SNAP-ON INC
10-Qs and 10-Ks
PROXIES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
(Mark one)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended
September 28, 2024
OR
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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
(Exact name of registrant as specified in its charter)
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| (State of incorporation) | (I.R.S. Employer Identification No.) | |||||||||||||
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| (Address of principal executive offices) | (Zip code) | |||||||||||||
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262
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656-5200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
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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
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No
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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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company |
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| Emerging growth company |
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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.
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
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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 October 11, 2024 | |||||||
| Common Stock, $1.00 par value |
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TABLE OF CONTENTS
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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 | Nine Months Ended | ||||||||||||||||||||||
| September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | ||||||||||||||||||||
| Net sales | $ |
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$ |
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$ |
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$ |
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| Cost of goods sold |
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| Gross profit |
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| Operating expenses |
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| Operating earnings before financial services |
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| Financial services revenue |
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| Financial services expenses |
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| Operating earnings from financial services |
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| Operating earnings |
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| Interest expense |
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| Other income (expense) – net |
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| Earnings before income taxes |
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| Income tax expense |
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| Net earnings |
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| Net earnings attributable to noncontrolling interests |
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| Net earnings attributable to Snap-on Incorporated | $ |
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$ |
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$ |
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$ |
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| Net earnings per share attributable to Snap-on Incorporated: | |||||||||||||||||||||||
| Basic | $ |
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$ |
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$ |
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$ |
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| Diluted |
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| Weighted-average shares outstanding: | |||||||||||||||||||||||
| Basic |
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| Effect of dilutive securities |
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| Diluted |
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| Dividends declared per common share | $ |
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$ |
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$ |
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$ |
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See Notes to Condensed Consolidated Financial Statements.
3
SNAP-ON INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in millions)
(Unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | ||||||||||||||||||||
| Comprehensive income (loss): | |||||||||||||||||||||||
| Net earnings | $ |
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$ |
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$ |
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$ |
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| Other comprehensive income (loss): | |||||||||||||||||||||||
| Foreign currency translation |
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(
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(
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| Reclassification of cash flow hedges to net earnings, net of tax |
(
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(
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(
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(
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| Defined benefit pension and postretirement plans: | |||||||||||||||||||||||
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Amortization of net unrecognized losses
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Income tax benefit
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(
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(
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Net of tax
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| Total comprehensive income |
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Comprehensive income attributable to noncontrolling interests
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(
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(
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(
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(
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Comprehensive income attributable to Snap-on Incorporated
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$ |
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$ |
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$ |
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$ |
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See Notes to Condensed Consolidated Financial Statements.
4
SNAP-ON INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in millions, except share data)
(Unaudited)
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September 28,
2024 |
December 30, 2023 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ |
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$ |
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| Trade and other accounts receivable – net |
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| Finance receivables – net |
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| Contract receivables – net |
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| Inventories – net |
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| Prepaid expenses and other current assets |
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| Total current assets |
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| Property and equipment: | |||||||||||
| Land |
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| Buildings and improvements |
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| Machinery, equipment and computer software |
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| Property and equipment – gross |
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| Accumulated depreciation |
(
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(
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| Property and equipment – net |
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| Operating lease right-of-use assets |
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| Deferred income tax assets |
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| Long-term finance receivables – net |
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| Long-term contract receivables – net |
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| Goodwill |
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| Other intangible assets – net |
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| Pension assets |
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| Other long-term assets |
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| Total assets | $ |
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$ |
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See Notes to Condensed Consolidated Financial Statements.
5
SNAP-ON INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in millions, except share data)
(Unaudited)
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September 28,
2024 |
December 30, 2023 | ||||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Notes payable | $ |
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$ |
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| Accounts payable |
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| Accrued benefits |
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| Accrued compensation |
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| Franchisee deposits |
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| Other accrued liabilities |
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| Total current liabilities |
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| Long-term debt |
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| Deferred income tax liabilities |
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| Retiree health care benefits |
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| Pension liabilities |
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| Operating lease liabilities |
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| Other long-term liabilities |
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| Total liabilities |
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| Commitments and contingencies (Note 14) |
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| Equity | |||||||||||
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Shareholders’ equity attributable to Snap-on Incorporated:
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Preferred stock
(authorized
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Common stock
(authorized
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Additional paid-in capital
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| Retained earnings |
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| Accumulated other comprehensive loss |
(
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(
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Treasury stock at cost
(
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(
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(
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Total shareholders’ equity attributable to Snap-on Incorporated
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| Noncontrolling interests |
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| Total equity |
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| Total liabilities and equity | $ |
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$ |
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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 September 28, 2024:
| Shareholders’ Equity Attributable to Snap-on Incorporated | ||||||||||||||||||||||||||||||||||||||||||||
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Common
Stock |
Additional
Paid-in Capital |
Retained
Earnings |
Accumulated
Other Comprehensive Loss |
Treasury
Stock |
Noncontrolling
Interests |
Total
Equity |
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| Balance at June 29, 2024 | $ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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$ |
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Net earnings for the three months ended September 28, 2024
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— | — |
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— | — |
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| Other comprehensive income | — | — | — |
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— | — |
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Cash dividends – $
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— | — |
(
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— | — | — |
(
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| Stock compensation plans | — |
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— | — |
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— |
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Share repurchases –
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— | — | — | — |
(
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— |
(
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| Other | — |
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(
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— | — |
(
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(
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| Balance at September 28, 2024 | $ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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$ |
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The following summarizes the changes in total equity for the nine month period ended September 28, 2024:
| Shareholders’ Equity Attributable to Snap-on Incorporated | ||||||||||||||||||||||||||||||||||||||||||||
|
Common
Stock |
Additional
Paid-in Capital |
Retained
Earnings |
Accumulated
Other Comprehensive Loss |
Treasury
Stock |
Noncontrolling
Interests |
Total
Equity |
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| Balance at December 30, 2023 | $ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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$ |
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Net earnings for the nine months ended September 28, 2024
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— | — |
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— | — |
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| Other comprehensive income | — | — | — |
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— | — |
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Cash dividends – $
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— | — |
(
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— | — | — |
(
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| Stock compensation plans | — |
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— | — |
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— |
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Share repurchases –
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— | — | — | — |
(
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— |
(
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| Other | — | — |
(
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— | — |
(
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(
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| Balance at September 28, 2024 | $ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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$ |
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See Notes to Condensed Consolidated Financial Statements.
7
The following summarizes the changes in total equity for the three month period ended September 30, 2023:
| Shareholders’ Equity Attributable to Snap-on Incorporated | ||||||||||||||||||||||||||||||||||||||||||||
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Common
Stock |
Additional
Paid-in Capital |
Retained
Earnings |
Accumulated
Other Comprehensive Loss |
Treasury
Stock |
Noncontrolling
Interests |
Total
Equity |
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| Balance at July 1,2023 | $ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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$ |
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Net earnings for the three months ended September 30, 2023
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— | — |
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— | — |
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| Other comprehensive loss | — | — | — |
(
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— | — |
(
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Cash dividends – $
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— | — |
(
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— | — | — |
(
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| Stock compensation plans | — |
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— | — |
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— |
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Share repurchases –
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— | — | — | — |
(
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— |
(
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| Other | — |
(
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— | — |
(
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(
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| Balance at September 30, 2023 | $ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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$ |
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The following summarizes the changes in total equity for the nine month period ended September 30, 2023:
| Shareholders’ Equity Attributable to Snap-on Incorporated | ||||||||||||||||||||||||||||||||||||||||||||
|
Common
Stock |
Additional
Paid-in Capital |
Retained
Earnings |
Accumulated
Other Comprehensive Loss |
Treasury
Stock |
Noncontrolling
Interests |
Total
Equity |
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| Balance at December 31, 2022 | $ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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$ |
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Net earnings for the nine months ended September 30, 2023
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— | — |
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— | — |
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| Other comprehensive loss | — | — | — |
(
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— | — |
(
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Cash dividends – $
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— | — |
(
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— | — | — |
(
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| Stock compensation plans | — |
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— | — |
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— |
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Share repurchases –
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— | — | — | — |
(
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— |
(
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| Other |
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— |
(
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— | — |
(
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(
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| Balance at September 30, 2023 | $ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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$ |
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See Notes to Condensed Consolidated Financial Statements.
8
SNAP-ON INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in millions)
(Unaudited)
| Nine Months Ended | |||||||||||
| September 28, 2024 | September 30, 2023 | ||||||||||
| Operating activities: | |||||||||||
| Net earnings | $ |
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$ |
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| Adjustments to reconcile net earnings to net cash provided (used) by operating activities: | |||||||||||
| Depreciation |
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| Amortization of other intangible assets |
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| Provision for losses on finance receivables |
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| Provision for losses on non-finance receivables |
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| Stock-based compensation expense |
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| Deferred income tax benefit |
(
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(
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| Gain on sales of assets |
(
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(
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| Changes in operating assets and liabilities, net of effects of acquisitions: | |||||||||||
| Trade and other accounts receivable |
(
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(
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| Contract receivables |
(
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(
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| Inventories |
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(
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| Prepaid expenses and other current assets |
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| Accounts payable |
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| Accrued and other liabilities |
(
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(
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| Net cash provided by operating activities |
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| Investing activities: | |||||||||||
| Additions to finance receivables |
(
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(
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| Collections of finance receivables |
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| Capital expenditures |
(
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(
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| Disposals of property and equipment |
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| Other |
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(
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| Net cash used by investing activities |
(
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(
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| Financing activities: | |||||||||||
| Net decrease in other short-term borrowings |
(
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| Cash dividends paid |
(
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(
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| Purchases of treasury stock |
(
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(
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| Proceeds from stock purchase plans and stock option exercises |
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| Other |
(
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(
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| Net cash used by financing activities |
(
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(
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| Effect of exchange rate changes on cash and cash equivalents |
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(
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| Increase in cash and cash equivalents |
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| Cash and cash equivalents at beginning of year |
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| Cash and cash equivalents at end of period | $ |
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$ |
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| Supplemental cash flow disclosures: | |||||||||||
| Cash paid for interest | $ |
(
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$ |
(
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| Net cash paid for income taxes |
(
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(
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See Notes to Condensed Consolidated Financial Statements.
9
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 2023 Annual Report on Form 10-K for the fiscal year ended December 30, 2023 (“2023 year end”). The company’s 2024 fiscal third quarter ended on September 28, 2024, and its 2023 fiscal third quarter ended on September 30, 2023. The company’s 2024 and 2023 fiscal third quarters each contained 13 weeks of operating results. Snap-on’s Condensed Consolidated Financial Statements are prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”).
In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for the fair presentation of the Condensed Consolidated Financial Statements for the three and nine month periods ended September 28, 2024, and September 30, 2023, 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 additional information on financial instruments.
New Accounting Standards
In December 2023, the FASB issued ASU No. 2023-09,
Income Taxes (Topic 740): Improvements to Income Tax Disclosures
, which requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. ASU No. 2023-09 is effective for annual periods beginning after December 15, 2024. The guidance is to be applied on a prospective basis with the option to apply the standard retrospectively; this ASU allows for early adoption. The adoption of this ASU is not expected to have a material impact on Snap-on’s Condensed Consolidated Financial Statements.
In November 2023, the FASB issued ASU No. 2023-07,
Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures
, which requires the disclosure of additional segment information. ASU No. 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The adoption of this ASU is not expected to have a material impact on Snap-on’s Condensed Consolidated Financial Statements.
Note 2:
Revenue Recognition
Snap-on recognizes revenue from the sale of tools, diagnostics, equipment, and related services based on when control of the product passes to the customer or the service is provided and is recognized at an amount that reflects the consideration expected to be received in exchange for such goods or services.
10
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Revenue Disaggregation:
The following table shows the consolidated revenues by revenue source:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| (Amounts in millions) | September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | |||||||||||||||||||
| Revenue from contracts with customers | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Other revenues |
|
|
|
|
|||||||||||||||||||
| Total net sales |
|
|
|
|
|||||||||||||||||||
| Financial services revenue |
|
|
|
|
|||||||||||||||||||
| Total revenues | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
Snap-on evaluates the performance of its operating segments based on segment revenues and segment operating earnings. The Snap-on Tools Group segment revenues include external net sales, while the Commercial & Industrial Group and the Repair Systems & Information Group segment revenues include both external and intersegment net sales. Snap-on accounts for intersegment net sales and transfers based primarily on standard costs with reasonable mark-ups established between the segments. Intersegment amounts are eliminated to arrive at Snap-on’s consolidated financial results.
The following tables represent external net sales disaggregated by geography, based on the customers’ billing addresses:
| For the Three Months Ended September 28, 2024 | ||||||||||||||||||||||||||||||||||||||
| Commercial | Snap-on | Repair Systems | ||||||||||||||||||||||||||||||||||||
| & Industrial | Tools | & Information | Financial | Snap-on | ||||||||||||||||||||||||||||||||||
|
(Amounts in millions)
|
Group | Group | Group | Services | Eliminations | Incorporated | ||||||||||||||||||||||||||||||||
|
Net sales:
|
||||||||||||||||||||||||||||||||||||||
| North America* | $ |
|
$ |
|
$ |
|
$ |
|
$ | — | $ |
|
||||||||||||||||||||||||||
| Europe |
|
|
|
|
— |
|
||||||||||||||||||||||||||||||||
| All other |
|
|
|
|
— |
|
||||||||||||||||||||||||||||||||
| External net sales |
|
|
|
|
— |
|
||||||||||||||||||||||||||||||||
| Intersegment net sales |
|
|
|
|
(
|
— | ||||||||||||||||||||||||||||||||
| Total net sales |
|
|
|
|
(
|
|
||||||||||||||||||||||||||||||||
| Financial services revenue |
|
|
|
|
— |
|
||||||||||||||||||||||||||||||||
| Total revenue | $ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
||||||||||||||||||||||||||
| For the Nine Months Ended September 28, 2024 | ||||||||||||||||||||||||||||||||||||||
| Commercial | Snap-on | Repair Systems | ||||||||||||||||||||||||||||||||||||
| & Industrial | Tools | & Information | Financial | Snap-on | ||||||||||||||||||||||||||||||||||
| (Amounts in millions) | Group | Group | Group | Services | Eliminations | Incorporated | ||||||||||||||||||||||||||||||||
|
Net sales:
|
||||||||||||||||||||||||||||||||||||||
| North America* | $ |
|
$ |
|
$ |
|
$ |
|
$ | — | $ |
|
||||||||||||||||||||||||||
| Europe |
|
|
|
|
— |
|
||||||||||||||||||||||||||||||||
| All other |
|
|
|
|
— |
|
||||||||||||||||||||||||||||||||
| External net sales |
|
|
|
|
— |
|
||||||||||||||||||||||||||||||||
| Intersegment net sales |
|
|
|
|
(
|
— | ||||||||||||||||||||||||||||||||
| Total net sales |
|
|
|
|
(
|
|
||||||||||||||||||||||||||||||||
| Financial services revenue |
|
|
|
|
— |
|
||||||||||||||||||||||||||||||||
| Total revenue | $ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
||||||||||||||||||||||||||
| * North America is comprised of the United States, Canada and Mexico. | ||||||||||||||||||||||||||||||||||||||
11
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
| For the Three Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||||
| Commercial | Snap-on | Repair Systems | ||||||||||||||||||||||||||||||||||||
| & Industrial | Tools | & Information | Financial | Snap-on | ||||||||||||||||||||||||||||||||||
| (Amounts in millions) | Group | Group | Group | Services | Eliminations | Incorporated | ||||||||||||||||||||||||||||||||
|
Net sales:
|
||||||||||||||||||||||||||||||||||||||
| North America* | $ |
|
$ |
|
$ |
|
$ |
|
$ | — | $ |
|
||||||||||||||||||||||||||
| Europe |
|
|
|
|
— |
|
||||||||||||||||||||||||||||||||
| All other |
|
|
|
|
— |
|
||||||||||||||||||||||||||||||||
| External net sales |
|
|
|
|
— |
|
||||||||||||||||||||||||||||||||
| Intersegment net sales |
|
|
|
|
(
|
— | ||||||||||||||||||||||||||||||||
| Total net sales |
|
|
|
|
(
|
|
||||||||||||||||||||||||||||||||
| Financial services revenue |
|
|
|
|
— |
|
||||||||||||||||||||||||||||||||
| Total revenue | $ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
||||||||||||||||||||||||||
| For the Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||||
| Commercial | Snap-on | Repair Systems | ||||||||||||||||||||||||||||||||||||
| & Industrial | Tools | & Information | Financial | Snap-on | ||||||||||||||||||||||||||||||||||
| (Amounts in millions) | Group | Group | Group | Services | Eliminations | Incorporated | ||||||||||||||||||||||||||||||||
|
Net sales:
|
||||||||||||||||||||||||||||||||||||||
| North America* | $ |
|
$ |
|
$ |
|
$ |
|
$ | — | $ |
|
||||||||||||||||||||||||||
| Europe |
|
|
|
|
— |
|
||||||||||||||||||||||||||||||||
| All other |
|
|
|
|
— |
|
||||||||||||||||||||||||||||||||
| External net sales |
|
|
|
|
— |
|
||||||||||||||||||||||||||||||||
| Intersegment net sales |
|
|
|
|
(
|
— | ||||||||||||||||||||||||||||||||
| Total net sales |
|
|
|
|
(
|
|
||||||||||||||||||||||||||||||||
| Financial services revenue |
|
|
|
|
— |
|
||||||||||||||||||||||||||||||||
| Total revenue | $ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
||||||||||||||||||||||||||
| * North America is comprised of the United States, Canada and Mexico. | ||||||||||||||||||||||||||||||||||||||
12
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The following tables represent external net sales disaggregated by customer type:
| For the Three Months Ended September 28, 2024 | ||||||||||||||||||||||||||||||||||||||
| 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 | $ |
|
$ |
|
$ |
|
$ |
|
$ | — | $ |
|
||||||||||||||||||||||||||
| All other professionals |
|
|
|
|
— |
|
||||||||||||||||||||||||||||||||
| External net sales |
|
|
|
|
— |
|
||||||||||||||||||||||||||||||||
| Intersegment net sales |
|
|
|
|
(
|
— | ||||||||||||||||||||||||||||||||
| Total net sales |
|
|
|
|
(
|
|
||||||||||||||||||||||||||||||||
| Financial services revenue |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Total revenue | $ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
||||||||||||||||||||||||||
| For the Nine Months Ended September 28, 2024 | ||||||||||||||||||||||||||||||||||||||
| 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 | $ |
|
$ |
|
$ |
|
$ |
|
$ | — | $ |
|
||||||||||||||||||||||||||
| All other professionals |
|
|
|
|
— |
|
||||||||||||||||||||||||||||||||
| External net sales |
|
|
|
|
— |
|
||||||||||||||||||||||||||||||||
| Intersegment net sales |
|
|
|
|
(
|
— | ||||||||||||||||||||||||||||||||
| Total net sales |
|
|
|
|
(
|
|
||||||||||||||||||||||||||||||||
| Financial services revenue |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Total revenue | $ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
||||||||||||||||||||||||||
| For the Three Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||||
| 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 | $ |
|
$ |
|
$ |
|
$ |
|
$ | — | $ |
|
||||||||||||||||||||||||||
| All other professionals |
|
|
|
|
— |
|
||||||||||||||||||||||||||||||||
| External net sales |
|
|
|
|
— |
|
||||||||||||||||||||||||||||||||
| Intersegment net sales |
|
|
|
|
(
|
— | ||||||||||||||||||||||||||||||||
| Total net sales |
|
|
|
|
(
|
|
||||||||||||||||||||||||||||||||
| Financial services revenue |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Total revenue | $ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
||||||||||||||||||||||||||
13
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
| For the Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||||
| 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 | $ |
|
$ |
|
$ |
|
$ |
|
$ | — | $ |
|
||||||||||||||||||||||||||
| All other professionals |
|
|
|
|
— |
|
||||||||||||||||||||||||||||||||
| External net sales |
|
|
|
|
— |
|
||||||||||||||||||||||||||||||||
| Intersegment net sales |
|
|
|
|
(
|
— | ||||||||||||||||||||||||||||||||
| Total net sales |
|
|
|
|
(
|
|
||||||||||||||||||||||||||||||||
| Financial services revenue |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Total revenue | $ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
||||||||||||||||||||||||||
Nature of goods and services:
Snap-on derives net sales from a broad line of products and complementary services that are grouped into
three
categories: (i) tools; (ii) diagnostics, information and management systems; and (iii) equipment. The tools product category includes hand tools, power tools, tool storage products and other similar products. The diagnostics, information and management systems product category includes handheld and computer-based diagnostic products, service and repair information products, diagnostic software solutions, electronic parts catalogs, business management systems and services, point-of-sale systems, integrated systems for vehicle service shops, original equipment manufacturer (“OEM”) purchasing facilitation services, and warranty management systems and analytics to help OEM dealership service and repair shops (“OEM dealerships”) manage and track performance. The equipment product category includes solutions for the service of vehicles and industrial equipment. Snap-on supports the sale of its diagnostics and vehicle service shop equipment by offering training programs as well as after-sales support to its customers. Through its financial services businesses, Snap‑on derives revenue from various financing programs designed to facilitate the sales of its products and support its franchise business.
