Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 3.23M
2: EX-31.1 Certification -- §302 - SOA'02 HTML 33K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 33K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 31K
5: EX-32.2 Certification -- §906 - SOA'02 HTML 31K
11: R1 Cover HTML 82K
12: R2 Condensed Consolidated Statements of Earnings HTML 130K
(Unaudited)
13: R3 Condensed Consolidated Statements of Comprehensive HTML 78K
Income (Unaudited)
14: R4 Condensed Consolidated Balance Sheets (Unaudited) HTML 189K
15: R5 Condensed Consolidated Balance Sheets (Unaudited) HTML 44K
(Parenthetical)
16: R6 Condensed Consolidated Statements of Equity HTML 81K
(Unaudited)
17: R7 Condensed Consolidated Statements of Equity HTML 34K
(Unaudited) (Parenthetical)
18: R8 Condensed Consolidated Statements of Cash Flows HTML 124K
(Unaudited)
19: R9 Summary of Accounting Policies HTML 36K
20: R10 Revenue Recognition HTML 300K
21: R11 Acquisitions HTML 35K
22: R12 Receivables HTML 204K
23: R13 Inventories HTML 40K
24: R14 Goodwill and Other Intangible Assets HTML 73K
25: R15 Exit and Disposal Activities HTML 60K
26: R16 Income Taxes HTML 35K
27: R17 Short-term and Long-term Debt HTML 48K
28: R18 Financial Instruments HTML 53K
29: R19 Pension Plans HTML 50K
30: R20 Postretirement Health Care Plans HTML 43K
31: R21 Stock-based Compensation and Other Stock Plans HTML 108K
32: R22 Earnings Per Share HTML 41K
33: R23 Commitments and Contingencies HTML 46K
34: R24 Leases HTML 74K
35: R25 Other Income (Expense) - Net HTML 48K
36: R26 Accumulated Other Comprehensive Income (Loss) HTML 119K
37: R27 Segments HTML 88K
38: R28 Summary of Accounting Policies - (Policies) HTML 44K
39: R29 Revenue Recognition - (Tables) HTML 291K
40: R30 Receivables - (Tables) HTML 204K
41: R31 Inventories - (Tables) HTML 40K
42: R32 Goodwill and Other Intangible Assets - (Tables) HTML 75K
43: R33 Exit and Disposal Activities (Tables) HTML 54K
44: R34 Short-term and Long-term Debt - (Tables) HTML 42K
45: R35 Financial Instruments - (Tables) HTML 41K
46: R36 Pension Plans - (Tables) HTML 47K
47: R37 Postretirement Health Care Plans - (Tables) HTML 42K
48: R38 Stock-based Compensation and Other Stock Plans - HTML 101K
(Tables)
49: R39 Earnings Per Share - (Tables) HTML 40K
50: R40 Commitments and Contingencies - (Tables) HTML 44K
51: R41 Leases - (Tables) HTML 50K
52: R42 Other Income (Expense) - Net - (Tables) HTML 47K
53: R43 Accumulated Other Comprehensive Income (Loss) - HTML 121K
(Tables)
54: R44 Segments - (Tables) HTML 86K
55: R45 Revenue Recognition - Revenue Disaggregation HTML 125K
(Details)
56: R46 Revenue Recognition - Narrative (Details) HTML 44K
57: R47 Revenue Recognition - Performance Obligations HTML 41K
(Details)
58: R48 Acquisitions - Narrative (Details) HTML 67K
59: R49 Receivables - Narrative (Details) HTML 56K
60: R50 Receivables - Components of Trade and Other HTML 38K
Accounts Receivable (Details)
61: R51 Receivables - Trade and Other Receivables HTML 42K
Allowance for Credit Losses Rollforward (Details)
62: R52 Receivables - Components of Current Finance and HTML 54K
Contract Receivables (Details)
63: R53 Receivables - Components of Finance and Contract HTML 53K
Receivables Beyond One Year (Details)
64: R54 Receivables - Schedule of Performing and HTML 69K
Nonperforming Finance and Contract Receivables
(Details)
65: R55 Receivables - Finance and Contract Receivables HTML 52K
Allowance for Credit Losses Rollforward (Details)
66: R56 Receivables - Aging of Finance and Contract HTML 57K
Receivables (Details)
67: R57 Receivables - Schedule of Finance and Contract HTML 36K
Receivables on Nonaccrual Status (Details)
68: R58 Inventories - Schedule of Inventories by Major HTML 41K
Classification (Details)
69: R59 Inventories - Narrative (Details) HTML 37K
70: R60 Goodwill and Other Intangible Assets - Changes in HTML 46K
Carrying Amount of Goodwill by Segment (Details)
71: R61 Goodwill and Other Intangible Assets - Narrative HTML 96K
(Details)
72: R62 Goodwill and Other Intangible Assets - Other HTML 54K
Intangible Assets by Major Class (Details)
73: R63 Goodwill and Other Intangible Assets - HTML 44K
Weighted-Average Amortization Period by Major
Class (Details)
74: R64 Exit and Disposal Activities - Narrative (Details) HTML 38K
75: R65 Exit and Disposal Activities - Accrual Activity HTML 47K
(Details)
76: R66 Income Taxes - Narrative (Details) HTML 39K
77: R67 Short-term and Long-term Debt - Summary (Details) HTML 52K
78: R68 Short-term and Long-term Debt - Narrative HTML 57K
(Details)
79: R69 Financial Instruments - Narrative (Details) HTML 41K
80: R70 Financial Instruments - Fair Values of Financial HTML 45K
Instruments Not Approximating Carrying Values in
Financial Statements (Details)
81: R71 Pension Plans - Net Periodic Pension (Benefit) HTML 47K
Cost (Details)
82: R72 Pension Plans - Narrative (Details) HTML 36K
83: R73 Postretirement Health Care Plans - Net Periodic HTML 41K
Postretirement Health Care Cost (Details)
84: R74 Stock-based Compensation and Other Stock Plans - HTML 41K
Narrative (Details)
85: R75 Stock-based Compensation and Other Stock Plans - HTML 48K
Stock Options Narrative (Details)
86: R76 Stock-based Compensation and Other Stock Plans - HTML 41K
Stock Options, Summary of Weighted Average
Assumptions of Fair Value Granted Using
Black-Scholes Valuation Model (Details)
87: R77 Stock-based Compensation and Other Stock Plans - HTML 70K
Summary of Changes in Stock Options (Details)
88: R78 Stock-based Compensation and Other Stock Plans - HTML 51K
Performance Share Unit and Restricted Stock Awards
Narrative (Details)
89: R79 Stock-based Compensation and Other Stock Plans - HTML 54K
Summary of Changes in Non-Vested Performance
Awards (Details)
90: R80 Stock-based Compensation and Other Stock Plans - HTML 51K
Stock Appreciation Rights Narrative (Details)
91: R81 Stock-based Compensation and Other Stock Plans - HTML 41K
Stock-Settled SARs, Summary of Weighted-Average
Assumptions of Fair Value Granted Using
Black-Scholes Valuation Model (Details)
92: R82 Stock-based Compensation and Other Stock Plans - HTML 68K
Summary of Changes in Stock-Settled SARs (Details)
93: R83 Stock-based Compensation and Other Stock Plans - HTML 41K
Cash-Settled SARs, Summary of Weighted-Average
Assumptions of Fair Value Granted Using
Black-Scholes Valuation Model (Details)
94: R84 Stock-based Compensation and Other Stock Plans - HTML 49K
Summary of Changes in Non-Vested Cash-Settled SARs
(Details)
95: R85 Stock-based Compensation and Other Stock Plans - HTML 37K
Restricted Stock Awards, Non-employee Directors
Narrative (Details)
96: R86 Stock-based Compensation and Other Stock Plans - HTML 40K
Employee Stock Purchase Plan Narrative (Details)
97: R87 Stock-based Compensation and Other Stock Plans - HTML 40K
Franchise Stock Purchase Plan Narrative (Details)
98: R88 Earnings Per Share - Computation of Basic and HTML 38K
Diluted Earnings Per Common Share (Details)
99: R89 Earnings Per Share - Narrative (Details) HTML 33K
100: R90 Commitments and Contingencies - Summary of Product HTML 37K
Warranty Accrual Activity (Details)
101: R91 Leases - Supplemental Balance Sheet Information HTML 62K
(Details)
102: R92 Other Income (Expense) - Net - Computation of HTML 45K
Other Income (Expense) - Net (Details)
103: R93 Accumulated Other Comprehensive Income (Loss) - HTML 70K
Net Changes in Accumulated OCI by Component, Net
of Tax (Details)
104: R94 Accumulated Other Comprehensive Income (Loss) - HTML 63K
Reclassifications Out of Accumulated OCI (Details)
105: R95 Segments - Net Sales by Segment (Details) HTML 99K
106: R96 Segments - Assets by Segment (Details) HTML 53K
109: XML IDEA XML File -- Filing Summary XML 208K
107: XML XBRL Instance -- sna-20220702_htm XML 4.30M
108: EXCEL IDEA Workbook of Financial Reports XLSX 192K
7: EX-101.CAL XBRL Calculations -- sna-20220702_cal XML 220K
8: EX-101.DEF XBRL Definitions -- sna-20220702_def XML 1.01M
9: EX-101.LAB XBRL Labels -- sna-20220702_lab XML 1.92M
10: EX-101.PRE XBRL Presentations -- sna-20220702_pre XML 1.34M
6: EX-101.SCH XBRL Schema -- sna-20220702 XSD 216K
110: JSON XBRL Instance as JSON Data -- MetaLinks 519± 792K
111: ZIP XBRL Zipped Folder -- 0000091440-22-000026-xbrl Zip 581K
(Exact name of registrant as specified in its charter)
iDelaware
i39-0622040
(State
of incorporation)
(I.R.S. Employer Identification No.)
i2801 80th Street,
iKenosha,
iWisconsin
i53143
(Address
of principal executive offices)
(Zip code)
(i262) i656-5200
(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
iCommon Stock, $1.00 par value
iSNA
iNew
York Stock Exchange
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. iYes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYes☒ No ☐
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,”“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
iLarge
accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging growth company
i☐
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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No i☒
Indicate
the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: iSummary
of Accounting Policies
i
Principles of consolidation and presentation
The Condensed Consolidated Financial Statements include the accounts of Snap-on Incorporated and its wholly owned and majority-owned subsidiaries (collectively, “Snap-on” or the “company”). These financial statements should be read in conjunction with, and have been prepared in conformity with, the accounting principles reflected in the consolidated financial statements and related notes
included in Snap-on’s 2021 Annual Report on Form 10-K for the fiscal year ended January 1, 2022 (“2021 year end”). The company’s 2022 fiscal second quarter ended on July 2, 2022; the 2021 fiscal second quarter ended on July 3, 2021. The company’s 2022 and 2021 fiscal second quarters each contained 13 weeks of operating results. Snap-on’s Condensed Consolidated Financial Statements are prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”).
