Company Quick10K Filing
Quick10K
Snap-On
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$167.70 55 $9,290
10-Q 2019-03-30 Quarter: 2019-03-30
10-K 2018-12-29 Annual: 2018-12-29
10-Q 2018-09-29 Quarter: 2018-09-29
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-30 Annual: 2017-12-30
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-07-01 Quarter: 2017-07-01
10-Q 2017-04-01 Quarter: 2017-04-01
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-10-01 Quarter: 2016-10-01
10-Q 2016-07-02 Quarter: 2016-07-02
10-Q 2016-04-02 Quarter: 2016-04-02
10-K 2016-01-02 Annual: 2016-01-02
10-Q 2015-10-03 Quarter: 2015-10-03
10-Q 2015-07-04 Quarter: 2015-07-04
10-Q 2015-04-04 Quarter: 2015-04-04
10-K 2015-01-03 Annual: 2015-01-03
10-Q 2014-09-27 Quarter: 2014-09-27
10-Q 2014-06-28 Quarter: 2014-06-28
10-Q 2014-03-29 Quarter: 2014-03-29
10-K 2013-12-28 Annual: 2013-12-28
8-K 2019-04-25 Shareholder Vote
8-K 2019-04-18 Earnings, Exhibits
8-K 2019-02-12 Officers
8-K 2019-02-07 Earnings, Exhibits
8-K 2018-10-18 Earnings
8-K 2018-07-19 Earnings, Exhibits
8-K 2018-04-26 Amend Bylaw, Shareholder Vote, Exhibits
8-K 2018-02-20 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-02-08 Earnings
AXP American Express 97,920
AKRX Akorn 561
MNOV Medicinova 516
CIO City Office REIT 469
CYRX Cryoport 467
AGEN Agenus 387
CRIS Curis 63
AERG Applied Energetics 0
NCRE New Century Resources 0
CPA18 Corporate Property Associates 18 Global 0
SNA 2019-03-30
Part I. Financial Information
Item 1: Financial Statements
Note 1: Summary of Accounting Policies
Note 2: Revenue Recognition
Note 3: Acquisitions
Note 4: Receivables
Note 5: Inventories
Note 6: Goodwill and Other Intangible Assets
Note 7: Income Taxes
Note 8: Short-Term and Long-Term Debt
Note 9: Financial Instruments
Note 10: Pension Plans
Note 11: Postretirement Health Care Plans
Note 12: Stock-Based Compensation and Other Stock Plans
Note 13: Earnings per Share
Note 14: Commitments and Contingencies
Note 15: Leases
Note 16: Other Income (Expense) - Net
Note 17: Accumulated Other Comprehensive Income (Loss)
Note 18: Segments
Note 19: Subsequent Event
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Item 4: Controls and Procedures
Part II. Other Information
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
EX-31.1 q1fy19_ex311.htm
EX-31.2 q1fy19_ex312.htm
EX-32.1 q1fy19_ex321.htm
EX-32.2 q1fy19_ex322.htm

Snap-On Earnings 2019-03-30

SNA 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 sna_q1fy19x10-qdocument.htm 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                                   to                                                          
Commission File Number 1-7724
g469765g1011025319062a02.jpg
(Exact name of registrant as specified in its charter)

Delaware
 
39-0622040
(State of incorporation)
 
(I.R.S. Employer Identification No.)
 
 
 
2801 80th Street, Kenosha, Wisconsin
 
53143
(Address of principal executive offices)
 
(Zip code)
(262) 656-5200
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒   No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒   No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒
 
Accelerated filer ☐
 
Non-accelerated filer ☐
 
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No ☒
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:
Class
 
Outstanding at April 12, 2019
Common Stock, $1.00 par value
 
55,404,447 shares



TABLE OF CONTENTS 
 
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


PART I. FINANCIAL INFORMATION

Item 1: Financial Statements

SNAP-ON INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in millions, except per share data)
(Unaudited)

 
Three Months Ended
 
March 30, 2019
 
March 31, 2018
Net sales
$
921.7

 
$
935.5

Cost of goods sold
(450.1
)
 
(463.9
)
Gross profit
471.6

 
471.6

Operating expenses
(284.2
)
 
(293.9
)
Operating earnings before financial services
187.4

 
177.7

 
 
 
 
Financial services revenue
85.6

 
83.0

Financial services expenses
(23.5
)
 
(26.1
)
Operating earnings from financial services
62.1

 
56.9

 
 
 
 
Operating earnings
249.5

 
234.6

Interest expense
(12.5
)
 
(13.6
)
Other income (expense) – net
1.5

 
2.8

Earnings before income taxes and equity earnings
238.5

 
223.8

Income tax expense
(56.9
)
 
(57.6
)
Earnings before equity earnings
181.6

 
166.2

Equity earnings, net of tax
0.5

 
0.6

Net earnings
182.1

 
166.8

Net earnings attributable to noncontrolling interests
(4.2
)
 
(3.8
)
Net earnings attributable to Snap-on Incorporated
$
177.9

 
$
163.0

 
 
 
 
Net earnings per share attributable to Snap-on Incorporated:
 
 
 
Basic
$
3.21

 
$
2.87

Diluted
3.16

 
2.82

 
 
 
 
Weighted-average shares outstanding:
 
 
 
Basic
55.5

 
56.7

Effect of dilutive securities
0.8

 
1.1

Diluted
56.3

 
57.8

 
 
 
 
Dividends declared per common share
$
0.95

 
$
0.82


See Notes to Condensed Consolidated Financial Statements.

3


SNAP-ON INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in millions)
(Unaudited)
 
 
Three Months Ended
 
March 30, 2019
 
March 31, 2018
Comprehensive income (loss):
 
 
 
Net earnings
$
182.1

 
$
166.8

Other comprehensive income (loss):
 
 
 
Foreign currency translation*
7.6

 
39.1

Unrealized cash flow hedges, net of tax:
 
 
 
Other comprehensive loss before reclassifications

 
(0.8
)
Reclassification of cash flow hedges to net earnings
(0.4
)
 
(0.5
)
Defined benefit pension and postretirement plans:
 
 
 
Amortization of net unrecognized losses and prior service credits included in net periodic benefit cost
5.8

 
7.6

Income tax expense
(1.3
)
 
(1.8
)
Net of tax
4.5

 
5.8

Total comprehensive income
$
193.8

 
$
210.4

 
 
 
 
Comprehensive income attributable to noncontrolling interests
(4.2
)
 
(3.8
)
Comprehensive income attributable to Snap-on Incorporated
$
189.6

 
$
206.6


* There is no reclassification adjustment as there was no sale or liquidation of any foreign entity during any period presented.


See Notes to Condensed Consolidated Financial Statements.

4


SNAP-ON INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in millions, except share data)
(Unaudited)

 
March 30, 2019
 
December 29, 2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
156.4

 
$
140.9

Trade and other accounts receivable – net
675.3

 
692.6

Finance receivables – net
525.9

 
518.5

Contract receivables – net
92.9

 
98.3

Inventories – net
707.0

 
673.8

Prepaid expenses and other assets
107.8

 
92.8

Total current assets
2,265.3

 
2,216.9

 
 
 
 
Property and equipment:
 
 
 
Land
31.8

 
31.7

Buildings and improvements
385.8

 
368.6

Machinery, equipment and computer software
948.5

 
944.4

 
1,366.1

 
1,344.7

Accumulated depreciation and amortization
(869.1
)
 
(849.6
)
Property and equipment – net
497.0

 
495.1

 
 
 
 
Operating lease right-of-use assets
55.4

 

Deferred income tax assets
71.3

 
64.7

Long-term finance receivables – net
1,077.1

 
1,074.4

Long-term contract receivables – net
345.1

 
344.9

Goodwill
900.9

 
902.2

Other intangibles – net
230.5

 
232.9

Other assets
48.3

 
42.0

Total assets
$
5,490.9

 
$
5,373.1


See Notes to Condensed Consolidated Financial Statements.