Approximately
90
% of Snap-on’s net sales are products sold at a point in time through ship-and-bill performance obligations that also include repair services. The remaining sales revenue is earned over time primarily for software subscriptions, other subscription service agreements and extended warranty programs.
Snap-on enters into contracts related to the selling of tools, diagnostics, repair information, equipment and related services. At contract inception, an assessment of the goods and services promised in the contracts with customers is performed and a performance obligation is identified for each distinct promise to transfer to the customer a good or service (or bundle of goods or services). To identify the performance obligations, Snap-on considers all of the goods or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. Contracts with customers are comprised of customer purchase orders, invoices and written contracts.
14
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 3:
Acquisitions
On November 20, 2023, Snap-on acquired certain assets of SAVTEQ, Inc. (“SAVTEQ”) for a cash purchase price of $
3.0
million. SAVTEQ, based in Lexington, Kentucky, provides precise non-contact measuring capabilities. In fiscal 2023, the company completed the purchase accounting valuations for the acquired net assets of SAVTEQ. The $
1.7
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.
On November 1, 2023, Snap-on acquired Mountz, Inc. (“Mountz”) for a cash purchase price of $
39.6
million. Mountz, based in San Jose, California, is a leading developer, manufacturer and marketer of high-precision torque tools, including measurement, calibration and documentation products. The company completed the purchase accounting valuations for the acquired net assets of Mountz in the first quarter of 2024. The $
19.8
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 SAVTEQ have been included in the Repair Systems & Information Group and the results of operations and assets of Mountz have been included in the Commercial & Industrial Group since the respective acquisition dates.
Pro forma financial information has not been presented for these acquisitions as the net effects, individually and collectively, were neither significant nor material to Snap-on’s results of operations or financial position. See Note 6 for additional 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, diagnostics, and equipment products to a broad range of industrial and commercial customers and to Snap-on’s independent franchise van channel with payment terms generally ranging from
30
to
120
days.
The components of Snap-on’s trade and other accounts receivable as of September 28, 2024, and December 30, 2023, are as follows:
| (Amounts in millions) |
September 28,
2024 |
December 30, 2023 | |||||||||
| Trade and other accounts receivable | $ |
|
$ |
|
|||||||
| Allowances for credit losses |
(
|
(
|
|||||||||
| Total trade and other accounts receivable – net | $ |
|
$ |
|
|||||||
15
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The following is a rollforward of the allowances for credit losses related to trade and other accounts receivable for the three and nine month periods ended September 28, 2024, and September 30, 2023:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| (Amounts in millions) | September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | |||||||||||||||||||
| Allowances for credit losses: | |||||||||||||||||||||||
| Beginning of period | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Provision for credit losses
|
|
|
|
|
|||||||||||||||||||
|
Charge-offs
|
(
|
(
|
(
|
(
|
|||||||||||||||||||
|
Recoveries
|
|
|
|
|
|||||||||||||||||||
|
Currency translation
|
|
(
|
(
|
(
|
|||||||||||||||||||
| End of period | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
Finance and contract receivables:
Snap-on Credit LLC (“SOC”), the company’s financial services operation in the United States, originates extended-term finance and contract receivables on sales of Snap-on’s products sold through the U.S. franchisee network and to certain other customers of Snap-on; Snap-on’s foreign finance subsidiaries provide similar financing internationally. Interest income on finance and contract receivables is included in “Financial services revenue” on the accompanying Condensed Consolidated Statements of Earnings.
Finance receivables are comprised of extended-term payment contracts to both technicians and independent shop owners (i.e., franchisees’ customers) to enable them to purchase tools, diagnostics, and equipment products on an extended-term payment plan, with average payment terms of approximately
four years
.
Contract receivables, with payment terms of up to
10
years, are comprised of extended-term payment contracts to a broad base of customers worldwide, including shop owners, both independents and national chains, for their purchase of tools, diagnostics, and equipment products, as well as extended-term contracts to franchisees to meet a number of financing needs, including working capital loans, loans to enable new franchisees to fund the purchase of the franchise and van leases, or the expansion of an existing franchise. Finance and contract receivables are generally secured by the underlying tools, diagnostics and/or equipment products financed and, for contracts to franchisees, other franchisee assets.
16
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The components of Snap-on’s current finance and contract receivables as of September 28, 2024, and December 30, 2023, are as follows:
| (Amounts in millions) |
September 28,
2024 |
December 30, 2023 | |||||||||
| Finance installment receivables | $ |
|
$ |
|
|||||||
|
Finance lease receivables, net of unearned finance charges of $
|
|
|
|||||||||
| Total finance receivables |
|
|
|||||||||
| Contract installment receivables |
|
|
|||||||||
|
Contract lease receivables, net of unearned finance charges of $
|
|
|
|||||||||
| Total contract receivables |
|
|
|||||||||
| Total |
|
|
|||||||||
| Allowances for credit losses: | |||||||||||
| Finance installment receivables |
(
|
(
|
|||||||||
| Finance lease receivables |
(
|
(
|
|||||||||
| Total finance allowances for credit losses |
(
|
(
|
|||||||||
| Contract installment receivables |
(
|
(
|
|||||||||
| Contract lease receivables |
(
|
(
|
|||||||||
| Total contract allowances for credit losses |
(
|
(
|
|||||||||
| Total allowances for credit losses |
(
|
(
|
|||||||||
| Total current finance and contract receivables – net | $ |
|
$ |
|
|||||||
| Finance receivables – net | $ |
|
$ |
|
|||||||
| Contract receivables – net |
|
|
|||||||||
| Total current finance and contract receivables – net | $ |
|
$ |
|
|||||||
17
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 September 28, 2024, and December 30, 2023, are as follows:
| (Amounts in millions) |
September 28,
2024 |
December 30, 2023 | |||||||||
| Finance installment receivables | $ |
|
$ |
|
|||||||
|
Finance lease receivables, net of unearned finance charges of $
|
|
|
|||||||||
| Total finance receivables |
|
|
|||||||||
| Contract installment receivables |
|
|
|||||||||
|
Contract lease receivables, net of unearned finance charges of $
|
|
|
|||||||||
| Total contract receivables |
|
|
|||||||||
| Total |
|
|
|||||||||
| Allowances for credit losses: | |||||||||||
| Finance installment receivables |
(
|
(
|
|||||||||
| Finance lease receivables |
(
|
(
|
|||||||||
| Total finance allowances for credit losses |
(
|
(
|
|||||||||
| Contract installment receivables |
(
|
(
|
|||||||||
| Contract lease receivables |
(
|
(
|
|||||||||
| Total contract allowances for credit losses |
(
|
(
|
|||||||||
| Total allowances for credit losses |
(
|
(
|
|||||||||
| Total long-term finance and contract receivables – net | $ |
|
$ |
|
|||||||
| Finance receivables – net | $ |
|
$ |
|
|||||||
| Contract receivables – net |
|
|
|||||||||
| Total long-term finance and contract receivables – net | $ |
|
$ |
|
|||||||
18
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Credit quality:
The company’s receivable portfolio is comprised of
two
portfolio segments, finance and contract receivables, which are the same segments used to estimate expected credit losses reported in the allowances for credit losses. The amortized cost basis for finance and contract receivables is the amount originated adjusted for applicable accrued interest and net of deferred fees or costs, collections, and write-offs. The company monitors and assesses credit risk based on the characteristics of each portfolio segment.
When extending credit, Snap-on evaluates the collectability of the receivables based on a combination of various financial and qualitative factors that may affect a customer’s ability to pay. These factors may include the customer’s financial condition, past payment experience, and credit bureau and proprietary Snap-on credit model information, as well as the value of the underlying collateral.
For finance and contract receivables, Snap-on assesses quantitative and qualitative factors through the use of credit quality indicators consisting primarily of delinquency classification, collection experience and credit exposure by customer. Delinquency is the primary indicator of credit quality for finance and contract receivables. Snap-on conducts monthly reviews of credit and collection performance for both the finance and contract receivable portfolios focusing on data such as delinquency trends, nonaccrual receivables, and write-off and recovery activity. These reviews allow for the formulation of collection strategies and potential collection policy modifications in response to changing risk profiles in the finance and contract receivable portfolios. The company also maintains a system that aggregates credit exposure and provides delinquency data by days past due aging categories. A receivable
30
days or more past due is considered delinquent. However, customer receivables are monitored prior to becoming
30
days past due.
The amortized cost basis of finance and contract receivables by origination year as of September 28, 2024, and charge-offs recorded in the nine months ended September 28, 2024, by origination year, are as follows:
| (Amounts in millions) | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Total | ||||||||||||||||||||||||||||||||||
| Finance receivables: | |||||||||||||||||||||||||||||||||||||||||
| Delinquent | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
| Non-delinquent |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Total Finance receivables | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
| Finance receivables charge-offs | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
| Contract receivables: | |||||||||||||||||||||||||||||||||||||||||
| Delinquent | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
| Non-delinquent |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Total Contract receivables | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
| Contract receivables charge-offs | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
Allowances for credit losses:
The allowances for credit losses are maintained at levels that are considered adequate to cover expected credit losses over the remaining contractual life of the receivables using historical loss experience, asset specific risk characteristics, current conditions, reasonable and supportable forecasts, and an appropriate reversion period, when applicable. Management performs detailed reviews of its receivables on a monthly and/or quarterly basis to assess the adequacy of the allowances and to determine if any impairment has occurred. A receivable generally has credit losses when it is expected that all amounts related to the receivable will not be collected according to the contractual terms of the agreement. Amounts determined to be uncollectable are charged directly against the allowances, while amounts recovered on previously written off accounts increase the allowances.
19
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
For both finance and contract receivables, write-offs include the uncollectable principal amount of the receivable as well as the uncollectable accrued interest and fees, net of repossessions. For finance receivables only, write-offs are partially offset by recourse from franchisees. Recovered interest and fees previously written off are recorded through the allowances for credit losses and increase the allowances. Absent a repossession, finance receivables are typically written off when an account reaches
120
days past due. Repossessed accounts are typically written off within
60
days of asset repossession. Contract receivables related to equipment leases are generally written off when an account becomes
150
days past due, while contract receivables related to franchise finance and van leases are generally written off no later than when the receivable becomes
180
days past the asset return date. For finance and contract receivables, customer bankruptcies are generally written off upon notification that the associated debt is not being reaffirmed or, in any event, no later than when the receivable becomes
180
days past due. Changes to the allowances for credit losses are maintained through adjustments to the provisions for credit losses.
For finance receivables, the company uses a vintage loss rate methodology to determine expected losses. Vintage analysis aims to calculate losses based on the timing of the losses relative to the origination of the receivables. The finance receivable portfolio contains a substantial amount of homogeneous contracts which fits well with the vintage analysis.
For contract receivables, the company primarily uses a Weighted-Average Remaining Maturity (“WARM”) methodology. The WARM methodology calculates the average annual write-off rate and applies it to the remaining term of the receivables. The WARM methodology is used since contract receivables have limited loss experience over generally longer terms and, therefore, the predictive loss patterns are more difficult to estimate.
The company performed a correlation analysis to compare historical losses to many economic factors. The primary economic factors considered were real gross domestic product, civilian unemployment, industrial production index, and repair and maintenance employment rate; the company determined that there is limited correlation between the historical losses and economic factors. As a result, consideration was given to qualitative factors to adjust the reserve balance for asset specific risk characteristics, current conditions and future expectations. Similar qualitative factors are considered for both finance and contract receivables. The qualitative factors used in determining the estimate of expected credit losses are influenced by the changes in the composition of the portfolio, underwriting practices, and other relevant conditions that were different from the historical periods.
The allowances for credit losses are adjusted each period for changes in the credit risk and expected lifetime credit losses.
The following is a rollforward of the allowances for credit losses for finance and contract receivables for the three and nine month periods ended September 28, 2024, and September 30, 2023:
|
Three Months Ended
September 28, 2024 |
Nine Months Ended
September 28, 2024 |
||||||||||||||||||||||
| (Amounts in millions) |
Finance
Receivables |
Contract
Receivables |
Finance
Receivables |
Contract
Receivables |
|||||||||||||||||||
| Allowances for credit losses: | |||||||||||||||||||||||
| Beginning of period | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Provision for credit losses |
|
|
|
|
|||||||||||||||||||
| Charge-offs |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Recoveries |
|
|
|
|
|||||||||||||||||||
| Currency translation |
|
|
|
|
|||||||||||||||||||
| End of period | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
20
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
|
Three Months Ended
September 30, 2023 |
Nine Months Ended
September 30, 2023 |
||||||||||||||||||||||
| (Amounts in millions) | Finance Receivables | Contract Receivables | Finance Receivables | Contract Receivables | |||||||||||||||||||
| Allowances for credit losses: | |||||||||||||||||||||||
| Beginning of period | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Provision for credit losses |
|
|
|
|
|||||||||||||||||||
| Charge-offs |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Recoveries |
|
|
|
|
|||||||||||||||||||
| Currency translation |
(
|
(
|
|
(
|
|||||||||||||||||||
| End of period | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
Past due:
Depending on the contract, payments for finance and contract receivables are due on a monthly or weekly basis. Weekly payments are converted into a monthly equivalent for purposes of calculating delinquency. Delinquencies are assessed at the end of each month following the monthly equivalent contractual payment due date. The entire receivable balance of a contract is considered delinquent when contractual payments become
30
days past due. Removal from delinquent status occurs when the cumulative amount of monthly contractual payments then due have been received by the company.
It is the general practice of Snap-on’s financial services business not to engage in contract or loan modifications. In limited instances, Snap-on’s financial services business may modify certain receivables. The amount and number of finance and contract receivable modifications as of September 28, 2024, and December 30, 2023, were immaterial to both the financial services portfolio and the company’s results of operations and financial position.
21
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The aging of finance and contract receivables as of September 28, 2024, and December 30, 2023, 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 |
||||||||||||||||||||||||||||||||||
| September 28, 2024: | |||||||||||||||||||||||||||||||||||||||||
| Finance receivables | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
| Contract receivables |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| December 30, 2023: | |||||||||||||||||||||||||||||||||||||||||
| Finance receivables | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
| Contract receivables |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
Nonaccrual:
SOC maintains the accrual of interest income during the progression through the various stages of delinquency prior to processing for write-off. At the time of write-off, the entire balance including the accrued but unpaid interest income amount is recorded as a loss.
Finance receivables are generally placed on nonaccrual status (nonaccrual of interest and other fees): (i) when a customer is placed on repossession status; (ii) upon receipt of notification of bankruptcy; (iii) upon notification of the death of a customer; or (iv) in other instances in which management concludes collectability is not reasonably assured.
