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 first quarter ended on April 1, 2017; the 2016 fiscal first quarter ended on April 2,
2016. The companys 2017 and 2016 fiscal first quarters each 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 $15.8 million as of April 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 $3.0 million and $4.2 million in the respective fiscal first quarters of 2017 and 2016; sales to unconsolidated affiliates were $0.1 million and zero in the respective fiscal first quarters 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 months ended
April 1, 2017, and April 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.
9
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
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.
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.
10
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
As of April 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.
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. The ASU is effective for annual and interim impairment
tests performed in periods beginning after December 15, 2019; early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The amendments in this ASU are to be applied on a prospective
basis and are not expected to have a significant impact on the companys consolidated financial statements.
Note 2: Acquisitions
On January 30, 2017,
Snap-on
acquired BTC Global Limited (BTC)
for a preliminary 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. For
segment reporting purposes, the results of operations and assets of BTC have been included in the Repair Systems & Information Group since the acquisition date.
11
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
As of April 1, 2017, the purchase accounting valuations for the acquired net assets
of BTC, including intangible assets, were not complete; the company anticipates completing the valuations in the second quarter of 2017. The presentation of BTC 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. As of April 1, 2017, $8.6 million was recorded, on a preliminary basis, in Goodwill on the
accompanying Condensed Consolidated Balance Sheets, reflecting the excess of the BTC purchase price over the net assets acquired. The company does not expect that any of the goodwill will be deductible for tax purposes.
On November 16, 2016,
Snap-on
acquired Ryeson Corporation (d/b/a Sturtevant Richmont) for a
cash purchase price of $13.0 million (or $12.6 million, net of cash acquired), 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 cash 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.
As of April 1, 2017, the purchase accounting valuations
for the acquired net assets of
Car-O-Liner,
including intangible assets, were not complete. 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 second quarter of 2017. As of April 1, 2017,
$69.0 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 in the three months ended April 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
|
|
|
69.0
|
|
Other intangibles:
|
|
|
|
|
Customer relationships
|
|
|
44.3
|
|
Non-amortized
trademarks
|
|
|
14.5
|
|
Other assets
|
|
|
5.9
|
|
|
|
|
|
|
Total assets acquired
|
|
|
190.2
|
|
|
|
Liabilities assumed:
|
|
|
|
|
Accounts payable
|
|
|
9.8
|
|
Deferred income tax liabilities
|
|
|
12.0
|
|
Accrued expenses
|
|
|
10.6
|
|
Pension liabilities
|
|
|
4.3
|
|
Other liabilities
|
|
|
1.5
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
38.2
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
152.0
|
|
|
|
|
|
|
In the three months ended April 1, 2017,
Snap-on
recognized
$0.6 million of pretax expense ($0.2 million in Cost of goods sold and $0.4 million 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 April 1, 2017, and December 31, 2016, are as follows:
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
April 1,
2017
|
|
|
December 31,
2016
|
|
Trade and other accounts receivable
|
|
$
|
621.6
|
|
|
$
|
612.8
|
|
Allowances for doubtful accounts
|
|
|
(13.5)
|
|
|
|
(14.0)
|
|
|
|
|
|
|
|
|
|
|
Total trade and other accounts receivable net
|
|
$
|
608.1
|
|
|
$
|
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 April 1, 2017, and December 31, 2016, are as follows:
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
April 1,
2017
|
|
|
December 31,
2016
|
|
Finance receivables, net of unearned finance charges of $17.9 million and $17.0 million, respectively
|
|
$
|
500.7
|
|
|
$
|
488.1
|
|
Contract receivables, net of unearned finance charges of $15.9 million and $15.6 million, respectively
|
|
|
85.9
|
|
|
|
89.3
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
586.6
|
|
|
|
577.4
|
|
|
|
|
|
|
|
|
|
|
Allowances for doubtful accounts:
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
|
(16.0)
|
|
|
|
(15.6)
|
|
Contract receivables
|
|
|
(1.4)
|
|
|
|
(1.2)
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(17.4)
|
|
|
|
(16.8)
|
|
|
|
|
|
|
|
|
|
|