5


SNAP-ON INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in millions, except share data)
(Unaudited)

 
March 30, 2019
 
December 29, 2018
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Notes payable
$
142.5

 
$
186.3

Accounts payable
200.4

 
201.1

Accrued benefits
53.8

 
52.0

Accrued compensation
61.8

 
71.5

Franchisee deposits
68.5

 
67.5

Other accrued liabilities
409.0

 
373.6

Total current liabilities
936.0

 
952.0

 
 
 
 
Long-term debt
946.7

 
946.0

Deferred income tax liabilities
55.1

 
41.4

Retiree health care benefits
31.2

 
31.8

Pension liabilities
156.5

 
171.3

Operating lease liabilities
36.6

 

Other long-term liabilities
111.0

 
112.0

Total liabilities
2,273.1

 
2,254.5

 
 
 
 
Commitments and contingencies (Note 14)

 

 
 
 
 
Equity
 
 
 
Shareholders’ equity attributable to Snap-on Incorporated:
 
 
 
Preferred stock (authorized 15,000,000 shares of $1 par value; none outstanding)

 

Common stock (authorized 250,000,000 shares of $1 par value; issued 67,422,771 and 67,415,091 shares, respectively)
67.4

 
67.4

Additional paid-in capital
361.3

 
359.4

Retained earnings
4,428.4

 
4,257.6

Accumulated other comprehensive loss
(496.4
)
 
(462.2
)
Treasury stock at cost (12,019,713 and 11,804,310 shares, respectively)
(1,163.1
)
 
(1,123.4
)
Total shareholders’ equity attributable to Snap-on Incorporated
3,197.6

 
3,098.8

Noncontrolling interests
20.2

 
19.8

Total equity
3,217.8

 
3,118.6

Total liabilities and equity
$
5,490.9

 
$
5,373.1


See Notes to Condensed Consolidated Financial Statements.

6


SNAP-ON INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Amounts in millions, except share data)
(Unaudited)
The following summarizes the changes in total equity for the three month period ended March 30, 2019:
 
 
Shareholders’ Equity Attributable to Snap-on Incorporated
 
 
 
 
 
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Treasury
Stock
 
Noncontrolling
Interests
 
Total
Equity
Balance at December 29, 2018
 
$
67.4

 
$
359.4

 
$
4,257.6

 
$
(462.2
)
 
$
(1,123.4
)
 
$
19.8

 
$
3,118.6

Impact of the Tax Act on Accumulated Other Comprehensive Income (ASU No. 2018-02)
 

 

 
45.9

 
(45.9
)
 

 

 

Balance at December 30, 2018
 
67.4

 
359.4

 
4,303.5

 
(508.1
)
 
(1,123.4
)
 
19.8

 
3,118.6

Net Earnings for the three months ended March 30, 2019
 

 

 
177.9

 

 

 
4.2

 
182.1

Other comprehensive income
 

 

 

 
11.7

 

 

 
11.7

Cash dividends – $0.95 per share
 

 

 
(52.8
)
 

 

 

 
(52.8
)
Stock compensation plans
 

 
1.9

 

 

 
7.7

 

 
9.6

Share repurchases – 295,000 shares
 

 

 

 

 
(47.4
)
 

 
(47.4
)
Other
 

 

 
(0.2
)
 

 

 
(3.8
)
 
(4.0
)
Balance at March 30, 2019
 
$
67.4

 
$
361.3

 
$
4,428.4

 
$
(496.4
)
 
$
(1,163.1
)
 
$
20.2

 
$
3,217.8


The following summarizes the changes in total equity for the three month period ended March 31, 2018:
 
 
Shareholders’ Equity Attributable to Snap-on Incorporated
 
 
 
 
 
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Treasury
Stock
 
Noncontrolling
Interests
 
Total
Equity
Balance at December 30, 2017
 
$
67.4

 
$
343.2

 
$
3,772.3

 
$
(329.0
)
 
$
(900.0
)
 
$
18.4

 
$
2,972.3

Net Earnings for the three months ended March 31, 2018
 

 

 
163.0

 

 

 
3.8

 
166.8

Other comprehensive income
 

 

 

 
43.6

 

 

 
43.6

Cash dividends – $0.82 per share
 

 

 
(46.5
)
 

 

 

 
(46.5
)
Stock compensation plans
 

 
0.7

 

 

 
14.8

 

 
15.5

Share repurchases – 275,000 shares
 

 

 

 

 
(43.5
)
 

 
(43.5
)
Other
 

 

 
(2.1
)
 

 

 
(3.8
)
 
(5.9
)
Balance at March 31, 2018
 
$
67.4

 
$
343.9

 
$
3,886.7

 
$
(285.4
)
 
$
(928.7
)
 
$
18.4

 
$
3,102.3


See Notes to Condensed Consolidated Financial Statements.

7


SNAP-ON INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in millions)
(Unaudited)
 
Three Months Ended
 
March 30,
2019
 
March 31,
2018
Operating activities:
 
 
 
Net earnings
$
182.1

 
$
166.8

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation
17.2

 
17.4

Amortization of other intangibles
5.4

 
6.6

Provision for losses on finance receivables
12.5

 
15.8

Provision for losses on non-finance receivables
5.0

 
2.0

Stock-based compensation expense
7.3

 
6.7

Deferred income tax provision
5.4

 
0.4

Loss (gain) on sales of assets
0.3

 
(0.1
)
Loss on early extinguishment of debt

 
7.8

Changes in operating assets and liabilities, net of effects of acquisitions:
 
 
 
Decrease in trade and other accounts receivable
14.8

 
1.6

Decrease in contract receivables
6.1

 
2.2

Increase in inventories
(33.2
)
 
(10.2
)
Increase in prepaid and other assets
(19.7
)
 

Increase in accounts payable
1.8

 
9.5

Increase (decrease) in accruals and other liabilities
(3.7
)
 
5.4

Net cash provided by operating activities
201.3

 
231.9

Investing activities:
 
 
 
Additions to finance receivables
(210.5
)
 
(205.6
)
Collections of finance receivables
191.9

 
189.1

Capital expenditures
(20.2
)
 
(18.0
)
Acquisitions of businesses, net of cash acquired
(1.3
)
 
(3.0
)
Disposals of property and equipment
0.2

 
0.4

Other
1.2

 

Net cash used by investing activities
(38.7
)
 
(37.1
)
Financing activities:
 
 
 
Proceeds from issuance of long-term debt

 
395.4

Repayments of long-term debt

 
(457.8
)
Repayment of notes payable

 
(16.8
)
Net decrease in other short-term borrowings
(43.8
)
 
(21.1
)
Cash dividends paid
(52.8
)
 
(46.5
)
Purchases of treasury stock
(47.4
)
 
(43.5
)
Proceeds from stock purchase and option plans
4.8

 
11.5

Other
(8.4
)
 
(11.7
)
Net cash used by financing activities
(147.6
)
 
(190.5
)
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
0.5

 
1.2

Increase in cash and cash equivalents
15.5

 
5.5

Cash and cash equivalents at beginning of year
140.9

 
92.0

Cash and cash equivalents at end of period
$
156.4

 
$
97.5

Supplemental cash flow disclosures:
 
 
 
Cash paid for interest
$
(21.6
)
 
$
(26.3
)
Net cash paid for income taxes
(18.4
)
 
(11.4
)

See Notes to Condensed Consolidated Financial Statements.