Contract receivables are generally placed on nonaccrual status: (i) when a receivable is more than
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.
The accrual of interest and other fees is resumed when the finance or contract receivable becomes contractually current and collection of all remaining contractual amounts due is reasonably assured. A receivable may have credit losses when it is expected that all amounts related to the receivable will not be collected according to the contractual terms of the applicable agreement. Such finance and contract receivables are covered by the company’s respective allowances for credit losses and are written-off against the allowances when appropriate.
The amount of finance and contract receivables on nonaccrual status as of September 28, 2024, and December 30, 2023, is as follows:
| (Amounts in millions) |
September 28,
2024 |
December 30, 2023 | |||||||||
| Finance receivables | $ |
|
$ |
|
|||||||
| Contract receivables |
|
|
|||||||||
22
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 5:
Inventories
Inventories by major classification are as follows:
| (Amounts in millions) |
September 28,
2024 |
December 30, 2023 | |||||||||
| Finished goods | $ |
|
$ |
|
|||||||
| Work in progress |
|
|
|||||||||
| Raw materials |
|
|
|||||||||
| Total FIFO value |
|
|
|||||||||
| Excess of current cost over LIFO cost |
(
|
(
|
|||||||||
| Total inventories – net | $ |
|
$ |
|
|||||||
Inventories accounted for using the first-in, first-out (“FIFO”) method approximated
58
% and
59
% of total inventories as of September 28, 2024, and December 30, 2023. The company accounts for its non-U.S. inventory on the FIFO method. As of September 28, 2024, approximately
35
% of the company’s U.S. inventory was accounted for using the FIFO method and
65
% was accounted for using the last-in, first-out (“LIFO”) method. There were
no
LIFO inventory liquidations in the three and nine month periods ended September 28, 2024, and September 30, 2023.
Note 6:
Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill by segment for the nine months ended September 28, 2024, are as follows:
| (Amounts in millions) |
Commercial
& Industrial Group |
Snap-on
Tools Group |
Repair Systems
& Information Group |
Total | |||||||||||||||||||
| Balance as of December 30, 2023 | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Currency translation |
|
|
|
|
|||||||||||||||||||
| Acquisition adjustments |
(
|
|
|
(
|
|||||||||||||||||||
| Balance as of September 28, 2024 | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
Goodwill of $
1,086.6
million as of September 28, 2024, includes $
19.8
million from the acquisition of Mountz. In the first quarter of 2024, the purchase accounting valuations for the acquired net assets of Mountz were completed, resulting in a reduction of goodwill of $
13.2
million from year end 2023.
See Note 3 for additional information on acquisitions.
23
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Additional disclosures related to other intangible assets are as follows:
| September 28, 2024 | December 30, 2023 | ||||||||||||||||||||||||||||||||||
| (Amounts in millions) | Gross Carrying Value |
Accumulated
Amortization |
Net Carrying Value | Gross Carrying Value |
Accumulated
Amortization |
Net Carrying Value | |||||||||||||||||||||||||||||
| Amortized other intangible assets: | |||||||||||||||||||||||||||||||||||
| Customer relationships | $ |
|
$ |
(
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||||||
| Developed technology |
|
(
|
|
|
(
|
|
|||||||||||||||||||||||||||||
| Internally developed software |
|
(
|
|
|
(
|
|
|||||||||||||||||||||||||||||
| Patents |
|
(
|
|
|
(
|
|
|||||||||||||||||||||||||||||
| Trademarks |
|
(
|
|
|
(
|
|
|||||||||||||||||||||||||||||
| Other |
|
(
|
|
|
(
|
|
|||||||||||||||||||||||||||||
| Total |
|
(
|
|
|
(
|
|
|||||||||||||||||||||||||||||
| Non-amortized trademarks |
|
— |
|
|
— |
|
|||||||||||||||||||||||||||||
| Total other intangible assets | $ |
|
$ |
(
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||||||
The gross carrying value of customer relationships and non-amortized trademarks includes $
8.7
million and $
5.4
million, respectively, related to the Mountz acquisition.
Snap-on completed its annual impairment testing of goodwill and other indefinite-lived intangible assets in the second quarter of 2024, the results of which did not result in any impairment. Provisions for the impairment of goodwill and/or other intangible assets could arise in a future period due to significant and unanticipated changes in circumstances, such as declines in profitability and cash flow due to long-term deterioration in macroeconomic, industry and market conditions, the loss of key customers, changes in technology or markets, changes in key personnel or litigation, a sustained decrease in share price and/or other events. As of September 28, 2024, the company had
no
accumulated impairment losses.
The weighted-average amortization periods related to other intangible assets are as follows:
| In Years | |||||
| Customer relationships |
|
||||
| Developed technology |
|
||||
| Internally developed software |
|
||||
| Patents |
|
||||
| Trademarks |
|
||||
| Other |
|
||||
The weighted-average amortization period for all amortizable intangible assets on a combined basis is
12
years. Intangible asset renewal costs are expensed as incurred.
The aggregate amortization expense was $
6.3
million and $
19.0
million for the respective three and nine month periods ended September 28, 2024, and $
6.8
million and $
20.7
million for the respective three and nine month periods ended September 30, 2023. Based on current levels of amortizable intangible assets and estimated weighted-average useful lives, estimated annual amortization expense is expected to be $
25.4
million in 2024, $
21.0
million in 2025, $
16.1
million in 2026, $
13.4
million in 2027, $
11.4
million in 2028, and $
8.2
million in 2029.
24
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 7:
Income Taxes
Snap-on’s effective income tax rate on earnings attributable to Snap-on was
22.6
% and
22.9
% in the first nine months of fiscal 2024 and 2023, 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-on’s gross unrecognized tax benefits to decrease by a range of
zero
to $
0.6
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 $
0.9
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 September 28, 2024, and December 30, 2023, consisted of the following:
| (Amounts in millions) |
September 28,
2024 |
December 30, 2023 | |||||||||
|
|
$ |
|
$ |
|
|||||||
|
|
|
|
|||||||||
|
|
|
|
|||||||||
| Other debt* |
(
|
|
|||||||||
|
|
|
||||||||||
|
Less: notes payable
|
(
|
(
|
|||||||||
| Total long-term debt | $ |
|
$ |
|
|||||||
| * | Includes unamortized debt issuance costs and issuance discounts. | |||||||
S
nap-on has a $
900
million multicurrency revolving credit facility that terminates on September 12, 2028 (the “Credit Facility”).
The Credit Facility contains an accordion feature that, subject to certain customary conditions, may allow the maximum commitment to be increased by up to $
450
million with the approval of the lenders providing additional commitments.
No
amounts were borrowed or outstanding under the Credit Facility during the nine months ended and as of September 28, 2024.
Borrowings under the Credit Facility bear interest at varying rates based on either: (i) Snap-on’s then-current, long-term debt ratings; or (ii) Snap-on’s then-current ratio of consolidated debt net of certain cash adjustments (“Consolidated Net Debt”) to earnings before interest, taxes, depreciation, amortization and certain other adjustments for the preceding four fiscal quarters then ended (the “Consolidated Net Debt to EBITDA Ratio”). The Credit Facility’s financial covenant requires that Snap-on maintain, as of each fiscal quarter end, either (i) a ratio not greater than
0.60
to 1.00 of Consolidated Net Debt to the sum of Consolidated Net Debt plus total equity and less accumulated other comprehensive income or loss (the “Leverage Ratio”); or (ii) a Consolidated Net Debt to EBITDA Ratio not greater than
3.50
to 1.00. Snap-on may, up to
two
times during any
five-year
period during the term of the Credit Facility (including any extensions thereof), elect to increase the maximum Leverage Ratio to
0.65
to 1.00 and/or increase the maximum Consolidated Net Debt to EBITDA Ratio to
4.00
to 1.00 for four consecutive fiscal quarters in connection with certain material acquisitions (as defined in the related credit agreement). As of September 28, 2024, the company’s consolidated cash balance, net of certain adjustments, exceeded consolidated debt resulting in actual ratios of (
0.01
) and (
0.03
), respectively. Both ratios are within the permitted ranges set forth in this financial covenant.
Snap-on generally issues commercial paper to fund its financing needs on a short-term basis and uses the Credit Facility as back-up liquidity to support such commercial paper issuances. As of September 28, 2024, there were
no
commercial paper issuances outstanding.
25
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 and effective as part of a hedged transaction. Gains or losses on derivative instruments recorded in earnings are presented in the same Condensed Consolidated Statement of Earnings line that is used to present the earnings effect of the hedged item. Gains or losses on derivative instruments in accumulated other comprehensive income (loss) (“Accumulated OCI”) are reclassified to earnings in the period in which earnings are affected by the underlying hedged item.
The criteria used to determine if hedge accounting treatment is appropriate are: (i) the designation of the hedge to an underlying exposure; (ii) whether or not overall risk is being reduced; and (iii) if there is a correlation between the value of the derivative instrument and the underlying hedged item. Once a derivative contract is entered into, Snap-on designates the derivative as a fair value hedge, a cash flow hedge, a hedge of a net investment in a foreign operation, or a natural hedging instrument whose change in fair value is recognized as an economic hedge against changes in the value of the hedged item.
Snap-on does not use derivative instruments for speculative or trading purposes.
Snap-on is exposed to global market risks, including the effects of changes in foreign currency exchange rates, interest rates, and the company’s stock price. The company uses derivatives to manage financial exposures that occur in the normal course of business. The primary risks managed by using derivative instruments are foreign currency risk, interest rate risk and stock-based deferred compensation risk.
Foreign currency risk management:
Snap-on has significant international operations and is subject to certain risks inherent with foreign operations 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. See Note 16 for additional information on Other income (expense) – net.
Interest rate risk management:
Snap-on may manage the exposure created by the differing maturities and interest rate structures of Snap-on’s borrowings through the use of interest rate swap agreements (“interest rate swaps”) and treasury lock agreements (“treasury locks”).
Interest rate swaps:
Snap-on may enter into interest rate swaps to manage risks associated with changing interest rates related to the company’s fixed rate borrowings. Interest rate swaps are accounted for as fair value hedges. The differentials paid or received on interest rate swaps are recognized as adjustments to “Interest expense” on the accompanying Condensed Consolidated Statements of Earnings. The change in the fair value of the derivative is recorded in “Long-term debt” on the accompanying Condensed Consolidate
d Balance Sheets. T
here were
no
outstanding interest rate swaps as of both September 28, 2024, and
December 30, 2023
.
Treasury locks:
Snap-on may use treasury locks to manage the potential change in interest rates in anticipation of the issuance of fixed rate debt. Treasury locks are accounted for as cash flow hedges. The differentials to be paid or received on treasury locks related to the anticipated issuance of fixed rate debt are initially recorded in Accumulated OCI for derivative instruments that are designated and qualify as cash flow hedges. Upon the issuance of debt, the related amount in Accumulated OCI is released over the term of the debt and recognized as an adjustment to interest expense on the Condensed Consolidated Statements of Earnings. There were
no
treasury locks outstanding as of both September 28, 2024, and December 30, 2023. See Note 16 for additional information on Other income (expense) – net.
26
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Stock-based deferred compensation risk management:
Snap-on manages 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 September 28, 2024, Snap-on had equity forwards in place intended to manage market risk with respect to
77,200
shares of Snap-on common stock associated with its deferred compensation plans.
Counterparty risk:
Snap-on is exposed to credit losses in the event of non-performance by the counterparties to its various financial agreements, including its foreign currency forward contracts, interest rate swap agreements, treasury lock agreements and prepaid equity forward agreements. Snap-on does not obtain collateral or other security to support financial instruments subject to credit risk, but monitors the credit standing of the counterparties and generally enters into agreements with financial institution counterparties with a credit rating of A- or better. Snap-on does not anticipate non-performance by its counterparties, but cannot provide assurances.
Fair value of financial instruments:
The fair values of financial instruments that do not approximate the carrying values in the financial statements are as follows:
| September 28, 2024 | December 30, 2023 | ||||||||||||||||||||||
| (Amounts in millions) |
Carrying
Value |
Fair
Value |
Carrying
Value |
Fair
Value |
|||||||||||||||||||
| Finance receivables – net | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Contract receivables – net |
|
|
|
|
|||||||||||||||||||
|
Long-term debt and notes payable
|
|
|
|
|
|||||||||||||||||||
The following methods and assumptions are 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 is estimated, using Level 2 fair value measurements, based on quoted market values of Snap-on’s publicly traded senior debt. The carrying value of long-term debt includes unamortized debt issuance costs and issuance discounts. 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.
27
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 10:
Pension Plans
Snap-on’s net periodic pension benefit included the following components:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| (Amounts in millions) | September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | |||||||||||||||||||
| Service cost | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Interest cost |
|
|
|
|
|||||||||||||||||||
| Expected return on plan assets |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Amortization of unrecognized loss |
|
|
|
|
|||||||||||||||||||
| Net periodic pension benefit | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||
The components of net periodic pension benefit, 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 $
6.0
million to its foreign pension plans and $
3.7
million to its domestic pension plans in 2024, as required by law. Depending on market and other conditions, Snap-on may make discretionary cash contributions to its pension plans in 2024.
Note 11:
Postretirement Health Care Plans
Snap-on’s net periodic postretirement health care cost included the following components:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| (Amounts in millions) | September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | |||||||||||||||||||
| Interest cost | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Expected return on plan assets |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Amortization of unrecognized gain |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Net periodic postretirement health care cost | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
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.
28
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
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 share units (“PSUs”), stock appreciation rights (“SARs”) and restricted stock awards (which may be designated as “restricted stock units” or “RSUs”). As of September 28, 2024, the 2011 Plan had
2,091,365
shares available for future grants. The company uses treasury stock to deliver shares under the 2011 Plan.
Net stock-based compensation expense was $
5.7
million and $
21.5
million for the respective three and nine month periods ended September 28, 2024, and $
11.0
million and $
31.4
million for the respective three and nine month periods ended September 30, 2023. Cash received from stock purchase plans and stock option exercises totaled $
9.9
million and $
61.6
million during the respective three and nine month periods ended September 28, 2024, and $
9.9
million and $
94.5
million for the respective three and nine month periods ended September 30, 2023. The tax benefit realized from both the exercise and vesting of share-based payment arrangements was $
1.8
million and $
12.9
million for the respective three and nine month periods ended September 28, 2024, and $
2.6
million and $
13.1
million for the respective three and nine month periods ended September 30, 2023.
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
10
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 stock 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 stock option. The expected dividend yield is based on the expected annual dividend as a percentage of the market value of our common stock as of the date of grant. The risk-free interest rate is based on the U.S. treasury yield curve on the grant date for the expected term of the stock option.
The following weighted-average assumptions were used in calculating the fair value of stock options granted during the nine month periods ended September 28, 2024, and September 30, 2023, using the Black-Scholes valuation model;
no
stock options were granted during the three month periods ended September 28, 2024, and September 30, 2023:
| Nine Months Ended | |||||||||||
| September 28, 2024 | September 30, 2023 | ||||||||||
|
Expected term of stock option
(in years)
|
|
|
|||||||||
| Expected volatility factor |
|
|
|||||||||
| Expected dividend yield |
|
|
|||||||||
| Risk-free interest rate |
|
|
|||||||||
29
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Below is a summary of stock option activity as of and for the nine months ended September 28, 2024:
|
Shares
(in thousands)
|
Exercise
Price Per Share* |
Remaining
Contractual
Term*
(in years)
|
Aggregate
Intrinsic
Value
(in millions)
|
||||||||||||||||||||
| Outstanding at December 30, 2023 |
|
$ |
|
||||||||||||||||||||
| Granted |
|
|
|||||||||||||||||||||
| Exercised |
(
|
|
|||||||||||||||||||||
| Forfeited or expired |
(
|
|
|||||||||||||||||||||
| Outstanding at September 28, 2024 |
|
|
|
$ |
|
||||||||||||||||||
| Exercisable at September 28, 2024 |
|
|
|
|
|||||||||||||||||||
| * | Weighted-average | |||||||||||||||||||||||||
30
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The weighted-average grant date fair value of stock options granted during the nine month periods ended September 28, 2024, and September 30, 2023, was $
55.07
and $
51.09
, respectively. The intrinsic value of stock options exercised was $
7.3
million and $
30.0
million during the respective three and nine month periods ended September 28, 2024, and $
9.9
million and $
57.0
million during the respective three and nine month periods ended September 30, 2023. The fair value of stock options vested was $
9.5
million and $
9.1
million during the respective nine month periods ended September 28, 2024, and September 30, 2023.
As of September 28, 2024, there was $
15.7
million of unrecognized compensation cost related to non-vested stock options that is expected to be recognized as a charge to earnings over a weighted-average period of
1.7
years.
Performance share units:
PSUs 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 PSUs is dependent upon performance relative to pre-defined goals for revenue growth and return on net assets for the applicable performance period. For performance achieved above specified levels, the recipient may earn additional shares of stock, not to exceed
100
% of the number of performance awards initially granted. The PSUs have a
three-year
performance period based on the results of the consolidated financial metrics of the company.
The fair value of PSUs 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 PSUs granted during the nine month periods ended September 28, 2024, and September 30, 2023, was $
269.00
and $
249.26
, respectively. PSUs related to
137,096
shares and
60,402
shares were paid out during the nine month periods ended September 28, 2024, and September 30, 2023, respectively. Earned PSUs vest and are generally paid out following the conclusion of the applicable performance period upon approval by the Organization and Executive Compensation Committee of the company’s Board of Directors (the “Board”).