Total current finance and contract receivables net
|
|
$
|
569.2
|
|
|
$
|
560.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables net
|
|
$
|
484.7
|
|
|
$
|
472.5
|
|
Contract receivables net
|
|
|
84.5
|
|
|
|
88.1
|
|
|
|
|
|
|
|
|
|
|
Total current finance and contract receivables net
|
|
$
|
569.2
|
|
|
$
|
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 April 1, 2017, and December 31, 2016, are as follows:
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
April 1,
2017
|
|
|
December 31,
2016
|
|
Finance receivables, net of unearned finance charges of $13.8 million and $13.0 million, respectively
|
|
$
|
1,000.8
|
|
|
$
|
967.5
|
|
Contract receivables, net of unearned finance charges of $21.9 million and $21.5 million, respectively
|
|
|
295.9
|
|
|
|
289.4
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,296.7
|
|
|
|
1,256.9
|
|
|
|
|
|
|
|
|
|
|
Allowances for doubtful accounts:
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
|
(34.5)
|
|
|
|
(33.0)
|
|
Contract receivables
|
|
|
(3.3)
|
|
|
|
(2.7)
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(37.8)
|
|
|
|
(35.7)
|
|
|
|
|
|
|
|
|
|
|
Total long-term finance and contract receivables net
|
|
$
|
1,258.9
|
|
|
$
|
1,221.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables net
|
|
$
|
966.3
|
|
|
$
|
934.5
|
|
Contract receivables net
|
|
|
292.6
|
|
|
|
286.7
|
|
|
|
|
|
|
|
|
|
|
Total long-term finance and contract receivables net
|
|
$
|
1,258.9
|
|
|
$
|
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 both April 1, 2017, and December 31, 2016, there were $24.9 million of impaired finance receivables, and there were $2.3 million
and $2.0 million, respectively, of impaired contract receivables.
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 April 1, 2017, and December 31, 2016, were immaterial to both the financial services portfolio and the
companys results of operations and financial position.
15
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The aging of finance and contract receivables as of April 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
|
|
April 1, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
$
|
12.0
|
|
|
$
|
8.8
|
|
|
$
|
16.8
|
|
|
$
|
37.6
|
|
|
$
|
1,463.9
|
|
|
$
|
1,501.5
|
|
|
$
|
12.6
|
|
Contract receivables
|
|
|
1.1
|
|
|
|
1.0
|
|
|
|
2.0
|
|
|
|
4.1
|
|
|
|
377.7
|
|
|
|
381.8
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
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 April 1, 2017, and December 31, 2016, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1, 2017
|
|
|
December 31, 2016
|
|
(Amounts in millions)
|
|
Finance
Receivables
|
|
|
Contract
Receivables
|
|
|
Finance
Receivables
|
|
|
Contract
Receivables
|
|
Performing
|
|
$
|
1,476.6
|
|
|
$
|
379.5
|
|
|
$
|
1,430.7
|
|
|
$
|
376.7
|
|
Nonperforming
|
|
|
24.9
|
|
|
|
2.3
|
|
|
|
24.9
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,501.5
|
|
|
$
|
381.8
|
|
|
$
|
1,455.6
|
|
|
$
|
378.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of finance and contract receivables on nonaccrual status as of April 1, 2017, and
December 31, 2016, is as follows:
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
April 1,
2017
|
|
|
December 31,
2016
|
|
Finance receivables
|
|
$
|
12.3
|
|
|
$
|
11.7
|
|
Contract receivables
|
|
|
1.8
|
|
|
|
1.5
|
|
The following is a rollforward of the allowances for doubtful accounts for finance and contract
receivables for the three months ended April 1, 2017, and April 2, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
April 1, 2017
|
|
|
Three Months Ended
April 2, 2016
|
|
(Amounts in millions)
|
|
Finance
Receivables
|
|
|
Contract
Receivables
|
|
|
Finance
Receivables
|
|
|
Contract
Receivables
|
|
Allowances for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
$
|
48.6
|
|
|
$
|
3.9
|
|
|
$
|
38.2
|
|
|
$
|
4.4
|
|
Provision
|
|
|
13.0
|
|
|
|
1.3
|
|
|
|
9.3
|
|
|
|
0.4
|
|
Charge-offs
|
|
|
(12.9)
|
|
|
|
(0.6)
|
|
|
|
(9.6)
|
|
|
|
(0.4)
|
|
Recoveries
|
|
|
1.7
|
|
|
|
0.1
|
|
|
|
1.9
|
|
|
|
0.1
|
|
Currency Translation
|
|
|
0.1
|
|
|
|
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
50.5
|
|
|
$
|
4.7
|
|
|
$
|
39.9
|
|
|
$
|
4.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 4: Inventories
Inventories by major classification are as follows:
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
April 1,
2017
|
|
|
December 31,
2016
|
|
Finished goods
|
|
$
|
488.6
|
|
|
$
|
467.4
|
|
Work in progress
|
|
|
45.0
|
|
|
|
42.7
|
|
Raw materials
|
|
|
96.9
|
|
|
|
93.6
|
|
|
|
|
|
|
|
|
|
|
Total FIFO value
|
|
|
630.5
|
|
|
|
603.7
|
|
Excess of current cost over LIFO cost
|
|
|
(73.7)
|
|
|
|
(73.2)
|
|
|
|
|
|
|
|
|
|
|
Total inventories net
|
|
$
|
556.8
|
|
|
$
|
530.5
|
|
|
|
|
|
|
|
|
|
|
Inventories accounted for using the
first-in,
first-out
(FIFO) method approximated 59% of total inventories as of both April 1, 2017, and December 31, 2016. The company accounts for its
non-U.S.