In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for the
fair presentation of the Condensed Consolidated Financial Statements for the three and six month periods ended July 2, 2022, and July 3, 2021, have been made. Interim results of operations are not necessarily indicative of the results to be expected for the full fiscal year.
i
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.
i
Financial Instruments
The fair value of the company’s derivative financial instruments is generally determined using quoted prices in active markets for similar assets and liabilities. The carrying value of the
company’s non-derivative financial instruments either approximates fair value, due to their short-term nature, or the amount disclosed for fair value is based upon a discounted cash flow analysis or quoted market values. See Note 10 for further information on financial instruments.
i
New Accounting Standards
In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments – Credit Losses (Topic 326) – Troubled Debt Restructurings and Vintage Disclosures, which
requires enhanced disclosure of certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty while eliminating certain current recognition and measurement accounting guidance. This ASU also requires the disclosure of current-period gross write-offs by year of origination for financing receivables and net investments in leases. ASU No. 2022-02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years; this ASU allows for early adoption in any interim period after issuance of the update. The adoption of this ASU is not expected to have a material impact on Snap-on’s Consolidated Financial Statements.
Note
2: iRevenue Recognition
Snap-on recognizes revenue from the sale of tools, diagnostics, equipment, and related services based on when control of the product passes to the customer or the service is provided and is recognized at an amount that reflects the consideration expected to be received in exchange for such goods or services.
Snap-on
evaluates the performance of its operating segments based on segment revenues, including both external and intersegment net sales, and segment operating earnings. Snap-on accounts for both intersegment sales and transfers based primarily on standard costs with reasonable mark-ups established between the segments. Intersegment amounts are eliminated to arrive at Snap-on’s consolidated financial results.
The following tables represent external net sales disaggregated by geography, based on the customers’ billing addresses:
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 computer-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 derives revenue from various financing programs designed to facilitate the sales of its products and support its franchise business.
Approximately i90% of Snap-on’s net sales are products sold at a point in time through ship-and-bill performance obligations
that also include repair services. The remaining sales revenue is earned over time primarily for software subscriptions, other subscription service agreements and extended warranty programs.
Snap-on enters into contracts related to the selling of tools, diagnostics, repair information, equipment and related services. At contract inception, an assessment of the goods and services promised in the contracts with customers is performed and a performance obligation is identified for each distinct promise to transfer to the customer a good or service (or bundle of goods or services). To identify the performance obligations, Snap-on considers all of the goods or services
promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. Contracts with customers are comprised of customer purchase orders, invoices and written contracts.
For certain performance obligations related to software subscriptions, extended warranty and other subscription agreements that are settled over time Snap-on has elected not to disclose the value of unsatisfied performance obligations for: (i) contracts that have an original expected length of one year or less; (ii)
contracts where revenue is recognized as invoiced; and (iii) contracts with variable consideration related to unsatisfied performance obligations. iThe remaining duration of these unsatisfied performance obligations range from one month up to 60 months. Snap-on had approximately $i188.0
million of long-term contracts that have fixed consideration that extends beyond one year as of July 2, 2022. Snap-on expects to recognize approximately i60% of these contracts as revenue by the end of fiscal 2023, an additional i35%
by the end of fiscal 2025, and the balance thereafter.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Contract Liabilities: Contract liabilities are recorded when
cash payments are received in advance of Snap-on’s performance. The timing of payment is typically on a monthly, quarterly or annual basis. The balance of total contract liabilities was $i65.9 million and $i63.8
million at July 2, 2022, and January 1, 2022, respectively. The current portion of contract liabilities is included in “Other accrued liabilities” and the non-current portion of such liabilities is included in “Other long-term liabilities” on the accompanying Condensed Consolidated Balance Sheets. During the three and six months ended July 2, 2022, Snap-on recognized revenue of $i10.3
million and $i44.9 million, respectively, that was included in the $i63.8 million contract
liability balance at January 1, 2022, which was primarily from the amortization of software subscriptions, extended warranties and other subscription agreements.
Note 3: iAcquisitions
On August 1, 2021, Snap-on
acquired AutoCrib EMEA GmbH (“AutoCrib Germany”), a former independent distributor, for a cash purchase price of $i4.4 million (or $i4.2
million, net of cash acquired). AutoCrib Germany, based in Hamburg, Germany, distributes asset and tool control solutions for a variety of aerospace, automotive, military, natural resources and general industry operations. In the first quarter of 2022, the company completed the purchase accounting valuations for the acquired net assets of AutoCrib Germany. The $i3.3 million excess of the purchase price over the fair value of the net assets acquired is recorded in “Goodwill” on the accompanying Condensed Consolidated Balance Sheets.
On
July 1, 2021, Snap-on exchanged its i35% equity interest in Deville S.A., valued at $i21.8 million, for i100%
ownership of Secateurs Pradines (“Pradines”), a wholly owned subsidiary of Deville S.A. with a fair value of $i20.2 million (or $i15.7
million, net of cash acquired), which reflects a $i0.5 million purchase accounting adjustment finalized in the second quarter of 2022, and cash of $i1.6
million. Pradines, located in Bauge-en-Anjou, France, designs and manufactures horticultural hand tools for professionals and individuals. The $i10.2 million excess of the purchase price over the fair value of net assets acquired is recorded in “Goodwill” on the accompanying Condensed Consolidated Balance Sheets.
On February 26, 2021, Snap-on acquired Dealer-FX Group, Inc. (“Dealer-FX”) for a cash purchase price of $i200.1
million (or $i200.0 million, net of cash acquired). Dealer-FX, based in Markham, Ontario, is a leading developer, marketer and provider of service operations software solutions for automotive OEM customers and their dealers. Dealer-FX specializes in software as a service (SaaS) management systems, communications platforms, extensive data integrations, and offers a digitalized solution that increases productivity and enhances the vehicle owners’ experience. In the first quarter of 2022, the
company completed the purchase accounting valuations for the acquired net assets of Dealer-FX, and recorded $i32.6 million of net deferred tax changes. The $i118.2 million excess of the purchase
price over the fair value of the net assets acquired is recorded in “Goodwill” on the accompanying Condensed Consolidated Balance Sheets.
For segment reporting purposes, the results of operations and assets of Dealer-FX have been included in the Repair Systems & Information Group since the acquisition date, and the results of operations and assets of AutoCrib Germany and Pradines have been included in the Commercial & Industrial Group since the respective acquisition dates.
Pro forma financial information has not been presented for these acquisitions as the net effects were neither significant nor material to Snap-on’s results of operations or financial position. See Note 6 for further information on goodwill and other intangible assets.
Note
4: iReceivables
Trade and Other Accounts Receivable: Snap-on’s trade and other accounts receivable primarily arise from the sale of tools, diagnostics, and equipment products to a broad range of industrial and commercial customers and to Snap-on’s independent franchise van channel with payment terms generally ranging from i30
to i120 days.
i
The components of Snap-on’s trade and other accounts receivable as of July 2,
2022, and January 1, 2022, are as follows:
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
i
The following is a rollforward of the allowances for credit losses related to trade and other accounts receivable for the three and six months ended July 2, 2022, and July 3,
2021:
Finance
and Contract Receivables: Snap-on Credit LLC (“SOC”), the company’s financial services operation in the United States, originates extended-term finance and contract receivables on sales of Snap-on’s products sold through the U.S. franchisee network and to certain other customers of Snap-on; Snap-on’s foreign finance subsidiaries provide similar financing internationally. Interest income on finance and contract receivables is included in “Financial services revenue” on the accompanying Condensed Consolidated
Statements of Earnings.
Finance receivables are comprised of extended-term 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, with average payment terms of approximately ifour years.
Contract
receivables, with payment terms of up to iten years, are comprised of extended-term payment contracts to a broad base of customers worldwide, including shop owners, both independents and national chains, for their purchase of tools, diagnostics, and equipment products, as well as extended-term contracts to franchisees to meet a number of financing needs, including working capital loans, loans to enable new franchisees
to fund the purchase of the franchise and van leases, or the expansion of an existing franchise. Finance and contract receivables are generally secured by the underlying tools, diagnostics and/or equipment products financed and, for contracts to franchisees, other franchisee assets.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The components of Snap-on’s finance and contract receivables with payment terms beyond one year as of July 2, 2022, and January 1, 2022, are as follows:
Total
long-term finance and contract receivables – net
$
i1,502.4
$
i1,492.2
Credit
quality: The company’s receivable portfolio is comprised of itwo 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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
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 other 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 i30
days or more past due is considered delinquent. However, customers are monitored prior to becoming i30 days past due.
i
The
amortized cost basis of finance and contract receivables by origination year as of July 2, 2022, are as follows:
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 i120 days past
due and are written off typically within i60 days of asset repossession. Contract receivables related to equipment leases are generally written off when an account becomes i150
days past due, while contract receivables related to franchise finance and van leases are generally written off up to i180 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 i180
days past due. Changes to the allowances for credit losses are maintained through adjustments to the provision for credit losses.