Changes to the company’s non-vested PSUs during the nine months ended September 28, 2024, are as follows:
|
Shares
(in thousands)
|
Fair Value
Price per Share* |
||||||||||
| Non-vested PSUs at December 30, 2023 |
|
$ |
|
||||||||
| Granted |
|
|
|||||||||
| Performance assumption change ** |
(
|
|
|||||||||
| Vested |
|
|
|||||||||
| Cancellations and other |
(
|
|
|||||||||
| Non-vested PSUs at September 28, 2024 |
|
|
|||||||||
| * | Weighted-average | |||||||
| ** | Reflects the number of PSUs adjusted based on performance metrics. | |||||||
As of September 28, 2024, there was $
18.4
million of unrecognized compensation cost related to non-vested PSUs that are expected to be recognized as a charge to earnings over a weighted-average period of
1.1
years.
Restricted stock units:
RSUs are earned and expensed using the fair value of the award over the contractual term of
three years
. Vesting of the RSUs is dependent upon continued employment over the
three-year
cliff vesting period.
The fair value of RSUs is calculated using the market value of a share of Snap-on’s common stock on the date of grant and assumed forfeitures based on recent historical experience; in recent years, forfeitures have not been significant. The weighted-average grant date fair value of RSUs granted during the nine month periods ended September 28, 2024, and September 30, 2023, was $
269.00
and $
249.26
, respectively.
31
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Changes to the company’s non-vested RSUs during the nine months ended September 28, 2024, are as follows:
|
Shares
(in thousands)
|
Fair Value
Price per Share* |
||||||||||
| Non-vested RSUs at December 30, 2023 |
|
$ |
|
||||||||
| Granted |
|
|
|||||||||
| Vested |
(
|
|
|||||||||
| Cancellations and other |
(
|
|
|||||||||
| Non-vested RSUs at September 28, 2024 |
|
|
|||||||||
| * | Weighted-average | |||||||
As of September 28, 2024, there was $
7.9
million of unrecognized compensation cost related to non-vested RSUs that are expected to be recognized as a charge to earnings over a weighted-average period of
1.3
years.
Stock appreciation rights:
The company also issues stock-settled and cash-settled SARs to certain key non-U.S. employees. SARs have a contractual term of
10
years and vest ratably on the first, second and third anniversaries of the date of grant. SARs are granted with an exercise price equal to the market value of a share of Snap-on’s common stock on the date of grant.
Stock-settled SARs are accounted for as equity instruments and provide for the issuance of Snap-on common stock equal to the amount by which the company’s stock has appreciated over the exercise price. Stock-settled SARs have an effect on dilutive shares and shares outstanding as any appreciation of Snap-on’s common stock value over the exercise price will be settled in shares of common stock. Cash-settled SARs provide for the cash payment of the excess of the fair market value of Snap-on’s common stock price on the date of exercise over the grant price. Cash-settled SARs have no effect on dilutive shares or shares outstanding as any appreciation of Snap-on’s common stock over the grant price is paid in cash and not in common stock.
The fair value of stock-settled SARs is estimated on the date of grant using the Black-Scholes valuation model. The fair value of cash-settled SARs is revalued (mark-to-market) each reporting period using the Black-Scholes valuation model based on Snap-on’s period-end stock price. The company uses historical data regarding SARs exercise and forfeiture behaviors for different participating groups to estimate the expected term of the SARs granted based on the period of time that similar instruments granted are expected to be outstanding. Expected volatility is based on the historical volatility of the company’s stock for the length of time corresponding to the expected term of the SARs. The expected dividend yield is based on the expected annual dividend as a percentage of the market value of our common stock as of the date of grant (for stock-settled SARs) or reporting date (for cash-settled SARs). The risk-free interest rate is based on the U.S. treasury yield curve in effect as of the grant date (for stock-settled SARs) or reporting date (for cash-settled SARs) for the length of time corresponding to the expected term of the SARs.
The following weighted-average assumptions were used in calculating the fair value of stock-settled SARs granted during the nine month periods ended September 28, 2024, and September 30, 2023, using the Black-Scholes valuation model;
no
stock-settled SARs were granted during the three month periods ended September 28, 2024, and September 30, 2023:
| Nine Months Ended | |||||||||||
| September 28, 2024 | September 30, 2023 | ||||||||||
|
Expected term of stock-settled SARs
(in years)
|
|
|
|||||||||
| Expected volatility factor |
|
|
|||||||||
| Expected dividend yield |
|
|
|||||||||
| Risk-free interest rate |
|
|
|||||||||
32
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Below is a summary of stock-settled SARs as of and for the nine months ended September 28, 2024:
|
Stock-settled
SARs
(in thousands)
|
Exercise
Price Per Share* |
Remaining
Contractual
Term*
(in years)
|
Aggregate
Intrinsic
Value
(in millions)
|
||||||||||||||||||||
| Outstanding at December 30, 2023 |
|
$ |
|
||||||||||||||||||||
| Granted |
|
|
|||||||||||||||||||||
| Exercised |
(
|
|
|||||||||||||||||||||
| Forfeited or expired |
(
|
|
|||||||||||||||||||||
| Outstanding at September 28, 2024 |
|
|
|
$ |
|
||||||||||||||||||
| Exercisable at September 28, 2024 |
|
|
|
|
|||||||||||||||||||
| * | Weighted-average | |||||||
The weighted-average grant date fair value of stock-settled SARs granted during the nine month periods ended September 28, 2024, and September 30, 2023, was $
52.12
and $
48.85
, respectively. The intrinsic value of stock-settled SARs exercised was $
0.3
million and $
1.7
million during the respective three and nine month periods ended September 28, 2024, and $
0.2
million and $
5.0
million during the respective three and nine periods ended September 30, 2023. The fair value of stock-settled SARs vested was $
2.3
million and $
1.9
million during the respective nine month periods ended September 28, 2024, and September 30, 2023.
As of September 28, 2024, 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
1.7
years.
The following weighted-average assumptions were used in calculating the fair value of cash-settled SARs granted during the nine month periods ended September 28, 2024, and September 30, 2023, using the Black-Scholes valuation model;
no
cash-settled SARs were granted during the three month periods ended September 28, 2024, and September 30, 2023:
| Nine Months Ended | |||||||||||
| September 28, 2024 | September 30, 2023 | ||||||||||
|
Expected term of cash-settled SARs
(in years)
|
|
|
|||||||||
| Expected volatility factor |
|
|
|||||||||
| Expected dividend yield |
|
|
|||||||||
| Risk-free interest rate |
|
|
|||||||||
The intrinsic value of cash-settled SARs exercised was
zero
for both the three and nine month periods ended September 28, 2024, and
zero
and $
0.4
million for the respective three and nine month periods ended September 30, 2023. The fair value of cash-settled SARs vested was $
0.1
million for both the nine month periods ended September 28, 2024, and September 30, 2023.
Changes to the company’s non-vested cash-settled SARs during the nine months ended September 28, 2024, are as follows:
|
Cash-settled
SARs
(in thousands)
|
Fair Value
Price per Share* |
||||||||||
| Non-vested cash-settled SARs at December 30, 2023 |
|
$ |
|
||||||||
| Granted |
|
|
|||||||||
| Vested |
(
|
|
|||||||||
| Non-vested cash-settled SARs at September 28, 2024 |
|
|
|||||||||
| * | Weighted-average | |||||||
As of September 28, 2024, 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
1.7
years.
33
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Restricted stock awards – non-employee directors:
The company awarded
5,391
shares and
5,760
shares of restricted stock to non-employee directors for the respective nine month periods ended September 28, 2024, and September 30, 2023. 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 on the restricted stock awards generally lapse upon the earlier of the first anniversary of the grant date, the recipient’s death or disability or in the event of a change in control, as defined in the 2011 Plan. If termination of the recipient’s service occurs prior to the first anniversary of the grant date for any reason other than death or disability, the shares of restricted stock would be forfeited, unless otherwise determined by the Board.
Employee stock purchase plan:
Substantially all Snap-on employees in the United States and Canada are eligible to participate in an employee stock purchase plan. The purchase price of the company’s common stock to participants is the lesser of the mean of the high and low prices of the stock on the beginning date (May 15) or ending date (the following May 14) of each plan year. The company records compensation expense when Snap-on’s period-end stock price is greater than the plan purchase price. There were
21,798
shares and
27,225
shares issued under this plan for the respective nine month periods ended September 28, 2024, and September 30, 2023. As of September 28, 2024,
529,800
shares were reserved for issuance under this plan and Snap-on held participant contributions of approximately $
1.7
million. Participants are able to withdraw from the plan at any time prior to the ending date and receive back all contributions made during the plan year. Compensation expense for plan participants was $
0.1
million and $
0.2
million for the respective three and nine month periods ended September 28, 2024, and
zero
and $
1.0
million for the respective three and nine month periods ended September 30, 2023.
Franchisee stock purchase plan:
All franchisees in the United States and Canada are eligible to participate in a franchisee stock purchase plan. The purchase price of the company’s common stock to participants is the lesser of the mean of the high and low prices of the stock on the beginning date (May 15) or ending date (the following May 14) of each plan year. The company records mark-to-market expense when Snap-on’s period-end stock price is greater than the plan purchase price. There were
42,687
shares and
46,510
shares issued under this plan for the respective nine month periods ended September 28, 2024, and September 30, 2023. As of September 28, 2024,
136,049
shares were reserved for issuance under this plan and Snap-on held participant contributions of approximately $
4.5
million. Participants are able to withdraw from the plan at any time prior to the ending date and generally receive back all contributions made during the plan year. The company recognized mark-to-market expense of $
0.1
million and $
0.2
million for the respective three and nine month periods ended September 28, 2024, and
zero
and $
1.6
million for the respective three and nine month periods ended September 30, 2023.
Note 13:
Earnings Per Share
The shares used in the computation of the company’s basic and diluted earnings per common share are as follows:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | ||||||||||||||||||||
| Weighted-average common shares outstanding |
|
|
|
|
|||||||||||||||||||
| Effect of dilutive securities |
|
|
|
|
|||||||||||||||||||
|
Weighted-average common shares outstanding, assuming dilution
|
|
|
|
|
|||||||||||||||||||
The dilutive effect of the potential exercise of outstanding stock options and stock-settled SARs to purchase common shares is calculated using the treasury stock method. As of September 28, 2024, and September 30, 2023, there were
no
awards outstanding that were anti-dilutive. Performance-based equity awards are included in the diluted earnings per share calculation based on the attainment of the applicable performance metrics to date.
34
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 14:
Commitments and Contingencies
Snap-on provides product warranties for specific product lines and accrues for estimated future warranty cost in the period in which the sale is recorded. Snap-on calculates its accrual requirements based on historic warranty loss experience that is periodically adjusted for recent actual experience, including the timing of claims during the warranty period and actual costs incurred.
Snap-on’s product warranty accrual activity for the three and nine month periods ended September 28, 2024, and September 30, 2023, is as follows:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| (Amounts in millions) | September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | |||||||||||||||||||
| Warranty reserve: | |||||||||||||||||||||||
| Beginning of period | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Additions |
|
|
|
|
|||||||||||||||||||
| Usage |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| End of period | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
In the ordinary course of business, Snap-on is subject to legal disputes that are being litigated and/or settled. The accompanying Condensed Consolidated Statements of Earnings for the nine months ended September 28, 2024, include benefits in “Operating expenses” of $
22.5
million for payments received associated with a legal matter; the final payments related to this matter were received in the three months ended June 29, 2024. Although it is not possible to predict the outcome of legal matters, management believes that the results of all legal matters will not have a material impact on Snap-on’s consolidated financial position, results of operations or cash flows.
Note 15:
Leases
Lessee accounting:
Supplemental balance sheet information related to leases as of September 28, 2024, and December 30, 2023, is as follows:
| (Amounts in millions) |
September 28,
2024 |
December 30, 2023 | |||||||||
| Finance leases: | |||||||||||
| Property and equipment - gross | $ |
|
$ |
|
|||||||
| Accumulated depreciation |
(
|
(
|
|||||||||
| $ |
|
$ |
|
||||||||
| $ |
|
$ |
|
||||||||
|
|
|
||||||||||
| Total finance lease liabilities | $ |
|
$ |
|
|||||||
| Operating leases: | |||||||||||
| Operating lease right-of-use assets | $ |
|
$ |
|
|||||||
| $ |
|
$ |
|
||||||||
| Operating lease liabilities |
|
|
|||||||||
| Total operating lease liabilities | $ |
|
$ |
|
|||||||
35
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Lessor accounting:
Snap-on’s Financial Services business offers lease financing to support the sales of tools, diagnostics, and equipment products, as well as vehicle leases for franchisees. Sales-type leases are included in both “Finance receivables – net” and “Long-term finance receivables – net” and also in both “Contract receivables – net” and “Long-term contract receivables – net” on the accompanying Condensed Consolidated Balance Sheets.
See Note 4 for additional information on finance and contract receivables.
Note 16:
Other Income (Expense) – Net
“Other income (expense) – net” on the accompanying Condensed Consolidated Statements of Earnings consists of the following:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| (Amounts in millions) | September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | |||||||||||||||||||
| Interest income | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Net foreign exchange loss |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Net periodic pension and postretirement benefits – non-service |
|
|
|
|
|||||||||||||||||||
| Other |
|
(
|
|
|
|||||||||||||||||||
| Total other income (expense) – net | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
Note 17:
Accumulated Other Comprehensive Income (Loss)
Below is a summary of net changes in Accumulated OCI by component and net of tax for the three months ended September 28, 2024:
| (Amounts in millions) |
Foreign
Currency Translation |
Cash Flow
Hedges |
Defined
Benefit Pension and Postretirement Plans |
Total | |||||||||||||||||||
| Balance as of June 29, 2024 | $ |
(
|
$ |
|
$ |
(
|
$ |
(
|
|||||||||||||||
| Other comprehensive income before reclassifications |
|
|
|
|
|||||||||||||||||||
| Amounts reclassified from Accumulated OCI |
|
(
|
|
|
|||||||||||||||||||
| Net other comprehensive income (loss) |
|
(
|
|
|
|||||||||||||||||||
| Balance as of September 28, 2024 | $ |
(
|
$ |
|
$ |
(
|
$ |
(
|
|||||||||||||||
Below is a summary of net changes in Accumulated OCI by component and net of tax for the nine months ended September 28, 2024:
| (Amounts in millions) |
Foreign
Currency Translation |
Cash Flow
Hedges |
Defined
Benefit Pension and Postretirement Plans |
Total | |||||||||||||||||||
| Balance as of December 30, 2023 | $ |
(
|
$ |
|
$ |
(
|
$ |
(
|
|||||||||||||||
| Other comprehensive income before reclassifications |
|
|
|
|
|||||||||||||||||||
| Amounts reclassified from Accumulated OCI |
|
(
|
|
|
|||||||||||||||||||
| Net other comprehensive income (loss) |
|
(
|
|
|
|||||||||||||||||||
| Balance as of September 28, 2024 | $ |
(
|
$ |
|
$ |
(
|
$ |
(
|
|||||||||||||||
36
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Below is a summary of net changes in Accumulated OCI by component and net of tax for the three months ended September 30, 2023:
| (Amounts in millions) |
Foreign
Currency Translation |
Cash Flow
Hedges |
Defined
Benefit Pension and Postretirement Plans |
Total | |||||||||||||||||||
| Balance as of July 1, 2023 | $ |
(
|
$ |
|
$ |
(
|
$ |
(
|
|||||||||||||||
| Other comprehensive loss before reclassifications |
(
|
|
|
(
|
|||||||||||||||||||
| Amounts reclassified from Accumulated OCI |
|
(
|
|
(
|
|||||||||||||||||||
| Net other comprehensive income (loss) |
(
|
(
|
|
(
|
|||||||||||||||||||
| Balance as of September 30, 2023 | $ |
(
|
$ |
|
$ |
(
|
$ |
(
|
|||||||||||||||
Below is a summary of net changes in Accumulated OCI by component and net of tax for the nine months ended September 30, 2023:
| (Amounts in millions) |
Foreign
Currency Translation |
Cash Flow
Hedges |
Defined
Benefit Pension and Postretirement Plans |
Total | |||||||||||||||||||
| Balance as of December 31, 2022 | $ |
(
|
$ |
|
$ |
(
|
$ |
(
|
|||||||||||||||
| Other comprehensive loss before reclassifications |
(
|
|
|
(
|
|||||||||||||||||||
| Amounts reclassified from Accumulated OCI |
|
(
|
|
(
|
|||||||||||||||||||
| Net other comprehensive income (loss) |
(
|
(
|
|
(
|
|||||||||||||||||||
| Balance as of September 30, 2023 | $ |
(
|
$ |
|
$ |
(
|
$ |
(
|
|||||||||||||||
The reclassifications out of Accumulated OCI for the three and nine month periods ended September 28, 2024, and September 30, 2023, are as follows:
| Amount Reclassified from Accumulated OCI | |||||||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
| (Amounts in millions) | September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 |
Statement of Earnings
Presentation |
||||||||||||||||||||||||
| Gains on cash flow hedges: | |||||||||||||||||||||||||||||
| Treasury locks | $ |
|
$ |
|
$ |
|
$ |
|
Interest expense | ||||||||||||||||||||
| Income tax expense |
|
|
|
|
Income tax expense | ||||||||||||||||||||||||
| Net of tax |
|
|
|
|
|||||||||||||||||||||||||
|
Amortization of net unrecognized losses
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
See footnote below* | ||||||||||||||||||||
| Income tax benefit |
|
|
|
|
Income tax expense | ||||||||||||||||||||||||
| Net of tax |
(
|
(
|
(
|
(
|
|||||||||||||||||||||||||
|
Total reclassifications for the period, net of tax
|
$ |
(
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||||
| * | 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 additional information. | |||||||
37
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 18:
Segments
Snap-on’s business segments are based on the organization structure used by management for making operating and investment decisions and for assessing performance. Snap-on’s reportable business segments are: (i) the Commercial & Industrial Group; (ii) the Snap-on Tools Group; (iii) the Repair Systems & Information Group; and (iv) Financial Services. The Commercial & Industrial Group consists of business operations serving a broad range of industrial and commercial customers worldwide, including customers in the aerospace, natural resources, government and military, power generation, transportation, and technical education market segments (collectively, “critical industries”), primarily through direct and distributor channels. The Snap-on Tools Group consists of business operations primarily serving vehicle service and repair technicians through the company’s multinational mobile tool distribution channel. The Repair Systems & Information Group consists of business operations serving other professional vehicle repair customers worldwide, primarily owners and managers of independent repair shops and OEM dealerships, through direct and distributor channels. Financial Services consists of the business operations of Snap-on’s finance subsidiaries.