inventory on the FIFO method. As of April 1, 2017, approximately 31% of the companys U.S. inventory was accounted for using the FIFO method and 69% was accounted for using the
last-in,
first-out
(LIFO) method. There were no LIFO inventory liquidations in the three months ended April 1, 2017, or April 2, 2016.
Note 5: Goodwill and Other Intangible Assets
The changes in the carrying
amount of goodwill by segment for the three months ended April 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
|
|
|
7.4
|
|
|
|
|
|
|
|
5.6
|
|
|
|
13.0
|
|
Acquisitions and related adjustments
|
|
|
0.2
|
|
|
|
|
|
|
|
(48.9)
|
|
|
|
(48.7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of April 1, 2017
|
|
$
|
250.0
|
|
|
$
|
12.5
|
|
|
$
|
597.3
|
|
|
$
|
859.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill of $859.8 million as of April 1, 2017, includes (i) $69.0 million, on a
preliminary basis, from the acquisition of
Car-O-Liner,
(ii) $5.0 million from the acquisition of Sturtevant Richmont, and (iii) $8.6 million, on a preliminary
basis, from the acquisition of BTC. The preliminary goodwill from the
Car-O-Liner
acquisition is distributed as follows: $68.1 million in the Repair
Systems & Information Group and $0.9 million in the Commercial & Industrial Group. The goodwill from the Sturtevant Richmont acquisition is included in the Commercial & Industrial Group and the preliminary 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 BTC were not complete as of
April 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 BTC acquisitions in the second quarter of
2017.
17
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Additional disclosures related to other intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1, 2017
|
|
|
December 31, 2016
|
|
(Amounts in millions)
|
|
Gross Carrying
Value
|
|
|
Accumulated
Amortization
|
|
|
Gross Carrying
Value
|
|
|
Accumulated
Amortization
|
|
Amortized other intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
187.1
|
|
|
$
|
(89.3)
|
|
|
$
|
142.6
|
|
|
$
|
(86.0)
|
|
Developed technology
|
|
|
17.8
|
|
|
|
(17.8)
|
|
|
|
17.7
|
|
|
|
(17.7)
|
|
Internally developed software
|
|
|
168.8
|
|
|
|
(122.0)
|
|
|
|
165.7
|
|
|
|
(118.3)
|
|
Patents
|
|
|
32.3
|
|
|
|
(21.8)
|
|
|
|
31.9
|
|
|
|
(21.5)
|
|
Trademarks
|
|
|
2.8
|
|
|
|
(1.8)
|
|
|
|
2.8
|
|
|
|
(1.8)
|
|
Other
|
|
|
7.3
|
|
|
|
(2.3)
|
|
|
|
7.2
|
|
|
|
(2.2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
416.1
|
|
|
|
(255.0)
|
|
|
|
367.9
|
|
|
|
(247.5)
|
|
Non-amortized
trademarks
|
|
|
79.3
|
|
|
|
|
|
|
|
64.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other intangible assets
|
|
$
|
495.4
|
|
|
$
|
(255.0)
|
|
|
$
|
432.1
|
|
|
$
|
(247.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 1, 2017, the $187.1 million gross carrying value of customer relationships
includes, on a preliminary basis, $44.3 million related to the
Car-O-Liner
acquisition. The $79.3 million gross carrying value of
non-amortized
trademarks as of April 1, 2017, includes, on a preliminary basis, $14.5 million related to the
Car-O-Liner
acquisition.