For finance receivables, the company uses a vintage loss rate methodology to determine expected losses. Vintage analysis aims to calculate losses based on the timing of the losses relative to the origination of the receivables. The finance receivable portfolio contains a substantial amount of homogeneous contracts, which fits well with the vintage analysis.
For contract receivables the company primarily uses a Weighted-Average
Remaining Maturity methodology (“WARM”). The WARM methodology calculates the average annual write-off rate and applies it to the remaining term of the receivables. The WARM method is used since the contract receivables have limited loss experience over generally longer terms and, therefore, the predictive loss patterns are more difficult to estimate.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
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.
The allowance for credit losses is adjusted each period for changes in the credit risk and expected lifetime credit losses.
i
The following is a rollforward of the allowances for credit losses for finance and contract receivables for the three and six months ended July 2,
2022, and July 3, 2021:
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 i30
days past due. Removal from delinquent status occurs when the cumulative amount of monthly contractual payments then due have 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 July 2, 2022, and January 1, 2022, were immaterial to both
the financial services portfolio and the company’s results of operations and financial position.
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.
Contract receivables are generally placed on nonaccrual status: (i) when a receivable is more than i90
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.
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. 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 applicable agreement. Such finance and contract receivables are covered by the
company’s respective allowances for credit losses and are written-off against the allowances when appropriate.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Inventories accounted for using the first-in, first-out (“FIFO”) method approximated i61% and i60%
of total inventories as of July 2, 2022, and January 1, 2022, respectively. The company accounts for its non-U.S. inventory on the FIFO method. As of July 2, 2022, approximately i36% of the company’s U.S. inventory was accounted for using the FIFO method and i64%
was accounted for using the last-in, first-out (“LIFO”) method. There were iino/
LIFO inventory liquidations in the three and six months ended July 2, 2022, or July 3, 2021.
Note 6: iGoodwill and Other Intangible Assets
i
The
changes in the carrying amount of goodwill by segment for the six months ended July 2, 2022, are as follows:
Goodwill
of $i1,046.0 million as of July 2, 2022, included $i118.2 million from the acquisition of Dealer-FX, $i10.2
million from the acquisition of Pradines and $i3.3 million from the acquisition of AutoCrib Germany. In the first quarter of 2022, the purchase accounting valuations for the acquired net assets, including deferred tax assets, of Dealer-FX were completed, resulting in a reduction of goodwill of $i32.6
million from 2021 year end. In the second quarter of 2022, the purchase accounting valuations for the acquired net assets of Pradines were completed, resulting in a reduction of goodwill of $i0.5 million from 2021 year end. The goodwill from Dealer-FX is included in the Repair Systems & Information Group and the goodwill from Pradines and AutoCrib Germany is included in the Commercial & Industrial Group. See Note 3 for additional information on acquisitions.
i
Additional
disclosures related to other intangible assets are as follows:
As
of July 2, 2022, the gross carrying value of intangible assets includes $i28.4 million of customer relationships, $i14.8
million of developed technology and a $i17.7 million non-amortized trademark related to the Dealer-FX acquisition.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Snap-on
completed its annual impairment testing of goodwill and other indefinite-lived intangible assets in the second quarter of 2022, and the testing did inot result in any impairment. Provision for impairment of goodwill and/or other intangible assets could arise in a future period due to 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. As of July 2, 2022, the company had ino accumulated impairment losses.
i
The
weighted-average amortization periods related to other intangible assets are as follows:
In Years
Customer relationships
i14
Developed technology
i5
Internally
developed software
i6
Patents
i14
Trademarks
i9
Other
i39
/
Snap-on
is amortizing its customer relationships on both an accelerated and straight-line basis over a i14 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 i12
years.
The company’s customer relationships generally have contractual terms of three to ifive years and are typically renewed without significant cost to the company. The weighted-average i14
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 $i7.2 million and $i14.4
million for the respective three and six month periods ended July 2, 2022, and $i6.3 million and $i12.3
million for the respective three and six month periods ended July 3, 2021. Based on current levels of amortizable intangible assets and estimated weighted-average useful lives, estimated annual amortization expense is expected to be $i28.4 million in 2022, $i25.8
million in 2023, $i19.6 million in 2024, $i14.1 million
in 2025, $i10.9 million in 2026, and $i9.7 million
in 2027.
Note 7: iExit and Disposal Activities
Snap-on did iiiinot///
record any costs for exit and disposal activities for each of the three and six month periods ended July 2, 2022, and July 3, 2021.
i
Snap-on’s
exit and disposal accrual activity for the first six months of 2022 is as follows:
As
of July 2, 2022, the company expects that approximately $i3.2 million of the $i5.4
million exit and disposal accrual will be utilized in 2022, and the remainder thereafter, primarily for longer-term severance payments.
Snap-on expects to fund the remaining cash requirements of its exit and disposal activities with available cash on hand, cash flows from operating activities and borrowings under the company’s existing credit facilities. The estimated costs for the exit and disposal activities were based on management’s best business judgement under prevailing circumstances.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 8: iIncome Taxes
Snap-on’s effective income tax rate on earnings attributable to Snap-on was i23.7%
and i23.4% in the respective first six month periods of 2022 and 2021.
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 izero to $i4.2 million. Over the next 12 months, Snap-on anticipates
taking certain tax positions on various tax returns for which the related tax benefit does not meet the recognition threshold. Accordingly, Snap-on’s gross unrecognized tax benefits may increase by a range of izero to $i0.8
million over the next 12 months for uncertain tax positions expected to be taken in future tax filings.
Notes payable of $i18.8 million as of July 2, 2022, compared to $i17.4
million as of 2021 year end.
Snap-on has an $i800 million multi-currency revolving credit facility that terminates on September 16, 2024 (the “Credit Facility”); ino
amounts were outstanding under the Credit Facility as of July 2, 2022. Borrowings under the Credit Facility bear interest at varying rates based on either: (i) Snap-on’s then-current, long-term debt ratings; or (ii) Snap-on’s then-current ratio of consolidated debt net of certain cash adjustments (“Consolidated Net Debt”) to earnings before interest, taxes, depreciation, amortization and certain other adjustments for the preceding four fiscal quarters then ended (the “Consolidated Net Debt to EBITDA Ratio”). The Credit Facility’s financial covenant requires that Snap-on maintain, as of each fiscal quarter end, either (i) a ratio not greater than i0.60
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 i3.50 to 1.00. Snap-on may, up to itwo
times during any ifive-year period during the term of the Credit Facility (including any extensions thereof), elect to increase the maximum Leverage Ratio to i0.65 to 1.00 and/or increase the maximum Consolidated Net Debt to EBITDA Ratio to i4.00
to 1.00 for four consecutive fiscal quarters in connection with certain material acquisitions (as defined in the related credit agreement). As of July 2, 2022, the company’s actual ratios of i0.09 and i0.34,
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. As of July 2, 2022, there were ino commercial paper issuances outstanding.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 10: iFinancial Instruments
Derivatives: All derivative instruments are reported in the Condensed Consolidated Financial Statements
at fair value. Changes in the fair value of derivatives are recorded each period in earnings or on the accompanying Condensed 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 earnings are presented in the same Condensed 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”) are reclassified to earnings in the period in which earnings are affected by the underlying hedged 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. Once 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.
Snap-on is exposed to global market risks, including the effects of changes in foreign currency exchange rates, interest rates, and the company’s stock price. The
company 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, including currency fluctuations. Foreign currency exchange risk exists to the extent that Snap-on has payment obligations or receipts denominated in currencies other than the functional currency, including intercompany loans denominated in foreign currencies. To manage these exposures, Snap-on identifies naturally offsetting positions and then purchases hedging instruments to protect the residual net exposures. Snap-on manages most of these exposures on a consolidated basis, which allows
for netting of certain exposures to take advantage of natural offsets. Foreign currency forward contracts (“foreign currency forwards”) are used to hedge the net exposures. Gains or losses on net foreign currency hedges are intended to offset losses or gains on the underlying net exposures in an effort to reduce the earnings volatility resulting from fluctuating foreign currency exchange rates. Snap-on’s foreign currency forwards are typically not designated as hedges. The fair value changes of these contracts are reported in earnings as foreign exchange gain or loss, which is included in “Other income (expense) - net” on the accompanying Condensed Consolidated Statements of Earnings. See Note 17 for additional information on Other income (expense) - net.
Interest
Rate Risk Management: Snap-on aims to control funding costs by managing the exposure created by the differing maturities and interest rate structures of Snap-on’s borrowings through the use of interest rate swap agreements (“interest rate swaps”) and treasury lock agreements (“treasury locks”).
Interest rate swaps: Snap-on may enter 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 Condensed Consolidated Statements of Earnings. The change in the fair value of the derivative is recorded in “Long-term debt”
on the accompanying Condensed Consolidated Balance Sheets. There were iino/
outstanding interest rate swaps as of both July 2, 2022, and January 1, 2022.
