SECURITIES AND EXCHANGE COMMISSION
FORM10-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 30, 2017,January 2, 2021, or
☐ | | | | | |
| ☐ | 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)
| | | | | | | | | | | | | | |
| Delaware | | 39-0622040 |
| (State of incorporation) | | (I.R.S. Employer Identification No.) |
| | | | |
2801 80th80th Street Kenosha, Wisconsin | Kenosha | Wisconsin | | 53143 |
| (Address of principal executive offices) | | (Zip code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class
| Trading Symbol(s) | Name of each exchange on which registered |
Common stock,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
and posted on its corporate Website, if any, every Interactive Data File required to be submitted
and posted 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
and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationS-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 Form10-K or any amendment to this Form10-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
564,907710,101 shares held by directors and executive officers) computed by reference to the price ($
158.00)133.56) at which common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter
(July 1, 2017)(June 26, 2020) was
$9.0$7.2 billion.
The number of shares of Common Stock ($1.00 par value) of the registrant outstanding as of February
9, 2018,5, 2021, was
56,721,04854,203,094 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
9, 2018,12, 2021, prepared for the Annual Meeting of Shareholders scheduled for April
26, 2018.29, 2021.
TABLE OF CONTENTS
TABLE OF CONTENTS
| Item 1
| | Business
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| PART I | |
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| | Item 1B
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| | Item 2
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| | Item 3
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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 | 125 | |
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| Certifications | 126 | |
Statements in this document that are not historical facts, including statements that (i) are in the future 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; (iii) are specifically identified as forward-looking; or (iv) describe
Snap-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 and uncertainties include, without limitation, uncertainties related to estimates, statements, assumptions and projections generally, and the timing and progress with whichSnap-on can attain value through itsSnap-on Value Creation Processes, including its ability to realize efficiencies and savings from its rapid continuous improvement and other cost reduction initiatives, improve workforce productivity, achieve improvements in the company’s manufacturing footprint and greater efficiencies in its supply chain, and enhance machine maintenance, plant productivity and manufacturing lineset-up and change-over practices, any or all of which could result in production inefficiencies, higher costs and/or lost revenues. These risks include the evolving impact and unknown duration of the coronavirus (“COVID-19”) pandemic, which has the potential to amplify the impact of the other risks facing the company. These risks also include the impact of governmental actions related thereto on Snap-on’s business, as well as uncertainties related toSnap-on’s capability to implement future strategies with respect to its existing businesses, its ability to refine its brand and franchise strategies, retain and attract franchisees, further enhance service and value to franchisees and thereby help improve their sales and profitability, introduce successful new products, successfully pursue, complete and integrate acquisitions, as well as its ability to withstand disruption arising from natural disasters, (such as the recent hurricanes in the southern United States and the Caribbean), planned facility closures or other labor interruptions, the effects of external negative factors, including adverse developments in world financial markets, developments related to tariffs and other trade issues or disputes, weakness in certain areas of the global economy (including(including as a result of the United Kingdom’s pending exit from the European Union)Union and the COVID-19 pandemic), and significant changes in the current competitive environment, inflation, interest rates and other monetary and market fluctuations, changes in tax rates, laws and regulations as well as uncertainty surrounding potential changes, and the impact of energy and raw material supply and pricing, including steel (as a result of U.S. tariffs imposed on certain steel imports or otherwise) and gasoline, the amount, rate and growth ofSnap-on’s general and administrative expenses, including health care and postretirement costs (resulting from, among other matters, U.S. health care legislation and its ongoing implementation or potential reform), continuing and potentially increasing required contributions to pension and postretirement plans, the impacts ofnon-strategic business and/or product line rationalizations, and the effects on business as a result of new legislation, regulations or government-related developments or issues, risks associated with data security and technological systems and protections, potential reputational damages and costs related to litigation as well as an inability to assure that costs will be reduced or eliminated on appeal, the impact of changes in financial accounting standards, the ability to effectively manage human capital resources, and other world or local events outsideSnap-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.
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
2017”2020” or
“2017” refer to the fiscal year ended December 30, 2017; references to “fiscal 2016” or “2016” refer to the fiscal year ended December 31, 2016; and references to “fiscal 2015” or “2015”“2020” refer to the fiscal year ended January 2,
2016.Snap-on’s 2017, 20162021; references to “fiscal 2019” or “2019” refer to the fiscal year ended December 28, 2019; and
2015references to “fiscal 2018” or “2018” refer to the fiscal year ended December 29, 2018. References in this document to 2020, 2019 and 2018 year end refer to January 2, 2021, December 28, 2019, and December 29, 2018, respectively. Snap-on’s 2020 fiscal year contained 53 weeks of operating results with the extra week occurring in the fourth quarter. Snap-on’s 2019 and 2018 fiscal years each contained 52 weeks of operating results.
References in this document to 2017, 2016 and 2015 year end refer to December 30, 2017, December 31, 2016, and January 2, 2016, respectively.
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, diagnostics software,
handheld and PC-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/Asia Pacific.
Snap-on reaches its customers through the company’s
franchisee,franchised, company-direct, distributor and internet channels.
Snap-on originated the mobile tool distribution channel in the automotive repair market.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
fully 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
1820 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.
All significant intersegmentIntersegment amounts are eliminated to arrive at
Snap-on’s consolidated financial results.
Snap-on has continued to expand its business throughout the years via acquisitions. Below are acquisitions completed in the last three fiscal years:
On
JulySeptember 28,
2017,2020, Snap-on acquired
Torque Control Specialists Pty Ltdsubstantially all of the assets of AutoCrib, 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, distributes a full range of torque products, including wrenches, multipliersTustin, California, designs, manufactures and
calibrators, for use in critical industries.markets asset and tool control solutions. The acquisition of
TCS enhancedAutoCrib complemented and expanded
Snap-on’s capabilities existing tool control offering to customers in
providing solutions that address torque requirements, which are increasingly essential to critical mechanical performance. For segment reporting purposes, the resultsa variety of
operationsindustrial applications, including aerospace, automotive, military, natural resources 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 expandedSnap-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.
general industry.
On January
30, 2017,31, 2020, Snap-on acquired
BTC Globalsubstantially all of the assets related to the TreadReader product line from Sigmavision Limited (“
BTC”Sigmavision”) for a cash purchase price of
$9.2$5.9 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 enhancedSnap-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 enhanced and expandedSnap-on’s capabilities in providing solutions that address torque requirements. 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 acquiredCar-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,Sigmavision designs and manufactures collision repair equipment,handheld devices and drive-over ramps that provide tire information and truck alignment systems. The acquisition ofCar-O-Liner complemented and increasedSnap-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 ofCar-O-Liner’s results of operations and assets have been includedfor use in the Repair Systems & Information Group since the acquisition date, with the remaining portions included in the Commercial & Industrial Group.
On July 27, 2015,Snap-on acquired the assets of Ecotechnics S.p.A. (“Ecotechnics”) for a cash purchase price of $11.8 million. Ecotechnics, based in Sesto Fiorentino, Italy, designs and manufactures vehicle air conditioning service equipment for OEM dealerships and the automotive aftermarket worldwide.industry. The acquisition of the EcotechnicsTreadReader product line complementedenhanced and increasedexpanded Snap-on’s existing equipment product offering for OEM dealerships and independent automotive repair shops, broadened its established capabilities in serving vehicle repair facilities and expanded the company’s presence with repair shop owners and managers.
On August 7, 2019, Snap-on acquired Cognitran Limited (“Cognitran”) for a cash purchase price of $30.6 million (or $29.6 million, net of cash acquired). Cognitran, based in Chelmsford, U.K., specializes in flexible, modular and highly 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 platforms. The acquisition of Cognitran enhanced and expanded Snap-on’s capabilities in providing shop efficiency solutions through integrated upstream services to OEM customers in automotive, heavy duty, agricultural and recreational applications.
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. The acquisition of the Power Hawk product line complemented and increased Snap-on’s existing product offering and broadened its established capabilities in serving critical industries.
On January 25, 2019, Snap-on acquired substantially all of the assets of TMB GeoMarketing Limited (“TMB”) for a cash purchase price of $1.3 million. TMB, based in Dorking, U.K., designs planning software used by OEMs to optimize dealer locations and manage the performance of dealer outlets. The acquisition of TMB extended Snap-on’s product line in its core dealer network solutions business.
On January 31, 2018, Snap-on acquired substantially all 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, assembles 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
EcotechnicsSigmavision, Cognitran and TMB have been included in the Repair Systems & Information Group since the
respective acquisition
date.dates, and the results of operations and assets of AutoCrib, Power Hawk and Fastorq have been included in the Commercial & Industrial 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.
Information Available on the Company’s Website
Additional information regardingSnap-on and its products is available on the company’s website atwww.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 Form10-K.Snap-on’s 10-K. Snap-on’s Annual Reports on Form10-K, Quarterly Reports on Form10-Q, Proxy Statements on Schedule 14A and Current Reports on Form8-K, as well as any amendments to those reports, are made available to the public at no charge other than an investor’s own internet access charges, through the Investors section of the company’s website atwww.snapon.com.Snap-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 atwww.sec.gov. The SEC’s Public Reference Room can be contacted at 100 F Street, N.E., Washington, D.C. 20549, or by calling1-800-732-0330. 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 atwww.snapon.com.
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 | |
| (Amounts in millions) | | 2017 | | | 2016 | | | 2015 | |
Product Category: | | | | | | | | | | | | |
Tools | | $ | 1,946.7 | | | $ | 1,899.2 | | | $ | 1,910.1 | |
Diagnostics, information and management systems | | | 800.4 | | | | 748.2 | | | | 689.6 | |
Equipment | | | 939.8 | | | | 783.0 | | | | 753.1 | |
| | | | | | | | | | | | |
| | $ | 3,686.9 | | | $ | 3,430.4 | | | $ | 3,352.8 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | Net Sales |
| (Amounts in millions) | | 2020 | | 2019 | | 2018 |
| Product Category: | | | | | | |
| Tools | | $ | 1,984.7 | | | $ | 2,017.5 | | | $ | 2,021.2 | |
| Diagnostics, information and management systems | | 783.8 | | | 827.5 | | | 797.9 | |
| Equipment | | 824.0 | | | 885.0 | | | 921.6 | |
| | $ | 3,592.5 | | | $ | 3,730.0 | | | $ | 3,740.7 | |
Thetools 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 bySnap-on and, in completing the product offering, other items are purchased from external manufacturers. Thediagnostics, information and management systemsproduct category includes handheld andPC-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. Theequipment 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:
| | | | | | | | |
Names | | Products and Services |
| |
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 |
| |
ATI | | Aircraft hand tools and machine tools |
| |
autoVHC
AutoCrib | | Asset and tool control systems |
| | |
| autoVHC | | Vehicle inspection and training services |
| |
BAHCO | | Saw blades, cutting tools, pruning tools, hand tools, power tools and tool storage, including tool control systems |
| |
Blackhawk | | Collision repair equipment |
| |
Blue-Point | | Hand tools, power tools, tool storage, diagnostics, certain equipment and related accessories |
| |
Cartec | | Safety testing, brake testers, test lane equipment, dynamometers, suspension testers, emission testers and other equipment |
| |
Car-O-Liner | | Collision repair equipment, and information and truck alignment systems |
| |
CDI | | Torque tools |
| |
Challenger | | Vehicle lifts |
| |
Ecotechnics
Cognitran | | OEM SaaS products |
| | |
| Ecotechnics | | Vehicle air conditioning service equipment |
| |
Fastorq | | Hydraulic torque and tensioning products |
| |
| Fish and Hook | | Saw blades, cutting tools, pruning tools, hand tools, power tools and tool storage |
| |
Hofmann | | Wheel balancers, vehicle lifts, tire changers, wheel aligners, brake testers and test lane equipment |
| |
Irimo | | Saw blades, cutting tools, hand tools, power tools and tool storage |
| |
John Bean | | Wheel balancers, vehicle lifts, tire changers, wheel aligners, brake testers and test lane equipment |
| |
Josam | | Heavy duty alignment and collision repair solutions |
| |
Lindström | | Hand tools |
| |
Mitchell1 | | Repair and service information, shop management systems and business services |
| |
Nexiq | | Diagnostic tools, information and program distributions for fleet and heavy duty equipment |
| |
Norbar | | Torque tools |
| |
Pro-Cut
Power Hawk | | On-car brake lathes,Rescue tools and related equipment for military, government, fire and rescue |
| | |
| Pro-Cut | | Brake service equipment and accessories |
| |
Sandflex | | Hacksaw blades, bandsaws, saw blades, hole saws and reciprocating saw blades |
| |
ShopKey | | Repair and service information, shop management systems and business services |
| |
Sioux | | Power tools |
| |
Sturtevant Richmont | | Torque tools |
| |
Sun | | Diagnostic tools, wheel balancers, vehicle lifts, tire changers, wheel aligners, air conditioning products and emission testers |
| |
TruckCam
TreadReader | | Automotive tire drive-over ramps and handheld devices |
| | |
| TruckCam | | Commercial vehicle OEM factory solutions |
| |
Williams | | Hand tools, tool storage, certain equipment and related accessories |
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 diagnostic 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
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 diagnostic 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 diagnostic 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, diagnostic 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 vehicle service and repair sector is characterized by an increasing rate of technological change within motor vehicles, vehicle population growth and increasing vehicle life, and the resulting effects of these changes on the businesses of both our suppliers and customers.
Snap-on believes it is a meaningful participant in the vehicle service and repair market 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
schools;programs; aviation and aerospace operations; oil and gas developers; mining operations; energy and power
generation;generation operations; 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
productproducts and business needs.
The industrial sector forSnap-on focuses on providing value-added products and services to an increasingly expanding global base of customers in critical industries. Through its experienced and dispersed sales organization, industrial “solutioneers” develop unique and highly valued productivity solutions for customers worldwide that leverageSnap-on’s product, service and development capabilities.
The industrial sector is characterized by a highly competitive environment with multiple suppliers offering
either a full line or industry 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.
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.
In the United States, a significant portion of sales to the vehicle service and repair sector is conducted through
Snap-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 diagnostic 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
$15.2$16.2 million,
$13.9$15.4 million and
$12.7$16.2 million in fiscal
2017, 20162020, 2019 and
2015,2018, 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-on to pilot new sales and promotional ideas prior to introducing them to franchisees. As of
20172020 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
20172020 year end,
Snap-on’s worldwide route count was approximately
4,900,4,775, including approximately
3,5003,425 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.
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 and 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
20172020 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.
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. Diagnostic 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.
Snap-on offers current and prospective customers online access to research and purchase products through its public website, atwww.snapon.com. The site features an online catalog ofSnap-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 theone-on-one relationships and serviceSnap-on has with its current and prospective customers. Sales through the company’se-commerce distribution channel were not significant in any of the last three years. 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 and 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 and purchased components are generally and readily available from numerous suppliers.
Snap-on believes it has secured an ample supply of both bar and coil steel for the near future to ensure stable supply to meet material demands. The company does not currently anticipate experiencing any significant impact in
20182021 from steel pricing or availability
issues.
issues, though it is continuing to monitor the impact of tariffs and other trade protection measures put in place by the U.S. and other countries.
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
20172020 year end,
Snap-on and its subsidiaries held approximately
700800 active and pending patents in the United States and approximately
1,6002,350 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
toSnap-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.
Environmental
and Government Regulations
Snap-on is subject to various 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:
20042015 and OHSAS 18001:2007, 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.
Employees
Human Capital Management
As of January 2, 2021, Snap-on employed approximately
12,60012,300 people
atworldwide, of which approximately 6,800 were employed in the
end of January 2018;Snap-on employedUnited States and approximately
12,100 people at5,500 were outside the
end of January 2017. The year-over-year increase inUnited States. Approximately 2,600 employees
primarily reflects acquisitions during 2017.Approximately 2,700 employees, or 21% ofSnap-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 1,450 employees in 2018, 225 employees in 2019, 825 employees in 2020, 125 employees in 2021, and 25 employees in 2022.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. 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 work place 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 2020, Snap-on had an overall safety incident rate of 0.85 (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 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 other future contracts with14 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’s unions will be renegotiated upon terms acceptable people and the behaviors they display define our success, including integrity, respect and teamwork. Annual employee training is used toSnap-on. reinforce ethics, environmental matters, health and safety, and regulatory compliance.
Working Capital
In response to the COVID-19 pandemic, Snap-on has generally maintained its headcount as the company 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, permitting remote work and providing wages for quarantined associates. Snap-on also provided direct assistance to its franchisees as they accommodated the turbulence caused by the virus to enable continued service to their essential technician customers. 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
Snap-on is committed to conducting business and making decisions honestly, ethically, fairly and within the law, and is guided by the company’s mission statement. 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 Code 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 eliminate human trafficking, slavery, forced labor and child labor from its global supply chain.
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 guidelines of the Sustainability Accounting Standards Board (SASB). Snap-on’s sustainability metrics are available 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 2017 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 2017 year end, neitherSnap-on nor any of its segments depend on any single customer, small group of customers or government for any material part of its revenues.
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 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.
Economic conditions
Risk related to COVID-19 and Other Infectious Diseases
The COVID-19 pandemic has adversely affected, and is expected to continue to pose risks to our business, results of operations, financial condition and cash flows, and other epidemics or outbreaks of infectious diseases may have a similar impact.
We face risks related to outbreaks of infectious diseases, including the ongoing COVID-19 pandemic. COVID-19 spread across the globe during 2020 and continues to impact economic activity worldwide. COVID-19 caused disruption and volatility in the global capital markets, and authored an economic slowdown during 2020. The COVID-19 pandemic and its associated economic uncertainty negatively impacted Snap-on’s sales volumes in 2020 in most geographies and across a variety of customers, including those in automotive repair with the impact most pronounced in the first and second quarters of 2020. In response to COVID-19, national and local governments around the world
instituted certain measures, including travel bans, prohibitions on group events
could affectand gatherings, shutdowns of certain businesses, curfews, shelter-in-place orders and recommendations to practice social distancing. These measures resulted in attenuating activity and, in some cases, required temporary closures of certain of our
operating results.We, our franchisees and our customers,facilities, among other impacts in 2020. The duration of these measures may be adversely affected by changing economic conditions, including conditions thatextended and additional measures may particularly impact specific regions. These conditions may result in reducedbe 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 include, but are not limited to, the following:
•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 whole, alsospending, which may be affected by future world or local events outside our control, such as 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 mayadversely affect our results of operations by reducing our sales, margins and/or net earningsincome as a result of a slowdown in customer orders or order cancellations, impact the availability of raw materials and/or the supply chain, and could potentially lead to future impairment of our intangible assets.cancellations. 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 mayvolatility in the financial markets could increase the cost of capital and/or limit its availability.
•Economic uncertainties that make it difficult for our franchisees, customers, suppliers and usthe company to accurately forecast and plan future business activities.
•As a result of government orders and social distancing, some of our franchisees would be expected to make fewer in-person sales calls during any such outbreak reflecting the reluctance of some customers to receive franchisee visits. Further, shelter-in-place orders could cause vehicle owners to temporarily refrain from bringing cars to repair shops. To the extent that there is significantly reduced driving due to shelter-in-place and similar orders and the aftermath of such orders, there could be fewer repairs and there could be a decrease in demand for our products; in addition, some repair shops may not be able to stay in business if these conditions continue to exist for an extended period of time.
•The potential to weaken the financial position of some of our customers, including customers utilizing our financing programs. If such conditions persist,circumstances surrounding our customers’ financial capabilities were to deteriorate, write-downs or write-offs could negatively affect our operating results and, if large, or ongoing for extended periods, could have a material adverse effect on our business, financial condition, results of operations and cash flow.
•Disruptions could occur to our supply chain in connection with the sourcing of materials from geographic areas that continue to be impacted by an outbreak and by efforts to contain its spread.
•Volatility related to pension plan assets. While our plan assets are broadly diversified, there are inherent market risks associated with investments. We may need to make additional contributions to address an increase in obligations and/or a loss in plan assets as a result of the combination of declining market interest rates and/or past or future plan asset investment losses, which could adversely impact our financial condition, results of operations and cash flows.
•The need to incur additional restructuring charges to optimize our cost structure.
To the extent the COVID-19 pandemic, or a future outbreak, adversely affects our business, financial condition, results of operations and cash flows,
could be negatively affected.In June 2016, the United Kingdom voted in a referendum to exit the European Union (“Brexit”), which resulted in significant currency exchange rate fluctuations and volatility. Negotiations are underway to determine the terms of Brexit. Given the lack of comparable precedent and the statusit may also heighten many of the negotiations, the implicationsother risks described in this section. The ultimate impact of Brexit, or how such implications might affectSnap-on, continue to remain unclear at this time. Brexit could, among other impacts, disrupt trade and the movement of goods, services and people between the United Kingdom and the European Union or other countriesCOVID-19, as well as create legal and global economic uncertainty. These and other potential implications could adversely affectfuture outbreaks of infectious diseases, on our business, and results of operations.
In 2017, Canada, Mexicooperations, financial condition and cash flows is dependent on future developments, including the duration of the pandemic and the United States commenced negotiations to potentially modify the termsrelated length of the North American Free Trade Agreement (“NAFTA”). It is difficult to predict what, if any, changes will be made to NAFTA as a result of these negotiations. If the U.S. were to withdraw from NAFTA or if significant changes are made that, among other impacts, disrupt trade and the movement of goods and services between these countries, it could have a material adverseits impact on our business.
Thesethe global economy, which are uncertain and other matters significantly impacting the regulationcannot be predicted at this time.
Business Risks
The sales of
trade could adversely affect our business and results of operations.
Raw material and energy price fluctuations and shortages (including steel and various fuel sources) could adversely affect the ability to obtain needed manufacturing materials and could adversely affect our results of operations.
The principal raw material used in the manufacturemany of our products is steel, which we purchase in competitive, price-sensitive markets. To meetSnap-on’s high quality standards, our steel needs range from specialized alloys, which are available only from a limited group of approved suppliers, to commodity types of alloys. These raw materials have historically exhibited price and demand cyclicality. Some of these materials have been, and independent on 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, we could experience inventory shortages if we were required to use an alternative manufacturer on short notice. Additionally, unexpected price increases for raw materials could result in higher prices to our customers or an erosionhealth of the margins on our products.
vehicle repair market and the changing requirements of vehicle repair.
We believe
our ability to sellsales of many of our products
is alsoare 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 and the general aging of vehicles.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,
andas 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.
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 2020 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 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.
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, 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, 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 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 30% of our revenues in 2020 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, trade relations with China, 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 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 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 (“U.K.”) formally left the European Union (“Brexit”) on January 31, 2020, and was in a transition period until December 31, 2020. The U.K. and the European Union reached an agreement regarding Brexit on December 24, 2020. As part of the agreement, there will be a new series of customs and regulatory checks, including rules of origin and stringent local content requirements. There will also be restrictions on the free movement of people and temporary visas for work-related purposes are being re-introduced. The implications of Brexit, or how such implications are expected to affect Snap-on, continue to be reviewed by the company. In addition to disruptions to trade and the movement of goods, services and people between the U.K. and the European Union or other countries, Brexit, among other impacts, could 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.
Operational Risks
Risks associated with the disruption of manufacturing 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, weather events, use and storage of hazardous materials, acts of war, sabotage, or terrorism, civil unrest or other events), or other reasons, including outbreaks of infectious diseases, such as the current COVID-19 pandemic, could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Price fluctuations and shortages of raw materials, components, certain finished goods inventory and energy sources could adversely affect the ability to obtain needed materials or products and could adversely affect our results of operations.
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. In addition, outbreaks of infectious diseases, weather events or other circumstances beyond our control could also impact the availability of raw materials. As some steel alloys require specialized manufacturing procedures, we could experience inventory shortages if we were required to use an alternative manufacturer on short notice. These and other raw materials, components and certain finished goods inventory can exhibit price and demand cyclicality, including as a result of tariffs and other trade protection measures. Associated unexpected price increases could result in an erosion of product margins or require Snap-on to increase prices to customers to 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, 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. Higher prices also may reduce the level of future customer orders and our profitability.
The performance
Failure to maintain effective distribution ofSnap-on’s mobile tool products 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 41% ofmethods to sell our consolidated net revenues in 2017 were generated by theSnap-on Tools Group, which consists ofSnap-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 forSnap-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 model for our products and services could adversely affect our revenue, gross margins and profitability.
Data security and information technology infrastructure and security are critical to supporting business objectives; failure of products, the collection of receivablesour 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 relationshipability 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 as greater numbers of associates work remotely in response to safety measures adopted to address the COVID-19 pandemic.
In association with
end usersinitiatives to better integrate business units, rationalize our operating footprint and improve responsiveness to franchisees and customers, Snap-on is continually enhancing its global Enterprise Resource Planning (ERP) management information systems. As we integrate, implement and deploy new information technology processes and enhance our information infrastructure across our global operations, we could
be adversely affected and thereby negatively impactexperience disruptions in our business that could have an adverse effect on our business, financial condition, results of operations and cash flows.
Failure to attract, retain and effectively 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,
if we are unabletransitions of important responsibilities to
maintain effective relationships with franchisees,Snap-on ornew individuals inherently include the
franchisees may choosepossibility of disruptions to
terminate the relationship,our business and operations, which
may result in (i) open routes, in whichend-user customers are not provided reliable service; (ii) litigation resulting from termination; (iii) reduced collections or increased write-offs of franchisee receivables owed toSnap-on; and/or (iv) reduced collections or increased write-offs of finance and contract receivables.Exposure to credit risks of customers and resellers may make it difficult to collect receivables and could adversely affect operating results and financial condition.
The size of our financial services portfolio has increased significantly in recent years. A decline in industry and/or economic conditions could have the potential to weaken the financial position of some of our customers. If circumstances surrounding our customers’ ability to repay their credit obligations were to deteriorate and result in the write-down orwrite-off of such receivables, it would negatively affect our operatingbusiness, financial condition, results for the periodof operations and cash flows.
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
which they occur and, if large,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 steps taken to restructure operations, rationalize operating footprint, lower operating expenses and achieve greater efficiencies in the supply chain could disrupt business.
We have taken steps in the past, and expect to 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 or adversely impact our results in certain periods. 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 to our franchisees and customers;
•Continuing to implement productivity initiatives throughout the company to drive further efficiencies and reduce energy and other operating 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, any 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. If we were to incur a substantial charge to further these efforts or are unable to effectively manage our cost reduction and restructuring efforts, our business, financial condition, results of operations and cash flows could be adversely affected.
Financial Risks
Our inability to provide acceptable financing alternatives to
end-user customers franchisees and
franchiseesother 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
end-user customers franchisees and
franchisees.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 and profitability.
Changes
Exposure to legislationcredit risks of customers and regulationsresellers 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
business, reputation,operating results
of operationsfor the relevant period and,
financial condition.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 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 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 whichif large, could have a material adverse effect on our business, financial condition, results of operations and cash flows. Failure
The company maintains allowances for credit losses for receivables to
comply with anyprovide for defaults and nonperformance. These allowances represent an estimate of
these laws or regulationslosses 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
also result in civil, criminal, monetary and/ornon-monetary penalties, damage tomaterially and adversely affect our
reputation, and/or the incurrence of remediation costs.Snap-on’sfinancial 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 be 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 company’s effective tax rateUnited States in a tax-efficient manner. Our foreign operations are also subject to other risks and challenges, such as a resultthe 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,such as during the COVID-19 pandemic in 2020. Adverse developments in the credit and financial markets, or unfavorable changes in statutory tax rates, lawsSnap-on’s credit rating, could negatively impact the availability of future financing and regulations,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 related guidance. our operations in several ways, including:
•The company is currently analyzingterms on which credit may be available to us could be less attractive, both in the impacteconomic terms of the December 2017 passagecredit and the covenants stipulated by the credit terms;
•The possible lack of “H.R.1”, formerly known asavailability of additional credit or access to the Tax Cuts and Jobs Actcommercial paper market;
•The potential for higher levels of interest expense to service or maintain our outstanding debt;
•The possibility of additional borrowings in the United States (the “Tax Act”), which made significant changesfuture 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
U.S. Tax Codeability to service our debt 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 legislation could adversely affect our results of operations.These developments, and other potential future legislation and regulations, as well as the factorsobtain additional resources in the strict regulatory environment, including the growing international regulation of privacy rights, may also adversely affect the customers to which,future if and the markets into which, we sellwhen needed, that will depend upon our products, and increase our costs and otherwise negatively affect our business, reputation, results of operations and financial condition,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.
Furthermore, a portion of our indebtedness bears interest at rates that fluctuate with changes in certain short-term prevailing interest rates, including the London Interbank Offer Rate (“LIBOR”).Although we attempt to manage our exposure to rate fluctuations via hedging arrangements, such arrangements may be ineffective or may not protect us to the extent we expect.In addition, the United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer persuade or compel panel banks to submit the rates required to calculate LIBOR, and it is unclear whether the banks currently reporting information used to set LIBOR will stop doing so after 2021. The United States (“U.S.”) Federal Reserve, in ways thatconjunction with the Alternative Reference Rates Committee, a steering committee composed of large U.S. financial institutions, is considering replacing the U.S. dollar LIBOR with a new index, the Secured Overnight Financing Rate (“SOFR”), calculated using short-term repurchase agreements backed by Treasury securities. Although the consequences of these developments cannot yet be foreseen.predicted at this time, the rates under our variable rate indebtedness could increase and access to capital could be limited.
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
1112 to the Consolidated Financial Statements for further information on the company’s pension plans.
Adverse developments
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 creditCommercial & 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 marketsposition could negatively impactbe materially impacted, including as a result of the availabilityeffects of credit that wepotential impairment write-downs of goodwill and/or other intangible assets related to these businesses.
Legal and our customers needRegulatory Risks
Legislation and regulations relating to
operate our businesses.We depend upon the availability of credit to operate our business and the countries where we operate, 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 financingcompany, 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
receivables fromend-user customers thatall kinds are
originated by our financial services businesses. Ourend-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 insignificant and complex regulations and enforcement. In addition to potentially increasing the
creditcosts and
other 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
markets,products or
unfavorable changes inSnap-on’s credit rating, could negatively impact the availabilityservices offered, any or all of
future financing and the terms on which
it might be available toSnap-on, itsend-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
ana material adverse
impacteffect on our
business, financial condition, results of operations and cash flows.
Increasing 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 financial leverage couldreputation, and/or the incurrence of remediation costs.
These developments, and other potential future legislation and regulations, including the increasing global 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
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 ourbusiness, reputation, results of operations and financial position at the time, the then-current state of the credit and financial markets, and other factorscondition, including in ways that maycannot yet 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, account for and collect 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 or proceedings, 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.
In association with initiatives to better integrate business units, rationalize 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.
Failure to maintain effective distribution of products and services could adversely impact revenue, gross margin and profitability.
We use a variety of distribution methods to sell our products and services. Successfully managing the interaction of our distribution efforts to reach various potential customer segments for our 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 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 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, weather events, use and storage of hazardous materials, acts of war, sabotage or terrorism, or other events), or other reasons, could have a material adverse effect on our business, financial condition, results of operations and cash flows.
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, and testing at the technological, product and manufacturing process levels. Our competitors’ new products may beat our products to market, 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 ofSnap-on’s customers and its franchisees are high and continue to increase. Any inability to maintain customer satisfaction could diminishSnap-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 32% of our revenues in 2017 were generated outside of the United States. Future growth rates and success of our business depends in large part on continued growth in ournon-U.S. operations, including growth in emerging markets and critical industries. Numerous risks and uncertainties affect ournon-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 ournon-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 forSnap-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 preparingSnap-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 innon-U.S. jurisdictions may be difficult to repatriate to the United States in atax-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.
Failure
General 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, 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 failure to attract and retain members of our senior management team and other key employees 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 negativelyregulations. These factors may 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.
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
3.43.9 million square feet, of which
73%75% is owned, including its corporate and general office facility located in Kenosha, Wisconsin.
Snap-on’s facilities outside the United States occupy approximately 4.5 million square feet, of which approximately 73% is owned. Certain
Snap-on facilities are leased through operating and
capitalfinance lease agreements. See Note
1517 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.
| | | | | | | | |
20 | 2020 ANNUAL REPORT | SNAP-ON INCORPORATED21 |
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
20172020 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 | | Leased
Owned | | RS&I |
San Jose, California | | Software development | | Leased | | RS&I |
Columbus, Georgia
Tustin, California | | Distribution
Manufacturing and distribution | | Owned
Leased | | 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 |
Murphy, North Carolina | | Manufacturing and distribution | | Owned and leased | | C&I |
Richfield, Ohio | | Software development | | Owned | | RS&I |
Robesonia, Pennsylvania | | Distribution | | 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: | | | | | | |
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, Hungary | | Manufacturing | | Owned | | RS&I |
Correggio, Italy | | Manufacturing | | Owned | | RS&I |
Tokyo, Japan | | Distribution | | Leased | | 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 |
* | | | | | | | | | | | | | | |
| * Segment abbreviations: | | | | |
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 onSnap-on’s consolidated financial position, results of operations or cash flows.
Item 4: Mine Safety Disclosures
PART II
Item 5: Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Snap-on had
56,690,24954,102,099 shares of common stock outstanding as of
20172020 year end.
Snap-on’s stock is listed on the New York Stock Exchange under the ticker symbol “SNA.” At February
9, 2018,5, 2021, there were
4,8844,400 registered holders of
Snap-on common stock.
The high and low closing prices ofSnap-on’s common stock during each fiscal quarter for the last two years were as follows:
| | | | | | | | | | | | | | | | |
| | | Common Stock High/Low Prices | |
| | | 2017 | | | 2016 | |
Quarter | | High | | | Low | | | High | | | Low | |
First | | $ | 181.53 | | | $ | 164.91 | | | $ | 168.53 | | | $ | 135.41 | |
Second | | | 175.26 | | | | 153.24 | | | | 164.39 | | | | 148.03 | |
Third | | | 159.02 | | | | 141.51 | | | | 162.70 | | | | 146.76 | |
Fourth | | | 175.88 | | | | 147.90 | | | | 176.20 | | | | 145.97 | |
Snap-on has paid consecutive quarterly cash dividends, without interruption or reduction, since 1939. Quarterly dividends in 2017 were $0.82 per share in the fourth quarter and $0.71 per share in each of 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 each of the first three quarters ($2.54 per share for the year). Cash dividends paid in 2017 and 2016 totaled $169.4 million and $147.5 million, respectively.Snap-on’s Board of Directors (the “Board”) monitors and evaluates the company’s dividend practice quarterly and the Board may elect to increase, decrease or not pay a dividend onSnap-on common stock based upon the company’s financial condition, results of operations, cash requirements and future prospects ofSnap-on and other factors deemed relevant by the Board.
See Note 13 to the Consolidated Financial Statements for information on securities authorized for issuance under equity compensation plans.
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
2017,2020, 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* | |
10/01/17 to 10/28/17 | | | 80,000 | | | $ | 160.86 | | | 80,000 | | $ | 427.2 million | |
10/29/17 to 11/25/17 | | | 330,000 | | | $ | 157.89 | | | 330,000 | | $ | 375.9 million | |
11/26/17 to 12/30/17 | | | 62,000 | | | $ | 166.34 | | | 62,000 | | $ | 390.7 million | |
| | | | | | | | | | | | | | |
Total/Average | | | 472,000 | | | $ | 159.50 | | | 472,000 | | | 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* |
| 09/27/20 to 10/24/20 | | — | | — | | — | | $307.2 million |
| 10/25/19 to 11/21/20 | | 250,000 | | $165.61 | | 250,000 | | $283.9 million |
| 11/22/20 to 1/2/21 | | 210,000 | | $177.42 | | 210,000 | | $275.7 million |
| Total/Average | | 460,000 | | $171.00 | | 460,000 | | N/A |
______________________
N/A: Not applicable
* | Subject to further adjustment pursuant to the 1996 Authorization described below, as of December 30, 2017, the approximate value of shares that may yet be purchased pursuant to the two outstanding Board authorizations discussed below is $390.7 million.
|
* Subject to further adjustment pursuant to the 1996 Authorization described below, as of January 2, 2021, the approximate value of shares that may yet be purchased pursuant to the outstanding Board authorizations discussed below is $275.7 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 $158.45, $159.70$169.39, $172.92 and $174.30$171.14 per share of common stock as of the end of the fiscal 20172020 months ended October 28, 2017,24, 2020, November 25, 2017,21, 2020, and December 30, 2017,January 2, 2021, 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 2017(the “2019 Authorization”). The 20172019 Authorization will expire when the aggregate repurchase price limit is met, unless terminated earlier by the Board.
The 2019 Authorization replaced the Board’s 2017 $500 million authorization, under which $206 million of the authorization remained at the time of its replacement.
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
20172020 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 Sales of
Snap-on Stock
| | | | | | | | |
Period | | Shares sold | | | Average price
per share | |
10/01/17 to 10/28/17 | | | – | | | | – | |
10/29/17 to 11/25/17 | | | – | | | | – | |
11/26/17 to 12/30/17 | | | 18,600 | | | $ | 167.53 | |
| | | | | | | | |
Total/Average | | | 18,600 | | | $ | 167.53 | |
| | | | | | | | |
| | | | | | | | | | | | | | |
| Period | | Shares sold | | Average price
per share |
| 09/27/20 to 10/24/20 | | — | | — |
| 10/25/19 to 11/21/20 | | 14,000 | | $172.37 |
| 11/22/20 to 1/2/21 | | 5,900 | | $171.10 |
| Total/Average | | 19,900 | | $171.99 |
Five-year Stock Performance Graph The graph below illustrates the cumulative total shareholder return on
Snap-on common stock since December 31,
2012,2015, of a $100 investment, assuming that dividends were
reinvested.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”).
Snap-on Incorporated Total Shareholder Return
| | | | | | | | | | | | | | | | | | | | |
Fiscal Year Ended (1) | | Snap-on
Incorporated | | S&P 500
Industrials | | S&P 500 |
| December 31, 2015 | | $100.00 | | $100.00 | | $100.00 |
| December 31, 2016 | | $101.54 | | $118.86 | | $111.96 |
| December 31, 2017 | | $105.24 | | $143.86 | | $136.40 |
| December 31, 2018 | | $89.61 | | $124.74 | | $130.42 |
| December 31, 2019 | | $107.12 | | $161.38 | | $171.49 |
| December 31, 2020 | | $111.42 | | $179.23 | | $203.04 |
_______________________________
(1)
| | | | | | | | | | | | |
Fiscal Year Ended(2) | | Snap-on
Incorporated | | | S&P 500
Industrials | | | S&P 500 | |
December 31, 2012 | | $ | 100.00 | | | $ | 100.00 | | | $ | 100.00 | |
December 31, 2013 | | | 141.06 | | | | 140.68 | | | | 132.39 | |
December 31, 2014 | | | 178.82 | | | | 154.50 | | | | 150.51 | |
December 31, 2015 | | | 227.32 | | | | 150.59 | | | | 152.59 | |
December 31, 2016 | | | 230.82 | | | | 178.99 | | | | 170.84 | |
December 31, 2017 | | | 239.25 | | | | 216.64 | | | | 208.14 | |
(1) | Assumes $100 was invested on December 31, 2012, and that dividends were reinvested quarterly.
|
(2) | 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: 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
7,7: Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
| | | | | | | | | | | | | | | | | | | | |
Five-year Data | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions, except per share data) | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Results of Operations | | | | | | | | | | | | | | | | | | | | |
Net sales | | $ | 3,686.9 | | | $ | 3,430.4 | | | $ | 3,352.8 | | | $ | 3,277.7 | | | $ | 3,056.5 | |
Gross profit | | | 1,824.9 | | | | 1,709.6 | | | | 1,648.3 | | | | 1,584.3 | | | | 1,472.9 | |
Operating expenses | | | 1,160.9 | | | | 1,054.1 | | | | 1,053.7 | | | | 1,048.7 | | | | 1,012.4 | |
Operating earnings before financial services | | | 664.0 | | | | 655.5 | | | | 594.6 | | | | 535.6 | | | | 460.5 | |
Financial services revenue | | | 313.4 | | | | 281.4 | | | | 240.3 | | | | 214.9 | | | | 181.0 | |
Financial services expenses | | | 95.9 | | | | 82.7 | | | | 70.1 | | | | 65.8 | | | | 55.3 | |
Operating earnings from financial services | | | 217.5 | | | | 198.7 | | | | 170.2 | | | | 149.1 | | | | 125.7 | |
Operating earnings | | | 881.5 | | | | 854.2 | | | | 764.8 | | | | 684.7 | | | | 586.2 | |
Interest expense | | | 52.4 | | | | 52.2 | | | | 51.9 | | | | 52.9 | | | | 56.1 | |
Earnings before income taxes and equity earnings | | | 821.9 | | | | 801.4 | | | | 710.5 | | | | 630.9 | | | | 526.2 | |
Income tax expense | | | 250.9 | | | | 244.3 | | | | 221.2 | | | | 199.5 | | | | 166.7 | |
Earnings before equity earnings | | | 571.0 | | | | 557.1 | | | | 489.3 | | | | 431.4 | | | | 359.5 | |
Equity earnings, net of tax | | | 1.2 | | | | 2.5 | | | | 1.3 | | | | 0.7 | | | | 0.2 | |
Net earnings | | | 572.2 | | | | 559.6 | | | | 490.6 | | | | 432.1 | | | | 359.7 | |
Net earnings attributable to noncontrolling interests | | | (14.5) | | | | (13.2) | | | | (11.9) | | | | (10.2) | | | | (9.4) | |
Net earnings attributable toSnap-on | | | 557.7 | | | | 546.4 | | | | 478.7 | | | | 421.9 | | | | 350.3 | |
| | | | | |
Financial Position | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 92.0 | | | $ | 77.6 | | | $ | 92.8 | | | $ | 132.9 | | | $ | 217.6 | |
Trade and other accounts receivable – net | | | 675.6 | | | | 598.8 | | | | 562.5 | | | | 550.8 | | | | 531.6 | |
Finance receivables – net (current) | | | 505.4 | | | | 472.5 | | | | 447.3 | | | | 402.4 | | | | 374.6 | |
Contract receivables – net (current) | | | 96.8 | | | | 88.1 | | | | 82.1 | | | | 74.5 | | | | 68.4 | |
Inventories – net | | | 638.8 | | | | 530.5 | | | | 497.8 | | | | 475.5 | | | | 434.4 | |
Property and equipment – net | | | 484.4 | | | | 425.2 | | | | 413.5 | | | | 404.5 | | | | 392.5 | |
Long-term finance receivables – net | | | 1,039.2 | | | | 934.5 | | | | 772.7 | | | | 650.5 | | | | 560.6 | |
Long-term contract receivables – net | | | 322.6 | | | | 286.7 | | | | 266.6 | | | | 242.0 | | | | 217.1 | |
Total assets | | | 5,249.1 | | | | 4,723.2 | | | | 4,331.1 | | | | 4,162.0 | | | | 3,994.5 | |
Notes payable and current maturities of long-term debt | | | 433.2 | | | | 301.4 | | | | 18.4 | | | | 56.6 | | | | 113.1 | |
Accounts payable | | | 178.2 | | | | 170.9 | | | | 148.3 | | | | 145.0 | | | | 155.6 | |
Long-term debt | | | 753.6 | | | | 708.8 | | | | 861.7 | | | | 862.7 | | | | 858.9 | |
Total debt | | | 1,186.8 | | | | 1,010.2 | | | | 880.1 | | | | 919.3 | | | | 972.0 | |
Total shareholders’ equity attributable toSnap-on | | | 2,953.9 | | | | 2,617.2 | | | | 2,412.7 | | | | 2,207.8 | | | | 2,113.2 | |
| | | | | |
Common Share Summary | | | | | | | | | | | | | | | | | | | | |
Weighted-average shares outstanding – diluted | | | 58.6 | | | | 59.4 | | | | 59.1 | | | | 59.1 | | | | 59.1 | |
Net earnings per share attributable toSnap-on: | | | | | | | | | | | | | | | | | | | | |
Basic | | $ | 9.72 | | | $ | 9.40 | | | $ | 8.24 | | | $ | 7.26 | | | $ | 6.02 | |
Diluted | | | 9.52 | | | | 9.20 | | | | 8.10 | | | | 7.14 | | | | 5.93 | |
Cash dividends paid per share | | | 2.95 | | | | 2.54 | | | | 2.20 | | | | 1.85 | | | | 1.58 | |
Shareholders’ equity per basic share | | | 51.46 | | | | 45.05 | | | | 41.53 | | | | 38.00 | | | | 36.31 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Five-year Data | | | | | | | | | | |
| (Amounts in millions, except per share data) | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| Results of Operations | | | | | | | | | | |
| Net sales | | $ | 3,592.5 | | | $ | 3,730.0 | | | $ | 3,740.7 | | | $ | 3,686.9 | | | $ | 3,430.4 | |
| Gross profit | | 1,748.5 | | | 1,844.0 | | | 1,870.0 | | | 1,825.9 | | | 1,710.4 | |
| Operating expenses | | 1,116.6 | | | 1,127.6 | | | 1,144.0 | | | 1,161.3 | | | 1,048.0 | |
| Operating earnings before financial services | | 631.9 | | | 716.4 | | | 726.0 | | | 664.6 | | | 662.4 | |
| Financial services revenue | | 349.7 | | | 337.7 | | | 329.7 | | | 313.4 | | | 281.4 | |
| Financial services expenses | | 101.1 | | | 91.8 | | | 99.6 | | | 95.9 | | | 82.7 | |
| Operating earnings from financial services | | 248.6 | | | 245.9 | | | 230.1 | | | 217.5 | | | 198.7 | |
| Operating earnings | | 880.5 | | | 962.3 | | | 956.1 | | | 882.1 | | | 861.1 | |
| Interest expense | | 54.0 | | | 49.0 | | | 50.4 | | | 52.4 | | | 52.2 | |
| Earnings before income taxes and equity earnings | | 835.2 | | | 922.1 | | | 909.9 | | | 821.9 | | | 801.4 | |
| Income tax expense | | 189.1 | | | 211.8 | | | 214.4 | | | 250.9 | | | 244.3 | |
| Earnings before equity earnings | | 646.1 | | | 710.3 | | | 695.5 | | | 571.0 | | | 557.1 | |
| Equity earnings, net of tax | | 0.3 | | | 0.9 | | | 0.7 | | | 1.2 | | | 2.5 | |
| Net earnings | | 646.4 | | | 711.2 | | | 696.2 | | | 572.2 | | | 559.6 | |
| Net earnings attributable to noncontrolling interests | | (19.4) | | | (17.7) | | | (16.3) | | | (14.5) | | | (13.2) | |
| Net earnings attributable to Snap-on | | 627.0 | | | 693.5 | | | 679.9 | | | 557.7 | | | 546.4 | |
| | | | | | | | | | | |
| Financial Position | | | | | | | | | | |
| Cash and cash equivalents | | $ | 923.4 | | | $ | 184.5 | | | $ | 140.9 | | | $ | 92.0 | | | $ | 77.6 | |
| Trade and other accounts receivable – net | | 640.7 | | | 694.6 | | | 692.6 | | | 675.6 | | | 598.8 | |
| Finance receivables – net (current) | | 530.2 | | | 530.1 | | | 518.5 | | | 505.4 | | | 472.5 | |
| Contract receivables – net (current) | | 112.5 | | | 100.7 | | | 98.3 | | | 96.8 | | | 88.1 | |
| Inventories – net | | 746.5 | | | 760.4 | | | 673.8 | | | 638.8 | | | 530.5 | |
| Property and equipment – net | | 526.2 | | | 521.5 | | | 495.1 | | | 484.4 | | | 425.2 | |
| Long-term finance receivables – net | | 1,136.3 | | | 1,103.5 | | | 1,074.4 | | | 1,039.2 | | | 934.5 | |
| Long-term contract receivables – net | | 374.7 | | | 360.1 | | | 344.9 | | | 322.6 | | | 286.7 | |
| Total assets | | 6,557.3 | | | 5,693.5 | | | 5,373.1 | | | 5,249.1 | | | 4,723.2 | |
| Notes payable and current maturities of long-term debt | | 268.5 | | | 202.9 | | | 186.3 | | | 433.2 | | | 301.4 | |
| Accounts payable | | 222.9 | | | 198.5 | | | 201.1 | | | 178.2 | | | 170.9 | |
| Long-term debt | | 1,182.1 | | | 946.9 | | | 946.0 | | | 753.6 | | | 708.8 | |
| Total debt | | 1,450.6 | | | 1,149.8 | | | 1,132.3 | | | 1,186.8 | | | 1,010.2 | |
| Total shareholders’ equity attributable to Snap-on | | 3,824.9 | | | 3,409.1 | | | 3,098.8 | | | 2,953.9 | | | 2,617.2 | |
| | | | | | | | | | | |
| Common Share Summary | | | | | | | | | | |
| Weighted-average shares outstanding – diluted | | 54.8 | | | 55.9 | | | 57.3 | | | 58.6 | | | 59.4 | |
| Net earnings per share attributable to Snap-on: | | | | | | | | | | |
| Basic | | $ | 11.55 | | | $ | 12.59 | | | $ | 12.08 | | | $ | 9.72 | | | $ | 9.40 | |
| Diluted | | 11.44 | | | 12.41 | | | 11.87 | | | 9.52 | | | 9.20 | |
| Cash dividends paid per share | | 4.47 | | | 3.93 | | | 3.41 | | | 2.95 | | | 2.54 | |
| Shareholders’ equity per basic share | | 70.44 | | | 61.87 | | | 55.04 | | | 51.46 | | | 45.05 | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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| 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
In 2020, the COVID-19 pandemic impacted the company’s sales and earnings as a result of decreased activity in the first half of the year. By safely pursuing opportunities in the COVID-19 environment, we believe our 2020 operating results demonstrate our continued commitment to providing repeatability and reliability to a wide range of professional customers performing critical and essential tasks in workplaces of consequence. Leveraging capabilities already demonstrated in the automotive repair arena, our strategy continued to focus on developing and expanding our professional customer base, not only in automotive repair, but in adjacent markets, additional geographies and other areas, including critical industries, where the cost and penalties for failure can be high. Snap-on’s value proposition of making work easier for serious professionals 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 with repair 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 to critical industries, where we continued to grow our lines of products customized for specific industries, including through acquisitions; and
•Building in emerging markets, where we continued to maintain manufacturing capacity, as well as refine product lines and distribution capabilities.