Significant and unanticipated changes in circumstances, such as declines in profitability and cash flow due to
significant and long-term deterioration in macroeconomic, industry and market conditions, the loss of key customers, changes in technology or markets, significant changes in key personnel or litigation, a significant and sustained decrease in share
price and/or other events, including effects from the sale or disposal of a reporting unit, could require a provision for impairment of goodwill and/or other intangible assets in a future period. As of April 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
|
|
16
|
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 16-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 12 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 16-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 $7.1 million and $6.1 million in the three months ended April 1, 2017, and
April 2, 2016, respectively. 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, $24.0 million in 2018,
$20.9 million in 2019, $17.1 million in 2020, $14.8 million in 2021, and $10.1 million in 2022.
18
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 6: Exit and Disposal Activities
Snap-on
did not record any costs for exit and disposal activities in the three months ended
April 1, 2017, and April 2, 2016. The exit and disposal accrual of $1.6 million as of April 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.
Note 7: Income Taxes
Snap-ons
effective income tax rate on earnings attributable to
Snap-on
was 30.7% and 31.0% in the first three 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
$3.4 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 April 1, 2017, and December 31, 2016, consisted of the following:
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
April 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*
|
|
|
22.6
|
|
|
|
160.2
|
|
|
|
|
1,022.6
|
|
|
|
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
|
|
|
|
|
|
|
(130.0)
|
|
Other notes
|
|
|
(17.2)
|
|
|
|
(21.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(267.2)
|
|
|
|
(301.4)
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
755.4
|
|
|
$
|
708.8
|
|
|
|
|
|
|
|
|
|
|
*
Includes fair value adjustments related to interest rate swaps, debt discounts and debt issuance costs.
19
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Notes payable and current maturities of long-term debt of $267.2 million as of
April 1, 2017, included $250 million of 4.25% unsecured notes that mature on January 15, 2018 (the 2018 Notes), and $17.2 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, and $130 million of commercial paper borrowings. 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. No commercial paper
borrowings were outstanding as of April 1, 2017.
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 is being used for general corporate purposes, which may include working capital, capital expenditures and possible acquisitions.
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 April 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 April 1, 2017, the
companys actual ratios of 0.23 and 0.97 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.
20
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
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.
As of April 1, 2017,
Snap-on
had $135.5 million of net foreign currency forward buy contracts outstanding comprised of buy contracts including $53.2 million in Swedish kronor, $52.3 million in euros,
$42.8 million in British pounds, $10.6 million in Hong Kong dollars, $6.5 million in Singapore dollars, $6.5 million in South Korean won, $4.7 million in Norwegian kroner, and $10.0 million in other currencies, and sell
contracts comprised of $15.1 million in Canadian dollars, $14.8 million in Japanese yen, $4.2 million in Australian dollars, $3.8 million in Chinese yuan, $3.6 million in Indian rupees; and $9.6 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 April 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 April 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.
21
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Stock-based Deferred Compensation Risk Management:
Snap-on
aims to manage market risk associated with the stock-based portion of its deferred compensation plans through the use of prepaid equity forward agreements (equity forwards). Equity forwards
are used to aid in offsetting the potential
mark-to-market
effect on stock-based deferred compensation from changes in
Snap-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 April 1, 2017,
Snap-on
had equity forwards in place intended to manage market risk with respect to 112,400 shares of
Snap-on
common stock associated with its deferred compensation plans.
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 April 1, 2017, and December 31, 2016, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 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
|
|
|
$
|
8.6
|
|
|
|
$
|
|
|
|
|
$
|
9.8
|
|
|
|
$
|
|
|
Treasury locks
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.6
|
|
|
|
|
|
|
|
|
|
24.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forwards
|
|
Prepaid expenses and other assets
|
|
|
$
|
4.9
|
|
|
|
$
|
|
|
|
|
$
|
4.4
|
|
|
|
$
|
|
|
Foreign currency forwards
|
|
Other accrued liabilities
|
|
|
|
|
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
13.5
|
|
Equity forwards
|
|
Prepaid expenses and other assets
|
|
|
|
19.0
|
|
|
|
|
|
|
|
|
|
17.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
23.9
|
|
|
|
|
2.5
|
|
|
|
|
22.3
|
|
|
|
|
13.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives instruments
|
|
|
|
|
$
|
32.5
|
|
|
|
$
|
2.5
|
|
|
|
$
|
46.4
|
|
|
|
$
|
13.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 1, 2017, and December 31, 2016, the fair value adjustment to long-term debt related
to the interest rate swaps was $8.6 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 quarter ended April 1, 2017.