Treasury locks: Snap-on may use treasury locks to manage the potential change in interest rates in anticipation of the issuance of fixed rate debt. Treasury locks are accounted for as cash flow hedges. The differentials to be paid or received on treasury locks related to the anticipated issuance of fixed rate debt are initially recorded in Accumulated OCI for derivative instruments that are designated and qualify as cash flow hedges. Upon the issuance of debt, the related amount in Accumulated OCI is released over the term of the debt and recognized as an adjustment to interest expense on the Condensed Consolidated Statements of Earnings. There were iino/
treasury locks outstanding as of both July 2, 2022, and January 1, 2022.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Stock-based Deferred Compensation Risk Management: Snap-on aims to manage market risk associated with the stock-based portion of its deferred compensation plans
through the use of prepaid equity forward agreements (“equity forwards”). Equity forwards are used to aid in offsetting the potential mark-to-market effect on stock-based deferred compensation from changes in Snap-on’s stock price. Since stock-based deferred compensation liabilities increase as the company’s stock price rises and decrease as the company’s stock price declines, the equity forwards are intended to mitigate the potential impact on deferred compensation expense that may result from such mark-to-market changes. As of July 2, 2022, Snap-on had equity forwards in place intended to manage market risk with respect to i71,200
shares of Snap-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 of Financial Instruments:
iThe fair values of financial instruments that do not approximate the carrying values in the financial statements are as follows:
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 was estimated, using Level 2 fair value measurements, based on quoted market values of Snap-on’s publicly traded senior debt. The carrying value of long-term debt includes unamortized debt issuance costs. 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.
The
components of net periodic pension (benefit) cost, other than the service cost component, are included in “Other income (expense) - net” on the accompanying Condensed Consolidated Statements of Earnings. See Note 17 for additional information on other income (expense) - net.
Snap-on intends to make contributions of $i9.4 million to its foreign pension plans and $i9.5
million to its domestic pension plans in 2022, as required by law. Depending on market and other conditions, Snap-on may make discretionary cash contributions to its pension plans in 2022.
Note 12: iPostretirement Health Care Plans
i
Snap-on’s
net periodic postretirement health care cost included the following components:
The
components of net periodic postretirement health care cost are included in “Other income (expense) - net” on the accompanying Condensed Consolidated Statements of Earnings. See Note 17 for additional information on other income (expense) - net.
Note 13: iStock-based Compensation and Other Stock Plans
The
2011 Incentive Stock and Awards Plan (the “2011 Plan”) provides for the grant of stock options, performance share units (“PSUs”), stock appreciation rights (“SARs”) and restricted stock awards (which may be designated as “restricted stock units” or “RSUs”). As of July 2, 2022, the 2011 Plan had i3,116,594 shares available for future grants. The
company uses treasury stock to deliver shares under the 2011 Plan.
Net stock-based compensation expense was $i8.5 million and $i17.5 million
for the respective three and six month periods ended July 2, 2022, and $i11.5 million and $i23.8 million for the respective three and
six month periods ended July 3, 2021. Cash received from stock purchase and option plan exercises during the respective three and six month periods ended July 2, 2022, totaled $i23.4 million and $i29.2
million. Cash received from stock purchase and option plan exercises during the respective three and six month periods ended July 3, 2021, totaled $i61.8 million and $i154.8
million. The tax benefit realized from both the exercise and vesting of share-based payment arrangements was $i1.8 million and $i3.9
million for the respective three and six month periods ended July 2, 2022, and $i6.2 million and $i13.9
million for the respective three and six month periods ended July 3, 2021.
Stock Options: Stock options are granted with an exercise price equal to the market value of a share of Snap-on’s common stock on the date of grant and have a contractual term of iten years. Stock option grants vest ratably on the first, second and third anniversaries
of the date of grant.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
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 expected annual dividend 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.
i
The
following weighted-average assumptions were used in calculating the fair value of stock options granted during the three month period ended July 2, 2022, and the six month periods ended July 2, 2022 and July 3, 2021, using the Black-Scholes valuation model; ino stock options were granted during the
three month period ended July 3, 2021:
The
weighted-average grant date fair value of options granted during the six months ended July 2, 2022, and July 3, 2021, was $i34.35 and $i26.19,
respectively. The intrinsic value of options exercised was $i7.4 million and $i10.2
million during the respective three and six month periods ended July 2, 2022, and $i28.1 million and $i58.9
million during the respective three and six month periods ended July 3, 2021. The fair value of stock options vested was $i10.5 million and $i12.5
million during the respective six month periods ended July 2, 2022, and July 3, 2021.
As of July 2, 2022, there was $i14.9 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 i1.8 years.
Performance Share Units and Restricted Stock Units: PSUs are earned and expensed using the fair value of the award over a contractual term of ithree
years based on the company’s performance. Vesting of the PSUs is dependent upon performance relative to pre-defined goals for revenue growth and return on net assets for the applicable performance period. For performance achieved above specified levels, the recipient may earn additional shares of stock, not to exceed i100% of the number of performance awards initially granted. The PSUs have a ithree-year
performance period based on the results of the consolidated financial metrics of the company.
Time-based RSUs are earned and expensed using the fair value of the award over the contractual term of ithree years. Vesting of the time-based RSUs is dependent upon continued employment over the i3-year
cliff vesting period.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The fair value of PSUs and RSUs is calculated using the market value of a share of Snap-on’s common stock on the date of grant and assumed forfeitures based on recent historical experience; in recent years, forfeitures have not been significant. The weighted-average grant date fair value of awards granted during the six months ended
July 2, 2022, and July 3, 2021, was $i206.58 and $i187.12,
respectively. PSUs related to i46,217 shares were paid out during the six months ended July 2, 2022. There were ino
PSUs paid out during the six months ended July 3, 2021. Earned PSUs vest and are generally paid out following the conclusion of the applicable performance period upon approval by the Organization and Executive Compensation Committee of the company’s Board of Directors (the “Board”).
i
Changes to the company’s non-vested
PSUs and RSUs during the six months ended July 2, 2022, are as follows:
As
of July 2, 2022, there was $i33.6 million of unrecognized compensation cost related to non-vested PSUs and RSUs that are expected to be recognized as a charge to earnings over a weighted-average period of i1.6
years.
Stock Appreciation Rights: The company also issues stock-settled and cash-settled SARs to certain key non-U.S. employees. SARs have a contractual term of iten years and vest ratably on the first, second and third anniversaries of the date
of grant. SARs are granted with an exercise price equal to the market value of a share of Snap-on’s common stock on the date of grant.
Stock-settled SARs are accounted for as equity instruments and provide for the issuance of Snap-on common stock equal to the amount by which the company’s stock has appreciated over the exercise price. Stock-settled SARs have an effect on dilutive shares and shares outstanding as any appreciation of Snap-on’s common stock value over the exercise price will be settled in shares of common stock. Cash-settled SARs provide for the cash payment of the excess of the fair market value of Snap-on’s common stock price on the date of exercise over the grant price. Cash-settled SARs have no effect on dilutive shares or shares outstanding as any appreciation of Snap-on’s common stock over the grant price is paid in cash and
not in common stock.
The fair value of stock-settled SARs is estimated on the date of grant using the Black-Scholes valuation model. The fair value of cash-settled SARs is revalued (mark-to-market) each reporting period using the Black-Scholes valuation model based on Snap-on’s period-end stock price. The company uses historical data regarding SARs exercise and forfeiture behaviors for different participating groups to estimate the expected term of the SARs granted based on the period of time that similar instruments granted are expected to be outstanding. Expected volatility is based on the historical volatility of the company’s stock for the length of time corresponding to the expected term of the SARs. The expected dividend yield is based on the expected annual
dividend 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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
i
The
following weighted-average assumptions were used in calculating the fair value of stock-settled SARs granted during the six months ended July 2, 2022, and July 3, 2021, using the Black-Scholes valuation model:
The
weighted-average grant date fair value of stock-settled SARs granted during the six months ended July 2, 2022, and July 3, 2021, was $i32.63 and $i24.05,
respectively. The intrinsic value of stock-settled SARs exercised was $i0.5 million and $i0.7
million during the respective three and six month periods ended July 2, 2022, and $i0.8 million and $i3.0
million during the respective three and six month periods ended July 3, 2021. The fair value of stock-settled SARs vested was $i2.0 million and $i2.1
million during the respective six month periods ended July 2, 2022, and July 3, 2021.
As of July 2, 2022, there was $i3.4 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 i1.9 years.
The following weighted-average assumptions were used in calculating the fair value of cash-settled SARs granted during the six months ended July 2, 2022, and July 3, 2021, using the Black-Scholes valuation model:
The
intrinsic value of cash-settled SARs exercised was $i0.2 million and $i0.6
million during the respective three and six month periods ended July 2, 2022, and $i0.1 million and $i0.6
million during the respective three and six month periods ended July 3, 2021. The fair value of cash-settled SARs vested was $ii0.1/
million for both the six month periods ended July 2, 2022, and July 3, 2021.
As
of July 2, 2022, there was $i0.1 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 i1.9
years.
Restricted Stock Awards – Non-employee Directors: The company awarded i6,525 shares and i6,858
shares of restricted stock to non-employee directors for the respective six month periods ended July 2, 2022, and July 3, 2021. The fair value of the restricted stock awards is expensed over a ione-year vesting period based on the fair value on the date of grant. All restrictions 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.
Employee stock purchase plan: Substantially all Snap-on employees in the United States and Canada are eligible to participate in an employee stock purchase plan. The purchase price of the company’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 the six month periods ended July 2, 2022, and July 3,
2021, issuances under this plan totaled i18,464 shares and i82,286
shares, respectively. As of July 2, 2022, shares reserved for issuance under this plan totaled i578,811 shares and Snap-on held participant contributions of approximately $i0.4
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 iizero/
for both the three and six month periods ended July 2, 2022, and $i4.8 million and $i9.6
million for the respective three and six month periods ended July 3, 2021.