Our strategic priorities and plans for 2021 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 September 28, 2020, Snap-on acquired substantially all of the assets of AutoCrib, Inc. (“AutoCrib”) for a cash purchase price of $35.4 million. AutoCrib, based in Tustin, California, designs, manufactures and markets asset and tool 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 the automotive industry. The acquisition of the TreadReader product line enhanced and expanded Snap-on’s existing capabilities in serving vehicle repair facilities and expanded the company’s presence with repair shop owners and managers.
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | |
On August 7, 2019, Snap-on acquired Cognitran Limited (“Cognitran”) for a cash purchase price of $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 Chelmsford, U.K., specializes in flexible, modular and highly scalable “Software as a Service” (SaaS) products for Original Equipment Manufacturer (“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 platforms. The acquisition of Cognitran enhanced and expanded Snap-on’s capabilities in providing shop efficiency solutions through integrated upstream services to OEM customers in automotive, heavy duty, agricultural and recreational applications.
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. The acquisition of the Power Hawk product line complemented and increased Snap-on’s existing product offering and broadened its established capabilities in serving critical industries.
On January 25, 2019, Snap-on acquired substantially all of the assets of TMB GeoMarketing Limited (“TMB”) for a cash purchase price of $1.3 million. TMB, based in Dorking, U.K., designs planning software used by OEMs to optimize dealer locations and manage the performance of dealer outlets. The acquisition of TMB extended Snap-on’s product line in its core dealer network solutions business.
For segment reporting purposes, the results of operations and assets of Sigmavision, Cognitran and TMB have been included in the Repair Systems & Information Group since the respective acquisition dates, and the results of operations and assets of AutoCrib and Power Hawk have been included in the Commercial & Industrial 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.
Fiscal 2019 as Compared to Fiscal 2018
A discussion regarding our financial condition and results of operations for fiscal 2019 compared to fiscal 2018 can be found under “Part II, Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on the Form 10-K for the fiscal year ended December 28, 2019, which was filed with the SEC on February 13, 2020, and is available on the SEC’s website at www.sec.gov as well as in the “Investors” section of our corporate website at www.snapon.com.
Non-GAAP Measures
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
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 2020” or “2020” refer to the fiscal year ended January 2, 2021; references to “fiscal 2019” or “2019” refer to the fiscal year ended December 28, 2019; and references to “fiscal 2018” or “2018” refer to the fiscal year ended December 29, 2018. References in this document to 2020, 2019 and 2018 year end refer to January 2, 2021, December 28, 2019, and December 29, 2018, respectively.
Snap-on’s 2020 fiscal year contained 53 weeks of operating results
in 2017 demonstrateSnap-on’s continued progress in providing repeatability and reliability to a wide range of professional customers performing critical tasks in workplaces of consequence. Leveraging capabilities already demonstratedwith the extra week occurring in the
automotive repair arena, our “coherent growth” strategy focuses on developingfourth quarter. Snap-on’s 2019 and
expanding our professional customer base,2018 fiscal years each contained 52 weeks of operating results. The impact of the additional week of operations in fiscal 2020 was 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.We also believe our 2017 operating results provide continued evidence thatSnap-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 continuedmaterial 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;
Snap-on’s full year or fourth quarter total revenues or net earnings.Expanding in the vehicle repair garage, 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 in critical industries, where we continued to grow our lines of products customized for specific industries, including through acquisitions (as discussed below); and
Building in emerging markets, where we continued to build manufacturing capacity, focused product lines and distribution capability.
Our strategic priorities and plans for 2018 will continue to build on ourSnap-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 newly 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 fromSnap-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 lineset-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 bothSnap-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.
Impact of COVID-19
As discussed in Part I, Item 1A: Risk Factors, the company faces risks related to outbreaks of infectious diseases, including the ongoing COVID-19 pandemic, which caused disruption and
Analysisvolatility in the global capital markets and authored an economic slowdown. In response to COVID-19, national and local governments around the world instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of
Financial Conditioncertain businesses, curfews, shelter-in-place orders and
Resultsrecommendations to practice social distancing. The challenges posed by the COVID-19 pandemic on the global economy increased significantly in the first quarter of
Operations (continued)Recent Acquisitions
On July 28, 2017,Snap-on acquired Torque Control Specialists Pty Ltd (“TCS”)2020, impacting Snap-on’s sales volumes in most geographies and across a variety of customers, including those in automotive repair. In addition, the impact of economic uncertainty caused by COVID-19 led to an increase in the credit reserve requirements for the company’s financial services portfolio.
During the second quarter of 2020, the COVID-19 pandemic and associated government measures to limit the spread of the virus heavily impacted Snap-on’s sales and earnings and, as anticipated, resulted in substantially lower performance in that period as compared to 2019. The company accommodated its operations to the virus environment, continuing without significant disruption to serve its franchisees and other professional customers as they performed essential work, while taking what it believes to be appropriate measures to ensure the health and safety of its personnel. Snap-on also provided direct assistance to its franchisees as they accommodated the turbulence caused by the virus to enable continued service to their essential technician customers. As a cash purchase priceresult of $3.6 million (or $3.5 million, netthese accommodations, the impact of cash acquired)the virus on operations lessened as the year progressed.
The company has invested in offsetting the virus impact, including absorbing temporary closures of certain facilities, wages for quarantined associates, event cancellation fees, as well as other related costs (collectively, “direct COVID-19-related costs” or “direct costs associated with COVID-19”). TCS, basedSnap-on has generally maintained its headcount, manufacturing capacity and product development, in Adelaide, Australia, distributes a full rangeanticipation of torque products, including wrenches, multipliersthe return to pre-COVID-19 demand levels. The company’s supply chain and calibrators, for use in critical industries. distribution channels have not been materially impacted by the pandemic, and the company has taken steps to ensure access to raw materials and components, but it cannot provide assurances with respect to the future due to the evolving nature of the pandemic.
The acquisitionultimate impact of TCS enhanced and expandedSnap-on’s capabilities in providing solutions that address torque requirements, which are increasingly essential to critical mechanical performance. For segment reporting purposes, theCOVID-19 on our business, results of operations, financial condition and assetscash flows is dependent on future developments, including the duration 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 expandedSnap-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 enhancedSnap-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 enhanced and expandedSnap-on’s capabilities in providing solutions that address torque requirements. 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 acquiredCar-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 ofCar-O-Liner complemented and increasedSnap-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 ofCar-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.
On July 27, 2015,Snap-on acquired the assets of Ecotechnics S.p.A. (“Ecotechnics”) for a cash purchase price of $11.8 million. Ecotechnics, based in Sesto Fiorentino, Italy, designs and manufactures vehicle air conditioning service equipment for OEM dealershipspandemic and the automotive aftermarket worldwide. The acquisitionrelated length of its impact on the Ecotechnics product line complementedglobal economy, which are uncertain and increasedSnap-on’s existing equipment product offering for OEM dealerships and independent automotive repair shops, broadened its established capabilities in serving vehicle repair facilities, and expanded the company’s presence with repair shop owners and managers. For segment reporting purposes, the resultscannot be predicted at this time.
Summary of
operations and assets of Ecotechnics have been included in the Repair Systems & Information Group since the acquisition date.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 toSnap-on’s results of operations or financial position.
Consolidated Performance
Consolidatednet sales of $3,686.9$3,592.5 million in 2017 increased $256.52020, reflecting a $140.9 million, or 7.5%3.8%, from 2016 levels, reflecting a $115.0 million, or 3.4%, increasedecrease in organic sales (anon-GAAP financial measure that excludes acquisition-related sales and the impact$10.9 million of unfavorable foreign currency translation) and $141.5translation, partially offset by $14.3 million of acquisition-related sales. Foreign currency translation had no effect on net sales, compared to $3,730.0 million in 2017.2019. The lower sales volume is primarily due to decreased activity in the first half of the year as a result of the initial economic impact associated with the COVID-19 pandemic.
Operating earnings before financial services of $664.0$631.9 million in 2017,2020, including $8.6$12.5 million of exit and disposal (“restructuring”) charges, $11.9 million of direct costs associated with COVID-19 and $13.1 million of unfavorable foreign currency effects, increased $8.5 million, or 1.3%, as compared to $655.5$716.4 million last year. Fiscal 2017 results includedin 2019, which included an $11.6 million benefit from a $30.9 million charge related to a judgmentlegal settlement in a patent-related litigation matter and a $15.0 million charge related to a judgment in an employment-related litigation matter brought by an individual (collectively, thethat was being appealed (the “legal matters”settlement”); both judgments are being appealed. The company can provide no assurance as to the results of these appeals.. As a percentage of net sales, operating earnings before financial services of 18.0% in 201717.6%, compared to 19.1%19.2% last year. Operating earnings of
$881.5$880.5 million in
2017,2020, including
$45.9$12.5 million of
expense related to the legal mattersrestructuring charges, $11.9 million of direct costs associated with COVID-19 and
$9.0$13.2 million of unfavorable foreign currency effects,
increased $27.3 million, or 3.2%, from $854.2compared to $962.3 million last
year.year, which included the benefit from the $11.6 million legal settlement. As a percentage of revenues,
(net sales plus financial services revenue), operating earnings of
22.0% in 201722.3%, compared to
23.0%23.7% last year.
In 2017, net earnings attributable toSnap-on were $557.7 million, or $9.52 per diluted share, including $28.4 million, or $0.48 per diluted share, for theafter-tax expense related to the legal matters, and $7.0 million, or $0.12 per diluted share, of tax expense as a result of the implementation of “H.R.1”, formerly known as the U.S. Tax Cuts and Jobs Act (the “Tax Act”).
Net earnings attributable to
Snap-on Incorporated in
2016 were $546.42020 of $627.0 million, or
$9.20$11.44 per diluted
share.Impact of the Tax Act
On December 22, 2017, the U.S. government passed the Tax Act. The Tax Act makes broadshare, included a $10.3 million, or $0.19 per diluted share, after-tax charge related to restructuring actions. Net earnings attributable to Snap-on in 2019 were $693.5 million, or $12.41 per diluted share 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 aone-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 will affect 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 intangiblelow-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 corporationincluded 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. SAB 118 provides a measurement period that should not extend beyond one year$8.7 million, or $0.15 per diluted share, after-tax benefit 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 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.
legal settlement.
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | |
Summary of
Financial Condition and Results of Operations (continued)Segment Performance
The company’s accounting for certain elements of the Tax Act is incomplete. 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 has recorded a provisional discrete net tax expense of $7.0 million in the period ended December 30, 2017. This provisional estimate consists of a net expense of $13.7 million for theone-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 ofnon-U.S. income taxes paid on such earnings. While the company was able to make a reasonable estimate of the transition tax, it is continuing to gather additional information to more precisely compute the final amount. Likewise, while the company was able to make a reasonable estimate of the impact of the reduction to the corporate tax rate, it may be 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. Due to the complexity of the new GILTI tax rules, the company is continuing to evaluate this provision of the Tax Act and the application of ASC 740. Under GAAP, the company is allowed to make an accounting policy choice to either: (1) 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 (2) factor in such amounts into a company’s measurement of its deferred taxes (the “deferred method”). The company’s selection of an accounting policy with respect to the new GILTI tax rules is dependent on additional analysis and potential future modifications to existing structure, which are not currently known. Accordingly, the company has not made any adjustments related to potential GILTI tax in our financial statements and have not made a policy decision regarding whether to record deferred taxes on GILTI. The company will continue to analyze the full effects of the Tax Act on its financial statements. The impact of the Tax Act may differ from the current estimate, possibly materially, due to changes in interpretations and assumptions the company has made, future guidance that may be issued and actions the company may take as a result of the law.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 $1,265.0$1,234.6 million in 2017 increased $116.72020, reflecting a $115.8 million, or 10.2%, from 2016 levels, reflecting a $52.0 million, or 4.5%8.6%, organic sales gaindecline and $65.5$3.5 million of unfavorable currency translation, partially offset by $8.2 million of acquisition-related sales, partially offset by $0.8compared to $1,345.7 million of unfavorable foreign currency translation.in 2019. The organic sales increasedecrease primarily includes highera double-digit decline in the segment’s Asia Pacific operations, a high single-digit decrease in sales to customers in critical industries and a low single-digit decline in sales in the segment’s European-based hand tools business, partially offset by lower sales in the segment’s power tools operation.business. Operating earnings of $185.3$153.7 million in 2017 increased $17.3 million, or 10.3%, from 2016 levels, primarily due to increased organic sales volume, acquisitions, and $0.42020, including $6.5 million of favorabledirect costs associated with COVID-19, $6.4 million of restructuring charges and $5.8 million of unfavorable foreign currency effects.effects, compared to $188.7 million in 2019.
The Commercial & Industrial Group intends to continue building on the following strategic priorities in
2018:2021:•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 and engineered solutions 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.
TheSnap-on Tools Groupconsists of business operations primarily serving vehicle service and repair technicians through the company’s worldwide mobile tool distribution channel. Segment net sales of $1,625.1$1,643.9 million in 2017 decreased $8.82020, reflecting a $32.8 million, or 0.5%, from 2016 levels, reflecting a $6.9 million, or 0.4%2.0%, organic sales decline and $1.9gain, partially offset by $1.8 million of unfavorable foreign currency translation.translation, compared to $1,612.9 million in 2019. The organic sales decrease includesincrease reflects a low single-digit gain in the U.S. franchise operations, partially offset by a low single-digit decline in the company’s U.S. franchise operations that was partially offset by higher sales in thesegment’s international franchise operations. Operating earnings of $274.5$267.7 million in 2017 decreased $6.62020, including $3.5 million or 2.3%, from 2016 levels primarily due to $7.9of direct costs associated with COVID-19, $0.6 million of restructuring charges and $5.4 million of unfavorable foreign currency effects, partially offset by lower operating expenses.
Despitecompared to $245.8 million in 2019
. In 2021, the
net sales challenges in 2017, theSnap-on Tools Group remained focused on its fundamental, strategic initiatives to strengthen the franchise network and enhance franchisee profitability. In 2018, theSnap-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 technicianstechnician 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 customers more effectively, more profitably and with improved satisfaction.
TheRepair 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 $1,347.2$1,238.2 million in 2017 increased $167.32020, reflecting a $97.6 million, or 14.2%, from 2016 levels, reflecting an $89.6 million, or 7.6%7.3%, organic sales gain, $76.0decline and $4.8 million of unfavorable foreign currency translation, partially offset by $6.1 million of acquisition-related sales, and $1.7compared to $1,334.5 million of favorable foreign currency translation.in 2019. The organic sales increase primarily reflects higherdecrease includes double-digit declines in both sales of undercar equipment and in sales to OEM dealerships, as well as increased salesdealerships. Sales of diagnostic and repair information products to independent repair shop owners and managers including higher sales of diagnostic and repair information products, and increased sales of undercar equipment.were essentially flat. Operating earnings of $333.8$298.0 million in 2017 increased $36.02020, including $5.5 million or 12.1%, from 2016 levels, primarily dueof costs related to higher sales, including acquisition-related sales,restructuring actions, $1.2 million of direct costs associated with COVID-19 and savings from RCI initiatives, partially offset by $1.1$1.9 million of unfavorable foreign currency effects.effects, compared to $342.7 million in 2019.
The Repair Systems & Information Group intends to focus on the following strategic priorities in
2018:2021:•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 Servicesrevenue was $313.4$349.7 million in 20172020 and $281.4$337.7 million in 2016; originations2019. Originations of $1,072.0$1,036.6 million in 2017 decreased $3.72020 increased $4.8 million, or 0.3%0.5%, from 20162019 levels. In 2017, operatingOperating earnings from financial services in 2020 of $217.5$248.6 million, including $0.4 million of unfavorable foreign currency effects, increased $18.8 million, or 9.5%, from $198.7compared to $245.9 million last year. In recent years,2020, financial services expenses included higher provisions for credit losses related to the company’s adoption of ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), and $2.6 million of higher credit reserve requirements associated with the COVID-19 pandemic, which were recorded in the first quarter of 2020. Snap-on has steadily grown continues to grow 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
2018:2021:•Delivering financial products and services that attract and sustain profitable franchisees and supportSnap-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.
Net cash provided by operating activities of
$608.5$1,008.6 million in
20172020 increased
$32.4$334.0 million from
$576.1$674.6 million in
2016.2019. The
$32.4$334.0 million increase is primarily due to
$12.6$430.2 million
of higherfrom net
earningschanges in operating assets and
$14.9liabilities, partially offset by a $64.8 million
of cash proceeds from the settlement of a treasury lock. Net cash provided by operating activities was $507.2 milliondecrease in
2015.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
net earnings.
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
$82.9a total of $41.5 million for the acquisitions of Sigmavision and AutoCrib and a $0.2 million working capital adjustment for the 2019 Cognitran acquisition. Net cash used by investing activities of $222.1 million in 2019 included additions to finance receivables of $841.9 million, partially offset by collections of $754.3 million, as well as a total of $38.6 million (net of
$1.8$1.0 million of cash acquired) for the acquisitions of
BTC, Norbar,TMB, Power Hawk and
TCS, and working capital adjustments for theCar-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, a total of $160.4 million (net of $4.3 million of cash acquired) for the acquisitions ofCar-O-Liner and Sturtevant Richmont. Net cash used by investing activities of $306.4 million in 2015 included additions to finance receivables of $844.2 million, partially offset by collections of $624.8 million, as well as $11.8 million for the acquisition of Ecotechnics.Cognitran. Capital expenditures in
2017, 20162020 and
20152019 totaled
$82.0 million, $74.3$65.6 million and
$80.4$99.4 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
savings from the company’s RCI initiatives.RCI.
Net cash used by financing activities of
$256.1$84.3 million in
20172020 included
the January 2017 repayment of $150 million of 5.5% unsecured notes upon maturity (the “2017 Notes”). These amounts were partially offset bySnap-on’s sale, on February 15, 2017, of $300 million of unsecured 3.25% notes that mature on March 1, 2027 (the “2027 Notes”) at a discount, from whichSnap-on received $297.8 million of net proceeds, reflecting $1.9 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 ofSnap-on’s common stock and $169.4$243.3 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$187.2 million for
dividend payments to shareholders and $120.4 million for the repurchaserepayments of
758,000 shares ofSnap-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$174.3 million for the repurchase of 1,109,000 shares of Snap-on’s common stock. These amounts were partially offset by Snap-on’s sale, on April 27, 2020, of $500 million of unsecured 3.10% notes that mature on May 1, 2050 (the “2050 Notes”) at a discount, from which Snap-on received $489.9 million of net proceeds, reflecting $4.4 million of transaction costs, and $55.8 million of proceeds from stock purchase and option plan exercises. Net cash used by financing activities of
$236.7$409.4 million in
20152019 included
$127.9$238.4 million for the repurchase of 1,495,000 shares of Snap-on’s common stock and $216.6 million for dividend payments to shareholders,
$110.4 million for the repurchase of 723,000 shares ofSnap-on’s common stock and $34.0 million from a net decrease in notes payable and other short-term borrowings, partially offset by
$41.6$51.4 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 Discussionexercises and Analysis$17.6 million of Financial Condition and Results of Operations to “fiscal 2017” or “2017” refer to the fiscal year ended December 30, 2017; references to “fiscal 2016” or “2016” refer to the fiscal year ended December 31, 2016; and references to “fiscal 2015” or “2015” refer to the fiscal year ended January 2, 2016. References in this document to 2017, 2016 and 2015 year end refer to December 30, 2017, December 31, 2016, and January 2, 2016, respectively.
Snap-on’s 2017, 2016 and 2015 fiscal years each contained 52 weeks of operating results.
net proceeds from other short-term borrowings.
| | | | | | | | |
32 | 2020 ANNUAL REPORT | SNAP-ON INCORPORATED31 |
| | | | | | | | |
| | |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | |
Results of Operations
2017
Results of operations for
20172020 and
20162019 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 | | | (1,862.0) | | | | -50.5% | | | | (1,720.8) | | | | -50.2% | | | | (141.2) | | | | -8.2% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | 1,824.9 | | | | 49.5% | | | | 1,709.6 | | | | 49.8% | | | | 115.3 | | | | 6.7% | |
Operating expenses | | | (1,160.9) | | | | -31.5% | | | | (1,054.1) | | | | -30.7% | | | | (106.8) | | | | -10.1% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating earnings before financial services | | | 664.0 | | | | 18.0% | | | | 655.5 | | | | 19.1% | | | | 8.5 | | | | 1.3% | |
| | | | | | |
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 | | | 881.5 | | | | 22.0% | | | | 854.2 | | | | 23.0% | | | | 27.3 | | | | 3.2% | |
Interest expense | | | (52.4) | | | | -1.3% | | | | (52.2) | | | | -1.4% | | | | (0.2) | | | | -0.4% | |
Other income (expense) – net | | | (7.2) | | | | -0.2% | | | | (0.6) | | | | – | | | | (6.6) | | | | NM | |
| | | | | | | | | | | | | | | | | | | | | | | | |
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 toSnap-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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2020 | | 2019 | | Change |
| Net sales | | $ | 3,592.5 | | | 100.0 | % | | $ | 3,730.0 | | | 100.0 | % | | $ | (137.5) | | | (3.7) | % |
| Cost of goods sold | | (1,844.0) | | | (51.3) | % | | (1,886.0) | | | (50.6) | % | | 42.0 | | | 2.2 | % |
| Gross profit | | 1,748.5 | | | 48.7 | % | | 1,844.0 | | | 49.4 | % | | (95.5) | | | (5.2) | % |
| Operating expenses | | (1,116.6) | | | (31.1) | % | | (1,127.6) | | | (30.2) | % | | 11.0 | | | 1.0 | % |
| Operating earnings before financial services | | 631.9 | | | 17.6 | % | | 716.4 | | | 19.2 | % | | (84.5) | | | (11.8) | % |
| | | | | | | | | | | | |
| Financial services revenue | | 349.7 | | | 100.0 | % | | 337.7 | | | 100.0 | % | | 12.0 | | | 3.6 | % |
| Financial services expenses | | (101.1) | | | (28.9) | % | | (91.8) | | | (27.2) | % | | (9.3) | | | (10.1) | % |
| Operating earnings from financial services | | 248.6 | | | 71.1 | % | | 245.9 | | | 72.8 | % | | 2.7 | | | 1.1 | % |
| | | | | | | | | | | | |
| Operating earnings | | 880.5 | | | 22.3 | % | | 962.3 | | | 23.7 | % | | (81.8) | | | (8.5) | % |
| Interest expense | | (54.0) | | | (1.3) | % | | (49.0) | | | (1.2) | % | | (5.0) | | | (10.2) | % |
| Other income (expense) – net | | 8.7 | | | 0.2 | % | | 8.8 | | | 0.2 | % | | (0.1) | | | (1.1) | % |
| Earnings before income taxes and equity earnings | | 835.2 | | | 21.2 | % | | 922.1 | | | 22.7 | % | | (86.9) | | | (9.4) | % |
| Income tax expense | | (189.1) | | | (4.8) | % | | (211.8) | | | (5.2) | % | | 22.7 | | | 10.7 | % |
| Earnings before equity earnings | | 646.1 | | | 16.4 | % | | 710.3 | | | 17.5 | % | | (64.2) | | | (9.0) | % |
| Equity earnings, net of tax | | 0.3 | | | — | | | 0.9 | | | — | | | (0.6) | | | (66.7) | % |
| Net earnings | | 646.4 | | | 16.4 | % | | 711.2 | | | 17.5 | % | | (64.8) | | | (9.1) | % |
| Net earnings attributable to noncontrolling interests | | (19.4) | | | (0.5) | % | | (17.7) | | | (0.5) | % | | (1.7) | | | (9.6) | % |
| Net earnings attributable to Snap-on Inc. | | $ | 627.0 | | | 15.9 | % | | $ | 693.5 | | | 17.0 | % | | $ | (66.5) | | | (9.6) | % |
| | | | | |
| |
| |
| 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$3,592.5 million in
2017 increased $256.52020, reflecting a $140.9 million, or
7.5%3.8%,
from 2016 levels, reflecting a $115.0 million, or 3.4%,decrease in organic sales
gain and
$141.5$10.9 million of unfavorable foreign currency translation, partially offset by $14.3 million of acquisition-related
sales. Foreign currency translation had no effect on net sales,
compared to $3,730.0 million in
2017.2019. The lower sales volume is primarily due to decreased activity in the first half of the year as a result of the initial economic impact associated with the COVID-19 pandemic.
Gross profit of
$1,824.9$1,748.5 million in
20172020, including $7.1 million of restructuring costs, $6.2 million of direct costs associated with COVID-19 and $15.6 million of unfavorable foreign currency effects, compared to
$1,709.6$1,844.0 million
last year.in 2019. Gross margin (gross profit as a percentage of net sales) of
49.5%48.7% in
2017 decreased 302020 declined 70 basis points (100 basis points (“bps”) equals 1.0 percent) from
49.8% last year primarily due to
the impact of lower sales volumes, including costs to maintain manufacturing capacity, 20
bps from costs related to restructuring actions outside of the United States, 10 bps of direct costs associated with COVID-19 and 30 bps of unfavorable foreign currency
effects and a 20 bps impact from acquisitions,effects. These decreases were partially offset by
benefits from the company’s RCI
savings. Restructuring costs included in gross profit were $0.8 million in 2016.initiatives.
Operating expenses of $1,160.9$1,116.6 million in 20172020, including $5.7 million of direct costs associated with COVID-19 and $5.4 million of restructuring charges, compared to $1,054.1$1,127.6 million last year, as 2017in 2019, which included $45.9the $11.6 million of chargesbenefit related to the legal matters. The operating expense margin (operatingsettlement. Operating expenses as a percentage of net sales)sales of 31.5%31.1% in 20172020 increased 8090 bps from 30.7% last year as 130 bps for the legal matters andprimarily due to lower sales volumes, 30 bps of operating expensesa non-recurring benefit from acquisitionsthe legal settlement in 2019, 20 bps of direct costs associated with COVID-19 and 10 bps of costs from restructuring actions. These items were partially offset by benefitssavings from cost containment actions in response to lower sales volume leverage. Restructuring costs included in operating expenses were $0.1 million in 2016.volumes.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Operating earnings before financial services of
$664.0$631.9 million in
2017,2020, including
$45.9$12.5 million of
expense related to the legal mattersrestructuring charges, $11.9 million of direct costs associated with COVID-19 and
$8.6$13.1 million of unfavorable foreign currency effects,
increased $8.5 million, or 1.3%, as compared to
$655.5$716.4 million
last year.in 2019, which benefited from the $11.6 million legal settlement. As a percentage of net sales, operating earnings before financial services of
18.0%17.6%, including
13030 bps
impactof costs from restructuring actions, 30 bps of direct costs associated with COVID-19 and 30 bps of unfavorable foreign currency effects, compared to 19.2% last year, which included 30 bps of a non-recurring benefit from the legal
matters, compared to 19.1% last year.settlement.
Financial services revenue of
$313.4$349.7 million in
20172020 compared to
revenue of $281.4$337.7 million last year. Financial services operating earnings of
$217.5$248.6 million in
2017 increased $18.82020, including a $2.6 million
or 9.5%, as compared to $198.7 million last year, including $0.4 million of unfavorable foreign currency effects. The year-over-year increases in both revenue and operating earnings primarily reflect continued growthcharge for higher credit reserve requirements associated with the impact of the
company’s financial services portfolio.Operating earningsCOVID-19 pandemic recorded in the first quarter of $881.5 million in 2017, including $45.9 million of expense related to the legal matters2020, and $9.0$0.1 million of unfavorable foreign currency effects, increased $27.3 million, or 3.2%, from $854.2compared to $245.9 million last year.
Operating earnings of $880.5 million in 2020, including $12.5 million of restructuring charges, $11.9 million of direct costs associated with COVID-19 and $13.2 million of unfavorable foreign currency effects, compared to $962.3 million last year, which included a benefit from the $11.6 million legal settlement. As a percentage of revenues, operating earnings of
22.0%22.3%, including 30 bps of costs from restructuring actions, 30 bps of direct costs associated with COVID-19 and 30 bps of unfavorable foreign currency effects, compared to
23.0%23.7% last
year.year, which included 30 bps of a non-recurring benefit from the legal settlement.
Interest expense
of $52.4in 2020 increased $5.0 million
in 2017 increased $0.2 million from
$52.2 million last year. See Note
910 to the Consolidated Financial Statements for information on
Snap-on’s debt and credit facilities.
Other income (expense) – net
was expense of $7.2 millionincludes net gains and
$0.6 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 components of net periodic benefit costs, and interest income. See Note
1618 to the Consolidated Financial Statements for information on other income (expense) – net.
Snap-on’s
The effective income tax rate on earnings attributable toSnap-on in 2020 was 31.1%23.2%, which included a 10 bps increase related to restructuring actions. The 2019 effective tax rate was 23.4%. See Note 9 to the Consolidated Financial Statements for information on income taxes.
Net earnings attributable to Snap-on in 2017, including2020 of $627.0 million, or $11.44 per diluted share, included a 0.4%$10.3 million, or $0.19 per diluted share, after-tax charge related to restructuring actions. Net earnings attributable to Snap-on in 2019 were $693.5 million, or $12.41 per diluted share, and included an $8.7 million, or $0.15 per diluted share, after-tax benefit from the legal matters, compared to 31.0% in 2016. The 2017 tax rate includes a $7.0 million, or 90 bps, impact from the implementationsettlement.
Exit and Disposal Activities
Snap-on recorded costs for exit and disposal activities outside of the
Tax Act, including the estimated transition taxUnited States of
$13.7$12.5 million
on previously unremitted foreign earnings, partially offset by a $6.7 million estimated tax benefit related to revaluation of deferred tax assetsin 2020. Snap-on did not record any costs for exit and
liabilities.disposal activities in 2019. See Note 8 to the Consolidated Financial Statements for information on
income taxes.Net earnings attributable toSnap-on of $557.7 million, or $9.52 per diluted share, in 2017, including $28.4 million, or $0.48 per diluted share, for theafter-tax expense related to the legal matters,Snap-on’s exit 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 toSnap-on in 2016 were $546.4 million or $9.20 per diluted share.
disposal activities.
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’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.
| | | | | | | | |
34 | 2020 ANNUAL REPORT | SNAP-ON INCORPORATED33 |
| | | | | | | | |
| | |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | |
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 | | | (766.9) | | | | -60.6% | | | | (698.3) | | | | -60.8% | | | | (68.6) | | | | -9.8% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | 498.1 | | | | 39.4% | | | | 450.0 | | | | 39.2% | | | | 48.1 | | | | 10.7% | |
Operating expenses | | | (312.8) | | | | -24.8% | | | | (282.0) | | | | -24.6% | | | | (30.8) | | | | -10.9% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Segment operating earnings | | $ | 185.3 | | | | 14.6% | | | $ | 168.0 | | | | 14.6% | | | $ | 17.3 | | | | 10.3% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2020 | | 2019 | | Change |
| External net sales | | $ | 951.4 | | | 77.1 | % | | $ | 1,038.2 | | | 77.1 | % | | $ | (86.8) | | | (8.4) | % |
| Intersegment net sales | | 283.2 | | | 22.9 | % | | 307.5 | | | 22.9 | % | | (24.3) | | | (7.9) | % |
| Segment net sales | | 1,234.6 | | | 100.0 | % | | 1,345.7 | | | 100.0 | % | | (111.1) | | | (8.3) | % |
| Cost of goods sold | | (781.2) | | | (63.3) | % | | (833.8) | | | (62.0) | % | | 52.6 | | | 6.3 | % |
| Gross profit | | 453.4 | | | 36.7 | % | | 511.9 | | | 38.0 | % | | (58.5) | | | (11.4) | % |
| Operating expenses | | (299.7) | | | (24.3) | % | | (323.2) | | | (24.0) | % | | 23.5 | | | 7.3 | % |
| Segment operating earnings | | $ | 153.7 | | | 12.4 | % | | $ | 188.7 | | | 14.0 | % | | $ | (35.0) | | | (18.5) | % |
Segment net sales of
$1,265.0$1,234.6 million in
2017 increased $116.72020, reflecting a $115.8 million, or
10.2%, from 2016 levels, reflecting a $52.0 million or 4.5%8.6%, organic sales
gaindecline and
$65.5$3.5 million of unfavorable currency translation, partially offset by $8.2 million of acquisition-related sales,
partially offset by $0.8compared to $1,345.7 million
of unfavorable foreign currency translation.in 2019. The organic sales
increasedecrease primarily includes a
double-digit decline in the segment’s Asia Pacific operations, a high single-digit
gaindecrease 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
powerEuropean-based hand tools
operations.business.
Segment gross
profit of $498.1 million in 2017 compared to $450.0 million last year. Gross margin of
39.4%36.7% in
2017 improved 202020 declined 130 bps from
39.2% last year primarily due to
savings from RCI and other cost reduction initiatives.Segment operating expensesthe impact of $312.8 million in 2017 compared to $282.0 million last year. The operating expense margindecreased sales volumes, including lower utilization of 24.8% in 2017 increased 20manufacturing capacity, 60 bps from 24.6% last year as$6.4 million of costs related to restructuring actions in the segment’s European-based hand tools business, 30 bps for direct COVID-19-related costs and 40 bps of operating expenses from acquisitions and increased costs for research and engineering activitiesunfavorable foreign currency effects. These items were partially offset by material cost savings and benefits from RCI initiatives.
Segment operating expenses as a percentage of net sales
volume leverage.of 24.3% in 2020, including 30 bps of direct costs associated with COVID-19, compared to 24.0% in 2019.
As a result of these factors, segment operating earnings of
$185.3$153.7 million in
2017,2020, including
$0.4$6.5 million of
favorabledirect costs associated with COVID-19, $6.4 million of restructuring charges and $5.8 million of unfavorable foreign currency effects,
increased $17.3compared to $188.7 million
from 2016 levels.in 2019. Operating margin (segment operating earnings as a percentage of segment net sales) for the Commercial & Industrial Group
was 14.6%of 12.4% in
both years.2020 compared to 14.0% in 2019.
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% | | | | (929.8) | | | | -56.9% | | | | (1.1) | | | | -0.1% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | 694.2 | | | | 42.7% | | | | 704.1 | | | | 43.1% | | | | (9.9) | | | | -1.4% | |
Operating expenses | | | (419.7) | | | | -25.8% | | | | (423.0) | | | | -25.9% | | | | 3.3 | | | | 0.8% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Segment operating earnings | | $ | 274.5 | | | | 16.9% | | | $ | 281.1 | | | | 17.2% | | | $ | (6.6) | | | | -2.3% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2020 | | 2019 | | Change |
| Segment net sales | | $ | 1,643.9 | | | 100.0 | % | | $ | 1,612.9 | | | 100.0 | % | | $ | 31.0 | | | 1.9 | % |
| Cost of goods sold | | (932.1) | | | (56.7) | % | | (914.3) | | | (56.7) | % | | (17.8) | | | (1.9) | % |
| Gross profit | | 711.8 | | | 43.3 | % | | 698.6 | | | 43.3 | % | | 13.2 | | | 1.9 | % |
| Operating expenses | | (444.1) | | | (27.0) | % | | (452.8) | | | (28.1) | % | | 8.7 | | | 1.9 | % |
| Segment operating earnings | | $ | 267.7 | | | 16.3 | % | | $ | 245.8 | | | 15.2 | % | | $ | 21.9 | | | 8.9 | % |
Segment net sales of
$1,625.1$1,643.9 million in
2017 decreased $8.82020, reflecting a $32.8 million, or
0.5%, from 2016 levels, reflecting a $6.9 million, or 0.4%2.0%, organic sales
decrease and $1.9gain, partially offset by $1.8 million of unfavorable foreign currency
translation.translation, compared to $1,612.9 million in 2019. The organic sales
decreaseincrease reflects
a low single-digit gain in the U.S. franchise operations, which more than overcame the impacts of the ongoing COVID-19 pandemic, partially offset by a low single-digit decline in the
company’s U.S. franchise operations partially offset by a high single-digit gain in thesegment’s international
franchise operations.
Segment gross
profitmargin in 2020 of
$694.2 million in 2017 compared to $704.1 million last year. Gross margin of 42.7% in 2017 decreased from 43.1% last year due to 4043.3%, including 30 bps of unfavorable foreign currency
effects.effects, was unchanged from last year.
Segment operating expenses
as a percentage of
$419.7 millionnet sales of 27.0% in
2017 compared to $423.0 million last year. The operating expense margin of 25.8% in 20172020 improved
10110 bps from
25.9% last
year.year primarily due to savings from cost containment actions.
As a result of these factors, segment operating earnings of
$274.5$267.7 million in
2017,2020, including
$7.9$3.5 million of direct costs associated with COVID-19, $0.6 million of restructuring charges and $5.4 million of unfavorable foreign currency effects,
decreased $6.6compared to $245.8 million
from 2016 levels.in 2019. Operating margin for the
Snap-on Tools Group of
16.9%16.3% in
20172020 compared to
17.2%15.2% last year.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
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 | | | (714.6) | | | | -53.0% | | | | (624.4) | | | | -52.9% | | | | (90.2) | | | | -14.4% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | 632.6 | | | | 47.0% | | | | 555.5 | | | | 47.1% | | | | 77.1 | | | | 13.9% | |
Operating expenses | | | (298.8) | | | | -22.2% | | | | (257.7) | | | | -21.9% | | | | (41.1) | | | | -15.9% | |
| | | | | | | | | | | | | | | | | �� | | | | | | | |
Segment operating earnings | | $ | 333.8 | | | | 24.8% | | | $ | 297.8 | | | | 25.2% | | | $ | 36.0 | | | | 12.1% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2020 | | 2019 | | Change |
| External net sales | | $ | 997.2 | | | 80.5 | % | | $ | 1,078.9 | | | 80.8 | % | | $ | (81.7) | | | (7.6) | % |
| Intersegment net sales | | 241.0 | | | 19.5 | % | | 255.6 | | | 19.2 | % | | (14.6) | | | (5.7) | % |
| Segment net sales | | 1,238.2 | | | 100.0 | % | | 1,334.5 | | | 100.0 | % | | (96.3) | | | (7.2) | % |
| Cost of goods sold | | (654.9) | | | (52.9) | % | | (701.0) | | | (52.5) | % | | 46.1 | | | 6.6 | % |
| Gross profit | | 583.3 | | | 47.1 | % | | 633.5 | | | 47.5 | % | | (50.2) | | | (7.9) | % |
| Operating expenses | | (285.3) | | | (23.0) | % | | (290.8) | | | (21.8) | % | | 5.5 | | | 1.9 | % |
| Segment operating earnings | | $ | 298.0 | | | 24.1 | % | | $ | 342.7 | | | 25.7 | % | | $ | (44.7) | | | (13.0) | % |
Segment net sales of
$1,347.2$1,238.2 million in
2017 increased $167.32020, reflecting a $97.6 million, or
14.2%, from 2016 levels, reflecting an $89.6 million, or 7.6%7.3%, organic sales
gain, $76.0decline and $4.8 million of unfavorable foreign currency translation, partially offset by $6.1 million of acquisition-related sales,
and $1.7compared to $1,334.5 million
of favorable foreign currency translation.in 2019. The organic sales
increasedecrease includes
a double-digit
gaindeclines in both sales of undercar equipment and in sales to OEM
dealerships, a high single-digit gain in salesdealerships. Sales of diagnostic and repair information products to independent repair shop owners and managers
and mid single-digit increases in sales of undercar equipment.were essentially flat.
Segment gross profitmargin in 2020 of $632.6 million in 2017 compared to $555.5 million last year. Gross margin of 47.0% in 2017 decreased47.1%, including 10 bps from 47.1%$0.7 million of costs from restructuring actions in Europe and 10 bps of unfavorable foreign currency effects, declined 40 bps from last year.
Segment operating expenses as a percentage of net sales of 23.0% in 2020 increased 120 bps from last year
asprimarily due to the impact
from higher sales of lower
gross margin products weresales volumes and 30 bps related to $4.8 million of costs from restructuring actions, partially offset by savings from
cost containment and 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 $298.8 million in 2017 compared to $257.7 million last year. The operating expense margin of 22.2% in 2017 increased 30 bps from 21.9% last year 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.
initiatives.
As a result of these factors, segment operating earnings of
$333.8$298.0 million in
2017,2020, including
$1.1$5.5 million of costs related to restructuring actions, $1.2 million of direct costs associated with COVID-19 and $1.9 million of unfavorable foreign currency effects,
increased $36.0compared to $342.7 million
from 2016 levels.last year. Operating margin for the Repair Systems & Information Group
of 24.8%was 24.1% in
20172020 compared to
25.2% last year.25.7% in 2019.
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% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2020 | | 2019 | | Change |
| Financial services revenue | | $ | 349.7 | | | 100.0 | % | | $ | 337.7 | | | 100.0 | % | | $ | 12.0 | | | 3.6 | % |
| Financial services expenses | | (101.1) | | | (28.9) | % | | (91.8) | | | (27.2) | % | | (9.3) | | | (10.1) | % |
| Segment operating earnings | | $ | 248.6 | | | 71.1 | % | | $ | 245.9 | | | 72.8 | % | | $ | 2.7 | | | 1.1 | % |
Financial services revenue of
$313.4$349.7 million in
20172020 increased
$32.0$12.0 million, or
11.4%3.6%, from
$281.4 million last year, primarily reflecting
$34.9$13.9 million of higher revenue as a result of
continued growth of the company’s financial services portfolio, partially offset by
$2.9$1.9 million of decreased revenue from lower average
yields on financeportfolio yields. In 2020 and
contract receivables. In 2017 and 2016,2019, the respective average yields on finance receivables were
17.9%17.7% and
18.0%17.6%, and the respective average
yields on contract receivables were 8.5% and 9.1%. The lower yield on contract receivables
were 9.2%in 2020 includes the impact of business operation support loans provided to franchisees in the second quarter of 2020 in response to the COVID-19 environment. Financial Services continues to work closely with franchisees and
9.4%.customers to support those adversely impacted by the ongoing COVID-19 pandemic. Originations of
$1,072.0$1,036.6 million in
2017 decreased $3.72020 increased $4.8 million, or
0.3%0.5%, from
20162019 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 $95.9in 2020 increased $9.3 million in 2017 increased from $82.7 million last year primarily due to changesincreases in both the provisions for credit losses andincluding the company’s adoption of ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), $2.6 million of higher credit reserve requirements associated with the COVID-19 pandemic, recorded in the sizefirst quarter of the portfolio.2020, as well as higher variable compensation and other costs. As a percentage of the average financial services portfolio, financial services expenses were 5.0%4.6% and 4.9%4.3% in 20172020 and 2016,2019, respectively. Financial services operating earnings of
$217.5$248.6 million in
2017,2020, including
$0.4$0.1 million of unfavorable foreign currency effects, increased
$18.8$2.7 million, or
9.5%1.1%, from
20162019 levels.
See Note 1 and Note
34 to the Consolidated Financial Statements for further information on financial services.
| | | | | | | | |
36 | 2020 ANNUAL REPORT | SNAP-ON INCORPORATED35 |
| | | | | | | | |
| | |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | |
Snap-on’s general corporate expenses in
20172020 of
$129.6$87.5 million
increased $38.2 million from $91.4compared to $60.8 million last
year.year, which included an $11.6 million non-recurring benefit from the legal settlement recorded in the first quarter of 2019. The year-over-year increase in general corporate expenses primarily reflects
$45.9 million of expense related to the legal matters, partially offset by lower performance-basedhigher variable compensation,
costsbrand building and
lower pension expenses.other costs.
Results of operations for the fourth quarters of
20172020 and
20162019 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fourth Quarter | | | | |
| (Amounts in millions) | | 2017 | | | 2016 | | | Change | |
Net sales | | $ | 974.6 | | | | 100.0% | | | $ | 889.8 | | | | 100.0% | | | $ | 84.8 | | | | 9.5% | |
Cost of goods sold | | | (509.3) | | | | -52.3% | | | | (445.9) | | | | -50.1% | | | | (63.4) | | | | -14.2% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | 465.3 | | | | 47.7% | | | | 443.9 | | | | 49.9% | | | | 21.4 | | | | 4.8% | |
Operating expenses | | | (307.6) | | | | -31.5% | | | | (267.8) | | | | -30.1% | | | | (39.8) | | | | -14.9% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating earnings before financial services | | | 157.7 | | | | 16.2% | | | | 176.1 | | | | 19.8% | | | | (18.4) | | | | -10.4% | |
| | | | | | |
Financial services revenue | | | 79.9 | | | | 100.0% | | | | 74.2 | | | | 100.0% | | | | 5.7 | | | | 7.7% | |
Financial services expenses | | | (25.5) | | | | -31.9% | | | | (22.6) | | | | -30.5% | | | | (2.9) | | | | -12.8% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating earnings from financial services | | | 54.4 | | | | 68.1% | | | | 51.6 | | | | 69.5% | | | | 2.8 | | | | 5.4% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Operating earnings | | | 212.1 | | | | 20.1% | | | | 227.7 | | | | 23.6% | | | | (15.6) | | | | -6.9% | |
Interest expense | | | (13.6) | | | | -1.3% | | | | (13.1) | | | | -1.4% | | | | (0.5) | | | | -3.8% | |
Other income (expense) – net | | | (1.5) | | | | -0.1% | | | | (0.3) | | | | – | | | | (1.2) | | | | NM | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Earnings before income taxes and equity earnings | | | 197.0 | | | | 18.7% | | | | 214.3 | | | | 22.2% | | | | (17.3) | | | | -8.1% | |
Income tax expense | | | (63.8) | | | | -6.1% | | | | (64.9) | | | | -6.7% | | | | 1.1 | | | | 1.7% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Earnings before equity earnings | | | 133.2 | | | | 12.6% | | | | 149.4 | | | | 15.5% | | | | (16.2) | | | | -10.8% | |
Equity earnings, net of tax | | | – | | | | – | | | | 0.3 | | | | – | | | | (0.3) | | | | NM | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net earnings | | | 133.2 | | | | 12.6% | | | | 149.7 | | | | 15.5% | | | | (16.5) | | | | -11.0% | |
Net earnings attributable to noncontrolling interests | | | (3.7) | | | | -0.3% | | | | (3.4) | | | | -0.3% | | | | (0.3) | | | | -8.8% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net earnings attributable toSnap-on Inc. | | $ | 129.5 | | | | 12.3% | | | $ | 146.3 | | | | 15.2% | | | $ | (16.8) | | | | -11.5% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fourth Quarter | | |
| (Amounts in millions) | | 2020 | | 2019 | | Change |
| Net sales | | $ | 1,074.4 | | | 100.0 | % | | $ | 955.2 | | | 100.0 | % | | $ | 119.2 | | | 12.5 | % |
| Cost of goods sold | | (558.2) | | | (52.0) | % | | (504.7) | | | (52.8) | % | | (53.5) | | | (10.6) | % |
| Gross profit | | 516.2 | | | 48.0 | % | | 450.5 | | | 47.2 | % | | 65.7 | | | 14.6 | % |
| Operating expenses | | (300.0) | | | (27.9) | % | | (279.1) | | | (29.3) | % | | (20.9) | | | (7.5) | % |
| Operating earnings before financial services | | 216.2 | | | 20.1 | % | | 171.4 | | | 17.9 | % | | 44.8 | | | 26.1 | % |
| | | | | | | | | | | | |
| Financial services revenue | | 93.4 | | | 100.0 | % | | 83.9 | | | 100.0 | % | | 9.5 | | | 11.3 | % |
| Financial services expenses | | (24.9) | | | (26.7) | % | | (21.7) | | | (25.9) | % | | (3.2) | | | (14.7) | % |
| Operating earnings from financial services | | 68.5 | | | 73.3 | % | | 62.2 | | | 74.1 | % | | 6.3 | | | 10.1 | % |
| | | | | | | | | | | | |
| Operating earnings | | 284.7 | | | 24.4 | % | | 233.6 | | | 22.5 | % | | 51.1 | | | 21.9 | % |
| Interest expense | | (15.4) | | | (1.3) | % | | (12.1) | | | (1.2) | % | | (3.3) | | | (27.3) | % |
| Other income (expense) – net | | 2.4 | | | 0.2 | % | | 2.4 | | | 0.2 | % | | — | | | — | |
| Earnings before income taxes and equity earnings | | 271.7 | | | 23.3 | % | | 223.9 | | | 21.5 | % | | 47.8 | | | 21.3 | % |
| Income tax expense | | (58.2) | | | (5.0) | % | | (48.9) | | | (4.7) | % | | (9.3) | | | (19.0) | % |
| Earnings before equity earnings | | 213.5 | | | 18.3 | % | | 175.0 | | | 16.8 | % | | 38.5 | | | 22.0 | % |
| Equity earnings, net of tax | | 0.3 | | | — | | | — | | | — | | | 0.3 | | | — | |
| Net earnings | | 213.8 | | | 18.3 | % | | 175.0 | | | 16.8 | % | | 38.8 | | | 22.2 | % |
| Net earnings attributable to noncontrolling interests | | (4.9) | | | (0.4) | % | | (4.4) | | | (0.4) | % | | (0.5) | | | (11.4) | % |
| Net earnings attributable to Snap-on Inc. | | $ | 208.9 | | | 17.9 | % | | $ | 170.6 | | | 16.4 | % | | $ | 38.3 | | | 22.5 | % |
| | | | | |
| 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
$974.6$1,074.4 million in the fourth quarter of
2017 increased $84.82020, reflecting a $102.1 million, or
9.5%, from 2016 levels, reflecting a $38.9 million, or 4.3%10.6%, organic sales gain,
$29.7$7.5 million of acquisition-related sales and
$16.2$9.6 million of favorable foreign currency
translation.translation, compared to $955.2 million in 2019.