Snap-on evaluates the performance of its operating segments based on segment revenues and segment operating earnings. The Snap-on Tools Group segment revenues include external net sales, while the Commercial & Industrial Group and the Repair Systems & Information Group segment revenues include both external and intersegment net sales. Snap-on accounts for intersegment net sales and transfers based primarily on standard costs with reasonable mark-ups established between the segments. Identifiable assets by segment are those assets used in the respective reportable segment’s operations. Corporate assets consist of cash and cash equivalents (excluding cash held at Financial Services), deferred income taxes and certain other assets. Intersegment amounts are eliminated to arrive at Snap-on’s consolidated financial results.
Financial Data by Segment:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| (Amounts in millions) | September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | |||||||||||||||||||
| Net sales: | |||||||||||||||||||||||
| Commercial & Industrial Group | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Snap-on Tools Group |
|
|
|
|
|||||||||||||||||||
| Repair Systems & Information Group |
|
|
|
|
|||||||||||||||||||
| Segment net sales |
|
|
|
|
|||||||||||||||||||
| Intersegment eliminations |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Total net sales |
|
|
|
|
|||||||||||||||||||
| Financial Services revenue |
|
|
|
|
|||||||||||||||||||
| Total revenues | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Operating earnings: | |||||||||||||||||||||||
| Commercial & Industrial Group | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Snap-on Tools Group |
|
|
|
|
|||||||||||||||||||
| Repair Systems & Information Group |
|
|
|
|
|||||||||||||||||||
| Financial Services |
|
|
|
|
|||||||||||||||||||
| Segment operating earnings |
|
|
|
|
|||||||||||||||||||
| Corporate |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Operating earnings |
|
|
|
|
|||||||||||||||||||
| Interest expense |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Other income (expense) – net |
|
|
|
|
|||||||||||||||||||
| Earnings before income taxes | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
38
SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
| (Amounts in millions) |
September 28,
2024 |
December 30, 2023 | |||||||||
| Assets: | |||||||||||
| Commercial & Industrial Group | $ |
|
$ |
|
|||||||
| Snap-on Tools Group |
|
|
|||||||||
| Repair Systems & Information Group |
|
|
|||||||||
| Financial Services |
|
|
|||||||||
| Total assets from reportable segments |
|
|
|||||||||
| Corporate |
|
|
|||||||||
| Elimination of intersegment receivables |
(
|
(
|
|||||||||
| Total assets | $ |
|
$ |
|
|||||||
39
SNAP-ON INCORPORATED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
Caution Regarding Forward-Looking Statements:
Statements in this document that are not historical facts, including statements that (i) are in the future tense, (ii) include the words “expects,” “plans,” “targets,” “estimates,” “believes,” “anticipates,” or similar words that reference Snap-on Incorporated (“Snap-on” or “the company”) or its management, (iii) are specifically identified as forward-looking, or (iv) describe Snap‑on’s or management’s future outlook, plans, estimates, objectives or goals, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Snap-on cautions the reader that any forward-looking statements included in this document that are based upon assumptions and estimates were developed by management in good faith and are subject to risks, uncertainties or other factors that could cause (and in some cases have caused) actual results to differ materially from those described in any such statement. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results or regarded as a representation by the company or its management that the projected results will be achieved. For those forward-looking statements, Snap-on cautions the reader that numerous important factors, such as those listed below, as well as those factors discussed in its Annual Report on Form 10-K for the fiscal year ended December 30, 2023 (“
2023
year end”), and those discussed in this document, could affect the company’s actual results and could cause its actual consolidated results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, Snap-on.
Risks and uncertainties include, without limitation:
•
Uncertainties related to estimates, assumptions and projections generally;
•
The timing and progress with which Snap-on can attain value through its Snap-on Value Creation Processes, including its ability to (i) realize efficiencies and savings from its rapid continuous improvement and other cost reduction initiatives, (ii) improve workforce productivity, (iii) achieve improvements in the company’s manufacturing footprint and greater efficiencies in its supply chain, and (iv) enhance machine maintenance, plant productivity and manufacturing line set-up and change-over practices, any or all of which could result in production inefficiencies, higher costs and/or lost revenues;
•
Snap-on’s capability to successfully implement future strategies with respect to its existing businesses;
•
Snap-on’s ability to refine its brand and franchise strategies, retain and attract franchisees, and further enhance service and value to franchisees in order to help improve the sales and profitability of franchisees;
•
The company’s ability to introduce successful new products;
•
Significant changes in the current competitive environment;
•
Risks related to pursuing, completing and integrating acquisitions;
•
Inflation, interest rate changes and other monetary and market fluctuations;
•
Price and supply fluctuations related to raw materials, components and certain purchased finished goods, such as steel, plastics, and electronics;
•
The effects of external economic factors, including adverse developments in world financial markets, disruptions related to tariffs and other trade or sanction issues, and global supply chain inefficiencies, including as a result of the current war in Ukraine and other regional conflicts;
•
Snap-on’s ability to successfully manage changes in prices and the availability of energy sources, including gasoline;
•
Snap-on’s ability to withstand disruption arising from natural disasters, including climate-related events or other unusual occurrences;
•
Risks associated with data security and technological systems and protections, including the effects of cyber incidents and from new legislation, regulations or government-related developments;
•
The impact of labor interruptions or challenges, and Snap-on’s ability to effectively manage human capital resources;
•
Weakness in certain geographic areas, including as a result of localized recessions, and the impact of matters related to the United Kingdom’s exit from the European Union;
•
Changes in tax rates, laws and regulations as well as uncertainty surrounding potential changes;
•
The amount, rate and growth of health care and postretirement costs, including continuing and potentially increasing required contributions to pension and postretirement plans;
40
SNAP-ON INCORPORATED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
•
The effects of new requirements, legislation, regulations or government-related developments or issues, as well as third party actions, including those addressing climate change;
•
Potential reputational damages and costs related to litigation;
•
The impact of outbreaks of infectious diseases as well as the effects of governmental actions related thereto on Snap-on’s business, which could have the potential to amplify the impact of the other risks facing the company; and
•
Other world or local events outside Snap-on’s control, including terrorist disruptions, armed conflicts and civil unrest.
Snap-on disclaims any responsibility to update any forward-looking statement provided in this document, except as required by la
w.
In ad
dition, investors should be aware that generally accepted accounting principles in the United States of America (“GAAP”) prescribe when a company should reserve for particular risks, including litigation exposures. Accordingly, results for a given reporting period could be significantly affected if and when a reserve is established for a major contingency. Reported results, therefore, may appear to be volatile in certain accounting periods.
Non-GAAP Measures
References in Management’s Discussion and Analysis of Financial Condition and Results of Operations to “organic sales” refer to sales from continuing operations calculated in accordance with GAAP, adjusted to exclude acquisition-related sales and the impact of foreign currency translation. Management evaluates the company’s sales performance based on organic sales growth, which primarily reflects growth from the company’s existing businesses as a result of increased output, expanded customer base, geographic expansion, new product development and pricing changes, and excludes sales contributions from acquired operations the company did not own as of the comparable prior-year reporting period. Organic sales also exclude the effects of foreign currency translation as foreign currency translation is subject to volatility that can obscure underlying business trends. Management believes that the non-GAAP financial measure of organic sales is meaningful to investors as it provides them with useful information to aid in identifying underlying growth trends in the company’s businesses and facilitates comparisons of its sales performance with prior periods.
41
SNAP-ON INCORPORATED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
RESULTS OF OPERATIONS
Results of operations for the three months ended September 28, 2024, and September 30, 2023, are as follows:
| Three Months Ended | ||||||||||||||||||||||||||||||||||||||
| (Amounts in millions) | September 28, 2024 | September 30, 2023 | Change | |||||||||||||||||||||||||||||||||||
| Net sales | $ | 1,147.0 | 100.0 | % | $ | 1,159.3 | 100.0 | % | $ | (12.3) | (1.1) | % | ||||||||||||||||||||||||||
| Cost of goods sold | (559.2) | (48.8) | % | (581.1) | (50.1) | % | 21.9 | 3.8 | % | |||||||||||||||||||||||||||||
| Gross profit | 587.8 | 51.2 | % | 578.2 | 49.9 | % | 9.6 | 1.7 | % | |||||||||||||||||||||||||||||
| Operating expenses | (335.4) | (29.2) | % | (333.0) | (28.7) | % | (2.4) | (0.7) | % | |||||||||||||||||||||||||||||
| Operating earnings before financial services | 252.4 | 22.0 | % | 245.2 | 21.2 | % | 7.2 | 2.9 | % | |||||||||||||||||||||||||||||
| Financial services revenue | 100.4 | 100.0 | % | 94.9 | 100.0 | % | 5.5 | 5.8 | % | |||||||||||||||||||||||||||||
| Financial services expenses | (28.7) | (28.6) | % | (25.5) | (26.9) | % | (3.2) | (12.5) | % | |||||||||||||||||||||||||||||
| Operating earnings from financial services | 71.7 | 71.4 | % | 69.4 | 73.1 | % | 2.3 | 3.3 | % | |||||||||||||||||||||||||||||
| Operating earnings | 324.1 | 26.0 | % | 314.6 | 25.1 | % | 9.5 | 3.0 | % | |||||||||||||||||||||||||||||
| Interest expense | (12.5) | (1.0) | % | (12.4) | (1.0) | % | (0.1) | (0.8) | % | |||||||||||||||||||||||||||||
| Other income (expense) – net | 20.6 | 1.7 | % | 18.0 | 1.4 | % | 2.6 | 14.4 | % | |||||||||||||||||||||||||||||
| Earnings before income taxes | 332.2 | 26.7 | % | 320.2 | 25.5 | % | 12.0 | 3.7 | % | |||||||||||||||||||||||||||||
| Income tax expense | (74.7) | (6.1) | % | (71.1) | (5.6) | % | (3.6) | (5.1) | % | |||||||||||||||||||||||||||||
| Net earnings | 257.5 | 20.6 | % | 249.1 | 19.9 | % | 8.4 | 3.4 | % | |||||||||||||||||||||||||||||
| Net earnings attributable to noncontrolling interests | (6.4) | (0.5) | % | (6.0) | (0.5) | % | (0.4) | (6.7) | % | |||||||||||||||||||||||||||||
| Net earnings attributable to Snap-on Inc. | $ | 251.1 | 20.1 | % | $ | 243.1 | 19.4 | % | $ | 8.0 | 3.3 | % | ||||||||||||||||||||||||||
| Percentage Disclosure: All income statement line item percentages below “Operating earnings from financial services” are calculated as a percentage of the sum of Net sales and Financial services revenue. | |||||
Net sales of $1,147.0 million in the third quarter of 2024 represented a decrease of $12.3 million, or 1.1%, from 2023 levels, reflecting a $19.2 million, or 1.7%, organic decline and $0.3 million of unfavorable foreign currency translation, partially offset by
$7.2 million
of acquisition-related sales.
Gross profit of $587.8 million in the third quarter of 2024 compared to $578.2 million last year. Gross margin (gross profit as a percentage of net sales) in the quarter improved 130 basis points (100 basis points (“bps”) equals 1.0 percent) from the third quarter of 2023 primarily reflecting increased sales in higher-gross-margin businesses, benefits from the company’s “Rapid Continuous Improvement” or “RCI” initiatives, and lower material and other costs.
Snap-on’s RCI initiatives employ a structured set of tools and processes across multiple businesses and geographies intended to eliminate waste and improve operations. Savings from Snap-on’s RCI initiatives reflect benefits from a wide variety of ongoing efficiency, productivity and process improvements, including savings generated from product design cost reductions, improved manufacturing line set-up and change-over practices, lower-cost sourcing initiatives, and facility consolidations. Unless individually significant, it is not practicable to disclose each RCI activity that generated savings and/or segregate RCI savings embedded in sales volume increases.
Operating expenses of $335.4 million in the third quarter of 2024 compared to $333.0 million last year. Operating expenses as a percentage of net sales rose 50 bps from 2023 primarily due to the lower sales volumes.
Operating earnings before financial services of $252.4 million in the third quarter of 2024 compared to $245.2 million in the third quarter of 2023. As a percentage of net sales, operating earnings before financial services were 22.0% compared to 21.2% last year.
Financial services revenue of $100.4 million in the third quarter of 2024 compared to $94.9 million last year. Financial services operating earnings of $71.7 million compared to $69.4 million in 2023.
42
SNAP-ON INCORPORATED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Operating earnings of $324.1 million in the third quarter of 2024 compared to $314.6 million last year. As a percentage of revenues (net sales plus financial services revenue), operating earnings were 26.0% in the quarter compared to 25.1% last year.
Interest expense in the third quarter of 2024 increased $0.1 million from last year.
See Note 8 to the Condensed Consolidated Financial Statements for additional information on debt and credit facilities.
Other income (expense) – net primarily includes interest income, non-service components of net periodic benefit costs, and net gains and losses associated with hedging and currency exchange rate transactions. See Note 16 to the Condensed Consolidated Financial Statements for additional information on Other income (expense) – net.
The effective income tax rate on earnings attributable to Snap-on was 22.9% and 22.6% in the third quarters of 2024 and 2023, respectively. S
ee Note 7 to the Condensed Consolidated Financial Statements for additional information on income taxes.
Net earnings attributable to Snap-on of $251.1 million, or $4.70 per diluted share, in the third quarter of 2024 compared to $243.1 million, or $4.51 per diluted share, in the third quarter of 2023.
Results of operations for the
nine months ended September 28, 2024, and September 30, 2023, are as follows:
| Nine Months Ended | ||||||||||||||||||||||||||||||||||||||
| (Amounts in millions) | September 28, 2024 | September 30, 2023 | Change | |||||||||||||||||||||||||||||||||||
| Net sales | $ | 3,508.7 | 100.0 | % | $ | 3,533.6 | 100.0 | % | $ | (24.9) | (0.7) | % | ||||||||||||||||||||||||||
| Cost of goods sold | (1,726.9) | (49.2) | % | (1,762.1) | (49.9) | % | 35.2 | 2.0 | % | |||||||||||||||||||||||||||||
| Gross profit | 1,781.8 | 50.8 | % | 1,771.5 | 50.1 | % | 10.3 | 0.6 | % | |||||||||||||||||||||||||||||
| Operating expenses | (978.2) | (27.9) | % | (989.5) | (28.0) | % | 11.3 | 1.1 | % | |||||||||||||||||||||||||||||
| Operating earnings before financial services | 803.6 | 22.9 | % | 782.0 | 22.1 | % | 21.6 | 2.8 | % | |||||||||||||||||||||||||||||
| Financial services revenue | 300.5 | 100.0 | % | 280.9 | 100.0 | % | 19.6 | 7.0 | % | |||||||||||||||||||||||||||||
| Financial services expenses | (90.3) | (30.0) | % | (78.3) | (27.9) | % | (12.0) | (15.3) | % | |||||||||||||||||||||||||||||
| Operating earnings from financial services | 210.2 | 70.0 | % | 202.6 | 72.1 | % | 7.6 | 3.8 | % | |||||||||||||||||||||||||||||
| Operating earnings | 1,013.8 | 26.6 | % | 984.6 | 25.8 | % | 29.2 | 3.0 | % | |||||||||||||||||||||||||||||
| Interest expense | (37.3) | (1.0) | % | (37.4) | (1.0) | % | 0.1 | 0.3 | % | |||||||||||||||||||||||||||||
| Other income (expense) – net | 57.4 | 1.5 | % | 50.0 | 1.3 | % | 7.4 | 14.8 | % | |||||||||||||||||||||||||||||
| Earnings before income taxes | 1,033.9 | 27.1 | % | 997.2 | 26.1 | % | 36.7 | 3.7 | % | |||||||||||||||||||||||||||||
| Income tax expense | (229.2) | (6.0) | % | (223.9) | (5.8) | % | (5.3) | (2.4) | % | |||||||||||||||||||||||||||||
| Net earnings | 804.7 | 21.1 | % | 773.3 | 20.3 | % | 31.4 | 4.1 | % | |||||||||||||||||||||||||||||
| Net earnings attributable to noncontrolling interests | (18.9) | (0.5) | % | (17.5) | (0.5) | % | (1.4) | (8.0) | % | |||||||||||||||||||||||||||||
| Net earnings attributable to Snap-on Inc. | $ | 785.8 | 20.6 | % | $ | 755.8 | 19.8 | % | $ | 30.0 | 4.0 | % | ||||||||||||||||||||||||||
| Percentage Disclosure: All income statement line item percentages below “Operating earnings from financial services” are calculated as a percentage of the sum of Net sales and Financial services revenue. | |||||
Net sales of
$3,508.7 million
in the first
nine
months of 2024 represented a decrease of
$24.9 million
, or
0.7%
, from 2023 levels, reflecting a
$42.6 million
, or
1.2%
, organic decline and
$3.5 million
of unfavorable foreign currency translation, partially offset by
$21.2
million of acquisition-related sales.
Gross profit of
$1,781.8 million
in the first
nine
months of 2024 compared to
$1,771.5 million
last year. Gross margin in the first
nine
months improved
70
bps from 2023 primarily due to
benefits from the company’s RCI initiatives and lower material and other costs.
Operating expenses of
$978.2 million
in the first
nine
months of 2024, including
a $22.5 million
benefit for the final payments received associated with a legal matter in the first six months of 2024 (the “legal payments”), compared to $
989.5 million
last year. Operating expenses as a percentage of net sales improved
10
bps from 2023 primarily reflecting benefits from the legal payments, partially offset by the effects of lower sales volumes.