Franchisee stock purchase plan: All franchisees in the United States and Canada are eligible to participate in a franchisee stock purchase plan. The purchase price of the company’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 the six month periods ended July 2, 2022, and July 3, 2021, issuances under this plan totaled i44,937
shares and i143,388 shares, respectively. As of July 2, 2022, shares reserved for issuance under this plan totaled i225,225
shares and Snap-on held participant contributions of approximately $i0.9 million. Participants are able to withdraw from the plan at any time prior to the ending date and generally receive back all contributions made during the plan year. The company recognized mark-to-market expense of iizero/
for both the three and six month periods ended July 2, 2022, and $i11.3 million and $i16.7
million for the respective three and six month periods ended July 3, 2021.
Note 14: iEarnings Per Share
iThe
shares used in the computation of the company’s basic and diluted earnings per common share are as follows:
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The dilutive effect of the potential exercise of outstanding options and stock-settled SARs to purchase common shares is calculated using the treasury stock method. As of both July 2, 2022, and July 3, 2021, there were iino/
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.
Note 15: iCommitments and Contingencies
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.
i
Snap-on’s product warranty accrual activity for the three and six months ended July 2, 2022, and July 3, 2021, is as follows:
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 legal matters, management believes that the results of all legal matters will not have a material impact on Snap-on’s consolidated financial position, results of operations or cash flows.
Note 16: iiLeases/
Lessee
Accounting: iSupplemental balance sheet information related to leases as of July 2, 2022, and January 1, 2022, is as follows:
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
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. Sales-type leases are included in both “Finance receivables - net” and “Long-term finance receivables - net” and also in both “Contract receivables - net” and “Long-term contract
receivables - net” on the accompanying Condensed Consolidated Balance Sheets.
See Note 4 for further information on finance and contract receivables.
Note 17: iOther Income (Expense) – Net
i
“Other
income (expense) – net” on the accompanying Condensed Consolidated Statements of Earnings consists of the following:
Foreign currency loss from sale of equity interest:
Foreign
currency
$
i—
$
i1.0
$
i—
$
i1.0
Other
income (expense) - net
Income tax expense
i—
i—
i—
i—
Income
tax expense
Net of tax
i—
i1.0
i—
i1.0
Gains
on cash flow hedges:
Treasury locks
$
i0.4
$
i0.4
$
i0.8
$
i0.8
Interest
expense
Income tax expense
i—
i—
i—
i—
Income
tax expense
Net of tax
i0.4
i0.4
i0.8
i0.8
Amortization
of net unrecognized losses
$
(i4.7)
$
(i9.1)
$
(i9.2)
$
(i18.2)
See
footnote below*
Income tax benefit
i1.1
i2.3
i2.2
i4.5
Income
tax expense
Net of tax
(i3.6)
(i6.8)
(i7.0)
(i13.7)
Total
reclassifications for the period, net of tax
$
(i3.2)
$
(i5.4)
$
(i6.2)
$
(i11.9)
*
These
Accumulated OCI components are included in the computation of net periodic pension and postretirement health care costs; see Note 11 and Note 12 for further information.
/
Note 19: iSegments
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. Intersegment amounts are eliminated to arrive at Snap-on’s consolidated financial results.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
Caution Regarding Forward-Looking Statements:
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, the factors discussed in its Annual Report on Form 10-K for the fiscal year ended January 1, 2022 (“2021 year end”), and those discussed in this document, 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.
Risks and uncertainties include, without limitation:
•The evolving impact and unknown duration of the ongoing coronavirus (“COVID-19”) pandemic, as well as the effects of governmental actions related thereto on Snap-on’s business, which has the
potential to amplify the impact of the other risks facing the company;
•Uncertainties related to estimates, assumptions and projections generally;
•The timing and progress with which Snap-on can attain value through its Snap-on Value Creation Processes, including its ability to (i) realize efficiencies and savings from its rapid continuous improvement and other cost reduction initiatives, (ii) improve workforce productivity, (iii) achieve improvements in the company’s manufacturing footprint and greater efficiencies in its supply chain, and (iv) enhance machine maintenance, plant productivity and manufacturing line set-up and change-over practices, any or all of which
could result in production inefficiencies, higher costs and/or lost revenues;
•Snap-on’s capability to successfully implement future strategies with respect to its existing businesses;
•Snap-on’s ability to refine its brand and franchise strategies, retain and attract franchisees, and further enhance service and value to franchisees in order to help improve the sales and profitability of franchisees;
•The company’s ability to introduce successful new products;
•Risks related to pursuing, completing and integrating acquisitions;
•Snap-on’s ability
to withstand disruption arising from natural disasters, including climate-related events or other unusual occurrences, impacting our operations;
•The impact of labor interruptions or challenges;
•Snap-on’s ability to successfully manage planned facility closures or to withstand disruptions from unexpected closures;
•The effects of external economic factors, including adverse developments in world financial markets, disruptions related to tariffs and other trade issues, and global supply chain interruptions, including as a result of the current war in Ukraine;
•Weakness in certain geographic areas, including as a result of armed conflicts, localized recessions, and the impact of matters related to
the United Kingdom’s exit from the European Union;
•Significant changes in the current competitive environment;
•Inflation, interest rate changes and other monetary and market fluctuations;
•Changes in tax rates, laws and regulations as well as uncertainty surrounding potential changes;
•Price and supply fluctuations related to raw materials, components and certain purchased finished goods, such as steel, plastics, and electronics;
•Snap-on’s ability to successfully manage changes in prices and the availability of energy sources, including gasoline;
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
•The amount, rate and growth of Snap-on’s general and administrative expenses, including health care and postretirement costs, and continuing and potentially increasing required contributions to pension and postretirement plans;
•The effects of new requirements, legislation, regulations or government-related developments or issues, as well as third party actions, including those addressing climate change;
•Risks associated with data security and technological
systems and protections, including the effects of new legislation, regulations or government-related developments;
•Potential reputational damages and costs related to litigation;
•The ability to effectively manage human capital resources; and
•Other world or local events outside Snap-on’s control, including terrorist 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.
Non-GAAP Measures
References in this report to “organic sales” refer to sales from continuing operations calculated in accordance with GAAP, adjusted to exclude 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, expanded customer base, geographic expansion, new product development and pricing changes, and excludes sales contributions from acquired operations the company did not own as of the comparable prior-year reporting period. Organic sales also exclude the effects of foreign currency translation as foreign currency translation is subject to volatility that can obscure underlying business trends. Management believes that the non-GAAP financial measure of organic sales is meaningful to investors as it provides them with useful information to aid in identifying underlying growth trends in the company’s businesses and facilitates comparisons of its sales performance with prior periods.
Recent Acquisitions
On
August 1, 2021, Snap-on acquired AutoCrib EMEA GmbH (“AutoCrib Germany”), for a cash purchase price of $4.4 million (or $4.2 million, net of cash acquired). AutoCrib Germany, based in Hamburg, Germany, distributes asset and tool control solutions for a variety of aerospace, automotive, military, natural resources and general industry operations. The acquisition of AutoCrib Germany, a former independent distributor, enhanced and expanded Snap-on’s capabilities in providing solutions for the company’s existing tool control offerings.
On July 1, 2021, Snap-on exchanged its 35% equity interest in Deville S.A., valued at $21.8 million, for 100% ownership of Secateurs Pradines (“Pradines”), a wholly
owned subsidiary of Deville S.A. with a fair value of $20.2 million (or $15.7 million, net of cash acquired), and cash of $1.6 million. Pradines, located in Bauge-en-Anjou, France, designs and manufactures horticultural hand tools for professionals and individuals. Pradines has been the primary supplier of pruning products to Snap-on and the acquisition allows the company to improve and expand its pruning tool offering.
On February 26, 2021, Snap-on acquired Dealer-FX Group, Inc. (“Dealer-FX”) for a cash purchase price of $200.1 million (or $200.0 million, net of cash acquired). Dealer-FX, based in Markham, Ontario, is a leading developer, marketer and provider of service operations software solutions for automotive original equipment manufacturer (“OEM”) customers and their
dealers. Dealer-FX specializes in software as a service (SaaS) management systems, communications platforms, extensive data integrations, and offers a digitalized solution that increases productivity and enhances the vehicle owners’ experience. The acquisition of Dealer-FX complemented and expanded Snap-on’s existing OEM and dealership business that provides electronic parts catalogs, essential tool and diagnostic programs, and custom analytics to OEMs and dealerships.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS
(continued)
For segment reporting purposes, the results of operations and assets of Dealer-FX has been included in the Repair Systems & Information Group since the acquisition date, and the results of operations and assets of AutoCrib Germany and Pradines have been included in the Commercial & Industrial Group since the respective acquisition dates.
Pro forma financial information has not been presented for these acquisitions as the net effects were neither significant nor material to Snap-on’s results of operations or financial position.
Effect of COVID-19
Our markets and our operations possess and, indeed, have demonstrated considerable resilience against the effects of the pandemic. The
company sustained the accommodation of its operations to the virus environment, continuing without significant disruption to serve its franchisees and other professional customers as they performed their essential work, while taking what it believes to be appropriate measures to ensure the health and safety of its people. Throughout the pandemic, Snap-on has generally maintained its workforce and manufacturing capacity, as well as its investments in brand building and product development. As the global supply chain inefficiencies and associated cost increases caused by the COVID-19 pandemic have developed, the company has taken steps to ensure access to raw materials, components and purchased finished goods, and to provide for counterbalancing price and efficiency offsets. See also Part I, Item 1A: Risk Factors in Snap-on’s 2021 Form 10-K for an additional discussion of risks related
to COVID-19 and Other Infectious Diseases.
Net
earnings attributable to noncontrolling interests
(5.7)
(0.5)
%
(5.2)
(0.4)
%
(0.5)
(9.6)
%
Net earnings attributable to Snap-on Inc.
$
231.5
18.9
%
$
208.0
17.8
%
$
23.5
11.3
%
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 $1,136.6 million in the second quarter of 2022 increased $55.2 million, or 5.1%, from 2021 levels, reflecting an $87.6 million, or 8.4%, organic gain, partially offset by $32.4 million of unfavorable foreign currency translation.
