | | 2.8 | | 2.9 | | 2.9 |
| Noncontrolling interests | | (0.4) | | (0.6) | | (0.6) | Noncontrolling interests | | (0.4) | | (0.5) | | (0.4) |
| Repatriation of foreign earnings | | (0.1) | | (1.2) | | (0.1) | Repatriation of foreign earnings | | (0.5) | | (0.7) | | (0.1) |
| Change in valuation allowance for deferred tax assets | | 0.3 | | 0.1 | | (1.0) | Change in valuation allowance for deferred tax assets | | 0.2 | | 0.5 | | 0.4 |
| Adjustments to tax accruals and reserves | | (0.2) | | (0.3) | | 0.3 | Adjustments to tax accruals and reserves | | 0.3 | | (0.5) | | (0.4) |
| Foreign rate differences | | 0.4 | | (2.4) | | (2.1) | Foreign rate differences | | 0.5 | | 0.5 | | 0.4 |
| Domestic production activities deduction | | — | | (2.1) | | (1.9) | |
| | Excess tax benefits related to equity compensation | | (0.8) | | (1.4) | | (1.8) | Excess tax benefits related to equity compensation | | (1.0) | | (0.5) | | (0.5) |
| U.S. tax reform, net impact | | 0.4 | | 0.9 | | — | |
| | Other | | 0.1 | | 0.1 | | 0.3 | Other | | (0.2) | | (0.1) | | (0.3) |
| Effective tax rate | | 23.6% | | 30.5% | | 30.5% | Effective tax rate | | 22.7% | | 22.6% | | 23.0% |
Snap-on’s effective income tax rate on earnings attributable to Snap-on Incorporated was 24.0%23.2% in 2018, 31.1%2021, 23.2% in 2017,2020, and 31.0%23.4% in 2016. The effective tax rate for 2018 reflects the reduction of the U.S. federal corporate income tax rate from 35% to 21%. It also includes an additional non-recurring net tax cost attributable to the prior year’s U.S. tax reform changes. The effective tax rate for 2017 included the one-time net tax costs associated with the Tax Cuts and Jobs Act (the “Tax Act”), which was signed into law in the fourth quarter of 2017, as well as tax benefits associated with certain legal charges. The effective tax rate for 2016 included tax benefits from the reversal of deferred tax asset valuation allowances that are now expected to be realized in future years, as well as tax benefits associated with the January 3, 2016 adoption of ASU No. 2016-09, Compensation – Stock Compensation (Topic 718) – Improvements to Employee Share-Based Payment Accounting; these tax benefits were partially offset by tax contingency reserves established for certain non-U.S. tax audits.2019.
On December 22, 2017, the U.S. government passed the Tax Act. The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to: (i) reducing the future U.S. federal corporate tax rate from 35 percent to 21 percent; (ii) requiring companies to pay a one-time transition tax on certain unremitted earnings of foreign subsidiaries; and (iii) bonus depreciation that will allow for full expensing of qualified property.
The Tax Act also established new tax laws that affected 2018, including, but not limited to: (i) the reduction of the U.S. federal corporate tax rate discussed above; (ii) a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries; (iii) a new provision designed to tax global intangible low-taxed income (“GILTI”); (iv) the repeal of the domestic production activity deductions; (v) limitations on the deductibility of certain executive compensation; (vi) limitations on the use of foreign tax credits to reduce the U.S. income tax liability; and (vii) a new provision that allows a domestic corporation an immediate deduction for a portion of its foreign derived intangible income (“FDII”).
The Securities and Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118, which provides guidance on accounting for the tax effects of the Tax Act, for the company’s year ended December 30, 2017. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the related accounting under ASC 740, Accounting for Income Taxes. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under Accounting Standards Codification (“ASC”) 740 is complete. To the extent that a company’s accounting for a certain income tax effect of the Tax Act is incomplete, but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.
The company’s accounting for certain elements of the Tax Act was incomplete as of December 30, 2017. However, the company was able to make reasonable estimates of the effects and, therefore, recorded provisional estimates for these items. In connection with its initial analysis of the impact of the Tax Act, the company recorded a provisional discrete net tax expense of $7.0 million in the fiscal year ended December 30, 2017. This provisional estimate consists of a net expense of $13.7 million for the one-time transition tax and a net benefit of $6.7 million related to revaluation of deferred tax assets and liabilities, caused by the new lower corporate tax rate. To determine the transition tax, the company must determine the amount of post-1986 accumulated earnings and profits of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. While the company was able to make a reasonable estimate of the transition tax for 2017, it continued to gather additional information to more precisely compute the final amount reported on its 2017 U.S. federal tax return which was filed in October 2018. The actual transition tax was $8.3 million greater than the company’s initial estimate and was included in income tax expense for 2018. Likewise, while the company was able to make a reasonable estimate of the impact of the reduction to the corporate tax rate, it was affected by other analyses related to the Tax Act, including, but not limited to, the state tax effect of adjustments made to federal temporary differences. During 2018, the company recorded additional net tax benefits of $4.4 million attributable to pension contributions made in 2018 that were deductible for 2017 at the higher 35% federal tax rate and other changes to the 2017 tax provision related to the Tax Act and subsequently-issued tax guidance. Due to the complexity of the new GILTI tax rules, the company continued to evaluate this provision of the Tax Act and the application of ASC 740 throughout 2018. Under GAAP, the company is allowed to make an accounting policy choice to either: (i) treat taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”); or (ii) factor in such amounts into a company’s measurement of its deferred taxes (the “deferred method”). The company selected to apply the “period cost method” to account for the new GILTI tax, and treated it as a current-period expense for 2018. The company will continue to analyze the full effects of the Tax Act on its financial statements in 2019 as additional guidance is issued and interpretations evolve.
Temporary differences that give rise to the net deferred income tax assetliability as of 2018, 20172021, 2020 and 20162019 year end are as follows:
| | | (Amounts in millions) | | 2018 | | 2017 | | 2016 | (Amounts in millions) | | 2021 | | 2020 | | 2019 |
| Long-term deferred income tax assets (liabilities): | | | | | | | |
| Deferred income tax assets (liabilities): | | Deferred income tax assets (liabilities): | | | | | | |
| Inventories | | $ | 33.6 |
| | $ | 28.8 |
| | $ | 33.3 |
| Inventories | | $ | 37.5 | | | $ | 41.4 | | | $ | 34.7 | |
| Accruals not currently deductible | | 72.9 |
| | 61.7 |
| | 77.7 |
| Accruals not currently deductible | | 77.6 | | | 75.1 | | | 62.4 | |
| Tax credit carryforward | | 1.8 |
| | 2.1 |
| | 15.1 |
| Tax credit carryforward | | 1.2 | | | 2.4 | | | 2.0 | |
| Employee benefits | | 56.5 |
| | 56.8 |
| | 108.1 |
| Employee benefits | | 6.4 | | | 32.4 | | | 41.3 | |
| Net operating losses | | 40.9 |
| | 44.0 |
| | 42.8 |
| Net operating losses | | 35.0 | | | 37.1 | | | 40.4 | |
| Depreciation and amortization | | (167.5 | ) | | (161.3 | ) | | (209.8 | ) | Depreciation and amortization | | (213.2) | | | (192.0) | | | (178.9) | |
| Valuation allowance | | (25.1 | ) | | (25.2 | ) | | (21.7 | ) | Valuation allowance | | (24.5) | | | (26.7) | | | (27.8) | |
| Equity-based compensation | | 16.6 |
| | 17.1 |
| | 24.3 |
| Equity-based compensation | | 13.1 | | | 14.3 | | | 16.2 | |
| Undistributed non-U.S. earnings | | (6.0 | ) | | — |
| | — |
| Undistributed non-U.S. earnings | | (4.4) | | | (5.4) | | | (6.6) | |
| Cash flow hedge | | — |
| | (0.3 | ) | | (5.5 | ) | |
| | Other | | (0.4 | ) | | (0.1 | ) | | (4.6 | ) | Other | | (1.9) | | | 1.3 | | | (0.7) | |
| Net deferred income tax asset | | $ | 23.3 |
| | $ | 23.6 |
| | $ | 59.7 |
| |
| Net deferred income tax liability | | Net deferred income tax liability | | $ | (73.2) | | | $ | (20.1) | | | $ | (17.0) | |
As of 20182021 year end, Snap-on had tax net operating loss carryforwards totaling $224.8$160.5 million as follows: |
| | | | | | | | | | | | | | | | |
| (Amounts in millions) | | State | | Federal | | Foreign | | Total |
| Year of expiration: | | | | | | | | |
| 2019-2023 | | $ | 0.2 |
| | $ | — |
| | $ | 52.5 |
| | $ | 52.7 |
|
| 2024-2028 | | 0.1 |
| | — |
| | 38.9 |
| | 39.0 |
|
| 2029-2033 | | 90.6 |
| | — |
| | 6.8 |
| | 97.4 |
|
| 2034-2038 | | — |
| | — |
| | — |
| | — |
|
| Indefinite | | — |
| | — |
| | 35.7 |
| | 35.7 |
|
| Total net operating loss carryforwards | | $ | 90.9 |
| | $ | — |
| | $ | 133.9 |
| | $ | 224.8 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | State | | Federal | | Foreign | | Total |
| Year of expiration: | | | | | | | | |
| 2022-2026 | | $ | 0.3 | | | $ | — | | | $ | 46.7 | | | $ | 47.0 | |
| 2027-2031 | | 36.3 | | | — | | | 15.5 | | | 51.8 | |
| 2032-2036 | | — | | | — | | | — | | | — | |
| 2037-2041 | | — | | | — | | | 10.8 | | | 10.8 | |
| 2042-2046 | | — | | | — | | | 17.6 | | | 17.6 | |
| Indefinite | | — | | | — | | | 33.3 | | | 33.3 | |
| Total net operating loss carryforwards | | $ | 36.6 | | | $ | — | | | $ | 123.9 | | | $ | 160.5 | |
|
| | |
| | |
Notes to Consolidated Financial Statements (continued) | | |
A valuation allowance totaling $25.1$24.5 million, $25.2$26.7 million and $21.7$27.8 million as of 2018, 20172021, 2020 and 20162019 year end, respectively, has been established for deferred income tax assets primarily related to certain subsidiary loss carryforwards that may not be realized. Realization of the net deferred income tax assets is dependent on generating sufficient taxable income prior to their expiration. Although realization is not assured, management believes it is more-likely-than-not that the net deferred income tax assets will be realized. The amount of the net deferred income tax assets considered realizable, however, could change in the near term if estimates of future taxable income during the carryforward period fluctuate. The expected realization of tax benefits associated with the February 26, 2021 acquired loss carryforwards will be recorded in the first quarter of 2022, with the final purchase accounting valuation for Dealer-FX. See Note 3 for more information on acquisitions.
The following is a reconciliation of the beginning and ending amounts of unrecognized tax benefits for 2018, 20172021, 2020 and 2016:2019:
| | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2021 | | 2020 | | 2019 |
| Unrecognized tax benefits at beginning of year | | $ | 9.1 | | | $ | 10.3 | | | $ | 11.1 | |
| Gross increases – tax positions in prior periods | | 0.4 | | | 0.4 | | | — | |
| Gross decreases – tax positions in prior periods | | (0.4) | | | — | | | (0.6) | |
| Gross increases – tax positions in the current period | | 0.4 | | | 0.4 | | | 0.5 | |
| Settlements with taxing authorities | | — | | | (1.4) | | | — | |
| Lapsing of statutes of limitations | | (0.6) | | | (0.6) | | | (0.7) | |
| Unrecognized tax benefits at end of year | | $ | 8.9 | | | $ | 9.1 | | | $ | 10.3 | |
|
| | | | | | | | | | | | |
| (Amounts in millions) | | 2018 | | 2017 | | 2016 |
| Unrecognized tax benefits at beginning of year | | $ | 7.7 |
| | $ | 9.4 |
| | $ | 7.2 |
|
| Gross increases – tax positions in prior periods | | 1.3 |
| | 1.4 |
| | 2.5 |
|
| Gross decreases – tax positions in prior periods | | (0.1 | ) | | — |
| | (0.3 | ) |
| Gross increases – tax positions in the current period | | 2.8 |
| | 1.0 |
| | 0.5 |
|
| Settlements with taxing authorities | | — |
| | (3.6 | ) | | — |
|
| Lapsing of statutes of limitations | | (0.6 | ) | | (0.5 | ) | | (0.5 | ) |
| Unrecognized tax benefits at end of year | | $ | 11.1 |
| | $ | 7.7 |
| | $ | 9.4 |
|
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
The unrecognized tax benefits of $11.1$8.9 million, $7.7$9.1 million and $9.4$10.3 million as of 2018, 20172021, 2020 and 20162019 year end, respectively, would impact the effective income tax rate if recognized. As of December 29, 2018,January 1, 2022, unrecognized tax benefits of $1.7$1.3 million and $9.4$7.6 million were included in “Deferred income tax assets” and “Other long-term liabilities,” respectively, on the accompanying Consolidated Balance Sheets. Interest and penalties related to unrecognized tax benefits are recorded in income tax expense. As of 2018, 20172021, 2020 and 20162019 year end, the company had provided for $0.8$1.4 million, $0.6$1.1 million and $0.9$1.1 million, respectively, of accrued interest and penalties related to unrecognized tax benefits. During 2018, the company increased the reserve attributable to interest and penalties associated with unrecognized tax benefits by a net $0.2 million. As of December 29, 2018, $0.8January 1, 2022, $1.4 million of accrued interest and penalties were included in “Other long-term liabilities” on the accompanying Consolidated Balance Sheets.
Snap-on and its subsidiaries file income tax returns in the United States and in various state, local and foreign jurisdictions. It is reasonably possible that certain unrecognized tax benefits may either be settled with taxing authorities or the statutes of limitations for such items may lapse within the next 12 months, causing Snap-on’s gross unrecognized tax benefits to decrease by a range of zero to $2.4$4.2 million. Over the next 12 months, Snap-on anticipates taking certain tax positions on various tax returns for which the related tax benefit does not meet the recognition threshold. Accordingly, Snap-on’s gross unrecognized tax benefits may increase by a range of zero to $1.0$0.8 million over the next 12 months for uncertain tax positions expected to be taken in future tax filings.
With few exceptions, Snap-on is no longer subject to U.S. federal and state/local income tax examinations by tax authorities for years prior to 2013,2017, and Snap-on is no longer subject to non-U.S. income tax examinations by tax authorities for years prior to 2012.
In general, it is Snap-on’s practice and intention to reinvest certain earnings of its non-U.S. subsidiaries in those operations. As of 20182021 year end, the company has not made a provision for incremental U.S. income taxes or additional foreign withholding taxes on approximately $205.6$358.7 million of such undistributed earnings that is deemed indefinitely reinvested. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable. As a result of the Tax Act, which subjected the majority of the company’s undistributed foreign earnings to taxation for the 2017 tax year, the company can now repatriate non-U.S. cash in a tax efficient manner. Accordingly, the company has reversed its prior assertion concerning the indefinite reinvestment of the majority of its undistributed foreign earnings and has recorded a deferred tax liability of $4.4 million for the incremental tax costs associated with the future potential repatriation of such earnings.
Note 10: Short-term and Long-term Debt
Short-term and long-term debt as of 20182021 and 20172020 year end consisted of the following:
|
| | | | | | | | |
| (Amounts in millions) | | 2018 | | 2017 |
| 4.25% unsecured notes due 2018 | | $ |
|
| | $ | 250.0 |
|
| 6.70% unsecured notes due 2019, paid in February 2018 | | — |
| | 200.0 |
|
| 6.125% unsecured notes due 2021 | | 250.0 |
| | 250.0 |
|
| 3.25% unsecured notes due 2027 | | 300.0 |
| | 300.0 |
|
| 4.10% unsecured notes due 2048 | | 400.0 |
| | — |
|
| Other debt* | | 182.3 |
| | 186.8 |
|
| | | 1,132.3 |
| | 1,186.8 |
|
| Less: notes payable and current maturities of long-term debt: | | | | |
| Current maturities of long-term debt | | $ | — |
| | $ | (250.0 | ) |
| Commercial paper borrowings | | (177.1 | ) | | (151.0 | ) |
| Other notes | | (9.2 | ) | | (32.2 | ) |
| | | (186.3 | ) | | (433.2 | ) |
| Total long-term debt | | $ | 946.0 |
| | $ | 753.6 |
|
| | | | | | | | | | | | | | |
| (Amounts in millions) | | 2021 | | 2020 |
| 6.125% unsecured notes due 2021 | | $ | — | | | $ | 250.0 | |
| 3.25% unsecured notes due 2027 | | 300.0 | | | 300.0 | |
| 4.10% unsecured notes due 2048 | | 400.0 | | | 400.0 | |
| 3.10% unsecured notes due 2050 | | 500.0 | | | 500.0 | |
| Other debt* | | 0.3 | | | 0.6 | |
| | 1,200.3 | | | 1,450.6 | |
| Less: notes payable and current maturities of long-term debt: | | | | |
| Current maturities of long-term debt | | $ | — | | | $ | (250.0) | |
| | | | |
| Other notes* | | (17.4) | | | (18.5) | |
| | (17.4) | | | (268.5) | |
| Total long-term debt | | $ | 1,182.9 | | | $ | 1,182.1 | |
| | | | | | | | | | | | | | |
| | | | |
| | | | |
| * Includes the net effects of debt amortization costs and fair value adjustments related to interest rate swaps. | | | |
The
There are no annual maturities of Snap-on’s long-term debt and notes payable over the next five years are $186.3 million in 2019, no maturities in 2020, $250 million in 2021, and no maturities in both 2022 and 2023.years.
Average notes payable outstanding, including commercial paper borrowings in 2020 and short-term credit facility borrowings in both years, were $167.7$16.7 million and $126.8$68.4 million in 20182021 and 2017,2020, respectively. The 2021 weighted-average interest rate on such borrowings of 2.84%8.39% compared with 2.98% in 2018 increased from 2.45% last year primarily due to the impact of higher rates on2020. There were no commercial paper borrowings.borrowings during 2021. Average commercial paper borrowings were $154.9 million and $103.3$41.0 million in 2018 and 2017, respectively, and the2020 with a weighted-average interest rate of 2.03%1.53%. No commercial paper was outstanding as of year-end 2021 or 2020. There were no amounts borrowed under the short-term credit facility during 2021. Average short-term credit facility borrowings were $13.9 million in 2018 increased from 1.14% last year.2020 with a weighted-average interest rate of 1.7%. No amounts were outstanding under the short-term credit facility as of year-end 2021 or 2020. At 20182021 year end, the weighted-average interest rate on outstanding notes payable of 3.21%8.39% compared with 2.34% at 2017 year end.8.87% in 2020. The 20182021 year-end rate increaseddecreased primarily due to higherlower rates on commercial paper borrowings.local borrowings in emerging markets.
