NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Summary of Accounting Policies
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-ons 2016
Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (2016 year end). The companys 2017 fiscal second quarter ended on July 1, 2017; the 2016 fiscal second quarter ended on July 2, 2016. Each of the
companys 2017 and 2016 fiscal first and second quarters contained 13 weeks of operating results.
Snap-on
accounts for investments in unconsolidated affiliates where
Snap-on
has a greater than 20% but less than 50% ownership interest under the equity method of accounting.
Investments in unconsolidated affiliates of $17.4 million as of July 1, 2017, and $15.2 million as of December 31, 2016, are included in Other assets on the accompanying Condensed Consolidated Balance Sheets; no equity
investment dividends were received in any period presented. In the normal course of business, the company may purchase products or services from, or sell products and services to, unconsolidated affiliates. Purchases from unconsolidated affiliates
were $2.7 million and $3.2 million in the respective fiscal second quarters of 2017 and 2016, and $5.7 million and $7.4 million in the respective first six months of 2017 and 2016. Sales to unconsolidated affiliates were $0.1 million and zero in the
respective fiscal second quarters of 2017 and 2016, and $0.2 million and zero in the respective first six months of 2017 and 2016. The Condensed Consolidated Financial Statements do not include the accounts of the companys independent
franchisees. Snap-ons Condensed Consolidated Financial Statements are prepared in conformity with generally accepted accounting principles in the United States of America (GAAP). All intercompany accounts and transactions have been
eliminated.
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 1, 2017, and July 2, 2016, have been made. Interim results of operations are not necessarily indicative of the results to be
expected for the full fiscal year.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Financial Instruments
The fair value of the companys derivative financial instruments is generally determined using quoted prices in active markets for
similar assets and liabilities. The carrying value of the companys 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 9 for further information on financial instruments.
New Accounting Standards
In October 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
No. 2016-16,
Income Taxes (Topic 740) Intra-Entity Transfers of Assets Other Than Inventory
. The ASU eliminates the requirement to defer the recognition of current and deferred income taxes for an intra-entity asset transfer
until the asset has been sold to an outside party. Under the new guidance, an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The ASU is effective for fiscal
years beginning after December 15, 2017, including interim periods within those fiscal years; early adoption is permitted as of the beginning of an annual reporting period for which financial statements (interim or annual) have not been issued
or made available for issuance (i.e., the first interim period if an entity issues interim financial statements). The amendments in this ASU are to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to
retained earnings at the time of adoption. The company is currently assessing the impact this ASU will have on its consolidated financial statements.
9
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
In August 2016, the FASB issued ASU No. 2016-15,
Statement of Cash Flows (Topic
230)
, which adds and/or clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows. The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the
statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years; early adoption is permitted. The company is currently assessing the impact this ASU will
have on its consolidated statements of cash flows.
In June 2016, the FASB issued ASU No. 2016-13,
Financial
Instruments Credit Losses (Topic 326)
, to require the measurement of expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable forecasts. The main
objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.
ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years; the ASU allows for early adoption as of the beginning of an interim or annual reporting period beginning
after December 15, 2018. The company is currently assessing the impact this ASU will have on its consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
that, together with several subsequent updates, outlines a single comprehensive model for
entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. Topic 606 is based on the principle that an entity should recognize
revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Topic 606 also requires additional disclosure about the
nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract.
Entities may early adopt Topic 606 only as of annual reporting periods beginning after December 15, 2016, including interim
reporting periods within that reporting period. Entities have the option of adopting this standard using either a full retrospective approach or a modified retrospective approach (i.e., through a cumulative-effect adjustment directly to retained
earnings at the time of adoption).
Snap-on commenced its assessment of Topic 606 during the second half of 2014 and developed
a comprehensive project plan that included representatives from across the companys business segments. The project plan included analyzing the standards impact on the companys various revenue streams, comparing its historical
accounting policies and practices to the requirements of the new standard, and identifying potential differences from applying the requirements of the new standard to its contracts. The company is in the process of identifying and implementing
appropriate changes to its business processes, systems and controls to support revenue recognition and disclosures under Topic 606.
As of July 1, 2017, and subject to the potential effects of any new related ASUs issued by the FASB in the balance of 2017, as well as the companys ongoing evaluation of new transactions and
contracts, the company has substantially completed its evaluation of the expected impact of adopting Topic 606 and anticipates that the adoption of this standard will not have a significant impact on the companys consolidated financial
statements. The company presently expects to adopt Topic 606 at the beginning of its 2018 fiscal year using the modified retrospective approach.
10
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
, to
increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The ASU is intended to represent an improvement over
previous GAAP, which did not require lease assets and lease liabilities to be recognized for most leases. This ASU, which supersedes most current lease guidance, affects any entity that enters into a lease (as that term is defined in the ASU), with
some specified scope exemptions. ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years; the ASU allows for early adoption as of the beginning of an interim or
annual reporting period. The company is currently assessing the impact this ASU will have on its consolidated financial statements.
In March 2017, the FASB issued ASU No. 2017-07,
Compensation Retirement Benefits (Topic 715) Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement
Benefit Cost
, which provides additional guidance on the presentation of net periodic pension and postretirement benefit costs in the income statement and on the components eligible for capitalization. The amendments in this ASU require that an
employer report the service cost component of the net periodic benefit costs in the same income statement line item as other compensation costs arising from services rendered by employees during the period. The non-service-cost components of net
periodic benefit costs are to be presented in the income statement separately from the service cost components and outside a subtotal of income from operations. The ASU also allows for the capitalization of the service cost components, when
applicable (i.e., as a cost of internally manufactured inventory or a self-constructed asset).
The ASU is effective for
annual periods beginning after December 15, 2017, including interim periods within those annual periods; early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued
or made available for issuance. The amendments in this ASU are to be applied retrospectively. The company is currently assessing the impact this ASU will have on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04,
Intangibles Goodwill and Other (Topic 350) Simplifying the Test
for Goodwill Impairment
, which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting units
carrying amount over its fair value. Snap-on early adopted this ASU in the second quarter of 2017 in conjunction with its annual impairment test. The amendments in this ASU are to be applied on a prospective basis and the adoption did not
have a significant impact on the companys consolidated financial statements.
Note 2: Acquisitions
On May 4, 2017, Snap-on acquired Norbar Torque Tools Holding Limited, along with its U.S. and Chinese joint ventures
(Norbar), for a preliminary cash purchase price of $72.4 million (or $70.7 million, net of cash acquired). Norbar, based in Banbury, U.K., designs and manufactures a full range of torque products, including wrenches, multipliers and
calibrators for use in critical industries. For segment reporting purposes, the results of operations and assets of Norbar have been included in the Commercial & Industrial Group since the acquisition date.
The company anticipates completing the purchase accounting valuations for the acquired net assets of Norbar, including intangible assets,
in the third quarter of 2017. The presentation of Norbar in the accompanying Condensed Consolidated Financial Statements has been prepared on a preliminary basis and changes to the allocations may occur as fair value estimates of the acquired net
assets are determined. As of July 1, 2017, $24.5 million was recorded, on a preliminary basis, in Goodwill on the accompanying Condensed Consolidated Balance Sheets, reflecting the excess of the Norbar purchase price over the net
assets acquired. The company does not expect that any of the goodwill will be deductible for tax purposes.
On
January 30, 2017, Snap-on acquired BTC Global Limited (BTC) for a cash purchase price of $9.2 million. BTC, based in Crewe, U.K., designs and implements automotive vehicle inspection and management software for original equipment
manufacturer (OEM) franchise repair shops.
11
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
In the second quarter of 2017, the company completed the purchase accounting valuations
for the acquired net assets of BTC, including identification of $2.0 million of non-amortized trademarks. The $5.9 million excess of the BTC purchase price over the fair value of the net assets acquired was recorded in Goodwill on the
accompanying Condensed Consolidated Balance Sheets. For segment reporting purposes, the results of operations and assets of BTC have been included in the Repair Systems and Information Group since the acquisition date.
On November 16, 2016, Snap-on acquired Ryeson Corporation (d/b/a Sturtevant Richmont) for a purchase price of $13.0 million (or
$12.6 million, net of cash acquired), which reflects a $0.1 million working capital adjustment finalized in the first quarter of 2017. Sturtevant Richmont designs, manufactures and distributes mechanical and electronic torque wrenches as well as
wireless torque error proofing systems for a variety of industrial applications. In the first quarter of 2017, the company completed the purchase accounting valuations for the acquired net assets, including the identification of $3.7 million of
non-amortized trademarks. The $5.0 million excess of the Sturtevant Richmont purchase price over the fair value of the net assets acquired was recorded in Goodwill on the accompanying Condensed Consolidated Balance Sheets. For segment
reporting purposes, the results of operations and assets of Sturtevant Richmont have been included in the Commercial & Industrial Group since the acquisition date.
On October 31, 2016, Snap-on acquired Car-O-Liner Holding AB (Car-O-Liner) for a purchase price of $152.0 million (or $148.1 million, net of cash acquired), which reflects a $0.2 million
working capital adjustment finalized in the first quarter of 2017. Car-O-Liner designs and manufactures collision repair equipment, and information and truck alignment systems. For segment reporting purposes, substantially all of
Car-O-Liners results of operations and assets have been included in the Repair Systems & Information Group since the acquisition date, with the remaining portions included in the Commercial & Industrial Group.