Gross profit of $553.5 million in the second quarter of 2022 increased $10.4 million, or 1.9%, compared to $543.1 million last year. Gross margin (gross profit as a percentage of net sales) of 48.7% in the quarter declined 150 basis points (100 basis points (“bps”) equals
1.0 percent) from the second quarter of 2021 primarily due to higher material and other costs, partially offset by higher sales volumes and pricing actions, benefits from the company’s “Rapid Continuous Improvement” or “RCI” initiatives, and 30 bps of favorable foreign currency effects.
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.
Operating expenses of $306.9 million in the second quarter of 2022 compared to $326.0 million last year. Operating expenses as a percentage of net sales of 27.0% improved 310 bps from last year primarily due to the higher sales volumes, savings from RCI initiatives, and lower costs associated with stock-based expenses.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS
(continued)
Operating earnings before financial services of $246.6 million in the second quarter of 2022 increased $29.5 million, or 13.6%, compared to $217.1 million in the second quarter of 2021. As a percentage of net sales, operating earnings before financial services of 21.7% compared to 20.1% last year.
Financial services revenue of $86.4 million in the second quarter of 2022 compared to $86.9 million last year. Financial services operating earnings of $65.3 million in the period compared to $68.9 million in 2021.
Operating earnings of $311.9 million in the second quarter of 2022 increased $25.9 million, or 9.1%, compared to $286.0 million last year. As a percentage of revenues (net sales plus financial services revenue), operating earnings of 25.5% in the quarter compared
to 24.5% last year.
Interest expense in the second quarter of 2022 decreased $2.6 million compared to last year. See Note 9 to the Condensed Consolidated Financial Statements for information on Snap-on’s debt and credit facilities.
Other income (expense) – net primarily 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 17 to the Condensed Consolidated Financial Statements for information on Other income (expense) – net.
Snap-on’s effective income tax rate on earnings attributable to Snap-on was 23.8% in the second quarter of 2022 and 23.3% in the second quarter of 2021. See Note 8 to the Condensed Consolidated Financial Statements for information on income taxes.
Net
earnings attributable to Snap-on in the second quarter of 2022 were $231.5 million, or $4.27 per diluted share. Net earnings attributable to Snap-on in the second quarter of 2021 were $208.0 million, or $3.76 per diluted share.
Net
earnings attributable to noncontrolling interests
(11.0)
(0.5)
%
(10.2)
(0.4)
%
(0.8)
(7.8)
%
Net earnings attributable to Snap-on Inc.
$
448.9
18.6
%
$
400.6
17.6
%
$
48.3
12.1
%
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.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Net sales of $2,234.4 million in the
first six months of 2022 increased $128.4 million, or 6.1%, from 2021 levels, reflecting a $168.0 million, or 8.2%, organic gain and $8.5 million of acquisition-related sales, partially offset by $48.1 million of unfavorable foreign currency translation.
Gross profit of $1,087.8 million in the first six months of 2022 increased $31.1 million, or 2.9%, compared to $1,056.7 million last year. Gross margin of 48.7% in the quarter declined 150 bps from last year primarily due to higher material and other costs, partially offset by higher sales volumes and pricing actions, benefits from the company’s RCI initiatives, and 30 bps of favorable foreign currency effects.
Operating
expenses of $618.1 million in the first six months of 2022 compared to $638.7 million last year. Operating expenses as a percentage of net sales of 27.7% improved 270 bps from last year primarily due to the higher sales volumes, savings from RCI initiatives, and lower costs associated with stock-based expenses; these improvements were partially offset by 20 bps of unfavorable acquisition effects.
Operating earnings before financial services of $469.7 million in the first six months of 2022 increased $51.7 million, or 12.4%, compared to $418.0 million in 2021. As a percentage of net sales, operating earnings before financial services of 21.0% compared to 19.8% last year.
Financial services revenue of $174.1 million in the first six months of 2022 compared to $175.5 million last year.
Financial services operating earnings of $135.7 million in the period compared to $134.2 million in 2021.
Operating earnings of $605.4 million in the first six months of 2022 increased $53.2 million, or 9.6%, compared to $552.2 million last year. As a percentage of revenues, operating earnings of 25.1% in the quarter compared to 24.2% last year.
Interest expense in the first six months of 2022 decreased $5.3 million compared to last year. See Note 9 to the Condensed Consolidated Financial Statements for information on Snap-on’s debt and credit facilities.
Other income (expense) – net primarily 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
17 to the Condensed Consolidated Financial Statements for information on Other income (expense) – net.
Snap-on’s effective income tax rate on earnings attributable to Snap-on was 23.7% in the first six months of 2022 and 23.4% in 2021. See Note 8 to the Condensed Consolidated Financial Statements for information on income taxes.
Net earnings attributable to Snap-on in the first six months of 2022 were $448.9 million, or $8.27 per diluted share. Net earnings attributable to Snap-on in the first six months of 2021 were $400.6 million, or $7.26 per diluted share.
Segment Results
Snap-on’s business
segments are based on the organization structure used by management for making operating and investment decisions and for assessing performance. Snap-on’s reportable business segments are: (i) the Commercial & Industrial Group; (ii) the Snap-on Tools Group; (iii) the Repair Systems & Information Group; and (iv) Financial Services. The Commercial & Industrial Group consists of business operations serving a broad range of industrial and commercial customers worldwide, including customers in the aerospace, natural resources, government, power generation, transportation and technical education market segments (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. Intersegment amounts are eliminated to arrive at Snap-on’s consolidated financial results.
Segment
net sales of $359.1 million in the second quarter of 2022 increased $8.6 million, or 2.5%, from 2021 levels, reflecting a $25.3 million, or 7.6%, organic sales increase, partially offset by $16.7 million of unfavorable foreign currency translation. The organic increase primarily reflects double-digit gains in the segment’s European-based hand tools business and Asia Pacific operations, as well as a mid single-digit increase in sales to customers in critical industries.
Segment gross margin in the second quarter of 37.3% declined 220 bps from last year, primarily due to increased material and other costs, partially offset by benefits from the higher sales volumes and pricing actions, as well as from the segment’s RCI initiatives.
Segment operating expenses as a percentage of sales in the second quarter of 22.9% improved 80 bps as compared to
2021 primarily due to the effects of higher sales volumes.
As a result of these factors, segment operating earnings of $51.7 million in the second quarter of 2022, including $2.0 million of unfavorable foreign currency effects, decreased $3.8 million, or 6.8%, compared to $55.5 million in 2021. Operating margin (segment operating earnings as a percentage of segment net sales) for the Commercial & Industrial Group of 14.4% in the second quarter of 2022 compared to 15.8% in 2021.
Segment
net sales of $699.2 million in the first six months of 2022 increased $3.0 million, or 0.4%, from 2021 levels, reflecting a $28.9 million, or 4.3%, organic sales increase, partially offset by $25.9 million of unfavorable foreign currency translation. The organic gain primarily reflects a double-digit increase in the segment’s Asia Pacific operations and a high single-digit gain in the segment’s European-based hand tools business. Sales to customers in critical industries were essentially flat, as higher sales to general industry and technical education customers were offset by lower activity with the military.
Segment gross margin in the first six months of 36.8% declined 230 bps from last year, primarily due to increased material and other costs and 20 bps of unfavorable foreign currency effects, partially offset by benefits from
the higher sales volumes and pricing actions, as well as from the segment’s RCI initiatives.
Segment operating expenses as a percentage of sales in the first six months of 22.9% improved 90 bps as compared to 2021 primarily due to the effects of higher sales volumes.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
As
a result of these factors, segment operating earnings of $97.4 million in the first six months of 2022, including $4.2 million of unfavorable foreign currency effects, decreased $8.8 million, or 8.3%, compared to $106.2 million in 2021. Operating margin for the Commercial & Industrial Group of 13.9% in the first six months of 2022 compared to 15.3% in 2021.
Segment
net sales of $520.6 million in the second quarter of 2022 increased $36.5 million, or 7.5%, from 2021 levels, reflecting a $44.2 million, or 9.3%, organic sales gain, partially offset by $7.7 million of unfavorable foreign currency translation. The organic increase is due to a double-digit gain in the U.S. franchise business and a low single-digit increase in the segment’s international operations.
Segment gross margin in the second quarter of 46.0% declined 80 bps from last year primarily due to increased material and other costs and 10 bps of unfavorable foreign currency effects, which were partially offset by benefits from the higher sales volumes and pricing actions.
Segment operating expenses as a percentage of net sales in the second quarter of 22.1% improved 330 bps from last year and included the effects of lower expenses related to the
company’s franchisee stock purchase plan, benefits from higher sales volumes, and savings associated with RCI initiatives.
As a result of these factors, segment operating earnings of $124.4 million in the second quarter of 2022, including $2.2 million of unfavorable foreign currency effects, increased $20.9 million, or 20.2%, compared to $103.5 million in 2021. Operating margin for the Snap-on Tools Group of 23.9% in the second quarter of 2022 compared to 21.4% last year.
Segment
net sales of $1,032.7 million in the first six months of 2022 increased $70.3 million, or 7.3%, from 2021 levels, reflecting an $81.0 million, or 8.5%, organic sales gain, partially offset by $10.7 million of unfavorable foreign currency translation. The organic increase included a double-digit gain in the U.S. franchise business, while sales in the segment’s international operations were essentially flat.
Segment gross margin in the first six months of 45.8% declined 60 bps from last year primarily due to increased material and other costs, which were partially offset by benefits from the higher sales volumes and pricing actions.
Segment operating expenses as a percentage of net sales in the first six months of 22.5%
improved 290 bps from last year and included the effects of lower expenses related to the company’s franchisee stock purchase plan, benefits from higher sales volumes, and savings associated with RCI initiatives.