43
SNAP-ON INCORPORATED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Operating earnings before financial services of
$803.6 million
in the first
nine
months of 2024, including a
$22.5 million
benefit from the legal payments, compared to
$782.0 million
in 2023. As a percentage of net sales, operating earnings before financial services were
22.9%
compared to
22.1%
last year.
Financial services revenue of
$300.5 million
in the first
nine
months of 2024 compared to
$280.9 million
last year. Financial services operating earnings of
$210.2 million
compared to
$202.6 million
in 2023.
Operating earnings of
$1,013.8 million
in the first
nine
months of 2024, including a
$22.5 million
benefit from the legal payments, compared to
$984.6 million
last year. As a percentage of revenues, operating earnings were
26.6% in the period
compared to
25.8%
last year.
Interest expense in the first
nine
months of 2024 decreased
$0.1 million
from last year.
See Note 8 to the Condensed Consolidated Financial Statements for additional information on debt and credit facilities.
Other income (expense) – net primarily includes interest income, non-service components of net periodic benefit costs, and net gains and losses associated with hedging and currency exchange rate transactions. See Note 16 to the Condensed Consolidated Financial Statements for additional information on Other income (expense) – net.
The effective income tax rate on earnings attributable to Snap-on was
22.6%
and
22.9%
in the first
nine
months of 2024 and 2023, respectively. S
ee Note 7 to the Condensed Consolidated Financial Statements for additional information on income taxes.
Net earnings attributable to Snap-on of
$785.8 million
, or $
14.69
per diluted share, in the first
nine
months of 2024, including a $17.5 million, or $0.32 per diluted share, after-tax benefit from the legal payments, compared to
$755.8 million
, or $
14.00
per diluted share, in the first
nine
months of 2023.
Segment Results
Snap-on’s business segments are based on the organization structure used by management for making operating and investment decisions and for assessing performance. Snap-on’s reportable business segments are: (i) the Commercial & Industrial Group; (ii) the Snap-on Tools Group; (iii) the Repair Systems & Information Group; and (iv) Financial Services. The Commercial & Industrial Group consists of business operations serving a broad range of industrial and commercial customers worldwide, including customers in the aerospace, natural resources, government and military, power generation, transportation, and technical education market segments (collectively, “critical industries”), primarily through direct and distributor channels. The Snap-on Tools Group consists of business operations primarily serving vehicle service and repair technicians through the company’s multinational mobile tool distribution channel. The Repair Systems & Information Group consists of business operations serving other professional vehicle repair customers worldwide, primarily owners and managers of independent repair shops and original equipment manufacturer (“OEM”) dealership service and repair shops (“OEM dealerships”), through direct and distributor channels. Financial Services consists of the business operations of Snap-on’s finance subsidiaries.
Snap-on evaluates the performance of its operating segments based on segment revenues and segment operating earnings. The Snap-on Tools Group segment revenues include external net sales, while the Commercial & Industrial Group and the Repair Systems & Information Group segment revenues include both external and intersegment net sales. Snap-on accounts for intersegment net sales and transfers based primarily on standard costs with reasonable mark-ups established between the segments. Identifiable assets by segment are those assets used in the respective reportable segment’s operations. Corporate assets consist of cash and cash equivalents (excluding cash held at Financial Services), deferred income taxes and certain other assets. Intersegment amounts are eliminated to arrive at Snap-on’s consolidated financial results.
44
SNAP-ON INCORPORATED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Commercial & Industrial Group
| Three Months Ended | ||||||||||||||||||||||||||||||||||||||
| (Amounts in millions) | September 28, 2024 | September 30, 2023 | Change | |||||||||||||||||||||||||||||||||||
| External net sales | $ | 288.7 | 78.9 | % | $ | 280.5 | 76.6 | % | $ | 8.2 | 2.9 | % | ||||||||||||||||||||||||||
| Intersegment net sales | 77.0 | 21.1 | % | 85.9 | 23.4 | % | (8.9) | (10.4) | % | |||||||||||||||||||||||||||||
| Segment net sales | 365.7 | 100.0 | % | 366.4 | 100.0 | % | (0.7) | (0.2) | % | |||||||||||||||||||||||||||||
| Cost of goods sold | (214.9) | (58.8) | % | (223.4) | (61.0) | % | 8.5 | 3.8 | % | |||||||||||||||||||||||||||||
| Gross profit | 150.8 | 41.2 | % | 143.0 | 39.0 | % | 7.8 | 5.5 | % | |||||||||||||||||||||||||||||
| Operating expenses | (89.8) | (24.5) | % | (84.9) | (23.1) | % | (4.9) | (5.8) | % | |||||||||||||||||||||||||||||
| Segment operating earnings | $ | 61.0 | 16.7 | % | $ | 58.1 | 15.9 | % | $ | 2.9 | 5.0 | % | ||||||||||||||||||||||||||
Segment net sales of $365.7 million in the third quarter of 2024 represented a decrease of $0.7 million, or 0.2%, from 2023 levels, reflecting a $7.8 million, or 2.1%, organic sales decline and $0.1 million of unfavorable foreign currency translation, partially offset by
$7.2 million
of acquisition-related sales. The organic decrease is primarily due to a double-digit reduction in the power tools operation and a mid single-digit decline in the European-based hand tools business, partially offset by a gain in sales to customers in critical industries, including a high single-digit increase in specialty torque.
Segment gross margin in the third quarter improved 220 bps from last year, primarily reflecting increased sales volumes in higher-gross-margin critical industry sectors, lower material and other costs, savings from the segment’s RCI initiatives, and 50 bps of benefits from acquisitions. These improvements were partially offset by 30 bps of unfavorable foreign currency effects.
Segment operating expenses as a percentage of net sales in the third quarter rose 140 bps as compared to 2023
primarily due to increased personnel and other costs, and a 50 bps impact from acquisitions.
As a result of these factors, segment operating earnings of $61.0 million in the third quarter of 2024 compared to $58.1 million in 2023, an increase of $2.9 million or 5.0%. Operating margin (segment operating earnings as a percentage of segment net sales) for the Commercial & Industrial Group of 16.7% in the third quarter of 2024 compared to 15.9% in 2023.
| Nine Months Ended | ||||||||||||||||||||||||||||||||||||||
| (Amounts in millions) | September 28, 2024 | September 30, 2023 | Change | |||||||||||||||||||||||||||||||||||
| External net sales | $ | 884.7 | 80.6 | % | $ | 848.9 | 77.6 | % | $ | 35.8 | 4.2 | % | ||||||||||||||||||||||||||
| Intersegment net sales | 212.9 | 19.4 | % | 245.5 | 22.4 | % | (32.6) | (13.3) | % | |||||||||||||||||||||||||||||
| Segment net sales | 1,097.6 | 100.0 | % | 1,094.4 | 100.0 | % | 3.2 | 0.3 | % | |||||||||||||||||||||||||||||
| Cost of goods sold | (644.8) | (58.7) | % | (666.2) | (60.9) | % | 21.4 | 3.2 | % | |||||||||||||||||||||||||||||
| Gross profit | 452.8 | 41.3 | % | 428.2 | 39.1 | % | 24.6 | 5.7 | % | |||||||||||||||||||||||||||||
| Operating expenses | (274.2) | (25.0) | % | (256.2) | (23.4) | % | (18.0) | (7.0) | % | |||||||||||||||||||||||||||||
| Segment operating earnings | $ | 178.6 | 16.3 | % | $ | 172.0 | 15.7 | % | $ | 6.6 | 3.8 | % | ||||||||||||||||||||||||||
Segment net sales of
$1,097.6 million
in the first
nine
months of 2024 represented an increase of $
3.2 million
, or
0.3%
, from 2023 levels, reflecting
$21.2 million
of acquisition-related sales, partially offset by a
$12.7 million
, or
1.2%
, organic sales decline and
$5.3 million
of unfavorable foreign currency translation. The organic decrease is primarily due to a double-digit reduction in the power tools operation and a mid single-digit decline in the European-based hand tools business, partially offset by a mid single-digit gain in sales to customers in critical industries.
Segment gross margin in the first
nine
months improved
220
bps from last year, primarily reflecting increased sales volumes in higher-gross-margin critical industry sectors, savings from the segment’s RCI initiatives, lower material and other costs, and 50 bps of benefits from acquisitions.
Segment operating expenses as a percentage of net sales in the first
nine
months rose
160
bps as compared to 2023
primarily due to increased personnel and other costs, and a 60 bps impact from acquisitions.
45
SNAP-ON INCORPORATED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
As a result of these factors, segment operating earnings of
$178.6 million
in the first
nine
months of 2024 compared to
$172.0 million
in 2023, an increase of
$6.6 million
or
3.8%
. Operating margin for the Commercial & Industrial Group of
16.3%
in the first
nine
months of 2024 compared to
15.7%
in 2023.
Snap-on Tools Group
| Three Months Ended | ||||||||||||||||||||||||||||||||||||||
| (Amounts in millions) | September 28, 2024 | September 30, 2023 | Change | |||||||||||||||||||||||||||||||||||
| Segment net sales | $ | 500.5 | 100.0 | % | $ | 515.4 | 100.0 | % | $ | (14.9) | (2.9) | % | ||||||||||||||||||||||||||
| Cost of goods sold | (264.0) | (52.7) | % | (276.8) | (53.7) | % | 12.8 | 4.6 | % | |||||||||||||||||||||||||||||
| Gross profit | 236.5 | 47.3 | % | 238.6 | 46.3 | % | (2.1) | (0.9) | % | |||||||||||||||||||||||||||||
| Operating expenses | (128.2) | (25.7) | % | (125.2) | (24.3) | % | (3.0) | (2.4) | % | |||||||||||||||||||||||||||||
| Segment operating earnings | $ | 108.3 | 21.6 | % | $ | 113.4 | 22.0 | % | $ | (5.1) | (4.5) | % | ||||||||||||||||||||||||||
Segment net sales of $500.5 million in the third quarter of 2024 represented a decrease of $14.9 million, or 2.9%, from 2023 levels, reflecting a $15.8 million, or 3.1%, organic sales decline, partially offset by $0.9 million of favorable foreign currency translation.
The organic decrease is due to a mid single-digit decline in the U.S., partially offset by a low single-digit gain in the segment’s international operations.
Segment gross margin in the third quarter improved 100 bps from last year primarily due to lower material and other costs, and benefits from RCI initiatives.
Segment operating expenses as a percentage of net sales in the third quarter rose
140
bps as compared to 2023 primarily reflecting the lower sales volumes.
As a result of these factors, segment operating earnings of $108.3 million in the third quarter of 2024 compared to $113.4 million in 2023, a decrease of $5.1 million or 4.5%. Operating margin for the Snap-on Tools Group of 21.6% in the third quarter of 2024 compared to 22.0% last year.
| Nine Months Ended | ||||||||||||||||||||||||||||||||||||||
| (Amounts in millions) | September 28, 2024 | September 30, 2023 | Change | |||||||||||||||||||||||||||||||||||
| Segment net sales | $ | 1,482.6 | 100.0 | % | $ | 1,575.5 | 100.0 | % | $ | (92.9) | (5.9) | % | ||||||||||||||||||||||||||
| Cost of goods sold | (769.8) | (51.9) | % | (826.5) | (52.5) | % | 56.7 | 6.9 | % | |||||||||||||||||||||||||||||
| Gross profit | 712.8 | 48.1 | % | 749.0 | 47.5 | % | (36.2) | (4.8) | % | |||||||||||||||||||||||||||||
| Operating expenses | (372.4) | (25.1) | % | (366.2) | (23.2) | % | (6.2) | (1.7) | % | |||||||||||||||||||||||||||||
| Segment operating earnings | $ | 340.4 | 23.0 | % | $ | 382.8 | 24.3 | % | $ | (42.4) | (11.1) | % | ||||||||||||||||||||||||||
Segment net sales of
$1,482.6 million
in the first
nine
months of 2024 represented a decrease of
$92.9 million
, or
5.9%
, from 2023 levels, reflecting a
$93.6 million
, or
5.9%
, organic sales decline, partially offset by
$0.7 million
of favorable foreign currency translation.
The organic decrease is due to a high single-digit decline in the U.S., partially offset by a low single-digit gain in the segment’s international operations.
Segment gross margin in the first
nine
months improved
60
bps from last year primarily reflecting decreased sales of lower-gross-margin products.
Segment operating expenses as a percentage of net sales in the first
nine
months rose
190
bps as compared to 2023 primarily due to the lower sales volumes.
As a result of these factors, segment operating earnings of
$340.4 million
in the first
nine
months of 2024 compared to
$382.8 million
in 2023, a decrease of
$42.4 million
or
11.1%
. Operating margin for the Snap-on Tools Group of
23.0%
in the first
nine
months of 2024 compared to
24.3%
last year.
46
SNAP-ON INCORPORATED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Repair Systems & Information Group
| Three Months Ended | ||||||||||||||||||||||||||||||||||||||
| (Amounts in millions) | September 28, 2024 | September 30, 2023 | Change | |||||||||||||||||||||||||||||||||||
| External net sales | $ | 357.8 | 84.6 | % | $ | 363.4 | 84.2 | % | $ | (5.6) | (1.5) | % | ||||||||||||||||||||||||||
| Intersegment net sales | 64.9 | 15.4 | % | 68.4 | 15.8 | % | (3.5) | (5.1) | % | |||||||||||||||||||||||||||||
| Segment net sales | 422.7 | 100.0 | % | 431.8 | 100.0 | % | (9.1) | (2.1) | % | |||||||||||||||||||||||||||||
| Cost of goods sold | (222.2) | (52.6) | % | (235.2) | (54.5) | % | 13.0 | 5.5 | % | |||||||||||||||||||||||||||||
| Gross profit | 200.5 | 47.4 | % | 196.6 | 45.5 | % | 3.9 | 2.0 | % | |||||||||||||||||||||||||||||
| Operating expenses | (93.2) | (22.0) | % | (91.7) | (21.2) | % | (1.5) | (1.6) | % | |||||||||||||||||||||||||||||
| Segment operating earnings | $ | 107.3 | 25.4 | % | $ | 104.9 | 24.3 | % | $ | 2.4 | 2.3 | % | ||||||||||||||||||||||||||
Segment net sales of $422.7 million in the third quarter of 2024 represented a decrease of $9.1 million, or 2.1%, from 2023 levels, reflecting an $8.2 million, or 1.9%, organic sales decline and $0.9 million of unfavorable foreign currency translation. The organic decrease is due to a mid single-digit decline in sales of undercar equipment and a low single-digit reduction in activity with OEM dealerships, partially offset by a low single-digit gain in sales of diagnostic and information products to independent repair shop owners and managers.
Segment gross margin in the third quarter improved 190 bps from last year primarily reflecting increased sales of higher-gross-margin products.
Segment operating expenses as a percentage of net sales in the third quarter rose 80 bps from 2023 primarily due to the lower sales volumes and increased personnel and other costs.
As a result of these factors, segment operating earnings of $107.3 million in the third quarter of 2024 compared to $104.9 million in 2023, an increase of $2.4 million or 2.3%. Operating margin for the Repair Systems & Information Group of 25.4% in the third quarter of 2024 compared to 24.3% last year.
| Nine Months Ended | ||||||||||||||||||||||||||||||||||||||
| (Amounts in millions) | September 28, 2024 | September 30, 2023 | Change | |||||||||||||||||||||||||||||||||||
| External net sales | $ | 1,141.4 | 85.1 | % | $ | 1,109.2 | 83.4 | % | $ | 32.2 | 2.9 | % | ||||||||||||||||||||||||||
| Intersegment net sales | 199.9 | 14.9 | % | 221.2 | 16.6 | % | (21.3) | (9.6) | % | |||||||||||||||||||||||||||||
| Segment net sales | 1,341.3 | 100.0 | % | 1,330.4 | 100.0 | % | 10.9 | 0.8 | % | |||||||||||||||||||||||||||||
| Cost of goods sold | (725.1) | (54.1) | % | (736.1) | (55.3) | % | 11.0 | 1.5 | % | |||||||||||||||||||||||||||||
| Gross profit | 616.2 | 45.9 | % | 594.3 | 44.7 | % | 21.9 | 3.7 | % | |||||||||||||||||||||||||||||
| Operating expenses | (282.4) | (21.0) | % | (274.4) | (20.7) | % | (8.0) | (2.9) | % | |||||||||||||||||||||||||||||
| Segment operating earnings | $ | 333.8 | 24.9 | % | $ | 319.9 | 24.0 | % | $ | 13.9 | 4.3 | % | ||||||||||||||||||||||||||
Segment net sales of
$1,341.3 million
in the first
nine
months of 2024 represented an increase of
$10.9 million
, or
0.8%
, from 2023 levels, reflecting a
$10.8 million
, or
0.8%
, organic sales gain and
$0.1 million
of favorable foreign currency translation. The organic improvement reflects a mid single-digit increase in activity with OEM dealerships, partially offset by low single-digit declines in both sales of undercar equipment and of diagnostic and information products to independent repair shop owners and managers.
Segment gross margin in the first
nine
months improved
120
bps from last year primarily due to savings from RCI initiatives, and lower material and other costs.
Segment operating expenses as a percentage of net sales in the first
nine
months rose
30
bps from 2023 primarily reflecting increased personnel and other costs.
As a result of these factors, segment operating earnings of
$333.8 million
in the first
nine
months of 2024 compared to
$319.9 million
in 2023, an increase of
$13.9 million
or
4.3%
. Operating margin for the Repair Systems & Information Group of
24.9%
in the first
nine
months of 2024 compared to
24.0%
last year.