8

SNAP-ON INCORPORATED
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-on’s 2018 Annual Report on Form 10-K for the fiscal year ended December 29, 2018 (“2018 year end”). The company’s 2019 fiscal first quarter ended on March 30, 2019; the 2018 fiscal first quarter ended on March 31, 2018. The company’s 2019 and 2018 fiscal first quarters each contained 13 weeks of operating results. Snap-on’s Condensed Consolidated Financial Statements are prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”).
In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for the fair presentation of the Condensed Consolidated Financial Statements for the three month periods ended March 30, 2019, and March 31, 2018, 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 company’s derivative financial instruments is generally determined using quoted prices in active markets for similar assets and liabilities. The carrying value of the company’s non-derivative financial instruments either approximates fair value, due to their short-term nature, or the amount disclosed for fair value is based upon a discounted cash flow analysis or quoted market values. See Note 9 for further information on financial instruments.
Change in Functional Currency
Argentina’s economy has been determined to be highly inflationary effective July 1, 2018. As a result the functional currency for the company’s subsidiary in Argentina changed from the Argentinian Peso to the U.S. Dollar. The impact of the change in functional currency was not material to the Condensed Consolidated Financial Statements for the three months ended March 30, 2019.
New Accounting Standards
The following new accounting pronouncements were adopted in fiscal year 2019:
On December 30, 2018, the beginning of Snap-on’s 2019 fiscal year, Snap-on adopted ASU No. 2017-12, Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging Activities, which improves the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The amendments in this update also make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. The adoption of this ASU did not have a significant impact on the company’s Condensed Consolidated Financial Statements.
On December 30, 2018, the beginning of Snap-on’s 2019 fiscal year, Snap-on adopted ASU No. 2018-02, Income Statement - Reporting Comprehensive Income - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (Topic 220), which allows for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act (the “Tax Act”). The adoption of this ASU resulted in an increase of $45.9 million to Retained Earnings on the company’s Condensed Consolidated Statements of Equity with an offsetting decrease in Accumulated Other Comprehensive Income (Loss).

9

SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


On December 30, 2018, the beginning of Snap-on’s 2019 fiscal year, Snap-on adopted ASU No. 2016-02, Leases (Topic 842), which increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Topic 842 is intended to represent an improvement over previous GAAP, which did not require lease assets and lease liabilities to be recognized for most leases. Topic 842, which supersedes most current lease guidance, affects any entity that enters into a lease with some specified scope exemptions. Snap-on adopted Topic 842 using the modified retrospective approach, using a date of initial application of December 30, 2018. Snap-on elected the package of practical expedients permitted under the standard, which also allowed the company to carry forward historical lease classifications. The company also elected the practical expedient related to treating lease and non-lease components as a single lease component for all equipment leases as well as electing a policy exclusion permitting leases with an original lease term of less than one year to be excluded from the Right-of-Use (“ROU”) assets and lease liabilities. The adoption of this ASU did not have a significant impact on the company’s Condensed Consolidated Financial Statements. See note 15 for further information on leases.
The following new accounting pronouncements, and related impacts on adoption, are being evaluated by the company:

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which is designed to improve the effectiveness of disclosures by removing, modifying and adding disclosures related to fair value measurements. ASU No. 2018-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years; the ASU allows for early adoption in any interim period after issuance of the update. The adoption of this ASU is not expected to have a significant impact on the company’s consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General Subtopic 715-20 - Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans, which is designed to improve the effectiveness of disclosures by removing and adding disclosures related to defined benefit plans. ASU No. 2018-14 is effective for fiscal years ending after December 15, 2020; the ASU allows for early adoption in any year end after issuance of the update. The adoption of this ASU is not expected to have a significant impact on the company’s consolidated financial statements.

In 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.

Note 2: Revenue Recognition

Snap-on recognizes revenue from the sale of tools, diagnostic and equipment products and related services based on when control of the product passes to the customer or the service is provided and is recognized at an amount that reflects the consideration expected to be received in exchange for such goods or services.

Revenue Disaggregation

The following table shows the consolidated revenues by revenue source:
 
 
Three Months Ended
 
Three Months Ended
(Amounts in millions)
 
March 30, 2019
 
March 31, 2018
 
 
 
 
 
Revenue from contracts with customers
 
$
916.4

 
$
930.4

Other revenues
 
5.3

 
5.1

Total net sales
 
921.7

 
935.5

Financial services revenue
 
85.6

 
83.0

Total revenues
 
$
1,007.3

 
$
1,018.5

 
 
 
 
 


10

SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


Snap-on evaluates the performance of its operating segments based on segment revenues, including both external and intersegment net sales, and segment operating earnings. Snap-on accounts for both intersegment sales and transfers based primarily on standard costs with reasonable mark-ups established between the segments. All significant intersegment amounts are eliminated to arrive at Snap-on’s consolidated financial results.

The following table represents external net sales disaggregated by geography, based on the customers’ billing addresses:

 
 
For the Three Months Ended March 30, 2019
 
 
Commercial
 
Snap-on
 
Repair Systems
 
 
 
 
 
 
 
 
& Industrial
 
Tools
 
& Information
 
Financial
 
 
 
Snap-on
(Amounts in millions)
 
Group
 
Group
 
Group
 
Services
 
Eliminations
 
Incorporated
Net sales by geographic region:
 
 
 
 
 
 
 
 
 
 
 
 
North America*
 
$
108.9

 
$
351.6

 
$
185.1

 
$

 
$

 
$
645.6

Europe
 
77.4

 
36.9

 
59.5

 

 

 
173.8

All other
 
63.2

 
21.7

 
17.4

 

 

 
102.3

External net sales
 
249.5

 
410.2

 
262.0

 

 

 
921.7

Intersegment net sales
 
73.0

 

 
65.9

 

 
(138.9
)
 

Total net sales
 
322.5

 
410.2

 
327.9

 

 
(138.9
)
 
921.7

Financial services revenue
 

 

 

 
85.6

 

 
85.6

Total revenue
 
$
322.5

 
$
410.2

 
$
327.9

 
$
85.6

 
$
(138.9
)
 
$
1,007.3

 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
For the Three Months Ended March 31, 2018
 
 
Commercial
 
Snap-on
 
Repair Systems
 
 
 
 
 
 
 
 
& Industrial
 
Tools
 
& Information
 
Financial
 
 
 
Snap-on
(Amounts in millions)
 
Group
 
Group
 
Group
 
Services
 
Eliminations
 
Incorporated
Net sales by geographic region:
 
 
 
 
 
 
 
 
 
 
 
 
North America*
 
$
107.5

 
$
338.9

 
$
185.3

 
$

 
$

 
$
631.7

Europe
 
82.9

 
41.5

 
67.0

 

 

 
191.4

All other
 
68.4

 
24.3

 
19.7

 

 

 
112.4

External net sales
 
258.8

 
404.7

 
272.0

 

 

 
935.5

Intersegment net sales
 
72.8

 

 
65.0

 

 
(137.8
)
 

Total net sales
 
331.6

 
404.7

 
337.0

 

 
(137.8
)
 
935.5

Financial services revenue
 

 

 

 
83.0

 

 
83.0

Total revenue
 
$
331.6

 
$
404.7

 
$
337.0

 
$
83.0

 
$
(137.8
)
 
$
1,018.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
* North America is comprised of the United States, Canada and Mexico.