The company anticipates completing the purchase accounting valuations for the acquired net assets of Car-O-Liner, including intangible
assets, in the third quarter of 2017. The presentation of Car-O-Liner in the accompanying Condensed Consolidated Financial Statements has been prepared on a preliminary basis and changes to the allocations will occur as fair value estimates of the
acquired net assets are determined. The company anticipates completing the purchase accounting valuations for
Car-O-Liner
in the third quarter of 2017. As of July 1, 2017, $66.1 million was recorded, on a
preliminary basis, in Goodwill on the accompanying Condensed Consolidated Balance Sheets, reflecting the excess of the Car-O-Liner purchase price over the net assets acquired.
12
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The following is a summary of the provisional values of the assets acquired and
liabilities assumed of Car-O-Liner, including adjustments recorded as of the six months ended July 1, 2017, as a result of new information obtained about facts and circumstances that existed as of the October 31, 2016 acquisition date:
|
|
|
|
|
(Amounts in millions)
|
|
Provisional
Amounts as
of
October 31, 2016
(As Adjusted)
|
|
Assets acquired:
|
|
|
|
|
Cash
|
|
$
|
3.9
|
|
Trade and other accounts receivable
|
|
|
17.0
|
|
Inventories
|
|
|
18.3
|
|
Property and equipment
|
|
|
17.3
|
|
Goodwill
|
|
|
66.1
|
|
Other intangibles:
|
|
|
|
|
Customer relationships
|
|
|
27.2
|
|
Non-amortized trademarks
|
|
|
27.7
|
|
Other assets
|
|
|
6.0
|
|
|
|
|
|
|
Total assets acquired
|
|
|
183.5
|
|
|
|
Liabilities assumed:
|
|
|
|
|
Accounts payable
|
|
|
9.8
|
|
Deferred income tax liabilities
|
|
|
6.8
|
|
Accrued expenses
|
|
|
10.6
|
|
Pension liabilities
|
|
|
4.3
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
31.5
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
152.0
|
|
|
|
|
|
|
In the three months ended July 1, 2017, Snap-on recognized a pretax benefit of $0.1 million in
Operating expenses and in the six months ended July 1, 2017, Snap-on recognized expenses of $0.5 million (of which $0.2 million was in Cost of goods sold and $0.3 million was in Operating expenses), in the
accompanying Condensed Consolidated Statements of Earnings related to Car-O-Liner that would have been recognized in 2016 if the provisional adjustments identified in the current reporting period had been recognized as of the October 31, 2016
acquisition date.
Pro forma financial information has not been presented for any of these acquisitions as the net effects,
individually and collectively, were neither significant nor material to Snap-ons results of operations or financial position.
Note
3: Receivables
Trade and Other Accounts Receivable
Snap-ons trade and other accounts receivable primarily arise from the sale of tools and diagnostic and equipment products to a broad range of industrial and commercial customers and to
Snap-ons
independent franchise van channel on a non-extended-term basis with payment terms generally ranging from 30 to 120 days.
13
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The components of Snap-ons trade and other accounts receivable as of July 1,
2017, and December 31, 2016, are as follows:
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
July 1,
2017
|
|
|
December 31,
2016
|
|
Trade and other accounts receivable
|
|
$
|
659.0
|
|
|
$
|
612.8
|
|
Allowances for doubtful accounts
|
|
|
(13.7)
|
|
|
|
(14.0)
|
|
|
|
|
|
|
|
|
|
|
Total trade and other accounts receivable net
|
|
$
|
645.3
|
|
|
$
|
598.8
|
|
|
|
|
|
|
|
|
|
|
Finance and Contract Receivables
Snap-on Credit LLC (SOC), the companys financial services operation in the United States, originates extended-term finance and contract receivables on sales of Snap-ons products
sold through the U.S. franchisee and customer network and to certain other customers of Snap-on; Snap-ons 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.
Snap-ons
finance receivables are comprised of extended-term installment payment contracts to both technicians and independent shop owners (i.e., franchisees customers) to enable them to purchase tools and diagnostic and equipment products on an
extended-term payment plan, generally with average payment terms approaching four years. Contract receivables, with payment terms of up to 10 years, are comprised of extended-term installment payment contracts to a broad base of customers worldwide,
including shop owners, both independents and national chains, for their purchase of tools and diagnostic and equipment products. Contract receivables also include extended-term installment loans 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. Finance and contract receivables are generally secured by the underlying tools and/or diagnostic or equipment products financed
and, for installment loans to franchisees, other franchisee assets.
The components of Snap-ons current finance and
contract receivables as of July 1, 2017, and December 31, 2016, are as follows:
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
July 1,
2017
|
|
|
December 31,
2016
|
|
Finance receivables, net of unearned finance charges of $19.3 million and $17.0 million, respectively
|
|
$
|
513.0
|
|
|
$
|
488.1
|
|
Contract receivables, net of unearned finance charges of $16.5 million and $15.6 million, respectively
|
|
|
83.8
|
|
|
|
89.3
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
596.8
|
|
|
|
577.4
|
|
|
|
|
|
|
|
|
|
|
Allowances for doubtful accounts:
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
|
(16.5)
|
|
|
|
(15.6)
|
|
Contract receivables
|
|
|
(1.4)
|
|
|
|
(1.2)
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(17.9)
|
|
|
|
(16.8)
|
|
|
|
|
|
|
|
|
|
|
Total current finance and contract receivables net
|
|
$
|
578.9
|
|
|
$
|
560.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables net
|
|
$
|
496.5
|
|
|
$
|
472.5
|
|
Contract receivables net
|
|
|
82.4
|
|
|
|
88.1
|
|
|
|
|
|
|
|
|
|
|
Total current finance and contract receivables net
|
|
$
|
578.9
|
|
|
$
|
560.6
|
|
|
|
|
|
|
|
|
|
|
14
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The components of Snap-ons finance and contract receivables with payment terms
beyond one year as of July 1, 2017, and December 31, 2016, are as follows:
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
July 1,
2017
|
|
|
December 31,
2016
|
|
Finance receivables, net of unearned finance charges of $15.1 million and $13.0 million, respectively
|
|
$
|
1,034.6
|
|
|
$
|
967.5
|
|
Contract receivables, net of unearned finance charges of $23.0 million and $21.5 million, respectively
|
|
|
302.8
|
|
|
|
289.4
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,337.4
|
|
|
|
1,256.9
|
|
|
|
|
|
|
|
|
|
|
Allowances for doubtful accounts:
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
|
(36.0)
|
|
|
|
(33.0)
|
|
Contract receivables
|
|
|
(3.4)
|
|
|
|
(2.7)
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(39.4)
|
|
|
|
(35.7)
|
|
|
|
|
|
|
|
|
|
|
Total long-term finance and contract receivables net
|
|
$
|
1,298.0
|
|
|
$
|
1,221.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables net
|
|
$
|
998.6
|
|
|
$
|
934.5
|
|
Contract receivables net
|
|
|
299.4
|
|
|
|
286.7
|
|
|
|
|
|
|
|
|
|
|
Total long-term finance and contract receivables net
|
|
$
|
1,298.0
|
|
|
$
|
1,221.2
|
|
|
|
|
|
|
|
|
|
|
Delinquency is the primary indicator of credit quality for finance and contract receivables. Receivable
balances are considered delinquent when contractual payments become 30 days past due.
Finance receivables are generally
placed on nonaccrual status (nonaccrual of interest and other fees): (i) when a customer is placed on repossession status; (ii) upon receipt of notification of bankruptcy; (iii) upon notification of the death of a customer; or
(iv) in other instances in which management concludes collectability is not reasonably assured. Finance receivables that are considered nonperforming include receivables that are on nonaccrual status and receivables that are generally more than
90 days past due.
Contract receivables are generally placed on nonaccrual status: (i) when a receivable is more than 90
days past due or at the point a customers account is placed on terminated status regardless of its delinquency status; (ii) upon notification of the death of a customer; or (iii) in other instances in which management concludes
collectability is not reasonably assured. Contract receivables that are considered nonperforming include receivables that are on nonaccrual status and receivables that are generally more than 90 days past due.
The accrual of interest and other fees is resumed when the finance or contract receivable becomes contractually current and collection of
all remaining contractual amounts due is reasonably assured. Finance and contract receivables are evaluated for impairment on a collective basis. A receivable is impaired when it is probable that all amounts related to the receivable will not be
collected according to the contractual terms of the applicable agreement. Impaired finance and contract receivables are covered by the companys respective allowances for doubtful accounts and are charged-off against the allowances when
appropriate. As of July 1, 2017, and December 31, 2016, there were $23.3 million and $24.9 million, respectively, of impaired finance receivables, and there were $2.3 million and $2.0 million, respectively, of impaired contract
receivables.
15
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
It is the general practice of Snap-ons financial services business to not engage
in contract or loan modifications. In limited instances, Snap-ons financial services business may modify certain impaired receivables in troubled debt restructurings. The amount and number of restructured finance and contract receivables as of
July 1, 2017, and December 31, 2016, were immaterial to both the financial services portfolio and the companys results of operations and financial position.