As a result of these factors, segment operating earnings of $240.4 million in the first six months of 2022, including $1.4 million of unfavorable foreign currency effects, increased $38.0 million, or 18.8%, compared to $202.4 million in 2021. Operating margin for the Snap-on Tools Group of 23.3% in the first six months of 2022 compared to 21.0% last year.
Segment
net sales of $416.8 million in the second quarter of 2022 increased $18.2 million, or 4.6%, from 2021 levels, reflecting a $27.4 million, or 7.0%, organic sales increase, partially offset by $9.2 million of unfavorable foreign currency translation. The organic gain included a double-digit increase in sales of undercar equipment and a low single-digit gain in sales of diagnostic and repair information products to independent repair shop owners and managers, while activity with OEM dealerships was essentially flat.
Segment gross margin in the second quarter of 43.2% declined 150 bps from last year primarily due to higher material and other costs, and increased sales in lower gross margin businesses. These declines were partially offset by benefits from pricing actions and savings from RCI initiatives, as well as 50 bps of favorable foreign currency effects.
Segment operating expenses
as a percentage of net sales in the second quarter of 20.2%, improved 270 bps from 2021 primarily due to benefits from sales volume leverage, including higher activity in lower expense businesses, and savings from RCI initiatives.
As a result of these factors, segment operating earnings of $95.7 million in the second quarter of 2022, including $1.2 million of favorable foreign currency effects, increased $9.0 million, or 10.4%, from $86.7 million in 2021. Operating margin for the Repair Systems & Information Group of 23.0% in the second quarter of 2022 compared to 21.8% last year.
Segment
net sales of $815.0 million in the first six months of 2022 increased $68.8 million, or 9.2%, from 2021 levels, reflecting a $73.1 million, or 10.0%, organic sales increase and $8.5 million of acquisition-related sales, partially offset by $12.8 million of unfavorable foreign currency translation. The organic gain is comprised of a double-digit increase in sales of undercar equipment, a high single-digit gain in activity with OEM dealerships, and a low single-digit increase in sales of diagnostic and repair information products to independent repair shop owners and managers.
Segment gross margin in the first six months of 43.9% declined 140 bps from last year primarily due to higher material and other costs, and increased sales in lower gross margin businesses. These declines were partially offset by benefits from pricing actions
and savings from RCI initiatives, as well as 40 bps of favorable foreign currency effects and 20 bps from acquisitions.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Segment operating expenses as a percentage of net sales in the first six months of 20.9%, improved 190 bps from 2021 primarily due to benefits from sales volume leverage, including higher activity in lower
expense businesses, and savings from RCI initiatives. These improvements were partially offset by 50 bps of unfavorable acquisition effects in 2022.
As a result of these factors, segment operating earnings of $187.3 million in the first six months of 2022, including $2.1 million of favorable foreign currency effects, increased $19.2 million, or 11.4%, from $168.1 million in 2021. Operating margin for the Repair Systems & Information Group of 23.0% in the first six months of 2022 compared to 22.5% last year.
Financial
services revenue is generally dependent on the size of the average financial services portfolio during the period, as well as on the average yield on receivables. Financial services revenue in the second quarter of 2022 decreased $0.5 million, or 0.6%, from 2021. In both the second quarters of 2022 and 2021, the average yields on finance receivables and contract receivables were 17.5% and 8.5%, respectively. Originations of $307.6 million in the second quarter of 2022 increased $21.8 million, or 7.6%, from 2021 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 size of the financial services portfolio than they are on the revenue of the segment.
Financial services expenses in the second quarter of 2022 increased primarily due to higher provisions for credit losses as compared to those recorded in the second quarter of 2021. As a percentage of the average financial services portfolio, expenses were 1.0% in the second quarter of 2022 and 0.8% in 2021.
Segment operating earnings in the second quarter of 2022, including $0.6 million of unfavorable foreign currency effects, decreased $3.6 million, or 5.2%, from 2021 levels.
Financial
services revenue in the first six months of 2022 decreased $1.4 million, or 0.8%, from 2021. In both the first six months of 2022 and 2021, the average yield on finance receivables was 17.5%. In the first six months of 2022 and 2021, the respective average yields on contract receivables were 8.5% and 8.4%. Originations of $553.2 million in the first six months of 2022 increased $5.6 million, or 1.0%, from 2021 levels.
Financial services expenses in the first six months of 2022 decreased primarily due to lower provisions for credit losses as compared to those recorded in the first six
months of 2021. As a percentage of the average financial services portfolio, expenses were 1.7% in the first six months of 2022 and 1.9% in 2021.
Segment operating earnings in the first six months of 2022, including $0.8 million of unfavorable foreign currency effects, increased $1.5 million, or 1.1%, from 2021 levels.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS
(continued)
Corporate
Snap-on’s second quarter 2022 general corporate expenses of $25.2 million decreased $3.4 million from $28.6 million last year, primarily due to lower stock-based compensation, including costs associated with the company’s employee stock purchase plan. Snap-on’s general corporate expenses in the first six months 2022 of $55.4 million decreased $3.3 million from $58.7 million last year, as lower stock-based compensation was partially offset by other cost increases.
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’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, diagnostics, equipment products, software, and other non-financial services operations with Financial Services presented on the equity method. The supplemental Financial Services data reflects the results of operations and financial position of Snap-on’s U.S. and international financial services operations. The financing needs of Financial Services are met through intersegment borrowings and cash generated from Operations; Financial Services
is charged interest expense on intersegment borrowings at market rates. Income taxes are charged to Financial Services on the basis of the specific tax attributes generated by the U.S. and international financial services businesses. Transactions between the Operations and Financial Services businesses are eliminated to arrive at the Condensed Consolidated Financial Statements.
Non-GAAP Supplemental Consolidating Data – Supplemental Condensed Statements of Earnings information for the three months ended July 2, 2022, and July 3, 2021, are as follows:
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Non-GAAP Supplemental Consolidating Data – Supplemental Condensed Statements of Earnings information for the six months ended July 2, 2022, and July 3, 2021, are as follows:
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. Snap-on believes that its cash from operations and collections of finance receivables, coupled with its sources of borrowings and available cash on hand, are sufficient to fund its currently anticipated requirements for scheduled debt repayments, payments of interest and dividends, new receivables originated by our financial services businesses, capital expenditures, working capital, the funding of pension plans, and funding for share repurchases and acquisitions, if and as they arise.
Due to Snap-on’s credit rating over the years, external funds have been available at an acceptable cost. As of July 15, 2022, Snap-on’s long-term debt and commercial paper were rated, respectively, A2 and P-1 by Moody’s Investors Service; A- and A-2 by Standard & Poor’s; and A and F1 by Fitch Ratings.
Snap-on believes that its current credit arrangements are sound and that the strength of its balance sheet affords the company the financial flexibility, including through access to financial markets for potential new financing, to respond to both internal growth opportunities and those available through acquisitions. However, Snap-on cannot provide any assurance that financing will be available in the future on acceptable terms, or that its debt ratings will not decrease.
The following discussion focuses on information included in the accompanying Condensed Consolidated Balance Sheets.
As of July 2, 2022, working capital (current assets less current liabilities) of $2,244.6 million increased $173.4 million from $2,071.2 million as of January
1, 2022 (fiscal 2021 year end), primarily as a result of the net changes discussed below.
Cash and cash equivalents of $812.9 million as of July 2, 2022, increased $32.9 million from 2021 year-end levels primarily due to: (i) $426.2 million of cash from collections of finance receivables; (ii) $334.7 million of cash generated from operations; (iii) $29.2 million of cash proceeds from stock purchase and option plan exercises; and (iv) $2.8 million of net proceeds from other short-term borrowings. These increases in cash and cash equivalents were
partially offset by: (i) the funding of $469.6 million of new finance receivables; (ii) dividend payments to shareholders of $151.4 million; (iii) the repurchase of 387,000 shares of the company’s common stock for $82.6 million; and (iv) the funding of $41.5 million of capital expenditures.
Of the $812.9 million of cash and cash equivalents as of July 2, 2022, $264.0 million was held outside of the United States. Snap-on maintains non-U.S. funds in its foreign operations to: (i) provide adequate working capital; (ii) satisfy various regulatory requirements; and/or (iii) take advantage of business expansion opportunities as they arise. Although the Tax Cuts and Jobs Act (“Tax Act”) generally eliminated U.S. federal taxation of dividends from foreign subsidiaries,
such dividends may still be subject to state income taxation and foreign withholding taxes. Snap-on periodically evaluates its cash held outside the United States and may pursue opportunities to repatriate certain foreign cash amounts to the extent that it can be accomplished in a tax efficient manner.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Trade and other accounts receivable – net of $729.1 million as of
July 2, 2022, increased $46.8 million from 2021 year-end levels primarily due to higher sales, partially offset by $16.8 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 60 days at July 2, 2022, and 58 days at January 1, 2022.
The current portions of net finance and contract receivables of $645.3 million as of July 2, 2022, compared to $652.7 million at 2021 year end. The long-term portions of net finance and contract
receivables of $1,502.4 million as of July 2, 2022, compared to $1,492.2 million at 2021 year end. The combined $2.8 million increase in net current and long-term finance and contract receivables over 2021 year-end levels is primarily due to an increase in net receivable originations, partially offset by $14.6 million of foreign currency translation.
Inventories – net of $893.3 million as of July 2, 2022, increased $89.5 million from 2021 year-end levels primarily to support higher customer demand and new product innovation, partially offset by $27.3 million of foreign currency translation. Inventory turns (trailing 12 months of cost of goods sold, divided by the average of the beginning and ending inventory balance for the trailing 12
months) were 2.7 turns and 2.8 turns as of July 2, 2022, and January 1, 2022, respectively. Inventories accounted for using the first-in, first-out (“FIFO”) method approximated 61% and 60% of total inventories as of July 2, 2022, and January 1, 2022, respectively. All other inventories are accounted for using the last-in, first-out (“LIFO”) method. The company’s LIFO reserve was $90.7 million and $87.2 million as of July 2, 2022, and January 1, 2022, respectively.