11

SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


The following table represents external net sales disaggregated by customer type:

 
 
For the Three Months Ended March 30, 2019
 
 
Commercial
 
Snap-on
 
Repair Systems
 
 
 
 
 
 
 
 
& Industrial
 
Tools
 
& Information
 
Financial
 
 
 
Snap-on
(Amounts in millions)
 
Group
 
Group
 
Group
 
Services
 
Eliminations
 
Incorporated
Net sales:
 
 
 
 
 
 
 
 
 
 
 
 
Vehicle service professionals
 
$
20.0

 
$
410.2

 
$
262.0

 
$

 
$

 
$
692.2

All other professionals
 
229.5

 

 

 

 

 
229.5

External net sales
 
249.5

 
410.2

 
262.0

 

 

 
921.7

Intersegment net sales
 
73.0

 

 
65.9

 

 
(138.9
)
 

Total net sales
 
322.5

 
410.2

 
327.9

 

 
(138.9
)
 
921.7

Financial services revenue
 

 

 

 
85.6

 

 
85.6

Total revenue
 
$
322.5

 
$
410.2

 
$
327.9

 
$
85.6

 
$
(138.9
)
 
$
1,007.3

 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
For the Three Months Ended March 31, 2018
 
 
Commercial
 
Snap-on
 
Repair Systems
 
 
 
 
 
 
 
 
& Industrial
 
Tools
 
& Information
 
Financial
 
 
 
Snap-on
(Amounts in millions)
 
Group
 
Group
 
Group
 
Services
 
Eliminations
 
Incorporated
Net sales:
 
 
 
 
 
 
 
 
 
 
 
 
Vehicle service professionals
 
$
22.5

 
$
404.7

 
$
272.0

 
$

 
$

 
$
699.2

All other professionals
 
236.3

 

 

 

 

 
236.3

External net sales
 
258.8

 
404.7

 
272.0

 

 

 
935.5

Intersegment net sales
 
72.8

 

 
65.0

 

 
(137.8
)
 

Total net sales
 
331.6

 
404.7

 
337.0

 

 
(137.8
)
 
935.5

Financial services revenue
 

 

 

 
83.0

 

 
83.0

Total revenue
 
$
331.6

 
$
404.7

 
$
337.0

 
$
83.0

 
$
(137.8
)
 
$
1,018.5

 
 
 
 
 
 
 
 
 
 
 
 
 

Nature of Goods and Services

Snap-on derives net sales from a broad line of products and complementary services that are grouped into three categories (i) tools; (ii) diagnostics, information and management systems; and (iii) equipment. The tools product category includes Snap-on’s hand tools, power tools, tool storage products and other similar products. The diagnostics, information and management systems product category includes handheld and PC-based diagnostic products, service and repair information products, diagnostic software solutions, electronic parts catalogs, business management systems and services, point-of-sale systems, integrated systems for vehicle service shops, original equipment manufacturer (“OEM”) purchasing facilitation services, and warranty management systems and analytics to help OEM dealerships manage and track performance. The equipment product category includes solutions for the service of vehicles and industrial equipment. Snap-on supports the sale of its diagnostics and vehicle service shop equipment by offering training programs as well as after-sales support to its customers. Through its financial services businesses, Snap-on also derives revenue from various financing programs designed to facilitate the sales of its products and support its franchise business.

Approximately 90% of Snap-on’s net sales are products sold at a point in time through ship-and-bill performance obligations that also includes service repair services. The remaining sales revenue is earned over time primarily on a subscription basis including software, extended warranty and other subscription service agreements.

Snap-on enters into contracts related to the selling of tools, diagnostic and repair information and equipment products and related services. At contract inception, an assessment of the goods and services promised in the contracts with customers is performed

12

SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


and a performance obligation is identified for each distinct promise to transfer to the customer a good or service (or bundle of goods or services). To identify the performance obligations, Snap-on considers all of the goods or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. Contracts with customers are comprised of customer purchase orders, invoices and written contracts.

For certain performance obligations related to software subscriptions, extended warranty and other subscription agreements that are settled over time, Snap-on has elected not to disclose the value of unsatisfied performance obligations for: (i) contracts that have an original expected length of one year or less; (ii) contracts where revenue is recognized as invoiced; and (iii) contracts with variable consideration related to unsatisfied performance obligations.  The remaining duration of these unsatisfied performance obligations range from one month up to 60 months.  Snap-on had approximately $238.0 million of long-term contracts that have fixed consideration that extends beyond one year as of March 30, 2019.  Snap-on expects to recognize approximately 65% of these contracts as revenue by the end of fiscal 2020, an additional 25% by the end of fiscal 2022 and the balance thereafter. 

Contract Liabilities (Deferred Revenues)

Contract liabilities are recorded when cash payments are received in advance of Snap-on’s performance.  The timing of payment is typically on a monthly, quarterly or annual basis. The balance of total contract liabilities at March 30, 2019 was $70.4 million and $63.8 million at December 29, 2018.   The current portion of contract liabilities and the non-current portion are included in “Other accrued liabilities” and “Other long-term liabilities”, respectively, on the accompanying Condensed Consolidated Balance Sheets.  During the three months ended March 30, 2019, Snap-on recognized revenue of $27.0 million that was included in the contract liability balance at the beginning of the period, which was primarily from the amortization of software subscriptions, extended warranties and other subscription agreements.  

Note 3: Acquisitions
On January 25, 2019, Snap-on acquired substantially all of the assets of TMB GeoMarketing Limited (“TMB”) for a cash purchase price of $1.3 million. TMB, based in Dorking, United Kingdom, designs planning software used by OEMs to optimize dealer locations and manage the performance of dealer outlets. The company completed the purchase accounting valuations for the acquired net assets of TMB. Substantially all of the purchase price over the fair value of the net assets acquired was recorded in “Goodwill” on the accompanying Condensed Consolidated Balance Sheets.