The aging of finance and contract receivables as of July 1, 2017, and December 31, 2016, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
30-59
Days Past
Due
|
|
|
60-90
Days Past
Due
|
|
|
Greater
Than 90
Days Past
Due
|
|
|
Total Past
Due
|
|
|
Total Not
Past Due
|
|
|
Total
|
|
|
Greater
Than 90
Days Past
Due and
Accruing
|
|
July 1, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
$
|
15.3
|
|
|
$
|
9.8
|
|
|
$
|
14.6
|
|
|
$
|
39.7
|
|
|
$
|
1,507.9
|
|
|
$
|
1,547.6
|
|
|
$
|
11.1
|
|
Contract receivables
|
|
|
1.4
|
|
|
|
0.8
|
|
|
|
1.7
|
|
|
|
3.9
|
|
|
|
382.7
|
|
|
|
386.6
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
$
|
15.1
|
|
|
$
|
9.8
|
|
|
$
|
17.0
|
|
|
$
|
41.9
|
|
|
$
|
1,413.7
|
|
|
$
|
1,455.6
|
|
|
$
|
13.2
|
|
Contract receivables
|
|
|
1.4
|
|
|
|
0.9
|
|
|
|
1.4
|
|
|
|
3.7
|
|
|
|
375.0
|
|
|
|
378.7
|
|
|
|
0.5
|
|
The amount of performing and nonperforming finance and contract receivables based on payment activity as
of July 1, 2017, and December 31, 2016, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2017
|
|
|
December 31, 2016
|
|
(Amounts in millions)
|
|
Finance
Receivables
|
|
|
Contract
Receivables
|
|
|
Finance
Receivables
|
|
|
Contract
Receivables
|
|
Performing
|
|
$
|
1,524.3
|
|
|
$
|
384.3
|
|
|
$
|
1,430.7
|
|
|
$
|
376.7
|
|
Nonperforming
|
|
|
23.3
|
|
|
|
2.3
|
|
|
|
24.9
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,547.6
|
|
|
$
|
386.6
|
|
|
$
|
1,455.6
|
|
|
$
|
378.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of finance and contract receivables on nonaccrual status as of July 1, 2017, and
December 31, 2016, is as follows:
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
July 1,
2017
|
|
|
December 31,
2016
|
|
Finance receivables
|
|
$
|
12.2
|
|
|
$
|
11.7
|
|
Contract receivables
|
|
|
1.6
|
|
|
|
1.5
|
|
16
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The following is a rollforward of the allowances for doubtful accounts for finance and
contract receivables for the three and six months ended July 1, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
July 1, 2017
|
|
|
Six Months Ended
July 1, 2017
|
|
(Amounts in millions)
|
|
Finance
Receivables
|
|
|
Contract
Receivables
|
|
|
Finance
Receivables
|
|
|
Contract
Receivables
|
|
Allowances for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
$
|
50.5
|
|
|
$
|
4.7
|
|
|
$
|
48.6
|
|
|
$
|
3.9
|
|
Provision
|
|
|
12.8
|
|
|
|
0.6
|
|
|
|
25.8
|
|
|
|
1.9
|
|
Charge-offs
|
|
|
(12.5)
|
|
|
|
(0.6)
|
|
|
|
(25.4)
|
|
|
|
(1.2)
|
|
Recoveries
|
|
|
1.7
|
|
|
|
|
|
|
|
3.4
|
|
|
|
0.1
|
|
Currency translation
|
|
|
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
52.5
|
|
|
$
|
4.8
|
|
|
$
|
52.5
|
|
|
$
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a rollforward of the allowances for doubtful accounts for finance and contract
receivables for the three and six months ended July 2, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
July 2, 2016
|
|
|
Six Months Ended
July 2, 2016
|
|
(Amounts in millions)
|
|
Finance
Receivables
|
|
|
Contract
Receivables
|
|
|
Finance
Receivables
|
|
|
Contract
Receivables
|
|
Allowances for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
$
|
39.9
|
|
|
$
|
4.6
|
|
|
$
|
38.2
|
|
|
$
|
4.4
|
|
Provision
|
|
|
10.3
|
|
|
|
0.2
|
|
|
|
19.6
|
|
|
|
0.6
|
|
Charge-offs
|
|
|
(9.2)
|
|
|
|
(0.3)
|
|
|
|
(18.8)
|
|
|
|
(0.7)
|
|
Recoveries
|
|
|
1.7
|
|
|
|
0.1
|
|
|
|
3.6
|
|
|
|
0.2
|
|
Currency translation
|
|
|
(0.1)
|
|
|
|
(0.1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
42.6
|
|
|
$
|
4.5
|
|
|
$
|
42.6
|
|
|
$
|
4.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 4: Inventories
Inventories by major classification are as follows:
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
July 1,
2017
|
|
|
December 31,
2016
|
|
Finished goods
|
|
$
|
521.0
|
|
|
$
|
467.4
|
|
Work in progress
|
|
|
46.4
|
|
|
|
42.7
|
|
Raw materials
|
|
|
108.0
|
|
|
|
93.6
|
|
|
|
|
|
|
|
|
|
|
Total FIFO value
|
|
|
675.4
|
|
|
|
603.7
|
|
Excess of current cost over LIFO cost
|
|
|
(74.0)
|
|
|
|
(73.2)
|
|
|
|
|
|
|
|
|
|
|
Total inventories net
|
|
$
|
601.4
|
|
|
$
|
530.5
|
|
|
|
|
|
|
|
|
|
|
17
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Inventories accounted for using the first-in, first-out (FIFO) method
approximated 60% and 59% of total inventories as of July 1, 2017, and December 31, 2016, respectively. The company accounts for its non-U.S. inventory on the FIFO method. As of July 1, 2017, approximately 32% of the companys
U.S. inventory was accounted for using the FIFO method and 68% was accounted for using the last-in, first-out (LIFO) method. There were no LIFO inventory liquidations in the three and six months ended July 1, 2017, or July 2,
2016.
Note 5: Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill by segment for the six months ended July 1, 2017, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Commercial
&
Industrial
Group
|
|
|
Snap-on
Tools Group
|
|
|
Repair Systems
& Information
Group
|
|
|
Total
|
|
Balance as of December 31, 2016
|
|
$
|
242.4
|
|
|
$
|
12.5
|
|
|
$
|
640.6
|
|
|
$
|
895.5
|
|
Currency translation
|
|
|
19.2
|
|
|
|
|
|
|
|
14.3
|
|
|
|
33.5
|
|
Acquisitions and related adjustments
|
|
|
24.7
|
|
|
|
|
|
|
|
(54.5)
|
|
|
|
(29.8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of July 1, 2017
|
|
$
|
286.3
|
|
|
$
|
12.5
|
|
|
$
|
600.4
|
|
|
$
|
899.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill of $899.2 million as of July 1, 2017, includes (i) $66.1 million, on a preliminary
basis, from the acquisition of
Car-O-Liner,
(ii) $24.5 million, on a preliminary basis, from the acquisition of Norbar, (iii) $5.9 million from the acquisition of BTC, and (iv) $5.0 million from
the acquisition of Sturtevant Richmont. The preliminary goodwill from the Car-O-Liner acquisition is distributed as follows: $65.2 million in the Repair Systems & Information Group and $0.9 million in the Commercial & Industrial
Group. The goodwill from the Norbar and Sturtevant Richmont acquisitions is included in the Commercial & Industrial Group and the goodwill from the BTC acquisition is included in the Repair Systems & Information Group. See Note 2
for additional information on acquisitions.
Since the purchase accounting valuations for the acquired net assets of
Car-O-Liner and Norbar were not complete as of July 1, 2017, the allocation of the respective purchase prices and resulting goodwill has been prepared on a preliminary basis and changes to the allocations will occur as fair value estimates of
the acquired net assets, including intangible assets, are determined. The company anticipates completing the purchase accounting valuations for both the Car-O-Liner and Norbar acquisitions in the third quarter of 2017.
Additional disclosures related to other intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2017
|
|
|
December 31, 2016
|
|
(Amounts in millions)
|
|
Gross Carrying
Value
|
|
|
Accumulated
Amortization
|
|
|
Gross Carrying
Value
|
|
|
Accumulated
Amortization
|
|
Amortized other intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
173.0
|
|
|
$
|
(92.3)
|
|
|
$
|
142.6
|
|
|
$
|
(86.0)
|
|
Developed technology
|
|
|
18.7
|
|
|
|
(18.1)
|
|
|
|
17.7
|
|
|
|
(17.7)
|
|
Internally developed software
|
|
|
171.7
|
|
|
|
(125.8)
|
|
|
|
165.7
|
|
|
|
(118.3)
|
|
Patents
|
|
|
32.4
|
|
|
|
(22.1)
|
|
|
|
31.9
|
|
|
|
(21.5)
|
|
Trademarks
|
|
|
2.8
|
|
|
|
(1.9)
|
|
|
|
2.8
|
|
|
|
(1.8)
|
|
Other
|
|
|
7.5
|
|
|
|
(2.5)
|
|
|
|
7.2
|
|
|
|
(2.2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
406.1
|
|
|
|
(262.7)
|
|
|
|
367.9
|
|
|
|
(247.5)
|
|
Non-amortized trademarks
|
|
|
112.9
|
|
|
|
|
|
|
|
64.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other intangible assets
|
|
$
|
519.0
|
|
|
$
|
(262.7)
|
|
|
$
|
432.1
|
|
|
$
|
(247.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
As of July 1, 2017, the $173.0 million gross carrying value of customer
relationships includes on a preliminary basis, $27.2 million related to the Car-O-Liner acquisition, $1.2 million related to the BTC acquisition and $1.0 million related to the Norbar acquisition. The $112.9 million gross carrying value of
non-amortized trademarks as of July 1, 2017, includes $2.0 million related to the BTC acquisition and, on a preliminary basis, $28.9 million related to the Car-O-Liner acquisition and $16.3 million related to the Norbar acquisition.
Snap-on completed its annual impairment testing of goodwill and other indefinite-lived intangible assets in the second quarter of 2017,
the results of which did not result in any impairment. Significant and unanticipated changes in circumstances, such as declines in profitability and cash flow due to significant and long-term deterioration in macroeconomic, industry and market
conditions, the loss of key customers, changes in technology or markets, significant changes in key personnel or litigation, a significant and sustained decrease in share price and/or other events, including effects from the sale or disposal of a
reporting unit, could require a provision for impairment of goodwill and/or other intangible assets in a future period. As of July 1, 2017, the company had no accumulated impairment losses.