47
SNAP-ON INCORPORATED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Financial Services
| Three Months Ended | ||||||||||||||||||||||||||||||||||||||
| (Amounts in millions) | September 28, 2024 | September 30, 2023 | Change | |||||||||||||||||||||||||||||||||||
| Financial services revenue | $ | 100.4 | 100.0 | % | $ | 94.9 | 100.0 | % | $ | 5.5 | 5.8 | % | ||||||||||||||||||||||||||
| Financial services expenses | (28.7) | (28.6) | % | (25.5) | (26.9) | % | (3.2) | (12.5) | % | |||||||||||||||||||||||||||||
| Segment operating earnings | $ | 71.7 | 71.4 | % | $ | 69.4 | 73.1 | % | $ | 2.3 | 3.3 | % | ||||||||||||||||||||||||||
Financial services revenue is generally dependent on the size of the average financial services portfolio during the period, as well as on the average yield on receivables.
Financial services revenue of $100.4 million in the third quarter of 2024 increased $5.5 million, or 5.8%, from last year. In the third quarters of both 2024 and 2023, the average yield on finance receivables was 17.7%. In the third quarters of 2024 and 2023, the average yields on contract receivables were 9.1% and 8.8%, respectively. Originations of $288.0 million in the third quarter of 2024 represented a decrease of $17.2 million, or 5.6%, from 2023 levels.
Financial services expenses primarily include personnel-related and other general and administrative costs, as well as provisions for credit losses. These expenses are generally more dependent on changes in the size of the financial services portfolio than they are on the revenue of the segment.
Financial services expenses in the third quarter of 2024 increased primarily due to higher provisions for credit losses as compared to those recorded in the third quarter of 2023. As a percentage of the average financial services portfolio, expenses were 1.1% in the third quarters of both 2024 and 2023.
As a result of these factors, segment operating earnings of
$71.7 million
in the third quarter of 2024 compared to
$69.4 million
in
2023
, an increase of $2.3 million, or 3.3%.
| Nine Months Ended | ||||||||||||||||||||||||||||||||||||||
| (Amounts in millions) | September 28, 2024 | September 30, 2023 | Change | |||||||||||||||||||||||||||||||||||
| Financial services revenue | $ | 300.5 | 100.0 | % | $ | 280.9 | 100.0 | % | $ | 19.6 | 7.0 | % | ||||||||||||||||||||||||||
| Financial services expenses | (90.3) | (30.0) | % | (78.3) | (27.9) | % | (12.0) | (15.3) | % | |||||||||||||||||||||||||||||
| Segment operating earnings | $ | 210.2 | 70.0 | % | $ | 202.6 | 72.1 | % | $ | 7.6 | 3.8 | % | ||||||||||||||||||||||||||
Financial services revenue of
$300.5 million
in the first
nine
months of 2024 increased
$19.6 million
, or
7.0%
, from last year. In the first
nine
months of both 2024 and 2023, the average yield on finance receivables was
17.7%
. In the first
nine
months of 2024 and 2023, the average yields on contract receivables were
9.0%
and
8.7%
, respectively. Originations of $
897.8
million in the first
nine
months of 2024 represented a decrease of $
34.6 million
, or
3.7%
, from 2023 levels.
Financial services expenses in the first
nine
months of 2024 increased primarily due to higher provisions for credit losses as compared to those recorded last year. As a percentage of the average financial services portfolio, expenses were
3.6%
and
3.3%
in the respective first
nine
months of 2024 and 2023.
As a result of these factors, segment operating earnings of
$210.2 million
in the first
nine
months of 2024 compared to
$202.6 million
in
2023
, an increase of
$7.6 million
, or
3.8%.
Corporate
Snap-on’s third quarter 2024 general corporate expenses of $24.2 million compared to $31.2 million last year. The year-over-year decrease primarily reflects lower performance-based compensation and other costs.
For the first
nine
months of 2024, general corporate expenses of
$49.2 million
compared to
$92.7 million
recorded in 2023.
The year-over-year decrease primarily reflects benefits from the legal payments received in the first six months of 2024 and lower performance-based compensation and other costs.
48
SNAP-ON INCORPORATED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Non-GAAP Supplemental Data
The following non-GAAP supplemental data is presented for informational purposes to provide readers with insight into the information used by management for assessing the operating performance of Snap-on’s non-financial services (“Operations”) and Financial Services businesses.
The supplemental Operations data reflects the results of operations and financial position of Snap-on’s tools, diagnostics, equipment products, software, and other non-financial services operations with Financial Services presented on the equity method. The supplemental Financial Services data reflects the results of operations and financial position of Snap-on’s U.S. and international financial services operations. The financing needs of Financial Services are met through intersegment borrowings and cash generated from Operations; Financial Services is charged interest expense on intersegment borrowings at market rates. Income taxes are charged to Financial Services on the basis of the specific tax attributes generated by the U.S. and international financial services businesses. Transactions between the Operations and Financial Services businesses are eliminated to arrive at the Condensed Consolidated Financial Statements.
Non-GAAP Supplemental Consolidating Data – Supplemental Condensed Statements of Earnings information for the three months ended September 28, 2024, and September 30, 2023, is as follows:
| Operations* | Financial Services | ||||||||||||||||||||||
| (Amounts in millions) | September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | |||||||||||||||||||
| Net sales | $ | 1,147.0 | $ | 1,159.3 | $ | — | $ | — | |||||||||||||||
| Cost of goods sold | (559.2) | (581.1) | — | — | |||||||||||||||||||
| Gross profit | 587.8 | 578.2 | — | — | |||||||||||||||||||
| Operating expenses | (335.4) | (333.0) | — | — | |||||||||||||||||||
| Operating earnings before financial services | 252.4 | 245.2 | — | — | |||||||||||||||||||
| Financial services revenue | — | — | 100.4 | 94.9 | |||||||||||||||||||
| Financial services expenses | — | — | (28.7) | (25.5) | |||||||||||||||||||
| Operating earnings from financial services | — | — | 71.7 | 69.4 | |||||||||||||||||||
| Operating earnings | 252.4 | 245.2 | 71.7 | 69.4 | |||||||||||||||||||
| Interest expense | (12.5) | (12.4) | — | — | |||||||||||||||||||
| Intersegment interest income (expense) – net | 16.8 | 16.1 | (16.8) | (16.1) | |||||||||||||||||||
| Other income (expense) – net | 20.6 | 17.9 | — | 0.1 | |||||||||||||||||||
| Earnings before income taxes and equity earnings | 277.3 | 266.8 | 54.9 | 53.4 | |||||||||||||||||||
| Income tax expense | (62.0) | (57.3) | (12.7) | (13.8) | |||||||||||||||||||
| Earnings before equity earnings | 215.3 | 209.5 | 42.2 | 39.6 | |||||||||||||||||||
| Financial services – net earnings attributable to Snap-on | 42.2 | 39.6 | — | — | |||||||||||||||||||
| Net earnings | 257.5 | 249.1 | 42.2 | 39.6 | |||||||||||||||||||
| Net earnings attributable to noncontrolling interests | (6.4) | (6.0) | — | — | |||||||||||||||||||
| Net earnings attributable to Snap-on | $ | 251.1 | $ | 243.1 | $ | 42.2 | $ | 39.6 | |||||||||||||||
* Snap-on with Financial Services presented on the equity method.
49
SNAP-ON INCORPORATED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Non-GAAP Supplemental Consolidating Data – Supplemental Condensed Statements of Earnings information for the nine month periods ended September 28, 2024, and September 30, 2023, is as follows:
| Operations* | Financial Services | ||||||||||||||||||||||
| (Amounts in millions) | September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | |||||||||||||||||||
| Net sales | $ | 3,508.7 | $ | 3,533.6 | $ | — | $ | — | |||||||||||||||
| Cost of goods sold | (1,726.9) | (1,762.1) | — | — | |||||||||||||||||||
| Gross profit | 1,781.8 | 1,771.5 | — | — | |||||||||||||||||||
| Operating expenses | (978.2) | (989.5) | — | — | |||||||||||||||||||
| Operating earnings before financial services | 803.6 | 782.0 | — | — | |||||||||||||||||||
| Financial services revenue | — | — | 300.5 | 280.9 | |||||||||||||||||||
| Financial services expenses | — | — | (90.3) | (78.3) | |||||||||||||||||||
| Operating earnings from financial services | — | — | 210.2 | 202.6 | |||||||||||||||||||
| Operating earnings | 803.6 | 782.0 | 210.2 | 202.6 | |||||||||||||||||||
| Interest expense | (37.3) | (37.4) | — | — | |||||||||||||||||||
| Intersegment interest income (expense) – net | 50.6 | 47.9 | (50.6) | (47.9) | |||||||||||||||||||
| Other income (expense) – net | 57.3 | 49.8 | 0.1 | 0.2 | |||||||||||||||||||
| Earnings before income taxes and equity earnings | 874.2 | 842.3 | 159.7 | 154.9 | |||||||||||||||||||
| Income tax expense | (189.3) | (183.8) | (39.9) | (40.1) | |||||||||||||||||||
| Earnings before equity earnings | 684.9 | 658.5 | 119.8 | 114.8 | |||||||||||||||||||
| Financial services – net earnings attributable to Snap-on | 119.8 | 114.8 | — | — | |||||||||||||||||||
| Net earnings | 804.7 | 773.3 | 119.8 | 114.8 | |||||||||||||||||||
| Net earnings attributable to noncontrolling interests | (18.9) | (17.5) | — | — | |||||||||||||||||||
| Net earnings attributable to Snap-on | $ | 785.8 | $ | 755.8 | $ | 119.8 | $ | 114.8 | |||||||||||||||
* Snap-on with Financial Services presented on the equity method.
50
SNAP-ON INCORPORATED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Non-GAAP Supplemental Consolidating Data – Supplemental Condensed Balance Sheets information as of September 28, 2024, and December 30, 2023, is as follows:
| Operations* | Financial Services | ||||||||||||||||||||||
| (Amounts in millions) |
September 28,
2024 |
December 30, 2023 |
September 28,
2024 |
December 30, 2023 | |||||||||||||||||||
| ASSETS | |||||||||||||||||||||||
| Current assets: | |||||||||||||||||||||||
| Cash and cash equivalents | $ | 1,313.2 | $ | 1,001.3 | $ | 0.1 | $ | 0.2 | |||||||||||||||
| Intersegment receivables | 18.3 | 15.7 | — | — | |||||||||||||||||||
| Trade and other accounts receivable – net | 795.8 | 790.6 | 0.6 | 0.7 | |||||||||||||||||||
| Finance receivables – net | — | — | 624.7 | 594.1 | |||||||||||||||||||
| Contract receivables – net | 4.7 | 5.5 | 117.4 | 115.3 | |||||||||||||||||||
| Inventories – net | 995.8 | 1,005.9 | — | — | |||||||||||||||||||
| Prepaid expenses and other current assets | 151.5 | 143.2 | 10.2 | 7.4 | |||||||||||||||||||
| Total current assets | 3,279.3 | 2,962.2 | 753.0 | 717.7 | |||||||||||||||||||
| Property and equipment – net | 545.9 | 536.5 | 2.4 | 2.8 | |||||||||||||||||||
| Operating lease right-of-use assets | 77.5 | 73.8 | 0.5 | 0.9 | |||||||||||||||||||
| Investment in Financial Services | 405.9 | 393.9 | — | — | |||||||||||||||||||
| Deferred income tax assets | 53.1 | 51.3 | 26.6 | 24.7 | |||||||||||||||||||
| Intersegment long-term notes receivable | 844.2 | 785.6 | — | — | |||||||||||||||||||
| Long-term finance receivables – net | — | — | 1,309.0 | 1,284.2 | |||||||||||||||||||
| Long-term contract receivables – net | 8.3 | 8.3 | 413.8 | 399.6 | |||||||||||||||||||
| Goodwill | 1,086.6 | 1,097.4 | — | — | |||||||||||||||||||
| Other intangible assets – net | 277.3 | 268.9 | — | — | |||||||||||||||||||
| Pension assets | 134.5 | 130.5 | — | — | |||||||||||||||||||
| Other long-term assets | 34.9 | 30.2 | 0.1 | 0.1 | |||||||||||||||||||
| Total assets | $ | 6,747.5 | $ | 6,338.6 | $ | 2,505.4 | $ | 2,430.0 | |||||||||||||||
* Snap-on with Financial Services presented on the equity method.
51
SNAP-ON INCORPORATED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Non-GAAP Supplemental Consolidating Data – Supplemental Condensed Balance Sheets Information (continued):
| Operations* | Financial Services | ||||||||||||||||||||||
| (Amounts in millions) |
September 28,
2024 |
December 30, 2023 |
September 28,
2024 |
December 30, 2023 | |||||||||||||||||||
| LIABILITIES AND EQUITY | |||||||||||||||||||||||
| Current liabilities: | |||||||||||||||||||||||
|
Notes payable
|
$ | 14.3 | $ | 15.6 | $ | — | $ | — | |||||||||||||||
| Accounts payable | 268.8 | 236.2 | 1.2 | 1.8 | |||||||||||||||||||
| Intersegment payables | — | — | 18.3 | 15.7 | |||||||||||||||||||
| Accrued benefits | 59.4 | 64.4 | — | — | |||||||||||||||||||
| Accrued compensation | 80.6 | 99.9 | 2.9 | 3.0 | |||||||||||||||||||
| Franchisee deposits | 79.2 | 73.3 | — | — | |||||||||||||||||||
| Other accrued liabilities | 434.8 | 432.2 | 28.5 | 27.4 | |||||||||||||||||||
| Total current liabilities | 937.1 | 921.6 | 50.9 | 47.9 | |||||||||||||||||||
| Long-term debt and intersegment long-term debt | — | — | 2,029.5 | 1,970.2 | |||||||||||||||||||
| Deferred income tax liabilities | 83.2 | 79.2 | — | — | |||||||||||||||||||
| Retiree health care benefits | 20.2 | 21.8 | — | — | |||||||||||||||||||
| Pension liabilities | 65.5 | 82.3 | — | — | |||||||||||||||||||
| Operating lease liabilities | 57.0 | 54.0 | 0.1 | 0.6 | |||||||||||||||||||
| Other long-term liabilities | 86.8 | 86.3 | 19.0 | 17.4 | |||||||||||||||||||
| Total liabilities | 1,249.8 | 1,245.2 | 2,099.5 | 2,036.1 | |||||||||||||||||||
| Total shareholders’ equity attributable to Snap-on | 5,475.0 | 5,071.3 | 405.9 | 393.9 | |||||||||||||||||||
| Noncontrolling interests | 22.7 | 22.1 | — | — | |||||||||||||||||||
| Total equity | 5,497.7 | 5,093.4 | 405.9 | 393.9 | |||||||||||||||||||
| Total liabilities and equity | $ | 6,747.5 | $ | 6,338.6 | $ | 2,505.4 | $ | 2,430.0 | |||||||||||||||
* Snap-on with Financial Services presented on the equity method.
52
SNAP-ON INCORPORATED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Liquidity and Capital Resources
Snap-on’s growth has historically been funded by a combination of cash provided by operating activities and debt financing. Snap-on believes that its cash from operations and collections of finance receivables, coupled with its sources of borrowings and available cash on hand, are sufficient to fund its currently anticipated requirements for scheduled debt repayments, payments of interest and dividends, new receivables originated by our financial services businesses, capital expenditures, working capital, funding of pension plans, and share repurchases and acquisitions, if and as they arise.
Due to Snap-on’s credit rating over the years, external funds have been available at an acceptable cost. As of October 11, 2024, Snap-on’s long-term debt and commercial paper were rated, respectively, A2 and P-1 by Moody’s Investors Service; A- and A-2 by Standard & Poor’s; and A and F1 by Fitch Ratings. Snap-on believes that its current credit arrangements are sound and that the strength of its balance sheet affords the company the financial flexibility, including through access to financial markets for potential new financing, to respond to both internal growth opportunities and those available through acquisitions. However, Snap-on cannot provide any assurance that financing will be available in the future on acceptable terms, or that its debt ratings will not decrease.
The following discussion focuses on information included in the accompanying Condensed Consolidated Balance Sheets.
Working capital (current assets less current liabilities) of $3,044.3 million as of September 28, 2024, represented an increase of $333.9 million from $2,710.4 million as of December 30, 2023 (fiscal 2023 year end), primarily as a result of the net changes discussed below.
The following represents the company’s working capital position as of September 28, 2024, and December 30, 2023:
| (Amounts in millions) |
September 28,
2024 |
December 30, 2023 | |||||||||
| Cash and cash equivalents | $ | 1,313.3 | $ | 1,001.5 | |||||||
| Trade and other accounts receivable – net | 796.4 | 791.3 | |||||||||
| Finance receivables – net | 624.7 | 594.1 | |||||||||
| Contract receivables – net | 122.1 | 120.8 | |||||||||
| Inventories – net | 995.8 | 1,005.9 | |||||||||
| Prepaid expenses and other current assets | 148.4 | 138.4 | |||||||||
| Total current assets | 4,000.7 | 3,652.0 | |||||||||
| Notes payable | (14.3) | (15.6) | |||||||||
| Accounts payable | (270.0) | (238.0) | |||||||||
| Other current liabilities | (672.1) | (688.0) | |||||||||
| Total current liabilities | (956.4) | (941.6) | |||||||||
| Working capital | $ | 3,044.3 | $ | 2,710.4 | |||||||
Cash and cash equivalents of $1,313.3 million as of September 28, 2024, represented an increase of $311.8 million from 2023 year-end levels primarily due to: (i) $924.0 million of cash generated from operations; (ii) $629.3 million of cash from collections of finance receivables; and (iii) $61.6 million of cash proceeds from stock purchase plans and stock option exercises. These increases in cash and cash equivalents were partially offset by: (i) the funding of $731.3 million of new finance receivables;
(ii) dividend payments to shareholders of $294.1 million; (iii) the repurcha
se of 637,000 sha
res of the company’s common stock for $177.5 million;
and (iv) the funding of $65.4 million of capital expenditures.