On February 20, 2018, Snap-on commenced a tender offer to repurchase $200 million in principal amount of its unsecured 6.70% notes that were scheduled to mature on March 1, 2019 (the “2019 Notes”), with $26.1 million of the 2019 Notes tendered and repaid on FebruaryApril 27, 2018. On February 20, 2018, Snap-on also issued a notice of redemption for remaining outstanding 2019 Notes not tendered, with the redemption completed on March 22, 2018. The total cash cost for this tender and redemption was $209.1 million, including accrued interest of $1.5 million. Snap-on recorded $7.8 million for the loss on the early extinguishment of debt related to the 2019 Notes, which included the redemption premium and other issuance costs associated with this debt in “Other income (expense) - net” on the accompanying Consolidated Statement of Earnings. See Note 17 for additional information on Other income (expense) - net.
On February 20, 2018,2020, Snap-on sold, at a discount, $400$500 million of unsecured 4.10% long-term3.10% notes that mature on MarchMay 1, 2048 (the”20482050 (the “2050 Notes”). Interest on the 20482050 Notes accrues at a rate of 4.10% per year3.10% and is payable semi-annually beginning September 1, 2018.paid semi-annually. Snap-on used a portion of the $395.4$489.9 million of net proceeds from the sale of the 20482050 Notes, reflecting $3.5$4.4 million of transaction costs, to repay the 2019 Notes. The remaining net proceeds were used to repay a portion of its then-outstanding commercial paper borrowings and for general corporate purposes.purposes, which included working capital, capital expenditures and acquisitions.
|
| | |
| | |
Notes to Consolidated Financial Statements (continued) | | |
Snap-on has a five-year, $700an $800 million multi-currency revolving credit facility that terminates on December 15, 2020September 16, 2024 (the “Credit Facility”); no amounts were outstanding under the Credit Facility as of December 29, 2018.January 1, 2022. Borrowings under the Credit Facility bear interest at varying rates based on either: (i) Snap-on’s then-current, long-term debt ratings.ratings; or (ii) Snap-on’s then-current ratio of consolidated debt net of certain cash adjustments (“Consolidated Net Debt”) to earnings before interest, taxes, depreciation, amortization and certain other adjustments for the preceding four fiscal quarters then ended (the “Consolidated Net Debt to EBITDA Ratio”). The Credit Facility’s financial covenant requires that Snap-on maintain, as of each fiscal quarter end, either (i) a ratio not greater than 0.60 to 1.00 of consolidated net debt (consolidated debt net of certain cash adjustments)Consolidated Net Debt to the sum of such consolidated net debtConsolidated Net Debt plus total equity and less accumulated other comprehensive income or loss (the “Debt“Leverage Ratio”); or (ii) a ratioConsolidated Net Debt to EBITDA Ratio not greater than 3.50 to 1.00 of such consolidated net debt to earnings before interest, taxes, depreciation, amortization and certain other adjustments for the preceding four fiscal quarters then ended (the “Debt to EBITDA Ratio”).1.00. Snap-on may, up to two times during any five-year period during the term of the Credit Facility (including any extensions thereof), elect to increase the maximum DebtLeverage Ratio to 0.65 to 1.00 and/or increase the maximum Consolidated Net Debt to EBITDA Ratio to 3.754.00 to 1.00 for four consecutive fiscal quarters in connection with certain material acquisitions (as defined in the related credit agreement). As of 2018 year end,January 1, 2022, the company’s actual ratios of 0.230.09 and 0.99,0.37 respectively, were both within the permitted ranges set forth in this financial covenant. Snap-on generally issues commercial paper to fund its financing needs on a short-term basis and uses the Credit Facility as back-up liquidity to support such commercial paper issuances.
Note 11: Financial Instruments
Derivatives: All derivative instruments are reported in the Consolidated Financial Statements at fair value. Changes in the fair value of derivatives are recorded each period in earnings or on the accompanying Consolidated Balance Sheets, depending on whether the derivative is designated and effective as part of a hedged transaction. Gains or losses on derivative instruments recorded in Accumulatedearnings are presented in the same Consolidated Statement of Earnings line that is used to present the earnings effect of the hedged item. Gains or losses on derivative instruments in accumulated other comprehensive income (loss) (“Accumulated OCI”) must beare reclassified to earnings in the period in which earnings are affected by the underlying hedged item and the ineffective portion of all hedges must be recognized in earnings in the period that such portion is determined to be ineffective.item.
The criteria used to determine if hedge accounting treatment is appropriate are: (i) the designation of the hedge to an underlying exposure; (ii) whether or not overall risk is being reduced; and (iii) if there is a correlation between the value of the derivative instrument and the underlying hedged item. On the dateOnce a derivative contract is entered into, Snap-on designates the derivative as a fair value hedge, a cash flow hedge, a hedge of a net investment in a foreign operation, or a natural hedging instrument whose change in fair value is recognized as an economic hedge against changes in the value of the hedged item.Snap-on does not use derivative instruments for speculative or trading purposes.
The company is exposed to global market risks, including the effects of changes in foreign currency exchange rates, interest rates, and the company’s stock price, and therefore uses derivatives to manage financial exposures that occur in the normal course of business. The primary risks managed by using derivative instruments are foreign currency risk, interest rate risk and stock-based deferred compensation risk.
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
Foreign currency risk management: Snap-on has significant international operations and is subject to certain risks inherent with foreign operations that include currency fluctuations. Foreign currency exchange risk exists to the extent that Snap-on has payment obligations or receipts denominated in currencies other than the functional currency, including intercompany loans denominated in foreign currencies. To manage these exposures, Snap-on identifies naturally offsetting positions and then purchases hedging instruments to protect the residual net exposures. Snap-on manages most of these exposures on a consolidated basis, which allows for netting of certain exposures to take advantage of natural offsets. Foreign currency forward contracts (“foreign currency forwards”) are used to hedge the net exposures. Gains or losses on net foreign currency hedges are intended to offset losses or gains on the underlying net exposures in an effort to reduce the earnings volatility resulting from fluctuating foreign currency exchange rates. Snap-on’s foreign currency forwards are typically not designated as hedges. The fair value changes of these contracts are reported in earnings as foreign exchange gain or loss, which is included in “Other income (expense) –- net” on the accompanying Consolidated Statements of Earnings.
See Note 18 for additional information on Other income (expense) - net.
As of 20182021 year end, Snap-on had $26.3$81.3 million of net foreign currency forward sell contracts outstanding comprised of sell contracts including $290.0 million in Canadian dollars, $10.3 million in euros, $8.1 million in Indian rupees, $6.3 million in Hungarian forints, and $4.5 million in other currencies, and buy contracts comprised of $79.6 million in British pounds, $48.4 million in Swedish kronor, $31.0 million in Chinese renminbi, $30.0 million in Hong Kong dollars, $14.3 million in Australian dollars, $14.2 million in Singapore dollars, $7.2 million in Norwegian kroner, $4.9 million in Danish kroner, and $8.3 million in other currencies. As of 2020 year end, Snap-on had $46.7 million of net foreign currency forward buy contracts outstanding comprised of buy contracts including $26.7 million in euros, $23.6$58.9 million in Swedish kronor, $21.0$43.5 million in British pounds, $26.1 million in Chinese renminbi, $22.5 million in Hong Kong dollars, $10.2 million in Chinese renminbi, $8.6$14.6 million in Singapore dollars, $7.0$6.2 million in South Korean won, $6.3Australian dollars, $5.8 million in Norwegian kroner, $5.1 million in Danish kroner, and $5.1$3.7 million in other currencies, and sell contracts comprised of $37.4 million in British pounds, $14.6$120.4 million in Canadian dollars, $11.0 million in Japanese yen, $8.2$7.9 million in Indian rupees, $4.1$3.5 million in Australian dollars, $3.1 million in Thai baht,Hungarian forints, and $3.8 million in other currencies. As of 2017 year end, Snap-on had $53.8 million of net foreign currency forward buy contracts outstanding comprised of buy contracts including $64.9 million in euros, $15.4 million in Swedish kronor, $13.1 million in Hong Kong dollars, $11.3 million in Singapore dollars, $6.8 million in South Korean won, $5.7 million in Norwegian kroner, and $8.0 million in other currencies, and sell contracts comprised of $29.7 million in British pounds, $13.8 million in Canadian dollars, $11.8 million in Australian dollars, $6.0 million in Indian rupees, $3.4 million in Thai baht, and $6.7$7.9 million in other currencies.
Interest rate risk management: Snap-on aims to control funding costs by managing the exposure created by the differing maturities and interest rate structures of Snap-on’s borrowings through the use of interest rate swap agreements (“interest rate swaps”) and treasury lock agreements (“treasury locks”).
Interest rate swaps: Snap-on enters into interest rate swaps to manage risks associated with changing interest rates related to the company’s fixed rate borrowings. Interest rate swaps are accounted for as fair value hedges. The differentials paid or received on interest rate swaps are recognized as adjustments to “Interest expense” on the accompanying Consolidated Statements of Earnings. The effective portion of the change in the fair value of the derivative is recorded in “Long-term“Notes payable and current maturities of long-term debt” in 2020 on the accompanying Consolidated Balance Sheets, while any ineffective portion is recorded as an adjustment to “Interest expense” onSheets. As of 2020 year end, the accompanying Consolidated Statements of Earnings. The notional amount of interest rate swaps outstanding and designated as fair value hedges was $100 millionmillion. The interest rate swaps matured in fiscal 2021 and there were no outstanding swaps as of both 2018 and 20172021 year end.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Consolidated Balance Sheets Line Item Where Hedge Item is Recorded | | Carrying Amount of the Hedged Assets/(Liabilities) | | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities) |
| (in millions) | | (in millions) |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Notes payable and current maturities of long-term debt | | $ | — | | | $ | (255.1) | | | $ | — | | | $ | (5.1) | |
| | | | | | | | |
| | | | | | | | |
| |
Treasury locks: Snap-on uses treasury locks to manage the potential change in interest rates in anticipation of the issuance of fixed rate debt. Treasury locks are accounted for as cash flow hedges. The effective differentials to be paid or received on treasury locks related to the anticipated issuance of fixed rate debt are initially recorded in Accumulated OCI net of tax effect.for derivative instruments that are designated and qualify as cash flow hedges. Upon the issuance of debt, the related amount in Accumulated OCI is released over the term of the debt and recognized as an adjustment to interest expense on the Consolidated Statements of Earnings.
In the second quarter of 2020, Snap-on entered into a $300$300.0 million treasury lock in the fourth quarter of 2017 to manage the potential changechanges in interest rates in anticipation of the issuance of fixed rate debt in the first quarter of 2018. As of 2017 year end, an unrecognized gain of $0.8 million had been recorded in Accumulated OCI on the accompanying Consolidated Balance Sheets.
In the first quarter of 2018,debt. Snap-on settled the outstanding $300 million treasury lock after it was deemed to be an ineffective hedge for the 2048 Notes which were issued in February 2018. The $13.3 million gain on the settlement of the treasury lock was recorded in “Other income (expense) - net” on the accompanying Consolidated Statements of Earnings. The notional amount of treasury locks outstanding and designated as cash flow hedges was zero as of December 29, 2018, and $300 million as of December 30, 2017. See Note 17 for additional information on Other income (expense) - net.
In fiscal 2017, Snap-on settled a $250$300.0 million treasury lock in conjunction with the February 2017April 2020 issuance of $300 million of unsecured 3.25% notes that mature on March 1, 2027 (the “2027 Notes”).the 2050 Notes. The $14.9$1.4 million gain on the settlement of the treasury lock was recorded in Accumulated OCI and is being amortized over the initial 10-year term of the 20272050 Notes and recognized as an adjustment to interest expense on the Consolidated Statements of Earnings.
There were no treasury locks settled in 2016.outstanding as of both January 1, 2022, and January 2, 2021. See Note 18 for additional information on Other income (expense) - net.
Stock-based deferred compensation risk management: Snap-on aims to manage market risk associated with the stock-based portion of its deferred compensation plans through the use of prepaid equity forward agreements (“equity forwards”). Equity forwards are used to aid in offsetting the potential mark-to-market effect on stock-based deferred compensation from changes in Snap-on’s stock price. Since stock-based deferred compensation liabilities increase as the company’s stock price rises and decrease as the company’s stock price declines, the equity forwards are intended to mitigate the potential impact on deferred compensation expense that may result from such mark-to-market changes. As of 20182021 and 20172020 year end, Snap-on had equity forwards in place intended to manage market risk with respect to 99,10072,100 shares and 102,30078,800 shares, respectively, of Snap-onSnap‑on common stock associated with its deferred compensation plans.
|
| | |
| | |
Notes to Consolidated Financial Statements (continued) | | |
Fair value measurements: Snap-on has derivative assets and liabilities related to interest rate swaps, treasury locks, foreign currency forwards and equity forwards that are measured at Level 2 fair value on a recurring basis. The fair values of derivative instruments included within the accompanying Consolidated Balance Sheets as of 2018 and 2017 year end are as follows:
|
| | | | | | | | | | | | | | | | | | |
| | | | | 2018 | | 2017 |
| (Amounts in millions) | | Balance Sheet Presentation | | Asset Derivatives Fair Value | | Liability Derivatives Fair Value | | Asset Derivatives Fair Value | | Liability Derivatives Fair Value |
Derivatives designated as hedging instruments: | | | | | | | | | | |
| Interest rate swaps | | Other assets | | $ | 4.6 |
| | $ | — |
| | $ | 7.3 |
| | $ | — |
|
| Treasury locks | | Other assets | | — |
| | — |
| | 1.4 |
| | — |
|
| | | | | 4.6 |
| | — |
| | 8.7 |
| | — |
|
| Derivatives not designated as hedging instruments: | | | | | | | | | | |
| Foreign currency forwards | | Prepaid expenses and other assets | | $ | 2.8 |
| | $ | — |
| | $ | 4.1 |
| | $ | — |
|
| Foreign currency forwards | | Other accrued liabilities | | — |
| | 3.2 |
| | — |
| | 6.5 |
|
| Equity forwards | | Prepaid expenses and other assets | | 14.3 |
| | — |
| | 17.8 |
| | — |
|
| | | | | 17.1 |
| | 3.2 |
| | 21.9 |
| | 6.5 |
|
| Total derivative instruments | | | | $ | 21.7 |
| | $ | 3.2 |
| | $ | 30.6 |
| | $ | 6.5 |
|
As of 2018 and 2017 year end, the fair value adjustment to long-term debt related to the interest rate swaps was $4.6 million and $7.3 million, respectively.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between participants at the measurement date. Level 2 fair value measurements for derivative assets and liabilities are measured using quoted prices in active markets for similar assets and liabilities. Interest rate swaps are valued based on the six-month LIBOR swap rate for similar instruments. Treasury locks are valued based on the 10-year U.S. treasury interest rate. Foreign currency forwards are valued based on exchange rates quoted by domestic and foreign banks for similar instruments. Equity forwards are valued using a market approach based primarily on the company’s stock price at the reporting date. The company did not have any derivative assets or liabilities measured at Level 1 or Level 3, nor did it implement any changes in its valuation techniques as of and for its 2018 and 2017 years ended.
The effect of derivative instruments designated as fair value hedges as included in the Consolidated Statements of Earnings is as follows:
|
| | | | | | | | | | | | | | |
| | | Statement of Earnings Presentation | | Effective Portion of Gain Recognized in Income |
| (Amounts in millions) | | 2018 | | 2017 | | 2016 |
Derivatives designated as fair value hedges: | | | | | | | | |
| Interest rate swaps | | Interest expense | | $ | 1.5 |
| | $ | 2.8 |
| | $ | 2.9 |
|
The effect of derivative instruments designated as cash flow hedges as included in Accumulated OCI on the Consolidated Balance Sheets and the Consolidated Statements of Earnings is as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | Effective Portion of Gain Recognized in Accumulated OCI | | Statement of Earnings Presentation | | Effective Portion of Gain Reclassified from Accumulated OCI into Income |
| 2018 | | 2017 | | 2016 | | 2018 | | 2017 | | 2016 |
| Derivatives designated as cash flow hedges: | | | | | | | | | | | | | | |
| Treasury locks | | $ | (0.8 | ) | | $ | 6.9 |
| | $ | 8.8 |
| | Interest expense | | $ | 1.5 |
| | $ | 1.6 |
| | $ | 0.3 |
|
The effects of derivative instruments not designated as hedging instruments as included in the Consolidated Statements of Earnings are as follows:
|
| | | | | | | | | | | | |
| | | Statement of Earnings Presentation | | Gain (Loss) Recognized in Income |
| (Amounts in millions) | | 2018 | | 2017 | | 2016 |
| Derivatives not designated as hedging instruments: | | | | | | | | |
| Foreign currency forwards | | Other income (expense) – net | | $ | (40.4 | ) | | (25.8 | ) | | (7.4 | ) |
| Equity forwards | | Operating expenses | | (2.1 | ) | | 0.9 |
| | 0.8 |
|
Snap-on’s foreign currency forwards are typically not designated as hedges for financial reporting purposes. The fair value changes of foreign currency forwards not designated as hedging instruments are reported in earnings as foreign exchange gain or loss in “Other income (expense) – net” on the accompanying Consolidated Statements of Earnings. In 2018, the $40.4 million derivative loss was substantially offset by transaction gains on net exposures of $36.5 million, resulting in a net foreign exchange loss of $3.9 million. In 2017, the $25.8 million derivative loss was partially offset by transaction gains on net exposures of $18.8 million, resulting in a net foreign exchange loss of $7.0 million. In 2016, the $7.4 million derivative loss was partially offset by transaction gains on net exposures of $6.1 million, resulting in a net foreign exchange loss of $1.3 million. The resulting net foreign exchange losses are included in “Other income (expense) – net” on the accompanying Consolidated Statements of Earnings. See Note 17 for additional information on “Other income (expense) – net.”
Snap-on’s equity forwards are not designated as hedges for financial reporting purposes. Fair value changes of both the equity forwards and related stock-based (mark-to-market) deferred compensation liabilities are reported in “Operating expenses” on the accompanying Consolidated Statements of Earnings. The $2.1 million derivative loss recognized in 2018 was primarily offset by $2.0 million of mark-to-market deferred compensation gain. The $0.9 million derivative gain recognized in 2017 was primarily offset by $0.8 million of mark-to-market deferred compensation expense. The $0.8 million derivative gain recognized in 2016 was largely offset by $0.3 million of mark-to-market deferred compensation expense.
As of 2018 year end, the maximum maturity date of any fair value hedge was three years. During the next 12 months, Snap-on expects to reclassify into earnings net gains from Accumulated OCI of approximately $1.1 million after tax at the time the underlying hedge transactions are realized.
Counterparty risk:Snap-on is exposed to credit losses in the event of non-performance by the counterparties to its various financial agreements, including its foreign currency forward contracts, interest rate swap agreements, treasury lock agreements and prepaid equity forward agreements. Snap-on does not obtain collateral or other security to support financial instruments subject to credit risk, but monitors the credit standing of the counterparties and generally enters into agreements with financial institution counterparties with a credit rating of A- or better. Snap-on does not anticipate non-performance by its counterparties, but cannot provide assurances.