The weighted-average amortization periods related to other intangible assets are as follows:
|
|
|
|
|
In Years
|
Customer relationships
|
|
15
|
Internally developed software
|
|
3
|
Patents
|
|
8
|
Trademarks
|
|
6
|
Other
|
|
39
|
Snap-on is amortizing its customer relationships on both an accelerated and straight-line basis over a
15-year weighted-average life; the remaining intangibles are amortized on a straight-line basis. The weighted-average amortization period for all amortizable intangibles on a combined basis is 11 years.
The companys customer relationships generally have contractual terms of three to five years and are typically renewed without
significant cost to the company. The weighted-average 15-year life for customer relationships is based on the companys historical renewal experience. Intangible asset renewal costs are expensed as incurred.
The aggregate amortization expense was $6.5 million and $13.6 million for the respective three and six months ended July1, 2017, and $6.2
million and $12.3 million for the respective three and six months ended July 2, 2016. Based on current levels of amortizable intangible assets and estimated weighted-average useful lives, estimated annual amortization expense is expected to be
$26.9 million in 2017, $24.4 million in 2018, $21.3 million in 2019, $17.6 million in 2020, $14.4 million in 2021, and $9.6 million in 2022.
Note 6: Exit and Disposal Activities
Snap-on did not record any costs for exit and disposal activities in the three and six month periods ended July 1, 2017. Snap-on recorded $0.9 million of costs for exit and disposal activities in the
three and six month periods ended July 2, 2016. The exit and disposal accrual of $1.1 million as of July 1, 2017, is expected to be fully utilized in 2017.
Snap-on
anticipates funding the remaining
cash requirements of its exit and disposal activities with available cash on hand, cash flows from operations and borrowings under the companys existing credit facilities. The estimated costs for the exit and disposal activities were based on
managements best business judgment under prevailing circumstances.
19
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 7: Income Taxes
Snap-ons effective income tax rate on earnings attributable to Snap-on was 30.6% and 31.0% in the first six months of 2017 and 2016, respectively.
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-ons gross unrecognized tax benefits to
decrease by a range of zero to $3.7 million. Over the next 12 months, Snap-on anticipates taking certain tax positions on various tax returns for which the related tax benefit does not meet the recognition threshold. Accordingly, Snap-ons
gross unrecognized tax benefits may increase by a range of zero to $1.2 million over the next 12 months for uncertain tax positions expected to be taken in future tax filings.
Note 8: Short-term and Long-term Debt
Short-term and long-term debt as of
July 1, 2017, and December 31, 2016, consisted of the following:
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
July 1,
2017
|
|
|
December 31,
2016
|
|
5.50% unsecured notes due 2017
|
|
$
|
|
|
|
$
|
150.0
|
|
4.25% unsecured notes due 2018
|
|
|
250.0
|
|
|
|
250.0
|
|
6.70% unsecured notes due 2019
|
|
|
200.0
|
|
|
|
200.0
|
|
6.125% unsecured notes due 2021
|
|
|
250.0
|
|
|
|
250.0
|
|
3.25% unsecured notes due 2027
|
|
|
300.0
|
|
|
|
|
|
Other debt*
|
|
|
105.8
|
|
|
|
160.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,105.8
|
|
|
|
1,010.2
|
|
|
|
|
Less: notes payable and current maturities of long-term debt:
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
|
(250.0)
|
|
|
|
(150.0)
|
|
Commercial paper borrowings
|
|
|
(83.5)
|
|
|
|
(130.0)
|
|
Other notes
|
|
|
(16.7)
|
|
|
|
(21.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(350.2)
|
|
|
|
(301.4)
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
755.6
|
|
|
$
|
708.8
|
|
|
|
|
|
|
|
|
|
|
*Includes fair value adjustments related to interest rate swaps, debt discounts and debt issuance costs.
Notes payable and current maturities of long-term debt of $350.2 million as of July 1, 2017, included $250 million of 4.25%
unsecured notes that mature on January 15, 2018 (the 2018 Notes), $83.5 million of commercial paper borrowings and $16.7 million of other notes. As of 2016 year end, notes payable and current maturities of long-term debt of $301.4
million included $150 million of unsecured 5.50% notes that were repaid in January 2017 upon maturity, $130 million of commercial paper borrowings and $21.4 million of other notes. As of 2016 year end, the 2018 Notes were included in Long-term
debt on the accompanying Condensed Consolidated Balance Sheets as their scheduled maturity was in excess of one year of the 2016 year-end balance sheet date.
On February 15, 2017, Snap-on sold, at a discount, $300 million of unsecured 3.25% long-term notes that mature on March 1, 2027 (the 2027 Notes). Interest on the 2027 Notes accrues
at a rate of 3.25% per year and is payable semi-annually beginning September 1, 2017. Snap-on used the $297.8 million of net proceeds from the sale of the 2027 Notes, reflecting $1.9 million of transaction costs, to repay a portion of its
then-outstanding commercial paper borrowings and the remainder was retained for general corporate purposes, which may include working capital, capital expenditures and possible acquisitions.
20
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Snap-on has a five-year, $700 million multi-currency revolving credit facility that
terminates on December 15, 2020 (the Credit Facility); no amounts were outstanding under the Credit Facility as of July 1, 2017. Borrowings under the Credit Facility bear interest at varying rates based on Snap-ons
then-current, long-term debt ratings. The Credit Facilitys financial covenant requires that Snap-on maintain, as of each fiscal quarter end, either (i) a ratio not greater than 0.60 to 1.00 of consolidated net debt (consolidated debt net
of certain cash adjustments) to the sum of such consolidated net debt plus total equity and less accumulated other comprehensive income or loss (the Debt Ratio); or (ii) a ratio not greater than 3.50 to 1.00 of such consolidated net
debt to earnings before interest, taxes, depreciation, amortization and certain other adjustments for the preceding four fiscal quarters then ended (the Debt to EBITDA Ratio). Snap-on may, up to two times during any five-year period
during the term of the Credit Facility (including any extensions thereof), increase the maximum Debt Ratio to 0.65 to 1.00 and/or increase the maximum Debt to EBITDA Ratio to 3.75 to 1.00 for four consecutive fiscal quarters in connection with
certain material acquisitions (as defined in the related credit agreement). As of July 1, 2017, the companys actual ratios of 0.25 and 1.07 respectively, were both within the permitted ranges set forth in this financial covenant. Snap-on
generally issues commercial paper to fund its financing needs on a short-term basis and uses the Credit Facility as back-up liquidity to support such commercial paper issuances.
Note 9: Financial 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 Accumulated other comprehensive income (loss) (Accumulated OCI) must be reclassified to
earnings in the period in which earnings are affected by the underlying hedged item and the ineffective portion of all hedges must be recognized in earnings in the period that such portion is determined to be ineffective.
The criteria used to determine if hedge accounting treatment is appropriate are: (i) the designation of the hedge to an underlying
exposure; (ii) whether or not overall risk is being reduced; and (iii) if there is a correlation between the value of the derivative instrument and the underlying hedged item. On the date a derivative contract is entered into,
Snap-on
designates the derivative as a fair value hedge, a cash flow hedge, a hedge of a net investment in a foreign operation, or a natural hedging instrument whose change in fair value is recognized as an economic
hedge against changes in the value of the hedged item. Snap-on does not use derivative instruments for speculative or trading purposes.
The company is exposed to global market risks, including the effects of changes in foreign currency exchange rates, interest rates, and the companys stock price, and therefore uses derivatives to
manage financial exposures that occur in the normal course of business. The primary risks managed by using derivative instruments are foreign currency risk, interest rate risk and stock-based deferred compensation risk.
Foreign Currency Risk Management:
Snap-on has significant international operations and is subject to certain risks inherent with
foreign operations that include currency fluctuations. Foreign currency exchange risk exists to the extent 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-ons 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.
21
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
As of July 1, 2017, Snap-on had $148.3 million of net foreign currency forward buy
contracts outstanding comprised of buy contracts including $57.7 million in euros, $49.8 million in Swedish kronor, $46.3 million in British pounds, $12.6 million in Hong Kong dollars, $8.2 million in Singapore dollars, $6.8 million in South Korean
won, $4.8 million in Mexican pesos, $4.5 million in Norwegian kroner, and $6.1 million in other currencies, and sell contracts comprised of $17.2 million in Japanese yen, $9.0 million in Canadian dollars, $8.9 million in Australian dollars, and
$13.4 million in other currencies. As of 2016 year end, Snap-on had $144.4 million of net foreign currency forward buy contracts outstanding comprised of buy contracts including $55.0 million in euros, $53.6 million in British pounds, $47.0 million
in Swedish kronor, $9.0 million in Hong Kong dollars, $7.0 million in South Korean won, $5.5 million in Singapore dollars, $4.9 million in Mexican pesos, $4.6 million in Norwegian kroner, and $6.4 million in other currencies, and sell contracts
comprised of $16.6 million in Japanese yen, $11.8 million in Canadian dollars, $4.4 million in Australian dollars, $4.0 million in Brazilian real, and $11.8 million in other currencies.
Interest Rate Risk Management:
Snap-on aims to control funding costs by managing the exposure created by the differing maturities
and interest rate structures of Snap-ons borrowings through the use of interest rate swap agreements (interest rate swaps) and treasury lock agreements (treasury locks).
Snap-on enters into interest rate swaps to manage risks associated with changing interest rates related to the companys 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 effective portion of the change in fair value of the derivative is recorded in Long-term debt on the accompanying Condensed Consolidated Balance Sheets, while any ineffective portion is recorded as an adjustment to
Interest expense on the accompanying Condensed Consolidated Statements of Earnings. The notional amount of interest rate swaps outstanding and designated as fair value hedges was $100.0 million as of both July 1, 2017, and
December 31, 2016.