On January 31, 2018, Snap-on acquired substantially all of the assets of George A. Sturdevant, Inc. (d/b/a Fastorq) for a cash purchase price of $3.0 million. Fastorq, based in New Caney, Texas, designs, assembles and distributes hydraulic torque and hydraulic tensioning products for use in critical industries. As of the second quarter of 2018, the company completed the purchase accounting valuations for the acquired net assets of Fastorq. The $2.6 million excess of the 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 TMB have been included in the Repair Systems and Information Group since the acquisition date and the results of operations and assets of Fastorq have been included in the Commercial & Industrial Group since the acquisition date.
Pro forma financial information has not been presented for these acquisitions as the net effects were neither significant nor material to Snap-on’s results of operations or financial position. See Note 6 for further information on goodwill and other intangible assets.
Note 4: Receivables
Trade and Other Accounts Receivable
Snap-on’s trade and other accounts receivable primarily arise from the sale of tools and diagnostic and equipment products to a broad range of industrial and commercial customers and to Snap-on’s 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-on’s trade and other accounts receivable as of March 30, 2019, and December 29, 2018, are as follows:
(Amounts in millions)
March 30, 2019
 
December 29, 2018
Trade and other accounts receivable
$
694.1

 
$
710.1

Allowances for doubtful accounts
(18.8
)
 
(17.5
)
Total trade and other accounts receivable – net
$
675.3

 
$
692.6

Finance and Contract Receivables
Snap-on Credit LLC (“SOC”), the company’s financial services operation in the United States, originates extended-term finance and contract receivables on sales of Snap-on’s products sold through the U.S. franchisee and customer network and to certain other customers of Snap-on; Snap-on’s foreign finance subsidiaries provide similar financing internationally. Interest income on finance and contract receivables is included in “Financial services revenue” on the accompanying Condensed Consolidated Statements of Earnings.
Snap-on’s finance receivables are comprised of extended-term installment payment contracts to both technicians and independent shop owners (i.e., franchisees’ customers) to enable them to purchase tools and diagnostic and equipment products on an extended-term payment plan, generally with average payment terms of approximately four years. Finance receivables are generally secured by the underlying tools and/or diagnostic or equipment products financed.
Snap-on’s 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, or the expansion of an existing franchise. 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-on’s current finance and contract receivables as of March 30, 2019, and December 29, 2018, are as follows:
(Amounts in millions)
March 30, 2019
 
December 29, 2018
Finance receivables
$
545.5

 
$
538.1

Contract receivables
94.2

 
99.5

Total
639.7

 
637.6

Allowances for doubtful accounts:
 
 
 
Finance receivables
(19.6
)
 
(19.6
)
Contract receivables
(1.3
)
 
(1.2
)
Total
(20.9
)
 
(20.8
)
Total current finance and contract receivables – net
$
618.8

 
$
616.8

 
 
 
 
Finance receivables – net
$
525.9

 
$
518.5

Contract receivables – net
92.9

 
98.3

Total current finance and contract receivables – net
$
618.8

 
$
616.8

 

14

SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


The components of Snap-on’s finance and contract receivables with payment terms beyond one year as of March 30, 2019, and December 29, 2018, are as follows: 
(Amounts in millions)
March 30, 2019
 
December 29, 2018
Finance receivables
$
1,118.5

 
$
1,116.2

Contract receivables
348.5

 
348.0

Total
1,467.0

 
1,464.2

Allowances for doubtful accounts:
 
 
 
Finance receivables
(41.4
)
 
(41.8
)
Contract receivables
(3.4
)
 
(3.1
)
Total
(44.8
)
 
(44.9
)
Total long-term finance and contract receivables – net
$
1,422.2

 
$
1,419.3

 
 
 
 
Finance receivables – net
$
1,077.1

 
$
1,074.4

Contract receivables – net
345.1

 
344.9

Total long-term finance and contract receivables – net
$
1,422.2

 
$
1,419.3

Delinquency is the primary indicator of credit quality for finance and contract receivables. The entire receivable balance of a contract is considered delinquent when contractual payments become 30 days past due. Depending on the contract, payments for finance and contract receivables are due on a monthly or weekly basis. Weekly payments are converted into a monthly equivalent for purposes of calculating delinquency. Delinquencies are assessed at the end of each month following the monthly equivalent due date. Removal from delinquent status occurs when the cumulative number of monthly payments due has been received by the company.
Finance receivables are generally placed on nonaccrual status (nonaccrual of interest and other fees): (i) when a customer is placed on repossession status; (ii) upon receipt of notification of bankruptcy; (iii) upon notification of the death of a customer; or (iv) in other instances in which management concludes collectability is not reasonably assured. Finance receivables that are considered nonperforming include receivables that are on nonaccrual status and receivables that are generally more than 90 days past due.
Contract receivables are generally placed on nonaccrual status: (i) when a receivable is more than 90 days past due or at the point a customer’s account is placed on terminated status regardless of its delinquency status; (ii) upon notification of the death of a customer; or (iii) in other instances in which management concludes collectability is not reasonably assured. Contract receivables that are considered nonperforming include receivables that are on nonaccrual status and receivables that are generally more than 90 days past due.
The accrual of interest and other fees is resumed when the finance or contract receivable becomes contractually current and collection of all remaining contractual amounts due is reasonably assured. Finance and contract receivables are evaluated for impairment on a collective basis. A receivable is 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 company’s respective allowances for doubtful accounts and are charged-off against the allowances when appropriate. As of March 30, 2019, and December 29, 2018, there were $27.3 million and $27.9 million, respectively, of impaired finance receivables, and there were $2.2 million and $6.0 million, respectively, of impaired contract receivables.
It is the general practice of Snap-on’s financial services business to not engage in contract or loan modifications. In limited instances, Snap-on’s financial services business may modify certain impaired receivables in troubled debt restructurings. The amount and number of restructured finance and contract receivables as of March 30, 2019, and December 29, 2018, were immaterial to both the financial services portfolio and the company’s 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 March 30, 2019, and December 29, 2018, 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
March 30, 2019:
 
 
 
 
 
 
 
 
 
 
 
 
 
Finance receivables
$
14.1

 
$
9.7

 
$
19.4

 
$
43.2

 
$
1,620.8

 
$
1,664.0

 
$
15.0

Contract receivables
1.3

 
0.9

 
1.4

 
3.6

 
439.1

 
442.7

 
0.4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 29, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
 
Finance receivables
$
19.4

 
$
12.1

 
$
20.3

 
$
51.8

 
$
1,602.5

 
$
1,654.3

 
$
15.9

Contract receivables
1.7

 
1.2

 
5.2

 
8.1

 
439.4

 
447.5

 
0.2

The amount of performing and nonperforming finance and contract receivables based on payment activity as of March 30, 2019, and December 29, 2018, is as follows: 
 
March 30, 2019
 
December 29, 2018
(Amounts in millions)
Finance
Receivables
 
Contract
Receivables
 
Finance
Receivables
 
Contract
Receivables
Performing
$
1,636.7

 
$
440.5

 
$
1,626.4

 
$
441.5

Nonperforming
27.3

 
2.2

 
27.9

 
6.0

Total
$
1,664.0

 
$
442.7

 
$
1,654.3

 
$
447.5

The amount of finance and contract receivables on nonaccrual status as of March 30, 2019, and December 29, 2018, is as follows: 
(Amounts in millions)
March 30, 2019
 
December 29, 2018
Finance receivables
$
12.3

 
$
12.0

Contract receivables
1.8

 
5.8

The following is a rollforward of the allowances for doubtful accounts for finance and contract receivables for the three months ended March 30, 2019, and March 31, 2018:
 
 
Three Months Ended
March 30, 2019
 
Three Months Ended
March 31, 2018
(Amounts in millions)
Finance
Receivables
 
Contract
Receivables
 
Finance
Receivables
 
Contract
Receivables
Allowances for doubtful accounts:
 
 
 
 
 
 
 
Beginning of period
$
61.4

 
$
4.3

 
$
56.5

 
$
4.6

Provision
12.5

 
0.9

 
15.8

 
0.5

Charge-offs
(15.0
)
 
(0.7
)
 
(15.8
)
 
(0.6
)
Recoveries
2.0

 
0.1

 
1.9

 
0.1

Currency translation
0.1

 
0.1

 
(0.1
)
 

End of period
$
61.0

 
$
4.7

 
$
58.3

 
$
4.6


16

SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


Note 5: Inventories
Inventories by major classification are as follows:
(Amounts in millions)
March 30, 2019
 