22
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
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
|
|
(Amounts in millions)
|
|
Statement of Earnings
Presentation
|
|
April 1,
2017
|
|
|
April 2,
2016
|
|
Derivatives designated as fair value hedges:
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
Interest expense
|
|
$
|
0.7
|
|
|
$
|
0.7
|
|
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)
|
|
April 1,
2017
|
|
April 2,
2016
|
|
|
April 1,
2017
|
|
April 2,
2016
|
Derivatives designated as cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury locks
|
|
|
$
|
6.1
|
|
|
|
$
|
|
|
|
Interest expense
|
|
|
$
|
0.3
|
|
|
|
$
|
0.1
|
|
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
|
|
(Amounts in millions)
|
|
Statement of Earnings
Presentation
|
|
April 1,
2017
|
|
|
April 2,
2016
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forwards
|
|
Other income (expense) net
|
|
$
|
(9.9)
|
|
|
$
|
0.8
|
|
Equity forwards
|
|
Operating expenses
|
|
|
(0.2)
|
|
|
|
(0.6)
|
|
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 $9.9 million derivative loss recognized in the first quarter of 2017 was partially offset by transaction gains on net exposures of $8.2 million, resulting in
a net foreign exchange loss of $1.7 million. The $0.8 million derivative gain recognized in the first quarter of 2016 was more than offset by transaction losses on net exposures of $1.7 million, resulting in a net foreign exchange
loss of $0.9 million. The resulting net foreign exchange 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.
23
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 $0.2 million derivative loss recognized in the first quarter of 2017 was offset by a
mark-to-market
deferred compensation benefit of $0.2 million. The $0.6 million derivative loss recognized in the first quarter of 2016 was more than offset by a
mark-to-market
deferred compensation benefit of $1.0 million.
As of April 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 $1.1 million after tax at the time the underlying hedge transactions are realized.
Counterparty Risk:
Snap-on
is exposed to credit losses in the event of
non-performance
by the counterparties to its
various financial agreements, including its foreign currency forward contracts, interest rate swap agreements, treasury lock agreements and prepaid equity forward agreements.
Snap-on
does not obtain collateral
or other security to support financial instruments subject to credit risk, but monitors the credit standing of the counterparties and generally enters into agreements with financial institution counterparties with a credit rating of
A-
or better.
Snap-on
does not anticipate
non-performance
by its counterparties, but cannot provide assurances.
Fair Value of Financial Instruments:
The fair values of financial instruments that do not approximate the carrying values in the
financial statements are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1, 2017
|
|
|
December 31, 2016
|
|
(Amounts in millions)
|
|
Carrying
Value
|
|
|
Fair
Value
|
|
|
Carrying
Value
|
|
|
Fair
Value
|
|
Finance receivables net
|
|
$
|
1,451.0
|
|
|
$
|
1,684.3
|
|
|
$
|
1,407.0
|
|
|
$
|
1,631.2
|
|
Contract receivables net
|
|
|
377.1
|
|
|
|
414.0
|
|
|
|
374.8
|
|
|
|
409.7
|
|
|
|
|
|
|
Long-term debt, notes payable and current maturities of long-term debt
|
|
|
1,022.6
|
|
|
|
1,035.5
|
|
|
|
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.
|
24
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
|
|
(Amounts in millions)
|
|
April 1,
2017
|
|
|
April 2,
2016
|
|
Service cost
|
|
$
|
5.9
|
|
|
$
|
4.9
|
|
Interest cost
|
|
|
14.0
|
|
|
|
14.0
|
|
Expected return on plan assets
|
|
|
(20.1)
|
|
|
|
(19.7)
|
|
Amortization of unrecognized loss
|
|
|
6.9
|
|
|
|
7.2
|
|
Amortization of prior service credit
|
|
|
(0.3)
|
|
|
|
(0.3)
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
6.4
|
|
|
$
|
6.1
|
|
|
|
|
|
|
|
|
|
|
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 three months of 2017,
Snap-on
made $15.3 million of cash contributions to its domestic
pension plans consisting of (i) $15.0 million of discretionary contributions; and (ii) $0.3 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
|
|
(Amounts in millions)
|
|
April 1,
2017
|
|
|
April 2,
2016
|
|
Interest cost
|
|
$
|
0.5
|
|
|
$
|
0.6
|
|
Expected return on plan assets
|
|
|
(0.2)
|
|
|
|
(0.2)
|
|
Amortization of unrecognized gain
|
|
|
(0.1)
|
|
|
|
(0.1)
|
|
|
|
|
|
|
|
|
|
|
Net periodic postretirement health care cost
|
|
$
|
0.2
|
|
|
$
|
0.3
|
|
|
|
|
|
|
|
|
|
|
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 until exercised, vested, forfeited or expired. As of April 1, 2017, the 2011 Plan had 3,197,001 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
$7.4 million and $5.8 million for the three months ended April 1, 2017, and April 2, 2016, respectively. Cash received from stock purchase and option plan exercises during the three months ended April 1, 2017, and
April 2, 2016, was $14.1 million and $9.9 million, respectively. The tax benefit realized from both the exercise and vesting of share-based payment arrangements was $9.0 million and $10.2 million for the three months ended
April 1, 2017, and April 2, 2016, respectively.
25
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 three months ended
April 1, 2017, and April 2, 2016, using the Black-Scholes valuation model:
|
|
|
|
|
|
|
Three Months Ended
|
|
|
April 1,
2017
|
|
April 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 three months ended April 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
|
|
|
(158)
|
|
|
|
89.58
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(2)
|
|
|
|
139.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at April 1, 2017
|
|
|
3,506
|
|
|
|
113.95
|
|
|
|
7.0
|
|
|
$
|
191.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at April 1, 2017
|
|
|
2,227
|
|
|
|
90.49
|
|
|
|
5.8
|
|
|
|
174.1
|
|
*
Weighted-average
The weighted-average grant date fair value of options granted during the three months ended April 1,
2017, and April 2, 2016, was $31.13 and $22.99, respectively. The intrinsic value of options exercised during the three months ended April 1, 2017, and April 2, 2016, was $13.2 million and $12.4 million, respectively. The
fair value of stock options vested was $14.0 million and $12.7 million during the three months ended April 1, 2017, and April 2, 2016, respectively.
26
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
As of April 1, 2017, there was $33.0 million of unrecognized compensation cost
related to
non-vested
stock options that is expected to be recognized as a charge to earnings over a weighted-average period of 2.2 years.
Performance Awards
Performance awards, which are granted as performance
share units 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 performance share units 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 three months ended April 1, 2017, and April 2, 2016, was
$168.70 and $138.03, respectively. Performance share units related to 60,980 shares and 94,186 shares were paid out during the three months ended April 1, 2017, and April 2, 2016, respectively. Earned performance share units 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 three months ended
April 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
|
|
|
|
|
|
|
|
|
Cancellations and other
|
|
|
(9)
|
|
|
|
141.13
|
|
|
|
|
|
|
|
|
|
|
Non-vested
performance awards at April 1, 2017
|
|
|
275
|
|
|
|
149.36
|
|
|
|
|
|
|
|
|
|
|
*
Weighted-average
As of April 1, 2017, there was $22.8 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 2.1 years.
27
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Stock Appreciation Rights
The company also issues stock-settled and cash-settled SARs to certain key
non-U.S.
employees.
SARs have a contractual term of 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.
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
three months ended April 1, 2017, and April 2, 2016, using the Black-Scholes valuation model:
|
|
|
|
|
|
|
Three Months Ended
|
|
|
April 1,
2017
|
|
April 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 three months ended April 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
|
|
|
(7)
|
|
|
|
104.35
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(17)
|
|
|
|
121.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at April 1, 2017
|
|
|
379
|
|
|
|
137.42
|
|
|
|
8.3
|
|
|
$
|
11.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at April 1, 2017
|
|
|
182
|
|
|
|
118.74
|
|
|
|
7.3
|
|
|
|
9.1
|
|
*
Weighted-average
28
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The weighted-average grant date fair value of stock-settled SARs granted during the
three months ended April 1, 2017, and April 2, 2016, was $24.13 and $19.47, respectively. The intrinsic value of stock-settled SARs exercised during the three months ended April 1, 2017, and April 2, 2016, was $0.5 million
and $0.4 million, respectively. The fair value of stock-settled SARs vested was $2.1 million during both the three months ended April 1, 2017, and April 2, 2016.
As of April 1, 2017, there was $4.2 million of unrecognized compensation cost related to
non-vested
stock-settled SARs that is expected to be recognized as a charge to earnings over a weighted-average period of 2.2 years.
The following weighted-average assumptions were used in calculating the fair value of cash-settled SARs granted during the three months ended April 1, 2017, and April 2, 2016, using the
Black-Scholes valuation model:
|
|
|
|
|
|
|
Three Months Ended
|
|
|
April 1,
2017
|
|
April 2,
2016
|
Expected term of cash-settled SARs
(in years)
|
|
3.90
|
|
3.92
|
Expected volatility factor
|
|
19.27%
|
|
20.07%
|
Expected dividend yield
|
|
1.55%
|
|
1.65%
|
Risk-free interest rate
|
|
1.50%
|
|
0.90%
|
The intrinsic value of cash-settled SARs exercised during the three months ended April 1, 2017, and
April 2, 2016, was $0.6 million and $0.5 million, respectively. The fair value of cash-settled SARs vested during both the three months ended April 1, 2017, and April 2, 2016, was $0.2 million.
Changes to the companys
non-vested
cash-settled SARs during the three months ended
April 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
|
|
|
|
23.81
|
|
Vested
|
|
|
(3)
|
|
|
|
42.16
|
|
|
|
|
|
|
|
|
|
|
Non-vested
cash-settled SARs at April 1, 2017
|
|
|
5
|
|
|
|
32.33
|
|
|
|
|
|
|
|
|
|
|
*
Weighted-average
As of April 1, 2017, there was $0.2 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 1.9 years.
Restricted Stock Awards
Non-employee
Directors
The company awarded 6,966 shares and 6,600 shares of restricted stock to
non-employee
directors in the first quarters 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.
29
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. There were no share issuances under this plan for the three months ended April 1, 2017, and April 2, 2016. As of April 1, 2017, there were 780,563 shares reserved for issuance under this plan and
Snap-on
held participant contributions of approximately $3.8 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 zero for the three months ended April 1, 2017, and a benefit of $0.2 million for the three months ended April 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. There were no share issuances under this plan for the three months ended April 1, 2017, and April 2, 2016. As of April 1, 2017, there were 613,469 shares reserved for issuance
under this plan and
Snap-on
held participant contributions of approximately $6.5 million. Participants are able to withdraw from the plan at any time prior to the ending date and receive back all
contributions made during the plan year. Expense for plan participants was zero for the three months ended April 1, 2017, and a benefit of $0.5 million for the three months ended April 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
|
|
|
|
April 1,
2017
|
|
|
April 2,
2016
|
|
Weighted-average common shares outstanding
|
|
|
57,940,664
|
|
|
|
58,112,510
|
|
Effect of dilutive securities
|
|
|
1,383,806
|
|
|
|
1,339,764
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding, assuming dilution
|
|
|
59,324,470
|
|
|
|
59,452,274
|
|
|
|
|
|
|
|
|
|
|
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 April 1, 2017, and April 2, 2016, there were 3,000 and 1,600 awards outstanding, respectively, that were anti-dilutive. Performance-based equity awards do not affect
the diluted earnings per share calculation until it is determined that the applicable performance metrics have been met.
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.
30
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Snap-ons
product warranty accrual activity
for the three months ended April 1, 2017, and April 2, 2016, is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
(Amounts in millions)
|
|
April 1,
2017
|
|
|
April 2,
2016
|
|
Warranty reserve:
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
$
|
16.0
|
|
|
$
|
16.4
|
|
Additions
|
|
|
3.7
|
|
|
|
3.0
|
|
Usage
|
|
|
(2.6)
|
|
|
|
(2.9)
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
17.1
|
|
|
$
|
16.5
|
|
|
|
|
|
|
|
|
|
|
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
|
|
(Amounts in millions)
|
|
April 1,
2017
|
|
|
April 2,
2016
|
|
Interest income
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
Net foreign exchange loss
|
|
|
(1.7)
|
|
|
|
(0.9)
|
|
Other
|
|
|
(0.1)
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) net
|
|
$
|
(1.7)
|
|
|
$
|
(0.7)
|
|
|
|
|
|
|
|
|
|
|
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 April 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