Snap-on entered into a $250 million treasury lock in November 2016 to manage the potential change in
interest rates in anticipation of the possible issuance of fixed rate debt. Treasury locks are accounted for as cash flow hedges. The effective differentials to be paid or received on treasury locks related to the anticipated issuance of fixed rate
debt are initially recorded in Accumulated OCI. In the first quarter of 2017, Snap-on settled the $250 million treasury lock in conjunction with the February 2017 issuance of the 2027 Notes. The $14.9 million gain on the settlement of the treasury
lock was recorded in Accumulated OCI and is being amortized over the term of the 2027 Notes and recognized as an adjustment to interest expense on the consolidated statements of earnings. As of July 1, 2017, no treasury locks were outstanding.
The notional amount of treasury locks outstanding and designated as cash flow hedges as of December 31, 2016, was $250 million.
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-ons stock price. Since stock-based deferred
compensation liabilities increase as the companys stock price rises and decrease as the companys 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 1, 2017, Snap-on had equity forwards in place intended to manage market risk with respect to 108,400 shares of Snap-on common stock associated with its deferred compensation plans.
22
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Fair Value Measurements:
Snap-on has derivative assets and liabilities related to
interest rate swaps, treasury locks, foreign currency forwards and equity forwards that are measured at Level 2 fair value on a recurring basis. The fair value of derivative instruments included within the Condensed Consolidated Balance Sheets as of
July 1, 2017, and December 31, 2016, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2017
|
|
|
December 31, 2016
|
|
(Amounts in millions)
|
|
Balance Sheet
Presentation
|
|
|
Asset
Derivatives
Fair Value
|
|
|
Liability
Derivatives
Fair Value
|
|
|
Asset
Derivatives
Fair Value
|
|
|
Liability
Derivatives
Fair Value
|
|
Derivatives designated
as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
Other assets
|
|
|
$
|
9.5
|
|
|
$
|
|
|
|
$
|
9.8
|
|
|
$
|
|
|
Treasury locks
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
|
14.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.5
|
|
|
|
|
|
|
|
24.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forwards
|
|
|
Prepaid expenses and other assets
|
|
|
$
|
11.3
|
|
|
$
|
|
|
|
$
|
4.4
|
|
|
$
|
|
|
Foreign currency forwards
|
|
|
Other accrued liabilities
|
|
|
|
|
|
|
|
3.0
|
|
|
|
|
|
|
|
13.5
|
|
Equity forwards
|
|
|
Prepaid expenses and other assets
|
|
|
|
17.1
|
|
|
|
|
|
|
|
17.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
28.4
|
|
|
|
3.0
|
|
|
|
22.3
|
|
|
|
13.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative instruments
|
|
|
|
|
|
$
|
37.9
|
|
|
$
|
3.0
|
|
|
$
|
46.4
|
|
|
$
|
13.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 1, 2017, and December 31, 2016, the fair value adjustment to long-term debt related
to the interest rate swaps was $9.5 million and $9.8 million, respectively.
Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between participants at the measurement date. Level 2 fair value measurements for derivative assets and liabilities are measured using quoted prices in active
markets for similar assets and liabilities. Interest rate swaps are valued based on the six-month LIBOR swap rate for similar instruments. Treasury locks are valued based on the 10-year U.S. treasury interest rate. Foreign currency forwards are
valued based on exchange rates quoted by domestic and foreign banks for similar instruments. Equity forwards are valued using a market approach based primarily on the companys stock price at the reporting date. The company did not have any
derivative assets or liabilities measured at Level 1 or Level 3, nor did it implement any changes in its valuation techniques as of and for the six months ended July 1, 2017.
The effect of derivative instruments designated as fair value hedges as included in the Condensed Consolidated Statements of Earnings is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Portion of Gain Recognized in Income
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
(Amounts in millions)
|
|
Statement of Earnings
Presentation
|
|
|
July 1,
2017
|
|
|
July 2,
2016
|
|
|
July 1,
2017
|
|
|
July 2,
2016
|
|
Derivatives designated as fair value hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
Interest expense
|
|
|
$
|
0.7
|
|
|
$
|
0.8
|
|
|
$
|
1.4
|
|
|
$
|
1.5
|
|
23
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The effect of derivative instruments designated as cash flow hedges as included in
Accumulated OCI on the Condensed Consolidated Balance Sheets and the Condensed Consolidated Statements of Earnings is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Portion of Gain
Recognized in
Accumulated OCI
Three months ended
|
|
|
Statement of
Earnings
Presentation
|
|
|
Effective Portion of Gain
Reclassified from Accumulated
OCI into Income
Three months ended
|
|
(Amounts in millions)
|
|
July 1,
2017
|
|
|
July 2,
2016
|
|
|
|
July 1,
2017
|
|
|
July 2,
2016
|
|
Derivatives designated as cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury locks
|
|
$
|
|
|
|
$
|
|
|
|
|
Interest expense
|
|
|
$
|
0.4
|
|
|
$
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Portion of Gain
Recognized in
Accumulated OCI
Six months ended
|
|
|
Statement of
Earnings
Presentation
|
|
|
Effective Portion of Gain
Reclassified from Accumulated
OCI into
Income
Six months ended
|
|
(Amounts in millions)
|
|
July 1,
2017
|
|
|
July 2,
2016
|
|
|
|
July 1,
2017
|
|
|
July 2,
2016
|
|
Derivatives designated as cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury locks
|
|
$
|
6.1
|
|
|
$
|
|
|
|
|
Interest expense
|
|
|
$
|
0.7
|
|
|
$
|
0.2
|
|
The effects of derivative instruments not designated as hedging instruments as included in the Condensed
Consolidated Statements of Earnings are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized in Income
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
(Amounts in millions)
|
|
Statement of Earnings
Presentation
|
|
|
|
July 1,
2017
|
|
|
July 2,
2016
|
|
|
July 1,
2017
|
|
|
July 2,
2016
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forwards
|
|
|
Other income (expense) net
|
|
|
|
|
$
|
6.0
|
|
|
$
|
(5.0)
|
|
|
$
|
(3.9)
|
|
|
$
|
(4.2)
|
|
Equity forwards
|
|
|
Operating expenses
|
|
|
|
|
|
(1.1)
|
|
|
|
(0.1)
|
|
|
|
(1.3)
|
|
|
|
(0.7)
|
|
Snap-ons foreign currency forwards are typically not designated as hedges for financial reporting
purposes. The fair value changes of foreign currency forwards not designated as hedging instruments are reported in earnings as foreign exchange gain or loss in Other income (expense) net on the accompanying Condensed Consolidated
Statements of Earnings. The $6.0 million derivative gain recognized in the second quarter of 2017 was more than offset by transaction losses on net exposures of $8.0 million, resulting in a net foreign exchange loss of $2.0 million for the quarter.
The $5.0 million derivative loss recognized in the second quarter of 2016 was more than offset by transaction gains on net exposures of $6.0 million, resulting in a net foreign exchange gain of $1.0 million for the quarter. The $3.9 million
derivative loss recognized in the first six months of 2017 was partially offset by transaction gains on net exposures of $0.2 million, resulting in a 2017 year-to-date net foreign exchange loss of $3.7 million. The $4.2 million derivative loss
recognized in the first six months of 2016 was more than offset by transaction gains on net exposures of $4.3 million, resulting in a 2016 year-to-date net foreign exchange gain of $0.1 million. The resulting net foreign exchange gains and losses
are included in Other income (expense) net on the accompanying Condensed Consolidated Statements of Earnings. See Note 15 for additional information on Other income (expense) net.
24
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Snap-ons equity forwards are not designated as hedges for financial reporting
purposes. Fair value changes of both the equity forwards and related stock-based (mark-to-market) deferred compensation liabilities are reported in Operating expenses on the accompanying Condensed Consolidated Statements of
Earnings. The $1.1 million derivative loss recognized in the second quarter of 2017 was offset by $1.1 million of mark-to-market deferred compensation benefit. The $0.1 million derivative loss recognized in the second quarter of 2016 was offset
by $0.1 million of mark-to-market deferred compensation benefit. The $1.3 million derivative loss recognized in the first six months of 2017 was offset by a mark-to-market deferred compensation benefit of $1.3 million. The $0.7 million derivative
loss recognized in the first six months of 2016 was more than offset by a mark-to-market deferred compensation benefit of $1.1 million.
As of July 1, 2017, the maximum maturity date of any fair value hedge was four years. During the next 12 months,
Snap-on
expects to reclassify into
earnings net gains from Accumulated OCI of approximately $1.0 million after tax at the time the underlying hedge transactions are realized.