December 29, 2018
Finished goods
$
604.3

 
$
577.0

Work in progress
55.0

 
51.7

Raw materials
127.6

 
123.5

Total FIFO value
786.9

 
752.2

Excess of current cost over LIFO cost
(79.9
)
 
(78.4
)
Total inventories – net
$
707.0

 
$
673.8

Inventories accounted for using the first-in, first-out (“FIFO”) method approximated 59% and 61% of total inventories as of March 30, 2019, and December 29, 2018, respectively. The company accounts for its non-U.S. inventory on the FIFO method. As of March 30, 2019, approximately 33% of the company’s U.S. inventory was accounted for using the FIFO method and 67% was accounted for using the last-in, first-out (“LIFO”) method. There were no LIFO inventory liquidations in the three months ended March 30, 2019, or March 31, 2018.
Note 6: Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill by segment for the three months ended March 30, 2019, are as follows:
(Amounts in millions)
Commercial
& Industrial
Group
 
Snap-on
Tools Group
 
Repair Systems
& Information
Group
 
Total
Balance as of December 29, 2018
$
286.2

 
$
12.5

 
$
603.5

 
$
902.2

Currency translation
(2.1
)
 

 
(0.5
)
 
(2.6
)
Acquisitions and related adjustments

 

 
1.3

 
1.3

Balance as of March 30, 2019
$
284.1

 
$
12.5

 
$
604.3

 
$
900.9


Goodwill of $900.9 million as of March 30, 2019, includes $1.3 million from the acquisition of TMB. The goodwill from TMB is included in the Repair Systems and Information Group. See Note 3 for additional information on acquisitions.
Additional disclosures related to other intangible assets are as follows:
 
March 30, 2019
 
December 29, 2018
(Amounts in millions)
Gross Carrying
Value
 
Accumulated
Amortization
 
Gross Carrying
Value
 
Accumulated
Amortization
Amortized other intangible assets:
 
 
 
 
 
 
 
Customer relationships
$
172.6

 
$
(110.5
)
 
$
172.2

 
$
(107.6
)
Developed technology
18.8

 
(18.6
)
 
18.5

 
(18.3
)
Internally developed software
158.0

 
(117.9
)
 
156.6

 
(116.6
)
Patents
35.9

 
(23.1
)
 
35.7

 
(22.9
)
Trademarks
3.2

 
(2.0
)
 
3.2

 
(2.0
)
Other
7.5

 
(3.0
)
 
7.3

 
(2.9
)
Total
396.0

 
(275.1
)
 
393.5

 
(270.3
)
Non-amortized trademarks
109.6

 

 
109.7

 

Total other intangible assets
$
505.6

 
$
(275.1
)
 
$
503.2

 
$
(270.3
)

17

SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


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 March 30, 2019, the company had no accumulated impairment losses.
The weighted-average amortization periods related to other intangible assets are as follows:
 
In Years
Customer relationships
15
Developed technology
3
Internally developed software
6
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 12 years.
The company’s customer relationships generally have contractual terms of three to five years and are typically renewed without significant cost to the company. The weighted-average 15-year life for customer relationships is based on the company’s historical renewal experience. Intangible asset renewal costs are expensed as incurred.
The aggregate amortization expense was $5.4 million and $6.6 million for the respective three months ended March 30, 2019, and March 31, 2018. Based on current levels of amortizable intangible assets and estimated weighted-average useful lives, estimated annual amortization expense is expected to be $20.7 million in 2019, $17.7 million in 2020, $15.4 million in 2021, $13.1 million in 2022, $12.0 million in 2023, and $10.0 million in 2024.
Note 7: Income Taxes
Snap-on’s effective income tax rate on earnings attributable to Snap-on was 24.3% and 26.2% in the first three months of 2019 and 2018, respectively.  During the first three months of 2018, the Internal Revenue Service issued new guidance affecting the computation of the company’s 2017 federal income tax liability. As a result of this new guidance and additional analysis of the impacts of the Tax Act, the company revised its prior estimates and recorded $2.6 million of additional tax expense during the 2018 period. The additional $2.6 million tax provision during the first three months of 2018 increased the effective tax rate for the period by 120 basis points. The ultimate impact of the Tax Act may differ from the current estimates, possibly materially, due to changes in interpretations and assumption the company has made, future guidance that may be issued and actions the company may take as a result of the law.
Snap-on and its subsidiaries file income tax returns in the United States and in various state, local and foreign jurisdictions. It is reasonably possible that certain unrecognized tax benefits may either be settled with taxing authorities or the statutes of limitations for such items may lapse within the next 12 months, causing Snap-on’s gross unrecognized tax benefits to decrease by a range of zero to $2.4 million. Over the next 12 months, Snap-on anticipates taking certain tax positions on various tax returns for which the related tax benefit does not meet the recognition threshold. Accordingly, Snap-on’s gross unrecognized tax benefits may increase by a range of zero to $1.0 million over the next 12 months for uncertain tax positions expected to be taken in future tax filings.


18

SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


Note 8: Short-term and Long-term Debt
Short-term and long-term debt as of March 30, 2019, and December 29, 2018, consisted of the following:
(Amounts in millions)
March 30, 2019
 
December 29, 2018
6.125% unsecured notes due 2021
$
250.0

 
$
250.0

3.25% unsecured notes due 2027
300.0

 
300.0

4.10% unsecured notes due 2048
400.0

 
400.0

Other debt*
139.2

 
182.3

 
1,089.2

 
1,132.3

Less: notes payable
 
 
 
Commercial paper borrowings
(131.5
)
 
(177.1
)
Other notes
(11.0
)
 
(9.2
)
 
(142.5
)
 
(186.3
)
Total long-term debt
$
946.7

 
$
946.0

 
 
 
 
*
Includes fair value adjustments related to interest rate swaps.
Notes payable and current maturities of long-term debt of $142.5 million as of March 30, 2019, included $131.5 million of commercial paper borrowings and $11.0 million of other notes. As of 2018 year end, notes payable and current maturities of long-term debt of $186.3 million included $177.1 million of commercial paper borrowings and $9.2 million of other notes.
On February 20, 2018, Snap-on commenced a tender offer to repurchase $200 million in principal amount of its unsecured 6.70% notes that were scheduled to mature on March 1, 2019 (the “2019 Notes”), with $26.1 million of the 2019 Notes tendered and repaid on February 27, 2018. On February 20, 2018, Snap-on also issued a notice of redemption for any remaining outstanding 2019 Notes not tendered, with the redemption completed on March 22, 2018. The total cash cost for this tender and redemption was $209.1 million, including accrued interest of $1.5 million. Snap-on recorded $7.8 million for the loss on the early extinguishment of debt related to the 2019 Notes, which included the redemption premium and other issuance costs associated with this debt in “Other income (expense) - net” on the accompanying Condensed Consolidated Statement of Earnings. See Note 16 for additional information on Other income (expense) - net.
On February 20, 2018, Snap-on sold, at a discount, $400 million of unsecured 4.10% long-term notes that mature on March 1, 2048 (the “2048 Notes”). Interest on the 2048 Notes accrues at a rate of 4.10% per year and is paid semi-annually. Snap-on used a portion of the $395.4 million of net proceeds from the sale of the 2048 Notes, reflecting $3.5 million of transaction costs, to repay the 2019 Notes. The remaining net proceeds were used to repay a portion of its then-outstanding commercial paper borrowings and for general corporate purposes.
 