Fair value measurements: The fair value measurement hierarchy prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority (“Level 1”) to unadjusted quoted prices in active markets for identical assets and liabilities and the lowest priority (“Level 3”) to unobservable inputs. Fair value measurements primarily based on observable market information are given a “Level 2” priority.
Snap-on has derivative assets and liabilities related to interest rate swaps, treasury locks, foreign currency forwards and equity forwards that are measured at Level 2 fair value on a recurring basis. The fair values of derivative instruments included within the accompanying Consolidated Balance Sheets as of 2021 and 2020 year end are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | 2021 | | 2020 |
| (Amounts in millions) | | Balance Sheet
Presentation | | Derivative
Assets
Fair Value | | Derivative
Liability
Fair Value | | Derivative
Assets
Fair Value | | Derivative
Liability
Fair Value |
Derivatives designated as hedging instruments: | | | | | | | | | | |
| Interest rate swaps | | Other assets | | $ | — | | | $ | — | | | $ | 5.1 | | | $ | — | |
| Derivatives not designated as hedging instruments: | | | | | | | | | | |
| Foreign currency forwards | | Prepaid expenses and other assets | | $ | 10.2 | | | $ | — | | | $ | 12.2 | | | $ | — | |
| Foreign currency forwards | | Other accrued liabilities | | — | | | 5.3 | | | — | | | 7.0 | |
| Equity forwards | | Prepaid expenses and other assets | | 15.5 | | | — | | | 13.5 | | | — | |
| | | | 25.7 | | | 5.3 | | | 25.7 | | | 7.0 | |
| Total derivative instruments | | | | $ | 25.7 | | | $ | 5.3 | | | $ | 30.8 | | | $ | 7.0 | |
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between participants at the measurement date. Level 2 fair value measurements for derivative assets and liabilities are measured using quoted prices in active markets for similar assets and liabilities. Interest rate swaps are valued based on the six-month LIBOR swap rate for similar instruments. Foreign currency forwards are valued based on exchange rates quoted by domestic and foreign banks for similar instruments. Equity forwards are valued using a market approach based primarily on the company’s stock price at the reporting date. The company did not have any derivative assets or liabilities measured at Level 1 or Level 3, nor did it implement any changes in its valuation techniques in 2021 and 2020, respectively.
The effect of derivative instruments designated as cash flow hedges as included in the Accumulated OCI on the Consolidated Balance Sheets is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivative |
| (Amounts in millions) | 2021 | | 2020 | | 2019 |
| Derivatives in Hedging Relationships: | | | | | | |
| Treasury locks | | $ | — | | | $ | 1.4 | | | $ | — | |
The effect of derivative instruments designated as fair value and cash flow hedges as included in the Consolidated Statements of Earnings is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Gain (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships |
| | 2021 | | 2020 | | 2019 |
| (Amounts in millions) | Interest expense | | Other income (expense) - net | | Interest expense | | Other income (expense) - net | | Interest expense | | Other income (expense) - net |
| | | | | | | | | | | | |
| Total amounts of income and expense presented in the Consolidated Statements of Earnings: | | $ | (53.1) | | | $ | 16.5 | | | $ | (54.0) | | | $ | 8.7 | | | $ | (49.0) | | | $ | 8.8 | |
| | | | | | | | | | | | |
| Gain (loss) on fair value hedging relationships: | | | | | | | | | | | | |
| Interest rate swaps | | | | | | | | | | | | |
| Long-term debt | | $ | (10.2) | | | $ | — | | | $ | (15.7) | | | $ | — | | | $ | (15.4) | | | $ | — | |
| Derivatives designated as hedging instruments | | 2.7 | | | — | | | 3.9 | | | — | | | 2.0 | | | — | |
| | | | | | | | | | | | |
| Gain on cash flow hedging relationships: | | | | | | | | | | | | |
| Treasury locks | | | | | | | | | | | | |
| Gain reclassified from accumulated OCI into income | | $ | 1.6 | | | $ | — | | | $ | 1.6 | | | $ | — | | | $ | 1.5 | | | $ | — | |
| | | | | | | | | | | | |
During the next 12 months, Snap-on expects to reclassify into earnings net gains from Accumulated OCI of approximately $1.2 million after tax at the time the underlying hedge transactions are realized.
The effects of derivative instruments not designated as hedging instruments as included in the Consolidated Statements of Earnings are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Statement of
Earnings
Presentation | | Gain (Loss) Recognized in
Income on Derivatives |
|
| (Amounts in millions) | | | | 2021 | | 2020 | | 2019 |
| Gain (loss) on derivative relationships: | | | | | | | | |
| Foreign currency forwards | | Other income
(expense) – net | | $ | (10.8) | | | $ | (6.6) | | | $ | (20.0) | |
| Net exposures | | Other income
(expense) – net | | 9.6 | | | 2.7 | | | 16.4 | |
| | | | | | | | |
| Equity forwards | | Operating expenses | | $ | 4.1 | | | $ | 1.0 | | | $ | 3.0 | |
| Stock-based deferred compensation liabilities | | Operating expenses | | (4.3) | | | (1.2) | | | (3.0) | |
Snap-on’s foreign currency forwards are typically not designated as hedges for financial reporting purposes. The fair value changes of foreign currency forwards not designated as hedging instruments are reported in earnings as foreign exchange gain or loss in “Other income (expense) – net” on the accompanying Consolidated Statements of Earnings. See Note 18 for additional information on “Other income (expense) – net.”
Snap-on’s equity forwards are not designated as hedges for financial reporting purposes. Fair value changes of both the equity forwards and related stock-based (mark-to-market) deferred compensation liabilities are reported in “Operating expenses” on the accompanying Consolidated Statements of Earnings.
Fair value of financial instruments: The fair values of financial instruments that do not approximate the carrying values in the financial statements as of 20182021 and 20172020 year end are as follows:
|
| | | | | | | | | | | | | | | | |
| | | 2018 | | 2017 |
| (Amounts in millions) | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
| Finance receivables – net | | $ | 1,592.9 |
| | $ | 1,845.4 |
| | $ | 1,544.6 |
| | $ | 1,791.5 |
|
| Contract receivables – net | | 443.2 |
| | 481.2 |
| | 419.4 |
| | 459.1 |
|
| Long-term debt, notes payable and current maturities of long-term debt | | 1,132.3 |
| | 1,136.0 |
| | 1,186.8 |
| | 1,235.6 |
|
|
| | |
| | |
Notes to Consolidated Financial Statements (continued) | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2021 | | 2020 |
| (Amounts in millions) | | Carrying
Value | | Fair
Value | | Carrying
Value | | Fair
Value |
| Finance receivables – net | | $ | 1,656.3 | | | $ | 1,988.6 | | | $ | 1,666.5 | | | $ | 2,024.4 | |
| Contract receivables – net | | 488.6 | | | 542.5 | | | 487.2 | | | 545.4 | |
| Long-term debt, notes payable and current maturities of long-term debt | | 1,200.3 | | | 1,339.7 | | | 1,450.6 | | | 1,678.2 | |
The following methods and assumptions were used in estimating the fair value of financial instruments:
•Finance and contract receivables include both short-term and long-term receivables. The fair value estimates of finance and contract receivables are derived utilizing discounted cash flow analyses performed on groupings of receivables that are similar in terms of loan type and characteristics. The cash flow analyses consider recent prepayment trends where applicable. The cash flows are discounted over the average life of the receivables using a current market discount rate of a similar term adjusted for credit quality. Significant inputs to the fair value measurements of the receivables are unobservable and, as such, are classified as Level 3.
•Fair value of long-term debt and current maturities of long-term debt were estimated, using Level 2 fair value measurements, based on quoted market values of Snap-on’s publicly traded senior debt. The carrying value of long-term debt and the current maturities of long-term debt includes adjustments related to fair value hedges. The fair value of notes payable approximates such instruments’ carrying value due to their short-term nature.
•The fair value of all other financial instruments, including trade and other accounts receivable, accounts payable and other financial instruments, approximates such instruments’ carrying value due to their short-term nature.
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
Note 12: Pension Plans
Snap-on has several non-contributory defined benefit pension plans covering most U.S. employees and certain employees in foreign countries. Snap-on also has foreign contributory defined benefit pension plans covering certain foreign employees. Retirement benefits are generally provided based on employees’ years of service and average earnings or stated amounts for years of service. Normal retirement age is 65, with provisions for earlier retirement.
The status of Snap-on’s pension plans as of 20182021 and 20172020 year end is as follows:
| | | | | | | | | | | | | | |
| (Amounts in millions) | | 2021 | | 2020 |
| Change in projected benefit obligation: | | | | |
| Benefit obligation at beginning of year | | $ | 1,710.0 | | | $ | 1,565.6 | |
| Service cost | | 28.8 | | | 27.0 | |
| Interest cost | | 42.3 | | | 48.7 | |
| Plan participant contributions | | 0.5 | | | 0.4 | |
| Plan amendments | | — | | | 0.1 | |
| Benefits paid | | (75.6) | | | (72.1) | |
| Actuarial (gain) loss | | (30.2) | | | 122.8 | |
| Foreign currency impact | | (8.7) | | | 17.5 | |
| Benefit obligation at end of year | | $ | 1,667.1 | | | $ | 1,710.0 | |
|
| | | | | | | | |
| (Amounts in millions) | | 2018 | | 2017 |
| Change in projected benefit obligation: | | | | |
| Benefit obligation at beginning of year | | $ | 1,467.6 |
| | $ | 1,361.4 |
|
| Service cost | | 25.1 |
| | 22.7 |
|
| Interest cost | | 52.8 |
| | 56.1 |
|
| Plan participant contributions | | 0.5 |
| | 0.6 |
|
| Plan amendments | | 1.0 |
| | — |
|
| Plan settlements | | — |
| | (0.3 | ) |
| Benefits paid | | (68.5 | ) | | (66.6 | ) |
| Actuarial (gain) loss | | (77.9 | ) | | 69.5 |
|
| Foreign currency impact | | (13.7 | ) | | 24.2 |
|
| Benefit obligation at end of year | | $ | 1,386.9 |
| | $ | 1,467.6 |
|
| | | | | | | | | | | | | | |
| | | | |
| Change in plan assets: | | | | |
| Fair value of plan assets at beginning of year | | $ | 1,632.4 | | | $ | 1,455.5 | |
| Actual gain on plan assets | | 146.3 | | | 227.9 | |
| Employer contributions | | 10.7 | | | 10.4 | |
| Plan participant contributions | | 0.5 | | | 0.4 | |
| Benefits paid | | (75.6) | | | (72.1) | |
| Foreign currency impact | | (3.4) | | | 10.3 | |
| Fair value of plan assets at end of year | | $ | 1,710.9 | | | $ | 1,632.4 | |
| Funded (unfunded) status at end of year | | $ | 43.8 | | | $ | (77.6) | |
|
| | | | | | | | |
| Change in plan assets: | | | | |
| Fair value of plan assets at beginning of year | | $ | 1,305.0 |
| | $ | 1,110.8 |
|
| Actual (loss) gain on plan assets | | (72.8 | ) | | 175.7 |
|
| Employer contributions | | 61.3 |
| | 69.6 |
|
| Plan participant contributions | | 0.5 |
| | 0.6 |
|
| Plan settlements | | — |
| | (0.3 | ) |
| Benefits paid | | (68.5 | ) | | (66.6 | ) |
| Foreign currency impact | | (9.9 | ) | | 15.2 |
|
| Fair value of plan assets at end of year | | $ | 1,215.6 |
| | $ | 1,305.0 |
|
| Unfunded status at end of year | | $ | (171.3 | ) | | $ | (162.6 | ) |
Amounts recognized in the Consolidated Balance Sheets as of 20182021 and 20172020 year end are as follows:
| | | | | | | | | | | | | | |
| (Amounts in millions) | | 2021 | | 2020 |
| Other assets | | $ | 160.7 | | | $ | 54.2 | |
| Accrued benefits | | (12.0) | | | (4.7) | |
| Pension liabilities | | (104.9) | | | (127.1) | |
| Net asset (liability) | | $ | 43.8 | | | $ | (77.6) | |
|
| | | | | | | | |
| (Amounts in millions) | | 2018 | | 2017 |
| Other assets | | $ | 4.3 |
| | $ | 1.5 |
|
| Accrued benefits | | (4.3 | ) | | (5.2 | ) |
| Pension liabilities | | (171.3 | ) | | (158.9 | ) |
| Net liability | | $ | (171.3 | ) | | $ | (162.6 | ) |
Amounts included in Accumulated OCI on the accompanying Consolidated Balance Sheets as of 20182021 and 20172020 year end are as follows:
| | | | | | | | | | | | | | |
| (Amounts in millions) | | 2021 | | 2020 |
| Net loss, net of tax of $68.1 million and $95.4 million, respectively | | $ | (209.4) | | | $ | (302.2) | |
| Prior service cost, net of tax of ($0.2) million and ($0.2) million, respectively | | (0.6) | | | (0.7) | |
| Total amount included in Accumulated OCI | | $ | (210.0) | | | $ | (302.9) | |
|
| | | | | | | | |
| (Amounts in millions) | | 2018 | | 2017 |
| Net loss, net of tax of $158.8 million and $146.4 million, respectively | | $ | (301.9 | ) | | $ | (266.7 | ) |
| Prior service credit, net of tax of $0.4 million and $0.9 million, respectively | | (0.2 | ) | | 1.5 |
|
| | | $ | (302.1 | ) | | $ | (265.2 | ) |
The accumulated benefit obligation for Snap-on’s pension plans as of 20182021 and 20172020 year end was $1,316.1$1,580.4 million and $1,385.0$1,621.5 million, respectively.
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for Snap-on’s pension plans in which the accumulated benefit obligation exceeds the fair value of plan assets as of 20182021 and 20172020 year end are as follows:
| | | (Amounts in millions) | | 2018 | | 2017 | (Amounts in millions) | | 2021 | | 2020 |
| Projected benefit obligation | | $ | 1,081.3 |
| | $ | 398.7 |
| |
| Pension plans with accumulated benefit obligations in excess of plan assets: | | Pension plans with accumulated benefit obligations in excess of plan assets: |
| Accumulated benefit obligation | | 1,028.6 |
| | 378.1 |
| Accumulated benefit obligation | | $ | 127.8 | | | $ | 266.3 | |
| Fair value of plan assets | | 916.2 |
| | 275.6 |
| Fair value of plan assets | | 25.1 | | | 152.6 | |
| Pension plans with projected benefit obligations in excess of plans assets: | | Pension plans with projected benefit obligations in excess of plans assets: |
| Projected benefit obligation | | Projected benefit obligation | | $ | 280.4 | | | $ | 284.4 | |
| Fair value of plan assets | | Fair value of plan assets | | 163.5 | | | 152.6 | |
The components of net periodic benefit cost and changes recognized in “Other comprehensive income (loss)” (“OCI”) are as follows:
| | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2021 | | 2020 | | 2019 |
| Net periodic benefit cost: | | | | | | |
| Service cost | | $ | 28.8 | | | $ | 27.0 | | | $ | 23.5 | |
| Interest cost | | 42.3 | | | 48.7 | | | 56.4 | |
| Expected return on plan assets | | (94.4) | | | (94.7) | | | (91.5) | |
| Amortization of unrecognized loss | | 36.3 | | | 34.5 | | | 25.2 | |
| Amortization of prior service cost (credit) | | 0.1 | | | — | | | (0.9) | |
| | | | | | |
| Net periodic benefit cost | | $ | 13.1 | | | $ | 15.5 | | | $ | 12.7 | |
| | | | | | |
| Changes in benefit obligations recognized in OCI, net of tax: | | | | | | |
| Net (gain) loss | | $ | (92.8) | | | $ | (31.6) | | | $ | 31.9 | |
| Prior service cost (credit) | | (0.1) | | | 0.1 | | | 0.4 | |
| Total recognized in OCI | | $ | (92.9) | | | $ | (31.5) | | | $ | 32.3 | |
|
| | | | | | | | | | | | |
| (Amounts in millions) | | 2018 | | 2017 | | 2016 |
| Net periodic benefit cost: | | | | | | |
| Service cost | | $ | 25.1 |
| | $ | 22.7 |
| | $ | 19.3 |
|
| Interest cost | | 52.8 |
| | 56.1 |
| | 56.5 |
|
| Expected return on plan assets | | (88.6 | ) | | (83.4 | ) | | (81.0 | ) |
| Amortization of unrecognized loss | | 32.7 |
| | 27.9 |
| | 31.3 |
|
| Amortization of prior service credit | | (1.2 | ) | | (1.1 | ) | | (1.1 | ) |
| Settlement loss | | — |
| | 0.1 |
| | — |
|
| Net periodic benefit cost | | $ | 20.8 |
| | $ | 22.3 |
| | $ | 25.0 |
|
| | | | | | | |
| Changes in benefit obligations recognized in OCI, net of tax: | | | | | | |
| Net (gain) loss | | $ | 35.2 |
| | $ | (30.3 | ) | | $ | 43.3 |
|
| Prior service cost | | 1.7 |
| | 0.7 |
| | 0.6 |
|
| Total recognized in OCI | | $ | 36.9 |
| | $ | (29.6 | ) | | $ | 43.9 |
|
The components of net periodic pension cost, other than the service cost component, are included in “Other income (expense) - net” on the accompanying Consolidated Statements of Earnings. See Note 1718 for additional information on Other income (expense) - net.
|
| | |
| | |
Notes to Consolidated Financial Statements (continued) | | |
Amounts in Accumulated OCI that are expected to be amortized as net expense into net periodic benefit cost during 2019 are as follows:
|
| | | | |
| (Amounts in millions) | | Amount |
| Amortization of unrecognized loss | | $ | 24.9 |
|
| Amortization of prior service credit | | (0.9 | ) |
| Total to be recognized in net periodic benefit cost | | $ | 24.0 |
|
The worldwide weighted-average assumptions used to determine Snap-on’s full-year pension costs are as follows:
| | | | | 2018 | | 2017 | | 2016 | | 2021 | | 2020 | | 2019 |
| Discount rate | | 3.7% | | 4.2% | | 4.5% | Discount rate | | 2.5% | | 3.2% | | 4.2% |
| Expected return on plan assets | | 7.1% | | 7.2% | | 7.4% | Expected return on plan assets | | 6.5% | | 7.0% | | 7.1% |
| Rate of compensation increase | | 3.4% | | 3.4% | | 3.6% | Rate of compensation increase | | 3.4% | | 3.4% | | 3.4% |
| Interest crediting rate - U.S. cash balance plan | | Interest crediting rate - U.S. cash balance plan | | 3.8% | | 3.8% | | 3.8% |
The worldwide weighted-average assumptions used to determine Snap-on’s projected benefit obligation as of 20182021 and 20172020 year end are as follows:
| | | | | | | | | | | | | | |
| | 2021 | | 2020 |
| Discount rate | | 2.8% | | 2.5% |
| Rate of compensation increase | | 3.4% | | 3.4% |
| Interest crediting rate - U.S. cash balance plan | | 3.8% | | 3.8% |
|
| | | | |
| | | 2018 | | 2017 |
| Discount rate | | 4.4% | | 3.7% |
| Rate of compensation increase | | 3.4% | | 3.4% |
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
The objective of Snap-on’s discount rate assumption is to reflect the rate at which the pension benefits could be effectively settled. In making this determination, the company takes into account the timing and amount of benefits that would be available under the plans. The domestic discount rate as of 20182021 and 20172020 year end was selected based on a cash flow matching methodology developed by the company’s outside actuaries and which incorporates a review of current economic conditions. This methodology matches the plans’ yearly projected cash flows for benefits and service costs to those of hypothetical bond portfolios using high-quality, AA rated or better, corporate bonds from either Moody’s Investors Service or Standard & Poor’s credit rating agencies available at the measurement date. This technique calculates bond portfolios that produce adequate cash flows to pay the plans’ projected yearly benefits and then selects the portfolio with the highest yield and uses that yield as the recommended discount rate.
The weighted-average discount rate for Snap-on’s domestic pension plans of 4.4%2.9% represents the single rate that produces the same present value of cash flows as the estimated benefit plan payments. Lowering Snap-on’s domestic discount rate assumption by 50 basis points (100 basis points (“bps”) equals 1.0 percent) would have increased Snap-on’s 20182021 domestic pension expense and projected benefit obligation by approximately $3.7$4.0 million and $62.9$77.0 million, respectively. As of 20182021 year end, Snap-on’s domestic projected benefit obligation comprised approximately 83%82% of Snap-on’s worldwide projected benefit obligation. The weighted-average discount rate for Snap-on’s foreign pension plans of 3.0%2.0% represents the single rate that produces the same present value of cash flows as the estimated benefit plan payments. Lowering Snap-on’s foreign discount rate assumption by 50 bps would have increased Snap-on’s 20182021 foreign pension expense and projected benefit obligation by approximately $1.9$2.4 million and $21.0$27.8 million, respectively.
Actuarial gains and losses in excess of 10 percent of the greater of the projected benefit obligation or market-related value of assets are amortized on a straight-line basis over the average remaining service period of active participants or over the average remaining life expectancy for plans with primarily inactive participants. Prior service costs and credits resulting from plan amendments are amortized in equal annual amounts over the average remaining service period of active participants or over the average remaining life expectancy for plans with primarily inactive participants.
As a practical expedient, Snap-on uses the calendar year end as the measurement date for its plans. Snap-on funds its pension plans as required by governmental regulation and may consider discretionary contributions as conditions warrant. Snap-onSnap‑on intends to make contributions of $9.4 million to its foreign pension plans and $1.9$9.5 million to its domestic pension plans in 2019,2022, as required by law. Depending on market and other conditions, Snap-on may make discretionary cash contributions to its pension plans in 2019.2022.
The following benefit payments, which reflect expected future service, are expected to be paid as follows:
| | | (Amounts in millions) | Amount | (Amounts in millions) | Amount |
| Year: | | Year: | |
| 2019 | $ | 76.2 |
| |
| 2020 | 80.1 |
| |
| 2021 | 82.4 |
| |
| 2022 | 92.4 |
| 2022 | $ | 92.4 | |
| 2023 | 88.8 |
| 2023 | 87.6 | |
| 2024-2028 | 474.9 |
| |
| 2024 | | 2024 | 91.5 | |
| 2025 | | 2025 | 92.6 | |
| 2026 | | 2026 | 94.5 | |
| 2027-2031 | | 2027-2031 | 493.9 | |
Snap-on’s domestic pension plans have a long-term investment horizon and a total return strategy that emphasizes a capital growth objective. The long-term investment performance objective for Snap-on’s domestic plans’ assets is to achieve net of expense returns that meet or exceed the 7.45%6.50% domestic long-term return on plan assets assumption used for reporting purposes. Snap-on uses a three-year, market-related value asset method of amortizing the difference between actual and expected returns on its domestic plans’ assets. As of 20182021 year end, Snap-on’s domestic pension plans’ assets comprised approximately 86% of the company’s worldwide pension plan assets.
The basis for determining the overall expected long-term return on plan assets assumption is a nominal returns forecasting method. For each asset class, future returns are estimated by identifying the premium of riskier asset classes over lower risk alternatives. The methodology constructs expected returns using a “building block” approach to the individual components of total return. These forecasts are stated in both nominal and real (after inflation) terms. This process first considers the long-term historical return premium based on the longest set of data available for each asset class. These premiums, which are calculated using the geometric mean, are then adjusted based on current relative valuation levels, macro-economic conditions, and the expected alpha related to active investment management. The asset return assumption is also adjusted by an implicit expense load for estimated administrative and investment-related expenses.
For risk and correlation assumptions, the actual experience for each asset class is reviewed for the longest time period available. Expected relationships for a 10 to 20 year time horizon are determined based upon historical results, with adjustments made for material changes.
Investments are diversified to attempt to minimize the risk of large losses. Since asset allocation is a key determinant of expected investment returns, assets are periodically rebalanced to the targeted allocation to correct significant deviations from the asset allocation policy that are caused by market fluctuations and cash flow. Asset/liability studies are conducted periodically to determine if any revisions to the strategic asset allocation policy are necessary.
Snap-on’s domestic pension plans’ target allocation and actual weighted-average asset allocation by asset category and fair value of plan assets as of 20182021 and 20172020 year end are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Target | | 2021 | | 2020 |
| Asset category: | | | | | | |
| Equity securities | | 54% | | 52% | | 54% |
| Debt securities and cash and cash equivalents | | 41% | | 42% | | 41% |
| | | | | | |
| Hedge funds | | 5% | | 6% | | 5% |
| Total | | 100% | | 100% | | 100% |
| | | | | | |
Fair value of plan assets (Amounts in millions) | | | | $1,464.7 | | $1,401.0 |
|
| | | | | | | | | | | |
| | | Target | | 2018 | | 2017 |
| Asset category: | | | | | | |
| Equity securities | | 51 | % | | 49 | % | | 51 | % |
| Debt securities and cash and cash equivalents | | 37 | % | | 40 | % | | 38 | % |
| Real estate and other real assets | | 2 | % | | 1 | % | | 1 | % |
| Hedge funds | | 10 | % | | 10 | % | | 10 | % |
| Total | | 100 | % | | 100 | % | | 100 | % |
| | | | | | | |
Fair value of plan assets (Amounts in millions) | | | | $ | 1,049.0 |
| | $ | 1,122.7 |
|
The fair value measurement hierarchy prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority (“Level 1”)(Level 1) to unadjusted quoted prices in active markets for identical assets and liabilities and the lowest priority (“Level 3”)(Level 3) to unobservable inputs. Fair value measurements primarily based on observable market information are given a “Level 2”Level 2 priority.
|
| | |
| | |
Notes to Consolidated Financial Statements (continued) | | |
Certain equity and debt securities are valued at quoted per share or unit market prices for which an official close or last trade pricing on an active exchange is available and are categorized as Level 1 in the fair value hierarchy. If quoted market prices are not readily available for specific securities, values are estimated using quoted prices of securities with similar characteristics and are categorized as Level 2 in the fair value hierarchy. Insurance contracts are valued at the present value of the estimated future cash flows promised under the terms of the insurance contracts and are categorized as Level 2 in the fair value hierarchy.
Commingled equity securities and commingled multi-strategy funds are valued at the Net Asset Value (“NAV”) per share or unit multiplied by the number of shares or units held as of the measurement date, as reported by the fund managers. The share or unit price is quoted on a private market and is based on the value of the underlying investments, which are primarily based on observable inputs; such investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.
Private equity partnership funds, hedge funds, and real estate and other real assets are valued at the NAV as reported by the fund managers. Private equity partnership funds, certain hedge funds, and certain real estate and other real assets are valued based on the proportionate interest or share of net assets held by the pension plan, which is based on the estimated fair market value of the underlying investments. Certain other hedge funds and real estate and other real assets are valued at the NAV per share or unit multiplied by the number of shares or units held as of the measurement date, based on the estimated value of the underlying investments as reported by the fund managers. These investments are measured at fair value using the NAV per share (or its equivalent) practical expedient and have not been classified in the fair value hierarchy.
The company regularly reviews fund performance directly with its investment advisor and the fund managers, and performs qualitative analysis to corroborate the reasonableness of the reported NAVs. For funds for which the company did not receive a year-end NAV, the company recorded an estimate of the change in fair value for the latest period based on return estimates and other fund activity obtained from the fund managers.
The columns labeled “Investments Measured at NAV” in the following tables reflect certain investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented in these tables are intended to permit a reconciliation of the fair value hierarchy to the pension plan assets.
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
The following is a summary, by asset category, of the fair value and the level within the fair value hierarchy of Snap-on’s domestic pension plans’ assets as of 20182021 year end:
| | | (Amounts in millions) | | Quoted Prices for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Investments Measured at NAV | | Total | (Amounts in millions) | | Quoted
Prices for
Identical
Assets (Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Investments
Measured at
NAV | | Total |
| Asset category: | | | | | | | | | Asset category: | | | | | | | | |
| Cash and cash equivalents | | $ | 17.8 |
| | $ | — |
| | $ | — |
| | $ | 17.8 |
| Cash and cash equivalents | | $ | 23.7 | | | $ | — | | | $ | — | | | $ | 23.7 | |
| Equity securities: | | | | | | | | | Equity securities: | |
| Domestic | | 70.5 |
| | — |
| | — |
| | 70.5 |
| Domestic | | 109.4 | | | — | | | — | | | 109.4 | |
| Foreign | | 87.5 |
| | — |
| | — |
| | 87.5 |
| Foreign | | 59.1 | | | — | | | — | | | 59.1 | |
| Commingled funds – domestic | | — |
| | — |
| | 200.6 |
| | 200.6 |
| Commingled funds – domestic | | — | | | — | | | 311.7 | | | 311.7 | |
| Commingled funds – foreign | | — |
| | — |
| | 128.4 |
| | 128.4 |
| Commingled funds – foreign | | — | | | — | | | 261.4 | | | 261.4 | |
| Private equity partnerships | | — |
| | — |
| | 22.7 |
| | 22.7 |
| Private equity partnerships | | — | | | — | | | 14.5 | | | 14.5 | |
| Debt securities: | | | | | | | | | Debt securities: | |
| Government | | 131.2 |
| | 2.6 |
| | — |
| | 133.8 |
| Government | | 180.0 | | | 0.7 | | | — | | | 180.7 | |
| Corporate bonds | | — |
| | 271.3 |
| | — |
| | 271.3 |
| Corporate bonds | | — | | | 414.3 | | | — | | | 414.3 | |
| Real estate and other real assets | | — |
| | — |
| | 11.9 |
| | 11.9 |
| Real estate and other real assets | | — | | | — | | | 2.7 | | | 2.7 | |
| Hedge funds | | — |
| | — |
| | 104.5 |
| | 104.5 |
| Hedge funds | | — | | | — | | | 87.2 | | | 87.2 | |
| Total | | $ | 307.0 |
| | $ | 273.9 |
| | $ | 468.1 |
| | $ | 1,049.0 |
| Total | | $ | 372.2 | | | $ | 415.0 | | | $ | 677.5 | | | $ | 1,464.7 | |
The following is a summary, by asset category, of the fair value and the level within the fair value hierarchy of Snap-on’s domestic pension plans’ assets as of 20172020 year end:
| | | (Amounts in millions) | | Quoted Prices for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Investments Measured at NAV | | Total | (Amounts in millions) | | Quoted
Prices for
Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Investments
Measured at
NAV | | Total |
| Asset category: | | | | | | | | | Asset category: | | | | | | | | |
| Cash and cash equivalents | | $ | 20.6 |
| | $ | — |
| | $ | — |
| | $ | 20.6 |
| Cash and cash equivalents | | $ | 30.3 | | | $ | — | | | $ | — | | | $ | 30.3 | |
| Equity securities: | | | | | | | | | Equity securities: | |
| Domestic | | 73.4 |
| | — |
| | — |
| | 73.4 |
| Domestic | | 111.8 | | | — | | | — | | | 111.8 | |
| Foreign | | 100.1 |
| | — |
| | — |
| | 100.1 |
| Foreign | | 62.4 | | | — | | | — | | | 62.4 | |
| Commingled funds – domestic | | — |
| | — |
| | 225.0 |
| | 225.0 |
| Commingled funds – domestic | | — | | | — | | | 312.9 | | | 312.9 | |
| Commingled funds – foreign | | — |
| | — |
| | 148.8 |
| | 148.8 |
| Commingled funds – foreign | | — | | | — | | | 248.5 | | | 248.5 | |
| Private equity partnerships | | — |
| | — |
| | 27.5 |
| | 27.5 |
| Private equity partnerships | | — | | | — | | | 14.7 | | | 14.7 | |
| Debt securities: | | | | | | | | | Debt securities: | |
| Government | | 152.8 |
| | 2.2 |
| | — |
| | 155.0 |
| Government | | 161.7 | | | 2.9 | | | — | | | 164.6 | |
| Corporate bonds | | — |
| | 253.0 |
| | — |
| | 253.0 |
| Corporate bonds | | — | | | 377.9 | | | — | | | 377.9 | |
| Real estate and other real assets | | — |
| | — |
| | 13.2 |
| | 13.2 |
| Real estate and other real assets | | — | | | — | | | 4.3 | | | 4.3 | |
| Hedge funds | | — |
| | — |
| | 106.1 |
| | 106.1 |
| Hedge funds | | — | | | — | | | 73.6 | | | 73.6 | |
| Total | | $ | 346.9 |
| | $ | 255.2 |
| | $ | 520.6 |
| | $ | 1,122.7 |
| Total | | $ | 366.2 | | | $ | 380.8 | | | $ | 654.0 | | | $ | 1,401.0 | |
Snap-on’s primary investment objective for its foreign pension plans’ assets is to meet the projected obligations to the beneficiaries over a long period of time, and to do so in a manner that is consistent with the company’s risk tolerance. The foreign asset allocation policies consider the company’s financial strength and long-term asset class risk/return expectations, since the obligations are long term in nature. The company believes the foreign pension plans’ assets, which are managed locally by professional investment firms, are well diversified.
The expected long-term rates of return on foreign plans’ assets, which rangedrange from 2.0%1.3% to 6.1%5.6% as of 20182021 year end, reflect management’s expectations of long-term average rates of return on funds invested to provide benefits included in the plans’ projected benefit obligation. The expected returns are based on outlooks for inflation, fixed income returns and equity returns, asset allocations and investment strategies. Differences between actual and expected returns on foreign pension plans’ assets are recorded as an actuarial gain or loss and amortized accordingly.
Snap-on’s foreign pension plans’ target allocation and actual weighted-average asset allocation by asset category and fair value of plan assets as of 20182021 and 20172020 year end are as follows:
|
| | | | | | |
| | | Target | | 2018 | | 2017 |
| Asset category: | | | | | | |
| Equity securities* | | 35% | | 35% | | 36% |
| Debt securities* and cash and cash equivalents | | 40% | | 42% | | 42% |
| Insurance contracts and hedge funds | | 25% | | 23% | | 22% |
| Total | | 100% | | 100% | | 100% |
| | | | | | | |
Fair value of plan assets (Amounts in millions) | | | | $166.6 | | $182.3 |
| | | | | | | | | | | | | | | | | | | | |
| | Target | | 2021 | | 2020 |
| Asset category: | | | | | | |
| Equity securities* | | 44% | | 43% | | 46% |
| Debt securities* and cash and cash equivalents | | 44% | | 45% | | 40% |
| Insurance contracts and hedge funds | | 12% | | 12% | | 14% |
| Total | | 100% | | 100% | | 100% |
| | | | | | |
Fair value of plan assets (Amounts in millions) | | | | $246.2 | | $231.4 |
| | | | | | | | | | | | | | |
| | | | |
| | | | |
| * Includes commingled funds - multi-strategy | | | |
|
| | |
| | |
Notes to Consolidated Financial Statements (continued) | | |
The following is a summary, by asset category, of the fair value and the level within the fair value hierarchy of Snap-on’s foreign pension plans’ assets as of 20182021 year end:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | Quoted
Prices for
Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Investments
Measured at
NAV | | Total |
| Asset category: | | | | | | | | |
| Cash and cash equivalents | | $ | 1.8 | | | $ | — | | | $ | — | | | $ | 1.8 | |
| Commingled funds – multi-strategy | | — | | | — | | | 172.5 | | | 172.5 | |
| Debt securities: | | | | | | | | |
| Government | | 13.9 | | | — | | | — | | | 13.9 | |
| Corporate bonds | | — | | | 28.1 | | | — | | | 28.1 | |
| Insurance contracts | | — | | | 29.9 | | | — | | | 29.9 | |
| | | | | | | | |
| Total | | $ | 15.7 | | | $ | 58.0 | | | $ | 172.5 | | | $ | 246.2 | |
|
| | | | | | | | | | | | | | | | |
| (Amounts in millions) | | Quoted Prices for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Investments Measured at NAV | | Total |
| Asset category: | | | | | | | | |
| Cash and cash equivalents | | $ | 1.2 |
| | $ | — |
| | $ | — |
| | $ | 1.2 |
|
| Commingled funds – multi-strategy | | — |
| | — |
| | 101.5 |
| | 101.5 |
|
| Debt securities: | | | | | | | | |
| Government | | 8.3 |
| | — |
| | — |
| | 8.3 |
|
| Corporate bonds | | — |
| | 17.5 |
| | — |
| | 17.5 |
|
| Insurance contracts | | — |
| | 23.8 |
| | — |
| | 23.8 |
|
| Hedge fund | | — |
| | — |
| | 14.3 |
| | 14.3 |
|
| Total | | $ | 9.5 |
| | $ | 41.3 |
| | $ | 115.8 |
| | $ | 166.6 |
|
The following is a summary, by asset category, of the fair value and the level within the fair value hierarchy of Snap-on’s foreign pension plans’ assets as of 20172020 year end:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | Quoted
Prices for
Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Investments
Measured at
NAV | | Total |
| Asset category: | | | | | | | | |
| Cash and cash equivalents | | $ | 1.0 | | | $ | — | | | $ | — | | | $ | 1.0 | |
| Commingled funds – multi-strategy | | — | | | — | | | 162.4 | | | 162.4 | |
| Debt securities: | | | | | | | | |
| Government | | 12.0 | | | — | | | — | | | 12.0 | |
| Corporate bonds | | — | | | 23.8 | | | — | | | 23.8 | |
| Insurance contracts | | — | | | 32.2 | | | — | | | 32.2 | |
| | | | | | | | |
| Total | | $ | 13.0 | | | $ | 56.0 | | | $ | 162.4 | | | $ | 231.4 | |
|
| | | | | | | | | | | | | | | | |
| (Amounts in millions) | | Quoted Prices for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Investments Measured at NAV | | Total |
| Asset category: | | | | | | | | |
| Cash and cash equivalents | | $ | 0.7 |
| | $ | — |
| | $ | — |
| | $ | 0.7 |
|
| Commingled funds – multi-strategy | | — |
| | — |
| | 114.2 |
| | 114.2 |
|
| Debt securities: | | | | | | | | |
| Government | | 8.8 |
| | — |
| | — |
| | 8.8 |
|
| Corporate bonds | | — |
| | 18.3 |
| | — |
| | 18.3 |
|
| Insurance contracts | | — |
| | 24.2 |
| | — |
| | 24.2 |
|
| Hedge fund | | — |
| | — |
| | 16.1 |
| | 16.1 |
|
| Total | | $ | 9.5 |
| | $ | 42.5 |
| | $ | 130.3 |
| | $ | 182.3 |
|
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
Snap-on has several 401(k) plans covering certain U.S. employees. Snap-on’s employer match to the 401(k) plans is made with cash contributions. For 2018, 20172021, 2020 and 2016,2019, Snap-on recognized $9.4$11.3 million, $8.9$10.3 million and $8.2$9.8 million, respectively, of expense related to its 401(k) plans.
Note 13: Postretirement Plans
Snap-on provides health care benefits for certain retired U.S. employees. For comprehensive major medical plans since 1989, benefits are paid based on deductibles and percentages of covered expenses. Plan provisions allow for benefit and coverage changes. Most retirees are required to pay the entire cost of the coverage, but Snap-on may elect to subsidize the cost of coverage under certain circumstances. Additionally, certain eligible retirees have been provided with an account for the reimbursement of qualifying medical expenses during retirement. Upon achieving specific age and service requirements, certain active associates are eligible for this account upon retirement from the company.
Employees retiring prior to 1989 were eligible for retiree medical coverage upon reaching early retirement age, with no retiree contributions required. Benefits are paid based on deductibles and percentages of covered expenses and take into consideration payments made by Medicare and other insurance coverage.
Since 1989, U.S. retirees have been eligible for comprehensive major medical plans. Benefits are paid based on deductibles and percentages of covered expenses, and plan provisions allow for benefit and coverage changes. Most retirees are required to pay the entire cost of the coverage, but Snap-on may elect to subsidize the cost of coverage under certain circumstances.
Snap-on has a Voluntary Employees Beneficiary Association (“VEBA”) trust for the funding of existing postretirement health care benefits for certain non-salariedunion retirees in the United States; all other retiree health care plans are unfunded.
The status of Snap-on’s U.S. postretirement health care plans as of 20182021 and 20172020 year end is as follows:
| | | (Amounts in millions) | | 2018 | | 2017 | (Amounts in millions) | | 2021 | | 2020 |
| Change in accumulated postretirement benefit obligation: | | | | | Change in accumulated postretirement benefit obligation: | | | | |
| Benefit obligation at beginning of year | | $ | 52.5 |
| | $ | 53.2 |
| Benefit obligation at beginning of year | | $ | 50.6 | | | $ | 49.2 | |
| Service cost | | — |
| | — |
| |
| Interest cost | | 1.8 |
| | 2.1 |
| Interest cost | | 1.1 | | | 1.5 | |
| Plan participant contributions | | 0.3 |
| | 0.4 |
| Plan participant contributions | | 0.2 | | | 0.2 | |
| Benefits paid | | (4.5 | ) | | (4.3 | ) | Benefits paid | | (3.6) | | | (3.6) | |
| Actuarial (gain) loss | | (3.3 | ) | | 1.1 |
| Actuarial (gain) loss | | (0.8) | | | 3.3 | |
| Benefit obligation at end of year | | $ | 46.8 |
| | $ | 52.5 |
| Benefit obligation at end of year | | $ | 47.5 | | | $ | 50.6 | |
| | | | | | | | | | | | | | |
| | | | |
| Change in plan assets: | | | | |
| Fair value of plan assets at beginning of year | | $ | 13.3 | | | $ | 12.8 | |
| Actual return on plan assets | | 1.1 | | | 1.4 | |
| Employer contributions | | 2.7 | | | 2.5 | |
| Plan participant contributions | | 0.2 | | | 0.2 | |
| Benefits paid | | (3.6) | | | (3.6) | |
| Fair value of plan assets at end of year | | $ | 13.7 | | | $ | 13.3 | |
| Unfunded status at end of year | | $ | (33.8) | | | $ | (37.3) | |
|
| | | | | | | | |
| Change in plan assets: | | | | |
| Fair value of plan assets at beginning of year | | $ | 13.4 |
| | $ | 13.2 |
|
| Actual return on plan assets | | (0.2 | ) | | 1.3 |
|
| Employer contributions | | 3.1 |
| | 2.8 |
|
| Plan participant contributions | | 0.3 |
| | 0.4 |
|
| Benefits paid | | (4.5 | ) | | (4.3 | ) |
| Fair value of plan assets at end of year | | $ | 12.1 |
| | $ | 13.4 |
|
| Unfunded status at end of year | | $ | (34.7 | ) | | $ | (39.1 | ) |
Amounts recognized in the Consolidated Balance Sheets as of 20182021 and 20172020 year end are as follows:
| | | | | | | | | | | | | | |
| (Amounts in millions) | | 2021 | | 2020 |
| Accrued benefits | | $ | (2.7) | | | $ | (2.8) | |
| Retiree health care benefits | | (31.1) | | | (34.5) | |
| Net liability | | $ | (33.8) | | | $ | (37.3) | |
|
| | | | | | | | |
| (Amounts in millions) | | 2018 | | 2017 |
| Accrued benefits | | $ | (2.9 | ) | | $ | (3.1 | ) |
| Retiree health care benefits | | (31.8 | ) | | (36.0 | ) |
| Net liability | | $ | (34.7 | ) | | $ | (39.1 | ) |
Amounts included in Accumulated OCI on the accompanying Consolidated Balance Sheets as of 20182021 and 20172020 year end are as follows:
| | | | | | | | | | | | | | |
| (Amounts in millions) | | 2021 | | 2020 |
| Net gain, net of tax of $0.8 million and $0.5 million, respectively | | $ | 2.3 | | | $ | 1.3 | |
|
| | | | | | | | |
| (Amounts in millions) | | 2018 | | 2017 |
| Net gain, net of tax of $3.1 million and $2.6 million, respectively | | $ | 5.6 |
| | $ | 4.2 |
|
The components of net periodic benefit cost and changes recognized in OCI are as follows:
| | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2021 | | 2020 | | 2019 |
| Net periodic benefit cost: | | | | | | |
| Interest cost | | $ | 1.1 | | | $ | 1.5 | | | $ | 1.9 | |
| Expected return on plan assets | | (0.6) | | | (0.6) | | | (0.7) | |
| Amortization of unrecognized gain | | — | | | — | | | (0.8) | |
| Net periodic benefit cost | | $ | 0.5 | | | $ | 0.9 | | | $ | 0.4 | |
| | | | | | |
| Changes in benefit obligations recognized in OCI, net of tax: | | | | | | |
| Net (gain) loss | | $ | (1.0) | | | $ | 1.9 | | | $ | 2.4 | |
|
| | | | | | | | | | | | |
| (Amounts in millions) | | 2018 | | 2017 | | 2016 |
| Net periodic benefit cost: | | | | | | |
| Service cost | | $ | — |
| | $ | — |
| | $ | 0.1 |
|
| Interest cost | | 1.8 |
| | 2.1 |
| | 2.2 |
|
| Expected return on plan assets | | (0.8 | ) | | (0.8 | ) | | (0.9 | ) |
| Amortization of unrecognized gain | | (0.4 | ) | | (0.3 | ) | | (0.1 | ) |
| Net periodic benefit cost | | $ | 0.6 |
| | $ | 1.0 |
| | $ | 1.3 |
|
| | | | | | | |
| Changes in benefit obligations recognized in OCI, net of tax: | | | | | | |
| Net (gain) loss | | $ | (1.4 | ) | | $ | 0.6 |
| | $ | (0.3 | ) |
The components of net periodic postretirement health care cost, other than the service cost component, are included in “Other income (expense) - net” on the accompanying Consolidated Statements of Earnings. See Note 1718 for additional information on Other income (expense) - net.
|
| | |
| | |
Notes to Consolidated Financial Statements (continued) | | |
Snap-on expects to recognize $0.8 million of prior unrecognized gains, included in Accumulated OCI on the accompanying 2018 Consolidated Balance Sheet, in net periodic benefit cost during 2019.
The weighted-average discount rate used to determine Snap-on’s postretirement health care expense is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
| Discount rate | | 2.3% | | 3.1% | | 4.2% |
|
| | | | | | |
| | | 2018 | | 2017 | | 2016 |
| Discount rate | | 3.6% | | 4.1% | | 4.1% |
The weighted-average discount rate used to determine Snap-on’s accumulated benefit obligation is as follows:
| | | | | | | | | | | | | | |
| | 2021 | | 2020 |
| Discount rate | | 2.7% | | 2.3% |
|
| | | | |
| | | 2018 | | 2017 |
| Discount rate | | 4.2% | | 3.6% |
The methodology for selecting the year-end 20182021 and 20172020 weighted-average discount rate for the company’s domestic postretirement plans was to match the plans’ yearly projected cash flows for benefits and service costs to those of hypothetical bond portfolios using high-quality, AA rated or better, corporate bonds from either Moody’s Investors Service or Standard & Poor’s credit rating agencies available at the measurement date. As a practical expedient, Snap-on uses the calendar year end as the measurement date for its plans.
For 2019,2022, the actuarial calculations assume a pre-65 health care cost trend rate of 5.7%5.4% and a post-65 health care cost trend rate of 6.3%5.7%, both decreasing gradually to 4.5%4.0% in 20382046 and thereafter. As of 2018 year end, a one-percentage-point increase in the health care cost trend rate for future years would increase the accumulated postretirement benefit obligation by approximately $0.5 million and the aggregate of the service cost and interest cost components by less than $0.1 million. Conversely, a one-percentage-point decrease in the health care cost trend rate for future years would decrease the accumulated postretirement benefit obligation by $0.6 million and the aggregate of the service cost and interest rate components by less than $0.1 million.
The following benefit payments, which reflect expected future service, are expected to be paid as follows:
| | | | | | | | |
| (Amounts in millions) | | Amount |
| Year: | | |
| 2022 | | $ | 3.5 | |
| 2023 | | 3.5 | |
| 2024 | | 3.6 | |
| 2025 | | 3.6 | |
| 2026 | | 3.6 | |
| 2027-2031 | | 18.2 | |
|
| | | | |
| (Amounts in millions) | | Amount |
| Year: | | |
| 2019 | | $ | 3.8 |
|
| 2020 | | 3.9 |
|
| 2021 | | 4.0 |
|
| 2022 | | 4.1 |
|
| 2023 | | 4.1 |
|
| 2024-2028 | | 21.2 |
|
The objective of the VEBA trust is to achieve net of expense returns that meet or exceed the 6.3%4.8% long-term return on plan assets assumption used for reporting purposes. Investments are diversified to attempt to minimize the risk of large losses. Since asset allocation is a key determinant of expected investment returns, assets are periodically rebalanced to the targeted allocation to correct significant deviations from the asset allocation policy that are caused by market fluctuations and cash flow.
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
The basis for determining the overall expected long-term return on plan assets assumption is a nominal returns forecasting method. For each asset class, future returns are estimated by identifying the premium of riskier asset classes over lower risk alternatives. The methodology constructs expected returns using a “building block” approach to the individual components of total return. These forecasts are stated in both nominal and real (after inflation) terms. This process first considers the long-term historical return premium based on the longest set of data available for each asset class. These premiums, which are calculated using the geometric mean, are then adjusted based on current relative valuation levels and macro-economic conditions. The asset return assumption is also adjusted by an implicit expense load for estimated administrative and investment-related expenses.
Snap-on’s VEBA plan target allocation and actual weighted-average asset allocation by asset category and fair value of plan assets as of 20182021 and 20172020 year end are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Target | | 2021 | | 2020 |
| Asset category: | | | | | | |
| Debt securities and cash and cash equivalents | | 46% | | 44% | | 46% |
| Equity securities | | 29% | | 34% | | 35% |
| Hedge funds | | 25% | | 22% | | 19% |
| Total | | 100% | | 100% | | 100% |
| | | | | | |
Fair value of plan assets (Amounts in millions) | | | | $13.7 | | $13.3 |
|
| | | | | | | | | | | |
| | | Target | | 2018 | | 2017 |
| Asset category: | | | | | | |
| Debt securities and cash and cash equivalents | | 46 | % | | 56 | % | | 42 | % |
| Equity securities | | 29 | % | | 26 | % | | 29 | % |
| Hedge funds | | 25 | % | | 18 | % | | 29 | % |
| Total | | 100 | % | | 100 | % | | 100 | % |
| | | | | | | |
Fair value of plan assets (Amounts in millions) | | | | $ | 12.1 |
| | $ | 13.4 |
|
The fair value measurement hierarchy prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority (Level 1) to unadjusted quoted prices in active markets for identical assets and liabilities and the lowest priority (Level 3) to unobservable inputs. Fair value measurements primarily based on observable market information are given a Level 2 priority.
Debt securities are valued at quoted per share or unit market prices for which an official close or last trade pricing on an active exchange is available and are categorized as Level 1 in the fair value hierarchy.
Equity securities are valued at the NAV per share or unit multiplied by the number of shares or units held as of the measurement date, as reported by the fund managers. The share or unit price is quoted on a private market and is based on the value of the underlying investments, which are primarily based on observable inputs; such investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.
Hedge funds are stated at the NAV per share or unit (based on the estimated fair market value of the underlying investments) multiplied by the number of shares or units held as of the measurement date, as reported by the fund managers. These investments are measured at fair value using the NAV per share (or its equivalent) practical expedient and have not been classified in the fair value hierarchy.
The company regularly reviews fund performance directly with its investment advisor and the fund managers, and performs qualitative analysis to corroborate the reasonableness of the reported NAVs. For funds for which the company did not receive a year-end NAV, the company recorded an estimate of the change in fair value for the latest period based on return estimates and other fund activity obtained from the fund managers.
The columns labeled “Investments Measured at NAV” in the following tables are measured at fair value using the NAV per share (or its equivalent) practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented in these tables are intended to permit a reconciliation of the fair value hierarchy to the VEBA plan assets.
The following is a summary, by asset category, of the fair value and the level within the fair value hierarchy of the VEBA plan assets as of 20182021 year end:
| | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | Quoted
Prices for
Identical
Assets
(Level 1) | | Investments Measured at
NAV | | Total |
| Asset category: | | | | | | |
| Cash and cash equivalents | | $ | 0.3 | | | $ | — | | | $ | 0.3 | |
| Debt securities | | 5.8 | | | — | | | 5.8 | |
| Equity securities | | — | | | 4.6 | | | 4.6 | |
| Hedge fund | | — | | | 3.0 | | | 3.0 | |
| Total | | $ | 6.1 | | | $ | 7.6 | | | $ | 13.7 | |
|
| | | | | | | | | | | | |
| (Amounts in millions) | | Quoted Prices for Identical Assets (Level 1) | | Investments Measured at NAV | | Total |
| Asset category: | | | | | | |
| Cash and cash equivalents | | $ | 1.3 |
| | $ | — |
| | $ | 1.3 |
|
| Debt securities | | 5.5 |
| | — |
| | 5.5 |
|
| Equity securities | | — |
| | 3.1 |
| | 3.1 |
|
| Hedge fund | | — |
| | 2.2 |
| | 2.2 |
|
| Total | | $ | 6.8 |
| | $ | 5.3 |
| | $ | 12.1 |
|
|
| | |
| | |
Notes to Consolidated Financial Statements (continued) | | |
The following is a summary, by asset category, of the fair value and the level within the fair value hierarchy of the VEBA plan assets as of 20172020 year end:
| | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | Quoted
Prices for
Identical
Assets
(Level 1) | | Investments Measured at
NAV | | Total |
| Asset category: | | | | | | |
| Cash and cash equivalents | | $ | 0.3 | | | $ | — | | | $ | 0.3 | |
| Debt securities | | 5.9 | | | — | | | 5.9 | |
| Equity securities | | — | | | 4.6 | | | 4.6 | |
| Hedge fund | | — | | | 2.5 | | | 2.5 | |
| Total | | $ | 6.2 | | | $ | 7.1 | | | $ | 13.3 | |
|
| | | | | | | | | | | | |
| (Amounts in millions) | | Quoted Prices for Identical Assets (Level 1) | | Investments Measured at NAV | | Total |
| Asset category: | | | | | | |
| Cash and cash equivalents | | $ | 0.2 |
| | $ | — |
| | $ | 0.2 |
|
| Debt securities | | 5.5 |
| | — |
| | 5.5 |
|
| Equity securities | | — |
| | 3.8 |
| | 3.8 |
|
| Hedge fund | | — |
| | 3.9 |
| | 3.9 |
|
| Total | | $ | 5.7 |
| | $ | 7.7 |
| | $ | 13.4 |
|
Note 14: Stock-based Compensation and Other Stock Plans
The 2011 Incentive Stock and Awards Plan (the “2011 Plan”) provides for the grant of stock options, performance awards, stock appreciation rights (“SARs”)SARs and restricted stock awards (which may be designated as “restricted stock units” or “RSUs”). No further grants are being made under its predecessor, the 2001 Incentive Stock and Awards Plan (the “2001 Plan”), although outstanding awards under the 2001 Plan will continue in accordance with their terms. As of 20182021 year end, the 2011 Plan had 2,654,1123,643,845 shares available for future grants. The company uses treasury stock to deliver shares under both the 2001 and 2011 Plans.Plan.
Net stock-based compensation expense was $27.2$41.4 million in 2018, $30.32021, $19.5 million in 20172020 and $31.0$23.8 million in 2016.2019. Cash received from stock purchase and option plan exercises was $55.5$162.4 million in 2018, $46.22021, $55.8 million in 20172020 and $41.8$51.4 million in 2016.2019. The tax benefit realized from both the exercise and vesting of share-based payment arrangements was $14.8$18.2 million in 2018, $20.92021, $8.2 million in 20172020 and $24.8$9.6 million in 2016.2019.
Stock Options
options: Stock options are granted with an exercise price equal to the market value of a share of Snap-on’s common stock on the date of grant and have a contractual term of ten years. Stock option grants vest ratably on the first, second and third anniversaries of the date of grant.
The fair value of each stock option award is estimated on the date of grant using the Black-Scholes valuation model. The company uses historical data regarding stock option exercise and forfeiture behaviors for different participating groups to estimate the period of time that options granted are expected to be outstanding. Expected volatility is based on the historical volatility of the company’s stock for the length of time corresponding to the expected term of the option. The expected dividend yield is based on the company’s historicalexpected annual dividend payments.as a percentage of the market value of our common stock as of the date of grant. The risk-free interest rate is based on the U.S. treasury yield curve on the grant date for the expected term of the option.
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
The following weighted-average assumptions were used in calculating the fair value of stock options granted during 2018, 20172021, 2020 and 2016,2019, using the Black-Scholes valuation model:
| | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
Expected term of option (in years) | | 5.33 | | 5.53 | | 5.53 |
| Expected volatility factor | | 21.80% | | 21.67% | | 21.30% |
| Expected dividend yield | | 2.59% | | 2.78% | | 1.79% |
| Risk-free interest rate | | 0.67% | | 1.50% | | 2.54% |
|
| | | | | | | | | |
| | | 2018 | | 2017 | | 2016 |
Expected term of option (in years) | | 5.35 |
| | 5.15 |
| | 5.05 |
|
| Expected volatility factor | | 20.08 | % | | 22.01 | % | | 22.17 | % |
| Expected dividend yield | | 1.68 | % | | 1.63 | % | | 1.77 | % |
| Risk-free interest rate | | 2.71 | % | | 1.78 | % | | 1.04 | % |
A summary of stock option activity during 20182021 is presented below:
| | | | | Shares (in thousands) | | Exercise Price per Share* | | Remaining Contractual Term* (in years) | | Aggregate Intrinsic Value (in millions) | | Shares (in thousands) | | Exercise
Price per
Share* | | Remaining Contractual Term* (in years) | | Aggregate Intrinsic Value (in millions) |
| Outstanding at beginning of year | | 3,198 |
| | $ | 115.30 |
| | | Outstanding at beginning of year | | 3,120 | | | $ | 142.47 | | | | | |
| Granted | | 515 |
| | 161.18 |
| | | Granted | | 333 | | | 189.91 | | |
| Exercised | | (537 | ) | | 84.00 |
| | | Exercised | | (991) | | | 135.88 | | |
| Forfeited or expired | | (46 | ) | | 159.33 |
| | | Forfeited or expired | | (30) | | | 168.82 | | |
| Outstanding at end of year | | 3,130 |
| | 127.57 |
| | 6.3 | | $ | 75.3 |
| Outstanding at end of year | | 2,432 | | | 151.32 | | | 5.7 | | $ | 155.8 | |
| Exercisable at end of year | | 2,047 |
| | 110.48 |
| | 5.1 | | 74.1 |
| Exercisable at end of year | | 1,675 | | | 142.82 | | | 4.5 | | 121.5 | |
The weighted-average grant date fair value of options granted was $30.21$26.19 in 2018, $31.132021, $22.95 in 20172020 and $22.99$29.98 in 2016.2019. The intrinsic value of options exercised was $43.8$76.1 million in 2018, $33.32021, $26.0 million in 20172020 and $35.2$29.9 million in 2016.2019. The fair value of stock options vested was $16.0$12.5 million in 2018, $14.02021, $14.6 million in 20172020 and $12.7$15.7 million in 2016.2019.
As of 20182021 year end, there was $18.0$10.2 million of unrecognized compensation cost related to non-vested stock options that is expected to be recognized as a charge to earnings over a weighted-average period of 1.4 years.
Performance Awards
share unit and restricted stock unit awards: Performance awards, which are granted as performance share units (“PSUs”) and performance-based RSUs, are earned and expensed using the fair value of the award over a contractual term of three years based on the company’s performance. Vesting of the performance awardsPSUs is dependent upon performance relative to pre-defined goals for revenue growth and return on net assets for the applicable performance period. For performance achieved above specified levels, the recipient may earn additional shares of stock, not to exceed 100% of the number of performance awards initially granted.
The PSUs have a three-year performance period based on the results of the consolidated financial metrics of the company. The
Time-based RSUs are earned and expensed using the fair value of the award over the contractual term of three years. Vesting of the time-based RSUs is dependent upon continued employment for the 3-year cliff vesting period. Prior to 2021, the company granted performance-based RSUs havewith a one-year performance period based on the results of the consolidated financial metrics of the company followed by a two-year cliff vesting schedule, assuming continued employment.schedule.
The fair value of performance awardsPSUs and RSUs is calculated using the market value of a share of Snap-on’s common stock on the date of grant and assumed forfeitures based on recent historical experience; in recent years, forfeitures have not been significant. The weighted-average grant date fair value of performance awards granted during 2018, 20172021, 2020 and 20162019, was $161.18, $168.70$184.32, $155.34 and $138.83,$155.92, respectively. VestedEarned PSUs totaled 32,15446,343 shares as of 2018the 2021 year end, 50,316 sharesend. There were no earned PSUs as of 2017the 2020 year end and 61,149 shares as of 20162019 year end.end earned PSUs related to 50,182 shares, 60,980 shares and 94,186 shares were paid out in 2018, 2017 and 2016, respectively.totaled 21,183 shares. Earned PSUs vest and are generally paid out following the conclusion of the applicable performance period upon approval by the Organization and Executive Compensation Committee of the company’s Board of Directors (the “Board”). There were no PSUs paid out in 2021. PSUs related to 21,183 shares and 32,114 shares were paid out in 2020 and 2019, respectively.
Based on the company’s 2018 performance, 33,170
In fiscal 2021, 32,265 time-based RSUs granted in 2018 were earned;granted; assuming continued employment, these RSUs will vest at the end of fiscal 2020.the 3-year cliff vesting period. Based on the company’s 20172020 and 2019 performance, 13,648none of the performance-based RSUs granted in 2017either 2020 or 2019 were earned; assuming continued employment, these RSUs will vest at the end of fiscal 2019. Based on the company’s 2016 performance, 45,502 RSUs granted in 2016 were earned; these RSUs vested as of fiscal 2018 year end and were paid out shortly thereafter.earned.
Changes to the company’s non-vested performance awards in 2018 are as follows: |
| | | | | | | |
| | | Shares (in thousands) | | Fair Value Price per Share* |
| Non-vested performance awards at beginning of year | | 132 |
| | $ | 149.93 |
|
| Granted | | 87 |
| | 161.18 |
|
| Vested | | (74 | ) | | 138.11 |
|
| Cancellations and other | | (25 | ) | | 156.63 |
|
| Non-vested performance awards at end of year | | 120 |
| | 164.00 |
|
|
| | | | | | | |
* Weighted-average104 | SNAP-ON INCORPORATED | | | |
Changes to the company’s non-vested PSUs and RSUs in 2021 are as follows: | | | | | | | | | | | | | | |
| | Shares (in thousands) | | Fair Value
Price per
Share* |
| Non-vested PSUs and RSUs at beginning of year | | 76 | | | $ | 155.61 | |
| Granted | | 188 | | | 184.32 | |
| Vested | | (46) | | | 155.92 | |
| Cancellations and other | | (3) | | | 181.51 | |
| Non-vested PSUs and RSUs at end of year | | 215 | | | 180.29 | |
|
| | | | | | | | | | | | | |
| * Weighted-average | | |
Notes to Consolidated Financial Statements (continued) | | |
As of 20182021 year end, there was $10.6$22.9 million of unrecognized compensation cost related to non-vested performance awardsPSUs and RSUs that is expected to be recognized as a charge to earnings over a weighted-average period of 1.81.4 years.
Stock Appreciation Rights (“SARs”)
appreciation rights: The company also issues stock-settled and cash-settled SARs to certain key non-U.S. employees. SARs have a contractual term of ten years and vest ratably on the first, second and third anniversaries of the date of grant. SARs are granted with an exercise price equal to the market value of a share of Snap-on’s common stock on the date of grant.
Stock-settled SARs are accounted for as equity instruments and provide for the issuance of Snap-on common stock equal to the amount by which the company’s stock has appreciated over the exercise price. Stock-settled SARs have an effect on dilutive shares and shares outstanding as any appreciation of Snap-on’s common stock value over the exercise price will be settled in shares of common stock. Cash-settled SARs provide for the cash payment of the excess of the fair market value of Snap-on’sSnap‑on’s common stock price on the date of exercise over the grant price. Cash-settled SARs have no effect on dilutive shares or shares outstanding as any appreciation of Snap-on’s common stock over the grant price is paid in cash and not in common stock.
The fair value of stock-settled SARs is estimated on the date of grant using the Black-Scholes valuation model. The fair value of cash-settled SARs is revalued (mark-to-market) each reporting period using the Black-Scholes valuation model based on Snap-on’s period-end stock price. The company uses historical data regarding SARs exercise and forfeiture behaviors for different participating groups to estimate the expected term of the SARs granted based on the period of time that similar instruments granted are expected to be outstanding. Expected volatility is based on the historical volatility of the company’s stock for the length of time corresponding to the expected term of the SARs. The expected dividend yield is based on the company’s historicalexpected annual dividend payments.as a percentage of the market value of our common stock as of the date of grant (for stock-settled SARs) or reporting date (for cash-settled SARs). The risk-free interest rate is based on the U.S. treasury yield curve in effect as of the grant date (for stock-settled SARs) or reporting date (for cash-settled SARs) for the length of time corresponding to the expected term of the SARs.
The following weighted-average assumptions were used in calculating the fair value of stock-settled SARs granted during 2018, 20172021, 2020 and 2016,2019, using the Black-Scholes valuation model:
| | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
Expected term of stock-settled SARs (in years) | | 3.94 | | 3.75 | | 3.65 |
| Expected volatility factor | | 22.50% | | 22.50% | | 22.60% |
| Expected dividend yield | | 2.59% | | 2.78% | | 1.81% |
| Risk-free interest rate | | 0.19% | | 1.42% | | 2.48% |
|
| | | | | | | | | |
| | | 2018 | | 2017 | | 2016 |
Expected term of stock-settled SARs (in years) | | 3.58 |
| | 3.99 |
| | 4.03 |
|
| Expected volatility factor | | 20.08 | % | | 19.39 | % | | 20.09 | % |
| Expected dividend yield | | 1.63 | % | | 1.46 | % | | 1.66 | % |
| Risk-free interest rate | | 2.40 | % | | 1.55 | % | | 1.11 | % |
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
Changes to the company’s stock-settled SARs in 20182021 are as follows:
|
| | | | | | | | | | | | |
| | | Stock-settled SARs (in thousands) | | Exercise Price per Share* | | Remaining Contractual Term* (in years) | | Aggregate Intrinsic Value (in millions) |
| Outstanding at beginning of year | | 360 | | $ | 138.63 |
| | | | |
| Granted | | 89 | | 161.18 |
| | | | |
| Exercised | | (24) | | 105.55 |
| | | | |
| Forfeited or expired | | (53) | | 129.40 |
| | | | |
| Outstanding at end of year | | 372 | | 147.41 |
| | 7.4 | | $ | 2.6 |
|
| Exercisable at end of year | | 191 | | 135.42 |
| | 6.3 | | 2.4 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Stock-settled SARs (in thousands) | | Exercise
Price per
Share* | | Remaining Contractual Term* (in years) | | Aggregate Intrinsic Value (in millions) |
| Outstanding at beginning of year | | 502 | | | $ | 151.59 | | | | | |
| Granted | | 83 | | | 189.89 | | | | | |
| Exercised | | (48) | | | 144.38 | | | | | |
| Forfeited or expired | | (140) | | | 152.52 | | | | | |
| Outstanding at end of year | | 397 | | | 160.09 | | | 6.7 | | $ | 21.9 | |
| Exercisable at end of year | | 227 | | | 151.18 | | | 5.3 | | 14.6 | |
The weighted-average grant date fair value of stock-settled SARs granted was $24.71$24.05 in 2018, $24.132021, $21.31 in 20172020 and $19.47$26.45 in 2016.2019. The intrinsic value of stock-settled SARs exercised was $1.8$3.1 million in 2018, $0.92021, $0.4 million in 20172020 and $1.9$0.1 million in 2016.2019. The fair value of stock-settled SARs vested was $2.2$2.1 million in 20182021, $2.3 million in 2020 and $2.1 million in both 2017 and 2016.2019.
As of 20182021 year end there was $2.5$2.2 million of unrecognized compensation cost related to non-vested stock-settled SARs that is expected to be recognized as a charge to earnings over a weighted-average period of 1.4 years.
The following weighted-average assumptions were used in calculating the fair value of cash-settled SARs granted during 2018, 20172021, 2020 and 2016,2019, using the Black-Scholes valuation model:
| | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
Expected term of cash-settled SARs (in years) | | 3.09 | | 3.00 | | 2.87 |
| Expected volatility factor | | 22.49% | | 34.58% | | 23.33% |
| Expected dividend yield | | 2.64% | | 2.87% | | 2.02% |
| Risk-free interest rate | | 0.97% | | 0.17% | | 1.60% |
|
| | | | | | | | | |
| | | 2018 | | 2017 | | 2016 |
Expected term of cash-settled SARs (in years) | | 2.76 |
| | 3.09 |
| | 3.11 |
|
| Expected volatility factor | | 21.96 | % | | 19.93 | % | | 19.53 | % |
| Expected dividend yield | | 1.75 | % | | 1.59 | % | | 1.56 | % |
| Risk-free interest rate | | 2.50 | % | | 1.98 | % | | 1.47 | % |
The intrinsic value of cash-settled SARs exercised was $3.4$0.6 million in 2018, $1.62021, $1.0 million in 20172020 and $3.3$1.2 million in 2016.2019. The fair value of cash-settled SARs vested during 20182021, 2020 and 2019 was $0.1 million, zero and $0.2$0.1 million, during both 2017 and 2016.respectively.
Changes to the company’s non-vested cash-settled SARs in 20182021 are as follows:
|
| | | | | | |
| | | Cash-settled SARs (in thousands) | | Fair Value Price per Share* |
| Non-vested cash-settled SARs at beginning of year | | 5 | | $ | 35.41 |
|
| Granted | | 1 | | 14.98 |
|
| Vested | | (3) | | 15.61 |
|
| Non-vested cash-settled SARs at end of year | | 3 | | 14.89 |
|
| | | | | | | | | | | | | | |
| | Cash-settled SARs (in thousands) | | Fair Value
Price per
Share* |
| Non-vested cash-settled SARs at beginning of year | | 2 | | | $ | 36.99 | |
| Granted | | 1 | | | 37.69 | |
| Vested | | (1) | | | 54.83 | |
| Non-vested cash-settled SARs at end of year | | 2 | | | 47.13 | |
As of 20182021 year end there was $0.1 million of unrecognized compensation cost related to non-vested cash-settled SARs that is expected to be recognized as a charge to earnings over a weighted-average period of 1.11.4 years.
Restricted Stock Awardsstock awards – Non-employee Directors
non-employee directors: The company awarded 6,9756,858 shares, 6,9667,380 shares and 7,1457,605 shares of restricted stock to non-employee directors in 2018, 20172021, 2020 and 2016,2019, respectively. The fair value of the restricted stock awards is expensed over a one-year vesting period based on the fair value on the date of grant. All restrictions for the restricted stock generally lapse upon the earlier of the first anniversary of the grant date, the recipient’s death or disability or in the event of a change in control, as defined in the 2011 Plan. If termination of the recipient’s service occurs prior to the first anniversary of the grant date for any reason other than death or disability, the shares of restricted stock would be forfeited, unless otherwise determined by the Board.
Directors’ Fee Plan
fee plan: Under the Directors’ 1993 Fee Plan, as amended, non-employee directors may elect to receive up to 100% of their fees and retainer in shares of Snap-on’s common stock. Directors may elect to defer receipt of all or part of these shares. For 2018, 20172021, 2020 and 2016,2019, issuances under the Directors’ Fee Plan totaled 1,7271,235 shares, 1,8001,836 shares and 2,5791,784 shares, respectively, of which 1,315922 shares, 1,3121,364 shares and 2,0191,374 shares, respectively, were deferred. As of 20182021 year end, shares reserved for issuance to directors under this plan totaled 176,724189,837 shares.
Employee Stock Purchase Plan
stock purchase plan: Substantially all Snap-on employees in the United States and Canada are eligible to participate in an employee stock purchase plan. The purchase price of the company'scompany’s common stock to participants is the lesser of the mean of the high and low price of the stock on the beginning date (May 15) or ending date (the following May 14) of each plan year. For 2018, 20172021, 2020 and 2016,2019, issuances under this plan totaled 22,79482,286 shares, 26,96325,425 shares and 27,15625,820 shares, respectively. As of 20182021 year end, shares reserved for issuance under this plan totaled 730,806597,275 shares and Snap-on held participant contributions of approximately $2.8$3.0 million. Participants are able to withdraw from the plan at any time prior to the ending date and receive back all contributions made during the plan year. Compensation expense for plan participants was $0.3$9.6 million in 2018,2021, $1.1 million in 2020 and $0.1 million in 2017 and zero in 2016.2019.
|
| | |
| | |
Notes to Consolidated Financial Statements (continued) | | |
Franchisee Stock Purchase Plan
stock purchase plan: All franchisees in the United States and Canada are eligible to participate in a franchisee stock purchase plan. The purchase price of the company'scompany’s common stock to participants is the lesser of the mean of the high and low price of the stock on the beginning date (May 15) or ending date (the following May 14) of each plan year. For 2018, 20172021, 2020 and 2016,2019, issuances under this plan totaled 46,704143,388 shares, 47,31455,980 shares and 42,86749,921 shares, respectively. As of 20182021 year end, shares reserved for issuance under this plan totaled 519,451270,162 shares and Snap-on held participant contributions of approximately $4.9$7.0 million. Participants are able to withdraw from the plan at any time prior to the ending date and receive back all contributions made during the plan year. The company recognized mark-to-market expense of $0.6$16.7 million in 2018, and $0.22021, $1.9 million in 2017,2020, and a mark-to-market benefit of $0.2$0.8 million in 2016.2019.
Note 15: Capital Stock
Snap-on has undertaken repurchases of Snap-on common stock from time to time to offset dilution created by shares issued for employee and franchisee stock purchase plans, stock awards and other corporate purposes. Snap-on repurchased 1,769,0001,943,900 shares, 1,820,0001,109,000 shares and 758,0001,495,000 shares in 2018, 20172021, 2020 and 2016,2019, respectively. As of 20182021 year end, Snap-on has remaining availability to repurchase up to an additional $215.7$454.9 million in common stock pursuant to Board authorizations. The purchase of Snap-on common stock is at the company’s discretion, subject to prevailing financial and market conditions.
Cash dividends paid in 2018, 20172021, 2020 and 20162019 totaled $192.0$275.8 million, $169.4$243.3 million and $147.5$216.6 million, respectively. Cash dividends per share in 2018, 20172021, 2020 and 20162019 were $3.41, $2.95$5.11, $4.47 and $2.54,$3.93, respectively. On February 14, 2019,10, 2022, the company’s Board declared a quarterly dividend of $0.95$1.42 per share, payable on March 11, 2019,10, 2022, to shareholders of record on February 25, 2019.23, 2022.
Note 16: Commitments and Contingencies
Snap-on leases facilities, office equipment and vehicles under non-cancelable operating and capital leases that extend for varying amounts of time. Snap-on’s future minimum lease commitments under these leases, net of sub-lease rental income, are as follows:
|
| | | | | | | | |
| (Amounts in millions) | | Operating Leases | | Capital Leases |
| Year: | | | | |
| 2019 | | $ | 25.6 |
| | $ | 3.3 |
|
| 2020 | | 18.4 |
| | 3.2 |
|
| 2021 | | 13.9 |
| | 2.9 |
|
| 2022 | | 9.8 |
| | 2.5 |
|
| 2023 | | 4.9 |
| | 2.2 |
|
| 2024 and thereafter | | 4.4 |
| | 1.9 |
|
| Total minimum lease payments | | $ | 77.0 |
| | 16.0 |
|
| Less: amount representing interest | | | | (0.9 | ) |
| Total present value of minimum capital lease payments | | | | $ | 15.1 |
|
Amounts included in the accompanying Consolidated Balance Sheets for the present value of minimum capital lease payments as of 2018 year end are as follows:
|
| | | | |
| (Amounts in millions) | | 2018 |
| Other accrued liabilities | | $ | 3.0 |
|
| Other long-term liabilities | | 12.1 |
|
| Total present value of minimum capital lease payments | | $ | 15.1 |
|
Rent expense for worldwide facilities, office equipment and vehicles, net of sub-lease rental income, was $33.0 million, $35.2 million and $31.2 million in 2018, 2017 and 2016, respectively.
Snap-on provides product warranties for specific product lines and accrues for estimated future warranty cost in the period in which the sale is recorded. Snap-on calculates its accrual requirements based on historic warranty loss experience that is periodically adjusted for recent actual experience, including the timing of claims during the warranty period and actual costs incurred. Snap‑on’sSnap-on’s product warranty accrual activity for 2018, 20172021, 2020 and 20162019 is as follows:
| | | (Amounts in millions) | | 2018 | | 2017 | | 2016 | (Amounts in millions) | | 2021 | | 2020 | | 2019 |
| Warranty accrual: | | | | | | | Warranty accrual: | | | | | | |
| Beginning of year | | $ | 17.2 |
| | $ | 16.0 |
| | $ | 16.4 |
| Beginning of year | | $ | 17.6 | | | $ | 17.3 | | | $ | 17.1 | |
| Additions | | 14.9 |
| | 15.2 |
| | 12.8 |
| Additions | | 13.7 | | | 13.9 | | | 16.0 | |
| Usage | | (15.0 | ) | | (14.0 | ) | | (13.2 | ) | Usage | | (14.0) | | | (13.6) | | | (15.8) | |
| End of year | | $ | 17.1 |
| | $ | 17.2 |
| | $ | 16.0 |
| End of year | | $ | 17.3 | | | $ | 17.6 | | | $ | 17.3 | |
Approximately 2,6502,700 employees, or 21% of Snap-on’s worldwide workforce, are represented by unions and/or covered under collective bargaining agreements. The number of covered union employees whose contracts expire over the next five years approximates 1,300 employees in 2022, 875 employees in 2019, 9752023, 400 employees in 2020, 5752024, and 125 employees in 2021, 175 employees2025; there are no contracts currently scheduled to expire in 2022, and 50 employees in 2023.2026. In recent years, Snap-on has not experienced any significant work slowdowns, stoppages or other labor disruptions.
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
Snap-on is involved in various legal matters that are being litigated and/or settled in the ordinary course of business. For the year ended December 30, 2017, accruals were recorded for $45.9 million related to judgments in a patent-related litigation matter that is being appealed, and an employment-related litigation matter, which was subsequently settled in 2018. The company recognized a $4.3 million benefit in operating expenses in 2018 as a result of the settlement.
Although it is not possible to predict the outcome of the above and other legal matters, management believes that the results of all legal matters will not have a material impact on Snap-on’s consolidated financial position, results of operations or cash flows.
Note 17: Leases
Lessee accounting: Snap-on determines if an arrangement is a lease at inception. Snap-on has operating and finance leases for manufacturing plants, distribution centers, software development facilities, financial services offices, data centers, company store vans and certain equipment. Snap-on’s leases have lease terms of one year to 20 years and some include options to extend and/or terminate the lease. The exercise of lease renewal options is at the company’s sole discretion. Certain leases also include options to purchase the leased property. When deemed reasonably certain of exercise, the renewal and purchase options are included in the determination of the lease term and lease payment obligation, respectively. The depreciable life of assets and leasehold improvements are limited to the expected term, unless there is a transfer of title or purchase option reasonably certain of exercise. The company’s lease agreements do not contain any material variable lease payments, material residual value guarantees or any material restrictive covenants.
Right-of-use (“ROU”) assets represent Snap-on’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date of the lease based on the present value of lease payments over the lease term. When readily determinable, Snap-on uses the implicit rate in determining the present value of lease payments. When leases do not provide an implicit rate, Snap-on uses its country specific incremental borrowing rate based on the information available at the lease commencement date, including the lease term. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Snap-on has lease agreements with lease and non-lease components, which are generally accounted for separately. For all equipment leases, including vehicles, Snap-on accounts for the lease and non-lease components as a single lease component.
Total lease costs for 2021, 2020 and 2019 consist of the following:
| | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2021 | | 2020 | | 2019 |
| Finance lease costs: | | | | | | |
| Amortization of ROU assets | | $ | 1.7 | | | $ | 1.7 | | | $ | 1.5 | |
| Interest on lease liabilities | | 0.3 | | | 0.4 | | | 0.5 | |
| Operating lease costs* | | 25.4 | | | 24.6 | | | 25.1 | |
| Total lease costs | | $ | 27.4 | | | $ | 26.7 | | | $ | 27.1 | |
| | | | | | |
| | | | | | | | | | | |
| | |
| * | Includes short-term leases, variable lease costs and sublease income, which are immaterial. |
Supplemental cash flow information related to leases in 2021, 2020 and 2019 is as follows:
| | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2021 | | 2020 | | 2019 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | | | |
| Financing cash flows from finance leases | | $ | 3.1 | | | $ | 3.4 | | | $ | 2.8 | |
| Operating cash flows from finance leases | | 0.3 | | | 0.4 | | | 0.5 | |
| Operating cash flows from operating leases | | 23.5 | | | 23.1 | | | 23.5 | |
| | | | | | |
| ROU assets obtained in exchange for new lease obligations: | | | | | | |
| Finance lease liabilities | | $ | 0.3 | | | $ | 0.4 | | | $ | 1.4 | |
| Operating lease liabilities | | 23.4 | | | 15.2 | | | 12.5 | |
Supplemental balance sheet information related to leases in 2021 and 2020 is as follows:
| | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | | 2021 | | 2020 |
| Finance leases: | | | | | |
| Property and equipment - gross | | $ | 22.3 | | | $ | 24.3 | |
| Accumulated depreciation and amortization | | (17.4) | | | (17.5) | |
| Property and equipment - net | | | $ | 4.9 | | | $ | 6.8 | |
| | | | | | |
| Other accrued liabilities | | | $ | 2.4 | | | $ | 2.7 | |
| Other long-term liabilities | | | 4.5 | | | 7.4 | |
| Total finance lease liabilities | | | $ | 6.9 | | | $ | 10.1 | |
| | | | | | |
| Operating leases: | | | | | |
| Operating lease right-of-use assets | | | $ | 51.9 | | | $ | 51.9 | |
| | | | | | |
| Other accrued liabilities | | | $ | 19.6 | | | $ | 19.3 | |
| Operating lease liabilities | | | 34.2 | | | 34.0 | |
| Total operating lease liabilities | | | $ | 53.8 | | | $ | 53.3 | |
| | | | | | |
Weighted-average lease terms and discount rates in 2021 and 2020 are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
| Weighted-average remaining lease terms: | | | | | | |
| Finance leases | | 2.9 years | | 3.7 years | | 4.5 years |
| Operating leases | | 3.3 years | | 3.3 years | | 3.7 years |
| | | | | | |
| Weighted-average discount rates: | | | | | | |
| Finance leases | | 3.1% | | 3.4% | | 3.4% |
| Operating leases | | 1.9% | | 2.6% | | 2.8% |
Maturities of lease liabilities as of January 1, 2022 are as follows: | | | | | | | | | | | | | | |
| (Amounts in millions) | | Operating Leases | | Finance Leases |
| Year: | | | | |
| 2022 | | $ | 20.5 | | | $ | 2.5 | |
| 2023 | | 14.8 | | | 2.4 | |
| 2024 | | 10.2 | | | 1.9 | |
| 2025 | | 6.1 | | | 0.3 | |
| 2026 | | 3.3 | | | 0.1 | |
| 2027 and thereafter | | 0.7 | | | — | |
| Total lease payments | | 55.6 | | | 7.2 | |
| Less: amount representing interest | | (1.8) | | | (0.3) | |
| Total lease liabilities | | $ | 53.8 | | | $ | 6.9 | |
In 2021, Snap-on did not have any significant additional operating or finance leases that have not yet commenced.
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
Lessor accounting: Snap-on’s Financial Services business offers its customers lease financing for the lease of tools, diagnostics, and equipment products and to franchisees who require financing for vehicle leases. Snap-on accounts for its financial services leases as sales-type leases. In certain circumstances, the lessee has the option to terminate the lease. In the event of the lessee’s deteriorated financial condition or default, Snap-on has the right to terminate the lease. The leases contain an end-of-term purchase option that is generally insignificant and is reasonably certain to be exercised by the lessee.
The company recognizes the net investment in the lease as the present value of the lease payments not yet received plus the present value of the unguaranteed residual value, using the interest rate implicit in the lease. The difference between the undiscounted lease payments received over the lease term and the related net investment in the lease is reported as unearned finance charges. Unearned finance charges are amortized to income over the life of the contract and are included as a component of “Financial services revenue” on the accompanying Consolidated Statements of Earnings.
Sales-type leases are included in both “Finance receivables - net” and “Long-term finance receivables - net” on the accompanying Consolidated Balance Sheets, with lease terms of up to five years. In 2021 and 2020, finance receivables have future minimum lease payments, including unguaranteed residual value, of $13.1 million and $42.7 million, respectively, and unearned finance charges of $1.8 million and $6.9 million, respectively.
Sales-type leases are included in both “Contract receivables - net” and “Long-term contract receivables - net” on the accompanying Consolidated Balance Sheets, with lease terms of up to seven years. In 2021 and 2020, contract receivables have future minimum lease payments, including unguaranteed residual value, of $293.7 million and $285.8 million, respectively, and unearned finance charges of $49.0 million and $48.4 million, respectively.
Future minimum lease payments as of January 1, 2022 are as follows:
| | | | | | | | |
| (Amounts in millions) | | Lease Receivables |
| Year: | | |
| 2022 | | $ | 84.4 | |
| 2023 | | 72.9 | |
| 2024 | | 58.5 | |
| 2025 | | 43.3 | |
| 2026 | | 28.2 | |
| 2027 and thereafter | | 19.5 | |
| Total lease payments | | 306.8 | |
| Less: unearned finance charges | | (50.8) | |
| Net investment in leases | | $ | 256.0 | |
See Note 4 for further information on finance and contract receivables.
Note 18: Other Income (Expense) – Net
“Other income (expense) – net” on the accompanying Consolidated Statements of Earnings consists of the following:
| | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2021 | | 2020 | | 2019 |
| Interest income | | $ | 2.1 | | | $ | 1.7 | | | $ | 1.5 | |
| Net foreign exchange loss | | (1.2) | | | (3.9) | | | (3.6) | |
| Net periodic pension and postretirement benefits - non-service | | 15.2 | | | 10.6 | | | 10.4 | |
| Foreign currency translation loss from sale of equity interest | | (1.0) | | | — | | | — | |
| Other | | 1.4 | | | 0.3 | | | 0.5 | |
| Total other income (expense) – net | | $ | 16.5 | | | $ | 8.7 | | | $ | 8.8 | |
|
| | | | | | | | | | | | |
| (Amounts in millions) | | 2018 | | 2017 | | 2016 |
| Interest income | | $ | 0.6 |
| | $ | 0.3 |
| | $ | 0.6 |
|
| Net foreign exchange loss | | (3.9 | ) | | (7.0 | ) | | (1.3 | ) |
| Net periodic pension and postretirement benefits (costs) - non-service | | 3.7 |
| | (0.6 | ) | | (6.9 | ) |
| Settlement of treasury lock | | 13.3 |
| | — |
| | — |
|
| Loss on early extinguishment of debt | | (7.8 | ) | | — |
| | — |
|
| Other | | (1.7 | ) | | (0.5 | ) | | 0.1 |
|
| Total other income (expense) – net | | $ | 4.2 |
| | $ | (7.8 | ) | | $ | (7.5 | ) |
|
| | |
| | |
Notes to Consolidated Financial Statements (continued) | | |
Note 18:19: Accumulated Other Comprehensive Income (Loss)
The following is a summary of net changes in Accumulated OCI by component and net of tax for 20182021 and 2017:2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | Foreign
Currency
Translation | | Cash Flow Hedges | | Defined
Benefit
Pension and
Postretirement
Plans | | Total |
| Balance at beginning of 2020 | | $ | (187.4) | | | $ | 10.7 | | | $ | (331.2) | | | $ | (507.9) | |
| Other comprehensive income before reclassifications | | 112.7 | | | 1.4 | | | 3.5 | | | 117.6 | |
| Amounts reclassified from Accumulated OCI | | — | | | (1.6) | | | 26.1 | | | 24.5 | |
| Net other comprehensive income (loss) | | 112.7 | | | (0.2) | | | 29.6 | | | 142.1 | |
| Balance as of 2020 year end | | $ | (74.7) | | | $ | 10.5 | | | $ | (301.6) | | | $ | (365.8) | |
| Other comprehensive income (loss) before reclassifications | | (69.4) | | | — | | | 66.5 | | | (2.9) | |
| Amounts reclassified from Accumulated OCI | | (1.0) | | | (1.6) | | | 27.4 | | | 24.8 | |
| Net other comprehensive income (loss) | | (70.4) | | | (1.6) | | | 93.9 | | | 21.9 | |
| Balance as of 2021 year end | | $ | (145.1) | | | $ | 8.9 | | | $ | (207.7) | | | $ | (343.9) | |
|
| | | | | | | | | | | | | | | | |
| (Amounts in millions) | | Foreign Currency Translation | | Cash Flow Hedges | | Defined Benefit Pension and Postretirement Plans | | Total |
| Balance as of 2016 year end | | $ | (217.7 | ) | | $ | 9.2 |
| | $ | (290.0 | ) | | $ | (498.5 | ) |
| Other comprehensive income before reclassifications | | 135.2 |
| | 6.9 |
| | 11.8 |
| | 153.9 |
|
| Amounts reclassified from Accumulated OCI | | — |
| | (1.6 | ) | | 17.2 |
| | 15.6 |
|
| Net other comprehensive income | | 135.2 |
| | 5.3 |
| | 29.0 |
| | 169.5 |
|
| Balance as of 2017 year end | | $ | (82.5 | ) | | $ | 14.5 |
| | $ | (261.0 | ) | | $ | (329.0 | ) |
| Other comprehensive loss before reclassifications | | (95.4 | ) | | (0.8 | ) | | (59.0 | ) | | (155.2 | ) |
| Amounts reclassified from Accumulated OCI | | — |
| | (1.5 | ) | | 23.5 |
| | 22.0 |
|
| Net other comprehensive loss | | (95.4 | ) | | (2.3 | ) | | (35.5 | ) | | (133.2 | ) |
| Balance as of 2018 year end | | $ | (177.9 | ) | | $ | 12.2 |
| | $ | (296.5 | ) | | $ | (462.2 | ) |
The reclassifications out of Accumulated OCI in 20182021 and 20172020 are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Amounts Reclassified from
Accumulated OCI | | Statement of Earnings
Presentation |
| (Amounts in millions) | | 2021 | | 2020 | | |
| Foreign currency loss from sale of equity interest: | | | | | | |
| Foreign currency | | $ | 1.0 | | | $ | — | | | Other income (expense) - net |
| Income tax expense | | — | | | — | | | Income tax expense |
| Net of tax | | 1.0 | | | — | | | |
| Gains on cash flow hedges: | | | | | | |
| Treasury locks | | 1.6 | | | 1.6 | | | Interest expense |
| Income tax expense | | — | | | — | | | Income tax expense |
| Net of tax | | 1.6 | | | 1.6 | | | |
| Amortization of net unrecognized losses and prior service credits | | (36.4) | | | (34.5) | | | See footnote below* |
| Income tax benefit | | 9.0 | | | 8.4 | | | Income tax expense |
| Net of tax | | (27.4) | | | (26.1) | | | |
| Total reclassifications for the period, net of tax | | $ | (24.8) | | | $ | (24.5) | | | |
|
| | | | | | | | | | |
| | Amounts Reclassified from Accumulated OCI | | Statement of Earnings Presentation |
| (Amounts in millions) | | 2018 | | 2017 | | |
| Gains on cash flow hedges: | | | | | | |
| Treasury locks | | $ | 1.5 |
| | $ | 1.6 |
| | Interest expense |
| Income tax expense | | — |
| | — |
| | Income tax expense |
| Net of tax | | 1.5 |
| | 1.6 |
| | |
| Amortization of net unrecognized losses and prior service credits | | (31.1 | ) | | (26.6 | ) | | See footnote below* |
| Income tax benefit | | 7.6 |
| | 9.4 |
| | Income tax expense |
| Net of tax | | (23.5 | ) | | (17.2 | ) | | |
| Total reclassifications for the period, net of tax | | $ | (22.0 | ) | | $ | (15.6 | ) | | |
| | | | | | | | | | | | | | |
| | | | |
| * | These Accumulated OCI components are included in the computation of net periodic pension and postretirement health care costs; see Note 12 and Note 13 for further information. |
* These Accumulated OCI components are included in the computation of net periodic pension and postretirement health care costs; See Note 12 and Note 13 for further information.
Note 19:20: Segments
Snap-on’s business segments are based on the organization structure used by management for making operating and investment decisions and for assessing performance. Snap-on’s reportable business segments are: (i) the Commercial & Industrial Group; (ii) the Snap-on Tools Group; (iii) the Repair Systems & Information Group; and (iv) Financial Services. The Commercial & Industrial Group consists of business operations serving a broad range of industrial and commercial customers worldwide, including customers in the aerospace, natural resources, government, power generation, transportation and technical education market segments (collectively, “critical industries”), primarily through direct and distributor channels. The Snap-on Tools Group consists of business operations primarily serving vehicle service and repair technicians through the company’s worldwide mobile tool distribution channel. The Repair Systems & Information Group consists of business operations serving other professional vehicle repair customers worldwide, primarily owners and managers of independent repair shops and OEM dealership service and repair shops (“OEM dealerships”),dealerships, through direct and distributor channels. Financial Services consists of the business operations of Snap-on’s finance subsidiaries.
|
| Notes to Consolidated Financial Statements (continued) | | |
| | |
| |
Snap-on evaluates the performance of its operating segments based on segment revenues, including both external and intersegment net sales, and segment operating earnings. Snap-on accounts for intersegment sales and transfers based primarily on standard costs with reasonable mark-ups established between the segments. Identifiable assets by segment are those assets used in the respective reportable segment’s operations. Corporate assets consist of cash and cash equivalents (excluding cash held at Financial Services), deferred income taxes and certain other assets. Intersegment amounts are eliminated to arrive at Snap-on’s consolidated financial results. See Note 1 for additional information on the retrospective adoption of ASU No. 2017-07 for full year 2017 and 2016.
Neither
Snap-on nor any of its segments depend ondoes not have any single customer small group of customers or government forthat represents 10% or more than 10% of its revenues.revenues in any of the indicated periods.
Financial Data by Segment: | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2021 | | 2020 | | 2019 |
| Net sales: | | | | | | |
| Commercial & Industrial Group | | $ | 1,406.3 | | | $ | 1,234.6 | | | $ | 1,345.7 | |
| Snap-on Tools Group | | 1,938.6 | | | 1,643.9 | | | 1,612.9 | |
| Repair Systems & Information Group | | 1,503.1 | | | 1,238.2 | | | 1,334.5 | |
| Segment net sales | | 4,848.0 | | | 4,116.7 | | | 4,293.1 | |
| Intersegment eliminations | | (596.0) | | | (524.2) | | | (563.1) | |
| Total net sales | | 4,252.0 | | | 3,592.5 | | | 3,730.0 | |
| Financial Services revenue | | 349.7 | | | 349.7 | | | 337.7 | |
| Total revenues | | $ | 4,601.7 | | | $ | 3,942.2 | | | $ | 4,067.7 | |
| | | | | | |
| Operating earnings: | | | | | | |
| Commercial & Industrial Group | | $ | 209.9 | | | $ | 153.7 | | | $ | 188.7 | |
| Snap-on Tools Group | | 411.1 | | | 267.7 | | | 245.8 | |
| Repair Systems & Information Group | | 348.6 | | | 298.0 | | | 342.7 | |
| Financial Services | | 272.0 | | | 248.6 | | | 245.9 | |
| Segment operating earnings | | 1,241.6 | | | 968.0 | | | 1,023.1 | |
| Corporate | | (118.1) | | | (87.5) | | | (60.8) | |
| Operating earnings | | 1,123.5 | | | 880.5 | | | 962.3 | |
| Interest expense | | (53.1) | | | (54.0) | | | (49.0) | |
| Other income (expense) – net | | 16.5 | | | 8.7 | | | 8.8 | |
| Earnings before income taxes and equity earnings | | $ | 1,086.9 | | | $ | 835.2 | | | $ | 922.1 | |
|
| | | | | | | | | | | | |
| (Amounts in millions) | | 2018 | | 2017 | | 2016 |
| Net sales: | | | | | | |
| Commercial & Industrial Group | | $ | 1,343.3 |
| | $ | 1,265.0 |
| | $ | 1,148.3 |
|
| Snap-on Tools Group | | 1,613.8 |
| | 1,625.1 |
| | 1,633.9 |
|
| Repair Systems & Information Group | | 1,334.4 |
| | 1,347.2 |
| | 1,179.9 |
|
| Segment net sales | | 4,291.5 |
| | 4,237.3 |
| | 3,962.1 |
|
| Intersegment eliminations | | (550.8 | ) | | (550.4 | ) | | (531.7 | ) |
| Total net sales | | $ | 3,740.7 |
| | $ | 3,686.9 |
| | $ | 3,430.4 |
|
| Financial Services revenue | | 329.7 |
| | 313.4 |
| | 281.4 |
|
| Total revenues | | $ | 4,070.4 |
| | $ | 4,000.3 |
| | $ | 3,711.8 |
|
| | | | | | | |
| Operating earnings: | | | | | | |
| Commercial & Industrial Group | | $ | 199.3 |
| | $ | 186.5 |
| | $ | 168.8 |
|
| Snap-on Tools Group | | 264.2 |
| | 274.7 |
| | 280.4 |
|
| Repair Systems & Information Group | | 342.6 |
| | 335.3 |
| | 298.6 |
|
| Financial Services | | 230.1 |
| | 217.5 |
| | 198.7 |
|
| Segment operating earnings | | 1,036.2 |
| | 1,014.0 |
| | 946.5 |
|
| Corporate | | (80.1 | ) | | (131.9 | ) | | (85.4 | ) |
| Operating earnings | | 956.1 |
| | 882.1 |
| | 861.1 |
|
| Interest expense | | (50.4 | ) | | (52.4 | ) | | (52.2 | ) |
| Other income (expense) – net | | 4.2 |
| | (7.8 | ) | | (7.5 | ) |
| Earnings before income taxes and equity earnings | | $ | 909.9 |
| | $ | 821.9 |
| | $ | 801.4 |
|
| | | | | | | | | | | | | | |
| (Amounts in millions) | | 2021 | | 2020 |
| Assets: | | | | |
| Commercial & Industrial Group | | $ | 1,209.3 | | | $ | 1,210.4 | |
| Snap-on Tools Group | | 791.4 | | | 775.3 | |
| Repair Systems & Information Group | | 1,624.3 | | | 1,399.7 | |
| Financial Services | | 2,163.6 | | | 2,170.3 | |
| Total assets from reportable segments | | 5,788.6 | | | 5,555.7 | |
| Corporate | | 1,039.7 | | | 1,063.2 | |
| Elimination of intersegment receivables | | (68.6) | | | (61.6) | |
| Total assets | | $ | 6,759.7 | | | $ | 6,557.3 | |
|
| | | | | | | | |
| (Amounts in millions) | | 2018 | | 2017 |
| Assets: | | | | |
| Commercial & Industrial Group | | $ | 1,087.9 |
| | $ | 1,113.9 |
|
| Snap-on Tools Group | | 752.7 |
| | 714.3 |
|
| Repair Systems & Information Group | | 1,306.3 |
| | 1,314.3 |
|
| Financial Services | | 2,039.6 |
| | 1,971.8 |
|
| Total assets from reportable segments | | 5,186.5 |
| | 5,114.3 |
|
| Corporate | | 249.2 |
| | 200.6 |
|
| Elimination of intersegment receivables | | (62.6 | ) | | (65.8 | ) |
| Total assets | | $ | 5,373.1 |
| | $ | 5,249.1 |
|
Financial Data by Segment (continued): | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| (Amounts in millions) | | 2021 | | 2020 | | 2019 |
| Capital expenditures: | | | | | | |
| Commercial & Industrial Group | | $ | 24.3 | | | $ | 20.3 | | | $ | 30.1 | |
| Snap-on Tools Group | | 27.1 | | | 24.2 | | | 42.7 | |
| Repair Systems & Information Group | | 15.4 | | | 14.7 | | | 22.7 | |
| Financial Services | | 0.8 | | | 0.8 | | | 0.8 | |
| Total from reportable segments | | 67.6 | | | 60.0 | | | 96.3 | |
| Corporate | | 2.5 | | | 5.6 | | | 3.1 | |
| Total capital expenditures | | $ | 70.1 | | | $ | 65.6 | | | $ | 99.4 | |
| | | | | | |
| Depreciation and amortization: | | | | | | |
| Commercial & Industrial Group | | $ | 28.2 | | | $ | 25.1 | | | $ | 23.5 | |
| Snap-on Tools Group | | 31.2 | | | 32.7 | | | 31.7 | |
| Repair Systems & Information Group | | 40.9 | | | 34.6 | | | 33.0 | |
| Financial Services | | 0.9 | | | 0.7 | | | 0.7 | |
| Total from reportable segments | | 101.2 | | | 93.1 | | | 88.9 | |
| Corporate | | 3.6 | | | 3.6 | | | 3.5 | |
| Total depreciation and amortization | | $ | 104.8 | | | $ | 96.7 | | | $ | 92.4 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| Revenues by geographic region:* | | | | | | |
| United States | | $ | 3,153.0 | | | $ | 2,772.3 | | | $ | 2,794.0 | |
| Europe | | 808.5 | | | 677.5 | | | 730.3 | |
| All other | | 640.2 | | | 492.4 | | | 543.4 | |
| Total revenues | | $ | 4,601.7 | | | $ | 3,942.2 | | | $ | 4,067.7 | |
| | | | | | |
| (Amounts in millions) | | 2021 | | 2020 |
| Long-lived assets:** | | | | |
| United States | | $ | 342.2 | | | $ | 345.3 | |
| Europe | | 171.2 | | | 174.2 | |
| All other | | 56.7 | | | 58.6 | |
| Total long-lived assets | | $ | 570.1 | | | $ | 578.1 | |
| | | | | | | | | | | | | | |
| | | |
| * | Revenues are attributed to countries based on origin of the sale. |
| ** | Long-lived assets consist of Property and equipment - net and Operating lease right-of-use assets. Prior year has been recast to conform with the current year presentation which includes Operating lease right-of-use assets and excludes Goodwill and Other intangibles - net. |
| | | | | | | | |
| | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
Financial Data by Segment (continued):
|
| | | | | | | | | | | | |
| | | | | | | |
| (Amounts in millions) | | 2018 | | 2017 | | 2016 |
| Capital expenditures: | | | | | | |
| Commercial & Industrial Group | | $ | 21.5 |
| | $ | 22.6 |
| | $ | 19.3 |
|
| Snap-on Tools Group | | 46.0 |
| | 40.1 |
| | 38.3 |
|
| Repair Systems & Information Group | | 19.7 |
| | 13.4 |
| | 13.1 |
|
| Financial Services | | 0.5 |
| | 1.2 |
| | 0.6 |
|
| Total from reportable segments | | 87.7 |
| | 77.3 |
| | 71.3 |
|
| Corporate | | 3.2 |
| | 4.7 |
| | 3.0 |
|
| Total capital expenditures | | $ | 90.9 |
| | $ | 82.0 |
| | $ | 74.3 |
|
| | | | | | | |
| Depreciation and amortization: | | | | | | |
| Commercial & Industrial Group | | $ | 23.6 |
| | $ | 22.8 |
| | $ | 20.7 |
|
| Snap-on Tools Group | | 29.9 |
| | 29.1 |
| | 27.6 |
|
| Repair Systems & Information Group | | 36.7 |
| | 37.8 |
| | 33.9 |
|
| Financial Services | | 0.8 |
| | 0.6 |
| | 0.6 |
|
| Total from reportable segments | | 91.0 |
| | 90.3 |
| | 82.8 |
|
| Corporate | | 3.1 |
| | 2.9 |
| | 2.8 |
|
| Total depreciation and amortization | | $ | 94.1 |
| | $ | 93.2 |
| | $ | 85.6 |
|
|
| | | | | | | | | | | | |
| Revenues by geographic region:* | | | | | | |
| United States | | $ | 2,727.9 |
| | $ | 2,703.3 |
| | $ | 2,588.8 |
|
| Europe | | 784.7 |
| | 748.8 |
| | 654.4 |
|
| All other | | 557.8 |
| | 548.2 |
| | 468.6 |
|
| Total revenues | | $ | 4,070.4 |
| | $ | 4,000.3 |
| | $ | 3,711.8 |
|
| | | | | | | |
| (Amounts in millions) | | 2018 | | 2017 | | |
| Long-lived assets:** | | | | | |
| United States | | $ | 1,091.2 |
| | $ | 1,081.2 |
| |
| Sweden | | 227.4 |
| | 252.6 |
| |
| All other | | 311.6 |
| | 328.4 |
| |
| Total long-lived assets | | $ | 1,630.2 |
| | $ | 1,662.2 |
| |
* Revenues are attributed to countries based on origin of the sale.
** Long-lived assets consist of Property and equipment - net, Goodwill, and Other intangibles - net.
Products and Services: Snap-on derives net sales from a broad line of products and complementary services that are grouped into three categories: (i) tools; (ii) diagnostics, information and management systems; and (iii) equipment. The tools product category includes hand tools, power tools, tool storage products and other similar products. The diagnostics, information and management systems product category includes handheld and PC-basedcomputer-based diagnostic products, service and repair information products, diagnostic software solutions, electronic parts catalogs, business management systems and services, point-of-sale systems, integrated systems for vehicle service shops, OEM purchasing facilitation services, and warranty management systems and analytics to help OEM dealerships manage and track performance. The equipment product category includes solutions for the service of vehicles and industrial equipment. Snap-on supports the sale of its diagnostics and vehicle service shop equipment by offering training programs as well as after-sales service support tofor its customers. Through its financial services businesses, Snap-on also derives revenue from various financing programs designed to facilitate the sales of its products and support its franchise business. Further product line information is not presented as it is not practicable to do so.
The following table shows the consolidated net sales and revenues of these product groups in the last three years:
| | | (Amounts in millions) | | 2018 | | 2017 | | 2016 | (Amounts in millions) | | 2021 | | 2020 | | 2019 |
| Net sales: | | | | | | | Net sales: | | | | | | |
| Tools | | $ | 2,021.2 |
| | $ | 1,946.7 |
| | $ | 1,899.2 |
| Tools | | $ | 2,343.0 | | | $ | 1,984.7 | | | $ | 2,017.5 | |
| Diagnostics, information and management systems | | 797.9 |
| | 800.4 |
| | 748.2 |
| Diagnostics, information and management systems | | 892.5 | | | 783.8 | | | 827.5 | |
| Equipment | | 921.6 |
| | 939.8 |
| | 783.0 |
| Equipment | | 1,016.5 | | | 824.0 | | | 885.0 | |
| Total net sales | | 3,740.7 |
| | 3,686.9 |
| | 3,430.4 |
| Total net sales | | 4,252.0 | | | 3,592.5 | | | 3,730.0 | |
| Financial services revenue | | 329.7 |
| | 313.4 |
| | 281.4 |
| Financial services revenue | | 349.7 | | | 349.7 | | | 337.7 | |
| Total revenues | | $ | 4,070.4 |
| | $ | 4,000.3 |
| | $ | 3,711.8 |
| Total revenues | | $ | 4,601.7 | | | $ | 3,942.2 | | | $ | 4,067.7 | |
Note 20: Quarterly Data (unaudited)
|
| | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions, except per share data) | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | Total |
| 2018 | | | | | | | | | | |
| Net sales | | $ | 935.5 |
| | $ | 954.6 |
| | $ | 898.1 |
| | $ | 952.5 |
| | $ | 3,740.7 |
|
| Gross profit | | 471.6 |
| | 487.1 |
| | 453.9 |
| | 457.4 |
| | 1,870.0 |
|
| Financial services revenue | | 83.0 |
| | 82.0 |
| | 82.0 |
| | 82.7 |
| | 329.7 |
|
| Financial services expenses | | (26.1 | ) | | (24.2 | ) | | (22.7 | ) | | (26.6 | ) | | (99.6 | ) |
| Net earnings | | 166.8 |
| | 182.7 |
| | 167.4 |
| | 179.3 |
| | 696.2 |
|
| Net earnings attributable to Snap-on Incorporated | | 163.0 |
| | 178.7 |
| | 163.2 |
| | 175.0 |
| | 679.9 |
|
| Earnings per share – basic | | 2.87 |
| | 3.17 |
| | 2.90 |
| | 3.14 |
| | 12.08 |
|
| Earnings per share – diluted | | 2.82 |
| | 3.12 |
| | 2.85 |
| | 3.09 |
| | 11.87 |
|
| Cash dividends paid per share | | 0.82 |
| | 0.82 |
| | 0.82 |
| | 0.95 |
| | 3.41 |
|
| | | | | | | | | | | |
| | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | Total |
| 2017 | | | | | | | | | | |
| Net sales | | $ | 887.1 |
| | $ | 921.4 |
| | $ | 903.8 |
| | $ | 974.6 |
| | $ | 3,686.9 |
|
| Gross profit | | 448.3 |
| | 463.2 |
| | 448.8 |
| | 465.6 |
| | 1,825.9 |
|
| Financial services revenue | | 76.8 |
| | 77.7 |
| | 79.0 |
| | 79.9 |
| | 313.4 |
|
| Financial services expenses | | (24.3 | ) | | (23.1 | ) | | (23.0 | ) | | (25.5 | ) | | (95.9 | ) |
| Net earnings | | 145.1 |
| | 156.8 |
| | 137.1 |
| | 133.2 |
| | 572.2 |
|
| Net earnings attributable to Snap-on Incorporated | | 141.6 |
| | 153.2 |
| | 133.4 |
| | 129.5 |
| | 557.7 |
|
| Earnings per share – basic | | 2.45 |
| | 2.65 |
| | 2.33 |
| | 2.28 |
| | 9.72 |
|
| Earnings per share – diluted | | 2.39 |
| | 2.60 |
| | 2.29 |
| | 2.24 |
| | 9.52 |
|
| Cash dividends paid per share | | 0.71 |
| | 0.71 |
| | 0.71 |
| | 0.82 |
| | 2.95 |
|
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Snap-on has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| SNAP-ON INCORPORATED | | | | | | | |
SNAP-ON INCORPORATED | | | | | |
| By: | | | |
By: | | /s/ Nicholas T. Pinchuk | | | | Date: | February 14, 201910, 2022 |
| | Nicholas T. Pinchuk, Chairman, President
and Chief Executive Officer
| | | | | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Snap-on and in the capacities and on the date indicated.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | | | |
| | /s/ Nicholas T. Pinchuk | | | | Date: | February 14, 201910, 2022 |
| | Nicholas T. Pinchuk, Chairman, President
and Chief Executive Officer
| | | | | |
| | | |
| | /s/ Aldo J. Pagliari | | | | Date: | February 14, 201910, 2022 |
| | Aldo J. Pagliari, Principal Financial Officer, Senior
Vice President – Finance and Chief Financial Officer
| | | | | |
| | | |
| | /s/ Richard K. StregeMarty V. Ozolins | | | | Date: | February 14, 201910, 2022 |
| | Richard K. Strege,Marty V. Ozolins, Principal Accounting Officer,
Vice President and Controller
| | | | | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Snap-on and in the capacities and on the date indicated.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| By: | | | | | | | |
By: | | /s/ David C. Adams | | | | Date: | February 14, 201910, 2022 |
| | David C. Adams, Director | | | | | |
| | | |
| By: | | /s/ Karen L. Daniel | | | | Date: | February 14, 201910, 2022 |
| | Karen L. Daniel, Director | | | | | |
| | | |
| By: | | /s/ Ruth Ann M. Gillis | | | | Date: | February 14, 201910, 2022 |
| | Ruth Ann M. Gillis, Director | | | | | |
| | | |
| By: | | /s/ James P. Holden | | | | Date: | February 14, 201910, 2022 |
| | James P. Holden, Director | | | | | |
| | | |
| By: | | /s/ Nathan J. Jones | | | | Date: | February 14, 201910, 2022 |
| | Nathan J. Jones, Director | | | | | |
| | | |
| By: | | /s/ Henry W. Knueppel | | | | Date: | February 14, 201910, 2022 |
| | Henry W. Knueppel, Director | | | | | |
| | | |
| By: | | /s/ W. Dudley Lehman | | | | Date: | February 14, 201910, 2022 |
| | W. Dudley Lehman, Director | | | | | |
| | | |
| By: | | /s/ Nicholas T. Pinchuk | | | | Date: | February 14, 201910, 2022 |
| | Nicholas T. Pinchuk, Director | | | | | |
| | | |
| By: | | /s/ Gregg M. Sherrill | | | | Date: | February 14, 201910, 2022 |
| | Gregg M. Sherrill, Director | | | | | |
| | | |
| By: | | /s/ Donald J. Stebbins | | | | Date: | February 14, 201910, 2022 |
| | Donald J. Stebbins, Director | | | | | |
|
| | | | | | | |
| 116 | 2018 ANNUAL REPORTSNAP-ON INCORPORATED | 119 |