Counterparty Risk:
Snap-on is exposed to credit losses in the event 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:
The fair values of financial instruments that do not approximate the carrying values in the
financial statements are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2017
|
|
|
December 31, 2016
|
|
(Amounts in millions)
|
|
Carrying
Value
|
|
|
Fair
Value
|
|
|
Carrying
Value
|
|
|
Fair
Value
|
|
Finance receivables net
|
|
$
|
1,495.1
|
|
|
$
|
1,735.1
|
|
|
$
|
1,407.0
|
|
|
$
|
1,631.2
|
|
Contract receivables net
|
|
|
381.8
|
|
|
|
419.3
|
|
|
|
374.8
|
|
|
|
409.7
|
|
|
|
|
|
|
Long-term debt, notes payable and current maturities of long-term debt
|
|
|
1,105.8
|
|
|
|
1,116.5
|
|
|
|
1,010.2
|
|
|
|
1,076.7
|
|
The following methods and assumptions were used in estimating the fair value of financial instruments:
|
|
|
Finance and contract receivables include both short-term and long-term receivables. The fair value estimates of finance and contract receivables are
derived utilizing discounted cash flow analyses performed on groupings of receivables that are similar in terms of loan type and characteristics. The cash flow analyses consider recent prepayment trends where applicable. The cash flows are
discounted over the average life of the receivables using a current market discount rate of a similar term adjusted for credit quality. Significant inputs to the fair value measurements of the receivables are unobservable and, as such, are
classified as Level 3.
|
|
|
|
Fair value of long-term debt and current maturities of long-term debt was estimated, using Level 2 fair value measurements, based on quoted market
values of Snap-ons publicly traded senior debt. The carrying value of long-term debt includes adjustments related to fair value hedges. The fair value of notes payable approximates such instruments carrying value due to their short-term
nature.
|
|
|
|
The fair value of all other financial instruments, including trade and other accounts receivable, accounts payable and other financial instruments,
approximates such instruments carrying value due to their short-term nature.
|
25
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 10: Pension Plans
Snap-ons net periodic pension cost included the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
(Amounts in millions)
|
|
July 1,
2017
|
|
|
July 2,
2016
|
|
|
July 1,
2017
|
|
|
July 2,
2016
|
|
Service cost
|
|
$
|
5.3
|
|
|
$
|
4.8
|
|
|
$
|
11.2
|
|
|
$
|
9.7
|
|
Interest cost
|
|
|
13.9
|
|
|
|
14.4
|
|
|
|
27.9
|
|
|
|
28.4
|
|
Expected return on plan assets
|
|
|
(20.9)
|
|
|
|
(20.7)
|
|
|
|
(41.0)
|
|
|
|
(40.4)
|
|
Amortization of unrecognized loss
|
|
|
7.0
|
|
|
|
8.5
|
|
|
|
13.9
|
|
|
|
15.7
|
|
Amortization of prior service credit
|
|
|
(0.3)
|
|
|
|
(0.3)
|
|
|
|
(0.6)
|
|
|
|
(0.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
5.0
|
|
|
$
|
6.7
|
|
|
$
|
11.4
|
|
|
$
|
12.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Snap-on
intends to make contributions of $7.1 million to its
foreign pension plans and $2.3 million to its domestic pension plans in 2017, as required by law. In the first six months of 2017, Snap-on made $30.8 million of cash contributions to its domestic pension plans consisting of (i) $30.0 million of
discretionary contributions and (ii) $0.8 million of required contributions. Depending on market and other conditions,
Snap-on
may make additional discretionary cash contributions to its pension plans in
2017.
Note 11: Postretirement Health Care Plans
Snap-ons net periodic postretirement health care cost included the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
(Amounts in millions)
|
|
July 1,
2017
|
|
|
July 2,
2016
|
|
|
July 1,
2017
|
|
|
July 2,
2016
|
|
Interest cost
|
|
$
|
0.5
|
|
|
$
|
0.5
|
|
|
$
|
1.0
|
|
|
$
|
1.1
|
|
Expected return on plan assets
|
|
|
(0.2)
|
|
|
|
(0.2)
|
|
|
|
(0.4)
|
|
|
|
(0.4)
|
|
Amortization of unrecognized loss (gain)
|
|
|
|
|
|
|
0.1
|
|
|
|
(0.1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic postretirement health care cost
|
|
$
|
0.3
|
|
|
$
|
0.4
|
|
|
$
|
0.5
|
|
|
$
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 12: Stock-based Compensation and Other Stock Plans
The 2011 Incentive Stock and Awards Plan (the 2011 Plan) provides for the grant of stock options, performance awards, stock
appreciation rights (SARs) and restricted stock awards (which may be designated as restricted stock units or RSUs). No further grants are being made under its predecessor, the 2001 Incentive Stock and Awards Plan
(the 2001 Plan), although outstanding awards under the 2001 Plan will continue in accordance with their terms. As of July 1, 2017, the 2011 Plan had 3,285,425 shares available for future grants. The company uses treasury stock to
deliver shares under both the 2001 and 2011 Plans.
Net stock-based compensation expense was $7.0 million and $14.4 million
for the respective three and six months ended July 1, 2017, and $8.4 million and $14.2 million for the respective three and six months ended July 2, 2016. Cash received from stock purchase and option plan exercises during the three and six
months ended July 1, 2017, totaled $20.5 million and $34.6 million, respectively. Cash received from stock purchase and option plan exercises during the three and six months ended July 2, 2016, totaled $18.5 million and $28.4 million,
respectively. The tax benefit realized from both the exercise and vesting of share-based payment arrangements was $3.1 million and $12.1 million for the respective three and six months ended July 1, 2017, and $2.9 million and $13.1 million for
the respective three and six months ended July 2, 2016.
26
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Stock Options
Stock options are granted with an exercise price equal to the market value of a share of Snap-ons common stock on the date of grant and have a contractual term of ten years. Stock option grants vest
ratably on the first, second and third anniversaries of the date of grant.
The fair value of each stock option award is
estimated on the date of grant using the Black-Scholes valuation model. The company uses historical data regarding stock option exercise and forfeiture behaviors for different participating groups to estimate the period of time that options granted
are expected to be outstanding. Expected volatility is based on the historical volatility of the companys stock for the length of time corresponding to the expected term of the option. The expected dividend yield is based on the companys
historical dividend payments. The risk-free interest rate is based on the U.S. treasury yield curve on the grant date for the expected term of the option.
The following weighted-average assumptions were used in calculating the fair value of stock options granted during the six months ended July 1, 2017, and July 2, 2016, using the Black-Scholes
valuation model; there were no stock options granted during the three months ended July 1, 2017, or July 2, 2016:
|
|
|
|
|
|
|
Six Months Ended
|
|
|
July 1,
2017
|
|
July 2,
2016
|
Expected term of option
(in years)
|
|
5.15
|
|
5.05
|
Expected volatility factor
|
|
22.01%
|
|
22.17%
|
Expected dividend yield
|
|
1.63%
|
|
1.77%
|
Risk-free interest rate
|
|
1.78%
|
|
1.04%
|
A summary of stock option activity as of and for the six months ended July 1, 2017, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
(in thousands)
|
|
|
Exercise
Price Per
Share*
|
|
|
Remaining
Contractual
Term*
(in years)
|
|
|
Aggregate
Intrinsic
Value
(in millions)
|
|
Outstanding at December 31, 2016
|
|
|
3,011
|
|
|
$
|
100.78
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
655
|
|
|
|
168.71
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(253)
|
|
|
|
89.07
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(71)
|
|
|
|
153.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 1, 2017
|
|
|
3,342
|
|
|
|
113.86
|
|
|
|
6.8
|
|
|
$
|
154.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at July 1, 2017
|
|
|
2,133
|
|
|
|
90.60
|
|
|
|
5.5
|
|
|
|
143.7
|
|
*
Weighted-average
The weighted-average grant date fair value of options granted during the six months ended July 1, 2017,
and July 2, 2016, was $31.13 and $22.99, respectively. The intrinsic value of options exercised was $8.2 million and $21.4 million during the respective three and six months ended July 1, 2017, and $5.0 million and $17.4 million during the
respective three and six months ended July 2, 2016. The fair value of stock options vested was $14.0 million and 12.7 million during the respective six months ended July 1, 2017, and July 2, 2016.
As of July 1, 2017, there was $27.2 million of unrecognized compensation cost related to non-vested stock options that is expected
to be recognized as a charge to earnings over a weighted-average period of 2.0 years.
27
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Performance Awards
Performance awards, which are granted as performance share units (PSUs) and performance-based RSUs, are earned and expensed using the fair value of the award over a contractual term of three
years based on the companys performance. Vesting of the performance awards 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 a certain level, the recipient may earn additional shares of stock, not to exceed 100% of the number of performance awards initially granted.
The PSUs have a three-year performance period based on the results of the consolidated financial metrics of the company. The performance-based RSUs have a one-year performance period based on the results
of the consolidated financial metrics of the company followed by a two-year cliff vesting schedule, assuming continued employment.
The fair value of performance awards is calculated using the market value of a share of Snap-ons common stock on the date of grant and assumed forfeitures based on recent historical experience; in
recent years, forfeitures have not been significant. The weighted-average grant date fair value of performance awards granted during the six months ended July 1, 2017, and July 2, 2016, was $168.70 and $138.89, respectively. PSUs related
to 60,980 shares and 94,186 shares were paid out during the respective six months ended July 1, 2017, and July 2, 2016. Earned PSUs are generally paid out following the conclusion of the applicable performance period upon approval by the
Organization and Executive Compensation Committee of the companys Board of Directors (the Board).
Based on
the companys 2016 performance, 45,502 RSUs granted in 2016 were earned; assuming continued employment, these RSUs will vest at the end of fiscal 2018. Based on the companys 2015 performance, 64,327 RSUs granted in 2015 were earned;
assuming continued employment, these RSUs will vest at the end of fiscal 2017. Based on the companys 2014 performance, 78,585 RSUs granted in 2014 were earned; these RSUs vested as of fiscal 2016 year end and were paid out shortly thereafter.
Changes to the companys non-vested performance awards during the six months ended July 1, 2017, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Shares
(in thousands)
|
|
|
Fair Value
Price per
Share*
|
|
Non-vested performance awards at December 31, 2016
|
|
|
207
|
|
|
$
|
141.94
|
|
Granted
|
|
|
77
|
|
|
|
168.70
|
|
Vested
|
|
|
(5)
|
|
|
|
142.78
|
|
Cancellations and other
|
|
|
(17)
|
|
|
|
147.78
|
|
|
|
|
|
|
|
|
|
|
Non-vested performance awards at July 1, 2017
|
|
|
262
|
|
|
|
149.31
|
|
|
|
|
|
|
|
|
|
|
*
Weighted-average
As of July 1, 2017, there was $18.6 million of unrecognized compensation cost related to non-vested
performance awards that is expected to be recognized as a charge to earnings over a weighted-average period of 1.9 years.