|
|
|
38.1
|
|
|
|
6.1
|
|
|
|
|
|
|
|
44.2
|
|
Amounts reclassified from Accumulated OCI
|
|
|
|
|
|
|
(0.3)
|
|
|
|
4.2
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income
|
|
|
38.1
|
|
|
|
5.8
|
|
|
|
4.2
|
|
|
|
48.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of April 1, 2017
|
|
$
|
(179.6)
|
|
|
$
|
15.0
|
|
|
$
|
(285.8)
|
|
|
$
|
(450.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
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 three months ended April 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 income before reclassifications
|
|
|
19.9
|
|
|
|
|
|
|
|
|
|
|
|
19.9
|
|
Amounts reclassified from Accumulated OCI
|
|
|
|
|
|
|
(0.1)
|
|
|
|
4.3
|
|
|
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income (loss)
|
|
|
19.9
|
|
|
|
(0.1)
|
|
|
|
4.3
|
|
|
|
24.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of April 2, 2016
|
|
$
|
(98.6)
|
|
|
$
|
0.6
|
|
|
$
|
(242.1)
|
|
|
$
|
(340.1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The reclassifications out of Accumulated OCI for the three months ended April 1, 2017, and
April 2, 2016, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Reclassified from Accumulated OCI
Three Months Ended
|
|
|
|
Details about Accumulated OCI Components
|
|
April 1,
2017
|
|
|
April 2,
2016
|
|
|
Statement of Earnings
Presentation
|
|
|
|
|
(Amounts in millions)
|
|
|
|
|
|
|
|
|
Gains on cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
Treasury locks
|
|
$
|
0.3
|
|
|
$
|
0.1
|
|
|
Interest expense
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
Net of tax
|
|
|
0.3
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net unrecognized losses and prior service credits
|
|
|
(6.5)
|
|
|
|
(6.8)
|
|
|
See footnote below*
|
Income tax benefit
|
|
|
2.3
|
|
|
|
2.5
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
Net of tax
|
|
|
(4.2)
|
|
|
|
(4.3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications for the period, net of tax
|
|
$
|
(3.9)
|
|
|
$
|
(4.2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
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,
32
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
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.
Financial Data by Segment:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
(Amounts in millions)
|
|
April 1,
2017
|
|
|
April 2,
2016
|
|
Net sales:
|
|
|
|
|
|
|
|
|
Commercial & Industrial Group
|
|
$
|
298.7
|
|
|
$
|
287.0
|
|
Snap-on
Tools Group
|
|
|
409.4
|
|
|
|
402.5
|
|
Repair Systems & Information Group
|
|
|
318.8
|
|
|
|
278.8
|
|
|
|
|
|
|
|
|
|
|
Segment net sales
|
|
|
1,026.9
|
|
|
|
968.3
|
|
Intersegment eliminations
|
|
|
(139.8)
|
|
|
|
(134.1)
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
887.1
|
|
|
$
|
834.2
|
|
Financial Services revenue
|
|
|
76.8
|
|
|
|
66.3
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
963.9
|
|
|
$
|
900.5
|
|
|
|
|
|
|
|
|
|
|
Operating earnings:
|
|
|
|
|
|
|
|
|
Commercial & Industrial Group
|
|
$
|
41.6
|
|
|
$
|
41.1
|
|
Snap-on
Tools Group
|
|
|
70.3
|
|
|
|
66.7
|
|
Repair Systems & Information Group
|
|
|
78.7
|
|
|
|
69.0
|
|
Financial Services
|
|
|
52.5
|
|
|
|
47.0
|
|
|
|
|
|
|
|
|
|
|
Segment operating earnings
|
|
|
243.1
|
|
|
|
223.8
|
|
Corporate
|
|
|
(21.1)
|
|
|
|
(21.4)
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
222.0
|
|
|
$
|
202.4
|
|
Interest expense
|
|
|
(12.7)
|
|
|
|
(13.1)
|
|
Other income (expense) net
|
|
|
(1.7)
|
|
|
|
(0.7)
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and equity earnings
|
|
$
|
207.6
|
|
|
$
|
188.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
April 1,
2017
|
|
|
December 31,
2016
|
|
Assets:
|
|
|
|
|
|
|
|
|
Commercial & Industrial Group
|
|
$
|
931.1
|
|
|
$
|
907.1
|
|
Snap-on
Tools Group
|
|
|
687.9
|
|
|
|
668.1
|
|
Repair Systems & Information Group
|
|
|
1,247.2
|
|
|
|
1,211.0
|
|
Financial Services
|
|
|
1,836.3
|
|
|
|
1,789.7
|
|
|
|
|
|
|
|
|
|
|
Total assets from reportable segments
|
|
$
|
4,702.5
|
|
|
$
|
4,575.9
|
|
Corporate
|
|
|
238.6
|
|
|
|
212.3
|
|
Elimination of intersegment receivables
|
|
|
(63.3)
|
|
|
|
(65.0)
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
4,877.8
|
|
|
$
|
4,723.2
|
|
|
|
|
|
|
|
|
|
|
33
SNAP-ON
INCORPORATED