Of the $1,313.3 million of cash and cash equivalents as of September 28, 2024, $507.7 million was held outside of the United States. Snap-on maintains non-U.S. funds in its foreign operations to: (i) provide adequate working capital; (ii) satisfy various regulatory requirements; and/or (iii) take advantage of business expansion opportunities as they arise. Although the Tax Cuts and Jobs Act (“Tax Act”) generally eliminated U.S. federal taxation of dividends from foreign subsidiaries, such dividends may still be subject to state income taxation and foreign withholding taxes. Snap-on periodically evaluates its cash held outside the United States and may pursue opportunities to repatriate certain foreign cash amounts to the extent that it can be accomplished in a tax efficient manner.
53
SNAP-ON INCORPORATED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Trade and other accounts receivable – net of $796.4 million as of September 28, 2024, compared to $791.3 million as of December 30, 2023, an increase of $5.1 million primarily due to an increase in days sales outstanding, partially offset by $1.6 million of foreign currency translation. Days sales outstanding (trade and other accounts receivable – net as of the respective period end, divided by the respective trailing 12 months of sales, times 360 days) was 61 days for September 28, 2024, and 60 days for December 30, 2023.
The current portions of net finance and contract receivables of $746.8 million as of September 28, 2024, compared to $714.9 million at 2023 year end. The long-term portions of net finance and contract receivables of $1,731.1 million as of September 28, 2024, compared to $1,692.1 million at 2023 year end. The combined $70.9 million increase in net current and long-term finance and contract receivables over 2023 year-end levels is primarily due to net receivable originations and $4.9 million of foreign currency translation.
Inventories – net of $995.8 million as of September 28, 2024, decreased $10.1 million compared to $1,005.9 million as of December 30, 2023, primaril
y due to easing supply chain disruptions, partially offset by
$0.8 million of foreign currency translation. Inventory turns (trailing 12 months of cost of goods sold, divided by the average of the beginning and ending inventory balances for the trailing 12 months) were 2.3 turns as of both September 28, 2024, and December 30, 2023. Inventories accounted for using the first-in, first-out (“FIFO”) method approximated 58% of total inventories as of September 28, 2024, and 59% of total inventories as of December 30, 2023. All other inventories are accounted for using the last-in, first-out (“LIFO”) method. The company’s LIFO reserve was $125.7 million and $115.9 million as of September 28, 2024, and December 30, 2023, respectively.
Notes payable of $14.3 million as of September 28, 2024, compared to $15.6 million as of 2023 year end.
Accounts payable of $270.0 million as of September 28, 2024, compared to $238.0 million as of December 30, 2023, an increase of $32.0 million primarily due to the timing of payments, partially offset by $1.2 million of foreign currency translation.
Other accrued liabilities of $450.0 million as of September 28, 2024, compared to $447.4 million as of 2023 year end, an increase of $2.6 million, including $0.3 million of foreign currency translation.
Long-term debt of $1,185.3 million as of September 28, 2024, consisted of: (i) $300 million of unsecured 3.25% notes that mature on March 1, 2027 (the “2027 Notes”); (ii) $400 million of unsecured 4.10% notes that mature on March 1, 2048 (the “2048 Notes”); and (iii) $500 million of 3.10% notes that mature on May 1, 2050 (“the 2050 Notes”), partially offset by $14.7 million of unamortized debt issuance costs and issuance discounts.
Snap-on has a
$900 million
multicurrency revolving credit facility that terminates on September 12, 2028 (the “Credit Facility”).
The Credit Facility contains an accordion feature that, subject to certain customary conditions, may allow the maximum commitment to be increased by up to $450 million with the approval of the lenders providing additional commitments.
No amounts were borrowed or outstanding under the Credit Facility during the nine months ended and as of September 28, 2024.
Borrowings under the Credit Facility bear interest at varying rates based on either: (i) Snap-on’s then-current, long-term debt ratings; or (ii) Snap-on’s then-current ratio of consolidated debt net of certain cash adjustments (“Consolidated Net Debt”) to earnings before interest, taxes, depreciation, amortization and certain other adjustments for the preceding four fiscal quarters then ended (the “Consolidated Net Debt to EBITDA Ratio”). The Credit Facility’s financial covenant requires that Snap-on maintain, as of each fiscal quarter end, either (i) a ratio not greater than 0.60 to 1.00 of Consolidated Net Debt to the sum of Consolidated Net Debt plus total equity and less accumulated other comprehensive income or loss (the “Leverage Ratio”); or (ii) a Consolidated Net Debt to EBITDA Ratio not greater than 3.50 to 1.00. Snap-on may, up to two times during any five-year period during the term of the Credit Facility (including any extensions thereof), elect to increase the maximum Leverage Ratio to 0.65 to 1.00 and/or increase the maximum Consolidated Net Debt to EBITDA Ratio to 4.00 to 1.00 for four consecutive fiscal quarters in connection with certain material acquisitions (as defined in the related credit agreement). As of September 28, 2024, the company’s consolidated cash balance, net of certain adjustments, exceeded consolidated debt resulting in actual ratios of (0.01) and (0.03), respectively. Both ratios are within the permitted ranges set forth in this financial covenant.
Snap-on generally issues commercial paper to fund its financing needs on a short-term basis and uses the Credit Facility as back-up liquidity to support such commercial paper issuances. As of September 28, 2024, there were no commercial paper issuances outstanding.
54
SNAP-ON INCORPORATED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Snap-on believes it has sufficient available cash and access to both committed and uncommitted credit facilities to cover its expected funding needs on both a short-term and long-term basis. Snap-on manages its aggregate short-term borrowings so as not to exceed its availability under the Credit Facility. Snap-on believes that it can access short-term debt markets, predominantly through commercial paper issuances and existing lines of credit, to fund its short-term requirements and to ensure near-term liquidity. Snap-on regularly monitors the credit and financial markets and, if it believes conditions are favorable, it may take advantage of such conditions to issue long-term debt to further improve its liquidity and capital resources. Near-term liquidity requirements for Snap-on include payments of interest and dividends, funding to support new receivables originated by our financial services businesses, capital expenditures, working capital, the funding of pension plans, and funding for share repurchases and acquisitions, if and as they arise. Snap-on intends to make contributions of $6.0 million to its foreign pension plans and $3.7 million to its domestic pension plans in 2024, as required by law. Depending on market and other conditions, Snap-on may make discretionary cash contributions to its pension plans in 2024.
Snap-on’s long-term financing strategy is to maintain continuous access to the debt markets to accommodate its liquidity needs, including the potential use of commercial paper, additional fixed-term debt and/or securitizations.
The following discussion focuses on information included in the accompanying Condensed Consolidated Statements of Cash Flows.
Operating Activities
Net cash provided by operating activities was $924.0 million and $857.3 million in the first nine months of 2024 and 2023, respectively. The $66.7 million year-over-year increase in net cash provided by operating activities primarily reflects a $23.7 million change in net operating assets and liabilities and a $31.4 million increase in net earnings.
Investing Activities
Net cash used by investing activities of $163.9 million in the first nine months of 2024 included additions to finance receivables of $731.3 million, partially offset by collections of $629.3 million. Net cash used by investing activities of $227.2 million in the first nine months of 2023 included additions to finance receivables of $779.8 million, partially offset by collections of $626.5 million. Finance receivables are comprised of extended-term installment payment contracts to both technicians and independent shop owners (i.e., franchisees’ customers) to enable them to purchase tools, diagnostics, and equipment products on an extended-term payment plan, with average payment terms of approximately four years.
Capital expenditures were $65.4 million and $73.9 million in the first nine months of 2024 and 2023, respectively. Capital expenditures in both years included continued investments related to the company’s execution of its strategic Value Creation Processes around safety, quality, customer connection, innovation and RCI.
Financing Activities
Net cash used by financing activities was $448.3 million in the first nine months of 2024 and $423.9 million in the first nine months of 2023. Proceeds from stock purchase plans and stock option exercises totaled $61.6 million and $94.5 million in the first nine months of 2024 and 2023, respectively. In the first nine months of 2024, Snap-on repurchased 637,000 shares of its common stock for $177.5 million under its previously announced share repurchase programs. In the first nine months of 2023, Snap-on repurchased 909,000 shares of its common stock for $233.8 million under its previously announced share repurchase programs. As of September 28, 2024, Snap-on had remaining availability to repurchase up to an additional $471.5 million in common stock pursuant to its Board’s authorizations. The repurchase of Snap-on common stock to offset dilution related to equity plan issuances or for other corporate purposes is at the company’s discretion, subject to prevailing financial and market conditions. Snap‑on believes that its cash generated from operations, available cash on hand, and funds available from its credit facilities, will be sufficient to fund the company’s additional share repurchases, if any.
Snap-on has paid consecutive quarterly cash dividends, without interruption or reduction, since 1939. Cash dividends totaled $294.1 million and $257.6 million in the first nine months of 2024 and 2023, respectively. On November 2, 2023, the Board increased the quarterly cash dividend by 14.8% to $1.86 per share ($7.44 per share annualized). Snap-on believes that its cash generated from operations, available cash on hand, and funds available from its credit facilities, will be sufficient to pay dividends.
55
SNAP-ON INCORPORATED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Critical Accounting Policies and Estimates
Snap-on’s critical accounting policies and estimates, which are discussed in its Annual Report on Form 10-K for the fiscal year ended December 30, 2023, have not materially changed since the report was filed.
Outlook
We believe that our markets and our operations possess and have demonstrated continuing and considerable resilience against the uncertainties of the current environment. For the remainder of 2024, Snap-on expects to make ongoing progress along its defined runways for coherent growth, leveraging capabilities already demonstrated in the automotive repair arena and developing and expanding its professional customer base, not only in automotive repair, but in adjacent markets, additional geographies and other areas, including extending in critical industries, where the cost and penalties for failure can be high. In pursuit of these initiatives, we project that capital expenditures in 2024 will approximate $100 million, of which $65.4 million was incurred in the first nine months of the year.
Snap-on currently anticipates that its full-year 2024 effective income tax rate will be in the range of 22% to 23%.
56
Item 3: Quantitative and Qualitative Disclosures About Market Risk
There has been no significant change in the company’s exposure to market risk during the third quarter of 2024. Refer to Part II, Item 7A: Quantitative and Qualitative Disclosures About Market Risk in the company’s Annual Report on Form 10-K for the year ended December 30, 2023 for further discussion.
Interest Rate Risk Management
Snap-on may manage the exposure created by the differing maturities and interest rate structures of Snap-on’s borrowings through the use of interest rate swap agreements. Treasury lock agreements may be used to manage the potential change in interest rates in anticipation of the issuance of fixed rate debt. See Note 9 to the Condensed Consolidated Financial Statements for additional information on interest rate risk management.
Snap-on utilizes a Value-at-Risk (“VAR”) model to determine the potential one-day loss in the fair value of its interest rate and foreign exchange-sensitive financial instruments from adverse changes in market factors. The VAR model estimates were made assuming normal market conditions and a 95% confidence level. Snap-on’s computations are based on the inter-relationships among movements in various currencies and interest rates (variance/co-variance technique). These inter-relationships were determined by observing interest rate and foreign currency market changes over the preceding quarter.
The estimated maximum potential net one-day loss in fair value, calculated using the VAR model, as of September 28, 2024, was $9.9 million, consisting of a $10.0 million loss on interest rate-sensitive financial instruments and a $0.1 million gain on foreign currency-sensitive financial instruments. The VAR model is a risk management tool and does not purport to represent actual losses in fair value that will be incurred by Snap-on, nor does it consider the potential effect of favorable changes in market factors.
Item 4: Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Snap-on maintains a system of disclosure controls and procedures that is designed to provide reasonable assurance that material information relating to the company and its consolidated subsidiaries is timely communicated to the officers who certify Snap-on’s financial reports and to other members of senior management and the Board, as appropriate.
In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), the company’s management evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of the company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 28, 2024. Based upon their evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of September 28, 2024, to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission rules and forms, and to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control
There has been no change in the company’s internal control over financial reporting during the quarter ended September 28, 2024, that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting (as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)).
57
PART II. OTHER INFORMATION
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following chart discloses information regarding the shares of Snap-on’s common stock repurchased by the company during the third quarter of fiscal 2024, all of which were purchased pursuant to the Board’s authorizations that the company has publicly announced. Snap-on has undertaken stock repurchases from time to time to offset dilution related to equity plan issuances and for other corporate purposes, as well as when the company believes market conditions are favorable. The repurchase of Snap-on common stock is at the company’s discretion, subject to prevailing financial and market conditions, and pursuant to the Board’s authorizations that the company has publicly announced.
| Period |
Shares
purchased |
Average
price per share |
Shares
purchased as part of publicly announced plans or programs |
Approximate
value of shares
that may yet be
purchased under
publicly
announced plans
or programs
*
|
||||||||||||||||||||||
| 6/30/2024 to 7/27/2024 | 16,000 | $275.95 | 16,000 | $268.6 million | ||||||||||||||||||||||
| 7/28/2024 to 8/24/2024 | 94,000 | $276.21 | 94,000 | $497.9 million | ||||||||||||||||||||||
| 8/25/2024 to 9/28/2024 | 105,000 | $280.98 | 105,000 | $471.5 million | ||||||||||||||||||||||
| Total/Average | 215,000 | $278.52 | 215,000 | N/A | ||||||||||||||||||||||
| N/A: Not applicable | ||||||||||||||||||||||||||
* Subject to further adjustment pursuant to the 1996 Authorization described below, as of September 28, 2024, the approximate value of shares that may yet be
purchased pursuant to the outstanding Board authorizations discussed below is $471.5 million.
•
In 1996, the Board authorized the company to repurchase shares of the company’s common stock periodically in the open market or in privately negotiated transactions (the “1996 Authorization”). The 1996 Authorization allows the repurchase of up to the number of shares issued or delivered from treasury under the various plans the company has in place that call for the issuance of the company’s common stock. Because the number of shares that are purchased pursuant to the 1996 Authorization will change as (i) the company issues shares under its various plans; and (ii) shares are repurchased pursuant to this authorization, the number of shares authorized to be repurchased will vary from time to time. The 1996 Authorization will expire when terminated by the Board.
•
On November 4, 2021, the Board authorized the repurchase of up to $500 million of the company’s common stock (the “2021 Authorization”). On August 8, 2024, the Board authorized the repurchase of up to $500 million of the company’s common stock (the “2024 Authorization”). The 2024 Authorization replaced the 2021 Authorization (under which approximately $260 million remained as of the end of the second quarter of fiscal 2024) and, will expire when the aggregate repurchase price limit is met, unless terminated earlier by the Board.
Other Purchases or Sales of Equity Securities
The following chart discloses information regarding transactions by a counterparty in shares of Snap-on’s common stock during the third quarter of 2024 pursuant to a prepaid equity forward agreement (the “Agreement”) that is intended to reduce the impact of market risk associated with the stock-based portion of the company’s deferred compensation plans. The company’s stock-based deferred compensation liabilities increase as the company’s stock price rises and decrease as the company’s stock price declines. Pursuant to the Agreement, the counterparty may purchase or sell shares of the company’s common stock for its account in the market or in privately negotiated transactions. At termination, the Agreement settles in cash and does not provide for Snap-on to purchase or repurchase its shares.
| Period |
Shares
purchased (sold) |
Average
price per share |
||||||||||||
| 6/30/2024 to 7/27/2024 | (800) | $271.41 | ||||||||||||
| 7/28/2024 to 8/24/2024 | — | — | ||||||||||||
| 8/25/2024 to 9/28/2024 | 400 | $272.99 | ||||||||||||
| Total/Average | (400) | $271.94 | ||||||||||||
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Item 5: Other Information
In accordance with the disclosure requirement set forth in Item 408(a) of Regulation S-K, during the quarterly period ended September 28, 2024, no officer (as defined in Rule 16a-1(f) under the Securities Exchange Act of 1934, as amended) or director
adopted
, modified or
terminated
a contract, instruction or written plan for the purchase or sale of securities of the company intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or a non-Rule 10b5-1 trading arrangement.
59
| Item 6: Exhibits | ||||||||
| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||||||||
| Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||||||||
| Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||||||||
| Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||||||||
| Exhibit 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |||||||
| Exhibit 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |||||||
| Exhibit 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| Exhibit 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| Exhibit 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||
| Exhibit 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| Exhibit 104 | Cover page Inline XBRL data (contained in Exhibit 101) | |||||||
60
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Snap-on Incorporated has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
SNAP-ON INCORPORATED
|
|||||
|
Date:
October 17, 2024
|
/s/ Aldo J. Pagliari | ||||
| Aldo J. Pagliari, Principal Financial Officer, | |||||
| Senior Vice President – Finance and | |||||
| Chief Financial Officer | |||||
61
TABLE OF CONTENTS
Part I. Financial InformationprintItem 1: Financial StatementsprintNote 1: Summary Of Accounting PoliciesprintNote 2: Revenue RecognitionprintNote 3: AcquisitionsprintNote 4: ReceivablesprintNote 5: InventoriesprintNote 6: Goodwill and Other Intangible AssetsprintNote 7: Income TaxesprintNote 8: Short-term and Long-term DebtprintNote 9: Financial InstrumentsprintNote 10: Pension PlansprintNote 11: Postretirement Health Care PlansprintNote 12: Stock-based Compensation and Other Stock PlansprintNote 13: Earnings Per ShareprintNote 14: Commitments and ContingenciesprintNote 15: LeasesprintNote 16: Other Income (expense) NetprintNote 17: Accumulated Other Comprehensive Income (loss)printNote 18: SegmentsprintItem 2: Management S Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 3: Quantitative and Qualitative Disclosures About Market RiskprintItem 4: Controls and ProceduresprintPart II. Other InformationprintItem 2: Unregistered Sales Of Equity Securities and Use Of ProceedsprintItem 5: Other InformationprintItem 6: Exhibitsprint