Stock
Appreciation Rights (SARs)
The company also issues stock-settled and cash-settled SARs to certain key
non-U.S. employees. SARs have a contractual term of ten years and vest ratably on the first, second and third anniversaries of the date of grant. SARs are granted with an exercise price equal to the market value of a share of Snap-ons common
stock on the date of grant.
28
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
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 companys stock has appreciated over the exercise price. Stock-settled SARs have an effect on dilutive shares and shares outstanding as any appreciation of Snap-ons 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-ons 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-ons 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-ons 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
companys stock for the length of time corresponding to the expected term of the SARs. The expected dividend yield is based on the companys historical dividend payments. The risk-free interest rate is based on the U.S. treasury yield
curve in effect as of the grant date (for stock-settled SARs) or reporting date (for cash-settled SARs) for the length of time corresponding to the expected term of the SARs.
The following weighted-average assumptions were used in calculating the fair value of stock-settled SARs granted during the six months ended July 1, 2017, and July 2, 2016, using the
Black-Scholes valuation model; there were no stock-settled SARs granted during the three months ended July 1, 2017, or July 2, 2016:
|
|
|
|
|
|
|
Six Months Ended
|
|
|
July 1,
2017
|
|
July 2,
2016
|
Expected term of stock-settled SARs
(in years)
|
|
3.99
|
|
4.03
|
Expected volatility factor
|
|
19.39%
|
|
20.09%
|
Expected dividend yield
|
|
1.46%
|
|
1.66%
|
Risk-free interest rate
|
|
1.55%
|
|
1.11%
|
Changes to the companys stock-settled SARs during the six months ended July 1, 2017, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-settled
SARs
(in thousands)
|
|
|
Exercise
Price Per
Share*
|
|
|
Remaining
Contractual
Term*
(in years)
|
|
|
Aggregate
Intrinsic
Value
(in millions)
|
|
Outstanding at December 31, 2016
|
|
|
303
|
|
|
$
|
125.38
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
100
|
|
|
|
168.73
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(8)
|
|
|
|
106.01
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(20)
|
|
|
|
123.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 1, 2017
|
|
|
375
|
|
|
|
137.52
|
|
|
|
8.1
|
|
|
$
|
8.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at July 1, 2017
|
|
|
179
|
|
|
|
118.55
|
|
|
|
7.1
|
|
|
|
7.1
|
|
*
Weighted-average
The weighted-average grant date fair value of stock-settled SARs granted during the six months ended
July 1, 2017, and July 2, 2016, was $24.13 and $19.47, respectively. The intrinsic value of stock-settled SARs exercised was zero and $0.5 million during the respective three and six months ended July 1, 2017, and $0.3 million and
$0.7 million during the respective three and six months ended July 2, 2016. The fair value of stock-settled SARs vested during both the six months ended July 1, 2017, and July 2, 2016, was $2.1 million.
29
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
As of July 1, 2017, there was $3.6 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 2.0 years.
The following weighted-average assumptions were used in calculating the fair value of cash-settled SARs granted during the six months ended July 1, 2017, and July 2, 2016, using the
Black-Scholes valuation model; no cash-settled SARs were granted during the three months ended July 1, 2017, or July 2, 2016:
|
|
|
|
|
|
|
Six Months Ended
|
|
|
July 1,
2017
|
|
July 2,
2016
|
Expected term of cash-settled SARs
(in years)
|
|
3.62
|
|
3.68
|
Expected volatility factor
|
|
19.56%
|
|
19.20%
|
Expected dividend yield
|
|
1.55%
|
|
1.60%
|
Risk-free interest rate
|
|
1.55%
|
|
0.71%
|
The intrinsic value of cash-settled SARs exercised was $0.2 million and $0.8 million during the
respective three and six months ended July 1, 2017, and $0.3 million and $0.8 million during the respective three and six months ended July 2, 2016. The fair value of cash-settled SARs vested during the six months ended July 1, 2017,
and July 2, 2016, was $0.1 million and $0.2 million, respectively.
Changes to the companys non-vested cash-settled
SARs during the six months ended July 1, 2017, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Cash-settled
SARs
(in thousands)
|
|
|
Fair Value
Price per
Share*
|
|
Non-vested cash-settled SARs at December 31, 2016
|
|
|
7
|
|
|
$
|
40.83
|
|
Granted
|
|
|
1
|
|
|
|
18.10
|
|
Vested
|
|
|
(3)
|
|
|
|
33.47
|
|
|
|
|
|
|
|
|
|
|
Non-vested cash-settled SARs at July 1, 2017
|
|
|
5
|
|
|
|
24.94
|
|
|
|
|
|
|
|
|
|
|
*
Weighted-average
As of July 1, 2017, there was $0.1 million of unrecognized compensation cost related to non-vested
cash-settled SARs that is expected to be recognized as a charge to earnings over a weighted-average period of 1.6 years.
Restricted Stock
Awards Non-employee Directors
The company awarded 6,966 shares and 7,145 shares of restricted stock to
non-employee directors in the first six months of 2017 and 2016, respectively. The fair value of the restricted stock awards is expensed over a one-year vesting period based on the fair value on the date of grant. All restrictions for the restricted
stock generally lapse upon the earlier of the first anniversary of the grant date, the recipients death or disability or in the event of a change in control, as defined in the 2011 Plan. If termination of the recipients 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.
30
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
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 companys 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 months ended
July 1, 2017, and July 2, 2016, issuances under this plan totaled 26,963 shares and 27,156 shares, respectively. As of July 1, 2017, shares reserved for issuance under this plan totaled 753,600 shares and Snap-on held participant
contributions of approximately $0.4 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 $0.1
million for both the three and six months ended July 1, 2017, and $0.1 million of expense and $0.1 million of benefit for the respective three and six months ended July 2, 2016.
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 companys 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 months ended July 1, 2017, and July 2, 2016, issuances under this plan totaled 47,314 shares and 42,867 shares, respectively. As of July 1, 2017, shares
reserved for issuance under this plan totaled 566,155 shares and Snap-on held participant contributions of approximately $0.7 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. Expense for plan participants was $0.1 million for both the three and six months ended July 1, 2017, and $0.1 million of expense and $0.4 million of benefit for the respective three and six months ended
July 2, 2016.
Note 13: Earnings Per Share
The shares used in the computation of the companys basic and diluted earnings per common share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
July 1,
2017
|
|
|
July 2,
2016
|
|
|
July 1,
2017
|
|
|
July 2,
2016
|
|
Weighted-average common shares outstanding
|
|
|
57,790,299
|
|
|
|
58,103,518
|
|
|
|
57,865,481
|
|
|
|
58,108,014
|
|
Effect of dilutive securities
|
|
|
1,223,560
|
|
|
|
1,287,468
|
|
|
|
1,303,683
|
|
|
|
1,313,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding,
assuming dilution
|
|
|
59,013,859
|
|
|
|
59,390,986
|
|
|
|
59,169,164
|
|
|
|
59,421,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 July 1, 2017, there were 722,015 awards outstanding that were anti-dilutive; as of July 2, 2016, there were 1,600 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.
31
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 14: Commitments 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. Snap-ons product warranty accrual activity for the three and six months ended July 1, 2017, and July 2, 2016, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
(Amounts in millions)
|
|
July 1,
2017
|
|
|
July 2,
2016
|
|
|
July 1,
2017
|
|
|
July 2,
2016
|
|
Warranty reserve:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
$
|
17.1
|
|
|
$
|
16.5
|
|
|
$
|
16.0
|
|
|
$
|
16.4
|
|
Additions
|
|
|
5.6
|
|
|
|
3.0
|
|
|
|
9.3
|
|
|
|
6.0
|
|
Usage
|
|
|
(3.8)
|
|
|
|
(3.4)
|
|
|
|
(6.4)
|
|
|
|
(6.3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
18.9
|
|
|
$
|
16.1
|
|
|
$
|
18.9
|
|
|
$
|
16.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Snap-on is involved in various legal matters that are being litigated and/or settled in the ordinary
course of business. Although it is not possible to predict the outcome of these legal matters, management believes that the results of these legal matters will not have a material impact on Snap-ons consolidated financial position, results of
operations or cash flows.