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 March 30, 2019. Borrowings under the Credit Facility bear interest at varying rates based on Snap-on’s then-current, long-term debt ratings. The Credit Facility’s financial covenant requires that Snap-on maintain, as of each fiscal quarter end, either (i) a ratio not greater than 0.60 to 1.00 of consolidated net debt (consolidated debt net of certain cash adjustments) 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 March 30, 2019, the company’s actual ratios of 0.21 and 0.93 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.

19

SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


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 as part of a hedged transaction. Gains or losses on derivative instruments recorded in earnings are presented in the same Condensed Consolidated Statement of Earnings line that is used to present the earnings effect of the hedged item. Gains or losses on derivative instruments in accumulated other comprehensive income (loss) (“Accumulated OCI”) are reclassified to earnings in the period in which earnings are affected by the underlying hedged item.
The criteria used to determine if hedge accounting treatment is appropriate are: (i) the designation of the hedge to an underlying exposure; (ii) whether or not overall risk is being reduced; and (iii) if there is a correlation between the value of the derivative instrument and the underlying hedged item. Once a derivative contract is entered into, Snap-on has until the end of the quarter to designate the derivative as a fair value hedge, a cash flow hedge, a hedge of a net investment in a foreign operation, or a natural hedging instrument whose change in fair value is recognized as an economic hedge against changes in the value of the hedged item. Snap-on does not use derivative instruments for speculative or trading purposes.
The company is exposed to global market risks, including the effects of changes in foreign currency exchange rates, interest rates, and the company’s stock price, and therefore uses derivatives to manage financial exposures that occur in the normal course of business. The primary risks managed by using derivative instruments are foreign currency risk, interest rate risk and stock-based deferred compensation risk.
Foreign Currency Risk Management: Snap-on has significant international operations and is subject to certain risks inherent with foreign operations that include currency fluctuations. Foreign currency exchange risk exists to the extent that Snap-on has payment obligations or receipts denominated in currencies other than the functional currency, including intercompany loans denominated in foreign currencies. To manage these exposures, Snap-on identifies naturally offsetting positions and then purchases hedging instruments to protect the residual net exposures. Snap-on manages most of these exposures on a consolidated basis, which allows for netting of certain exposures to take advantage of natural offsets. Foreign currency forward contracts (“foreign currency forwards”) are used to hedge the net exposures. Gains or losses on net foreign currency hedges are intended to offset losses or gains on the underlying net exposures in an effort to reduce the earnings volatility resulting from fluctuating foreign currency exchange rates. Snap-on’s foreign currency forwards are typically not designated as hedges. The fair value changes of these contracts are reported in earnings as foreign exchange gain or loss, which is included in “Other income (expense) – net” on the accompanying Condensed Consolidated Statements of Earnings.
Interest Rate Risk Management: Snap-on aims to control funding costs by managing the exposure created by the differing maturities and interest rate structures of Snap-on’s borrowings through the use of interest rate swap agreements (“interest rate swaps”) and treasury lock agreements (“treasury locks”).
Interest Rate Swaps: Snap-on enters into interest rate swaps to manage risks associated with changing interest rates related to the company’s fixed rate borrowings. Interest rate swaps are accounted for as fair value hedges. The differentials paid or received on interest rate swaps are recognized as adjustments to “Interest expense” on the accompanying Condensed Consolidated Statements of Earnings. The change in fair value of the designated and qualifying derivative is recorded in “Long-term debt” on the accompanying Condensed Consolidated Balance Sheets. The notional amount of interest rate swaps outstanding and designated as fair value hedges was $100 million as of both March 30, 2019, and December 29, 2018.
Treasury locks: Snap-on uses treasury locks to manage the potential change in interest rates in anticipation of the issuance of fixed rate debt. Treasury locks are accounted for as cash flow hedges. The differentials to be paid or received on treasury locks related to the anticipated issuance of fixed rate debt are initially recorded in Accumulated OCI for derivative instruments that are designated and qualify as cash flow hedges. Upon the issuance of debt, the related amount in Accumulated OCI is released over the term of the debt and recognized as an adjustment to interest expense on the Condensed Consolidated Statements of Earnings.
Snap-on entered into a $300 million treasury lock in the fourth quarter of 2017 to manage changes in interest rates in anticipation of the issuance of fixed rate debt in the first quarter of 2018.
In the first quarter of 2018, Snap-on settled the outstanding $300 million treasury lock after it was deemed to be an ineffective hedge related to the 2048 Notes, which were issued in February 2018. The $13.3 million gain on the settlement of the treasury lock was recorded in “Other income (expense) - net” on the accompanying Condensed Consolidated Statements of Earnings. There were no treasury locks outstanding as of both March 30, 2019 and December 29, 2018. See Note 16 for additional information on Other income (expense) - net.

20

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-on’s stock price. Since stock-based deferred compensation liabilities increase as the company’s stock price rises and decrease as the company’s stock price declines, the equity forwards are intended to mitigate the potential impact on deferred compensation expense that may result from such mark-to-market changes. As of March 30, 2019, Snap-on had equity forwards in place intended to manage market risk with respect to 91,400 shares of Snap-on common stock associated with its deferred compensation plans.
Counterparty Risk: Snap-on is exposed to credit losses in the event of non-performance by the counterparties to its various financial agreements, including its foreign currency forward contracts, interest rate swap agreements, treasury lock agreements and prepaid equity forward agreements. Snap-on does not obtain collateral or other security to support financial instruments subject to credit risk, but monitors the credit standing of the counterparties and generally enters into agreements with financial institution counterparties with a credit rating of A- or better. Snap-on does not anticipate non-performance by its counterparties, but cannot provide assurances.
Fair Value of Financial Instruments: The fair values of financial instruments that do not approximate the carrying values in the financial statements are as follows:
 
March 30, 2019
 
December 29, 2018
(Amounts in millions)
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Finance receivables – net
$
1,603.0

 
$
1,860.0

 
$
1,592.9

 
$
1,845.4

Contract receivables – net
438.0

 
477.0

 
443.2

 
481.2

Long-term debt, notes payable and current maturities of long-term debt
1,089.2

 
1,130.7

 
1,132.3

 
1,136.0

The following methods and assumptions were used in estimating the fair value of financial instruments:
 
Finance and contract receivables include both short-term and long-term receivables. The fair value estimates of finance and contract receivables are derived utilizing discounted cash flow analyses performed on groupings of receivables that are similar in terms of loan type and characteristics. The cash flow analyses consider recent prepayment trends where applicable. The cash flows are discounted over the average life of the receivables using a current market discount rate of a similar term adjusted for credit quality. Significant inputs to the fair value measurements of the receivables are unobservable and, as such, are classified as Level 3.

Fair value of long-term debt and current maturities of long-term debt were estimated, using Level 2 fair value measurements, based on quoted market values of Snap-on’s publicly traded senior debt. The carrying value of long-term debt 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.