Gross profit of
$465.3$516.2 million in the fourth quarter of
20172020, including $0.9 million of direct costs associated with COVID-19 and $1.5 million of favorable foreign currency effects, compared to
$443.9$450.5 million last year. Gross margin of
47.7%48.0% in the quarter
declined 220improved 80 bps from
49.9% last year2019 primarily due to
the impact of higher sales
of lower gross margin products, 60 bps of lower gross margins on acquisition-related sales,volumes and
20benefits from the company’s RCI initiatives, partially offset by 30 bps of unfavorable foreign currency effects.
Operating expenses of
$307.6$300.0 million in the fourth quarter of
20172020, including $1.9 million of direct costs associated with COVID-19, $1.0 million of restructuring charges in Europe and $3.0 million of unfavorable foreign currency effects, compared to
$267.8$279.1 million
last year,in the fourth quarter of 2019. Operating expenses as
2017 included a
$30.9 million legal charge discussed above. The operating expense marginpercentage of
31.5%net sales of 27.9% in the quarter
increasedimproved 140 bps from
30.1% last year
as 320 bps relatedprimarily due to the
legal charge were partially offset by benefits fromeffects of higher sales
volume leverage and a 40 bps benefit from operating expenses for acquisitions.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
volumes.
Operating earnings before financial services of
$157.7$216.2 million in the fourth quarter of
2017,2020, including
$30.9$2.8 million of
expense related to the legal charge, decreased $18.4direct costs associated with COVID-19, $1.0 million
or 10.4%, asof restructuring costs and $1.5 million of unfavorable foreign currency effects, compared to
$176.1$171.4 million last year. As a percentage of net sales, operating earnings before financial services of
16.2%20.1%, including 30 bps of direct costs associated with COVID-19, 10 bps of costs from restructuring actions and 30 bps of unfavorable foreign currency effects in the quarter,
including the legal charge,improved 220 bps compared to
19.8%17.9% last year.
Financial services revenue of
$79.9$93.4 million in the fourth quarter of
20172020 compared to
revenue of $74.2$83.9 million
last year.in 2019. Financial services operating earnings of
$54.4$68.5 million in the fourth quarter of
2017,2020, including
$0.3$0.2 million of favorable foreign currency effects,
increased $2.8 million, or 5.4%, as compared to
$51.6$62.2 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
$212.1$284.7 million in the fourth quarter of
2017,2020, including
$1.8$2.8 million of
favorabledirect costs associated with COVID-19, $1.0 million of restructuring charges and $1.3 million of unfavorable foreign currency effects,
and $30.9 million of expense for the legal charge, decreased $15.6 million, or 6.9%, from $227.7compared to $233.6 million last year. As a percentage of revenues, operating earnings of
20.1%24.4% in the quarter,
including 20 bps of direct costs associated with COVID-19, 10 bps of costs from restructuring actions and 30 bps of unfavorable foreign currency effects, compared to
23.6%22.5% last year.
Interest expense of $13.6 million in the fourth quarter of 20172020 increased $0.5$3.3 million from $13.1 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 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 18 to the Consolidated Financial Statements for information on other income (expense) – net.
Snap-on’s fourth quarter 2020 effective income tax rate on earnings attributable to Snap-on was 21.8%, which included a 10 bps increase related to restructuring actions, compared to 22.3% in 2019. See Note 9 to the Consolidated Financial Statements for information onSnap-on’s debt income taxes.
Net earnings attributable to Snap-on in the fourth quarter of 2020 of $208.9 million, or $3.82 per diluted share, included a $1.0 million, or $0.02 per diluted share, after-tax charge related to restructuring actions. Net earnings attributable to Snap-on in the fourth quarter of 2019 were $170.6 million, or $3.08 per diluted share.
Exit and
credit facilities.Other income (expense) – net was expenseDisposal Activities
Snap-on recorded costs for exit and disposal activities in Europe of
$1.5 million and $0.3$1.0 million in the
respective fourth quarters of 2017three months ended January 2, 2021. Snap-on did not record any exit and
2016. See Note 16 todisposal costs for the
Consolidated Financial Statements for information on other income (expense) – net.Snap-on’s fourth quarter effective income tax rate on earnings attributable toSnap-on was 33.0%, including a 1.2% benefit from the legal charge, in 2017 compared to 30.8% in 2016. The 2017 rate includes a $7.0 million, or 360 bps, impact related to 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.three months ended December 28, 2019. See Note 8 to the Consolidated Financial Statements for information on income taxes.
Net earnings attributable toSnap-on of $129.5 million, or $2.24 per diluted share, in the fourth quarter of 2017, including $19.1 million, or $0.33 per diluted share, for theafter-tax expense related to the legal charge,Snap-on’s exit and $7.0 million, or $0.12 per diluted share related to the Tax Act, decreased $16.8 million, or $0.23 per diluted share, from 2016 levels. Net earnings attributable toSnap-on in the fourth quarter of 2016 were $146.3 million or $2.47 per diluted share.
disposal activities.
Commercial & Industrial Group
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fourth Quarter | | | | |
| (Amounts in millions) | | | 2017 | | | | 2016 | | | | Change | |
External net sales | | $ | 273.2 | | | | 80.0% | | | $ | 218.5 | | | | 76.3% | | | $ | 54.7 | | | | 25.0% | |
Intersegment net sales | | | 68.5 | | | | 20.0% | | | | 67.8 | | | | 23.7% | | | | 0.7 | | | | 1.0% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Segment net sales | | | 341.7 | | | | 100.0% | | | | 286.3 | | | | 100.0% | | | | 55.4 | | | | 19.4% | |
Cost of goods sold | | | (207.7) | | | | -60.8% | | | | (170.9) | | | | -59.7% | | | | (36.8) | | | | -21.5% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | 134.0 | | | | 39.2% | | | | 115.4 | | | | 40.3% | | | | 18.6 | | | | 16.1% | |
Operating expenses | | | (83.1) | | | | -24.3% | | | | (71.5) | | | | -25.0% | | | | (11.6) | | | | -16.2% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Segment operating earnings | | $ | 50.9 | | | | 14.9% | | | $ | 43.9 | | | | 15.3% | | | $ | 7.0 | | | | 15.9% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fourth Quarter | | |
| (Amounts in millions) | | 2020 | | 2019 | | Change |
| External net sales | | $ | 284.2 | | | 78.0 | % | | $ | 268.7 | | | 76.1 | % | | $ | 15.5 | | | 5.8 | % |
| Intersegment net sales | | 80.2 | | | 22.0 | % | | 84.2 | | | 23.9 | % | | (4.0) | | | (4.8) | % |
| Segment net sales | | 364.4 | | | 100.0 | % | | 352.9 | | | 100.0 | % | | 11.5 | | | 3.3 | % |
| Cost of goods sold | | (226.6) | | | (62.2) | % | | (227.5) | | | (64.5) | % | | 0.9 | | | 0.4 | % |
| Gross profit | | 137.8 | | | 37.8 | % | | 125.4 | | | 35.5 | % | | 12.4 | | | 9.9 | % |
| Operating expenses | | (81.6) | | | (22.4) | % | | (80.4) | | | (22.7) | % | | (1.2) | | | (1.5) | % |
| Segment operating earnings | | $ | 56.2 | | | 15.4 | % | | $ | 45.0 | | | 12.8 | % | | $ | 11.2 | | | 24.9 | % |
Segment net sales of
$341.7$364.4 million in the fourth quarter of
20172020 increased
$55.4$11.5 million, or
19.4%3.3%, from
20162019 levels,
reflecting a $29.5 million, or 10.1%, organic sales gain, $19.1including $7.5 million of acquisition-related sales and
$6.8$6.5 million of favorable foreign currency
translation.translation, partially offset by a $2.5 million, or 0.7%, organic sales decline. The organic sales
increasedecrease primarily includes
double-digit gainsa mid single-digit decline in
boththe segment’s Asia Pacific operations and a low single-digit decline in sales to customers in critical industries,
andpartially offset by a double-digit increase in sales in the segment’s European-based hand tools
business, as well as low single-digit gains in both the segment’s power tools and Asia/Pacific operations.business.
Segment gross
profit of $134.0 millionmargin in the fourth quarter of
2017 compared to $115.4 million last year. Gross margin2020 of
39.2% in the quarter declined 11037.8% improved 230 bps from
40.3% last year
primarily due to
higherincreased sales
of lowerin higher gross margin
productsbusinesses and
50benefits from the segment’s RCI initiatives. These items were partially offset by 20 bps of direct costs associated with COVID-19 and 60 bps of unfavorable foreign currency effects.
Segment operating expenses as a percentage of net sales of 22.4% in the fourth quarter improved 30 bps as compared to last year.
| | | | | | | | |
38 | 2020 ANNUAL REPORT | SNAP-ON INCORPORATED37 |
| | | | | | | | |
| | |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | |
Segment operating expenses of $83.1 million in the fourth quarter of 2017 compared to $71.5 million last year. The operating expense margin of 24.3% in the quarter improved 70 bps from 25.0% last year primarily due to the benefits of sales volume leverage, partially offset by 50 bps of operating expenses from acquisitions.
As a result of these factors, segment operating earnings of
$50.9$56.2 million in the fourth quarter of
2017,2020, including
$0.6$1.0 million of direct costs associated with COVID-19 and $1.3 million of unfavorable foreign currency effects, increased
$7.0$11.2 million from
20162019 levels. Operating margin for the Commercial & Industrial Group of
14.9%15.4% in the
fourth quarter
of 2017 compared to
15.3%12.8% last year.
Snap-on Tools Group
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fourth Quarter | | | | |
| (Amounts in millions) | | 2017 | | | 2016 | | | Change | |
Segment net sales | | $ | 409.2 | | | | 100.0% | | | $ | 417.5 | | | | 100.0% | | | $ | (8.3) | | | | -2.0% | |
Cost of goods sold | | | (239.9) | | | | -58.6% | | | | (242.0) | | | | -58.0% | | | | 2.1 | | | | 0.9% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | 169.3 | | | | 41.4% | | | | 175.5 | | | | 42.0% | | | | (6.2) | | | | -3.5% | |
Operating expenses | | | (102.0) | | | | -25.0% | | | | (102.0) | | | | -24.4% | | | | – | | | | – | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Segment operating earnings | | $ | 67.3 | | | | 16.4% | | | $ | 73.5 | | | | 17.6% | | | $ | (6.2) | | | | -8.4% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fourth Quarter | | |
| (Amounts in millions) | | 2020 | | 2019 | | Change |
| Segment net sales | | $ | 494.9 | | | 100.0 | % | | $ | 411.7 | | | 100.0 | % | | $ | 83.2 | | | 20.2 | % |
| Cost of goods sold | | (282.8) | | | (57.1) | % | | (246.3) | | | (59.8) | % | | (36.5) | | | (14.8) | % |
| Gross profit | | 212.1 | | | 42.9 | % | | 165.4 | | | 40.2 | % | | 46.7 | | | 28.2 | % |
| Operating expenses | | (118.5) | | | (24.0) | % | | (111.1) | | | (27.0) | % | | (7.4) | | | (6.7) | % |
| Segment operating earnings | | $ | 93.6 | | | 18.9 | % | | $ | 54.3 | | | 13.2 | % | | $ | 39.3 | | | 72.4 | % |
Segment net sales of
$409.2$494.9 million in the fourth quarter of
2017 decreased $8.32020, reflecting an $81.0 million, or
2.0%, from 2016 levels, reflecting a $12.6 million, or 3.0%19.6%, organic sales
decline, partially offset by $4.3increase and $2.2 million of favorable foreign currency
translation. The organic sales decrease reflects a mid single-digit decline in the company’s U.S. franchise operations, partially offset by a mid single-digit gain in the international franchise operations.Segment gross profit of $169.3translation, compared to $411.7 million in the fourth quarter of 2017 compared to $175.5 million last year. Gross2019. The organic sales increase reflects a double-digit gain in both the segment’s U.S. and international operations.
Segment gross margin
of 41.4% in the quarter declined 60 bps from 42.0% due to the lower volume and related costs.Segment operating expenses of $102.0 million in the fourth quarter of 2017 was unchanged42.9% improved 270 bps from last year. Theyear primarily due to higher sales volumes and benefits from the company’s RCI initiatives.
Segment operating
expense marginexpenses as a percentage of
25.0 %net sales of 24.0% in the
fourth quarter
increased 60improved 300 bps from
24.4% last year primarily due to the
effectimpact of
lower sales.higher sales volumes and savings from cost containment actions.
As a result of these factors, segment operating earnings of
$67.3$93.6 million in the fourth quarter of
2017,2020, including
$1.3$1.2 million of
favorable foreign currency effects, decreased $6.2direct costs associated with COVID-19, increased $39.3 million from
20162019 levels. Operating margin for the
Snap-on Tools Group of
16.4%18.9% in the
fourth quarter
of 2017 compared to
17.6%13.2% last year.
Repair Systems & Information Group
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fourth Quarter | | | | |
| (Amounts in millions) | | 2017 | | | 2016 | | | Change | |
External net sales | | $ | 292.2 | | | | 81.9% | | | $ | 253.8 | | | | 79.4% | | | $ | 38.4 | | | | 15.1% | |
Intersegment net sales | | | 64.6 | | | | 18.1% | | | | 66.0 | | | | 20.6% | | | | (1.4) | | | | -2.1% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Segment net sales | | | 356.8 | | | | 100.0% | | | | 319.8 | | | | 100.0% | | | | 37.0 | | | | 11.6% | |
Cost of goods sold | | | (194.8) | | | | -54.6% | | | | (166.8) | | | | -52.2% | | | | (28.0) | | | | -16.8% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | 162.0 | | | | 45.4% | | | | 153.0 | | | | 47.8% | | | | 9.0 | | | | 5.9% | |
Operating expenses | | | (72.2) | | | | -20.2% | | | | (70.5) | | | | -22.0% | | | | (1.7) | | | | -2.4% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Segment operating earnings | | $ | 89.8 | | | | 25.2% | | | $ | 82.5 | | | | 25.8% | | | $ | 7.3 | | | | 8.8% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fourth Quarter | | |
| (Amounts in millions) | | 2020 | | 2019 | | Change |
| External net sales | | $ | 295.3 | | | 81.8 | % | | $ | 274.8 | | | 82.0 | % | | $ | 20.5 | | | 7.5 | % |
| Intersegment net sales | | 65.8 | | | 18.2 | % | | 60.2 | | | 18.0 | % | | 5.6 | | | 9.3 | % |
| Segment net sales | | 361.1 | | | 100.0 | % | | 335.0 | | | 100.0 | % | | 26.1 | | | 7.8 | % |
| Cost of goods sold | | (194.8) | | | (53.9) | % | | (175.3) | | | (52.3) | % | | (19.5) | | | (11.1) | % |
| Gross profit | | 166.3 | | | 46.1 | % | | 159.7 | | | 47.7 | % | | 6.6 | | | 4.1 | % |
| Operating expenses | | (76.3) | | | (21.2) | % | | (72.5) | | | (21.7) | % | | (3.8) | | | (5.2) | % |
| Segment operating earnings | | $ | 90.0 | | | 24.9 | % | | $ | 87.2 | | | 26.0 | % | | $ | 2.8 | | | 3.2 | % |
Segment net sales of
$356.8$361.1 million in the fourth quarter of
2017 increased $37.02020, reflecting a $23.7 million, or
11.6%, from 2016 levels, reflecting a $20.2 million, or 6.2%7.0%, organic sales
gain, $10.6 million of acquisition-related salesincrease and
$6.2$2.4 million of favorable foreign currency
translation.translation, compared to $335.0 million in the fourth quarter of 2019. The organic sales increase includes a double-digit gain in sales to OEM dealerships and a
low single-digit gain in sales of diagnostic and repair information products to independent repair shop owners and managers.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Segment gross profit of $162.0 million in the fourth quarter of 2017 compared to $153.0 million last year. Gross margin of 45.4% in the quarter decreased 240 bps from 47.8% last year as a 110 bps impact from acquisitions, higher sales of lower gross margin products, and 10 bps of unfavorable foreign currency impacts were partially offset by savings from RCI initiatives.
Segment operating expenses of $72.2 million in the fourth quarter of 2017 compared to $70.5 million last year. The operating expense margin of 20.2% improved 180 bps from 22.0% last year due to the higher sales volume and 80 bps of benefits from acquisitions, partially offset by 10 bps of unfavorable foreign currency effects.
As a result of these factors, segment operating earnings of $89.8 million in the fourth quarter of 2017, including $0.8 million of favorable foreign currency effects, increased $7.3 million from 2016 levels. Operating margin for the Repair Systems & Information Group of 25.2% in the fourth quarter of 2017 compared to 25.8% last year.
Financial Services
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fourth Quarter | | | | |
| (Amounts in millions) | | 2017 | | | 2016 | | | Change | |
Financial services revenue | | $ | 79.9 | | | | 100.0% | | | $ | 74.2 | | | | 100.0% | | | $ | 5.7 | | | | 7.7% | |
Financial services expenses | | | (25.5) | | | | -31.9% | | | | (22.6) | | | | -30.5% | | | | (2.9) | | | | -12.8% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Segment operating earnings | | $ | 54.4 | | | | 68.1% | | | $ | 51.6 | | | | 69.5% | | | $ | 2.8 | | | | 5.4% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Financial services revenue of $79.9 million in the fourth quarter of 2017 increased $5.7 million, or 7.7%, from $74.2 million last year primarily reflecting $7.7 million of higher revenue as a result of continued growth of the company’s financial services portfolio, partially offset by $2.0 million of decreased revenue from lower average yields on finance and contract receivables. In the fourth quarters of 2017 and 2016, the respective average yields on finance receivables were 17.8% and 18.2%, and the respective average yields on contract receivables were 9.2% and 9.3%. Originations of $265.0 million in the fourth quarter of 2017 increased $4.7 million, or 1.8%, 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 $25.5 million in the fourth quarter of 2017 increased from $22.6 million last year 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 1.3% for both the fourth quarters of 2017 and 2016.
Financial services operating earnings of $54.4 million in the fourth quarter of 2017, including $0.3 million of favorable foreign currency effects, increased $2.8 million, or 5.4%, from 2016 levels.
See Note 1 and Note 3 to the Consolidated Financial Statements for further information on financial services.
Corporate
Snap-on’s fourth quarter 2017 general corporate expenses of $50.3 million increased $26.5 million from $23.8 million last year primarily due to the $30.9 million legal charge, partially offset by lower performance-based compensation costs.
2016 vs. 2015
Results of operations for 2016 and 2015 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2016 | | | 2015 | | | Change | |
Net sales | | $ | 3,430.4 | | | | 100.0% | | | $ | 3,352.8 | | | | 100.0% | | | $ | 77.6 | | | | 2.3% | |
Cost of goods sold | | | (1,720.8) | | | | -50.2% | | | | (1,704.5) | | | | -50.8% | | | | (16.3) | | | | -1.0% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | 1,709.6 | | | | 49.8% | | | | 1,648.3 | | | | 49.2% | | | | 61.3 | | | | 3.7% | |
Operating expenses | | | (1,054.1) | | | | -30.7% | | | | (1,053.7) | | | | -31.5% | | | | (0.4) | | | | – | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating earnings before financial services | | | 655.5 | | | | 19.1% | | | | 594.6 | | | | 17.7% | | | | 60.9 | | | | 10.2% | |
| | | | | | |
Financial services revenue | | | 281.4 | | | | 100.0% | | | | 240.3 | | | | 100.0% | | | | 41.1 | | | | 17.1% | |
Financial services expenses | | | (82.7) | | | | -29.4% | | | | (70.1) | | | | -29.2% | | | | (12.6) | | | | -18.0% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating earnings from financial services | | | 198.7 | | | | 70.6% | | | | 170.2 | | | | 70.8% | | | | 28.5 | | | | 16.7% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Operating earnings | | | 854.2 | | | | 23.0% | | | | 764.8 | | | | 21.3% | | | | 89.4 | | | | 11.7% | |
Interest expense | | | (52.2) | | | | -1.4% | | | | (51.9) | | | | -1.4% | | | | (0.3) | | | | -0.6% | |
Other income (expense) – net | | | (0.6) | | | | – | | | | (2.4) | | | | -0.1% | | | | 1.8 | | | | NM | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Earnings before income taxes and equity earnings | | | 801.4 | | | | 21.6% | | | | 710.5 | | | | 19.8% | | | | 90.9 | | | | 12.8% | |
Income tax expense | | | (244.3) | | | | -6.6% | | | | (221.2) | | | | -6.2% | | | | (23.1) | | | | -10.4% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Earnings before equity earnings | | | 557.1 | | | | 15.0% | | | | 489.3 | | | | 13.6% | | | | 67.8 | | | | 13.9% | |
Equity earnings, net of tax | | | 2.5 | | | | 0.1% | | | | 1.3 | | | | – | | | | 1.2 | | | | NM | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net earnings | | | 559.6 | | | | 15.1% | | | | 490.6 | | | | 13.6% | | | | 69.0 | | | | 14.1% | |
Net earnings attributable to noncontrolling interests | | | (13.2) | | | | -0.4% | | | | (11.9) | | | | -0.3% | | | | (1.3) | | | | -10.9% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net earnings attributable toSnap-on Inc. | | $ | 546.4 | | | | 14.7% | | | $ | 478.7 | | | | 13.3% | | | $ | 67.7 | | | | 14.1% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
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 $3,430.4 million in 2016 increased $77.6 million, or 2.3%, from 2015 levels, reflecting a $96.2 million, or 2.9%, organic sales gain and $32.9 million of acquisition-related sales, partially offset by $51.5 million of unfavorable foreign currency translation.
Gross profit of $1,709.6 million in 2016 compared to $1,648.3 million in 2015. Gross margin of 49.8% in 2016 improved 60 basis points from 49.2% in 2015 as benefits from higher sales and savings from RCI initiatives were partially offset by 20 bps of unfavorable foreign currency effects. Restructuring costs included in gross profit were $0.8 million and zero in 2016 and 2015, respectively.
Operating expenses of $1,054.1��million in 2016 compared to $1,053.7 million in 2015. The operating expense margin of 30.7% in 2016 improved 80 bps from 31.5% in 2015 primarily due to sales volume leverage and savings from RCI initiatives, 30 bps of lower stock-based(mark-to-market) compensation and other expenses, including lower costs associated with the company’s employee and franchisee stock purchase plans, and 20 bps of lower pension expense. Restructuring costs included in operating expenses were $0.1 million and zero in 2016 and 2015, respectively.
Operating earnings before financial services of $655.5 million in 2016, including $21.5 million of unfavorable foreign currency effects, increased $60.9 million, or 10.2%, as compared to $594.6 million in 2015. As a percentage of net sales, operating earnings before financial services of 19.1% in 2016 improved 140 bps from 17.7% in 2015.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Financial services revenue of $281.4 million in 2016 compared to revenue of $240.3 million in 2015. Financial services operating earnings of $198.7 million in 2016, including $1.8 million of unfavorable foreign currency effects, increased $28.5 million, or 16.7%, as compared to $170.2 million in 2015. 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 $854.2 million in 2016, including $23.3 million of unfavorable foreign currency effects, increased $89.4 million, or 11.7%, from $764.8 million in 2015. As a percentage of revenues, operating earnings of 23.0% in 2016 improved 170 bps from 21.3% in 2015.
Interest expense of $52.2 million in 2016 increased $0.3 million from $51.9 million in 2015. See Note 9 to the Consolidated Financial Statements for information onSnap-on’s debt and credit facilities.
Other income (expense) – net was expense of $0.6 million and $2.4 million in 2016 and 2015, respectively. See Note 16 to the Consolidated Financial Statements for information on other income (expense) – net.
Snap-on’s effective income tax rate on earnings attributable toSnap-on was 31.0% in 2016 and 31.7% in 2015. See Note 8 to the Consolidated Financial Statements for information on income taxes.
Net earnings attributable toSnap-on of $546.4 million, or $9.20 per diluted share, in 2016 increased $67.7 million, or $1.10 per diluted share, from 2015 levels. Net earnings attributable toSnap-on in 2015 were $478.7 million or $8.10 per diluted share.
Segment Results
Commercial & Industrial Group
| | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2016 | | | 2015 | | | Change | |
External net sales | | $ | 863.0 | | | | 75.2% | | | $ | 895.5 | | | | 77.0% | | | $ | (32.5) | | | | -3.6% | |
Intersegment net sales | | | 285.3 | | | | 24.8% | | | | 268.1 | | | | 23.0% | | | | 17.2 | | | | 6.4% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Segment net sales | | | 1,148.3 | | | | 100.0% | | | | 1,163.6 | | | | 100.0% | | | | (15.3) | | | | -1.3% | |
Cost of goods sold | | | (698.3) | | | | -60.8% | | | | (717.1) | | | | -61.6% | | | | 18.8 | | | | 2.6% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | 450.0 | | | | 39.2% | | | | 446.5 | | | | 38.4% | | | | 3.5 | | | | 0.8% | |
Operating expenses | | | (282.0) | | | | -24.6% | | | | (277.1) | | | | -23.8% | | | | (4.9) | | | | -1.8% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Segment operating earnings | | $ | 168.0 | | | | 14.6% | | | $ | 169.4 | | | | 14.6% | | | $ | (1.4) | | | | -0.8% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Segment net sales of $1,148.3 million in 2016 decreased $15.3 million, or 1.3%, from 2015 levels, reflecting $20.6 million of unfavorable foreign currency translation partially offset by $4.2 million of acquisition-related sales and a $1.1 million, or 0.1%, organic sales gain. The organic sales increase primarily includes a mid single-digit gain in the segment’s European-based hand tools business and low single-digit increases in both the segment’s Asia/Pacific and power tools operations. These organic sales gains were largely offset by a mid single-digit decline in sales to customers in critical industries, primarily in the international aerospace and natural resources market segments.
Segment gross profit of $450.0 million in 2016 compared to $446.5 million in 2015. Gross margin of 39.2% in 2016 improved 80 bps from 38.4% in 2015 primarily due to savings from RCI and other cost reduction initiatives, and 20 bps of favorable foreign currency effects.
Segment operating expenses of $282.0 million in 2016 compared to $277.1 million in 2015. The operating expense margin of 24.6% in 2016 increased 80 bps from 23.8% in 2015 primarily due to higher costs, including costs associated with continued expansion initiatives in Asia, a 20 bps benefit realized in 2015 from a gain on the sale of a former manufacturing facility, and 10 bps of unfavorable foreign currency effects.
As a result of these factors, segment operating earnings of $168.0 million in 2016, including $1.1 million of unfavorable foreign currency effects, decreased $1.4 million from 2015 levels. Operating margin for the Commercial & Industrial Group was 14.6% in both years.
Snap-on Tools Group
| | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2016 | | | 2015 | | | Change | |
Segment net sales | | $ | 1,633.9 | | | | 100.0% | | | $ | 1,568.7 | | | | 100.0% | | | $ | 65.2 | | | | 4.2% | |
Cost of goods sold | | | (929.8) | | | | -56.9% | | | | (885.7) | | | | -56.5% | | | | (44.1) | | | | -5.0% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | 704.1 | | | | 43.1% | | | | 683.0 | | | | 43.5% | | | | 21.1 | | | | 3.1% | |
Operating expenses | | | (423.0) | | | | -25.9% | | | | (427.0) | | | | -27.2% | | | | 4.0 | | | | 0.9% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Segment operating earnings | | $ | 281.1 | | | | 17.2% | | | $ | 256.0 | | | | 16.3% | | | $ | 25.1 | | | | 9.8% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Segment net sales of $1,633.9 million in 2016 increased $65.2 million, or 4.2%, from 2015 levels, reflecting an $86.4 million, or 5.6%, organic sales gain partially offset by $21.2 million of unfavorable foreign currency translation. The organic sales increase includes mid single-digit gains in both the company’s U.S. and international franchise operations.
Segment gross profit of $704.1 million in 2016 compared to $683.0 million in 2015. Gross margin of 43.1% in 2016 declined 40 bps from 43.5% in 2015 as 70 bps of unfavorable foreign currency effects were partially offset by benefits from higher sales.
Segment operating expenses of $423.0 million in 2016 compared to $427.0 million in 2015. The operating expense margin of 25.9% in 2016 improved 130 bps from 27.2% in 2015 primarily due to sales volume leverage and savings from RCI and other cost reduction initiatives, as well as 20 bps of lower stock-based costs associated with the company’s franchisee stock purchase plan.
As a result of these factors, segment operating earnings of $281.1 million in 2016, including $15.3 million of unfavorable foreign currency effects, increased $25.1 million from 2015 levels. Operating margin for theSnap-on Tools Group of 17.2% in 2016 improved 90 bps from 16.3% in 2015.
Repair Systems & Information Group
| | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2016 | | | 2015 | | | Change | |
External net sales | | $ | 933.5 | | | | 79.1% | | | $ | 888.6 | | | | 79.8% | | | $ | 44.9 | | | | 5.1% | |
Intersegment net sales | | | 246.4 | | | | 20.9% | | | | 224.6 | | | | 20.2% | | | | 21.8 | | | | 9.7% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Segment net sales | | | 1,179.9 | | | | 100.0% | | | | 1,113.2 | | | | 100.0% | | | | 66.7 | | | | 6.0% | |
Cost of goods sold | | | (624.4) | | | | -52.9% | | | | (594.4) | | | | -53.4% | | | | (30.0) | | | | -5.0% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | 555.5 | | | | 47.1% | | | | 518.8 | | | | 46.6% | | | | 36.7 | | | | 7.1% | |
Operating expenses | | | (257.7) | | | | -21.9% | | | | (245.4) | | | | -22.0% | | | | (12.3) | | | | -5.0% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Segment operating earnings | | $ | 297.8 | | | | 25.2% | | | $ | 273.4 | | | | 24.6% | | | $ | 24.4 | | | | 8.9% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Segment net sales of $1,179.9 million in 2016 increased $66.7 million, or 6.0%, from 2015 levels, reflecting a $52.1 million, or 4.7%, organic sales gain and $28.7 million of acquisition-related sales, partially offset by $14.1 million of unfavorable foreign currency translation. The organic sales increase includes a high single-digit gainincrease in sales of diagnostic and repair information products to independent repair shop owners and managers, andpartially offset by a low single-digit increasesdecrease in both sales of undercar equipment and sales to OEM dealerships.
equipment.
Segment gross profitmargin in the fourth quarter of $555.5 million46.1%, including 10 bps of unfavorable foreign currency effects, decreased 160 bps from last year primarily due to the impact of higher sales in 2016 compared to $518.8 millionlower gross margin businesses.
Segment operating expenses as a percentage of net sales of 21.2% in
2015. Gross margin of 47.1% in 2016the fourth quarter improved 50 bps from
46.6% in 2015, as benefits fromlast year primarily due to the impact of higher sales
and savings from RCI initiatives werevolumes, partially offset by
30 bps related to $1.0 million of costs from restructuring actions in Europe and 10 bps of unfavorable
foreign currency effects.
Restructuring costs included in gross profit were $0.8 million and zero in 2016 and 2015, respectively.Segment operating expenses of $257.7 million in 2016 compared to $245.4 million in 2015. The operating expense margin of 21.9% in 2016 improved 10 bps from 22.0% in 2015 primarily due to sales volume leverage and savings from RCI initiatives, partially offset by 20 bps of impact from theCar-O-Liner acquisition. Restructuring costs included in operating expenses were $0.1 million and zero in 2016 and 2015, respectively.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
As a result of these factors, segment operating earnings of
$297.8$90.0 in the fourth quarter of 2020, including $1.0 million
in 2016, including $5.1of costs related to restructuring actions, $0.2 million of direct costs associated with COVID-19 and $0.2 million of unfavorable foreign currency effects,
increased $24.4compared to $87.2 million
from 2015 levels.in 2019. Operating margin for the Repair Systems & Information Group of
25.2%24.9% in
2016 improved 60 bps from 24.6% in 2015.the quarter compared to 26.0% last year.
Financial Services | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2016 | | | 2015 | | | Change | |
Financial services revenue | | $ | 281.4 | | | | 100.0% | | | $ | 240.3 | | | | 100.0% | | | $ | 41.1 | | | | 17.1% | |
Financial services expenses | | | (82.7) | | | | -29.4% | | | | (70.1) | | | | -29.2% | | | | (12.6) | | | | -18.0% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Segment operating earnings | | $ | 198.7 | | | | 70.6% | | | $ | 170.2 | | | | 70.8% | | | $ | 28.5 | | | | 16.7% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fourth Quarter | | |
| (Amounts in millions) | | 2020 | | 2019 | | Change |
| Financial services revenue | | $ | 93.4 | | | 100.0 | % | | $ | 83.9 | | | 100.0 | % | | $ | 9.5 | | | 11.3 | % |
| Financial services expenses | | (24.9) | | | (26.7) | % | | (21.7) | | | (25.9) | % | | (3.2) | | | (14.7) | % |
| Segment operating earnings | | $ | 68.5 | | | 73.3 | % | | $ | 62.2 | | | 74.1 | % | | $ | 6.3 | | | 10.1 | % |
Financial services revenue of
$281.4$93.4 million in
2016the fourth quarter of 2020 increased
$41.1$9.5 million, or
17.1%11.3%, from
$240.3 million in 2015last year, primarily reflecting
$38.1$9.4 million of higher revenue as a result of
continuedan additional week of interest income from the 53-week 2020 fiscal year, growth
ofin the company’s financial services portfolio and
$2.7$0.1 million of increased revenue from higher average
portfolio yields. In the fourth quarters of 2020 and 2019, the respective average yields on finance
receivables. In 2016receivables were 17.7% and
2015, the respective average yield on finance receivables was 18.0% and 17.8%17.5%, and the respective average
yields on contract receivables were 8.5% and 9.2%. The lower yield on contract receivables
was 9.4% and 9.5%.in 2020 includes the impact of business operations support loans that were provided to franchisees in the second quarter of 2020 in response to the COVID-19 environment. Originations of
$1,075.7$272.4 million in
2016the fourth quarter of 2020 increased
$82.0$10.0 million, or
8.3%3.8%, from
20152019 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 revenuefourth quarter of
the segment. Financial services expenses of $82.72020 increased $3.2 million
in 2016 increased from
$70.1 million in 2015last year primarily due to
changes in both the size of the portfoliohigher variable compensation and
in theother costs, partially offset by lower provisions for credit losses. As a percentage of the average financial services portfolio, financial services expenses were
4.9%1.1% and
4.8% in 20161.0% for the fourth quarters of 2020 and
2015,2019, respectively.
Financial services operating earnings of
$198.7$68.5 million in
2016,the fourth quarter of 2020, including
$1.8$0.2 million of
unfavorablefavorable foreign currency effects, increased
$28.5$6.3 million, or
16.7%10.1%, from
20152019 levels.
See Note 1 and Note
34 to the Consolidated Financial Statements for further information on financial services.
Snap-on’s
fourth quarter 2020 general corporate expenses
in 2016 of
$91.4$23.6 million
decreased $12.8compared to $15.1 million
from $104.2 million in 2015.last year. The year-over-year
decreaseincrease in general corporate expenses
is primarily
reflects $6.9 million of lower pension expense, $6.4 million of lowerdue to higher stock-based
(mark-to-market) and variable compensation
expense and $2.3 million of lower stock-based costs associated with the company’s employee stock purchase plan, partially offset by $2.8 million of higher acquisition-related and other 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 and equipment products, software and other
non-financial services operations with Financial Services 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.
| | | | | | | | |
44 | 2020 ANNUAL REPORT | SNAP-ON INCORPORATED39 |
| | | | | | | | |
| | |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | |
Non-GAAP Supplemental Consolidating Data – Supplemental Statements of Earnings information for 2017, 20162020, 2019 and 20152018 is as follows: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Operations* | | | Financial Services | |
| (Amounts in millions) | | 2017 | | | 2016 | | | 2015 | | | 2017 | | | 2016 | | | 2015 | |
Net sales | | $ | 3,686.9 | | | $ | 3,430.4 | | | $ | 3,352.8 | | | $ | – | | | $ | – | | | $ | – | |
Cost of goods sold | | | (1,862.0) | | | | (1,720.8) | | | | (1,704.5) | | | | – | | | | – | | | | – | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | 1,824.9 | | | | 1,709.6 | | | | 1,648.3 | | | | – | | | | – | | | | – | |
Operating expenses | | | (1,160.9) | | | | (1,054.1) | | | | (1,053.7) | | | | – | | | | – | | | | – | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating earnings before financial services | | | 664.0 | | | | 655.5 | | | | 594.6 | | | | – | | | | – | | | | – | |
| | | | | | |
Financial services revenue | | | – | | | | – | | | | – | | | | 313.4 | | | | 281.4 | | | | 240.3 | |
Financial services expenses | | | – | | | | – | | | | – | | | | (95.9) | | | | (82.7) | | | | (70.1) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating earnings from financial services | | | – | | | | – | | | | – | | | | 217.5 | | | | 198.7 | | | | 170.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Operating earnings | | | 664.0 | | | | 655.5 | | | | 594.6 | | | | 217.5 | | | | 198.7 | | | | 170.2 | |
Interest expense | | | (52.1) | | | | (51.9) | | | | (51.4) | | | | (0.3) | | | | (0.3) | | | | (0.5) | |
Intersegment interest income (expense) – net | | | 70.8 | | | | 72.2 | | | | 62.7 | | | | (70.8) | | | | (72.2) | | | | (62.7) | |
Other income (expense) – net | | | (7.2) | | | | (0.7) | | | | (2.4) | | | | – | | | | 0.1 | | | | – | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Earnings before income taxes and equity earnings | | | 675.5 | | | | 675.1 | | | | 603.5 | | | | 146.4 | | | | 126.3 | | | | 107.0 | |
Income tax expense | | | (196.8) | | | | (197.7) | | | | (181.9) | | | | (54.1) | | | | (46.6) | | | | (39.3) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Earnings before equity earnings | | | 478.7 | | | | 477.4 | | | | 421.6 | | | | 92.3 | | | | 79.7 | | | | 67.7 | |
Financial services – net earnings attributable toSnap-on | | | 92.3 | | | | 79.7 | | | | 67.7 | | | | – | | | | – | | | | – | |
Equity earnings, net of tax | | | 1.2 | | | | 2.5 | | | | 1.3 | | | | – | | | | – | | | | – | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net earnings | | | 572.2 | | | | 559.6 | | | | 490.6 | | | | 92.3 | | | | 79.7 | | | | 67.7 | |
Net earnings attributable to noncontrolling interests | | | (14.5) | | | | (13.2) | | | | (11.9) | | | | – | | | | – | | | | – | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net earnings attributable toSnap-on | | $ | 557.7 | | | $ | 546.4 | | | $ | 478.7 | | | $ | 92.3 | | | $ | 79.7 | | | $ | 67.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Operations* | | Financial Services |
| (Amounts in millions) | | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 |
| Net sales | | $ | 3,592.5 | | | $ | 3,730.0 | | | $ | 3,740.7 | | | $ | — | | | $ | — | | | $ | — | |
| Cost of goods sold | | (1,844.0) | | | (1,886.0) | | | (1,870.7) | | | — | | | — | | | — | |
| Gross profit | | 1,748.5 | | | 1,844.0 | | | 1,870.0 | | | — | | | — | | | — | |
| Operating expenses | | (1,116.6) | | | (1,127.6) | | | (1,144.0) | | | — | | | — | | | — | |
| Operating earnings before financial services | | 631.9 | | | 716.4 | | | 726.0 | | | — | | | — | | | — | |
| | | | | | | | | | | | |
| Financial services revenue | | — | | | — | | | — | | | 349.7 | | | 337.7 | | | 329.7 | |
| Financial services expenses | | — | | | — | | | — | | | (101.1) | | | (91.8) | | | (99.6) | |
| Operating earnings from financial services | | — | | | — | | | — | | | 248.6 | | | 245.9 | | | 230.1 | |
| | | | | | | | | | | | |
| Operating earnings | | 631.9 | | | 716.4 | | | 726.0 | | | 248.6 | | | 245.9 | | | 230.1 | |
| Interest expense | | (53.8) | | | (48.8) | | | (50.1) | | | (0.2) | | | (0.2) | | | (0.3) | |
| Intersegment interest income (expense) – net | | 68.5 | | | 70.5 | | | 69.7 | | | (68.5) | | | (70.5) | | | (69.7) | |
| Other income (expense) – net | | 8.5 | | | 8.9 | | | 4.1 | | | 0.2 | | | (0.1) | | | 0.1 | |
| Earnings before income taxes and equity earnings | | 655.1 | | | 747.0 | | | 749.7 | | | 180.1 | | | 175.1 | | | 160.2 | |
| Income tax expense | | (142.7) | | | (166.6) | | | (173.1) | | | (46.4) | | | (45.2) | | | (41.3) | |
| Earnings before equity earnings | | 512.4 | | | 580.4 | | | 576.6 | | | 133.7 | | | 129.9 | | | 118.9 | |
| Financial services – net earnings attributable to Snap-on | | 133.7 | | | 129.9 | | | 118.9 | | | — | | | — | | | — | |
| Equity earnings, net of tax | | 0.3 | | | 0.9 | | | 0.7 | | | — | | | — | | | — | |
| Net earnings | | 646.4 | | | 711.2 | | | 696.2 | | | 133.7 | | | 129.9 | | | 118.9 | |
| Net earnings attributable to noncontrolling interests | | (19.4) | | | (17.7) | | | (16.3) | | | — | | | — | | | — | |
| Net earnings attributable to Snap-on | | $ | 627.0 | | | $ | 693.5 | | | $ | 679.9 | | | $ | 133.7 | | | $ | 129.9 | | | $ | 118.9 | |
* Snap-on with Financial Services on the equity method.
* | Snap-on with Financial Services on the equity method.
| | | | | | | |
| 40 | SNAP-ON INCORPORATED | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Non-GAAP Supplemental Consolidating Data – Supplemental Balance Sheet Information as of 20172020 and 20162019 year end is as follows: | | | | | | | | | | | | | | | | |
| | | Operations* | | | Financial Services | |
| (Amounts in millions) | | | 2017 | | | | 2016 | | | | 2017 | | | | 2016 | |
ASSETS | | | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 91.8 | | | $ | 77.5 | | | $ | 0.2 | | | $ | 0.1 | |
Intersegment receivables | | | 17.1 | | | | 15.0 | | | | – | | | | – | |
Trade and other accounts receivable – net | | | 674.9 | | | | 598.2 | | | | 0.7 | | | | 0.6 | |
Finance receivables – net | | | – | | | | – | | | | 505.4 | | | | 472.5 | |
Contract receivables – net | | | 9.4 | | | | 7.9 | | | | 87.4 | | | | 80.2 | |
Inventories – net | | | 638.8 | | | | 530.5 | | | | – | | | | – | |
Prepaid expenses and other assets | | | 117.6 | | | | 122.4 | | | | 0.7 | | | | 1.1 | |
| | | | | | | | | | | | | | | | |
Total current assets | | | 1,549.6 | | | | 1,351.5 | | | | 594.4 | | | | 554.5 | |
| | | | |
Property and equipment – net | | | 482.4 | | | | 423.8 | | | | 2.0 | | | | 1.4 | |
Investment in Financial Services | | | 317.4 | | | | 288.7 | | | | – | | | | – | |
Deferred income tax assets | | | 25.2 | | | | 49.1 | | | | 26.8 | | | | 23.7 | |
Intersegment long-term notes receivable | | | 583.7 | | | | 584.7 | | | | – | | | | – | |
Long-term finance receivables – net | | | – | | | | – | | | | 1,039.2 | | | | 934.5 | |
Long-term contract receivables – net | | | 13.2 | | | | 11.2 | | | | 309.4 | | | | 275.5 | |
Goodwill | | | 924.1 | | | | 895.5 | | | | – | | | | – | |
Other intangibles – net | | | 253.7 | | | | 184.6 | | | | – | | | | – | |
Other assets | | | 63.1 | | | | 47.9 | | | | – | | | | 0.1 | |
| | | | | | | | | | | | | | | | |
Total assets | | $ | 4,212.4 | | | $ | 3,837.0 | | | $ | 1,971.8 | | | $ | 1,789.7 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Operations* | | Financial Services |
| (Amounts in millions) | | 2020 | | 2019 | | 2020 | | 2019 |
| ASSETS | | | | | | | | |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 923.2 | | | $ | 184.4 | | | $ | 0.2 | | | $ | 0.1 | |
| Intersegment receivables | | 14.6 | | | 14.2 | | | 0.2 | | | — | |
| Trade and other accounts receivable – net | | 639.7 | | | 693.5 | | | 1.0 | | | 1.1 | |
| Finance receivables – net | | — | | | — | | | 530.2 | | | 530.1 | |
| Contract receivables – net | | 7.0 | | | 6.8 | | | 105.5 | | | 93.9 | |
| Inventories – net | | 746.5 | | | 760.4 | | | — | | | — | |
| Prepaid expenses and other assets | | 131.1 | | | 111.8 | | | 7.8 | | | 7.0 | |
| Total current assets | | 2,462.1 | | | 1,771.1 | | | 644.9 | | | 632.2 | |
| | | | | | | | |
| Property and equipment – net | | 524.4 | | | 519.8 | | | 1.8 | | | 1.7 | |
| Operating lease right-of-use assets | | 49.7 | | | 52.9 | | | 2.2 | | | 2.7 | |
| Investment in Financial Services | | 349.8 | | | 340.5 | | | — | | | — | |
| Deferred income tax assets | | 27.6 | | | 32.7 | | | 22.7 | | | 19.6 | |
| Intersegment long-term notes receivable | | 316.9 | | | 755.5 | | | — | | | — | |
| Long-term finance receivables – net | | — | | | — | | | 1,136.3 | | | 1,103.5 | |
| Long-term contract receivables – net | | 12.4 | | | 16.0 | | | 362.3 | | | 344.1 | |
| Goodwill | | 982.4 | | | 913.8 | | | — | | | — | |
| Other intangibles – net | | 260.8 | | | 243.9 | | | — | | | — | |
| Other assets | | 103.9 | | | 73.0 | | | 0.1 | | | 0.2 | |
| Total assets | | $ | 5,090.0 | | | $ | 4,719.2 | | | $ | 2,170.3 | | | $ | 2,104.0 | |
* Snap-on with Financial Services on the equity method.
* | Snap-on with Financial Services on the equity method.
|
| | | | | | |
46 | 2020 ANNUAL REPORT | SNAP-ON INCORPORATED41 |
| | | | | | | | |
| | |
| 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 | |
| (Amounts in millions) | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
LIABILITIES AND EQUITY | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | |
Notes payable and current maturities of
long-term debt | | $ | 183.2 | | | $ | 151.4 | | | $ | 250.0 | | | $ | 150.0 | |
Accounts payable | | | 177.1 | | | | 170.3 | | | | 1.1 | | | | 0.6 | |
Intersegment payables | | | – | | | | – | | | | 17.1 | | | | 15.0 | |
Accrued benefits | | | 55.8 | | | | 52.8 | | | | – | | | | – | |
Accrued compensation | | | 67.8 | | | | 85.7 | | | | 3.7 | | | | 4.1 | |
Franchisee deposits | | | 66.5 | | | | 66.7 | | | | – | | | | – | |
Other accrued liabilities | | | 366.0 | | | | 292.1 | | | | 29.7 | | | | 22.8 | |
| | | | | | | | | | | | | | | | |
Total current liabilities | | | 916.4 | | | | 819.0 | | | | 301.6 | | | | 192.5 | |
| | | | |
Long-term debt and intersegment long-term debt | | | – | | | | – | | | | 1,337.3 | | | | 1,293.5 | |
Deferred income tax liabilities | | | 28.4 | | | | 13.1 | | | | – | | | | – | |
Retiree health care benefits | | | 36.0 | | | | 36.7 | | | | – | | | | – | |
Pension liabilities | | | 158.9 | | | | 246.5 | | | | – | | | | – | |
Other long-term liabilities | | | 100.4 | | | | 86.5 | | | | 15.5 | | | | 15.0 | |
| | | | | | | | | | | | | | | | |
Total liabilities | | | 1,240.1 | | | | 1,201.8 | | | | 1,654.4 | | | | 1,501.0 | |
| | | | | | | | | | | | | | | | |
| | | | |
Total shareholders’ equity attributable toSnap-on | | | 2,953.9 | | | | 2,617.2 | | | | 317.4 | | | | 288.7 | |
Noncontrolling interests | | | 18.4 | | | | 18.0 | | | | – | | | | – | |
| | | | | | | | | | | | | | | | |
Total equity | | | 2,972.3 | | | | 2,635.2 | | | | 317.4 | | | | 288.7 | |
| | | | | | | | | | | | | | | | |
Total liabilities and equity | | $ | 4,212.4 | | | $ | 3,837.0 | | | $ | 1,971.8 | | | $ | 1,789.7 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Operations* | | Financial Services |
| (Amounts in millions) | | 2020 | | 2019 | | 2020 | | 2019 |
| LIABILITIES AND EQUITY | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Notes payable and current maturities of long-term debt | | $ | 18.5 | | | $ | 202.9 | | | $ | 250.0 | | | $ | — | |
| Accounts payable | | 222.3 | | | 197.3 | | | 0.6 | | | 1.2 | |
| Intersegment payables | | — | | | — | | | 14.8 | | | 14.2 | |
| Accrued benefits | | 59.7 | | | 53.2 | | | — | | | 0.1 | |
| Accrued compensation | | 87.2 | | | 52.2 | | | 2.7 | | | 1.7 | |
| Franchisee deposits | | 78.4 | | | 68.2 | | | — | | | — | |
| Other accrued liabilities | | 418.8 | | | 353.7 | | | 35.9 | | | 25.7 | |
| Total current liabilities | | 884.9 | | | 927.5 | | | 304.0 | | | 42.9 | |
| | | | | | | | |
| Long-term debt and intersegment long-term debt | | — | | | — | | | 1,499.0 | | | 1,702.4 | |
| Deferred income tax liabilities | | 70.4 | | | 69.3 | | | — | | | — | |
| Retiree health care benefits | | 34.5 | | | 33.6 | | | — | | | — | |
| Pension liabilities | | 127.1 | | | 122.1 | | | — | | | — | |
| Operating lease liabilities | | 31.6 | | | 34.5 | | | 2.4 | | | 3.0 | |
| Other long-term liabilities | | 94.9 | | | 101.4 | | | 15.1 | | | 15.2 | |
| Total liabilities | | 1,243.4 | | | 1,288.4 | | | 1,820.5 | | | 1,763.5 | |
| | | | | | | | |
| Total shareholders’ equity attributable to Snap-on | | 3,824.9 | | | 3,409.1 | | | 349.8 | | | 340.5 | |
| Noncontrolling interests | | 21.7 | | | 21.7 | | | — | | | — | |
| Total equity | | 3,846.6 | | | 3,430.8 | | | 349.8 | | | 340.5 | |
| Total liabilities and equity | | $ | 5,090.0 | | | $ | 4,719.2 | | | $ | 2,170.3 | | | $ | 2,104.0 | |
* Snap-on with Financial Services on the equity method.
* | Snap-on with Financial Services on the equity method.
| | | | | | | |
| 42 | SNAP-ON INCORPORATED | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
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 January 16, 2018,Snap-on repaid $250 million of unsecured 4.25% notes (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,
(including the repayment of $200 million of unsecured 6.70% notes, due March 1, 2019 (the “2019 Notes”)), 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
9, 2018,5, 2021, 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,
based on current macroeconomic conditions resulting from the ongoing uncertainty caused by the COVID-19 pandemic, Snap-on cannot provide any assurances of the availability of future financing or the terms on which it might be available, or that its debt ratings may not decrease.
The following discussion focuses on information included in the accompanying Consolidated Balance Sheets.
As of
20172020 year end, working capital (current assets less current liabilities) of
$926.0$1,918.1 million increased
$31.5$485.2 million from
$894.5$1,432.9 million as of
20162019 year end primarily as a result of other net changes in working capital discussed below.
As of 2016 year end, the 2018 Notes were included in “Long-term debt” on the accompanying Consolidated Balance Sheet as their scheduled maturity was in excess of one year of the 2016year-end balance sheet date.The following represents the company’s working capital position as of 20172020 and 20162019 year end: | | | | | | | | |
| (Amounts in millions) | | 2017 | | | 2016 | |
Cash and cash equivalents | | $ | 92.0 | | | $ | 77.6 | |
Trade and other accounts receivable – net | | | 675.6 | | | | 598.8 | |
Finance receivables – net | | | 505.4 | | | | 472.5 | |
Contract receivables – net | | | 96.8 | | | | 88.1 | |
Inventories – net | | | 638.8 | | | | 530.5 | |
Prepaid expenses and other assets | | | 110.7 | | | | 116.5 | |
| | | | | | | | |
Total current assets | | | 2,119.3 | | | | 1,884.0 | |
| | | | | | | | |
| | |
Notes payable and current maturities of long-term debt | | | (433.2) | | | | (301.4) | |
Accounts payable | | | (178.2) | | | | (170.9) | |
Other current liabilities | | | (581.9) | | | | (517.2) | |
| | | | | | | | |
Total current liabilities | | | (1,193.3) | | | | (989.5) | |
| | | | | | | | |
| | |
Working capital | | $ | 926.0 | | | $ | 894.5 | |
| | | | | | | | |
| | | | | | | | | | | | | | |
| (Amounts in millions) | | 2020 | | 2019 |
| Cash and cash equivalents | | $ | 923.4 | | | $ | 184.5 | |
| Trade and other accounts receivable – net | | 640.7 | | | 694.6 | |
| Finance receivables – net | | 530.2 | | | 530.1 | |
| Contract receivables – net | | 112.5 | | | 100.7 | |
| Inventories – net | | 746.5 | | | 760.4 | |
| Prepaid expenses and other assets | | 129.7 | | | 110.2 | |
| Total current assets | | 3,083.0 | | | 2,380.5 | |
| | | | |
| Notes payable and current maturities of long-term debt | | (268.5) | | | (202.9) | |
| Accounts payable | | (222.9) | | | (198.5) | |
| Other current liabilities | | (673.5) | | | (546.2) | |
| Total current liabilities | | (1,164.9) | | | (947.6) | |
| Working capital | | $ | 1,918.1 | | | $ | 1,432.9 | |
Cash and cash equivalents of
$92.0$923.4 million as of
20172020 year end increased
$14.4$738.9 million from
20162019 year-end levels primarily due
toto: (i)
$712.7$1,008.6 million of cash generated from operations; (ii) $750.3 million of cash from collections of finance receivables;
(ii) $608.5 million of cash generated from operations, net of $60.0 million of discretionary cash contributions to the company’s domestic pension plans; (iii)
$297.8$489.9 million of net proceeds from the
20272050 Notes;
and (iv)
$46.2$55.8 million of cash proceeds from stock purchase and option plan
exercises; and (v) $30.6 million of net proceeds from notes payable and other short-term borrowings.exercises. These increases in cash and cash equivalents were partially offset
byby: (i) the funding of
$892.0$835.0 million of new finance receivables; (ii)
dividend payments to shareholders of $243.3 million; (iii) $187.2 million of net repayments on other short-term borrowings; (iv) the repurchase of
1,820,0001,109,000 shares of the company’s common stock for
$287.9$174.3 million;
(iii) dividend payments to shareholders of $169.4 million; (iv) the January 2017 repayment of $150 million of the 2017 Notes; (v) the funding of
$82.9$65.6 million
for acquisitions;of capital expenditures; and (vi) the funding of
$82.0$41.5 million
of capital expenditures.
for acquisitions.
Of the
$92.0$923.4 million of cash and cash equivalents as of
20172020 year end,
$72.1$262.7 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.
The repatriation of cashAlthough the Tax Cuts and Jobs Act (“Tax Act”) generally eliminated U.S. federal taxation on dividends from
certain foreign subsidiaries,
could have adverse net tax consequences on the company shouldSnap-onsuch dividends may still be
requiredsubject to
pay and record U.S.state income
taxestaxation and foreign withholding
taxes on such funds. Alternatively, the repatriation of cash from certain other foreign subsidiaries could result in favorable net tax consequences for the company.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
does not incur unfavorable netcan be accomplished in a tax
consequences.efficient manner.
| | | | | | | | |
| | |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | |
Trade and other accounts receivable – net of
$675.6$640.7 million as of
20172020 year end
increased $76.8decreased $53.9 million from
20162019 year-end levels primarily due to
higherthe impact of lower sales
$21.7 millionvolume as a result of
foreign currency translationthe COVID-19 pandemic and
$9.5collections of amounts due, partially offset by $5.1 million of receivables related to
the Norbar, BTCacquisitions and
TCS acquisitions.$13.0 million of 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
6664 days and 67 days at
2017the respective 2020 and 2019 year
end and 63 days at 2016 year end.ends.
The current portions of net finance and contract receivables of
$602.2$642.7 million as of
20172020 year end compared to
$560.6$630.8 million at
20162019 year end. The long-term portions of net finance and contract receivables of
$1,361.8$1,511.0 million as of
20172020 year end compared to
$1,221.2$1,463.6 million at
20162019 year end. The combined
$182.2$59.3 million increase in net current and long-term finance and contract receivables over
20162019 year-end levels is primarily due to continued growth of the company’s financial services portfolio and
$17.5$12.0 million of foreign currency translation.
Inventories – net of
$638.8$746.5 million as of
20172020 year end
increased $108.3decreased $13.9 million from
20162019 year-end levels primarily
due to
support continued higher customer demand in certain segments and new product introductions, as well as from $23.9$40.1 million of
foreign currency translation and $5.7inventory reductions, partially offset by $3.0 million of inventories related to
the Norbaracquisitions and
TCS acquisitions.$23.2 million of foreign currency translation. As of
20172020 and
20162019 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
3.22.4 turns and
3.32.6 turns, respectively. Inventories accounted for using the
first-in,first-out (“FIFO”) method as of
20172020 and
20162019 year end approximated
61%57% and
59%, respectively,58% 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
$75.1$84.0 million and
$73.2$84.5 million
as 2017at 2020 and
20162019 year end, respectively.
Notes payable and current maturities of long-term debt of
$433.2$268.5 million as of
20172020, consisted of $250.0 million of unsecured 6.125% notes that mature on September 1, 2021 (the “2021 Notes”) and $18.5 million of other notes. Notes payable of $202.9 million as of 2019 year end consisted of
$250 million of the 2018 Notes (which were subsequently repaid), $151$193.6 million of commercial paper borrowings and
$32.2$9.3 million of other notes.
Notes payable and current maturities of long-term debt of $301.4 million as of 2016 year end consisted of $150 million of the 2017 Notes, $130 million of commercial paper borrowings and $21.4 million of other notes. As of 2016 year end, the 2018 Notes were included in “Long-term debt” on the accompanying Consolidated Balance Sheet as their scheduled maturity was in excess of one year of the 2016year-end balance sheet date.Average notes payable outstanding, including commercial paper
and short-term credit facility borrowings, were
$126.8$68.4 million and
$49.3$175.0 million in
20172020 and
2016,2019, respectively. The
2020 weighted-average interest rate
on such borrowings of
2.45%2.98% compared with 2.87% in
2017 decreased from 7.09% last year. This reflects the impact of the higher commercial paper borrowings which generally have lower interest rates than other notes payable outstanding.2019. Average commercial paper borrowings were
$103.3$41.0 million and
$26.6$162.2 million
in 2017for 2020 and
2016,2019, respectively, and the weighted-average interest rate of
1.14%1.53% on such borrowings in
2017 increased2020 decreased from
0.73%2.27% last year.
No commercial paper was outstanding as of year-end 2020. Average short-term credit facility borrowings were $13.9 million in 2020 with a weighted-average interest rate of 1.70%. No amounts were outstanding under the short-term credit facility as of year-end 2020 and no amounts were borrowed under the short-term credit facility in 2019. At
20172020 year end, the weighted-average interest rate on outstanding notes payable of
2.34%8.87% compared with
2.85%2.23% at
20162019 year end. The
20172020 year-end rate
benefited from lower interest rates on international borrowings. The 2016year-end rate benefited from lower interest rates on commercial paper borrowings.increased primarily due to higher local borrowings in emerging markets.
Accounts payable of
$178.2$222.9 million as of
20172020 year end increased
$7.3$24.4 million from
20162019 year-end levels, primarily due to the timing of payments,
partially offset by $6.8$1.1 million related to acquisitions and $5.9 million of foreign currency translation.
Other accrued liabilities of
$388.1$445.5 million as of
20172020 year end increased
$80.2$74.7 million from
20162019 year-end levels primarily due to higher
income tax accruals,
$45.9$5.2 million
in legal mattersrelated to acquisitions and
$10.1$8.2 million of foreign currency translation.
Long-term debt of $1,182.1 million as of 2020 year end consisted of: (i) $300.0 million of the unsecured 3.25% notes that mature on March 1, 2027 (the “2027 Notes”); (ii) $400.0 million of unsecured 4.10% notes that mature on March 1, 2048 (“the 2048 Notes”); and (iii) $500.0 million of the 2050 Notes, partially offset by $17.9 million from the net effects of debt amortization costs.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Long-term debt of $753.6 million as of 2017 year end consisted of: (i) $200 million of the 2019 Notes; (ii) $250 million of unsecured 6.125% notes that mature in 2021; (iii) $300 million the 2027 Notes; and (iv) $3.6 million of other long-term debt, including fair value adjustments related to interest rate swaps.
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 30, 2017.January 2, 2021. Borrowings under the Credit Facility bear interest at varying rates based on
either: (i) Snap-on’s then-current, long-term debt
ratings. The Credit Facility’s financial covenant requires thatSnap-on maintain, asratings; or (ii) Snap-on’s then-current ratio 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) to the sum of such consolidated net debt plus total equity and less accumulated other comprehensive income or loss (the “Debt Ratio”adjustments (“Consolidated Net Debt”)
; or (ii) a 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“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 to the sum of Consolidated Net Debt plus total equity and less accumulated other comprehensive income or loss (the “Leverage Ratio”); or (ii) a Consolidated Net Debt to EBITDA Ratio not greater than 3.50 to 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
2017 year end,January 2, 2021, the company’s actual ratios of
0.260.12 and
1.16,0.57 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
20172020 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.basis; however, it is continuing to monitor the impact of the COVID-19 pandemic on its business and the credit and financial markets. Snap-on manages its aggregate short-term
debt 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,
(includingincluding the
repaymentmaturity of the
2019 Notes; as noted above, the 20182021 Notes,
were repaid on January 16, 2018), 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
$9.7$9.2 million to its foreign pension plans and
$2.4$2.2 million to its domestic pension plans in
2018,2021, as required by law. Depending on market and other conditions,
Snap-on may make additional discretionary cash contributions to its pension plans in
2018.2021.
Snap-on’s long-term financing strategy is to maintain continuous access to the debt markets to accommodate its liquidity needs, including the 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.
Net cash provided by operating activities of
$608.5$1,008.6 million in
20172020 increased
$32.4$334.0 million from
$576.1$674.6 million in
2016.2019. The
$32.4$334.0 million increase is primarily due to
$12.6$430.2 million
of higherfrom net
earningschanges in operating assets and
$14.9liabilities, partially offset by a $64.8 million
of cash proceeds from the settlement of a treasury lock. Net cash provided by operating activities was $507.2 milliondecrease in
2015.net earnings.
Depreciation expense was
$65.6$73.3 million in
2017, $61.42020 and $70.1 million in
2016 and $57.8 million in 2015.2019. Amortization expense was
$27.6$23.4 million in
2017, $24.22020 and $22.3 million in
2016 and $24.7 million in 2015.2019. See Note
67 to the Consolidated Financial Statements for information on goodwill and other intangible assets.
| | | | | | | | |
50 | 2020 ANNUAL REPORT | SNAP-ON INCORPORATED45 |
| | | | | | | | |
| | |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | |
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. Net cash used by investing activities of
$473.4$222.1 million in
20162019 included additions to finance receivables of
$915.0$841.9 million, partially offset by collections of
$671.7 million. Net cash used by investing activities of $306.4 million in 2015 included additions to finance receivables of $844.2 million, partially offset by collections of $624.8$754.3 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 diagnostic and equipment products on an extended-term payment plan, generally with average payment terms
approachingof approximately four years.
Net cash used by investing activities in
20172020 also included a total of
$82.9$41.5 million for the acquisitions of Sigmavision and AutoCrib and a $0.2 million working capital adjustment for the 2019 Cognitran acquisition. Net cash used by investing activities in 2019 included a total of $38.6 million (net of
$1.8$1.0 million of cash acquired) for the acquisitions of
BTC, NorbarTMB, Power Hawk and
TCS, as well as working capital adjustments for theCar-O-Liner and Sturtevant Richmont acquisitions. Net cash used by investing activities in 2016 included, on a preliminary basis, a total of $160.4 million (net of $4.3 million of cash acquired) for the acquisitions ofCar-O-Liner and Sturtevant Richmont. Net cash used by investing activities in 2015 included $11.8 million for the acquisition of Ecotechnics.Cognitran. See Note
23 to the Consolidated Financial Statements for information on acquisitions.
Capital expenditures in 2017, 20162020 and 20152019 totaled $82.0 million, $74.3$65.6 million and $80.4$99.4 million, respectively.The lower capital spending as compared to the prior year was a result of the decreased activity in response to the COVID-19 pandemic, particularly in the second and third quarters of 2020. Capital expenditures in all threeboth years included continued investments related to the company’s execution of its strategic growth initiatives and 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; (iii) the ongoing replacement and enhancement of the company’s global enterprise resource planning (ERP) management information systems; and (iv) improvements toa consolidated warehouse facility for the company’s research and development facilities and corporate headquarterscompany in Kenosha,Pleasant Prairie, Wisconsin. Capital expenditures in 2015 also included the purchase of a previously leased manufacturing facility in the United Kingdom.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 2018.2021.
Net cash used by financing activities of
$256.1$84.3 million in
20172020 included
the January 2017 repaymentSnap-on’s sale, on April 27, 2020, of
$150$500 million of the
2017 Notes, and the other items discussed below. These amounts were partially offset bySnap-on’s sale, on February 15, 2017, of $300 million of the 20272050 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,
and $30.6 millionpartially offset by repayments of
net proceeds from notes payable and other short-term
borrowings.borrowings of $187.2 million. Net cash used by financing activities of
$116.0$409.4 million in
20162019 included
$134.2 million ofnet proceeds from
a net increase in notes payable and other short-term
borrowings. Net cash used by financing activitiesborrowings of
$236.7 million in 2015 included the net repayment of $34.0 million of notes payable and other short-term borrowings.$17.6 million.
Proceeds from stock purchase and option plan exercises totaled
$46.2$55.8 million in
2017, $41.82020 and $51.4 million in
2016 and $41.6 million in 2015.2019. Snap-on has undertaken stock repurchases from time to time to offset dilution created by shares issued for employee and franchisee stock purchase plans, stock options and other corporate purposes. In
2017,2020, Snap-on repurchased
1,820,0001,109,000 shares of its common stock for
$287.9$174.3 million under its previously announced share repurchase programs. As of
20172020 year end,
Snap-on had remaining availability to repurchase up to an additional
$390.7$275.7 million in common stock pursuant to its Board of Directors’ (the “Board”) authorizations. The purchase of
Snap-on common stock is at the company’s discretion, subject to prevailing financial and market conditions.
Snap-on repurchased
758,0001,495,000 shares of its common stock for
$120.4$238.4 million in
2016 and2019. Snap-on repurchased 723,000 shares of its common stock for $110.4 million in 2015.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 share repurchases, if any, in
2018.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
2021.
Snap-on has paid consecutive quarterly cash dividends, without interruption or reduction, since 1939. Cash dividends paid in
2017, 20162020 and
20152019 totaled
$169.4 million, $147.5$243.3 million and
$127.9$216.6 million, respectively. On November 6,
2017,2020, the company announced that its Board increased the quarterly cash dividend by
15.5%13.9% to
$0.82$1.23 per share ($
3.284.92 per share annualized). Quarterly dividends in
20172020 were
$0.82$1.23 per share in the fourth quarter and
$0.71$1.08 per share in the first three quarters ($
2.954.47 per share for the year). Quarterly dividends in
20162019 were
$0.71$1.08 per share in the fourth quarter and
$0.61$0.95 per share in the first three quarters ($
2.543.93 per share for the year).
Quarterly dividends in 2015 were $0.61 per share in the fourth quarter and $0.53 per share in the first three quarters ($2.20 per share for the year). | | | | | | | | | | | | |
| | | 2017 | | | 2016 | | | 2015 | |
Cash dividends paid per common share | | $ | 2.95 | | | $ | 2.54 | | | $ | 2.20 | |
Cash dividends paid as a percent of prior-year retained earnings | | | 5.0% | | | | 4.9% | | | | 4.8% | |
| | | | | | | | | | | | | | |
| | 2020 | | 2019 |
| Cash dividends paid per common share | | $ | 4.47 | | | $ | 3.93 | |
| Cash dividends paid as a percentage of prior-year retained earnings | | 5.1 | % | | 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
2018.2021.
Off-Balance-Sheet Arrangements
Except as included below in the section labeled “Contractual Obligations and Commitments” and Note
1516 to the Consolidated Financial Statements, the company had no
off-balance-sheet arrangements as of
20172020 year end.
Contractual Obligations and Commitments
A summary of
Snap-on’s future contractual obligations and commitments as of
20172020 year end are as follows:
| | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | Total | | | 2018 | | | 2019-2020 | | | 2021-2022 | | | 2023 and
thereafter | |
Contractual obligations: | | | | | | | | | | | | | | | | | | | | |
Notes payable and current maturities of long-term debt | | $ | 433.2 | | | $ | 433.2 | | | $ | – | | | $ | – | | | $ | – | |
Long-term debt | | | 753.6 | | | | – | | | | 200.0 | | | | 250.0 | | | | 303.6 | |
Interest on fixed rate debt | | | 161.5 | | | | 38.9 | | | | 52.3 | | | | 29.7 | | | | 40.6 | |
Operating leases | | | 84.8 | | | | 25.5 | | | | 33.7 | | | | 17.7 | | | | 7.9 | |
Capital leases | | | 18.1 | | | | 3.6 | | | | 6.2 | | | | 4.8 | | | | 3.5 | |
Purchase obligations | | | 60.4 | | | | 55.0 | | | | 5.3 | | | | 0.1 | | | | – | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 1,511.6 | | | $ | 556.2 | | | $ | 297.5 | | | $ | 302.3 | | | $ | 355.6 | |
| | | | | | | | | | | | | | | | | | | | |
On January 16, 2018,
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | Total | | 2021 | | 2022-2023 | | 2024-2025 | | 2026 and
thereafter |
| Contractual obligations: | | | | | | | | | | |
| Notes payable and current maturities of long-term debt | | $ | 268.5 | | | $ | 268.5 | | | $ | — | | | $ | — | | | $ | — | |
| Long-term debt | | 1,182.1 | | | — | | | — | | | — | | | 1,182.1 | |
| Interest on fixed rate debt | | 970.5 | | | 51.9 | | | 83.3 | | | 83.3 | | | 752.0 | |
| Operating leases | | 55.7 | | | 20.3 | | | 25.3 | | | 8.9 | | | 1.2 | |
| Finance leases | | 10.8 | | | 3.0 | | | 5.4 | | | 2.4 | | | — | |
| Purchase obligations | | 117.6 | | | 113.6 | | | 3.8 | | | 0.2 | | | — | |
| Total | | $ | 2,605.2 | | | $ | 457.3 | | | $ | 117.8 | | | $ | 94.8 | | | $ | 1,935.3 | |
Snap-on
repaid the 2018 Notes (included in “Notes payable and current maturities of long-term debt” in the table above) upon maturity with available cash and cash generated from issuances of commercial paper.Snap-on intends to make contributions of $9.7$9.2 million to its foreign pension plans and $2.4$2.2 million to its domestic pension plans in 2018,2021, as required by law. Depending on market and other conditions,Snap-on may make additional discretionary cash contributions to its pension plans in2018. 2021. 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; see Note 1112 and Note 1213 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 for its remaining uncertain tax liabilities. As a result,
$7.7$9.1 million of unrecognized tax benefits have been excluded from the table above;see Note
89 to the Consolidated Financial Statements for information on income taxes.
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 question the company’s handling, manufacture, use or disposal of these substances.
See Note 1 to the Consolidated Financial Statements for information on new accounting standards.
| | | | | | | | |
| | |
| 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 expense 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 expense for credit losses.
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 2, 2021, the ratio of the allowance for credit losses to finance receivables was 4.38%. In 2020, financial services expenses included higher provisions for credit losses related to the company’s adoption of ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326). As of December 28, 2019, the allowance ratio was 3.65%. 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 2, 2021, would have increased Snap-on’s 2020 expense for credit losses and related allowance for credit losses by approximately $17.5 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.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
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
20172020 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 2017 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
2017, the results of2020, which did not result in any impairment. As of
20172020 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
20172020 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
67 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 ofSnap-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
2017,2020, 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
7.5%7.25% 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
20172020 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%6.75%, a decrease of
550 bps from
2017,2020, to be used in determining pension expense for
2018.2021. 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.
| | | | | | | | |
| | |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | |
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 2017 2020 domestic pension expense by approximately
$5.0$5.9 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
20172020 and
20162019 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 selection of the
3.9%2.7% weighted-average discount rate for
Snap-on’s domestic pension plans as of
20172020 year end (compared to
4.5%3.4% as of
20162019 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 2017 2020 domestic pension expense and projected benefit obligation by approximately
$4.3$4.5 million and
$71.3$82.4 million, respectively. As of
20172020 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
2.7%1.7% (compared to
2.9%2.1% as of
20162019 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 2017 2020 foreign pension expense and projected benefit obligation by approximately
$1.8$1.9 million and
$24.4$32.3 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 20182021 net periodic benefit cost,Snap-on is using weighted-average discount rates for its domestic and foreign pension plans of 3.9%2.7% and 2.7%1.7%, respectively, and an expected return on plan assets for its domestic pension plans of 7.45%6.75%. The expected returns on plan assets for foreign pension plans ranged from 1.9% and 6.1%1.0% to 5.4% as of 20172020 year end. The Due to the net change in these two key assumptions, from those used in 2017addition to the overall benefit plan status, pension expense in 2021 is expected to increase pension expense in 2018.decrease. Other factors, such as changes in plan demographics and discretionary contributions, may further increase or decrease pension expense in 2018.2021. See Note 1112 to the Consolidated Financial Statements for further information on pension plans.
Management’s Discussion
Outlook
COVID-19 spread across the globe during 2020 and
Analysiscontinues to impact economic activity worldwide into 2021. Snap-on is accommodating to the related risks while safely pursuing opportunities in the COVID-19 environment. In 2021, the company believes there will be ongoing advancements against the virus-related turbulence, and that the trajectory of
Financial Conditionprogress may be uncertain due to the evolving nature and
Results of Operations (continued)Allowances for Doubtful Accounts on Finance and Contract Receivables:The allowances for doubtful accounts on finance and contract receivables are maintained at levels management believes are adequate to cover probable losses inherent inSnap-on’s finance and contract receivables portfolios asduration of the measurement date. The allowances represent management’s estimate of the losses inherent in the company’s receivables portfolios based on ongoing assessments and evaluations of collectability and historical loss experience. Determination of the proper level of allowances by portfolio requires management to exercise significant 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 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 proprietarypandemic.
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 and contract receivables portfolios, create uncertainty and could result in changes to both the allowances and provision for credit losses.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 30, 2017, the ratios of the allowances for doubtful accounts to finance and contract receivables (the “allowance ratios”) were 3.53% and 1.08%, respectively. As of December 31, 2016, the respective allowance ratios were 3.34% and 1.03%. While management believes it exercises prudent judgment and applies reasonable assumptions in establishing its estimates for allowances for finance and contract 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 calculations. For reference, a 100 bps increase in the allowance ratios for both finance and contract receivables as of December 30, 2017, would have increasedSnap-on’s 2017 provision expense and related allowances for doubtful accounts by approximately $16.0 million and $4.2 million, respectively.
For additional information onSnap-on’s allowances for doubtful accounts, see Note 1 and Note 3 to the Consolidated Financial Statements.
Outlook
Snap-on expects does expect to make continued progress in 20182021 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 expects it is projected that capital expenditures in 20182021 will be in a range of $90 million to $100 million.
As a result of the recently enacted Tax Act,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 20182021 effective income tax rate will be in the range of 23% to24% to 25%. This compares to a full year 2017 effective tax rate of 31.1%.
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
1011 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
1011 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/ (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
one-day loss in fair value, calculated using the VAR model, as of
20172020 and
20162019 year end was
$1.5$13.9 million and
$0.4$9.9 million, respectively, on interest rate-sensitive financial instruments, and $0.1 million and
$0.8$0.2 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 compensation expense that may result from such
mark-to-market changes. See Note
1011 to the Consolidated Financial Statements for additional information on stock-based deferred compensation risk management.
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.
CreditFinance 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 and by periodically updating those credit scores for ongoing monitoring purposes.credit. Snap-on evaluates credit quality through the use of an internal proprietary measuring system that provides a framework to analyze finance
and contract receivables on the basis of risk factors of the individual obligor as well as transaction specific risk. The finance
and contract 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.
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 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 potentialimpact of and developments related to the COVID-19 pandemic, which has created global economic uncertainty. In addition, the company is monitoring the effects of the United Kingdom’s pending exit from the European Union, although it is too soon to know what effects this might have on the world economy or 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.
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.
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 needs range from specialized alloys, which are available only from a limited group of approved suppliers, to
commodity types of alloys. These raw materials have historically exhibited price and demand cyclicality.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,
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 inventory can exhibit price and demand cyclicality, including as a result of tariffs and other trade protection measures. Associated unexpected price increases
for raw materials could result in
higher prices toSnap-on’s customers or an erosion of
theproduct margins
on its products.or require Snap-on to increase prices to customers to maintain margins.
Snap-on believes its ability to sell product is also 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 and the general aging of vehicles.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 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 lead to fewer repairs and less demand for the company’s products.
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 30, 2017.January 2, 2021. 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 30, 2017,January 2, 2021, 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
During
There has not been any change in the
quarter ended December 30, 2017, the company implemented a plan that calls for modifications and additions tocompany’s internal control over financial reporting
related to the accounting for revenues as a result of the new revenue recognition standard, ASC 606. The modified and new controls have been designed to address risks associated with recognizing revenue under the new standard. The company has added additional controls over financial reporting by enhancing the contract review process to include the attributes related to revenue recognition as well as to provide for the gathering of the disclosure information needed under the new requirements. There were no other changes in internal controls during the quarter ended
December 30, 2017,January 2, 2021, 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 Rules13a-15(f) and15d-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 inInternal Control - Integrated Framework (2013). Based on this assessment, the company’s management believes that, as of December 30, 2017,January 2, 2021, our internal control over financial reporting was effective at a reasonable assurance level. The company’s internal control over financial reporting as of December 30, 2017,January 2, 2021, 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.
| | | | | | | | |
| | 20172020 ANNUAL REPORT | | 5953 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the 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 ofSnap-on Incorporated and subsidiaries (the “Company”) as of December 30, 2017,January 2, 2021, based on criteria established inInternal 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 30, 2017,January 2, 2021, based on criteria established inInternal 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 30, 2017,January 2, 2021, of the Company and our report dated February 15, 2018,11, 2021, 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). 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.
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.
| | |
/s/ DELOITTE & TOUCHE LLP | | |
Milwaukee, Wisconsin | | |
February 15, 2018 | | |
| | | | |
60/s/ DELOITTE & TOUCHE LLP | | SNAP-ON INCORPORATED |
| Milwaukee, Wisconsin | | |
| February 11, 2021 | | |
Item 9B: Other Information
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 2017 2021 Annual Meeting Proxy Statement, which is expected to be mailed to shareholders on or about March
9, 201812, 2021 (the
“2018“2021 Proxy Statement”).
The Section 16(a) filing compliance disclosure pursuant to Item 405 of Regulation
S-K is contained in
Snap-on’s 2018 2021 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 30, 2017,January 2, 2021, is presented below:
Nicholas T. Pinchuk(71) (74) – Chairman of the Board of Directors since 2009, President and Chief Executive Officer since December 2007, and President and Chief Operating Officer from April to Decemberduring 2007. Senior Vice President and President – Worldwide Commercial & Industrial Group from 2002 to 2007. Prior to joiningSnap-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.
Aldo J. Pagliari(63) (66) – Senior Vice President – Finance and Chief Financial Officer since 2010.
Jesus M. Arregui (55) – Senior Vice President and President – Commercial Group since 2019, President, SNA Europe from 2015 to 2019, and Vice President, SNA Europe Operations from 2008 to 2015.
Anup R. Banerjee (67) (70) – Senior Vice President, Human Resources and Chief Development Officer since 2015, and President, Commercial Group from 2011 to 2015.
Iain Boyd (55) (58) – Vice President – Operations Development since 2015. Vice President, – Human Resources from 2007 to 2015.Thomas L.Kassouf (65)
Timothy L. Chambers (56) – Senior Vice President and President –Snap-on Tools Group since 2010.2019, President, Commercial Group from 2015 to 2019 and President, Equipment from 2014 to 2015.
June C. Lemerand (55) (58) – 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.Irwin M. Shur(59)
Richard T. Miller (50) – Vice President, General Counsel and Secretary since 2008.2018. Associate General Counsel from 2012 to 2018.
Richard K. Strege (60) (63) – Vice President and Controller since 2017. Vice President, Internal Audit, Controls and Compliance from 2007 to 2017.
Thomas J. Ward(65) (68) – Senior Vice President and President – Repair Systems & Information Group since 2010. 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 section on the company’s website atwww.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 atwww.snapon.com. Snap-on intends to satisfy the disclosure requirements under Item 10 of Form8-K regarding amendments to, or waivers from, the code of ethics by posting such information in the “Investors” section of its corporate website atwww.snapon.com.
Item 11: Executive Compensation
The information required by Item 11 is contained inSnap-on’s 2018 2021 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 aboutSnap-on’s equity compensation plans at 2017 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 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
| | 3,606,096 (1) | | $ 117.66 (2) | | | 4,219,539 (3) | |
Equity compensation plans not approved by security holders
| | 62,807 (4) | | Not Applicable | | | – (5) | |
| | | | | | | | |
Total
| | 3,668,903 | | $ 117.66 (2) | | | 4,219,539 (5) | |
| | | | | | | | |
(1) | Includes (i) options to acquire 476,028 shares granted under the 2001 Incentive Stock and Awards Plan (the “2001 Plan”); (ii) options and stock appreciation rights to acquire 3,081,885 shares granted under the 2011 Incentive Stock and Awards Plan (the “2011 Plan,” and collectively with the 2001 Plan, the “Incentive Plans”); and (iii) 48,183 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 207,335 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) 3,296,859 shares reserved for issuance under the 2011 Plan; (ii) 169,080 shares reserved for issuance under the Directors’ Fee Plan; and (iii) 753,600 shares reserved for issuance under the employee stock purchase plan.
|
(4) | Consists of deferred share units underSnap-on’s Deferred Compensation Plan, which allows elected and appointed officers ofSnap-on to defer all or a percentage of their respective annual salary and/or incentive compensation. The deferred share units are payable in shares ofSnap-on common stock on aone-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 bySnap-on.
|
(5) | The Deferred Compensation Plan provides thatSnap-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 bySnap-on.
|
The additional information required by Item 12 is contained inSnap-on’s 2018 2021 Proxy Statement in the sections entitled “Executive Compensation,” “Security Ownership of Certain Beneficial Owners and Management,” “Other Information” and “Other Information,“Item 4: Approval of the Amendment to, and Restatement of, the Snap-on Incorporated 2011 Incentive Stock and Awards Plan,” 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” inSnap-on’s 2018 2021 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 2018 2021 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
2017”2020” or
“2017” refer to the fiscal year ended December 30, 2017; references to “fiscal 2016” or “2016” refer to the fiscal year ended December 31, 2016; and references to “fiscal 2015” or “2015”“2020” refer to the fiscal year ended January 2,
2016.2021; references to “fiscal 2019” or “2019” refer to the fiscal year ended December 28, 2019; and references to “fiscal 2018” or “2018” refer to the fiscal year ended December 29, 2018. References to
2017, 20162020, 2019 and
20152018 year end refer to
December 30, 2017, December 31, 2016, and January 2,
2016,2021, December 28, 2019, and December 29, 2018, 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.
•Consolidated Statements of Earnings for the 2017, 20162020, 2019 and 20152018 fiscal years.
•Consolidated Statements of Comprehensive Income for the 2017, 20162020, 2019 and 20152018 fiscal years.
•Consolidated Balance Sheets as of 20172020 and 20162019 year end.
•Consolidated Statements of Equity for the 2017, 20162020, 2019 and 20152018 fiscal years.
•Consolidated Statements of Cash Flows for the 2017, 20162020, 2019 and 20152018 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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| 56 | SNAP-ON INCORPORATED | 2017 ANNUAL REPORT | | 63 |
3. List of Exhibits(*)
3. List of Exhibits(*)
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 30, 2017.January 2, 2021. 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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| | (a) | | | |
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| | (b) | | | |
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| | (c) | | | |
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| | (d)(1) | | | |
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| | (d)(2) | | | |
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| | (e)(1) | | |
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| (e)(2) | | (e)(2)
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| | (f)(1) | | | |
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| | (f)(2) | | | |
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| | (g) | | | |
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| | (h) | | | |
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| | (i) | | | |
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| | (j) | | | |
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| | (k) | | | |
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| | (l) | | | |
| (m)
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| | (m) | | | |
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| | (n) | | | |
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| | (o) | | | |
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| | (p) | | 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 FileNo. 1-7724)) | |
| | | | | |
| | (p)
(q) | | Underwriting Agreement, dated as of February 15, 2017,April 27, 2020, among Snap-on Incorporated, Citigroup Global Markets Inc. and, J.P. Morgan Securities LLC and U.S. Bancorp Investments, Inc., as representatives of the several underwriters named therein.therein (incorporated by reference to Exhibit 1.1 to Snap-on’s Current Report on Form 8-K dated February 15, 2017April 27, 2020 (Commission FileNo. 1-7724))
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(12)
| | Computation of Ratio of Earnings to Fixed Charges
|
| | | | |
(14)
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(21) | | | |
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(23) | | | |
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(31.1) | | | |
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(31.2) | | | |
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(32.1) | | | |
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(32.2) | | | |
| | | | | |
(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 | |
| | | | | |
(101.SCH) | | Inline XBRL Taxonomy Extension Schema Document*** Document | |
| | | | | |
(101.CAL) | | Inline XBRL Taxonomy Extension Calculation Linkbase Document*** Document | |
| | | | | |
(101.DEF) | | Inline XBRL Taxonomy Extension Definition Linkbase Document*** Document | |
| | | | | |
(101.LAB) | | Inline XBRL Taxonomy Extension Label Linkbase Document*** Document | |
| | | | | |
(101.PRE) | | Inline XBRL Taxonomy Extension Presentation Linkbase Document*** Document | |
| | | | | |
| (104) | | Cover Page Interactive Data File (contained in Exhibit 101) | |
* | | | | | |
| * | Filed electronically or incorporated by reference as an exhibit to this Annual Report on Form10-K. Copies of any materials the company files with the SEC can also be obtained free of charge through the SEC’s website atwww.sec.gov. The SEC’s Public Reference Room can be contacted at 100 F Street, N.E., Washington, D.C. 20549, or by calling the SEC’s Public Reference Room at1-800-732-0330. |
| |
| ** | Represents a management compensatory plan or agreement. |
| |
*** | 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 30, 2017, December 31, 2016, and January 2, 2016; (ii) Consolidated Statements of Comprehensive Income for the twelve months ended December 30, 2017, December 31, 2016, and January 2, 2016; (iii) Consolidated Balance Sheets as of December 30, 2017, and December 31, 2016; (iv) Consolidated Statements of Equity for the twelve months ended December 30, 2017, December 31, 2016, and January 2, 2016; (v) Consolidated Statements of Cash Flows for the twelve months ended December 30, 2017, December 31, 2016, and January 2, 2016; and (vi) Notes to Consolidated Financial Statements.
|
Item 16: Form 10-K Summary
| | | | | | | | |
66 | 2020 ANNUAL REPORT | SNAP-ON INCORPORATED59 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the 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 30, 2017,January 2, 2021, and December
31, 2016,28, 2019, and the related consolidated statements of earnings, comprehensive income, equity, and cash flows for each of the three years in the period ended
December 30, 2017,January 2, 2021, 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 30, 2017,January 2, 2021, and December
31, 2016,28, 2019, and the results of its operations and its cash flows for each of the three years in the period ended
December 30, 2017,January 2, 2021, 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 30, 2017,January 2, 2021, based on criteria established inInternal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 15, 2018,11, 2021, expressed an unqualified opinion on the Company’s internal control over financial reporting. Change in Accounting Principles
As discussed in Note 1 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. The Company changed its method of accounting for leases in the year ended December 28, 2019 due to the adoption of Accounting Standard Update No. 2016-02, Leases (Topic 842) under the modified retrospective adoption method.
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 and/or diagnostic or equipment products financed. At January 2, 2021, these loans totaled $1,742.8 million with an allowance of $76.3 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 with the assistance of our credit specialists 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.
| | | | | | | | |
| /s/ DELOITTE & TOUCHE LLP | | |
Milwaukee, Wisconsin | | |
February 15, 201811, 2021 | | |
We have served as the Company’s auditor since 2002.
| | | | | | | | |
| | 20172020 ANNUAL REPORT | | 6761 |
Snap-on Incorporated – Consolidated Statements of Earnings
| | | | | | | | | | | | |
| (Amounts in millions, except per share data) | | 2017 | | | 2016 | | | 2015 | |
Net sales | | $ | 3,686.9 | | | $ | 3,430.4 | | | $ | 3,352.8 | |
Cost of goods sold | | | (1,862.0) | | | | (1,720.8) | | | | (1,704.5) | |
| | | | | | | | | | | | |
Gross profit | | | 1,824.9 | | | | 1,709.6 | | | | 1,648.3 | |
Operating expenses | | | (1,160.9) | | | | (1,054.1) | | | | (1,053.7) | |
| | | | | | | | | | | | |
Operating earnings before financial services | | | 664.0 | | | | 655.5 | | | | 594.6 | |
| | | |
Financial services revenue | | | 313.4 | | | | 281.4 | | | | 240.3 | |
Financial services expenses | | | (95.9) | | | | (82.7) | | | | (70.1) | |
| | | | | | | | | | | | |
Operating earnings from financial services | | | 217.5 | | | | 198.7 | | | | 170.2 | |
| | | | | | | | | | | | |
| | | |
Operating earnings | | | 881.5 | | | | 854.2 | | | | 764.8 | |
Interest expense | | | (52.4) | | | | (52.2) | | | | (51.9) | |
Other income (expense) – net | | | (7.2) | | | | (0.6) | | | | (2.4) | |
| | | | | | | | | | | | |
Earnings before income taxes and equity earnings | | | 821.9 | | | | 801.4 | | | | 710.5 | |
Income tax expense | | | (250.9) | | | | (244.3) | | | | (221.2) | |
| | | | | | | | | | | | |
Earnings before equity earnings | | | 571.0 | | | | 557.1 | | | | 489.3 | |
Equity earnings, net of tax | | | 1.2 | | | | 2.5 | | | | 1.3 | |
| | | | | | | | | | | | |
Net earnings | | | 572.2 | | | | 559.6 | | | | 490.6 | |
Net earnings attributable to noncontrolling interests | | | (14.5) | | | | (13.2) | | | | (11.9) | |
| | | | | | | | | | | | |
Net earnings attributable toSnap-on Incorporated | | $ | 557.7 | | | $ | 546.4 | | | $ | 478.7 | |
| | | | | | | | | | | | |
| | | |
Net earnings per share attributable toSnap-on Incorporated: | | | | | | | | | | | | |
Basic | | $ | 9.72 | | | $ | 9.40 | | | $ | 8.24 | |
Diluted | | | 9.52 | | | | 9.20 | | | | 8.10 | |
| | | |
Weighted-average shares outstanding: | | | | | | | | | | | | |
Basic | | | 57.4 | | | | 58.1 | | | | 58.1 | |
Effect of dilutive securities | | | 1.2 | | | | 1.3 | | | | 1.0 | |
| | | | | | | | | | | | |
Diluted | | | 58.6 | | | | 59.4 | | | | 59.1 | |
| | | | | | | | | | | | |
See Notes to Consolidated Financial Statements.
| | | | | | | | |
68 | | SNAP-ON INCORPORATED | Snap-on Incorporated – Consolidated Statements of Earnings | |
Snap-on Incorporated – Consolidated Statements of Comprehensive Income
| | | | | | | | | | | | |
| (Amounts in millions) | | 2017 | | | 2016 | | | 2015 | |
Comprehensive income (loss): | | | | | | | | | | | | |
Net earnings | | $ | 572.2 | | | $ | 559.6 | | | $ | 490.6 | |
Other comprehensive income (loss): | | | | | | | | | | | | |
Foreign currency translation* | | | 135.2 | | | | (99.2) | | | | (110.8) | |
| | | |
Unrealized cash flow hedges, net of tax: | | | | | | | | | | | | |
Other comprehensive income before reclassifications | | | 6.9 | | | | 8.8 | | | | – | |
Reclassification of cash flow hedges to net earnings | | | (1.6) | | | | (0.3) | | | | (0.3) | |
| | | |
Defined benefit pension and postretirement plans: | | | | | | | | | | | | |
Net prior service costs and credits and unrecognized gain (loss) | | | 15.9 | | | | (93.3) | | | | (48.3) | |
Income tax benefit (expense) | | | (4.1) | | | | 30.7 | | | | 19.4 | |
| | | | | | | | | | | | |
Net of tax | | | 11.8 | | | | (62.6) | | | | (28.9) | |
| | | | | | | | | | | | |
| | | |
Amortization of net prior service costs and credits and unrecognized loss included in net periodic benefit cost | | | 26.6 | | | | 30.1 | | | | 38.0 | |
Income tax benefit | | | (9.4) | | | | (11.1) | | | | (14.0) | |
| | | | | | | | | | | | |
Net of tax | | | 17.2 | | | | 19.0 | | | | 24.0 | |
| | | | | | | | | | | | |
Total comprehensive income | | | 741.7 | | | | 425.3 | | | | 374.6 | |
| | | |
Comprehensive income attributable to noncontrolling interests | | | (14.5) | | | | (13.2) | | | | (11.9) | |
| | | | | | | | | | | | |
Comprehensive income attributable toSnap-on Incorporated | | $ | 727.2 | | | $ | 412.1 | | | $ | 362.7 | |
| | | | | | | | | | | | |
* | There is no reclassification adjustment as there was no sale or liquidation of any foreign entity during any period presented.
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| (Amounts in millions, except per share data) | | 2020 | | 2019 | | 2018 |
| Net sales | | $ | 3,592.5 | | | $ | 3,730.0 | | | $ | 3,740.7 | |
| Cost of goods sold | | (1,844.0) | | | (1,886.0) | | | (1,870.7) | |
| Gross profit | | 1,748.5 | | | 1,844.0 | | | 1,870.0 | |
| Operating expenses | | (1,116.6) | | | (1,127.6) | | | (1,144.0) | |
| Operating earnings before financial services | | 631.9 | | | 716.4 | | | 726.0 | |
| | | | | | |
| Financial services revenue | | 349.7 | | | 337.7 | | | 329.7 | |
| Financial services expenses | | (101.1) | | | (91.8) | | | (99.6) | |
| Operating earnings from financial services | | 248.6 | | | 245.9 | | | 230.1 | |
| | | | | | |
| Operating earnings | | 880.5 | | | 962.3 | | | 956.1 | |
| Interest expense | | (54.0) | | | (49.0) | | | (50.4) | |
| Other income (expense) – net | | 8.7 | | | 8.8 | | | 4.2 | |
| Earnings before income taxes and equity earnings | | 835.2 | | | 922.1 | | | 909.9 | |
| Income tax expense | | (189.1) | | | (211.8) | | | (214.4) | |
| Earnings before equity earnings | | 646.1 | | | 710.3 | | | 695.5 | |
| Equity earnings, net of tax | | 0.3 | | | 0.9 | | | 0.7 | |
| Net earnings | | 646.4 | | | 711.2 | | | 696.2 | |
| Net earnings attributable to noncontrolling interests | | (19.4) | | | (17.7) | | | (16.3) | |
| Net earnings attributable to Snap-on Incorporated | | $ | 627.0 | | | $ | 693.5 | | | $ | 679.9 | |
| | | | | | |
| Net earnings per share attributable to Snap-on Incorporated: | | | | | | |
| Basic | | $ | 11.55 | | | $ | 12.59 | | | $ | 12.08 | |
| Diluted | | 11.44 | | | 12.41 | | | 11.87 | |
| | | | | | |
| Weighted-average shares outstanding: | | | | | | |
| Basic | | 54.3 | | | 55.1 | | | 56.3 | |
| Effect of dilutive securities | | 0.5 | | | 0.8 | | | 1.0 | |
| Diluted | | 54.8 | | | 55.9 | | | 57.3 | |
See Notes to Consolidated Financial Statements.
| | | | | | | | |
| Snap-on Incorporated – Consolidated Statements of Comprehensive Income |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| (Amounts in millions) | | 2020 | | 2019 | | 2018 |
| Comprehensive income (loss): | | | | | | |
| Net earnings | | $ | 646.4 | | | $ | 711.2 | | | $ | 696.2 | |
| Other comprehensive income (loss): | | | | | | |
| Foreign currency translation* | | 112.7 | | | (9.5) | | | (95.4) | |
| Unrealized cash flow hedges, net of tax: | | | | | | |
| Other comprehensive income (loss) before reclassifications | | 1.4 | | | 0 | | | (0.8) | |
| Reclassification of cash flow hedges to net earnings | | (1.6) | | | (1.5) | | | (1.5) | |
| Defined benefit pension and postretirement plans: | | | | | | |
| Net prior service costs and credits and unrecognized (loss) gain | | 3.8 | | | (6.7) | | | (79.0) | |
| Income tax (expense) benefit | | (0.3) | | | 0.2 | | | 20.0 | |
| Net of tax | | 3.5 | | | (6.5) | | | (59.0) | |
| | | | | | |
| Amortization of unrecognized loss and net prior service costs included in net periodic benefit cost | | 34.5 | | | 23.5 | | | 31.1 | |
| Income tax benefit | | (8.4) | | | (5.8) | | | (7.6) | |
| Net of tax | | 26.1 | | | 17.7 | | | 23.5 | |
| Total comprehensive income | | 788.5 | | | 711.4 | | | 563.0 | |
| | | | | | |
| Comprehensive income attributable to noncontrolling interests | | (19.4) | | | (17.7) | | | (16.3) | |
| Comprehensive income attributable to Snap-on Incorporated | | $ | 769.1 | | | $ | 693.7 | | | $ | 546.7 | |
* 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.
| | | | | | | | |
| | 20172020 ANNUAL REPORT | | 6963 |
Snap-on Incorporated – Consolidated Balance Sheets
| | | | | | | | |
| | | Fiscal Year End | |
| (Amounts in millions, except share data) | | 2017 | | | 2016 | |
ASSETS | | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 92.0 | | | $ | 77.6 | |
Trade and other accounts receivable – net | | | 675.6 | | | | 598.8 | |
Finance receivables – net | | | 505.4 | | | | 472.5 | |
Contract receivables – net | | | 96.8 | | | | 88.1 | |
Inventories – net | | | 638.8 | | | | 530.5 | |
Prepaid expenses and other assets | | | 110.7 | | | | 116.5 | |
| | | | | | | | |
Total current assets | | | 2,119.3 | | | | 1,884.0 | |
Property and equipment – net | | | 484.4 | | | | 425.2 | |
Deferred income tax assets | | | 52.0 | | | | 72.8 | |
Long-term finance receivables – net | | | 1,039.2 | | | | 934.5 | |
Long-term contract receivables – net | | | 322.6 | | | | 286.7 | |
Goodwill | | | 924.1 | | | | 895.5 | |
Other intangibles – net | | | 253.7 | | | | 184.6 | |
Other assets | | | 53.8 | | | | 39.9 | |
| | | | | | | | |
Total assets | | $ | 5,249.1 | | | $ | 4,723.2 | |
| | | | | | | | |
| | |
LIABILITIES AND EQUITY | | | | | | | | |
Current liabilities: | | | | | | | | |
Notes payable and current maturities of long-term debt | | $ | 433.2 | | | $ | 301.4 | |
Accounts payable | | | 178.2 | | | | 170.9 | |
Accrued benefits | | | 55.8 | | | | 52.8 | |
Accrued compensation | | | 71.5 | | | | 89.8 | |
Franchisee deposits | | | 66.5 | | | | 66.7 | |
Other accrued liabilities | | | 388.1 | | | | 307.9 | |
| | | | | | | | |
Total current liabilities | | | 1,193.3 | | | | 989.5 | |
Long-term debt | | | 753.6 | | | | 708.8 | |
Deferred income tax liabilities | | | 28.4 | | | | 13.1 | |
Retiree health care benefits | | | 36.0 | | | | 36.7 | |
Pension liabilities | | | 158.9 | | | | 246.5 | |
Other long-term liabilities | | | 106.6 | | | | 93.4 | |
| | | | | | | | |
Total liabilities | | | 2,276.8 | | | | 2,088.0 | |
| | | | | | | | |
| | |
Commitments and contingencies (Note 15) | | | | | | | | |
| | |
Equity | | | | | | | | |
Shareholders’ equity attributable toSnap-on Incorporated: | | | | | | | | |
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 67,407,704 and 67,400,250 shares, respectively) | | | 67.4 | | | | 67.4 | |
Additionalpaid-in capital | | | 343.2 | | | | 317.3 | |
Retained earnings | | | 3,772.3 | | | | 3,384.9 | |
Accumulated other comprehensive loss | | | (329.0) | | | | (498.5) | |
Treasury stock at cost (10,717,455 and 9,450,393 shares, respectively) | | | (900.0) | | | | (653.9) | |
| | | | | | | | |
Total shareholders’ equity attributable toSnap-on Incorporated | | | 2,953.9 | | | | 2,617.2 | |
Noncontrolling interests | | | 18.4 | | | | 18.0 | |
| | | | | | | | |
Total equity | | | 2,972.3 | | | | 2,635.2 | |
| | | | | | | | |
Total liabilities and equity | | $ | 5,249.1 | | | $ | 4,723.2 | |
| | | | | | | | |
See Notes to Consolidated Financial Statements.
| | | | | | | | |
70 | | SNAP-ON INCORPORATED | Snap-on Incorporated – Consolidated Balance Sheets | |
Snap-on Incorporated – Consolidated Statements of Equity
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| | | Shareholders’ Equity Attributable toSnap-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 3, 2015 | | $ | 67.4 | | | $ | 254.7 | | | $ | 2,637.2 | | | $ | (248.2) | | | $ | (503.3) | | | $ | 17.5 | | | $ | 2,225.3 | |
Net earnings for 2015 | | | – | | | | – | | | | 478.7 | | | | – | | | | – | | | | 11.9 | | | | 490.6 | |
Other comprehensive loss | | | – | | | | – | | | | – | | | | (116.0) | | | | – | | | | – | | | | (116.0) | |
Cash dividends – $2.20 per share | | | – | | | | – | | | | (127.9) | | | | – | | | | – | | | | – | | | | (127.9) | |
Stock compensation plans | | | – | | | | 23.3 | | | | – | | | | – | | | | 40.0 | | | | – | | | | 63.3 | |
Share repurchases – 723,000 shares | | | – | | | | – | | | | – | | | | – | | | | (110.4) | | | | – | | | | (110.4) | |
Tax benefit from certain stock options | | | – | | | | 18.3 | | | | – | | | | – | | | | – | | | | – | | | | 18.3 | |
Dividend reinvestment plan and other | | | – | | | | – | | | | (1.1) | | | | – | | | | – | | | | (11.4) | | | | (12.5) | |
| | | | |
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 | |
| | | | |
| | | | | | | | | | | | | | |
| | | | |
| | | Fiscal Year End |
| (Amounts in millions, except share data) | | 2020 | | 2019 |
| ASSETS | | | | |
| Current assets: | | | | |
| Cash and cash equivalents | | $ | 923.4 | | | $ | 184.5 | |
| Trade and other accounts receivable – net | | 640.7 | | | 694.6 | |
| Finance receivables – net | | 530.2 | | | 530.1 | |
| Contract receivables – net | | 112.5 | | | 100.7 | |
| Inventories – net | | 746.5 | | | 760.4 | |
| Prepaid expenses and other assets | | 129.7 | | | 110.2 | |
| Total current assets | | 3,083.0 | | | 2,380.5 | |
| | | | |
| Property and equipment – net | | 526.2 | | | 521.5 | |
| Operating lease right-of-use assets | | 51.9 | | | 55.6 | |
| Deferred income tax assets | | 50.3 | | | 52.3 | |
| Long-term finance receivables – net | | 1,136.3 | | | 1,103.5 | |
| Long-term contract receivables – net | | 374.7 | | | 360.1 | |
| Goodwill | | 982.4 | | | 913.8 | |
| Other intangibles – net | | 260.8 | | | 243.9 | |
| Other assets | | 91.7 | | | 62.3 | |
| Total assets | | $ | 6,557.3 | | | $ | 5,693.5 | |
| LIABILITIES AND EQUITY | | | | |
| Current liabilities: | | | | |
| Notes payable and current maturities of long-term debt | | $ | 268.5 | | | $ | 202.9 | |
| Accounts payable | | 222.9 | | | 198.5 | |
| Accrued benefits | | 59.7 | | | 53.3 | |
| Accrued compensation | | 89.9 | | | 53.9 | |
| Franchisee deposits | | 78.4 | | | 68.2 | |
| Other accrued liabilities | | 445.5 | | | 370.8 | |
| Total current liabilities | | 1,164.9 | | | 947.6 | |
| | | | |
| Long-term debt | | 1,182.1 | | | 946.9 | |
| Deferred income tax liabilities | | 70.4 | | | 69.3 | |
| Retiree health care benefits | | 34.5 | | | 33.6 | |
| Pension liabilities | | 127.1 | | | 122.1 | |
| Operating lease liabilities | | 34.0 | | | 37.5 | |
| Other long-term liabilities | | 97.7 | | | 105.7 | |
| Total liabilities | | 2,710.7 | | | 2,262.7 | |
| | | | |
| Commitments and contingencies (Note 16) | | 0 | | 0 |
| | | | |
| Equity | | | | |
| Shareholders’ equity attributable to Snap-on Incorporated: | | | | |
| Preferred stock (authorized 15,000,000 shares of $1 par value; NaN outstanding) | | 0 | | | 0 | |
| Common stock (authorized 250,000,000 shares of $1 par value; issued 67,430,958 and 67,423,106 shares, respectively) | | 67.4 | | | 67.4 | |
| Additional paid-in capital | | 391.7 | | | 379.1 | |
| Retained earnings | | 5,156.9 | | | 4,779.7 | |
| Accumulated other comprehensive loss | | (365.8) | | | (507.9) | |
| Treasury stock at cost (13,328,859 and 12,772,882 shares, respectively) | | (1,425.3) | | | (1,309.2) | |
| Total shareholders’ equity attributable to Snap-on Incorporated | | 3,824.9 | | | 3,409.1 | |
| Noncontrolling interests | | 21.7 | | | 21.7 | |
| Total equity | | 3,846.6 | | | 3,430.8 | |
| Total liabilities and equity | | $ | 6,557.3 | | | $ | 5,693.5 | |
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 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 | |
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 adopting 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 | |
See Notes to Consolidated Financial Statements.
| | | | | | | | |
| | 20172020 ANNUAL REPORT | | 7165 |
Snap-on Incorporated – Consolidated Statements of Cash Flows
| | | | | | | | | | | | |
| (Amounts in millions) | | 2017 | | | 2016 | | | 2015 | |
Operating activities: | | | | | | | | | | | | |
Net earnings | | $ | 572.2 | | | $ | 559.6 | | | $ | 490.6 | |
Adjustments to reconcile net earnings to net cash provided (used) by operating activities: | | | | | | | | | | | | |
Depreciation | | | 65.6 | | | | 61.4 | | | | 57.8 | |
Amortization of other intangibles | | | 27.6 | | | | 24.2 | | | | 24.7 | |
Provision for losses on finance receivables | | | 54.6 | | | | 44.0 | | | | 31.6 | |
Provision for losses onnon-finance receivables | | | 10.5 | | | | 7.5 | | | | 13.6 | |
Stock-based compensation expense | | | 30.3 | | | | 31.0 | | | | 39.8 | |
Excess tax benefits from stock-based compensation | | | – | | | | – | | | | (18.3) | |
Deferred income tax provision (benefit) | | | 12.3 | | | | 1.3 | | | | (5.1) | |
Loss (gain) on sales of assets | | | (0.2) | | | | 0.2 | | | | (2.1) | |
Settlement of treasury lock | | | 14.9 | | | | – | | | | – | |
Changes in operating assets and liabilities, net of effects of acquisitions: | | | | | | | | | | | | |
Increase in trade and other accounts receivable | | | (55.5) | | | | (41.0) | | | | (44.7) | |
Increase in contract receivables | | | (41.8) | | | | (31.9) | | | | (34.6) | |
Increase in inventories | | | (76.0) | | | | (32.7) | | | | (43.3) | |
Increase in prepaid and other assets | | | (10.0) | | | | (11.9) | | | | (28.2) | |
Increase (decrease) in accounts payable | | | (2.2) | | | | 16.3 | | | | 4.7 | |
Increase (decrease) in accruals and other liabilities | | | 6.2 | | | | (51.9) | | | | 20.7 | |
| | | | | | | | | | | | |
Net cash provided by operating activities | | | 608.5 | | | | 576.1 | | | | 507.2 | |
| | | | | | | | | | | | |
| | | |
Investing activities: | | | | | | | | | | | | |
Additions to finance receivables | | | (892.0) | | | | (915.0) | | | | (844.2) | |
Collections of finance receivables | | | 712.7 | | | | 671.7 | | | | 624.8 | |
Capital expenditures | | | (82.0) | | | | (74.3) | | | | (80.4) | |
Acquisitions of businesses, net of cash acquired | | | (82.9) | | | | (160.4) | | | | (11.8) | |
Disposals of property and equipment | | | 1.5 | | | | 2.2 | | | | 3.5 | |
Other | | | 1.3 | | | | 2.4 | | | | 1.7 | |
| | | | | | | | | | | | |
Net cash used by investing activities | | | (341.4) | | | | (473.4) | | | | (306.4) | |
| | | | | | | | | | | | |
| | | |
Financing activities: | | | | | | | | | | | | |
Proceeds from issuance of long-term debt | | | 297.8 | | | | – | | | | – | |
Repayment of long-term debt | | | (150.0) | | | | – | | | | – | |
Proceeds from notes payable | | | 16.8 | | | | 4.5 | | | | 7.1 | |
Repayments of notes payable | | | (4.5) | | | | (5.3) | | | | (6.3) | |
Net increase (decrease) in other short-term borrowings | | | 18.3 | | | | 135.0 | | | | (34.8) | |
Cash dividends paid | | | (169.4) | | | | (147.5) | | | | (127.9) | |
Purchases of treasury stock | | | (287.9) | | | | (120.4) | | | | (110.4) | |
Proceeds from stock purchase and option plans | | | 46.2 | | | | 41.8 | | | | 41.6 | |
Excess tax benefits from stock-based compensation | | | – | | | | – | | | | 18.3 | |
Other | | | (23.4) | | | | (24.1) | | | | (24.3) | |
| | | | | | | | | | | | |
Net cash used by financing activities | | | (256.1) | | | | (116.0) | | | | (236.7) | |
| | | | | | | | | | | | |
| | | |
Effect of exchange rate changes on cash and cash equivalents | | | 3.4 | | | | (1.9) | | | | (4.2) | |
| | | | | | | | | | | | |
Increase (decrease) in cash and cash equivalents | | | 14.4 | | | | (15.2) | | | | (40.1) | |
Cash and cash equivalents at beginning of year | | | 77.6 | | | | 92.8 | | | | 132.9 | |
| | | | | | | | | | | | |
Cash and cash equivalents at end of year | | $ | 92.0 | | | $ | 77.6 | | | $ | 92.8 | |
| | | | | | | | | | | | |
| | | |
Supplemental cash flow disclosures: | | | | | | | | | | | | |
Cash paid for interest | | $ | (51.2) | | | $ | (51.0) | | | $ | (50.8) | |
Net cash paid for income taxes | | | (228.1) | | | | (247.3) | | | | (191.9) | |
See Notes to Consolidated Financial Statements.
| | | | | | | | |
72 | | SNAP-ON INCORPORATED | Snap-on Incorporated – Consolidated Statements of Cash Flows | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| (Amounts in millions) | | 2020 | | 2019 | | 2018 |
| Operating activities: | | | | | | |
| Net earnings | | $ | 646.4 | | | $ | 711.2 | | | $ | 696.2 | |
| Adjustments to reconcile net earnings to net cash provided (used) by operating activities: | | | | | | |
| Depreciation | | 73.3 | | | 70.1 | | | 68.8 | |
| Amortization of other intangibles | | 23.4 | | | 22.3 | | | 25.3 | |
| Provision for losses on finance receivables | | 54.6 | | | 49.9 | | | 57.5 | |
| Provision for losses on non-finance receivables | | 22.7 | | | 18.3 | | | 12.8 | |
| Stock-based compensation expense | | 19.5 | | | 23.8 | | | 27.2 | |
| Deferred income tax provision (benefit) | | (8.2) | | | 34.2 | | | 13.7 | |
| Loss on sales of assets | | 1.4 | | | 0.9 | | | 0.5 | |
| Settlement of treasury lock | | 1.4 | | | 0 | | | 0 | |
| Loss on early extinguishment of debt | | 0 | | | 0 | | | 7.8 | |
| Changes in operating assets and liabilities, net of effects of acquisitions: | | | | | | |
| Trade and other accounts receivable | | 47.9 | | | (15.7) | | | (47.7) | |
| Contract receivables | | (29.9) | | | (20.9) | | | (30.9) | |
| Inventories | | 34.2 | | | (97.0) | | | (38.6) | |
| Prepaid and other assets | | 8.5 | | | (22.2) | | | 10.4 | |
| Accounts payable | | 17.8 | | | (2.6) | | | 27.5 | |
| Accruals and other liabilities | | 95.6 | | | (97.7) | | | (66.0) | |
| Net cash provided by operating activities | | 1,008.6 | | | 674.6 | | | 764.5 | |
| | | | | | |
| Investing activities: | | | | | | |
| Additions to finance receivables | | (835.0) | | | (841.9) | | | (865.6) | |
| Collections of finance receivables | | 750.3 | | | 754.3 | | | 747.7 | |
| Capital expenditures | | (65.6) | | | (99.4) | | | (90.9) | |
| Acquisitions of businesses, net of cash acquired | | (41.5) | | | (38.6) | | | (3.0) | |
| Disposals of property and equipment | | 1.8 | | | 1.7 | | | 0.7 | |
| Other | | 2.2 | | | 1.8 | | | 0.9 | |
| Net cash used by investing activities | | (187.8) | | | (222.1) | | | (210.2) | |
| | | | | | |
| Financing activities: | | | | | | |
| Proceeds from issuance of long-term debt | | 489.9 | | | 0 | | | 395.4 | |
| Repayments of long-term debt | | 0 | | | 0 | | | (457.8) | |
| | | | | | |
| Repayments of notes payable | | 0 | | | 0 | | | (16.8) | |
| Net increase (decrease) in other short-term borrowings | | (187.2) | | | 17.6 | | | 21.7 | |
| Cash dividends paid | | (243.3) | | | (216.6) | | | (192.0) | |
| Purchases of treasury stock | | (174.3) | | | (238.4) | | | (284.1) | |
| Proceeds from stock purchase and option plans | | 55.8 | | | 51.4 | | | 55.5 | |
| Other | | (25.2) | | | (23.4) | | | (24.1) | |
| Net cash used by financing activities | | (84.3) | | | (409.4) | | | (502.2) | |
| | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | 2.4 | | | 0.5 | | | (3.2) | |
| Increase in cash and cash equivalents | | 738.9 | | | 43.6 | | | 48.9 | |
| Cash and cash equivalents at beginning of year | | 184.5 | | | 140.9 | | | 92.0 | |
| Cash and cash equivalents at end of year | | $ | 923.4 | | | $ | 184.5 | | | $ | 140.9 | |
| | | | | | |
| Supplemental cash flow disclosures: | | | | | | |
| Cash paid for interest | | $ | (49.8) | | | $ | (46.3) | | | $ | (51.5) | |
| Net cash paid for income taxes | | (188.4) | | | (191.2) | | | (188.0) | |
See Notes to Consolidated Financial StatementsStatements.
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements | | |
Note 1: Summary of Accounting Policies
Principles of consolidation and presentation: The Consolidated Financial Statements include the accounts ofSnap-on Incorporated and its wholly-owned and majority-owned subsidiaries (collectively,“Snap-on” “Snap-on” or “the company”). Snap-on accounts for investments in unconsolidated affiliates whereSnap-on has a greater than 20% but less than 50%non-significant ownership interest under the equity method of accounting. Investments in unconsolidated affiliates of $18.6$21.0 million as of January 2, 2021, and $18.8 million as of December 30, 2017, and $15.2 million as of December 31, 2016,28, 2019, 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
$11.6$9.3 million,
$12.9$10.4 million and
$13.4$11.2 million in
2017, 20162020, 2019 and
2015,2018, respectively, and sales to unconsolidated affiliates were $0.5 million in
2017, $0.22020, $0.6 million in
20162019 and
zero$0.8 million in
2015.2018. 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”).
All intercompanyIntercompany accounts and transactions have been eliminated.
Fiscal year accounting period:Snap-on’s fiscal year ends on the Saturday that is on or nearest to December 31. The 2017 fiscal year ended on December 30, 2017 (“2017”). The 2016 fiscal year ended on December 31, 2016 (“2016”). The 20152020 fiscal year ended on January 2, 20162021 (“2015”2020”). The 2017, 2016,2019 fiscal year ended on December 28, 2019 (“2019”). The 2018 fiscal year ended on December 29, 2018 (“2018”). The 2020 fiscal year 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 and 20152018 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’snon-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 1011 for further information on financial instruments.
Revenue recognition:Snap-on recognizes revenue from the sale of tools, and diagnostic and equipment products when contract terms are met, the price is fixed or determinable, collectability is reasonably assured and a product is shipped or risk of ownership has been transferred to and accepted by the customer. For sales contingent upon customer acceptance, revenue recognition is deferred until such obligations are fulfilled. Estimated product returns are recorded as a reduction in reported revenues at the time of sale based upon historical product return experience and gross profit margin adjusted for known trends. Provisions for customer volume rebates, discounts and allowances are also recorded as a reduction of reported revenues at the time of salerelated services based on historical experiencewhen control of the product passes to the customer or the service is provided and known trends. Revenue related to extended warranty and subscription agreements is recognized overat an amount that reflects the terms of the respective agreements.Snap-on also recognizesconsideration expected to be received in exchange for such goods or services. See Note 2 for information on revenue related to multiple element arrangements, including sales of hardware, software and software-related services. When a sales arrangement contains multiple elements, such as hardware and software products and/or services,Snap-on uses the relative selling price method to allocate revenues between hardware and software elements. For software elements that are not essential to the hardware’s functionality and related software post-contract customer support, vendor specific objective evidence (“VSOE”) of fair value is used to further allocate revenue to each element based on its relative fair value and, when necessary, the residual method is used to assign value to the delivered elements when VSOE only exists for the undelivered elements. 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 or the providing of ongoing support, revenue is generally recognized on a straight-line basis over the term of the agreement, which generally ranges from 12 to 60 months.
Notes to Consolidated Financial Statements (continued)
Franchise fee revenue, including nominal,non-refundable initial fees, is recognized upon the granting of a franchise, which is when the company has performed substantially all initial services required by the franchise agreement. Franchise fee revenue also includes ongoing monthly fees (primarily for sales and business training as well as marketing and product promotion programs) that are recognized as the fees are earned. Franchise fee revenue totaled $15.2 million, $13.9 million and $12.7 million in 2017, 2016 and 2015, respectively.
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 andSnap-on customers who require financing for the purchase or lease of tools and diagnostic 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 throughSnap-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. 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 and
otherrelated 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.
| | | | | | | | |
| | |
| 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 bySnap-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 underSnap-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 $60.9$57.4 million, $53.4$59.1 million and $49.3$61.2 million in 2017, 20162020, 2019 and 2015,2018, 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 2017, 20162020, 2019 and 2015,2018, Snap-on capitalized $11.3$12.0 million, $10.8$12.6 million and $14.9$9.7 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 $14.7$10.5 million in 2017, $13.82020, $10.1 million in 20162019 and $14.0$13.4 million in 2015.2018. Unamortized capitalized software development costs of $43.6$44.2 million as of 20172020 year end and $47.4$42.6 million as of 20162019 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 bySnap-on for shipping and handling are included as a component of cost of goods sold when the costs relate to manufacturing activities. In 2017, 20162020, 2019 and 2015,2018, Snap-on incurred shipping and handling charges of $49.7$53.7 million, $43.1$56.5 million and $39.0$53.7 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 $82.3$94.2 million in 2017, $81.22020, $88.7 million in 20162019 and $78.5$84.3 million in 2015;2018; 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 2017, 20162020, 2019 and 2015,2018, advertising and promotion expenses totaled $55.7$38.0 million, $52.6$47.7 million and $54.9$55.6 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 Note 15Notes 2 and 16 for information on warranties.
Foreign currency: The financial statements ofSnap-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 $7.0$3.9 million, $1.3$3.6 million and $2.7$3.9 million in 2017, 20162020, 2019 and 2015,2018, respectively. Foreign exchange transaction gains and losses are reported in “Other income (expense) – net” on the accompanying Consolidated Statements of Earnings.
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 ismore-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 notmore-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
89 for further information on income taxes.
Per share data: Basic earnings per share calculations were computed by dividing net earnings attributable toSnap-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 30, 2017,January 2, 2021, there were 722,7152,207,411 awards outstanding that were anti-dilutive; as of both December 31, 2016, and January 2, 2016,28, 2019, there were 1,6001,215,695 awards outstanding that were anti-dilutive; and as of December 29, 2018 there were 685,533 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 1,207,285473,196 shares, 1,307,914748,395 shares and 1,016,969986,984 shares, as of the end of 2017, 20162020, 2019 and 2015,2018, respectively. See Note 1314 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
1314 for further information on stock-based compensation.
Notes to Consolidated Financial Statements (continued)
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 1011 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. Cash and cash equivalents consisted of investments in money market funds and bank deposits at January 2, 2021. There were no0 cash equivalents as of 2017 and 2016 year ends.December 28, 2019.
| | | | | | | | |
| | |
| 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
significant 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.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 proprietarySnap-on credit model information, as well as the value of the underlying collateral.
For financeManagement performs detailed reviews of its receivables on a monthly and/or quarterly basis to assess the adequacy of the allowances 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:
Collection experience –Snap-on conducts monthlyto determine if any impairment has occurred. Monthly reviews of credit and collection performance are conducted for each ofboth its finance and contract receivable portfolios focusing on data such as delinquency trends,non-performing assets, andcharge-off 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.
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. 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 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, while amounts recovered on previouslycharged-off written-off accounts increase the allowances. Net charge-offsFor both finance and contract receivables, net write-offs include the principal amount of lossescharged-off written off as well ascharged-off written-off interest and fees.fees, and recourse from franchisees on finance receivables. Recovered interest and fees previouslycharged-off written off are recorded through the allowances for doubtful accountscredit losses and increase the allowances.allowance. Finance receivables are assessed forcharge-off write-off when an account becomes 120 days past due and arecharged-off written off typically within 60 days of asset repossession. Contract receivables related to equipment leases are generallycharged-off written off when an account becomes 150 days past due, while contract receivables related to franchise finance and van leases are generallycharged-off written off up to 180 days past the asset return date. For finance and contract receivables, customer bankruptcies are generallycharged-off 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, 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
34 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 20172020 and 20162019 year end is as follows: | | | | | | | | |
| (Amounts in millions) | | 2017 | | | 2016 | |
Income taxes | | $ | 41.6 | | | $ | 21.4 | |
Accrued restructuring | | | 0.6 | | | | 2.8 | |
Accrued warranty | | | 17.2 | | | | 16.0 | |
Deferred subscription revenue | | | 38.9 | | | | 43.0 | |
Accrued property, payroll and other taxes | | | 45.4 | | | | 36.1 | |
Accrued selling and promotion expense | | | 28.6 | | | | 24.7 | |
Accrued legal matters | | | 45.9 | | | | – | |
Other | | | 169.9 | | | | 163.9 | |
| | | | | | | | |
Total other accrued liabilities | | $ | 388.1 | | | $ | 307.9 | |
| | | | | | | | |
| | | | | | | | | | | | | | |
| (Amounts in millions) | | 2020 | | 2019 |
| Income taxes | | $ | 32.8 | | | $ | 23.9 | |
| Accrued warranty | | 17.6 | | | 17.3 | |
| Operating lease liability | | 19.3 | | | 19.5 | |
| Deferred subscription revenue | | 53.6 | | | 55.1 | |
| Accrued new tool return | | 56.3 | | | 50.9 | |
| Accrued property, payroll and other taxes | | 62.8 | | | 38.6 | |
| Accrued selling and promotion expense | | 33.2 | | | 28.3 | |
| Accrued restructuring expense | | 10.0 | | | 0 | |
| Other | | 159.9 | | | 137.2 | |
| Total other accrued liabilities | | $ | 445.5 | | | $ | 370.8 | |
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 forwork-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, “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-in, first-out” (“FIFO”) inventory valuation methodology for acquisitions; the company does not adopt the LIFO inventory valuation methodology for new acquisitions. See Note
45 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 are evaluated for impairment when events or circumstances indicate that the carrying amount of the long-lived asset may not be recoverable. See Note 56 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-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 67 for further information on goodwill and other intangible assets.
| | | | | | | | |
| | 20172020 ANNUAL REPORT | | 7771 |
Notes to Consolidated Financial Statements (continued)
New accounting standards
The following new accounting pronouncement was adopted in fiscal year 2017:
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)No. 2017-04, Intangibles – Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment, which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value.Snap-on early adopted this ASU in the second quarter of 2017 in conjunction with its annual impairment test. The amendments in this ASU are being applied on a prospective basis and the adoption did not have a significant impact on the company’s consolidated financial statements.
The following new accounting pronouncements, and related impacts on adoption, are being evaluated by the company:
In August 2017, the FASB issued ASUNo. 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. ASUNo. 2017-12 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years; the ASU allows for early adoption in any interim period after issuance of the update. The company is currently assessing the impact this ASU will have on its consolidated financial statements.
In March 2017, the FASB issued ASUNo. 2017-07,Compensation – Retirement Benefits (Topic 715) – Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement 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. Thenon-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).
The ASU is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The company will adopt this ASU at the beginning of its 2018 fiscal year, with the changes applied retrospectively. The adoption of this ASU is not expected to have a significant impact on the company’s consolidated income statement.
In October 2016, the FASB issued ASUNo. 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 company will adopt this ASU at the beginning of its 2018 fiscal year. The adoption of this ASU will not have a significant impact on the company’s consolidated financial statements.
In August 2016, the FASB issued ASUNo. 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. The company will adopt this ASU at the beginning of its 2018 fiscal year. The adoption of the ASU is not expected to have a significant impact to the designations of operating, investing and financing activities on the company’s consolidated statement of cash flows.
| | | | | | | | |
78 | | SNAP-ON INCORPORATED |
| Notes to Consolidated Financial Statements (continued) | | |
In June 2016,
New accounting standards
The following new accounting pronouncements were adopted in fiscal year 2020:
On December 29, 2019, the FASB issuedbeginning of Snap-on’s 2020 fiscal year, the company adopted 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. The adoption of this ASU did not have an impact on the company’s Consolidated Financial Statements or disclosures.
On December 29, 2019, the beginning of Snap-on’s 2020 fiscal year, the company adopted ASU No. 2016-13,Financial Instruments –- Credit Losses (Topic 326), to requirewhich requires the measurement of expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses onover the contractual life of financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.
Snap-on adopted ASUNo. 2016-13 under the modified retrospective approach for receivables measured at amortized costs with prior periods reported in accordance with previously applicable guidance. See Note 4 for a discussion about the impact the adoption of this ASU had on the company and further information on credit losses.
The following new accounting pronouncement will be adopted in fiscal year 2021:
In December 2019, the FASB issued 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 general principles in Topic 740. ASU No. 2019-12 is effective for fiscal years beginning after December 15, 2019,2020, 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.years. The company is currently assessing the impact this ASU will have on its consolidated financial statements.In February 2016, the FASB issued ASUNo. 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. ASUNo. 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years; the ASU allows for early adoption as of the beginning of an interim or annual reporting period. The company is currently assessing the impact this ASU will have on its consolidated financial statements.
In May 2014, the FASB issued ASUNo. 2014-09,Revenue from Contracts with Customers (Topic 606), that, together with several subsequent updates, 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.
Entities have the option of adopting this standard using either a full retrospective approach or a modified retrospective approach (i.e., through a cumulative-effect adjustment directly to retained earnings at the time of adoption).
Snap-on commenced its assessment of Topic 606 during the second half of 2014 and developed a comprehensive project plan that included representatives from across the company’s business segments. The project plan included analyzing the standard’s impact on the company’s various revenue streams, comparing its historical accounting policies and practices to the requirements of the new standard, identifying potential differences from applying the requirements of the new standard to its contracts, and providing updates on implementation progress. The company is in the process of implementing appropriate changes to its business processes, systems and controls to support revenue recognition and disclosures under Topic 606.
As of December 30, 2017, and subject to the company’s ongoing evaluation of new transactions and contracts, the company has substantially completed its evaluation of the expected impact of adopting Topic 606 and anticipates that the adoption of this standard willASU is not expected to have a significant impact on the company’s consolidated financial statements. The company believes that
Note 2: Revenue Recognition
Snap-on recognizes revenue from the adoption will result in the recognitionsale of an inventory assettools, diagnostic and equipment products and related to certain product returns by increasing the returns liability and inventory for the anticipated valueservices based on when control of the returns;product passes to the corresponding increase incustomer or the inventory assetservice is provided and returns liability is recognized at an amount that reflects the consideration expected to be approximately $24 million atreceived in exchange for such goods or services.
Revenue disaggregation
The following table shows the date of adoption. The adoption is also expected to result inconsolidated revenues by revenue source:
| | | | | | | | | | | | | | |
| (Amounts in millions) | | 2020 | | 2019 |
| Revenue from contracts with customers | | $ | 3,569.3 | | | $ | 3,708.3 | |
| Other revenues | | 23.2 | | | 21.7 | |
| Total net sales | | 3,592.5 | | | 3,730.0 | |
| Financial services revenue | | 349.7 | | | 337.7 | |
| Total revenues | | $ | 3,942.2 | | | $ | 4,067.7 | |
Snap-on evaluates the
recognition of an increase in the inventory obsolescence reserve related to the anticipated value on returns of approximately $3 million and a $1 million increase in deferred income tax assets, with a corresponding adjustment to fiscal 2018 beginning retained earnings.The company will adopt Topic 606 at the beginningperformance of its 2018 fiscal year usingoperating 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 modified retrospective approach.
segments. Intersegment amounts are eliminated to arrive at Snap-on’s consolidated financial results.
The following table represents external net sales disaggregated by geography, based on the customers’ billing addresses:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 |
| | Commercial & | | Snap-on | | Repair Systems | | | | | | |
| | Industrial | | Tools | | & Information | | Financial | | | | Snap-on |
| (Amounts in millions) | | Group | | Group | | Group | | Services | | Eliminations | | Incorporated |
| Net sales: | | | | | | | | | | | | |
| North America* | | $ | 432.3 | | | $ | 1,442.8 | | | $ | 720.7 | | | $ | 0 | | | $ | — | | | $ | 2,595.8 | |
| Europe | | 276.2 | | | 125.7 | | | 214.9 | | | 0 | | | — | | | 616.8 | |
| All other | | 242.9 | | | 75.4 | | | 61.6 | | | 0 | | | — | | | 379.9 | |
| External net sales | | 951.4 | | | 1,643.9 | | | 997.2 | | | 0 | | | — | | | 3,592.5 | |
| Intersegment net sales | | 283.2 | | | 0 | | | 241.0 | | | 0 | | | (524.2) | | | — | |
| Total net sales | | 1,234.6 | | | 1,643.9 | | | 1,238.2 | | | 0 | | | (524.2) | | | 3,592.5 | |
| Financial services revenue | | 0 | | | 0 | | | 0 | | | 349.7 | | | — | | | 349.7 | |
| Total revenue | | $ | 1,234.6 | | | $ | 1,643.9 | | | $ | 1,238.2 | | | $ | 349.7 | | | $ | (524.2) | | | $ | 3,942.2 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2019 |
| | Commercial & | | Snap-on | | Repair Systems | | | | | | |
| | Industrial | | Tools | | & Information | | Financial | | | | Snap-on |
| (Amounts in millions) | | Group | | Group | | Group | | Services | | Eliminations | | Incorporated |
| Net sales: | | | | | | | | | | | | |
| North America* | | $ | 482.1 | | | $ | 1,406.1 | | | $ | 766.4 | | | $ | 0 | | | $ | — | | | $ | 2,654.6 | |
| Europe | | 291.7 | | | 131.9 | | | 241.3 | | | 0 | | | — | | | 664.9 | |
| All other | | 264.4 | | | 74.9 | | | 71.2 | | | 0 | | | — | | | 410.5 | |
| External net sales | | 1,038.2 | | | 1,612.9 | | | 1,078.9 | | | 0 | | | — | | | 3,730.0 | |
| Intersegment net sales | | 307.5 | | | 0 | | | 255.6 | | | 0 | | | (563.1) | | | — | |
| Total net sales | | 1,345.7 | | | 1,612.9 | | | 1,334.5 | | | 0 | | | (563.1) | | | 3,730.0 | |
| Financial services revenue | | 0 | | | 0 | | | — | | | 337.7 | | | — | | | 337.7 | |
| Total revenue | | $ | 1,345.7 | | | $ | 1,612.9 | | | $ | 1,334.5 | | | $ | 337.7 | | | $ | (563.1) | | | $ | 4,067.7 | |
| | | | | | | | | | | | |
* 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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | | | $ | 0 | | | $ | — | | | $ | 2,728.3 | |
| All other professionals | | 864.2 | | | 0 | | | 0 | | | 0 | | | — | | | 864.2 | |
| External net sales | | 951.4 | | | 1,643.9 | | | 997.2 | | | 0 | | | — | | | 3,592.5 | |
| Intersegment net sales | | 283.2 | | | 0 | | | 241.0 | | | 0 | | | (524.2) | | | — | |
| Total net sales | | 1,234.6 | | | 1,643.9 | | | 1,238.2 | | | 0 | | | (524.2) | | | 3,592.5 | |
| Financial services revenue | | 0 | | | 0 | | | 0 | | | 349.7 | | | — | | | 349.7 | |
| Total revenue | | $ | 1,234.6 | | | $ | 1,643.9 | | | $ | 1,238.2 | | | $ | 349.7 | | | $ | (524.2) | | | $ | 3,942.2 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2019 |
| | 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 | | $ | 85.5 | | | $ | 1,612.9 | | | $ | 1,078.9 | | | $ | 0 | | | $ | — | | | $ | 2,777.3 | |
| All other professionals | | 952.7 | | | 0 | | | 0 | | | 0 | | | — | | | 952.7 | |
| External net sales | | 1,038.2 | | | 1,612.9 | | | 1,078.9 | | | 0 | | | — | | | 3,730.0 | |
| Intersegment net sales | | 307.5 | | | 0 | | | 255.6 | | | 0 | | | (563.1) | | | — | |
| Total net sales | | 1,345.7 | | | 1,612.9 | | | 1,334.5 | | | 0 | | | (563.1) | | | 3,730.0 | |
| Financial services revenue | | 0 | | | 0 | | | 0 | | | 337.7 | | | — | | | 337.7 | |
| Total revenue | | $ | 1,345.7 | | | $ | 1,612.9 | | | $ | 1,334.5 | | | $ | 337.7 | | | $ | (563.1) | | | $ | 4,067.7 | |
Nature of goods 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-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 also derives revenue from various financing programs designed to facilitate the sales of its products and support its franchise business.
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 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 and 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.
When 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: 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: 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 that 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: 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 Financial Statements (continued)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.
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
Practical expedients and exemptions of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606): 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 $217.0 million of long-term contracts that have fixed consideration that extends beyond one year as of January 2, 2021. Snap-on expects to recognize approximately 70% of these contracts as revenue by the end of fiscal 2022, an additional 25% by the end of fiscal 2024 and the balance thereafter.
Contract liabilities (Deferred revenues): 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 was $61.0 million and $65.1 million at January 2, 2021 and December 28, 2019, respectively. The current portion of contract liabilities is included in “Other accrued liabilities” and the non-current portion is included in “Other long-term liabilities” on the accompanying Consolidated Balance Sheets. In 2020, Snap-on recognized revenue of $53.5 million that was included in the contract liability balance as of December 28, 2019, which was primarily from the amortization of software subscriptions, extended warranties and other subscription agreements. The decrease 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, is recognized upon the granting of a franchise, which is when the company has performed substantially all initial services required by the franchise agreement. Franchise fee revenue also includes ongoing monthly fees (primarily for sales and business training as well as marketing and product promotion programs) that are recognized as the fees are earned. Franchise fee revenue in 2020, 2019 and 2018 totaled $16.2 million, $15.4 million and $16.2 million, respectively.
On
JulySeptember 28,
2017,2020, Snap-on acquired
Torque Control Specialists Pty Ltdsubstantially all of the assets of AutoCrib, 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 2017,2020, the company substantially completed the purchase accounting valuations for the acquired net assets of TCS.AutoCrib, including intangible assets. Final purchase accounting valuations are expected to be completed in the first quarter of 2021. The $1.9preliminary $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,
On January 31, 2020, Snap-on acquired substantially all of the
results of operations and assets
of TCS have been included inrelated to the
Commercial & Industrial Group since the acquisition date.On May 4, 2017,Snap-on acquired Norbar Torque Tools HoldingsTreadReader 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 2017,2020, the company substantially completed the purchase accounting valuations for the acquired net assets of Norbar,Sigmavision, including intangible assets. The $23.7$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,
On January 31, 2018, Snap-on acquired substantially all of 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 acquiredCar-O-Liner Holding AB(“Car-O-Liner”)George A. Sturdevant, Inc. (d/b/a Fastorq) for a cash purchase price of $152.0 million (or $148.1 million, net of cash acquired).Car-O-Liner,$3.0 million. Fastorq, based in Gothenburg, Sweden,New Caney, Texas, designs, assembles and manufactures collision repair equipment,distributes hydraulic torque and information and truck alignment systems.
hydraulic tensioning products for use in critical industries. In fiscal 2017,2018, the company completed the purchase accounting valuations for the acquired net assets ofCar-O-Liner, including intangible assets. Fastorq. The $77.3$2.6 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,
substantially all ofCar-O-Liner’sthe results of operations and assets
of Sigmavision, Cognitran and TMB have been included in the Repair Systems & Information Group since the
respective acquisition
date, with the remaining portions included in the Commercial & Industrial Group.
The following is a summary of the values of the assets acquireddates, and liabilities assumed ofCar-O-Liner, including adjustments recorded as of December 30, 2017, as a result of new information obtained about facts and circumstances that existed as of the October 31, 2016 acquisition date:
| | | | |
(Amounts in millions) | | Amounts as of
October 31, 2016
(As Adjusted) | |
Assets acquired:
| | | | |
Cash
| | $ | 3.9 | |
Trade and other accounts receivable
| | | 17.0 | |
Inventories
| | | 18.3 | |
Property and equipment
| | | 17.5 | |
Goodwill
| | | 77.3 | |
Other intangibles:
| | | | |
Customer relationships
| | | 27.2 | |
Non-amortized trademarks
| | | 27.7 | |
Other assets
| | | 5.8 | |
| | | | |
Total assets acquired
| | | 194.7 | |
| |
Liabilities assumed:
| | | | |
Accounts payable
| | | 9.8 | |
Deferred income tax liabilities
| | | 14.8 | |
Accrued expenses
| | | 13.8 | |
Pension liabilities
| | | 4.3 | |
| | | | |
Total liabilities assumed
| | | 42.7 | |
| | | | |
Net assets acquired
| | $ | 152.0 | |
| | | | |
In fiscal 2017,Snap-on recognized expense of $0.5 million (of which $0.2 million was in “Cost of goods sold” and $0.3 million was in “Operating expenses”) in the accompanying Consolidated Statements of Earnings related toCar-O-Liner that would have been recognized in 2016 if the provisional adjustments identified in the current reporting period had been recognized as of the October 31, 2016 acquisition date.
On July 27, 2015,Snap-on acquired the assets of Ecotechnics S.p.A. (“Ecotechnics”) for a cash purchase price of $11.8 million. Ecotechnics designs and manufactures vehicle air conditioning service equipment for original equipment manufacturer (“OEM”) dealerships and the automotive aftermarket worldwide. For segment reporting purposes, the results of operations and assets of EcotechnicsAutoCrib, Power Hawk and Fastorq have been included in the Repair SystemsCommercial & InformationIndustrial Group since the respective acquisition date.
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
67 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.
| | | | | | | | |
| | 20172020 ANNUAL REPORT | | 8177 |
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
The effects of adjustments to
the December 28, 2019 Consolidated
Financial Statements (continued)Note 3: Receivables
Balance Sheet as a result of the adoption of ASU No. 2016-13, including an increase in the allowance for credit losses of $8.1 million, were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Balance at | | | | Opening Balance at |
| (Amounts in millions) | | December 28,
2019 | | Topic 326 Adjustments | | December 29,
2019 |
| Current assets | | | | | | |
| Finance receivables - allowance for credit losses | | $ | (19.7) | | | $ | (1.7) | | | $ | (21.4) | |
| Contract receivables - allowance for credit losses | | (1.5) | | | (0.5) | | | (2.0) | |
| Long-term assets | | | | | | |
| Finance receivables - allowance for credit losses | | (42.2) | | | (3.5) | | | (45.7) | |
| Contract receivables - allowance for credit losses | | (4.1) | | | (2.4) | | | (6.5) | |
| Total allowances for credit losses | | $ | (67.5) | | | $ | (8.1) | | | $ | (75.6) | |
| | | | | | |
| Deferred income tax assets | | $ | 52.3 | | | $ | 2.0 | | | $ | 54.3 | |
| | | | | | |
| Equity | | | | | | |
| Retained Earnings | | $ | 4,779.7 | | | $ | (6.1) | | | $ | 4,773.6 | |
Trade and Other Accounts ReceivableReceivable:
Snap-on’s trade and other accounts receivable primarily arise from the sale of tools and diagnostic and equipment products to a broad range of industrial and commercial customers and toSnap-on’s independent franchise van channel on anon-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
20172020 and
20162019 year end are as follows:
| | | | | | | | |
| (Amounts in millions) | | 2017 | | | 2016 | |
Trade and other accounts receivable | | $ | 690.2 | | | $ | 612.8 | |
Allowances for doubtful accounts | | | (14.6) | | | | (14.0) | |
| | | | | | | | |
Total trade and other accounts receivable – net | | $ | 675.6 | | | $ | 598.8 | |
| | | | | | | | |
| | | | | | | | | | | |
| (Amounts in millions) | 2020 | | 2019 |
| Trade and other accounts receivable | $ | 667.0 | | | $ | 715.5 | |
| Allowances for credit losses | (26.3) | | | (20.9) | |
| Total trade and other accounts receivable – net | $ | 640.7 | | | $ | 694.6 | |
The following is a rollforward of the allowances for credit losses related to trade and other accounts receivable for 2020:
| | | | | |
| (Amounts in millions) | 2020 |
| Allowances for credit losses: | |
| Beginning of period | $ | 20.9 | |
| Provision for credit losses | 18.9 | |
| Charge-offs | (13.6) | |
| Recoveries | 0.2 | |
| Currency translation | (0.1) | |
| End of period | $ | 26.3 | |
Finance and Contract ReceivablesReceivables:
Snap-on Credit LLC (“SOC”), the company’s financial services operation in the United States, originates extended-term finance and contract receivables on sales ofSnap-on’s products sold through the U.S. franchisee and customer network and to certain other customers ofSnap-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 diagnostic and equipment products on an extended-term payment plan, generally with average payment terms approachingof approximately four years.
Contract 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 diagnostic 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.leases, or the expansion of an existing franchise. Finance and contract receivables are generally secured by the underlying tools and/or diagnostic or equipment products financed and, for
installment loanscontracts to franchisees, other franchisee assets.
The components of
Snap-on’s current finance and contract receivables as of
20172020 and
20162019 year end are as follows:
| | | | | | | | |
| (Amounts in millions) | | 2017 | | | 2016 | |
Finance receivables, net of unearned finance charges of $21.0 million and $17.0 million, respectively | | $ | 523.1 | | | $ | 488.1 | |
Contract receivables, net of unearned finance charges of $17.6 million and $15.6 million, respectively | | | 98.1 | | | | 89.3 | |
| | | | | | | | |
Total | | | 621.2 | | | | 577.4 | |
| | | | | | | | |
Allowances for doubtful accounts: | | | | | | | | |
| | |
Finance receivables | | | (17.7) | | | | (15.6) | |
Contract receivables | | | (1.3) | | | | (1.2) | |
| | | | | | | | |
Total | | | (19.0) | | | | (16.8) | |
| | | | | | | | |
Total current finance and contract receivables – net | | $ | 602.2 | | | $ | 560.6 | |
| | | | | | | | |
| | |
Finance receivables – net | | $ | 505.4 | | | $ | 472.5 | |
Contract receivables – net | | | 96.8 | | | | 88.1 | |
| | | | | | | | |
Total current finance and contract receivables – net | | $ | 602.2 | | | $ | 560.6 | |
| | | | | | | | |
| | | | | | | | | | | |
| (Amounts in millions) | 2020 | | 2019 |
| Finance installment receivables | $ | 533.9 | | | $ | 511.9 | |
| Finance lease receivables, net of unearned finance charges of $4.4 million and $11.7 million, respectively | 20.2 | | | 37.9 | |
| Total finance receivables | 554.1 | | | 549.8 | |
| | | |
| Contract installment receivables | 59.1 | | | 50.8 | |
| Contract lease receivables, net of unearned finance charges of $18.2 million and $18.2 million, respectively | 55.7 | | | 51.4 | |
| Total contract receivables | 114.8 | | | 102.2 | |
| Total | 668.9 | | | 652.0 | |
| | | |
| Allowances for credit losses: | | | |
| Finance installment receivables | (23.6) | | | (19.2) | |
| Finance lease receivables | (0.3) | | | (0.5) | |
| Total finance allowance for credit losses | (23.9) | | | (19.7) | |
| | | |
| Contract installment receivables | (1.4) | | | (0.5) | |
| Contract lease receivables | (0.9) | | | (1.0) | |
| Total contract allowance for credit losses | (2.3) | | | (1.5) | |
| Total allowance for credit losses | (26.2) | | | (21.2) | |
| Total current finance and contract receivables – net | $ | 642.7 | | | $ | 630.8 | |
| | | |
| Finance receivables – net | $ | 530.2 | | | $ | 530.1 | |
| Contract receivables – net | 112.5 | | | 100.7 | |
| Total current finance and contract receivables – net | $ | 642.7 | | | $ | 630.8 | |
| | | | | | | | |
82 | 2020 ANNUAL REPORT | SNAP-ON INCORPORATED79 |
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
The components ofSnap-on’s finance and contract receivables with payment terms beyond one year as of 20172020 and 20162019 year end are as follows: | | | | | | | | |
| (Amounts in millions) | | 2017 | | | 2016 | |
Finance receivables, net of unearned finance charges of $16.7 million and $13.0 million, respectively | | $ | 1,078.0 | | | $ | 967.5 | |
Contract receivables, net of unearned finance charges of $25.5 million and $21.5 million, respectively | | | 325.9 | | | | 289.4 | |
| | | | | | | | |
Total | | | 1,403.9 | | | | 1,256.9 | |
| | | | | | | | |
Allowances for doubtful accounts: | | | | | | | | |
Finance receivables | | | (38.8) | | | | (33.0) | |
Contract receivables | | | (3.3) | | | | (2.7) | |
| | | | | | | | |
Total | | | (42.1) | | | | (35.7) | |
| | | | | | | | |
Total long-term finance and contract receivables – net | | $ | 1,361.8 | | | $ | 1,221.2 | |
| | | | | | | | |
| | |
Finance receivables – net | | $ | 1,039.2 | | | $ | 934.5 | |
Contract receivables – net | | | 322.6 | | | | 286.7 | |
| | | | | | | | |
Total long-term finance and contract receivables – net | | $ | 1,361.8 | | | $ | 1,221.2 | |
| | | | | | | | |
| | | | | | | | | | | |
| (Amounts in millions) | 2020 | | 2019 |
| Finance installment receivables | $ | 1,173.1 | | | $ | 1,106.0 | |
| Finance lease receivables, net of unearned finance charges of $2.5 million and $8.2 million, respectively | 15.6 | | | 39.7 | |
| Total finance receivables | 1,188.7 | | | 1,145.7 | |
| | | |
| Contract installment receivables | 199.7 | | | 195.5 | |
| Contract lease receivables, net of unearned finance charges of $30.2 million and $29.4 million, respectively | 181.7 | | | 168.7 | |
| Total contract receivables | 381.4 | | | 364.2 | |
| Total | 1,570.1 | | | 1,509.9 | |
| | | |
| Allowances for credit losses: | | | |
| Finance installment receivables | (52.1) | | | (41.6) | |
| Finance lease receivables | (0.3) | | | (0.6) | |
| Total finance allowance for credit losses | (52.4) | | | (42.2) | |
| | | |
| Contract installment receivables | (3.1) | | | (1.8) | |
| Contract lease receivables | (3.6) | | | (2.3) | |
| Total contract allowance for credit losses | (6.7) | | | (4.1) | |
| Total allowance for credit losses | (59.1) | | | (46.3) | |
| Total long-term finance and contract receivables – net | $ | 1,511.0 | | | $ | 1,463.6 | |
| | | |
| Finance receivables – net | $ | 1,136.3 | | | $ | 1,103.5 | |
| Contract receivables – net | 374.7 | | | 360.1 | |
| Total long-term finance and contract receivables – net | $ | 1,511.0 | | | $ | 1,463.6 | |
Long-term finance and contract receivables installments, net of unearned finance charges, as of 20172020 and 20162019 year end are scheduled as follows: | | | | | | | | | | | | | | | | |
| | | 2017 | | | 2016 | |
(Amounts in millions) | | Finance
Receivables | | | Contract
Receivables | | | Finance
Receivables | | | Contract
Receivables | |
Due in Months: | | | | | | | | | | | | | | | | |
13 – 24 | | $ | 415.1 | | | $ | 77.6 | | | $ | 380.9 | | | $ | 69.5 | |
25 – 36 | | | 333.3 | | | | 67.6 | | | | 296.9 | | | | 60.2 | |
37 – 48 | | | 225.5 | | | | 56.5 | | | | 196.8 | | | | 49.7 | |
49 – 60 | | | 104.1 | | | | 42.8 | | | | 92.9 | | | | 37.7 | |
Thereafter | | | – | | | | 81.4 | | | | – | | | | 72.3 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 1,078.0 | | | $ | 325.9 | | | $ | 967.5 | | | $ | 289.4 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2020 | | 2019 |
| (Amounts in millions) | | Finance
Receivables | | Contract
Receivables | | Finance
Receivables | | Contract
Receivables |
| Due in Months: | | | | | | | | |
| 13 – 24 | | $ | 444.6 | | | $ | 92.0 | | | $ | 439.1 | | | $ | 86.4 | |
| 25 – 36 | | 360.3 | | | 78.9 | | | 352.4 | | | 76.9 | |
| 37 – 48 | | 250.9 | | | 67.1 | | | 238.0 | | | 65.6 | |
| 49 – 60 | | 132.9 | | | 51.3 | | | 116.2 | | | 51.3 | |
| Thereafter | | 0 | | | 92.1 | | | 0 | | | 84.0 | |
| Total | | $ | 1,188.7 | | | $ | 381.4 | | | $ | 1,145.7 | | | $ | 364.2 | |
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 2020 year end is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Total |
| Finance Receivables: | | | | | | | | | | | | | |
| Delinquent | $ | 15.9 | | | $ | 18.2 | | | $ | 10.0 | | | $ | 5.2 | | | $ | 2.2 | | | $ | 0.2 | | | $ | 51.7 | |
| Non-delinquent | 1,129.5 | | | 349.4 | | | 143.9 | | | 53.3 | | | 14.0 | | | 1.0 | | | 1,691.1 | |
| Total Finance receivables | $ | 1,145.4 | | | $ | 367.6 | | | $ | 153.9 | | | $ | 58.5 | | | $ | 16.2 | | | $ | 1.2 | | | $ | 1,742.8 | |
| | | | | | | | | | | | | |
| Contract receivables: | | | | | | | | | | | | | |
| Delinquent | $ | 0.6 | | | $ | 0.6 | | | $ | 0.8 | | | $ | 0.5 | | | $ | 0.6 | | | $ | 0.3 | | | $ | 3.4 | |
| Non-delinquent | 180.5 | | | 124.8 | | | 84.7 | | | 52.5 | | | 24.6 | | | 25.7 | | | 492.8 | |
| Total Contract receivables | $ | 181.1 | | | $ | 125.4 | | | $ | 85.5 | | | $ | 53.0 | | | $ | 25.2 | | | $ | 26.0 | | | $ | 496.2 | |
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.
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
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 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2020 | | 2019 |
| (Amounts in millions) | | Finance
Receivables | | Contract
Receivables | | Finance
Receivables | | Contract
Receivables |
| Allowances for credit losses: | | | | | | | | |
| Beginning of year | | $ | 61.9 | | | $ | 5.6 | | | $ | 61.4 | | | $ | 4.3 | |
| Impact of adopting ASU No. 2016-13 | | 5.2 | | | 2.9 | | | 0 | | | 0 | |
| Provision for credit losses | | 54.6 | | | 3.8 | | | 49.9 | | | 4.7 | |
| Charge-offs | | (53.8) | | | (3.8) | | | (57.1) | | | (3.9) | |
| Recoveries | | 8.2 | | | 0.4 | | | 7.7 | | | 0.5 | |
| Currency translation | | 0.2 | | | 0.1 | | | 0 | | | 0 | |
| End of year | | $ | 76.3 | | | $ | 9.0 | | | $ | 61.9 | | | $ | 5.6 | |
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 contractual payments then due hashave been received by the company. 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 2020 and 2019 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 2020 and 2019 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 |
| 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 | |
| | | | | | | | | | | | | | |
| 2019 year end: | | | | | | | | | | | | | | |
| Finance receivables | | $ | 19.7 | | | $ | 12.0 | | | $ | 21.4 | | | $ | 53.1 | | | $ | 1,642.4 | | | $ | 1,695.5 | | | $ | 17.2 | |
| Contract receivables | | 1.5 | | | 0.9 | | | 1.5 | | | 3.9 | | | 462.5 | | | 466.4 | | | 0.5 | |
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
statusstatus: (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.
Notes to Consolidated Financial Statements (continued)
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-off written-off against the allowances when appropriate.
As of 2017 and 2016 year end, there were $28.0 million and $24.9 million, respectively, of impaired finance receivables, and there were $2.3 million and $2.0 million, respectively, of impaired contract receivables.It is the general practice ofSnap-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 2017 and 2016 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 2017 and 2016 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 | |
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 | |
| | | | | | | |
2016 year end: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Finance receivables | | $ | 15.1 | | | $ | 9.8 | | | $ | 17.0 | | | $ | 41.9 | | | $ | 1,413.7 | | | $ | 1,455.6 | | | $ | 13.2 | |
Contract receivables | | | 1.4 | | | | 0.9 | | | | 1.4 | | | | 3.7 | | | | 375.0 | | | | 378.7 | | | | 0.5 | |
The amount of performing and nonperforming finance and contract receivables based on payment activity as of 2017 and 2016 year end is as follows:
| | | | | | | | | | | | | | | | |
| | | 2017 | | | 2016 | |
| (Amounts in millions) | | Finance
Receivables | | | Contract
Receivables | | | Finance
Receivables | | | Contract
Receivables | |
Performing | | $ | 1,573.1 | | | $ | 421.7 | | | $ | 1,430.7 | | | $ | 376.7 | |
Nonperforming | | | 28.0 | | | | 2.3 | | | | 24.9 | | | | 2.0 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 1,601.1 | | | $ | 424.0 | | | $ | 1,455.6 | | | $ | 378.7 | |
| | | | | | | | | | | | | | | | |
The amount of finance and contract receivables on nonaccrual status as of 20172020 and 20162019 year end is as follows: | | | | | | | | |
| (Amounts in millions) | | 2017 | | | 2016 | |
Finance receivables | | $ | 12.6 | | | $ | 11.7 | |
Contract receivables | | | 1.7 | | | | 1.5 | |
| | | | | | | | | | | | | | |
| (Amounts in millions) | | 2020 | | 2019 |
| Finance receivables | | $ | 9.6 | | | $ | 12.2 | |
| Contract receivables | | 2.4 | | | 2.2 | |
Note 5: Inventories
Inventories by major classification as of 2020 and 2019 year end are as follows:
| | | | | | | | | | | | | | |
| (Amounts in millions) | | 2020 | | 2019 |
| Finished goods | | $ | 643.4 | | | $ | 661.0 | |
| Work in progress | | 61.6 | | | 57.1 | |
| Raw materials | | 125.5 | | | 126.8 | |
| Total FIFO value | | 830.5 | | | 844.9 | |
| Excess of current cost over LIFO cost | | (84.0) | | | (84.5) | |
| Total inventories – net | | $ | 746.5 | | | $ | 760.4 | |
| | | | | | | | |
84 | 2020 ANNUAL REPORT | SNAP-ON INCORPORATED83 |
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
The following is a rollforward of the allowances for doubtful accounts for finance and contract receivables for 2017 and 2016:
| | | | | | | | | | | | | | | | |
| | | 2017 | | | 2016 | |
| (Amounts in millions) | | Finance
Receivables | | | Contract
Receivables | | | Finance
Receivables | | | Contract
Receivables | |
Allowances for doubtful accounts: | | | | | | | | | | | | | | | | |
Beginning of year | | $ | 48.6 | | | $ | 3.9 | | | $ | 38.2 | | | $ | 4.4 | |
Provision | | | 54.6 | | | | 2.7 | | | | 44.0 | | | | 1.0 | |
Charge-offs | | | (53.3) | | | | (2.5) | | | | (39.8) | | | | (1.8) | |
Recoveries | | | 6.6 | | | | 0.4 | | | | 6.2 | | | | 0.4 | |
Currency translation | | | – | | | | 0.1 | | | | – | | | | (0.1) | |
| | | | | | | | | | | | | | | | |
End of year | | $ | 56.5 | | | $ | 4.6 | | | $ | 48.6 | | | $ | 3.9 | |
| | | | | | | | | | | | | | | | |
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 2017, 2016 and 2015:
| | | | | | | | | | | | | | | | |
| (Amounts in millions) | | Balance at
Beginning
of Year | | | Expenses | | | Deductions (1) | | | Balance at
End of
Year | |
Allowances for doubtful accounts: | | | | | | | | | | | | | | | | |
2017 | | $ | 66.5 | | | $ | 65.1 | | | $ | (55.9) | | | $ | 75.7 | |
2016 | | | 59.3 | | | | 51.5 | | | | (44.3) | | | | 66.5 | |
2015 | | | 52.4 | | | | 45.1 | | | | (38.2) | | | | 59.3 | |
(1) | Represents write-offs of bad debts, net of recoveries, and the net impact of currency translation.
|
Note 4: Inventories
Inventories by major classification as of 2017 and 2016 year end are as follows:
| | | | | | | | |
| (Amounts in millions) | | 2017 | | | 2016 | |
Finished goods | | $ | 541.9 | | | $ | 467.4 | |
Work in progress | | | 49.3 | | | | 42.7 | |
Raw materials | | | 122.7 | | | | 93.6 | |
| | | | | | | | |
Total FIFO value | | | 713.9 | | | | 603.7 | |
Excess of current cost over LIFO cost | | | (75.1) | | | | (73.2) | |
| | | | | | | | |
Total inventories – net | | $ | 638.8 | | | $ | 530.5 | |
| | | | | | | | |
Inventories accounted for using the FIFO method approximated
61%57% and
59%58% of total inventories as of
20172020 and
20162019 year end, respectively. The company accounts for its
non-U.S. inventory on the FIFO method. As of
20172020 year end, approximately
33%30% of the company’s U.S. inventory was accounted for using the FIFO method and
67%70% was accounted for using the LIFO method. There were
no0 LIFO inventory liquidations in
2017, 20162020, 2019 or
2015.
Notes to Consolidated Financial Statements (continued)
2018.
Note
5:6: Property and Equipment
Property and equipment (which are carried at cost) as of 20172020 and 20162019 year end are as follows: | | | | | | | | |
| (Amounts in millions) | | 2017 | | | 2016 | |
Land | | $ | 24.5 | | | $ | 19.1 | |
Buildings and improvements | | | 357.4 | | | | 309.4 | |
Machinery, equipment and computer software | | | 889.2 | | | | 809.6 | |
| | | | | | | | |
Property and equipment – gross | | | 1,271.1 | | | | 1,138.1 | |
Accumulated depreciation and amortization | | | (786.7) | | | | (712.9) | |
| | | | | | | | |
Property and equipment – net | | $ | 484.4 | | | $ | 425.2 | |
| | | | | | | | |
| | | | | | | | | | | | | | |
| (Amounts in millions) | | 2020 | | 2019 |
| Land | | $ | 34.0 | | | $ | 31.9 | |
| Buildings and improvements | | 432.0 | | | 405.1 | |
| Machinery, equipment and computer software | | 1,033.4 | | | 988.0 | |
| Property and equipment – gross | | 1,499.4 | | | 1,425.0 | |
| Accumulated depreciation and amortization | | (973.2) | | | (903.5) | |
| Property and equipment – net | | $ | 526.2 | | | $ | 521.5 | |
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 2017 and 2016 year end are as follows:
| | | | | | | | |
| (Amounts in millions) | | 2017 | | | 2016 | |
Buildings and improvements | | $ | 21.4 | | | $ | 20.5 | |
Accumulated depreciation | | | (14.0) | | | | (12.3) | |
| | | | | | | | |
Net book value | | $ | 7.4 | | | $ | 8.2 | |
| | | | | | | | |
Depreciation expense was $65.6$73.3 million, $61.4$70.1 million and $57.8$68.8 million in 2017, 20162020, 2019 and 2015,2018, respectively.
Note
6:7: Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill by segment for 20172020 and 20162019 are as follows: | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | Commercial
& Industrial
Group | | | Snap-on
Tools Group | | | Repair Systems &
Information
Group | | | Total | |
Balance as of 2015 year end | | $ | 253.1 | | | $ | 12.5 | | | $ | 524.5 | | | $ | 790.1 | |
Currency translation | | | (16.4) | | | | – | | | | (9.5) | | | | (25.9) | |
Acquisitions | | | 5.7 | | | | – | | | | 125.6 | | | | 131.3 | |
| | | | | | | | | | | | | | | | |
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 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | Commercial
& Industrial
Group | | Snap-on
Tools Group | | Repair Systems
& Information
Group | | Total |
| Balance as of 2018 year end | | $ | 286.2 | | | $ | 12.5 | | | $ | 603.5 | | | $ | 902.2 | |
| Currency translation | | (6.4) | | | 0 | | | (1.1) | | | (7.5) | |
| Acquisitions | | 6.4 | | | 0 | | | 12.7 | | | 19.1 | |
| 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 | | | 0 | | | 8.7 | | | 27.0 | |
| Balance as of 2020 year end | | $ | 331.2 | | | $ | 12.4 | | | $ | 638.8 | | | $ | 982.4 | |
Goodwill of
$924.1$982.4 million as of
20172020 year end
includesincludes: (i) $5.6 million from the
followingacquisition of certain assets of Sigmavision, (ii) $14.5 million from
2017 acquisitions: (i) $23.7the acquisition of Cognitran; and (iii) $18.3 million, on a preliminary basis, from the acquisition of
Norbar, (ii) $5.9 million from the acquisition of BTC, and (iii) $1.9 million, on a preliminary basis, from the acquisition of TCS. As of 2017 year end goodwill also includes, from 2016 acquisitions: (i) $77.3 million from the acquisition ofCar-O-Liner, and (ii) $5.0 million from the acquisition of Sturtevant Richmont.
AutoCrib. During 2017,2020, the purchase accounting valuations for the acquired net assets, including intangible assets, ofCar-O-Liner Sigmavision 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 are expected to be completed in the first quarter of 2021. The goodwill from theCar-O-Liner acquisition is distributed as follows: $76.5 million in the Repair Systems & Information Group Sigmavision and $0.8 million in the Commercial & Industrial Group. The goodwill from Norbar, TCS and 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.
Goodwill of $913.8 million as of 2019 year end includes: (i) $11.4 million, on a preliminary basis, from the acquisition of Cognitran; (ii) $6.4 million from the acquisition of Power Hawk; and (iii) $1.3 million from the acquisition of TMB. The goodwill from the Cognitran and TMB acquisitions is included in the Repair Systems & Information Group. The goodwill from the Power Hawk acquisition is included in the Commercial & Industrial Group.
See Note
23 for additional information on acquisitions.
As the purchase accounting for deferred taxes for the acquired net assets of Norbar and TCS were not complete as of 2017 year end, the allocation of the respective purchase prices and resulting goodwill has been prepared on a preliminary basis and changes to the allocations will occur as the deferred taxes are determined. The company is expected to complete the purchase accounting within one year of their respective acquisition dates.
Additional disclosures related to other intangible assets as of 20172020 and 20162019 year end are as follows: | | | | | | | | | | | | | | | | |
| | | 2017 | | | 2016 | |
| (Amounts in millions) | | Gross
Carrying Value | | | Accumulated
Amortization | | | Gross
Carrying Value | | | Accumulated
Amortization | |
Amortized other intangible assets: | | | | | | | | | | | | | | | | |
Customer relationships | | $ | 175.2 | | | $ | (98.2) | | | $ | 142.6 | | | $ | (86.0) | |
Developed technology | | | 18.9 | | | | (18.4) | | | | 17.7 | | | | (17.7) | |
Internally developed software | | | 177.0 | | | | (133.4) | | | | 165.7 | | | | (118.3) | |
Patents | | | 34.1 | | | | (22.7) | | | | 31.9 | | | | (21.5) | |
Trademarks | | | 3.0 | | | | (2.0) | | | | 2.8 | | | | (1.8) | |
Other | | | 7.7 | | | | (2.7) | | | | 7.2 | | | | (2.2) | |
| | | | | | | | | | | | | | | | |
Total | | | 415.9 | | | | (277.4) | | | | 367.9 | | | | (247.5) | |
Non-amortized trademarks | | | 115.2 | | | | – | | | | 64.2 | | | | – | |
| | | | | | | | | | | | | | | | |
Total other intangible assets | | $ | 531.1 | | | $ | (277.4) | | | $ | 432.1 | | | $ | (247.5) | |
| | | | | | | | | | | | | | | | |
The
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2020 | | 2019 |
| (Amounts in millions) | | Gross
Carrying Value | | Accumulated
Amortization | | Gross
Carrying Value | | Accumulated
Amortization |
| Amortized other intangible assets: | | | | | | | | |
| Customer relationships | | $ | 191.5 | | | $ | (130.1) | | | $ | 182.9 | | | $ | (117.9) | |
| Developed technology | | 21.8 | | | (19.9) | | | 19.8 | | | (18.9) | |
| Internally developed software | | 172.2 | | | (128.0) | | | 168.0 | | | (125.4) | |
| Patents | | 43.2 | | | (25.3) | | | 38.5 | | | (23.7) | |
| Trademarks | | 3.9 | | | (2.4) | | | 3.5 | | | (2.1) | |
| Other | | 8.2 | | | (3.9) | | | 7.3 | | | (3.1) | |
| Total | | 440.8 | | | (309.6) | | | 420.0 | | | (291.1) | |
| Non-amortized trademarks | | 129.6 | | | — | | | 115.0 | | | — | |
| Total other intangible assets | | $ | 570.4 | | | $ | (309.6) | | | $ | 535.0 | | | $ | (291.1) | |
As of year-end 2020, the gross carrying value of intangible assets includes $4.6 million of customer relationships, $1.7 million of developed technology and $7.4 million of non-amortized trademarks as a result of the AutoCrib acquisition, as well as $0.3 million of patents from the Sigmavision acquisition. As of year-end 2019, the gross carrying value of customer relationships as of 2017 year end includes $28.8$10.2 million related to theCar-O-Liner Cognitran acquisition $1.2and $0.9 million related to the BTC acquisitionPower Hawk acquisition. Additionally, the gross carrying value of intangible assets in 2019 includes $6.5 million of non-amortized trademarks and $1.1 million related toof developed technology as a result of the NorbarCognitran acquisition. The gross carrying value ofnon-amortized trademarks as of 2017 year end includes $29.8 million related to theCar-O-Liner acquisition, $2.1 million related to the BTC acquisition and $16.9 million related to the Norbar acquisition. Significant 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. As of
20172020 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
| | 15 |
Developed technology
| | 3 |
Internally developed software
| | 4 |
Patents
| | 8 |
Trademarks
| | 6 |
Other
| | 39 |
| | | | |
| | 2017 ANNUAL REPORTIn Years |
| Customer relationships | | 8715 |
| Developed technology | | 3 |
| Internally developed software | | 6 |
| Patents | | 7 |
| Trademarks | | 5 |
| Other | | 39 |
Notes to Consolidated Financial Statements (continued)
Snap-on is amortizing its customer relationships on both an accelerated and straight-line basis over a 15 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 11 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 15 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 $27.6$23.4 million in 2017, $24.22020, $22.3 million in 20162019 and $24.7$25.3 million in 2015.2018. Based on current levels of amortizable intangible assets and estimated weighted-average useful lives, estimated annual amortization expense is expected to be $25.4 million in 2018, $21.8 million in 2019, $16.8 million in 2020, $14.4$23.3 million in 2021, and $13.4$20.2 million in 2022.2022, $17.2 million in 2023, $12.5 million in 2024, and $8.2 million in 2025.
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
Note
7:8: Exit and Disposal Activities
In 2017,
Snap-on recorded costs associated with exit and disposal activities of $12.5 million during 2020. Snap-on did not0t record any costs for exit and disposal activities. In 2016,activities in 2019. The 2020 costs associated with disposal activities by operating segment are as follows:
| | | | | | | | |
| (Amounts in millions) | | 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 company’s Repair Systems & Information Group recorded $0.9$12.5 million of severance costs incurred in 2020, $12.2 million qualified for accrual treatment. Costs associated with exit and disposal activities allin 2020 primarily related to headcount reductions from the ongoing optimization of which qualified for accrual treatment; no costs for exitthe company’s cost structure in Europe and disposal activities were recorded in 2015. Thevarious other management and realignment actions.
Snap-on’s exit and disposal accrual activity for 2020 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Balance at | | | | Balance at |
| (Amounts in millions) | | 2019 Year End | | Provision in 2020 | | Usage in 2020 | | 2020 Year End |
| Severance costs: | | | | | | | | |
| Commercial & Industrial Group | | $ | 0 | | | $ | 6.4 | | | $ | (0.6) | | | $ | 5.8 | |
| Snap-on Tools Group | | 0 | | | 0.6 | | | (0.2) | | | 0.4 | |
| Repair System & Information Group | | 0 | | | 5.2 | | | (1.4) | | | 3.8 | |
| Total | | $ | 0 | | | $ | 12.2 | | | $ | (2.2) | | | $ | 10.0 | |
As of $0.6January 2, 2021, the company expects that approximately $8.1 million as of 2017 year end is expected tothe $10.0 million exit and disposal accrual will be fully utilized in 2018.2021, and the remainder thereafter, primarily for longer-term severance payments.
Snap-on
anticipates funding expects to fund the remaining cash requirements of its exit and disposal activities with available cash on hand, cash flows from
operationsoperating 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
judgmentjudgement under prevailing circumstances.
The source of earnings before income taxes and equity earnings consisted of the following: | | | | | | | | | | | | |
| (Amounts in millions) | | 2017 | | | 2016 | | | 2015 | |
United States | | $ | 645.5 | | | $ | 644.0 | | | $ | 578.4 | |
Foreign | | | 176.4 | | | | 157.4 | | | | 132.1 | |
| | | | | | | | | | | | |
Total | | $ | 821.9 | | | $ | 801.4 | | | $ | 710.5 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2020 | | 2019 | | 2018 |
| United States | | $ | 715.9 | | | $ | 765.3 | | | $ | 735.4 | |
| Foreign | | 119.3 | | | 156.8 | | | 174.5 | |
| Total | | $ | 835.2 | | | $ | 922.1 | | | $ | 909.9 | |
The provision (benefit) for income taxes consisted of the following: | | | | | | | | | | | | |
| (Amounts in millions) | | 2017 | | | 2016 | | | 2015 | |
Current: | | | | | | | | | | | | |
Federal | | $ | 166.9 | | | $ | 175.9 | | | $ | 165.8 | |
Foreign | | | 41.1 | | | | 39.9 | | | | 40.8 | |
State | | | 30.6 | | | | 27.2 | | | | 19.7 | |
| | | | | | | | | | | | |
Total current | | | 238.6 | | | | 243.0 | | | | 226.3 | |
| | | | | | | | | | | | |
| | | |
Deferred: | | | | | | | | | | | | |
Federal | | | 8.7 | | | | 6.3 | | | | (8.7) | |
Foreign | | | 2.9 | | | | (6.7) | | | | 3.9 | |
State | | | 0.7 | | | | 1.7 | | | | (0.3) | |
| | | | | | | | | | | | |
Total deferred | | | 12.3 | | | | 1.3 | | | | (5.1) | |
| | | | | | | | | | | | |
Total income tax provision | | $ | 250.9 | | | $ | 244.3 | | | $ | 221.2 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2020 | | 2019 | | 2018 |
| Current: | | | | | | |
| Federal | | $ | 136.8 | | | $ | 110.0 | | | $ | 117.9 | |
| Foreign | | 29.9 | | | 38.1 | | | 52.4 | |
| State | | 30.6 | | | 29.5 | | | 30.4 | |
| Total current | | 197.3 | | | 177.6 | | | 200.7 | |
| Deferred: | | | | | | |
| Federal | | (10.0) | | | 26.6 | | | 18.7 | |
| Foreign | | 3.0 | | | 1.5 | | | (8.4) | |
| State | | (1.2) | | | 6.1 | | | 3.4 | |
| Total deferred | | (8.2) | | | 34.2 | | | 13.7 | |
| Total income tax provision | | $ | 189.1 | | | $ | 211.8 | | | $ | 214.4 | |
The following is a reconciliation of the statutory federal income tax rate toSnap-on’s effective tax rate: | | | | | | | | | | | | |
| | | 2017 | | | 2016 | | | 2015 | |
Statutory federal income tax rate | | | 35.0% | | | | 35.0% | | | | 35.0% | |
Increase (decrease) in tax rate resulting from: | | | | | | | | | | | | |
State income taxes, net of federal benefit | | | 2.4 | | | | 2.4 | | | | 2.3 | |
Noncontrolling interests | | | (0.6) | | | | (0.6) | | | | (0.6) | |
Repatriation of foreign earnings | | | (1.2) | | | | (0.1) | | | | (3.0) | |
Change in valuation allowance for deferred tax assets | | | 0.1 | | | | (1.0) | | | | 0.1 | |
Adjustments to tax accruals and reserves | | | (0.3) | | | | 0.3 | | | | 0.8 | |
Foreign rate differences | | | (2.4) | | | | (2.1) | | | | (1.9) | |
Domestic production activities deduction | | | (2.1) | | | | (1.9) | | | | (1.9) | |
Excess tax benefits related to equity compensation | | | (1.4) | | | | (1.8) | | | | – | |
U.S. tax reform, net impact | | | 0.9 | | | | – | | | | – | |
Other | | | 0.1 | | | | 0.3 | | | | 0.3 | |
| | | | | | | | | | | | |
Effective tax rate | | | 30.5% | | | | 30.5% | | | | 31.1% | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| Statutory federal income tax rate | | 21.0% | | 21.0% | | 21.0% |
| Increase (decrease) in tax rate resulting from: | | | | | | |
| State income taxes, net of federal benefit | | 2.9 | | 2.9 | | 2.9 |
| Noncontrolling interests | | (0.5) | | (0.4) | | (0.4) |
| Repatriation of foreign earnings | | (0.7) | | (0.1) | | (0.1) |
| Change in valuation allowance for deferred tax assets | | 0.5 | | 0.4 | | 0.3 |
| Adjustments to tax accruals and reserves | | (0.5) | | (0.4) | | (0.2) |
| Foreign rate differences | | 0.5 | | 0.4 | | 0.4 |
| | | | | | |
| Excess tax benefits related to equity compensation | | (0.5) | | (0.5) | | (0.8) |
| U.S. tax reform, net impact | | 0 | | 0 | | 0.4 |
| Other | | (0.1) | | (0.3) | | 0.1 |
| Effective tax rate | | 22.6% | | 23.0% | | 23.6% |
Snap-on’s effective income tax rate on earnings attributable to
Snap-on Incorporated was
31.1%23.2% in
2017, 31.0%2020, 23.4% in
2016,2019, and
31.7%24.0% in
2015.2018. The effective tax rate for
20172018 included
theone-timean additional non-recurring net tax
costs associated withcharge attributable to the
newly enacted “H.R.1”, formerly known as the Tax Cuts and Jobs Act (the “Tax Act”), which was signed into law in the fourth quarter of 2017, as well asprior year’s U.S. tax
benefits associated with certain legal matters. 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 ASUNo. 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 certainnon-U.S. tax audits.reform changes.
On December 22, 2017, the U.S. government passed the Tax
Act.Cuts and Jobs Act (the “Tax Act”). The Tax Act
makesmade 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 percent35% to
21 percent;21%; (ii) requiring companies to pay a
one-time transition tax on certain unremitted earnings of foreign subsidiaries; and (iii) bonus depreciation that
will allowallows for full expensing of qualified property.
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
The Tax Act also established new tax laws that
will affect
2018,years after 2017, 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
During 2018, the
company recorded additional net tax
effectsbenefits of
the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies$4.4 million attributable 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 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 estimatepension contributions made 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 laws2018 that were
in effect immediately beforedeductible for 2017 at the
enactment of the Tax Act.
Notes to Consolidated Financial Statements (continued)
The company’s accounting for certain elements of the Tax Act is incomplete. However, the company was able to make reasonable estimates of the effectshigher 35% federal tax rate and therefore, recorded provisional estimates for these items. In connection with its initial analysis of the impact of the Tax Act, the company has recorded a provisional discrete net tax expense of $7.0 million in the period ended December 30, 2017. This provisional estimate consists of a net expense of $13.7 million for theone-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 ofnon-U.S. income taxes paid on such earnings. While the company was able to make a reasonable estimate of the transition tax, it is continuing to gather additional information to more precisely compute the final amount. Likewise, while the company was able to make a reasonable estimate of the impact of the reductionother changes to the corporate2017 tax rate, it may be affected by other analysesprovision related to the Tax Act including, but not limited to, the stateand subsequently-issued tax effect of adjustments made to federal temporary differences.guidance. Due to the complexity of the new GILTI tax rules, the company is continuingcontinued to evaluate this provision of the Tax Act and the application of ASC 740.Accounting Standards Codification (“ASC”) 740 throughout 2018. Under GAAP, the company is allowed to make an accounting policy choice to either: (1)(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 (2)(ii) factor in such amounts into a company’s measurement of its deferred taxes (the “deferred method”). The company’s selection of an accounting policy with respectcompany selected to apply the “period cost method” to account for the new GILTI tax, rules is dependent on additional analysis and potential future modifications to existing structure, which are not currently known. Accordingly, the company has not made any adjustments related to potential GILTI tax in our financial statements and have not made a policy decision regarding whether to record deferred taxes on GILTI. The company will continue to analyze the full effects of the Tax Act on its financial statements. The impact of the Tax Act may differ from the current estimate, possibly materially, due to changes in interpretations and assumptions the company has made, future guidance that may be issued and actions the company may taketreated it as a result of the law.
current-period expense for 2020, 2019 and 2018.
Temporary differences that give rise to the net deferred income tax asset (liability) as of
2017, 20162020, 2019 and
20152018 year end are as follows:
| | | | | | | | | | | | |
| | | |
| (Amounts in millions) | | 2017 | | | 2016 | | | 2015 | |
Long-term deferred income tax assets (liabilities): | | | | | | | | | | | | |
Inventories | | | $ 28.8 | | | | $ 33.3 | | | | $ 29.4 | |
Accruals not currently deductible | | | 61.7 | | | | 77.7 | | | | 71.1 | |
Tax credit carryforward | | | 2.1 | | | | 15.1 | | | | 10.2 | |
Employee benefits | | | 56.8 | | | | 108.1 | | | | 101.2 | |
Net operating losses | | | 44.0 | | | | 42.8 | | | | 44.4 | |
Depreciation and amortization | | | (161.3) | | | | (209.8) | | | | (199.3) | |
Valuation allowance | | | (25.2) | | | | (21.7) | | | | (32.0) | |
Equity-based compensation | | | 17.1 | | | | 24.3 | | | | 22.7 | |
Cash flow hedge | | | (0.3) | | | | (5.5) | | | | – | |
Other | | | (0.1) | | | | (4.6) | | | | (1.6) | |
| | | | | | | | | | | | |
Net deferred income tax asset | | | $ 23.6 | | | | $ 59.7 | | | | $ 46.1 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2020 | | 2019 | | 2018 |
| Deferred income tax assets (liabilities): | | | | | | |
| Inventories | | $ | 41.4 | | | $ | 34.7 | | | $ | 33.6 | |
| Accruals not currently deductible | | 75.1 | | | 62.4 | | | 72.9 | |
| Tax credit carryforward | | 2.4 | | | 2.0 | | | 1.8 | |
| Employee benefits | | 32.4 | | | 41.3 | | | 56.5 | |
| Net operating losses | | 37.1 | | | 40.4 | | | 40.9 | |
| Depreciation and amortization | | (192.0) | | | (178.9) | | | (167.5) | |
| Valuation allowance | | (26.7) | | | (27.8) | | | (25.1) | |
| Equity-based compensation | | 14.3 | | | 16.2 | | | 16.6 | |
| Undistributed non-U.S. earnings | | (5.4) | | | (6.6) | | | (6.0) | |
| | | | | | |
| Other | | 1.3 | | | (0.7) | | | (0.4) | |
| Net deferred income tax asset (liability) | | $ | (20.1) | | | $ | (17.0) | | | $ | 23.3 | |
As of
20172020 year end,
Snap-on had tax net operating loss carryforwards totaling
$240.3$184.1 million as follows:
| | | | | | | | | | | | | | | | |
| (Amounts in millions) | | State | | | Federal | | | Foreign | | | Total | |
Year of expiration: | | | | | | | | | | | | | | | | |
2018-2022 | | | $ 0.1 | | | | $ – | | | | $ 45.8 | | | | $ 45.9 | |
2023-2027 | | | 0.2 | | | | – | | | | 8.0 | | | | 8.2 | |
2028-2032 | | | 107.1 | | | | – | | | | 38.1 | | | | 145.2 | |
2033-2037 | | | – | | | | – | | | | – | | | | – | |
Indefinite | | | – | | | | – | | | | 41.0 | | | | 41.0 | |
| | | | | | | | | | | | | | | | |
Total net operating loss carryforwards | | | $ 107.4 | | | | $ – | | | | $ 132.9 | | | | $ 240.3 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | State | | Federal | | Foreign | | Total |
| Year of expiration: | | | | | | | | |
| 2021-2025 | | $ | 0.3 | | | $ | 0 | | | $ | 58.5 | | | $ | 58.8 | |
| 2026-2030 | | 0 | | | 0 | | | 10.4 | | | 10.4 | |
| 2031-2035 | | 56.7 | | | 0 | | | 0 | | | 56.7 | |
| 2036-2040 | | 0 | | | 0 | | | 0 | | | 0 | |
| 2041-2045 | | 0 | | | 0 | | | 31.9 | | | 31.9 | |
| Indefinite | | 0 | | | 0 | | | 26.3 | | | 26.3 | |
| Total net operating loss carryforwards | | $ | 57.0 | | | $ | 0 | | | $ | 127.1 | | | $ | 184.1 | |
A valuation allowance totaling
$25.2$26.7 million,
$21.7$27.8 million and
$32.0$25.1 million as of
2017, 20162020, 2019 and
20152018 year end, respectively, has been established for deferred income tax assets primarily related to certain subsidiary loss carryforwards that may not be realized.
For the year ended December 31, 2016, the net valuation allowance decreased by $10.3 million primarily due to anon-U.S. subsidiary having, in part, attained three years of cumulative pretax income and, as a result, management concluded there is sufficient positive evidence that it ismore-likely-than-not that additional deferred taxes are realizable. 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 following is a reconciliation of the beginning and ending amounts of unrecognized tax benefits for
2017, 20162020, 2019 and
2015: | | | | | | | | | | | | |
| (Amounts in millions) | | 2017 | | | 2016 | | | 2015 | |
Unrecognized tax benefits at beginning of year | | | $ 9.4 | | | | $ 7.2 | | | | $ 6.4 | |
Gross increases – tax positions in prior periods | | | 1.4 | | | | 2.5 | | | | 1.7 | |
Gross decreases – tax positions in prior periods | | | – | | | | (0.3) | | | | (0.5) | |
Gross increases – tax positions in the current period | | | 1.0 | | | | 0.5 | | | | 0.5 | |
Settlements with taxing authorities | | | (3.6) | | | | – | | | | – | |
Lapsing of statutes of limitations | | | (0.5) | | | | (0.5) | | | | (0.9) | |
| | | | | | | | | | | | |
Unrecognized tax benefits at end of year | | | $ 7.7 | | | | $ 9.4 | | | | $ 7.2 | |
| | | | | | | | | | | | |
2018:
| | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2020 | | 2019 | | 2018 |
| Unrecognized tax benefits at beginning of year | | $ | 10.3 | | | $ | 11.1 | | | $ | 7.7 | |
| Gross increases – tax positions in prior periods | | 0.4 | | | 0 | | | 1.3 | |
| Gross decreases – tax positions in prior periods | | 0 | | | (0.6) | | | (0.1) | |
| Gross increases – tax positions in the current period | | 0.4 | | | 0.5 | | | 2.8 | |
| Settlements with taxing authorities | | (1.4) | | | 0 | | | 0 | |
| Lapsing of statutes of limitations | | (0.6) | | | (0.7) | | | (0.6) | |
| Unrecognized tax benefits at end of year | | $ | 9.1 | | | $ | 10.3 | | | $ | 11.1 | |
The unrecognized tax benefits of
$7.7$9.1 million,
$9.4$10.3 million and
$7.2$11.1 million as of
2017, 20162020, 2019 and
20152018 year end, respectively, would impact the effective income tax rate if recognized. As of
December 30, 2017,January 2, 2021, unrecognized tax benefits of
$1.8 million, $2.4$1.4 million and
$3.5$7.7 million were included in “Deferred income tax
assets,” “Other accrued liabilities”assets” and “Other long-term liabilities,” respectively, on the accompanying Consolidated Balance
Sheet.Sheets. Interest and penalties related to unrecognized tax benefits are recorded in income tax expense. As of
2017, 20162020, 2019 and
20152018 year end, the company had provided for
$0.6$1.1 million,
$0.9$1.1 million and
$0.5$0.8 million, respectively, of accrued interest and penalties related to unrecognized tax benefits.
During 2017, the company decreased the reserve attributable to interest and penalties associated with unrecognized tax benefits by a net $0.3 million. As of
December 30, 2017, $0.1 million and $0.5January 2, 2021, $1.1 million of accrued interest and penalties were included in “Other
accruedlong-term liabilities”
and “Other long-term liabilities,” respectively, on the accompanying Consolidated Balance
Sheet.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
zero0 to
$3.2$0.7 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
zero0 to
$1.3$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
2012,2017, and
Snap-on is no longer subject to
non-U.S. income tax examinations by tax authorities for years prior to 2012.
The
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 2020 year end, the company has not made a provision for incremental U.S. income taxes or additional foreign withholding taxes on approximately $319.1 million of such undistributed earnings
that is deemed indefinitely reinvested. Determination of
allnon-U.S. subsidiaries totaled $876.7 million, $800.6 million and $624.1 million asthe amount of
2017, 2016 and 2015 year end, respectively.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
is currently analyzing its global working capital andcan now repatriate non-U.S. cash
requirements and the potentialin a tax
liabilities attributable to any future repatriation, but the company has yet to determine whether it plans to change its prior assertion and repatriate earnings.efficient manner. Accordingly, the company has
not recorded any deferred taxes attributable to its investments in foreign subsidiaries. The company will record the tax effects of any change inreversed its prior assertion
inconcerning the
period that itindefinite reinvestment of the majority of its undistributed foreign earnings and has
completed the analysis and is able to makerecorded a
reasonable estimate, and disclose any unrecognized deferred tax liability
of $5.4 million for
temporary differences related to its foreign investments, if practicable.the incremental tax costs associated with the future potential repatriation of such earnings.
| | | | | | | | |
| | 20172020 ANNUAL REPORT | | 9189 |
Notes to Consolidated Financial Statements (continued)
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
Note
9:10: Short-term and Long-term Debt
Short-term and long-term debt as of 20172020 and 20162019 year end consisted of the following: | | | | | | | | |
| (Amounts in millions) | | 2017 | | | 2016 | |
5.50% unsecured notes due 2017 | | $ | – | | | $ | 150.0 | |
4.25% unsecured notes due 2018 | | | 250.0 | | | | 250.0 | |
6.70% unsecured notes due 2019 | | | 200.0 | | | | 200.0 | |
6.125% unsecured notes due 2021 | | | 250.0 | | | | 250.0 | |
3.25% unsecured notes due 2027 | | | 300.0 | | | | – | |
Other debt* | | | 186.8 | | | | 160.2 | |
| | | | | | | | |
| | | 1,186.8 | | | | 1,010.2 | |
Less: notes payable and current maturities of long-term debt: | | | | | | | | |
Current maturities of long-term debt | | $ | (250.0) | | | $ | (150.0) | |
Commercial paper borrowings | | | (151.0) | | | | (130.0) | |
Other notes | | | (32.2) | | | | (21.4) | |
| | | | | | | | |
| | | (433.2) | | | | (301.4) | |
| | | | | | | | |
Total long-term debt | | $ | 753.6 | | | $ | 708.8 | |
| | | | | | | | |
* Includes fair value adjustments related to interest rate swaps.
| | | | | | | | | | | | | | |
| (Amounts in millions) | | 2020 | | 2019 |
| 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 | | | 400.0 | |
| 3.10% unsecured notes due 2050 | | 500.0 | | | 0 | |
| Other debt* | | 0.6 | | | 199.8 | |
| | 1,450.6 | | | 1,149.8 | |
| Less: notes payable and current maturities of long-term debt: | | | | |
| Current maturities of long-term debt | | $ | (250.0) | | | $ | 0 | |
| Commercial paper borrowings | | 0 | | | (193.6) | |
| Other notes* | | (18.5) | | | (9.3) | |
| | (268.5) | | | (202.9) | |
| Total long-term debt | | $ | 1,182.1 | | | $ | 946.9 | |
| | | | | | | | | | | | | | |
| | | | |
| * Includes the net effects of debt amortization costs and fair value adjustments related to interest rate swaps. | |
The annual maturities of
Snap-on’s long-term debt and notes payable over the next five years are
$433.2 million in 2018, (including $250 million of unsecured 4.25% notes due January 16, 2018 (the “2018 Notes”), that were repaid upon maturity), $200 million in 2019, no maturities in 2020, $250$268.5 million in 2021,
and nowith 0 maturities in
2022. See Note 20 regarding the January 2018 repayment of the 2018 Notes.2022, 2023, 2024 and 2025.
Average notes payable outstanding, including commercial paper
and short-term credit facility borrowings, were
$126.8$68.4 million and
$49.3$175.0 million in
20172020 and
2016,2019, respectively. The
2020 weighted-average interest rate
on such borrowings of
2.45%2.98% compared with 2.87% in
2017 decreased from 7.09% last year. This reflects the impact of the higher commercial paper borrowings which generally have lower interest rates than other notes payable outstanding.2019. Average commercial paper borrowings were
$103.3$41.0 million and
$26.6$162.2 million in
20172020 and
2016,2019, respectively, and the weighted-average interest rate of
1.14%1.53% on such borrowings in
2017 increased2020 decreased from
0.73%2.27% last year.
NaN commercial paper was outstanding as of year-end 2020. Average short-term credit facility borrowings were $13.9 million in 2020 with a weighted-average interest rate of 1.70%. NaN amounts were outstanding under the short-term credit facility as of year-end 2020 and 0 amounts were borrowed under the short-term credit facility in 2019. At
20172020 year end, the weighted-average interest rate on outstanding notes payable of
2.34%8.87% compared with
2.85% at 2016 year end.2.23% in 2019. The
20172020 year-end rate
benefited from lower interest rates on international borrowings. The 2016year-end rate benefited from lower interest rates on commercial paper borrowings.increased primarily due to higher local borrowings in emerging markets.
On
February 15, 2017,April 27, 2020, Snap-on sold, at a discount,
$300$500 million of unsecured
3.25% long-term3.10% notes that mature on
MarchMay 1,
2027 (the”20272050 (the “2050 Notes”). Interest on the
20272050 Notes accrues at a rate of
3.25% per year3.10% and is
payable semi-annually beginning September 1, 2017.paid semi-annually. Snap-on used the
$297.8$489.9 million
of net proceeds from the sale of the
20272050 Notes, reflecting
$1.9$4.4 million of transaction costs,
to repay a portion of its then-outstanding commercial paper borrowings and the remainder is being used for general corporate purposes, which may include working capital, capital expenditures and
possiblepotential acquisitions.
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”); no0 amounts were outstanding under the Credit Facility as of December 30, 2017.January 2, 2021. Borrowings under the Credit Facility bear interest at varying rates based on either: (i) Snap-on’s then-current, long-term debt ratings. The Credit Facility’s financial covenant requires thatSnap-on maintain, asratings; or (ii) Snap-on’s then-current ratio 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) to the sum of such consolidated net debt plus total equity and less accumulated other comprehensive income or loss (the “Debt Ratio”adjustments (“Consolidated Net Debt”); or (ii) a 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“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 to the sum of Consolidated Net Debt plus total equity and less accumulated other comprehensive income or loss (the “Leverage Ratio”); or (ii) a Consolidated Net Debt to EBITDA Ratio not greater than 3.50 to 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 2017 year end,January 2, 2021, the company’s actual ratios of 0.260.12 and 1.16,0.57 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 asback-up liquidity to support such commercial paper issuances.
Note
10:11: 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.
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 thatSnap-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.
Notes to Consolidated Financial Statements (continued)
See Note 18 for additional information on Other income (expense) - net.
As of
20172020 year end,
Snap-on had
$53.8$46.7 million of net foreign currency forward buy contracts outstanding comprised of buy contracts including
$64.9 million in euros, $15.4$58.9 million in Swedish kronor,
$13.1$43.5 million in British pounds, $26.1 million in Chinese renminbi, $22.5 million in Hong Kong dollars,
$11.3$14.6 million in Singapore dollars,
$6.8$6.2 million in
South Korean won, $5.7Australian dollars, $5.8 million in Norwegian kroner,
$5.1 million in Danish kroner, and
$8.0$3.7 million in other currencies, and sell contracts comprised of
$29.7 million in British pounds, $13.8$120.4 million in Canadian dollars,
$11.8 million in Australian dollars, $6.0$7.9 million in Indian rupees,
$3.4$3.5 million in
Thai baht,Hungarian forints, and
$6.7$7.9 million in other currencies. As of
20162019 year end,
Snap-on had
$144.4$33.2 million of net foreign currency forward buy contracts outstanding comprised of buy contracts including
$55.0$41.4 million in euros,
$53.6 million in British pounds, $47.0$34.5 million in Swedish kronor,
$9.0$17.4 million in Hong Kong dollars,
$7.0$13.1 million in
South Korean won, $5.5Chinese renminbi, $13.0 million in Singapore dollars,
$4.9 million in Mexican pesos, $4.6$6.0 million in Norwegian kroner, and
$6.4$7.0 million in other currencies, and sell contracts comprised of
$16.6$52.9 million in British pounds, $17.5 million in Canadian dollars, $10.0 million in Indian rupees, $9.6 million in Japanese yen,
$11.8 million in Canadian dollars, $4.4 million in Australian dollars, $4.0 million in Brazilian real, and
$11.8$9.2 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 ofSnap-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 fair value of the designated and qualifying derivative is recorded in “Notes payable and current maturities of long-term debt” in 2020 and “Long-term debt” in 2019 on the accompanying Consolidated Balance Sheets, while any ineffective portion is recorded as an adjustment to “Interest expense” on the accompanying Consolidated Statements of Earnings.Sheets. The notional amount of interest rate swaps outstanding and designated as fair value hedges was $100 million as of both 20172020 and 20162019 year end.
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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) |
| | 2020 | | 2019 | | 2020 | | 2019 |
| Notes payable and current maturities of long-term debt* | | $ | (255.1) | | | $ | 0 | | | $ | (5.1) | | | $ | 0 | |
| Long-term debt* | | 0 | | | (255.0) | | | 0 | | | (5.0) | |
| | | | | | | | |
| * | The interest rate swap transacted in March 2010 was designated as a hedge of the first $100 million issuance of the $250 million, 6.125% unsecured notes due September 1, 2021. |
Treasury locks:Snap-on entered into a $300 million uses treasury lock in November 2017locks to manage the potential change in interest rates in anticipation of the possible issuance of fixed rate debt; the treasury lock expires on February 28, 2018.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. As of 2017 year end, an unrecognized gain of $0.8 million has been recorded in Accumulated OCI on the accompanying Consolidated Balance Sheet.for derivative instruments that are designated and qualify as cash flow hedges. Upon the issuance of debt, the related amount in Accumulated OCI will beis released over the hedging instrument’s designated term of the debt and recognized as an adjustment to interest expense on the consolidated statementsConsolidated Statements of earnings.The notional amountEarnings.
In the second quarter of 2020, Snap-on entered into a $300.0 million treasury locks outstanding and designated as cash flow hedges was $300 million aslock to manage changes in interest rates in anticipation of December 30, 2017, and $250 million asthe issuance of December 31, 2016. In fiscal 2017,fixed rate debt. Snap-on settled the $250$300.0 million treasury lock in conjunction with the February 2017April 2020 issuance of the 20272050 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 statementConsolidated Statements of earnings. Earnings.
There were
no0 treasury locks
settled in 2016 or 2015.outstanding as of both January 2, 2021 and December 28, 2019. 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 potentialmark-to-market effect on stock-based deferred compensation from changes inSnap-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 suchmark-to-market changes. As of 20172020 and 20162019 year end,Snap-on had equity forwards in place intended to manage market risk with respect to 102,30078,800 shares and 104,40089,600 shares, respectively, ofSnap-on common stock associated with its deferred compensation plans. 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
20172020 and
20162019 year end are as follows:
| | | | | | | | | | | | | | | | | | |
| | | | | 2017 | | | 2016 | |
| (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 | | $ | 7.3 | | | $ | – | | | $ | 9.8 | | | $ | – | |
| | | | | |
Treasury locks | | Other assets | | | 1.4 | | | | – | | | | 14.3 | | | | – | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | 8.7 | | | | – | | | | 24.1 | | | | – | |
| | | | | | | | | | | | | | | | | | |
| Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | | | | | |
Foreign currency forwards | | Prepaid expenses
and other assets | | $ | 4.1 | | | $ | – | | | $ | 4.4 | | | $ | – | |
Foreign currency forwards | | Other accrued liabilities | | | – | | | | 6.5 | | | | – | | | | 13.5 | |
| | | | | | | | | | | | | | | | | | |
Equity forwards | | Prepaid expenses
and other assets | | | 17.8 | | | | – | | | | 17.9 | | | | – | |
| | | | | | | | | | | | | | | | | | |
| | | | | 21.9 | | | | 6.5 | | | | 22.3 | | | | 13.5 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
Total derivative instruments | | | | $ | 30.6 | | | $ | 6.5 | | | $ | 46.4 | | | $ | 13.5 | |
| | | | | | | | | | | | | | | | | | |
As of 2017 and 2016 year end, the fair value adjustment to long-term debt related to the interest rate swaps was $7.3 million and $9.8 million, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | 2020 | | 2019 |
| (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 | | | $ | — | | | $ | 5.0 | | | $ | — | |
| Derivatives not designated as hedging instruments: | | | | | | | | | | |
| Foreign currency forwards | | Prepaid expenses and other assets | | $ | 12.2 | | | $ | — | | | $ | 3.5 | | | $ | — | |
| Foreign currency forwards | | Other accrued liabilities | | — | | | 7.0 | | | — | | | 4.6 | |
| Equity forwards | | Prepaid expenses and other assets | | 13.5 | | | — | | | 15.2 | | | — | |
| | | | 25.7 | | | 7.0 | | | 18.7 | | | 4.6 | |
| Total derivative instruments | | | | $ | 30.8 | | | $ | 7.0 | | | $ | 23.7 | | | $ | 4.6 | |
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 the10-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 ofin 2020 and
for its 2017 and 2016 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) | | | 2017 | | | 2016 | | | 2015 | | |
Derivatives designated as fair value hedges: | | | | | | | | | | | | | | | | | |
Interest rate swaps | | | Interest expense | | | $ | 2.8 | | | $ | 2.9 | | | $ | 3.7 | | |
Notes to Consolidated Financial Statements (continued)
2019, 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) | 2020 | | 2019 | | 2018 |
| Derivatives in Hedging Relationships: | | | | | | |
| Treasury locks | | $ | 1.4 | | | $ | 0 | | | $ | (0.8) | |
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
The effect of derivative instruments designated as fair value and cash flow hedges as included in 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 | |
| | 2017 | | | 2016 | | | 2015 | | | | 2017 | | | 2016 | | | 2015 | |
| Derivatives designated as cash flow hedges: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Treasury locks | | $ | 6.9 | | | $ | 8.8 | | | $ | – | | |
| Interest
expense |
| | $ | 1.6 | | | $ | 0.3 | | | $ | 0.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Gain (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships |
| | 2020 | | 2019 | | 2018 |
| (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: | | $ | (54.0) | | | $ | 8.7 | | | $ | (49.0) | | | $ | 8.8 | | | $ | (50.4) | | | $ | 4.2 | |
| | | | | | | | | | | | |
| Gain (loss) on fair value hedging relationships: | | | | | | | | | | | | |
| Interest rate swaps | | | | | | | | | | | | |
| Long-term debt | | $ | (15.7) | | | $ | 0 | | | $ | (15.4) | | | $ | 0 | | | $ | (15.4) | | | $ | 0 | |
| Derivatives designated as hedging instruments | | 3.9 | | | 0 | | | 2.0 | | | 0 | | | 1.5 | | | 0 | |
| | | | | | | | | | | | |
| Gain on cash flow hedging relationships: | | | | | | | | | | | | |
| Treasury locks | | | | | | | | | | | | |
| Gain reclassified from accumulated OCI into income | | $ | 1.6 | | | $ | 0 | | | $ | 1.5 | | | $ | 0 | | | $ | 1.5 | | | $ | 0 | |
| Gain on settlement | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 13.3 | |
As of 2020 year end, the maximum maturity date of any fair value hedge was one year. 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 | |
| (Amounts in millions) | | | 2017 | | | 2016 | | | 2015 | |
| Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | | | |
Foreign currency forwards | |
| Other income
(expense) – net |
| | $ | (25.8) | | | $ | (7.4) | | | $ | (15.5) | |
Equity forwards | | | Operating expenses | | | | 0.9 | | | | 0.8 | | | | 4.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Statement of
Earnings
Presentation | | Gain (Loss) Recognized in
Income on Derivatives |
|
| (Amounts in millions) | | | | 2020 | | 2019 | | 2018 |
| Gain (loss) on derivative relationships: | | | | | | | | |
| Foreign currency forwards | | Other income
(expense) – net | | $ | (6.6) | | | $ | (20.0) | | | $ | (40.4) | |
| Net exposures | | Other income
(expense) – net | | 2.7 | | | 16.4 | | | 36.5 | |
| | | | | | | | |
| Equity forwards | | Operating expenses | | $ | 1.0 | | | $ | 3.0 | | | $ | (2.1) | |
| Stock-based deferred compensation liabilities | | Operating expenses | | (1.2) | | | (3.0) | | | 2.0 | |
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.
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. In 2015, the $15.5 million derivative loss was partially offset by transaction gains on net exposures of $12.8 million, resulting in a net foreign exchange loss of $2.7 million. The resulting net foreign exchange losses are included in “Other income (expense) – net” on the accompanying Consolidated Statements of Earnings. See Note
1618 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 $0.9 million derivative gain recognized in 2017 was primarily offset by $0.8 million ofmark-to-market deferred compensation expense. The $0.8 million derivative gain recognized in 2016 was partially offset by $0.3 million ofmark-to-market deferred compensation expense. The $4.7 million derivative gain recognized in 2015 was largely offset by $4.6 million ofmark-to-market deferred compensation expense.As of 2017 year end, the maximum maturity date of any fair value hedge was four years. During the next 12 months,Snap-on expects to reclassify into earnings net gains from Accumulated OCI of approximately $1.0 million after tax at the time the underlying hedge transactions are realized.
Counterparty risk:Snap-on is exposed to credit losses in the event ofnon-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 ofA- or better.Snap-on does not anticipatenon-performance by its counterparties, but cannot provide assurances.
Fair value of financial instruments: The fair values of financial instruments that do not approximate the carrying values in the financial statements as of 20172020 and 20162019 year end are as follows: | | | | | | | | | | | | | | | | |
| | | 2017 | | | 2016 | |
| (Amounts in millions) | | Carrying
Value | | | Fair
Value | | | Carrying
Value | | | Fair
Value | |
Finance receivables – net | | $ | 1,544.6 | | | $ | 1,791.5 | | | $ | 1,407.0 | | | $ | 1,631.2 | |
Contract receivables – net | | | 419.4 | | | | 459.1 | | | | 374.8 | | | | 409.7 | |
Long-term debt, notes payable and current maturities of long-term debt | | | 1,186.8 | | | | 1,235.6 | | | | 1,010.2 | | | | 1,076.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2020 | | 2019 |
| (Amounts in millions) | | Carrying
Value | | Fair
Value | | Carrying
Value | | Fair
Value |
| Finance receivables – net | | $ | 1,666.5 | | | $ | 2,024.4 | | | $ | 1,633.6 | | | $ | 1,920.6 | |
| Contract receivables – net | | 487.2 | | | 545.4 | | | 460.8 | | | 505.5 | |
| Long-term debt, notes payable and current maturities of long-term debt | | 1,450.6 | | | 1,678.2 | | | 1,149.8 | | | 1,238.8 | |
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 ofSnap-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.
Note
11:12: 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 ofSnap-on’s pension plans as of 2017 and 2016 year end is as follows:
| | | | | | | | |
| (Amounts in millions) | | 2017 | | | 2016 | |
Change in projected benefit obligation: | | | | | | | | |
Benefit obligation at beginning of year | | $ | 1,361.4 | | | $ | 1,279.4 | |
Service cost | | | 22.7 | | | | 19.3 | |
Interest cost | | | 56.1 | | | | 56.5 | |
Plan participant contributions | | | 0.6 | | | | 1.0 | |
Plan settlements | | | (0.3) | | | | – | |
Benefits paid | | | (66.6) | | | | (63.2) | |
Actuarial loss | | | 69.5 | | | | 94.7 | |
Foreign currency impact | | | 24.2 | | | | (26.3) | |
| | | | | | | | |
Benefit obligation at end of year | | $ | 1,467.6 | | | $ | 1,361.4 | |
| | | | | | | | |
| | | | | | | | |
| | 20172020 ANNUAL REPORT | | 9795 |
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
The status of Snap-on’s pension plans as of 2020 and 2019 year end is as follows:
| | | | | | | | | | | | | | |
| (Amounts in millions) | | 2020 | | 2019 |
| Change in projected benefit obligation: | | | | |
| Benefit obligation at beginning of year | | $ | 1,565.6 | | | $ | 1,386.9 | |
| Service cost | | 27.0 | | | 23.5 | |
| Interest cost | | 48.7 | | | 56.4 | |
| Plan participant contributions | | 0.4 | | | 0.5 | |
| Plan amendments | | 0.1 | | | 0 | |
| Benefits paid | | (72.1) | | | (73.0) | |
| Actuarial loss | | 122.8 | | | 169.5 | |
| Foreign currency impact | | 17.5 | | | 1.8 | |
| Benefit obligation at end of year | | $ | 1,710.0 | | | $ | 1,565.6 | |
| | | | | | | | | | | | | | |
| | | | |
| Change in plan assets: | | | | |
| Fair value of plan assets at beginning of year | | $ | 1,455.5 | | | $ | 1,215.6 | |
| Actual gain on plan assets | | 227.9 | | | 258.7 | |
| Employer contributions | | 10.4 | | | 50.8 | |
| Plan participant contributions | | 0.4 | | | 0.4 | |
| Benefits paid | | (72.1) | | | (73.0) | |
| Foreign currency impact | | 10.3 | | | 3.0 | |
| Fair value of plan assets at end of year | | $ | 1,632.4 | | | $ | 1,455.5 | |
| Unfunded status at end of year | | $ | (77.6) | | | $ | (110.1) | |
The increase in the defined benefit pension plans benefit obligations in 2020 was primarily due to
Consolidated Financial Statements (continued) | | | | | | | | |
| (Amounts in millions) | | 2017 | | | 2016 | |
Change in plan assets: | | | | | | | | |
Fair value of plan assets at beginning of year | | $ | 1,110.8 | | | $ | 1,049.2 | |
Actual return on plan assets | | | 175.7 | | | | 73.5 | |
Employer contributions | | | 69.6 | | | | 68.7 | |
Plan participant contributions | | | 0.6 | | | | 1.0 | |
Plan settlements | | | (0.3) | | | | – | |
Benefits paid | | | (66.6) | | | | (63.2) | |
Foreign currency impact | | | 15.2 | | | | (18.4) | |
Fair value of plan assets at end of year | | $ | 1,305.0 | | | $ | 1,110.8 | |
| | | | | | | | |
Unfunded status at end of year | | $ | (162.6) | | | $ | (250.6) | |
| | | | | | | | |
a decrease in the discount rate in 2020 as compared to 2019.
Amounts recognized in the Consolidated Balance Sheets as of 20172020 and 20162019 year end are as follows: | | | | | | | | |
| (Amounts in millions) | | 2017 | | | 2016 | |
Other assets | | $ | 1.5 | | | $ | 0.6 | |
Accrued benefits | | | (5.2) | | | | (4.7) | |
Pension liabilities | | | (158.9) | | | | (246.5) | |
| | | | | | | | |
Net liability | | $ | (162.6) | | | $ | (250.6) | |
| | | | | | | | |
| | | | | | | | | | | | | | |
| (Amounts in millions) | | 2020 | | 2019 |
| Other assets | | $ | 54.2 | | | $ | 17.3 | |
| Accrued benefits | | (4.7) | | | (5.3) | |
| Pension liabilities | | (127.1) | | | (122.1) | |
| Net liability | | $ | (77.6) | | | $ | (110.1) | |
Amounts included in Accumulated OCI on the accompanying Consolidated Balance Sheets as of 20172020 and 20162019 year end are as follows: | | | | | | | | |
| (Amounts in millions) | | 2017 | | | 2016 | |
Net loss, net of tax of $146.4 million and $160.6 million, respectively | | $ | (266.7) | | | $ | (297.0) | |
Prior service credit, net of tax of $0.9 million and $1.3 million, respectively | | | 1.5 | | | | 2.2 | |
| | | | | | | | |
| | $ | (265.2) | | | $ | (294.8) | |
| | | | | | | | |
| | | | | | | | | | | | | | |
| (Amounts in millions) | | 2020 | | 2019 |
| Net loss, net of tax of $95.4 million and $104.8 million, respectively | | $ | (302.2) | | | $ | (333.8) | |
| Prior service cost, net of tax of ($0.2) million and ($0.1) million, respectively | | (0.7) | | | (0.6) | |
| Total amount included in Accumulated OCI | | $ | (302.9) | | | $ | (334.4) | |
The accumulated benefit obligation for
Snap-on’s pension plans as of
20172020 and
20162019 year end was
$1,385.0$1,621.5 million and
$1,283.1$1,478.0 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
20172020 and
20162019 year end are as follows:
| | | | | | | | |
| (Amounts in millions) | | 2017 | | | 2016 | |
Projected benefit obligation | | $ | 398.7 | | | $ | 1,312.1 | |
Accumulated benefit obligation | | | 378.1 | | | | 1,238.7 | |
Fair value of plan assets | | | 275.6 | | | | 1,061.0 | |
| | | | | | | | | | | | | | |
| (Amounts in millions) | | 2020 | | 2019 |
| Pension plans with accumulated benefit obligations in excess of plan assets: |
| Accumulated benefit obligation | | $ | 266.3 | | | $ | 231.0 | |
| Fair value of plan assets | | 152.6 | | | 126.5 | |
| Pension plans with projected benefit obligations in excess of plans assets: |
| Projected benefit obligation | | $ | 284.4 | | | $ | 1,336.9 | |
| Fair value of plan assets | | 152.6 | | | 1,209.5 | |
The components of net periodic benefit cost and changes recognized in “Other comprehensive income (loss)” (“OCI”) are as follows: | | | | | | | | | | | | |
| (Amounts in millions) | | 2017 | | | 2016 | | | 2015 | |
Net periodic benefit cost: | | | | | | | | | | | | |
Service cost | | $ | 22.7 | | | $ | 19.3 | | | $ | 20.0 | |
Interest cost | | | 56.1 | | | | 56.5 | | | | 53.2 | |
Expected return on plan assets | | | (83.4) | | | | (81.0) | | | | (79.0) | |
Amortization of unrecognized loss | | | 27.9 | | | | 31.3 | | | | 38.6 | |
Amortization of prior service credit | | | (1.1) | | | | (1.1) | | | | (0.9) | |
Settlement loss | | | 0.1 | | | | – | | | | – | |
| | | | | | | | | | | | |
Net periodic benefit cost | | $ | 22.3 | | | $ | 25.0 | | | $ | 31.9 | |
| | | | | | | | | | | | |
| | | |
Changes in benefit obligations recognized in OCI, net of tax: | | | | | | | | | | | | |
Net (gain) loss | | $ | (30.3) | | | $ | 43.3 | | | $ | 6.3 | |
Prior service cost | | | 0.7 | | | | 0.6 | | | | 0.7 | |
| | | | | | | | | | | | |
Total recognized in OCI | | $ | (29.6) | | | $ | 43.9 | | | $ | 7.0 | |
| | | | | | | | | | | | |
Amounts in Accumulated OCI that are expected to be amortized as net expense into
| | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2020 | | 2019 | | 2018 |
| Net periodic benefit cost: | | | | | | |
| Service cost | | $ | 27.0 | | | $ | 23.5 | | | $ | 25.1 | |
| Interest cost | | 48.7 | | | 56.4 | | | 52.8 | |
| Expected return on plan assets | | (94.7) | | | (91.5) | | | (88.6) | |
| Amortization of unrecognized loss | | 34.5 | | | 25.2 | | | 32.7 | |
| Amortization of prior service credit | | 0 | | | (0.9) | | | (1.2) | |
| | | | | | |
| Net periodic benefit cost | | $ | 15.5 | | | $ | 12.7 | | | $ | 20.8 | |
| | | | | | |
| Changes in benefit obligations recognized in OCI, net of tax: | | | | | | |
| Net (gain) loss | | $ | (31.6) | | | $ | 31.9 | | | $ | 35.2 | |
| Prior service cost | | 0.1 | | | 0.4 | | | 1.7 | |
| Total recognized in OCI | | $ | (31.5) | | | $ | 32.3 | | | $ | 36.9 | |
The components of net periodic benefitpension cost, during 2018other than the service cost component, are included in “Other income (expense) - net” on the accompanying Consolidated Statements of Earnings. See Note 18 for additional information on Other income (expense) - net.
The worldwide weighted-average assumptions used to determine Snap-on’s full-year pension costs are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| Discount rate | | 3.2% | | 4.2% | | 3.7% |
| Expected return on plan assets | | 7.0% | | 7.1% | | 7.1% |
| Rate of compensation increase | | 3.4% | | 3.4% | | 3.4% |
The worldwide weighted-average assumptions used to determine Snap-on’s projected benefit obligation as of 2020 and 2019 year end are as follows:
| | | | | | | | | | | | | | |
| | 2020 | | 2019 |
| Discount rate | | 2.5% | | 3.2% |
| Rate of compensation increase | | 3.4% | | 3.4% |
| Interest crediting rate - U.S. cash balance plan | | 3.8% | | 3.8% |
| | | | | | | | |
(Amounts in millions) | 2020 ANNUAL REPORT | Amount97 |
| |
Amortization of unrecognized loss
| | $ | 32.0 | |
Amortization of prior service credit
| | | (1.2) | |
| | | | |
TotalNotes to be recognized in net periodic benefit cost
Consolidated Financial Statements (continued) | | $ | 30.8 | |
| | | | |
The worldwide weighted-average assumptions used to determineSnap-on’s full-year pension costs are as follows:
| | | | | | | | | | | | |
| | | 2017 | | | 2016 | | | 2015 | |
Discount rate | | | 4.2% | | | | 4.5% | | | | 4.1% | |
Expected return on plan assets | | | 7.2% | | | | 7.4% | | | | 7.4% | |
Rate of compensation increase | | | 3.4% | | | | 3.6% | | | | 3.6% | |
The worldwide weighted-average assumptions used to determineSnap-on’s projected benefit obligation as of 2017 and 2016 year end are as follows:
| | | | | | | | |
| | | 2017 | | | 2016 | |
Discount rate | | | 3.7% | | | | 4.2% | |
Rate of compensation increase | | | 3.4% | | | | 3.4% | |
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
20172020 and
20162019 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.
Notes to Consolidated Financial Statements (continued)
The weighted-average discount rate for
Snap-on’s domestic
pension plans of 3.9% represents the single rate that produces the same present value of cash flows as the estimated benefit plan payments. LoweringSnap-on’s domestic discount rate assumption by 50 basis points (100 basis points (“bps”) equals 1.0 percent) would have increasedSnap-on’s 2017 domestic pension expense and projected benefit obligation by approximately $4.3 million and $71.3 million, respectively. As of 2017 year end,Snap-on’s domestic projected benefit obligation comprised approximately 83% ofSnap-on’s worldwide projected benefit obligation. The weighted-average discount rate forSnap-on’s foreign pension plans of 2.7% 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 2020 domestic pension expense and projected benefit obligation by approximately $4.5 million and $82.4 million, respectively. As of 2020 year end, Snap-on’s domestic projected benefit obligation comprised approximately 82% of Snap-on’s worldwide projected benefit obligation. The weighted-average discount rate for Snap-on’s foreign pension plans of 1.7% 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 2017 2020 foreign pension expense and projected benefit obligation by approximately
$1.8$1.9 million and
$24.4$32.3 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-on intends to make contributions of
$9.7$9.2 million to its foreign pension plans and
$2.4$2.2 million to its domestic pension plans in
2018,2021, as required by law. Depending on market and other conditions,
Snap-on may make discretionary cash contributions to its pension plans in
2018.2021.
The following benefit payments, which reflect expected future service, are expected to be paid as follows:
| | | | |
| (Amounts in millions) | | Amount | |
Year: | | | | |
2018 | | $ | 73.6 | |
2019 | | | 75.2 | |
2020 | | | 78.9 | |
2021 | | | 81.5 | |
2022 | | | 91.4 | |
2023-2027 | | | 462.3 | |
| | | | | |
| (Amounts in millions) | Amount |
| Year: | |
| 2021 | $ | 81.6 | |
| 2022 | 93.3 | |
| 2023 | 88.9 | |
| 2024 | 91.9 | |
| 2025 | 93.9 | |
| 2025-2029 | 493.8 | |
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%6.75% 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
20172020 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 20172020 and 20162019 year end are as follows: | | | | | | | | | | | | |
| | | Target | | | 2017 | | | 2016 | |
Asset category: | | | | | | | | | | | | |
Equity securities | | | 51% | | | | 51% | | | | 51% | |
Debt securities and cash and cash equivalents | | | 37% | | | | 38% | | | | 39% | |
Real estate and other real assets | | | 2% | | | | 1% | | | | 1% | |
Hedge funds | | | 10% | | | | 10% | | | | 9% | |
| | | | | | | | | | | | |
Total | | | 100% | | | | 100% | | | | 100% | |
| | | | | | | | | | | | |
| | | |
Fair value of plan assets(Amounts in millions) | | | | | | $ | 1,122.7 | | | $ | 957.1 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Target | | 2020 | | 2019 |
| Asset category: | | | | | | |
| Equity securities | | 54% | | 54% | | 51% |
| Debt securities and cash and cash equivalents | | 41% | | 41% | | 40% |
| Real estate and other real assets | | 0 | | 0 | | 1% |
| Hedge funds | | 5% | | 5% | | 8% |
| Total | | 100% | | 100% | | 100% |
| | | | | | |
Fair value of plan assets (Amounts in millions) | | | | $1,401.0 | | $1,260.5 |
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.
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
NAVNet 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.
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
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 ofSnap-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 | |
Asset category: | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 20.6 | | | $ | – | | | $ | – | | | $ | 20.6 | |
Equity securities: | | | | | | | | | | | | | | | | |
Domestic | | | 73.4 | | | | – | | | | – | | | | 73.4 | |
Foreign | | | 100.1 | | | | – | | | | – | | | | 100.1 | |
Commingled funds – domestic | | | – | | | | – | | | | 225.0 | | | | 225.0 | |
Commingled funds – foreign | | | – | | | | – | | | | 148.8 | | | | 148.8 | |
Private equity partnerships | | | – | | | | – | | | | 27.5 | | | | 27.5 | |
Debt securities: | | | | | | | | | | | | | | | | |
Government | | | 152.8 | | | | 2.2 | | | | – | | | | 155.0 | |
Corporate bonds | | | – | | | | 253.0 | | | | – | | | | 253.0 | |
Real estate and other real assets | | | – | | | | – | | | | 13.2 | | | | 13.2 | |
Hedge funds | | | – | | | | – | | | | 106.1 | | | | 106.1 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 346.9 | | | $ | 255.2 | | | $ | 520.6 | | | $ | 1,122.7 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (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 | | $ | 30.3 | | | $ | 0 | | | $ | 0 | | | $ | 30.3 | |
| Equity securities: | | | | | | | | |
| Domestic | | 111.8 | | | 0 | | | 0 | | | 111.8 | |
| Foreign | | 62.4 | | | 0 | | | 0 | | | 62.4 | |
| Commingled funds – domestic | | 0 | | | 0 | | | 312.9 | | | 312.9 | |
| Commingled funds – foreign | | 0 | | | 0 | | | 248.5 | | | 248.5 | |
| Private equity partnerships | | 0 | | | 0 | | | 14.7 | | | 14.7 | |
| Debt securities: | | | | | | | | |
| Government | | 161.7 | | | 2.9 | | | 0 | | | 164.6 | |
| Corporate bonds | | 0 | | | 377.9 | | | 0 | | | 377.9 | |
| Real estate and other real assets | | 0 | | | 0 | | | 4.3 | | | 4.3 | |
| Hedge funds | | 0 | | | 0 | | | 73.6 | | | 73.6 | |
| Total | | $ | 366.2 | | | $ | 380.8 | | | $ | 654.0 | | | $ | 1,401.0 | |
The following is a summary, by asset category, of the fair value and the level within the fair value hierarchy ofSnap-on’s domestic pension plans’ assets as of 20162019 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 | | $ | 20.4 | | | $ | – | | | $ | – | | | $ | 20.4 | |
Equity securities: | | | | | | | | | | | | | | | | |
Domestic | | | 66.0 | | | | – | | | | – | | | | 66.0 | |
Foreign | | | 74.7 | | | | – | | | | – | | | | 74.7 | |
Commingled funds – domestic | | | – | | | | – | | | | 191.3 | | | | 191.3 | |
Commingled funds – foreign | | | – | | | | – | | | | 117.7 | | | | 117.7 | |
Private equity partnerships | | | – | | | | – | | | | 34.2 | | | | 34.2 | |
Debt securities: | | | | | | | | | | | | | | | | |
Government | | | 139.2 | | | | 0.9 | | | | – | | | | 140.1 | |
Corporate bonds | | | – | | | | 214.6 | | | | – | | | | 214.6 | |
Real estate and other real assets | | | – | | | | – | | | | 10.4 | | | | 10.4 | |
Hedge funds | | | – | | | | – | | | | 87.7 | | | | 87.7 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 300.3 | | | $ | 215.5 | | | $ | 441.3 | | | $ | 957.1 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (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 | | $ | 25.6 | | | $ | 0 | | | $ | 0 | | | $ | 25.6 | |
| Equity securities: | | | | | | | | |
| Domestic | | 95.1 | | | 0 | | | 0 | | | 95.1 | |
| Foreign | | 58.4 | | | 0 | | | 0 | | | 58.4 | |
| Commingled funds – domestic | | 0 | | | 0 | | | 263.6 | | | 263.6 | |
| Commingled funds – foreign | | 0 | | | 0 | | | 209.4 | | | 209.4 | |
| Private equity partnerships | | 0 | | | 0 | | | 17.4 | | | 17.4 | |
| Debt securities: | | | | | | | | |
| Government | | 144.0 | | | 2.7 | | | 0 | | | 146.7 | |
| Corporate bonds | | 0 | | | 327.7 | | | 0 | | | 327.7 | |
| Real estate and other real assets | | 0 | | | 0 | | | 8.8 | | | 8.8 | |
| Hedge funds | | 0 | | | 0 | | | 107.8 | | | 107.8 | |
| Total | | $ | 323.1 | | | $ | 330.4 | | | $ | 607.0 | | | $ | 1,260.5 | |
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
1.9%1.0% to
6.1%5.4% as of
20172020 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 20172020 and 20162019 year end are as follows: | | | | | | | | | | | | |
| | | Target | | | 2017 | | | 2016 | |
Asset category: | | | | | | | | | | | | |
Equity securities* | | | 35% | | | | 36% | | | | 41% | |
Debt securities* and cash and cash equivalents | | | 40% | | | | 42% | | | | 36% | |
Insurance contracts and hedge funds | | | 25% | | | | 22% | | | | 23% | |
| | | | | | | | | | | | |
Total | | | 100% | | | | 100% | | | | 100% | |
| | | | | | | | | | | | |
| | | |
Fair value of plan assets(Amounts in millions) | | | | | | $ | 182.3 | | | $ | 153.7 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Target | | 2020 | | 2019 |
| Asset category: | | | | | | |
| Equity securities* | | 46% | | 46% | | 46% |
| Debt securities* and cash and cash equivalents | | 40% | | 40% | | 40% |
| Insurance contracts and hedge funds | | 14% | | 14% | | 14% |
| Total | | 100% | | 100% | | 100% |
| | | | | | |
Fair value of plan assets (Amounts in millions) | | | | $231.4 | | $195.0 |
* | | | | | | | | | | | | | | |
| | | | |
* 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 ofSnap-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 | | $ | 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 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (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 | | | $ | 0 | | | $ | 0 | | | $ | 1.0 | |
| Commingled funds – multi-strategy | | 0 | | | 0 | | | 162.4 | | | 162.4 | |
| Debt securities: | | | | | | | | |
| Government | | 12.0 | | | 0 | | | 0 | | | 12.0 | |
| Corporate bonds | | 0 | | | 23.8 | | | 0 | | | 23.8 | |
| Insurance contracts | | 0 | | | 32.2 | | | 0 | | | 32.2 | |
| | | | | | | | |
| Total | | $ | 13.0 | | | $ | 56.0 | | | $ | 162.4 | | | $ | 231.4 | |
The following is a summary, by asset category, of the fair value and the level within the fair value hierarchy ofSnap-on’s foreign pension plans’ assets as of 20162019 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 | | $ | 0.7 | | | $ | – | | | $ | – | | | $ | 0.7 | |
Commingled funds – multi-strategy | | | – | | | | – | | | | 117.4 | | | | 117.4 | |
Insurance contracts | | | – | | | | 21.3 | | | | – | | | | 21.3 | |
Hedge fund | | | – | | | | – | | | | 14.3 | | | | 14.3 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 0.7 | | | $ | 21.3 | | | $ | 131.7 | | | $ | 153.7 | |
| | | | | | | | | | | | | | | | |
Notes to Consolidated Financial Statements (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (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 | | $ | 0.9 | | | $ | 0 | | | $ | 0 | | | $ | 0.9 | |
| Commingled funds – multi-strategy | | 0 | | | 0 | | | 135.5 | | | 135.5 | |
| Debt securities: | | | | | | | | |
| Government | | 10.1 | | | 0 | | | 0 | | | 10.1 | |
| Corporate bonds | | 0 | | | 21.4 | | | 0 | | | 21.4 | |
| Insurance contracts | | 0 | | | 27.1 | | | 0 | | | 27.1 | |
| | | | | | | | |
| Total | | $ | 11.0 | | | $ | 48.5 | | | $ | 135.5 | | | $ | 195.0 | |
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 2017, 20162020, 2019 and 2015,2018, Snap-on recognized $8.9$10.3 million, $8.2$9.8 million and $7.0$9.4 million, respectively, of expense related to its 401(k) plans.
Note
12:13: 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 certainnon-salaried union 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
20172020 and
20162019 year end is as follows:
| | | | | | | | |
| (Amounts in millions) | | 2017 | | | 2016 | |
Change in accumulated postretirement benefit obligation: | | | | | | | | |
Benefit obligation at beginning of year | | | $ 53.2 | | | | $ 55.6 | |
Service cost | | | – | | | | 0.1 | |
Interest cost | | | 2.1 | | | | 2.2 | |
Plan participant contributions | | | 0.4 | | | | 0.5 | |
Benefits paid | | | (4.3) | | | | (4.4) | |
Actuarial loss (gain) | | | 1.1 | | | | (0.8) | |
| | | | | | | | |
Benefit obligation at end of year | | | $ 52.5 | | | | $ 53.2 | |
| | | | | | | | |
| | |
Change in plan assets: | | | | | | | | |
Fair value of plan assets at beginning of year | | | $ 13.2 | | | | $ 13.7 | |
Actual return on plan assets | | | 1.3 | | | | 0.5 | |
Employer contributions | | | 2.8 | | | | 2.9 | |
Plan participant contributions | | | 0.4 | | | | 0.5 | |
Benefits paid | | | (4.3) | | | | (4.4) | |
| | | | | | | | |
Fair value of plan assets at end of year | | | $ 13.4 | | | | $ 13.2 | |
| | | | | | | | |
Unfunded status at end of year | | | $ (39.1) | | | | $ (40.0) | |
| | | | | | | | |
| | | | | | | | | | | | | | |
| (Amounts in millions) | | 2020 | | 2019 |
| Change in accumulated postretirement benefit obligation: | | | | |
| Benefit obligation at beginning of year | | $ | 49.2 | | | $ | 46.8 | |
| Interest cost | | 1.5 | | | 1.9 | |
| Plan participant contributions | | 0.2 | | | 0.3 | |
| Benefits paid | | (3.6) | | | (4.2) | |
| Actuarial loss | | 3.3 | | | 4.4 | |
| Benefit obligation at end of year | | $ | 50.6 | | | $ | 49.2 | |
| | | | | | | | | | | | | | |
| | | | |
| Change in plan assets: | | | | |
| Fair value of plan assets at beginning of year | | $ | 12.8 | | | $ | 12.1 | |
| Actual return on plan assets | | 1.4 | | | 1.5 | |
| Employer contributions | | 2.5 | | | 3.1 | |
| Plan participant contributions | | 0.2 | | | 0.3 | |
| Benefits paid | | (3.6) | | | (4.2) | |
| Fair value of plan assets at end of year | | $ | 13.3 | | | $ | 12.8 | |
| Unfunded status at end of year | | $ | (37.3) | | | $ | (36.4) | |
Amounts recognized in the Consolidated Balance Sheets as of
20172020 and
20162019 year end are as follows:
| | | | | | | | |
| (Amounts in millions) | | 2017 | | | 2016 | |
Accrued benefits | | | $ (3.1) | | | | $ (3.3) | |
Retiree health care benefits | | | (36.0) | | | | (36.7) | |
| | | | | | | | |
Net liability | | | $ (39.1) | | | | $ (40.0) | |
| | | | | | | | |
| | | | | | | | | | | | | | |
| (Amounts in millions) | | 2020 | | 2019 |
| Accrued benefits | | $ | (2.8) | | | $ | (2.8) | |
| Retiree health care benefits | | (34.5) | | | (33.6) | |
| Net liability | | $ | (37.3) | | | $ | (36.4) | |
Amounts included in Accumulated OCI on the accompanying Consolidated Balance Sheets as of 20172020 and 20162019 year end are as follows: | | | | | | | | |
| (Amounts in millions) | | 2017 | | | 2016 | |
Net gain, net of tax of $2.6 million and $2.9 million, respectively | | | $ 4.2 | | | | $ 4.8 | |
| | | | | | | | | | | | | | |
| (Amounts in millions) | | 2020 | | 2019 |
| Net gain, net of tax of $0.5 million and $1.1 million, respectively | | $ | 1.3 | | | $ | 3.2 | |
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
The components of net periodic benefit cost and changes recognized in OCI are as follows:
| | | | | | | | | | | | |
| (Amounts in millions) | | 2017 | | | 2016 | | | 2015 | |
Net periodic benefit cost: | | | | | | | | | | | | |
Service cost | | | $ – | | | | $ 0.1 | | | | $ 0.1 | |
Interest cost | | | 2.1 | | | | 2.2 | | | | 2.2 | |
Expected return on plan assets | | | (0.8) | | | | (0.9) | | | | (1.0) | |
Amortization of unrecognized (gain) loss | | | (0.3) | | | | (0.1) | | | | 0.3 | |
| | | | | | | | | | | | |
Net periodic benefit cost | | | $ 1.0 | | | | $ 1.3 | | | | $ 1.6 | |
| | | | | | | | | | | | |
| | | |
Changes in benefit obligations recognized in OCI, net of tax: | | | | | | | | | | | | |
Net (gain) loss | | | $ 0.6 | | | | $ (0.3) | | | | $ (2.1) | |
Snap-on expects to recognize $0.3 million
| | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2020 | | 2019 | | 2018 |
| Net periodic benefit cost: | | | | | | |
| Interest cost | | $ | 1.5 | | | $ | 1.9 | | | $ | 1.8 | |
| Expected return on plan assets | | (0.6) | | | (0.7) | | | (0.8) | |
| Amortization of unrecognized gain | | 0 | | | (0.8) | | | (0.4) | |
| Net periodic benefit cost | | $ | 0.9 | | | $ | 0.4 | | | $ | 0.6 | |
| | | | | | |
| Changes in benefit obligations recognized in OCI, net of tax: | | | | | | |
| Net (gain) loss | | $ | 1.9 | | | $ | 2.4 | | | $ | (1.4) | |
The components of
prior unrecognized gains,net periodic postretirement health care cost, other than the service cost component, are included in
Accumulated OCI“Other income (expense) - net” on the accompanying
2017 Consolidated
Balance Sheet, in net periodic benefit cost during 2018.Statements of Earnings. See Note 18 for additional information on Other income (expense) - net.
The weighted-average discount rate used to determineSnap-on’s postretirement health care expense is as follows: | | | | | | | | | | | | |
| | | 2017 | | | 2016 | | | 2015 | |
Discount rate | | | 4.1% | | | | 4.1% | | | | 3.6% | |
| | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| Discount rate | | 3.1% | | 4.2% | | 3.6% |
The weighted-average discount rate used to determineSnap-on’s accumulated benefit obligation is as follows: | | | | |
| | | 2017 | | 2016 |
Discount rate | | 3.6% | | 4.1% |
| | | | | | | | | | | | | | |
| | 2020 | | 2019 |
| Discount rate | | 2.3% | | 3.1% |
The methodology for selecting the
year-end 2017 2020 and
20162019 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 2018,2021, the actuarial calculations assume apre-65 health care cost trend rate of 5.8%5.5% and apost-65 health care cost trend rate of 6.5%6.0%, both decreasing gradually to 4.5% in 2038 and thereafter. As of 2017 year end, aone-percentage-point increase in the health care cost trend rate for future years would increase the accumulated postretirement benefit obligation by approximately $0.6 million and the aggregate of the service cost and interest cost components by less than $0.1 million. Conversely, aone-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.
Notes to Consolidated Financial Statements (continued)
The following benefit payments, which reflect expected future service, are expected to be paid as follows: | | | | |
| (Amounts in millions) | | Amount | |
Year: | | | | |
2018 | | $ | 4.1 | |
2019 | | | 4.2 | |
2020 | | | 4.3 | |
2021 | | | 4.4 | |
2022 | | | 4.5 | |
2023-2027 | | | 23.0 | |
| | | | | | | | |
| (Amounts in millions) | | Amount |
| Year: | | |
| 2021 | | $ | 3.6 | |
| 2022 | | 3.7 | |
| 2023 | | 3.7 | |
| 2024 | | 3.8 | |
| 2025 | | 3.8 | |
| 2025-2029 | | 19.0 | |
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.
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 20172020 and 20162019 year end are as follows: | | | | | | | | | | | | |
| | | Target | | | 2017 | | | 2016 | |
Asset category: | | | | | | | | | | | | |
Debt securities and cash and cash equivalents | | | 46% | | | | 42% | | | | 45% | |
Equity securities | | | 29% | | | | 29% | | | | 28% | |
Hedge funds | | | 25% | | | | 29% | | | | 27% | |
| | | | | | | | | | | | |
Total | | | 100% | | | | 100% | | | | 100% | |
| | | | | | | | | | | | |
| | | |
Fair value of plan assets(Amounts in millions) | | | | | | $ | 13.4 | | | $ | 13.2 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Target | | 2020 | | 2019 |
| Asset category: | | | | | | |
| Debt securities and cash and cash equivalents | | 46% | | 46% | | 51% |
| Equity securities | | 29% | | 35% | | 31% |
| Hedge funds | | 25% | | 19% | | 18% |
| Total | | 100% | | 100% | | 100% |
| | | | | | |
Fair value of plan assets (Amounts in millions) | | | | $13.3 | | $12.8 |
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.
| | | | | | | | |
| | |
| 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 | | $ | 0.2 | | | $ | – | | | $ | 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 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | Quoted
Prices for
Identical
Assets
(Level 1) | | Investments Measured at
NAV | | Total |
| Asset category: | | | | | | |
| Cash and cash equivalents | | $ | 0.3 | | | $ | 0 | | | $ | 0.3 | |
| Debt securities | | 5.9 | | | 0 | | | 5.9 | |
| Equity securities | | 0 | | | 4.6 | | | 4.6 | |
| Hedge fund | | 0 | | | 2.5 | | | 2.5 | |
| Total | | $ | 6.2 | | | $ | 7.1 | | | $ | 13.3 | |
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 20162019 year end: | | | | | | | | | | | | |
| (Amounts in millions) | | Quoted
Prices for
Identical
Assets
(Level 1) | | | Investments
Measured at
NAV | | | Total | |
Asset category: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 0.7 | | | $ | – | | | $ | 0.7 | |
Debt securities | | | 5.3 | | | | – | | | | 5.3 | |
Equity securities | | | – | | | | 3.6 | | | | 3.6 | |
Hedge fund | | | – | | | | 3.6 | | | | 3.6 | |
| | | | | | | | | | | | |
Total | | $ | 6.0 | | | $ | 7.2 | | | $ | 13.2 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | Quoted
Prices for
Identical
Assets
(Level 1) | | Investments Measured at
NAV | | Total |
| Asset category: | | | | | | |
| Cash and cash equivalents | | $ | 0.5 | | | $ | 0 | | | $ | 0.5 | |
| Debt securities | | 6.0 | | | 0 | | | 6.0 | |
| Equity securities | | 0 | | | 4.0 | | | 4.0 | |
| Hedge fund | | 0 | | | 2.3 | | | 2.3 | |
| Total | | $ | 6.5 | | | $ | 6.3 | | | $ | 12.8 | |
Note
13:14: 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
20172020 year end, the 2011 Plan had
3,296,8591,457,415 shares available for future grants. The company uses treasury stock to deliver shares under both the 2001 and 2011 Plans.
Notes to Consolidated Financial Statements (continued)
Net stock-based compensation expense was
$30.3$19.5 million in
2017, $31.02020, $23.8 million in
20162019 and
$39.8$27.2 million in
2015.2018. Cash received from stock purchase and option plan exercises was
$46.2$55.8 million in
2017, $41.82020, $51.4 million in
20162019 and
$41.6$55.5 million in
2015.2018. The tax benefit realized from both the exercise and vesting of share-based payment arrangements was
$20.9$8.2 million in
2017, $24.82020, $9.6 million in
20162019 and
$26.4$14.8 million in
2015.2018.
Stock Optionsoptions:
Stock options are granted with an exercise price equal to the market value of a share ofSnap-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.
The following weighted-average assumptions were used in calculating the fair value of stock options granted during 2017, 20162020, 2019 and 2015,2018, using the Black-Scholes valuation model: | | | | | | | | | | | | |
| | | 2017 | | | 2016 | | | 2015 | |
Expected term of option(in years) | | | 5.15 | | | | 5.05 | | | | 4.76 | |
Expected volatility factor | | | 22.01% | | | | 22.17% | | | | 24.13% | |
Expected dividend yield | | | 1.63% | | | | 1.77% | | | | 2.04% | |
Risk-free interest rate | | | 1.78% | | | | 1.04% | | | | 1.38% | |
| | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
Expected term of option (in years) | | 5.53 | | 5.53 | | 5.35 |
| Expected volatility factor | | 21.67% | | 21.30% | | 20.08% |
| Expected dividend yield | | 2.78% | | 1.79% | | 1.68% |
| Risk-free interest rate | | 1.50% | | 2.54% | | 2.71% |
A summary of stock option activity during 20172020 is presented below: | | | | | | | | | | | | | | | | |
| | | Shares
(in thousands) | | | Exercise
Price per
Share* | | | Remaining
Contractual
Term*
(in years) | | | Aggregate
Intrinsic
Value
(in millions) | |
Outstanding at beginning of year | | | 3,011 | | | $ | 100.78 | | | | | | | | | |
Granted | | | 655 | | | | 168.71 | | | | | | | | | |
Exercised | | | (396) | | | | 86.29 | | | | | | | | | |
Forfeited or expired | | | (72) | | | | 153.53 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Outstanding at end of year | | | 3,198 | | | | 115.30 | | | | 6.4 | | | $ | 188.7 | |
| | | | | | | | | | | | | | | | |
Exercisable at end of year | | | 1,990 | | | | 91.27 | | | | 5.1 | | | | 165.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Shares (in thousands) | | Exercise
Price per
Share* | | Remaining Contractual Term* (in years) | | Aggregate Intrinsic Value (in millions) |
| Outstanding at beginning of year | | 3,114 | | | $ | 135.60 | | | | | |
| Granted | | 459 | | | 155.34 | | | | | |
| Exercised | | (434) | | | 106.04 | | | | | |
| Forfeited or expired | | (19) | | | 159.78 | | | | | |
| Outstanding at end of year | | 3,120 | | | 142.47 | | | 5.9 | | $ | 89.5 | |
| Exercisable at end of year | | 2,217 | | | 136.76 | | | 4.9 | | 76.2 | |
The weighted-average grant date fair value of options granted was
$31.13$22.95 in
2017, $22.992020, $29.98 in
20162019 and
$25.64$30.21 in
2015.2018. The intrinsic value of options exercised was
$33.3$26.0 million in
2017, $35.22020, $29.9 million in
20162019 and
$37.6$43.8 million in
2015.2018. The fair value of stock options vested was
$14.0$14.6 million in
2017, $12.72020, $15.7 million in
20162019 and
$9.9$16.0 million in
2015.2018.
As of
20172020 year end, there was
$19.3$13.0 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 1.5 years.
Performance Awardsawards:
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 awards is dependent upon performance relative topre-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 performance-based RSUs have 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.
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
The fair value of performance awards 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
2017, 20162020, 2019 and
20152018 was
$168.70, $138.83$155.34, $155.92 and
$139.30,$161.18, respectively.
VestedThere were 0 earned PSUs as of the 2020 year end. Earned PSUs totaled
50,31621,183 shares as of
20172019 year end
61,149and 32,154 shares as of
2016 year end and 94,186 shares as of 20152018 year end.
Any earned PSUs
related to 60,980 shares, 94,186 sharesvest and
130,764 shares were paid out in 2017, 2016 and 2015, respectively. Earned PSUs 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”).
PSUs related to 21,183 shares, 32,114 shares and 50,182 shares were paid out in 2020, 2019 and 2018, respectively.
Based on the company’s
20172020 performance,
13,648NaN of the RSUs granted in
20172020 were
earned; assuming continued employment, these RSUs will vest at the end of fiscal 2019.earned. Based on the company’s
20162019 performance,
45,502NaN of the RSUs granted in
20162019 were
earned; assuming continued employment, these RSUs will vest at the end of fiscal 2018.earned. Based on the company’s
20152018 performance,
64,32733,170 RSUs granted in
20152018 were earned; these RSUs vested as of fiscal
20172020 year end and were paid out shortly thereafter.
Changes to the company’s
non-vested performance awards in
20172020 are as follows:
| | | | | | | | |
| | | Shares
(in thousands) | | | Fair Value
Price per
Share* | |
Non-vested performance awards at beginning of year | | | 207 | | | $ | 141.94 | |
Granted | | | 77 | | | | 168.70 | |
Vested | | | (114) | | | | 144.61 | |
Cancellations and other | | | (38) | | | | 159.80 | |
| | | | | | | | |
Non-vested performance awards at end of year | | | 132 | | | | 149.93 | |
| | | | | | | | |
| | | | | | | | | | | | | | |
| | Shares (in thousands) | | Fair Value
Price per
Share* |
| Non-vested performance awards at beginning of year | | 98 | | | $ | 158.94 | |
| Granted | | 82 | | | 155.34 | |
| Vested | | (30) | | | 161.18 | |
| Cancellations and other | | (74) | | | 157.49 | |
| Non-vested performance awards at end of year | | 76 | | | 155.61 | |
As of
20172020 year end, there was
$9.5$6.1 million of unrecognized compensation cost related to
non-vested performance awards that is expected to be recognized as a charge to earnings over a weighted-average period of
1.61.7 years.
Stock Appreciation Rights (“SARs”)appreciation rights:
The company also issues stock-settled and cash-settled SARs to certain keynon-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 ofSnap-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’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.
Notes to Consolidated Financial Statements (continued)
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’speriod-end 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
2017, 20162020, 2019 and
2015,2018, using the Black-Scholes valuation model:
| | | | | | | | | | | | |
| | | 2017 | | | 2016 | | | 2015 | |
Expected term of stock-settled SARs(in years) | | | 3.99 | | | | 4.03 | | | | 4.72 | |
Expected volatility factor | | | 19.39% | | | | 20.09% | | | | 23.66% | |
Expected dividend yield | | | 1.46% | | | | 1.66% | | | | 2.04% | |
Risk-free interest rate | | | 1.55% | | | | 1.11% | | | | 1.50% | |
| | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
Expected term of stock-settled SARs (in years) | | 3.75 | | 3.65 | | 3.58 |
| Expected volatility factor | | 22.50% | | 22.60% | | 20.08% |
| Expected dividend yield | | 2.78% | | 1.81% | | 1.63% |
| Risk-free interest rate | | 1.42% | | 2.48% | | 2.40% |
Changes to the company’s stock-settled SARs in
20172020 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 | | 303 | | $ | 125.38 | | | | | | | | | |
Granted | | 100 | | | 168.73 | | | | | | | | | |
Exercised | | (13) | | | 103.16 | | | | | | | | | |
Forfeited or expired | | (30) | | | 121.53 | | | | | | | | | |
| | | | | | | | | | | | | | |
Outstanding at end of year | | 360 | | | 138.63 | | | | 7.6 | | | $ | 12.8 | |
| | | | | | | | | | | | | | |
Exercisable at end of year | | 165 | | | 119.46 | | | | 6.6 | | | | 9.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Stock-settled SARs (in thousands) | | Exercise
Price per
Share* | | Remaining Contractual Term* (in years) | | Aggregate Intrinsic Value (in millions) |
| Outstanding at beginning of year | | 450 | | | $ | 149.18 | | | | | |
| Granted | | 92 | | | 155.34 | | | | | |
| Exercised | | (7) | | | 112.50 | | | | | |
| Forfeited or expired | | (33) | | | 138.12 | | | | | |
| Outstanding at end of year | | 502 | | | 151.59 | | | 6.6 | | $ | 9.8 | |
| Exercisable at end of year | | 325 | | | 148.93 | | | 5.6 | | 7.2 | |
The weighted-average grant date fair value of stock-settled SARs granted was
$24.13$21.31 in
2017, $19.472020, $26.45 in
20162019 and
$25.37$24.71 in
2015.2018. The intrinsic value of stock-settled SARs exercised was
$0.9$0.4 million in
2017, $1.92020, $0.1 million in
20162019 and
$1.0$1.8 million in
2015.2018. The fair value of stock-settled SARs vested was
$2.3 million in 2020, $2.1 million in
both 20172019 and
2016 and $1.4$2.2 million in
2015.2018.
As of
20172020 year end there was
$2.5$2.3 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 1.5 years.
The following weighted-average assumptions were used in calculating the fair value of cash-settled SARs granted during
2017, 20162020, 2019 and
2015,2018, using the Black-Scholes valuation model:
| | | | | | | | | | | | |
| | | 2017 | | | 2016 | | | 2015 | |
Expected term of cash-settled SARs(in years) | | | 3.09 | | | | 3.11 | | | | 3.10 | |
Expected volatility factor | | | 19.93% | | | | 19.53% | | | | 18.14% | |
Expected dividend yield | | | 1.59% | | | | 1.56% | | | | 1.69% | |
Risk-free interest rate | | | 1.98% | | | | 1.47% | | | | 1.31% | |
| | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
Expected term of cash-settled SARs (in years) | | 3.00 | | 2.87 | | 2.76 |
| Expected volatility factor | | 34.58% | | 23.33% | | 21.96% |
| Expected dividend yield | | 2.87% | | 2.02% | | 1.75% |
| Risk-free interest rate | | 0.17% | | 1.60% | | 2.50% |
The intrinsic value of cash-settled SARs exercised was
$1.6$1.0 million in
2017, $3.32020, $1.2 million in
20162019 and
$11.0$3.4 million in
2015.2018. The fair value of cash-settled SARs vested during
both 20172020 was 0 and
2016 was $0.2 million and was $4.6$0.1 million in
2015.both 2019 and 2018.
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
Changes to the company’s
non-vested cash-settled SARs in
20172020 are as follows:
| | | | | | |
| | | Cash-settled
SARs
(in thousands) | | Fair Value
Price per
Share* | |
Non-vested cash-settled SARs at beginning of year | | 7 | | $ | 40.83 | |
Granted | | 1 | | | 26.36 | |
Vested | | (3) | | | 46.16 | |
| | | | | | |
Non-vested cash-settled SARs at end of year | | 5 | | | 35.41 | |
| | | | | | |
| | | | | | | | | | | | | | |
| | Cash-settled SARs (in thousands) | | Fair Value
Price per
Share* |
| Non-vested cash-settled SARs at beginning of year | | 2 | | | $ | 25.96 | |
| Granted | | 1 | | | 37.99 | |
| Vested | | (1) | | | 34.02 | |
| Non-vested cash-settled SARs at end of year | | 2 | | | 36.99 | |
As of
20172020 year end there was
$0.2$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 6,9667,380 shares, 7,1457,605 shares and 8,6406,975 shares of restricted stock tonon-employee directors in 2017, 20162020, 2019 and 2015,2018, respectively. The fair value of the restricted stock awards is expensed over aone-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 Planfee 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 ofSnap-on’s common stock. Directors may elect to defer receipt of all or part of these shares. For 2017, 20162020, 2019 and 2015,2018, issuances under the Directors’ Fee Plan totaled 1,8001,836 shares, 2,5791,784 shares and 2,7471,727 shares, respectively, of which 1,3121,364 shares, 2,0191,374 shares and 1,9691,315 shares, respectively, were deferred. As of 20172020 year end, shares reserved for issuance to directors under this plan totaled 169,080186,641 shares.
Employee Stock Purchase Planstock purchase plan:
Substantially allSnap-on employees in the United States and Canada are eligible to participate in an employee stock purchase plan. The purchase price of the company’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 2017, 20162020, 2019 and 2015,2018, issuances under this plan totaled 26,96325,425 shares, 27,15625,820 shares and 57,32422,794 shares, respectively. As of 20172020 year end, shares reserved for issuance under this plan totaled 753,600679,561 shares andSnap-on held participant contributions of approximately $2.5$3.3 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 $1.1 million in 2020, $0.1 million in 2017, zero in 20162019 and $2.3$0.3 million in 2015.
Notes to Consolidated Financial Statements (continued)
2018.
Franchisee Stock Purchase Planstock 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’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 2017, 20162020, 2019 and 2015,2018, issuances under this plan totaled 47,31455,980 shares, 42,86749,921 shares and 74,00146,704 shares, respectively. As of 20172020 year end, shares reserved for issuance under this plan totaled 566,155413,550 shares andSnap-on held participant contributions of approximately $4.8$5.5 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 recognizedmark-to-market expense of $0.2$1.9 million in 2017, amark-to-market benefit of $0.22020, $0.8 million in 2016,2019, andmark-to-market expense of $2.9 $0.6 million in 2015.2018.
Note
14:15: 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
1,820,0001,109,000 shares,
758,0001,495,000 shares and
723,0001,769,000 shares in
2017, 20162020, 2019 and
2015,2018, respectively. As of
20172020 year end,
Snap-on has remaining availability to repurchase up to an additional
$390.7$275.7 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 2017, 20162020, 2019 and 20152018 totaled $169.4$243.3 million, $147.5$216.6 million and $127.9$192.0 million, respectively. Cash dividends per share in 2017, 20162020, 2019 and 20152018 were $2.95, $2.54$4.47, $3.93 and $2.20,$3.41, respectively. On February 15, 2018,11, 2021, the company’s Board declared a quarterly dividend of $0.82$1.23 per share, payable on March 10, 2018,2021, to shareholders of record on February 24, 2018.23, 2021.
Note
15:16: Commitments and Contingencies
Snap-on
leases facilities, office equipment and vehicles undernon-cancelable operating and capital leases that extend for varying amounts of time.Snap-on’s future minimum lease commitments under these leases, net ofsub-lease rental income, are as follows: | | | | | | | | |
| (Amounts in millions) | | Operating
Leases | | | Capital
Leases | |
Year: | | | | | | | | |
2018 | | $ | 25.5 | | | $ | 3.6 | |
2019 | | | 19.6 | | | | 3.2 | |
2020 | | | 14.1 | | | | 3.0 | |
2021 | | | 10.5 | | | | 2.6 | |
2022 | | | 7.2 | | | | 2.2 | |
2023 and thereafter | | | 7.9 | | | | 3.5 | |
| | | | | | | | |
Total minimum lease payments | | $ | 84.8 | | | $ | 18.1 | |
| | | | | | | | |
Less: amount representing interest | | | | | | | (1.2) | |
| | | | | | | | |
Total present value of minimum capital lease payments | | | | | | $ | 16.9 | |
| | | | | | | | |
Amounts included in the accompanying Consolidated Balance Sheets for the present value of minimum capital lease payments as of 2017 year end are as follows:
| | | | |
(Amounts in millions) | | 2017 | |
Other accrued liabilities
| | $ | 3.2 | |
Other long-term liabilities
| | | 13.7 | |
| | | | |
Total present value of minimum capital lease payments
| | $ | 16.9 | |
| | | | |
Rent expense for worldwide facilities, office equipment and vehicles, net ofsub-lease rental income, was $35.2 million, $31.2 million and $29.4 million in 2017, 2016 and 2015, 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’s product warranty accrual activity for 2017, 20162020, 2019 and 20152018 is as follows:
| | | | | | | | | | | | |
| (Amounts in millions) | | 2017 | | | 2016 | | | 2015 | |
Warranty accrual: | | | | | | | | | | | | |
Beginning of year | | $ | 16.0 | | | $ | 16.4 | | | $ | 17.3 | |
Additions | | | 15.2 | | | | 12.8 | | | | 13.3 | |
Usage | | | (14.0) | | | | (13.2) | | | | (14.2) | |
| | | | | | | | | | | | |
End of year | | $ | 17.2 | | | $ | 16.0 | | | $ | 16.4 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2020 | | 2019 | | 2018 |
| Warranty accrual: | | | | | | |
| Beginning of year | | $ | 17.3 | | | $ | 17.1 | | | $ | 17.2 | |
| Additions | | 13.9 | | | 16.0 | | | 14.9 | |
| Usage | | (13.6) | | | (15.8) | | | (15.0) | |
| End of year | | $ | 17.6 | | | $ | 17.3 | | | $ | 17.1 | |
Approximately
2,7002,600 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
1,450 employees in 2018, 225 employees in 2019, 825 employees in 2020, 1251,325 employees in 2021,
and 25475 employees in
2022.2022, and 800 employees in 2023; there are 0 contracts currently scheduled to expire in 2024 or 2025. In recent years,
Snap-on has not experienced any significant work slowdowns, stoppages or other labor disruptions.
Snap-on is involved in various legal matters that are being litigated and/or settled in the ordinary course of business.
The year ended December 30, 2017, included accruals for $30.9 million related to a judgment in a patent-related litigation matter, as well as $15.0 million related to a judgment in an employment-related litigation matter brought by an individual; both judgments are being appealed.Although it is not possible to predict the outcome of these and other legal matters, management believes that the results of all legal matters will not have a material impact onSnap-on’s consolidated financial position, results of operations or cash flows.
The Consolidated Balance Sheet as of December 29, 2018, included an accrual of $30.9 million related to a judgment from the fourth quarter of 2017 for a patent-related litigation matter that was being appealed, which was subsequently settled in 2019. The company recognized an $11.6 million benefit in “Operating expenses” on the Consolidated Statements of Earnings in fiscal 2019 as a result of the settlement.
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
Note 16:17: 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 2020 and 2019 consist of the following:
| | | | | | | | | | | | | | |
| (Amounts in millions) | | 2020 | | 2019 |
| Finance lease costs: | | | | |
| Amortization of ROU assets | | $ | 1.7 | | | $ | 1.5 | |
| Interest on lease liabilities | | 0.4 | | | 0.5 | |
| Operating lease costs* | | 24.6 | | | 25.1 | |
| Total lease costs | | $ | 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 2020 and 2019 is as follows:
| | | | | | | | | | | | | | |
| (Amounts in millions) | | 2020 | | 2019 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | |
| Financing cash flows from finance leases | | $ | 3.4 | | | $ | 2.8 | |
| Operating cash flows from finance leases | | 0.4 | | | 0.5 | |
| Operating cash flows from operating leases | | 23.1 | | | 23.5 | |
| | | | |
| ROU assets obtained in exchange for new lease obligations: | | | | |
| Finance lease liabilities | | $ | 0.4 | | | $ | 1.4 | |
| Operating lease liabilities | | 15.2 | | | 12.5 | |
Supplemental balance sheet information related to leases in 2020 and 2019 is as follows:
| | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | | 2020 | | 2019 |
| Finance leases: | | | | | |
| Property and equipment - gross | | $ | 24.3 | | | $ | 9.2 | |
| Accumulated depreciation and amortization | | (17.5) | | | (1.5) | |
| Property and equipment - net | | | $ | 6.8 | | | $ | 7.7 | |
| | | | | | |
| Other accrued liabilities | | | $ | 2.7 | | | $ | 2.8 | |
| Other long-term liabilities | | | 7.4 | | | 10.0 | |
| Total finance lease liabilities | | | $ | 10.1 | | | $ | 12.8 | |
| | | | | | |
| Operating leases: | | | | | |
| Operating lease right-of-use assets | | | $ | 51.9 | | | $ | 55.6 | |
| | | | | | |
| Other accrued liabilities | | | $ | 19.3 | | | $ | 19.5 | |
| Operating lease liabilities | | | 34.0 | | | 37.5 | |
| Total operating lease liabilities | | | $ | 53.3 | | | $ | 57.0 | |
| | | | | | |
Weighted-average lease terms and discount rates in 2020 and 2019 are as follows:
| | | | | | | | | | | | | | |
| | 2020 | | 2019 |
| Weighted-average remaining lease terms: | | | | |
| Finance leases | | 3.7 years | | 4.5 years |
| Operating leases | | 3.3 years | | 3.7 years |
| | | | |
| Weighted-average discount rates: | | | | |
| Finance leases | | 3.4% | | 3.4% |
| Operating leases | | 2.6% | | 2.8% |
Maturities of lease liabilities as of January 2, 2021 are as follows:
| | | | | | | | | | | | | | |
| (Amounts in millions) | | Operating Leases | | Finance Leases |
| Year: | | | | |
| 2021 | | $ | 20.3 | | | $ | 3.0 | |
| 2022 | | 15.6 | | | 2.8 | |
| 2023 | | 9.7 | | | 2.6 | |
| 2024 | | 5.8 | | | 2.1 | |
| 2025 | | 3.1 | | | 0.3 | |
| 2026 and thereafter | | 1.2 | | | 0 | |
| Total lease payments | | 55.7 | | | 10.8 | |
| Less: amount representing interest | | (2.4) | | | (0.7) | |
| Total lease liabilities | | $ | 53.3 | | | $ | 10.1 | |
In 2020, Snap-on did not have any significant additional operating or finance leases that have not yet commenced. Rent expense for worldwide facilities, office equipment and vehicles, net of sub-lease rental income, was $33.0 million in 2018.
| | | | | | | | |
| | |
| 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 2020 and 2019, finance receivables have future minimum lease payments, including unguaranteed residual value, of $42.7 million and $97.5 million, respectively, and unearned finance charges of $6.9 million and $19.9 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 2020 and 2019, contract receivables have future minimum lease payments, including unguaranteed residual value, of $285.8 million and $267.7 million, respectively, and unearned finance charges of $48.4 million and $47.6 million, respectively.
Future minimum lease payments as of January 2, 2021 are as follows:
| | | | | | | | |
| (Amounts in millions) | | Lease Receivables |
| Year: | | |
| 2021 | | $ | 98.5 | |
| 2022 | | 77.3 | |
| 2023 | | 59.5 | |
| 2024 | | 44.2 | |
| 2025 | | 28.4 | |
| 2026 and thereafter | | 20.6 | |
| Total lease payments | | 328.5 | |
| Less: unearned finance charges | | (55.3) | |
| Net investment in leases | | $ | 273.2 | |
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) | | 2017 | | | 2016 | | | 2015 | |
Interest income | | $ | 0.3 | | | $ | 0.6 | | | $ | 0.5 | |
Net foreign exchange loss | | | (7.0) | | | | (1.3) | | | | (2.7) | |
Other | | | (0.5) | | | | 0.1 | | | | (0.2) | |
| | | | | | | | | | | | |
Total other income (expense) – net | | $ | (7.2) | | | $ | (0.6) | | | $ | (2.4) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2020 | | 2019 | | 2018 |
| Interest income | | $ | 1.7 | | | $ | 1.5 | | | $ | 0.6 | |
| Net foreign exchange loss | | (3.9) | | | (3.6) | | | (3.9) | |
| Net periodic pension and postretirement benefits - non-service | | 10.6 | | | 10.4 | | | 3.7 | |
| Settlement of treasury lock | | 0 | | | 0 | | | 13.3 | |
| Loss on early extinguishment of debt | | 0 | | | 0 | | | (7.8) | |
| Other | | 0.3 | | | 0.5 | | | (1.7) | |
| Total other income (expense) – net | | $ | 8.7 | | | $ | 8.8 | | | $ | 4.2 | |
Notes to Consolidated Financial Statements (continued)
Note
17:19: Accumulated Other Comprehensive Income (Loss)
The following is a summary of net changes in Accumulated OCI by component and net of tax for
20172020 and
2016: | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | Foreign
Currency
Translation | | | Cash Flow
Hedges | | | Defined
Benefit
Pension and
Postretirement
Plans | | | Total | |
Balance as of 2015 year end | | $ | (118.5) | | | $ | 0.7 | | | $ | (246.4) | | | $ | (364.2) | |
Other comprehensive income (loss) before reclassifications | | | (99.2) | | | | 8.8 | | | | (62.6) | | | | (153.0) | |
Amounts reclassified from Accumulated OCI | | | – | | | | (0.3) | | | | 19.0 | | | | 18.7 | |
| | | | | | | | | | | | | | | | |
Net other comprehensive income (loss) | | | (99.2) | | | | 8.5 | | | | (43.6) | | | | (134.3) | |
| | | | | | | | | | | | | | | | |
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) | |
| | | | | | | | | | | | | | | | |
2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | Foreign
Currency
Translation | | Cash Flow Hedges | | Defined
Benefit
Pension and
Postretirement
Plans | | Total |
| Balance as of 2018 year end | | $ | (177.9) | | | $ | 12.2 | | | $ | (296.5) | | | $ | (462.2) | |
| Impact of the Tax Act on Accumulated Other Comprehensive Income (ASU No. 2018-02) | | — | | | — | | | (45.9) | | | (45.9) | |
| Balance at beginning of 2019 | | (177.9) | | | 12.2 | | | (342.4) | | | (508.1) | |
| Other comprehensive loss before reclassifications | | (9.5) | | | 0 | | | (6.5) | | | (16.0) | |
| Amounts reclassified from Accumulated OCI | | 0 | | | (1.5) | | | 17.7 | | | 16.2 | |
| Net other comprehensive income (loss) | | (9.5) | | | (1.5) | | | 11.2 | | | 0.2 | |
| Balance as of 2019 year end | | $ | (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 | | 0 | | | (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) | |
The reclassifications out of Accumulated OCI in
20172020 and
20162019 are as follows:
| | | | | | | | | | |
| | | Amounts Reclassified from
Accumulated OCI | | | Statement of Earnings
Presentation |
| (Amounts in millions) | | 2017 | | | 2016 | | | |
Gains on cash flow hedges: | | | | | | | | | | |
Treasury locks | | $ | 1.6 | | | $ | 0.3 | | | Interest expense |
Income tax expense | | | – | | | | – | | | Income tax expense |
| | | | | | | | | | |
Net of tax | | | 1.6 | | | | 0.3 | | | |
| | | | | | | | | | |
| | | |
Amortization of net unrecognized losses and prior service credits | | | (26.6) | | | | (30.1) | | | See footnote below* |
Income tax benefit | | | 9.4 | | | | 11.1 | | | Income tax expense |
| | | | | | | | | | |
Net of tax | | | (17.2) | | | | (19.0) | | | |
| | | | | | | | | | |
Total reclassifications for the period, net of tax | | $ | (15.6) | | | $ | (18.7) | | | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Amounts Reclassified from
Accumulated OCI | | Statement of Earnings
Presentation |
| (Amounts in millions) | | 2020 | | 2019 | | |
| Gains on cash flow hedges: | | | | | | |
| Treasury locks | | $ | 1.6 | | | $ | 1.5 | | | Interest expense |
| Income tax expense | | 0 | | | 0 | | | Income tax expense |
| Net of tax | | 1.6 | | | 1.5 | | | |
| Amortization of net unrecognized losses and prior service credits | | (34.5) | | | (23.5) | | | See footnote below* |
| Income tax benefit | | 8.4 | | | 5.8 | | | Income tax expense |
| Net of tax | | (26.1) | | | (17.7) | | | |
| Total reclassifications for the period, net of tax | | $ | (24.5) | | | $ | (16.2) | | | |
* | | | | | | | | | | | | | | |
| | | |
| * | These Accumulated OCI components are included in the computation of net periodic pension and postretirement health care costs; see Note 1112 and Note 1213 for further information. |
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
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.
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 intersegmentIntersegment amounts are eliminated to arrive at
Snap-on’s consolidated financial results.
Neither
Snap-on
nor any of its segments depend on does 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) | | 2017 | | | 2016 | | | 2015 | |
Net sales: | | | | | | | | | | | | |
Commercial & Industrial Group | | $ | 1,265.0 | | | $ | 1,148.3 | | | $ | 1,163.6 | |
Snap-on Tools Group | | | 1,625.1 | | | | 1,633.9 | | | | 1,568.7 | |
Repair Systems & Information Group | | | 1,347.2 | | | | 1,179.9 | | | | 1,113.2 | |
| | | | | | | | | | | | |
Segment net sales | | | 4,237.3 | | | | 3,962.1 | | | | 3,845.5 | |
Intersegment eliminations | | | (550.4) | | | | (531.7) | | | | (492.7) | |
| | | | | | | | | | | | |
Total net sales | | $ | 3,686.9 | | | $ | 3,430.4 | | | $ | 3,352.8 | |
Financial Services revenue | | | 313.4 | | | | 281.4 | | | | 240.3 | |
| | | | | | | | | | | | |
Total revenues | | $ | 4,000.3 | | | $ | 3,711.8 | | | $ | 3,593.1 | |
| | | | | | | | | | | | |
| | | |
Operating earnings: | | | | | | | | | | | | |
Commercial & Industrial Group | | $ | 185.3 | | | $ | 168.0 | | | $ | 169.4 | |
Snap-on Tools Group | | | 274.5 | | | | 281.1 | | | | 256.0 | |
Repair Systems & Information Group | | | 333.8 | | | | 297.8 | | | | 273.4 | |
Financial Services | | | 217.5 | | | | 198.7 | | | | 170.2 | |
| | | | | | | | | | | | |
Segment operating earnings | | | 1,011.1 | | | | 945.6 | | | | 869.0 | |
Corporate | | | (129.6) | | | | (91.4) | | | | (104.2) | |
| | | | | | | | | | | | |
Operating earnings | | | 881.5 | | | | 854.2 | | | | 764.8 | |
Interest expense | | | (52.4) | | | | (52.2) | | | | (51.9) | |
Other income (expense) – net | | | (7.2) | | | | (0.6) | | | | (2.4) | |
| | | | | | | | | | | | |
Earnings before income taxes and equity earnings | | $ | 821.9 | | | $ | 801.4 | | | $ | 710.5 | |
| | | | | | | | | | | | |
| | | | | | | | |
| | |
| (Amounts in millions) | | 2017 | | | 2016 | |
Assets: | | | | | | | | |
Commercial & Industrial Group | | $ | 1,113.9 | | | $ | 907.1 | |
Snap-on Tools Group | | | 714.3 | | | | 668.1 | |
Repair Systems & Information Group | | | 1,314.3 | | | | 1,211.0 | |
Financial Services | | | 1,971.8 | | | | 1,789.7 | |
| | | | | | | | |
Total assets from reportable segments | | | 5,114.3 | | | | 4,575.9 | |
Corporate | | | 200.6 | | | | 212.3 | |
Elimination of intersegment receivables | | | (65.8) | | | | (65.0) | |
| | | | | | | | |
Total assets | | $ | 5,249.1 | | | $ | 4,723.2 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2020 | | 2019 | | 2018 |
| Net sales: | | | | | | |
| Commercial & Industrial Group | | $ | 1,234.6 | | | $ | 1,345.7 | | | $ | 1,343.3 | |
| Snap-on Tools Group | | 1,643.9 | | | 1,612.9 | | | 1,613.8 | |
| Repair Systems & Information Group | | 1,238.2 | | | 1,334.5 | | | 1,334.4 | |
| Segment net sales | | 4,116.7 | | | 4,293.1 | | | 4,291.5 | |
| Intersegment eliminations | | (524.2) | | | (563.1) | | | (550.8) | |
| Total net sales | | 3,592.5 | | | 3,730.0 | | | 3,740.7 | |
| Financial Services revenue | | 349.7 | | | 337.7 | | | 329.7 | |
| Total revenues | | $ | 3,942.2 | | | $ | 4,067.7 | | | $ | 4,070.4 | |
| | | | | | |
| Operating earnings: | | | | | | |
| Commercial & Industrial Group | | $ | 153.7 | | | $ | 188.7 | | | $ | 199.3 | |
| Snap-on Tools Group | | 267.7 | | | 245.8 | | | 264.2 | |
| Repair Systems & Information Group | | 298.0 | | | 342.7 | | | 342.6 | |
| Financial Services | | 248.6 | | | 245.9 | | | 230.1 | |
| Segment operating earnings | | 968.0 | | | 1,023.1 | | | 1,036.2 | |
| Corporate | | (87.5) | | | (60.8) | | | (80.1) | |
| Operating earnings | | 880.5 | | | 962.3 | | | 956.1 | |
| Interest expense | | (54.0) | | | (49.0) | | | (50.4) | |
| Other income (expense) – net | | 8.7 | | | 8.8 | | | 4.2 | |
| Earnings before income taxes and equity earnings | | $ | 835.2 | | | $ | 922.1 | | | $ | 909.9 | |
Notes to Consolidated Financial Statements (continued)
Financial Data by Segment (continued):
| | | | | | | | | | | | |
| (Amounts in millions) | | 2017 | | | 2016 | | | 2015 | |
Capital expenditures: | | | | | | | | | | | | |
Commercial & Industrial Group | | $ | 22.6 | | | $ | 19.3 | | | $ | 31.0 | |
Snap-on Tools Group | | | 40.1 | | | | 38.3 | | | | 38.1 | |
Repair Systems & Information Group | | | 13.4�� | | | | 13.1 | | | | 9.0 | |
Financial Services | | | 1.2 | | | | 0.6 | | | | 1.0 | |
| | | | | | | | | | | | |
Total from reportable segments | | | 77.3 | | | | 71.3 | | | | 79.1 | |
Corporate | | | 4.7 | | | | 3.0 | | | | 1.3 | |
| | | | | | | | | | | | |
Total capital expenditures | | $ | 82.0 | | | $ | 74.3 | | | $ | 80.4 | |
| | | | | | | | | | | | |
| | | |
Depreciation and amortization: | | | | | | | | | | | | |
Commercial & Industrial Group | | $ | 22.8 | | | $ | 20.7 | | | $ | 20.1 | |
Snap-on Tools Group | | | 29.1 | | | | 27.6 | | | | 24.9 | |
Repair Systems & Information Group | | | 37.8 | | | | 33.9 | | | | 34.0 | |
Financial Services | | | 0.6 | | | | 0.6 | | | | 0.7 | |
| | | | | | | | | | | | |
Total from reportable segments | | | 90.3 | | | | 82.8 | | | | 79.7 | |
Corporate | | | 2.9 | | | | 2.8 | | | | 2.8 | |
| | | | | | | | | | | | |
Total depreciation and amortization | | $ | 93.2 | | | $ | 85.6 | | | $ | 82.5 | |
| | | | | | | | | | | | |
| | | |
Revenues by geographic region:* | | | | | | | | | | | | |
United States | | $ | 2,703.3 | | | $ | 2,588.8 | | | $ | 2,483.9 | |
Europe | | | 748.8 | | | | 654.4 | | | | 635.0 | |
All other | | | 548.2 | | | | 468.6 | | | | 474.2 | |
| | | | | | | | | | | | |
Total revenues | | $ | 4,000.3 | | | $ | 3,711.8 | | | $ | 3,593.1 | |
| | | | | | | | | | | | |
| | | |
| (Amounts in millions) | | 2017 | | | 2016 | | | | |
Long-lived assets:** | | | | | | | | | |
United States | | $ | 1,081.2 | | | $ | 1,048.6 | | |
Sweden | | | 252.6 | | | | 218.8 | | |
All other | | | 328.4 | | | | 237.9 | | |
| | | | | | | | | |
Total long-lived assets | | $ | 1,662.2 | | | $ | 1,505.3 | | |
| | | | | | | | | |
| | | | | | | | | | | | | | |
| (Amounts in millions) | | 2020 | | 2019 |
| Assets: | | | | |
| Commercial & Industrial Group | | $ | 1,210.4 | | | $ | 1,138.8 | |
| Snap-on Tools Group | | 775.3 | | | 827.4 | |
| Repair Systems & Information Group | | 1,399.7 | | | 1,381.9 | |
| Financial Services | | 2,170.3 | | | 2,104.0 | |
| Total assets from reportable segments | | 5,555.7 | | | 5,452.1 | |
| Corporate | | 1,063.2 | | | 303.1 | |
| Elimination of intersegment receivables | | (61.6) | | | (61.7) | |
| Total assets | | $ | 6,557.3 | | | $ | 5,693.5 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| (Amounts in millions) | | 2020 | | 2019 | | 2018 |
| Capital expenditures: | | | | | | |
| Commercial & Industrial Group | | $ | 20.3 | | | $ | 30.1 | | | $ | 21.5 | |
| Snap-on Tools Group | | 24.2 | | | 42.7 | | | 46.0 | |
| Repair Systems & Information Group | | 14.7 | | | 22.7 | | | 19.7 | |
| Financial Services | | 0.8 | | | 0.8 | | | 0.5 | |
| Total from reportable segments | | 60.0 | | | 96.3 | | | 87.7 | |
| Corporate | | 5.6 | | | 3.1 | | | 3.2 | |
| Total capital expenditures | | $ | 65.6 | | | $ | 99.4 | | | $ | 90.9 | |
| | | | | | |
| Depreciation and amortization: | | | | | | |
| Commercial & Industrial Group | | $ | 25.1 | | | $ | 23.5 | | | $ | 23.6 | |
| Snap-on Tools Group | | 32.7 | | | 31.7 | | | 29.9 | |
| Repair Systems & Information Group | | 34.6 | | | 33.0 | | | 36.7 | |
| Financial Services | | 0.7 | | | 0.7 | | | 0.8 | |
| Total from reportable segments | | 93.1 | | | 88.9 | | | 91.0 | |
| Corporate | | 3.6 | | | 3.5 | | | 3.1 | |
| Total depreciation and amortization | | $ | 96.7 | | | $ | 92.4 | | | $ | 94.1 | |
| | | | | | | | |
| | |
| Notes to Consolidated Financial Statements (continued) | | |
Financial Data by Segment (continued):
| | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2020 | | 2019 | | 2018 |
| Revenues by geographic region:* | | | | | | |
| United States | | $ | 2,772.3 | | | $ | 2,794.0 | | | $ | 2,727.9 | |
| Europe | | 677.5 | | | 730.3 | | | 784.7 | |
| All other | | 492.4 | | | 543.4 | | | 557.8 | |
| Total revenues | | $ | 3,942.2 | | | $ | 4,067.7 | | | $ | 4,070.4 | |
| | | | | | |
| (Amounts in millions) | | 2020 | | 2019 |
| Long-lived assets:** | | | | |
| United States | | $ | 1,150.2 | | | $ | 1,112.3 | |
| Sweden | | 248.4 | | | 218.7 | |
| All other | | 370.8 | | | 348.2 | |
| Total long-lived assets | | $ | 1,769.4 | | | $ | 1,679.2 | |
| | | | | | | | | | | | | | |
| | | |
| * | Revenues are attributed to countries based on the 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 andPC-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 to 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) | | 2017 | | | 2016 | | | 2015 | |
Net sales: | | | | | | | | | | | | |
Tools | | $ | 1,946.7 | | | $ | 1,899.2 | | | $ | 1,910.1 | |
Diagnostics, information and management systems | | | 800.4 | | | | 748.2 | | | | 689.6 | |
Equipment | | | 939.8 | | | | 783.0 | | | | 753.1 | |
| | | | | | | | | | | | |
Total net sales | | $ | 3,686.9 | | | $ | 3,430.4 | | | $ | 3,352.8 | |
Financial services revenue | | | 313.4 | | | | 281.4 | | | | 240.3 | |
| | | | | | | | | | | | |
Total revenues | | $ | 4,000.3 | | | $ | 3,711.8 | | | $ | 3,593.1 | |
| | | | | | | | | | | | |
Note 19: Quarterly Data(unaudited)
| | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions, except per share data) | | 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 | | | 448.0 | | | | 463.0 | | | | 448.6 | | | | 465.3 | | | | 1,824.9 | |
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 toSnap-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 | |
| | | | | |
| | | First
Quarter | | | Second
Quarter | | | Third
Quarter | | | Fourth
Quarter | | | Total | |
| | | | | |
2016 | | | | | | | | | | | | | | | | | | | | |
Net sales | | $ | 834.2 | | | $ | 872.3 | | | $ | 834.1 | | | $ | 889.8 | | | $ | 3,430.4 | |
Gross profit | | | 415.3 | | | | 431.3 | | | | 419.1 | | | | 443.9 | | | | 1,709.6 | |
Financial services revenue | | | 66.3 | | | | 69.3 | | | | 71.6 | | | | 74.2 | | | | 281.4 | |
Financial services expenses | | | (19.3) | | | | (19.8) | | | | (21.0) | | | | (22.6) | | | | (82.7) | |
Net earnings | | | 131.3 | | | | 143.4 | | | | 135.2 | | | | 149.7 | | | | 559.6 | |
Net earnings attributable toSnap-on Incorporated | | | 128.3 | | | | 140.1 | | | | 131.7 | | | | 146.3 | | | | 546.4 | |
Earnings per share – basic | | | 2.21 | | | | 2.41 | | | | 2.27 | | | | 2.52 | | | | 9.40 | |
Earnings per share – diluted | | | 2.16 | | | | 2.36 | | | | 2.22 | | | | 2.47 | | | | 9.20 | |
Cash dividends paid per share | | | 0.61 | | | | 0.61 | | | | 0.61 | | | | 0.71 | | | | 2.54 | |
Note 20: Subsequent Event
On January 16, 2018,Snap-on repaid the 2018 Notes upon maturity with an aggregate of $250 million of available cash and cash generated from issuances of commercial paper.
| | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions) | | 2020 | | 2019 | | 2018 |
| Net sales: | | | | | | |
| Tools | | $ | 1,984.7 | | | $ | 2,017.5 | | | $ | 2,021.2 | |
| Diagnostics, information and management systems | | 783.8 | | | 827.5 | | | 797.9 | |
| Equipment | | 824.0 | | | 885.0 | | | 921.6 | |
| Total net sales | | 3,592.5 | | | 3,730.0 | | | 3,740.7 | |
| Financial services revenue | | 349.7 | | | 337.7 | | | 329.7 | |
| Total revenues | | $ | 3,942.2 | | | $ | 4,067.7 | | | $ | 4,070.4 | |
Note 21: Quarterly Data (unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in millions, except per share data) | | 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 | |
| | | | | | | | | | |
| | | First
Quarter | | Second
Quarter | | Third Quarter | | Fourth
Quarter | | Total |
| 2019 | | | | | | | | | | |
| Net sales | | $ | 921.7 | | | $ | 951.3 | | | $ | 901.8 | | | $ | 955.2 | | | $ | 3,730.0 | |
| Gross profit | | 471.6 | | | 473.8 | | | 448.1 | | | 450.5 | | | 1,844.0 | |
| Financial services revenue | | 85.6 | | | 84.1 | | | 84.1 | | | 83.9 | | | 337.7 | |
| Financial services expenses | | (23.5) | | | (23.5) | | | (23.1) | | | (21.7) | | | (91.8) | |
| Net earnings | | 182.1 | | | 184.9 | | | 169.2 | | | 175.0 | | | 711.2 | |
| Net earnings attributable to Snap-on Incorporated | | 177.9 | | | 180.4 | | | 164.6 | | | 170.6 | | | 693.5 | |
| Earnings per share – basic | | 3.21 | | | 3.27 | | | 2.99 | | | 3.12 | | | 12.59 | |
| Earnings per share – diluted | | 3.16 | | | 3.22 | | | 2.96 | | | 3.08 | | | 12.41 | |
| Cash dividends paid per share | | 0.95 | | | 0.95 | | | 0.95 | | | 1.08 | | | 3.93 | |
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: | | /s/ Nicholas T. Pinchuk | | | | Date: | February 15, 201811, 2021 |
| | 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 15, 201811, 2021 |
| | Nicholas T. Pinchuk, Chairman, President
and Chief Executive Officer
| | | | | |
| | | |
| | /s/ Aldo J. Pagliari | | | | Date: | February 15, 201811, 2021 |
| | Aldo J. Pagliari, Principal Financial Officer, Senior
Vice President – Finance and Chief Financial Officer
| | | | | |
| | | |
| | /s/ Richard K. Strege | | | | Date: | February 15, 201811, 2021 |
| | Richard K. Strege, Principal Accounting Officer,
Vice President and Controller
| | | | | |
| | | | | | | | |
118120 | | SNAP-ON INCORPORATED | | |
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 15, 201811, 2021 |
| | David C. Adams, Director | | | | | |
| | | |
| By: | | /s/ Karen L. Daniel | | | | Date: | February 15, 201811, 2021 |
| | Karen L. Daniel, Director | | | | | |
| | | |
| By: | | /s/ Ruth Ann M. Gillis | | | | Date: | February 15, 201811, 2021 |
| | Ruth Ann M. Gillis, Director | | | | | |
| | | |
| By: | | /s/ James P. Holden | | | | Date: | February 15, 201811, 2021 |
| | James P. Holden, Director | | | | | |
| | | |
| By: | | /s/ Nathan J. Jones | | | | Date: | February 15, 201811, 2021 |
| | Nathan J. Jones, Director | | | | | |
| | | |
| By: | | /s/ Henry W. Knueppel | | | | Date: | February 15, 201811, 2021 |
| | Henry W. Knueppel, Director | | | | | |
| | | |
| By: | | /s/ W. Dudley Lehman | | | | Date: | February 15, 201811, 2021 |
| | W. Dudley Lehman, Director | | | | | |
| | | |
| By: | | /s/ Nicholas T. Pinchuk | | | | Date: | February 15, 201811, 2021 |
| | Nicholas T. Pinchuk, Director | | | | | |
| | | |
| By: | | /s/ Gregg M. Sherrill | | | | Date: | February 15, 201811, 2021 |
| | Gregg M. Sherrill, Director | | | | | |
| | | |
| By: | | /s/ Donald J. Stebbins | | | | Date: | February 15, 201811, 2021 |
| | Donald J. Stebbins, Director | | | | | |
| | | | | | | | |
| | 20172020 ANNUAL REPORT | | 119121 |