Note 15: Other Income (Expense)
Net
Other income (expense) net on the accompanying Condensed Consolidated Statements of Earnings consists of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
(Amounts in millions)
|
|
July 1,
2017
|
|
|
July 2,
2016
|
|
|
July 1,
2017
|
|
|
July 2,
2016
|
|
Interest income
|
|
$
|
0.1
|
|
|
$
|
0.2
|
|
|
$
|
0.2
|
|
|
$
|
0.3
|
|
Net foreign exchange gain (loss)
|
|
|
(2.0)
|
|
|
|
1.0
|
|
|
|
(3.7)
|
|
|
|
0.1
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
(0.1)
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) net
|
|
$
|
(1.9)
|
|
|
$
|
1.2
|
|
|
$
|
(3.6)
|
|
|
$
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 16: Accumulated Other Comprehensive Income (Loss)
The following is a summary of net changes in Accumulated OCI by component and net of tax for the three months ended July 1, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Foreign
Currency
Translation
|
|
|
Cash Flow
Hedges
|
|
|
Defined
Benefit
Pension and
Postretirement
Plans
|
|
|
Total
|
|
Balance as of April 1, 2017
|
|
$
|
(179.6)
|
|
|
$
|
15.0
|
|
|
$
|
(285.8)
|
|
|
$
|
(450.4)
|
|
Other comprehensive income before reclassifications
|
|
|
49.4
|
|
|
|
|
|
|
|
|
|
|
|
49.4
|
|
Amounts reclassified from Accumulated OCI
|
|
|
|
|
|
|
(0.4)
|
|
|
|
4.4
|
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income (loss)
|
|
|
49.4
|
|
|
|
(0.4)
|
|
|
|
4.4
|
|
|
|
53.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of July 1, 2017
|
|
$
|
(130.2)
|
|
|
$
|
14.6
|
|
|
$
|
(281.4)
|
|
|
$
|
(397.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The following is a summary of net changes in Accumulated OCI by component and net of tax
for the six months ended July 1, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Foreign
Currency
Translation
|
|
|
Cash Flow
Hedges
|
|
|
Defined
Benefit
Pension and
Postretirement
Plans
|
|
|
Total
|
|
Balance as of December 31, 2016
|
|
$
|
(217.7)
|
|
|
$
|
9.2
|
|
|
$
|
(290.0)
|
|
|
$
|
(498.5)
|
|
Other comprehensive income before reclassifications
|
|
|
87.5
|
|
|
|
6.1
|
|
|
|
|
|
|
|
93.6
|
|
Amounts reclassified from Accumulated OCI
|
|
|
|
|
|
|
(0.7)
|
|
|
|
8.6
|
|
|
|
7.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income
|
|
|
87.5
|
|
|
|
5.4
|
|
|
|
8.6
|
|
|
|
101.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of July 1, 2017
|
|
$
|
(130.2)
|
|
|
$
|
14.6
|
|
|
$
|
(281.4)
|
|
|
$
|
(397.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of net changes in Accumulated OCI by component and net of tax for the three
months ended July 2, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Foreign
Currency
Translation
|
|
|
Cash Flow
Hedges
|
|
|
Defined
Benefit
Pension and
Postretirement
Plans
|
|
|
Total
|
|
Balance as of April 2, 2016
|
|
$
|
(98.6)
|
|
|
$
|
0.6
|
|
|
$
|
(242.1)
|
|
|
$
|
(340.1)
|
|
Other comprehensive loss before reclassifications
|
|
|
(34.9)
|
|
|
|
|
|
|
|
|
|
|
|
(34.9)
|
|
Amounts reclassified from Accumulated OCI
|
|
|
|
|
|
|
(0.1)
|
|
|
|
5.3
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income (loss)
|
|
|
(34.9)
|
|
|
|
(0.1)
|
|
|
|
5.3
|
|
|
|
(29.7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of July 2, 2016
|
|
$
|
(133.5)
|
|
|
$
|
0.5
|
|
|
$
|
(236.8)
|
|
|
$
|
(369.8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of net changes in Accumulated OCI by component and net of tax for six months
ended July 2, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Foreign
Currency
Translation
|
|
|
Cash Flow
Hedges
|
|
|
Defined
Benefit
Pension and
Postretirement
Plans
|
|
|
Total
|
|
Balance as of January 2, 2016
|
|
$
|
(118.5)
|
|
|
$
|
0.7
|
|
|
$
|
(246.4)
|
|
|
$
|
(364.2)
|
|
Other comprehensive loss before reclassifications
|
|
|
(15.0)
|
|
|
|
|
|
|
|
|
|
|
|
(15.0)
|
|
Amounts reclassified from Accumulated OCI
|
|
|
|
|
|
|
(0.2)
|
|
|
|
9.6
|
|
|
|
9.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income (loss)
|
|
|
(15.0)
|
|
|
|
(0.2)
|
|
|
|
9.6
|
|
|
|
(5.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of July 2, 2016
|
|
$
|
(133.5)
|
|
|
$
|
0.5
|
|
|
$
|
(236.8)
|
|
|
$
|
(369.8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The reclassifications out of Accumulated OCI for the three and six month periods ended
July 1, 2017, and July 2, 2016, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Reclassified from Accumulated OCI
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
Details about Accumulated OCI
Components
|
|
July 1,
2017
|
|
|
July 2,
2016
|
|
|
July 1,
2017
|
|
|
July 2,
2016
|
|
|
Statement of Earnings
Presentation
|
|
|
|
|
|
|
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury locks
|
|
$
|
0.4
|
|
|
$
|
0.1
|
|
|
$
|
0.7
|
|
|
$
|
0.2
|
|
|
Interest expense
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net of tax
|
|
|
0.4
|
|
|
|
0.1
|
|
|
|
0.7
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net unrecognized losses and prior service credits
|
|
|
(6.7)
|
|
|
|
(8.3)
|
|
|
|
(13.2)
|
|
|
|
(15.1)
|
|
|
See footnote below*
|
Income tax benefit
|
|
|
2.3
|
|
|
|
3.0
|
|
|
|
4.6
|
|
|
|
5.5
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net of tax
|
|
|
(4.4)
|
|
|
|
(5.3)
|
|
|
|
(8.6)
|
|
|
|
(9.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications for the period, net of tax
|
|
$
|
(4.0)
|
|
|
$
|
(5.2)
|
|
|
$
|
(7.9)
|
|
|
$
|
(9.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
These Accumulated OCI components are included in the computation of net periodic pension and postretirement health care costs; see Note 10 and Note
11 for further information.
|
Note 17: Segments
Snap-ons business segments are based on the organization structure used by management for making operating and investment decisions
and for assessing performance. Snap-ons 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 companys worldwide mobile tool distribution channel. The Repair Systems & Information Group consists of business operations serving other professional vehicle repair customers
worldwide, primarily owners and managers of independent repair shops and OEM dealership service and repair shops (OEM dealerships), through direct and distributor channels. Financial Services consists of the business operations of
Snap-ons 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 segments operations. Corporate assets consist of cash and cash equivalents (excluding cash held at Financial Services), deferred income taxes and certain other assets. All
significant intersegment amounts are eliminated to arrive at Snap-ons consolidated financial results.
34
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Financial Data by Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
(Amounts in millions)
|
|
July 1,
2017
|
|
|
July 2,
2016
|
|
|
July 1,
2017
|
|
|
July 2,
2016
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & Industrial Group
|
|
$
|
310.0
|
|
|
$
|
285.7
|
|
|
$
|
608.7
|
|
|
$
|
572.7
|
|
Snap-on Tools Group
|
|
|
413.8
|
|
|
|
416.7
|
|
|
|
823.2
|
|
|
|
819.2
|
|
Repair Systems & Information Group
|
|
|
338.1
|
|
|
|
295.2
|
|
|
|
656.9
|
|
|
|
574.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net sales
|
|
|
1,061.9
|
|
|
|
997.6
|
|
|
|
2,088.8
|
|
|
|
1,965.9
|
|
Intersegment eliminations
|
|
|
(140.5)
|
|
|
|
(125.3)
|
|
|
|
(280.3)
|
|
|
|
(259.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
921.4
|
|
|
$
|
872.3
|
|
|
$
|
1,808.5
|
|
|
$
|
1,706.5
|
|
Financial Services revenue
|
|
|
77.7
|
|
|
|
69.3
|
|
|
|
154.5
|
|
|
|
135.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
999.1
|
|
|
$
|
941.6
|
|
|
$
|
1,963.0
|
|
|
$
|
1,842.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & Industrial Group
|
|
$
|
42.7
|
|
|
$
|
39.3
|
|
|
$
|
84.3
|
|
|
$
|
80.4
|
|
Snap-on
Tools Group
|
|
|
80.6
|
|
|
|
76.3
|
|
|
|
150.9
|
|
|
|
143.0
|
|
Repair Systems & Information Group
|
|
|
81.9
|
|
|
|
74.5
|
|
|
|
160.6
|
|
|
|
143.5
|
|
Financial Services
|
|
|
54.6
|
|
|
|
49.5
|
|
|
|
107.1
|
|
|
|
96.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating earnings
|
|
|
259.8
|
|
|
|
239.6
|
|
|
|
502.9
|
|
|
|
463.4
|
|
Corporate
|
|
|
(21.5)
|
|
|
|
(23.7)
|
|
|
|
(42.6)
|
|
|
|
(45.1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
238.3
|
|
|
$
|
215.9
|
|
|
$
|
460.3
|
|
|
$
|
418.3
|
|
Interest expense
|
|
|
(13.0)
|
|
|
|
(12.9)
|
|
|
|
(25.7)
|
|
|
|
(26.0)
|
|
Other income (expense) net
|
|
|
(1.9)
|
|
|
|
1.2
|
|
|
|
(3.6)
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and equity earnings
|
|
$
|
223.4
|
|
|
$
|
204.2
|
|
|
$
|
431.0
|
|
|
$
|
392.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
July 1,
2017
|
|
|
December 31,
2016
|
|
Assets:
|
|
|
|
|
|
|
|
|
Commercial & Industrial Group
|
|
$
|
1,052.2
|
|
|
$
|
907.1
|
|
Snap-on Tools Group
|
|
|
700.8
|
|
|
|
668.1
|
|
Repair Systems & Information Group
|
|
|
1,286.4
|
|
|
|
1,211.0
|
|
Financial Services
|
|
|
1,886.6
|
|
|
|
1,789.7
|
|
|
|
|
|
|
|
|
|
|
Total assets from reportable segments
|
|
$
|
4,926.0
|
|
|
$
|
4,575.9
|
|
Corporate
|
|
|
213.6
|
|
|
|
212.3
|
|
Elimination of intersegment receivables
|
|
|
(72.5)
|
|
|
|
(65.0)
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,067.1
|
|
|
$
|
4,723.2
|
|
|
|
|
|
|
|
|
|
|
35
SNAP-ON INCORPORATED