Notes payable of $18.8 million as of July 2,
2022, compared to $17.4 million as of 2021 year end.
Accounts payable of $308.5 million as of July 2, 2022, increased $30.9 million from 2021 year-end levels primarily due to the timing of payments, partially offset by $7.1 million of foreign currency translation.
Other accrued liabilities of $440.5 million as of July 2, 2022, increased $16.2 million from 2021 year-end levels primarily due to higher tax accruals, partially offset by $10.8 million of foreign currency translation.
Long-term debt of $1,183.4 million as of July 2, 2022, consisted of: (i) $300 million of unsecured 3.25% notes that mature on March 1, 2027 (the “2027 Notes”);
(ii) $400 million of unsecured 4.10% notes that mature on March 1, 2048 (the “2048 Notes”); and (iii) $500 million of 3.10% notes that mature on May 1, 2050 (“the 2050 Notes”), partially offset by $16.6 million of unamortized debt issuance costs.
Snap-on has an $800 million multi-currency revolving credit facility that terminates on September 16, 2024 (the “Credit Facility”); no amounts were outstanding under the Credit Facility as of July 2, 2022. Borrowings under the Credit Facility bear interest at varying rates based on either: (i) Snap-on’s then-current, long-term debt ratings; or (ii) Snap-on’s then-current ratio of consolidated debt net of certain cash adjustments (“Consolidated Net Debt”) to earnings before interest, taxes, depreciation, amortization
and certain other adjustments for the preceding four fiscal quarters then ended (the “Consolidated Net Debt to EBITDA Ratio”). The Credit Facility’s financial covenant requires that Snap-on maintain, as of each fiscal quarter end, either (i) a ratio not greater than 0.60 to 1.00 of Consolidated Net Debt 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 Leverage Ratio to 0.65 to 1.00 and/or increase the maximum Consolidated Net Debt to EBITDA Ratio to 4.00 to 1.00 for four consecutive fiscal quarters in connection with certain material acquisitions (as defined in the related credit agreement). As of July 2,
2022, the company’s actual ratios of 0.09 and 0.34 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. As of July 2, 2022, there were no commercial paper issuances outstanding.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS
OF OPERATIONS
(continued)
Snap-on believes it has sufficient available cash and access to both committed and uncommitted credit facilities to cover its expected funding needs on both a short-term and long-term basis. Snap-on manages its aggregate short-term borrowings so as not to exceed its availability under the 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 such conditions to issue long-term debt to further improve its liquidity and capital resources. Near-term liquidity requirements for Snap-on include payments of
interest and dividends, funding to support new receivables originated by our financial services businesses, capital expenditures, working capital, the funding of pension plans, and funding for share repurchases and acquisitions, if and as they arise. Snap-on intends to make contributions of $9.4 million to its foreign pension plans and $9.5 million to its domestic pension plans in 2022, as required by law. Depending on market and other conditions, Snap-on may make discretionary cash contributions to its pension plans in 2022.
Snap-on’s long-term financing strategy is to maintain continuous access to the debt markets to accommodate its liquidity needs, including the potential use of commercial paper, additional fixed-term debt and/or securitizations.
The following discussion focuses on information included in the accompanying Condensed Consolidated Statements of Cash Flows.
Operating
Activities
Net cash provided by operating activities was $334.7 million and $557.5 million in the first six months of 2022 and 2021, respectively. The $222.8 million year-over-year decrease in net cash provided by operating activities primarily reflects a $247.2 million decrease from net changes in operating assets and liabilities, partially offset by a $49.1 million increase in net earnings.
Investing Activities
Net cash used by investing activities of $80.4 million in the first six months of 2022 included additions to finance receivables of $469.6 million, offset by collections of $426.2 million. Net cash used by investing activities of $236.9 million in the first six months of 2021 included additions to finance receivables of $454.5 million, offset by collections of $447.9 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, diagnostics, and equipment products on an extended-term payment plan, with average payment terms of approximately four years.
Net cash used by investing activities in the respective first six months of 2022 and 2021 also included $0.5 million of cash provided by and $195.8 million of cash used for acquisitions. See Note 3 to the Condensed Consolidated Financial Statements for information about acquisitions.
Capital expenditures were $41.5 million and $37.6 million in the first six months of 2022 and 2021, respectively. Capital expenditures in both years included continued investments related to the
company’s execution of its strategic Value Creation Processes around safety, quality, customer connection, innovation and RCI.
Financing Activities
Net cash used by financing activities of $218.5 million in the first six months of 2022 included net proceeds from other short-term borrowings of $2.8 million. Net cash used by financing activities of $278.9 million in the first six months of 2021 included net proceeds from other short-term borrowings of $2.9 million.
Proceeds from stock purchase and option plan exercises totaled $29.2 million and $154.8 million in the first six months of 2022 and 2021, respectively. In the first six months of 2022, Snap-on repurchased 387,000 shares of its common stock for $82.6 million under its previously announced share repurchase programs. In the first six months of 2021, Snap-on repurchased 1,288,900
shares of its common stock for $289.3 million under its previously announced share repurchase programs. As of July 2, 2022, Snap-on had remaining availability to repurchase up to an additional $420.8 million in common stock pursuant to its Board’s authorizations. The repurchase of Snap-on common stock to offset dilution related to equity plan issuances or for other corporate purposes is at the company’s discretion, subject to prevailing financial and market conditions. Snap‑on believes that its cash generated from operations, available cash on hand, and funds available from its credit facilities, will be sufficient to fund the company’s additional share repurchases, if any.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Snap-on has paid consecutive quarterly cash dividends, without interruption or reduction, since 1939. Cash dividends totaled $151.4 million and $133.4 million in the first six months of 2022 and 2021, respectively. On November 4, 2021, the Board increased the quarterly cash dividend by 15.4% to $1.42 per share ($5.68 per share annualized). 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.
Critical Accounting
Policies and Estimates
Snap-on’s discussion of its critical accounting policies and estimates, contained in its Annual Report on Form 10-K for the fiscal year ended January 1, 2022, have not materially changed since the report was filed.
Outlook
COVID-19 and its subsequent variants, as well as supply chain inefficiencies, continue to impact economic activity worldwide in 2022. The company believes that our markets and our operations possess and, indeed, have demonstrated considerable resilience against the impact of the virus and that there will be ongoing advancement even in the midst of the turbulence. The trajectory, however, may be uncertain due to the evolving nature of the situation.
Snap-on
expects to make continued progress in 2022 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, the company anticipates that capital expenditures in 2022 will be in a range of $90 million to $100 million, of which $41.5 million was incurred in the first six months of the year. Snap-on continues to respond to the global macroeconomic challenges through its RCI process and other cost reduction initiatives.
Snap-on currently anticipates that its full year 2022 effective income tax rate will be
in the range of 23% to 24%.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
There has been no significant change in the company’s exposure to market risk during the second quarter of 2022. Refer to Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk in the
company’s Annual Report on Form 10-K for the year ended January 1, 2022 for further discussion.
Interest Rate Risk Management
Snap-on may manage 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 issuance of fixed rate debt. See Note 10 to the Condensed Consolidated Financial Statements for information on interest rate risk management.
Snap-on utilizes a Value-at-Risk (“VAR”) model to determine the potential one-day loss in the fair value of its interest
rate and foreign exchange-sensitive financial instruments from adverse changes in market factors. The VAR model estimates were made assuming normal market conditions and a 95% confidence level. Snap-on’s computations are based on the inter-relationships among movements in various currencies and interest rates (variance/co-variance technique). These inter-relationships were determined by observing interest rate and foreign currency market changes over the preceding quarter.
The estimated maximum potential net one-day loss in fair value, calculated using the VAR model, as of July 2, 2022, was $28.9 million, consisting of a $29.0 million loss on interest rate-sensitive financial instruments and a $0.1 million gain 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.
Item 4: 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 July 2, 2022. Based upon their evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of July 2, 2022,
to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission rules and forms, and to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control
There
has not been any change in the company’s internal control over financial reporting during the quarter ended July 2, 2022, that has materially affected, or is 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)).
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
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 second quarter of fiscal 2022, 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 related to equity plan issuances or 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, and pursuant to the Board’s authorizations that the company has publicly announced.
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*
04/03/2022 to 04/30/2022
40,000
$219.39
40,000
$441.3
million
05/01/2022 to 05/28/2022
121,000
$216.24
121,000
$430.3 million
05/29/2022 to 07/02/2022
90,000
$209.19
90,000
$420.8 million
Total/Average
251,000
$214.21
251,000
N/A
N/A:
Not applicable
* Subject to further adjustment pursuant to the 1996 Authorization described below, as of July 2, 2022, the approximate value of shares that may yet be
purchased pursuant to the outstanding Board authorizations discussed below is $420.8 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 $212.49, $222.90 and $198.24 per share of common stock as of the end of the respective fiscal 2022 months ended April 30, 2022, May 28, 2022, and July 2, 2022.
•On November 4, 2021, the Board authorized the repurchase of up to $500 million of the company’s common stock (the “2021
Authorization”). The 2021 Authorization will expire when the aggregate repurchase price limit is met, unless terminated earlier by the Board.
The following chart discloses information regarding transactions in shares of Snap-on’s common stock by Citibank, N.A. (“Citibank”) during the second quarter of 2022 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.
Certification
of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 101.INS
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
Pursuant
to the requirements of the Securities Exchange Act of 1934, Snap-on Incorporated has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