21

SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


Note 10: Pension Plans
Snap-on’s net periodic pension cost included the following components: 
 
Three Months Ended
(Amounts in millions)
March 30, 2019
 
March 31, 2018
Service cost
$
6.0

 
$
6.5

Interest cost
14.1

 
13.2

Expected return on plan assets
(22.4
)
 
(21.7
)
Amortization of unrecognized loss
6.2

 
8.0

Amortization of prior service credit
(0.2
)
 
(0.3
)
Net periodic pension cost
$
3.7

 
$
5.7

The components of net periodic pension cost, other than the service cost component, are included in “Other income (expense) - net” on the accompanying Condensed Consolidated Statements of Earnings. See Note 16 for additional information on other income (expense) - net.
Snap-on intends to make contributions of $9.4 million to its foreign pension plans and $2.0 million to its domestic pension plans in 2019, as required by law. In the first three months of 2019, Snap-on made $10.4 million of cash contributions to its domestic pension plans consisting of (i) $10.0 million of discretionary contributions and (ii) $0.4 million of required contributions. Depending on market and other conditions, Snap-on may make additional discretionary cash contributions to its pension plans in 2019.
Note 11: Postretirement Health Care Plans
Snap-on’s net periodic postretirement health care cost included the following components: 
 
Three Months Ended
(Amounts in millions)
March 30, 2019
 
March 31, 2018
Interest cost
$
0.5

 
$
0.5

Expected return on plan assets
(0.2
)
 
(0.2
)
Amortization of unrecognized gain
(0.2
)
 
(0.1
)
Net periodic postretirement health care cost
$
0.1

 
$
0.2


The components of net periodic postretirement health care cost, other than the service cost component, are included in “Other income (expense) - net” on the accompanying Condensed Consolidated Statements of Earnings. See Note 16 for additional information on other income (expense) - net.
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 March 30, 2019, the 2011 Plan had 1,991,625 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 $7.3 million and $6.7 million for the respective three months ended March 30, 2019, and March 31, 2018. Cash received from stock purchase and option plan exercises during the respective three months ended March 30, 2019, and March 31, 2018, totaled $4.8 million and $11.5 million. The tax benefit realized from both the exercise and vesting of share-based payment arrangements was $2.7 million and $5.1 million for the respective three months ended March 30, 2019, and March 31, 2018.
 

22

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-on’s common stock on the date of grant and have a contractual term of ten years. Stock option grants vest ratably on the first, second and third anniversaries of the date of grant.
The fair value of each stock option award is estimated on the date of grant using the Black-Scholes valuation model. The company uses historical data regarding stock option exercise and forfeiture behaviors for different participating groups to estimate the period of time that options granted are expected to be outstanding. Expected volatility is based on the historical volatility of the company’s stock for the length of time corresponding to the expected term of the option. The expected dividend yield is based on the company’s 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 March 30, 2019, and March 31, 2018, using the Black-Scholes valuation model:    
 
 
Three Months Ended
 
March 30, 2019
 
March 31, 2018
Expected term of option (in years)
5.53
 
5.35
Expected volatility factor
21.30%
 
20.08%
Expected dividend yield
1.79%
 
1.68%
Risk-free interest rate
2.54%
 
2.71%
A summary of stock option activity as of and for the three months ended March 30, 2019, is presented below:
 
Shares
(in thousands)
 
Exercise
Price Per
Share*
 
Remaining
Contractual
Term*
(in years)
 
Aggregate
Intrinsic
Value
(in millions)
Outstanding at December 29, 2018
3,130

 
$
127.57

 
 
 
 
Granted
462

 
155.93

 
 
 
 
Exercised
(61
)
 
78.77

 
 
 
 
Forfeited or expired
(36
)
 
164.26

 
 
 
 
Outstanding at March 30, 2019
3,495

 
131.79

 
6.5
 
$
95.7

Exercisable at March 30, 2019
2,540

 
121.15

 
5.6
 
95.4

 
 
 
*
Weighted-average
The weighted-average grant date fair value of options granted during the three months ended March 30, 2019, and March 31, 2018, was $29.98 and $30.21, respectively. The intrinsic value of options exercised was $4.9 million and $11.0 million during the respective three months ended March 30, 2019, and March 31, 2018. The fair value of stock options vested was $15.7 million and $16.0 million during the respective three months ended March 30, 2019, and March 31, 2018.
 
As of March 30, 2019, there was $26.9 million of unrecognized compensation cost related to non-vested stock options that is expected to be recognized as a charge to earnings over a weighted-average period of 2.2 years.
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 company’s 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 specified levels, the recipient may earn additional shares of stock, not to exceed 100% of the number of performance awards initially granted.

23

SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


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-on’s common stock on the date of grant and assumed forfeitures based on recent historical experience; in recent years, forfeitures have not been significant. The weighted-average grant date fair value of performance awards granted during the three months ended March 30, 2019, and March 31, 2018, was $155.92 and $160.22, respectively. PSUs related to 32,114 shares and 50,182 shares were paid out during the respective three months ended March 30, 2019, and March 31, 2018. Earned PSUs are generally paid out following the conclusion of the applicable performance period upon approval by the Organization and Executive Compensation Committee of the company’s Board of Directors (the “Board”).
Based on the company’s 2018 performance, 33,170 RSUs granted in 2018 were earned; assuming continued employment, these RSUs will vest at the end of fiscal 2020. Based on the company’s 2017 performance, 13,648 RSUs granted in 2017 were earned; assuming continued employment, these RSUs will vest at the end of fiscal 2019. Based on the company’s 2016 performance, 45,502 RSUs granted in 2016 were earned; these RSUs vested as of fiscal 2018 year end and were paid out shortly thereafter.
Changes to the company’s non-vested performance awards during the three months ended March 30, 2019, are as follows:
 
Shares
(in thousands)
 
Fair Value
Price per
Share*
Non-vested performance awards at December 29, 2018
120

 
$
164.00

Granted
84

 
155.92

Vested

 

Cancellations and other
(6
)
 
162.55

Non-vested performance awards at March 30, 2019
198

 
160.61

 
 
 
*
Weighted-average
As of March 30, 2019, there was $20.5 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 2.2 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-on’s common stock on the date of grant.
Stock-settled SARs are accounted for as equity instruments and provide for the issuance of Snap-on common stock equal to the amount by which the company’s stock has appreciated over the exercise price. Stock-settled SARs have an effect on dilutive shares and shares outstanding as any appreciation of Snap-on’s common stock value over the exercise price will be settled in shares of common stock. Cash-settled SARs provide for the cash payment of the excess of the fair market value of Snap-on’s common stock price on the date of exercise over the grant price. Cash-settled SARs have no effect on dilutive shares or shares outstanding as any appreciation of Snap-on’s common stock over the grant price is paid in cash and not in common stock.
The fair value of stock-settled SARs is estimated on the date of grant using the Black-Scholes valuation model. The fair value of cash-settled SARs is revalued (mark-to-market) each reporting period using the Black-Scholes valuation model based on Snap-on’s period-end stock price. The company uses historical data regarding SARs exercise and forfeiture behaviors for different participating groups to estimate the expected term of the SARs granted based on the period of time that similar instruments granted are expected to be outstanding. Expected volatility is based on the historical volatility of the company’s stock for the length of time corresponding to the expected term of the SARs. The expected dividend yield is based on the company’s 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.

24

SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


The following weighted-average assumptions were used in calculating the fair value of stock-settled SARs granted during the three months ended March 30, 2019, and March 31, 2018, using the Black-Scholes valuation model:
 
Three Months Ended
 
March 30, 2019
 
March 31, 2018
Expected term of stock-settled SARs (in years)
3.65
 
3.58
Expected volatility factor
22.60%
 
20.08%
Expected dividend yield
1.81%
 
1.63%
Risk-free interest rate
2.48%
 
2.40%
Changes to the company’s stock-settled SARs during the three months ended March 30, 2019, are as follows: