2 0 1 8 A N N U A L R E P O R T
W I T H D AT A A N D I N S I G H T
SOLVING W I T H D E D I C AT I O N A N D S K I L L
SNAP-ON MAKES WORK EASIER FOR SERIOUS
PROFESSIONALS AROUND THE WORLD,
providing a broad array of unique productivity
solutions, including tools, equipment, diagnostics,
repair information and systems solutions.
DIAGNOSING WITH DATA & INSIGHT
SOLVING WITH DEDICATION & SKILL
SNAP-ON FACTS
Founded in 1920
Serves Professionals
in over 130 Countries
12,600 Associates
S&P 500 Company
2018 Net Sales of
$3.7 Billion
NYSE: SNA
DIAGNOSING WITH DATA & INSIGHT
SOLVING WITH DEDICATION & SKILL
CHANGING AND MORE COMPLEX WORKPLACES
IN CRITICAL INDUSTRIES AND VEHICLE REPAIR
N ET S A L E S
In $ billions
2014
2015
2016
2017
2018
$3.28
$3.35
$3.43
$3.69
$3.74
E A R N I N G S P E R
D I LU T E D S H A R E
2014
2015
2016
2017
2018
$7.14
$8.10
$9.20
$9.52/$10.12*
$11.87/$11.81*
*As adjusted. See “Reconciliation of Non-GAAP Financial
Measures” on page 8 for a definition of and further
explanation about, earnings per diluted share, as adjusted.
D I V I D E N D S P E R S H A R E
Since 1939, paid without
interruption or reduction
2014
2015
2016
2017
2018
$1.85
$2.20
$2.54
$2.95
$3.41
more frequently require data and insight to enable
O P E R AT I N G S E G M E N T S
2018 Revenues by Segment
professionals to solve tasks of consequence with
both dedication and skill.
35%
Snap-on
Tools Group
7%
Financial
Services
29%
Repair Systems
& Information
Group
29%
Commercial &
Industrial
Group
Increasing complexities, including tighter access and greater precision, and
Snap-on associates (from left to right) Vanessa Evans (Snap-on Tools),
the need for efficiency, require products matched, through customer connection,
Chairman and Chief Executive Officer Nick Pinchuk, Tan Teck Soon (Snap-on Asia
to the task of completing critical repairs. From enhanced tool storage and
Pacific), Jack Kania (Snap-on Credit), and Tom Kotenko (Snap-on OEM Solutions)
automated tool control offerings to innovations in hand tools, diagnostics and
discuss and review a variety of new products designed to make work easier in
torque, Snap-on provides the solutions for professionals to perform complex tasks.
challenging workplaces.
2
TO OUR
SNAP‑ON
SHAREHOLDERS
SNAP-ON IS ROOTED IN THE CRITICAL, providing our customers the tools for
diagnosing with data and insight, to enable solving with dedication and skill.
We connect with our customers, working men and women, whose jobs are
framework, a structured set of tools and processes used across the
critical, where the penalty for failure is high, and we provide them with
Corporation to eliminate waste and improve operations, has enabled us
the repeatability and reliability they need to get the job done. Observing
to deliver significant improvements in operating margin before financial
their work, witnessing their dedication and seeing their skill, we develop
services. RCI served us well during 2018, attenuating pressures on our
and provide the tools to make work easier for serious professionals as
operating results, and providing improvements as these processes were
they perform tasks of consequence. Through years of experience, we
further applied to acquisitions made over the last several years.
have amassed a broad and rich repository of data and insight to equip
our customers with the latest advances in unique productivity solutions,
meeting the needs of the rapidly changing workplace.
We were encouraged that our 2018 results, despite an array of
headwinds, demonstrated our ability to provide data and insight to
a wide range of professional customers performing critical tasks in
Since 1920, our principle value-creating mechanism has been to
workplaces of consequence around the world. Net sales of $3,740.7
observe work, translate the insights gained and create solutions that
million increased 1.5%, reflecting a $19.3 million, or 0.5%, organic
make essential tasks easier. Opportunities to leverage this value
sales1 gain, $24.2 million of acquisition-related sales and $10.3 million
proposition, both within and beyond vehicle repair, are embodied in
of favorable foreign currency translation. Sales to customers in our
our runways for growth: enhance the franchise network, expand with
industrial end markets were strong throughout the year and increased
repair shop owners and managers, extend to critical industries and
meaningfully over 2017. These improvements were tempered by lower
build in emerging markets. In 2018, we continued to invest in each
sales in automotive repair markets, including in our businesses that
of these strategically decisive areas.
serve repair shop owners and managers and in our mobile tool
At the same time, we remain committed to our runways for improvement,
distribution business serving primarily vehicle repair technicians.
applying our Snap-on Value Creation Processes, a suite of principles we
As a result of our commitment to our Snap-on Value Creation Processes,
use every day in the areas of safety, quality, customer connection,
we were able to maintain operating profitability despite the lower sales
innovation and rapid continuous improvement (RCI). The continuing
in our automotive repair markets. Reported operating margin before
potential of these runways for improvement was evident in diverse ways
financial services of 19.4%, including 10 basis points of benefit from a
in 2018. For example, we again received recognition for a number of
legal settlement, compared to 18.0% in 2017, which included 130 basis
our new products, earning awards from both MOTOR Magazine and
points of negative impact from certain legal charges. Excluding these
Professional Tool & Equipment News, and illustrating our success in
items, operating margin before financial services, as adjusted, of 19.3%
connecting with customers and translating that insight into winning
innovations. Since its establishment at Snap-on in 2005, our RCI
1 Organic sales is a non-GAAP financial measure that excludes acquisition-related sales
and the impact of foreign currency translation.
3
Extending to critical industries is an important
runway for growth. The addition of Norbar,
a 2017 acquisition, combined with existing
product lines, enhances the offering of
precision torque solutions for the aerospace,
mining, oil and gas, railroad and power
generation industries.
1) The manual torque multiplier delivers 14,700 ft. lbs.
of torque where access is limited and high levels of
torque are required, such as in wind turbine bolting,
oil drill rigging, and aviation engine installation.
2) The combination of the hand torque multiplier
and a torque wrench delivers precise bolting in a
compact design, allowing effective access to difficult
positions. The robust construction makes this ideal
for heavy duty vehicle applications.
3) The pneumatic torque multiplier delivers accurate torque
control with low noise and exceptionally low vibration
using a versatile steel reaction arm.
4) The micro torque wrench, 10.2 inches in length, less
than an inch in diameter, and weighing under 1 pound,
offers 12-240 in. lbs. of torque designed for aviation
and other critical industries where access and light
weight are important.
1
4
2
3
remained the same as in 2017, despite the increased headwinds.
growth in organic sales to customers in critical industries was broad-
Reported diluted earnings per share in 2018 of $11.87, including
based across multiple sectors, and we believe the opportunities to further
benefits of $0.06 per diluted share from a legal settlement, $0.07 per
penetrate the large vertical markets remain quite attractive. As such, we
diluted share from net debt items, and $0.07 per diluted share from tax
continue the commitment to strengthening our position in that arena, as
charges, were up 24.7% year over year. Reported diluted earnings per
evidenced by innovative new product introductions aimed at making work
share in 2017 of $9.52 included $0.48 per diluted share from legal
easier for professionals in a variety of industrial settings like aviation and
charges and $0.12 per diluted share from a tax charge. Excluding these
aerospace, oil and gas, mining, power generation and the military.
items, 2018 diluted earnings per share, as adjusted, was $11.81, up
16.7% from $10.12 per diluted share, as adjusted, in 2017. (See page 8
for a definition of, and further explanation about, these non-GAAP
financial measures that are adjusted to exclude certain items.)
Sales growth in our European-based hand tools business was achieved
across the region, including in some fairly difficult geographies. This
business is driving its success by strengthening its connection with end
users and by showing the way toward new and more customized product
In our Commercial & Industrial (C&I) Group, we serve a broad range of
lines. At the same time, the operation is installing updated design and
customers, including professionals in critical industries and emerging
manufacturing processes, enabling significant improvements in its
markets, primarily through direct and distributor channels. Segment net
legacy product lines, such as with the new Bahco® precision cutting
sales of $1,343.3 million increased 6.2%, reflecting a $52.1 million, or
and holding pliers, and further demonstrating its strong capabilities
4.1%, organic sales gain, $23.5 million of acquisition-related sales and
in innovation, ergonomics and practical application. Our Asia Pacific
$2.7 million of favorable foreign currency translation. The organic sales
operations realized solid organic sales growth for the year, particularly
increase included higher sales to customers in critical industries, in the
in key countries like India, Indonesia and Japan, despite near-term
power tools division, in our Asia Pacific operations, and in our European-
uncertainty in the region. We believe the long-term potential remains
based hand tools business. Operating margin of 14.8% increased 10
strong to build in emerging markets, one of our runways for growth,
basis points compared to 14.7% in 2017, including 20 basis points of
and we continue to invest in our manufacturing, products and
unfavorable foreign currency effects.
distribution for this important region.
The C&I Group, which has our greatest international presence, showed
Precision is rising in importance following the trend toward higher
continued improvement in 2018 as compared to 2017. Mid single-digit
efficiency and autonomy in today’s world. As such, torque products are
4
Torque controller systems are designed
to organize work stations for the production
of highly customized products, where
error proofing and quality are essential.
Sturtevant Richmont, a 2016 acquisition,
adds this sophisticated product to our
lineup of torque products available to
critical industries.
1) The Global 400™ mp torque controller system has
the capacity for 160 sets of parameters and works
with over 30 different tools.
2) The accurate and flexible preset wireless click
torque wrench offers excellent audible and tactile
indications of when the preset torque is achieved.
Fully compatible with the torque controller system,
it combines with interchangeable heads for an
exceptionally versatile tool.
3) These examples of more than 200 available
interchangeable heads reflect the flexible tooling
Snap-on offers for varied advanced manufacturing
and assembly operations.
1
2
3
becoming more essential in performing critical tasks. In that regard,
reflecting the rising headwinds, principally in the U.K. Despite the
Snap-on continues to expand its torque product line. For example,
variability in 2018, based on feedback from our franchisees and
we recently introduced a new line of microelectronic torque wrenches
customers, as well as from market data, we continue to believe vehicle
designed for aviation, manufacturing and other critical industries where
repair is a compelling market, and that Snap-on is well-positioned to
tight spaces are common and light weight is important. Furthermore,
benefit over the longer term from the opportunities. Additionally, our
we’ve added the capabilities in our existing torque product lines with
franchisees’ confidence in their business and optimism in their future is
those from the acquisitions made over the past few years to create new
reinforced by the advancements evident in our franchisee health metrics.
products, such as with our new ControlTech-Link® industrial wireless
These are the financial and physical indicators, such as sales levels,
torque wrench family, which combines the technologies from our
profitability, equity and tenure, that we monitor regularly and they remain
acquired wireless capabilities with the advantages of our industry-
favorable, as demonstrated at our annual Snap-on Franchisee Conference.
leading compact torque product line.
This year’s conference had record attendance of more than 8,800,
In the Snap-on Tools Group, our franchised mobile van network
primarily serving vehicle repair technicians, segment net sales of
including franchisees and their families representing over 3,100 routes . . .
a physical indication of the network’s positive outlook on its potential.
$1,613.8 million decreased 0.7%, reflecting a $15.6 million, or 1.0%,
Another important success factor in our franchise business model is
organic sales decline, partially offset by $4.3 million of favorable
the ability to provide innovative, attention-getting new tools aimed at
foreign currency translation. The organic sales decrease reflects lower
decreasing job times and increasing technician productivity in any shop.
sales in our international franchise operations, including in the U.K.,
One such example is the new line of flex-head ratcheting wrenches,
while sales in our U.S. franchise operations were essentially flat.
which adds to our rapidly expanding range in the professional ratcheting-
Operating margin of 16.4%, including 40 basis points of favorable
wrench category. The new flex head combines with Snap-on’s durable
foreign currency effects, compared to 16.9% in 2017.
gearing, extraordinary length and low profile to provide industry-leading
Results were mixed for the Snap-on Tools Group throughout 2018.
Sales in the U.S. faced challenges in the first half of the year, but returned
to growth compared to 2017 in the second half. The international van
business began reasonably robustly, but declined in later periods,
strength, power, and accessibility, and it expands the technician’s
ability to access fasteners in tight automotive applications. Also, during
the year, we introduced our revolutionary new Flank Drive® Xtra (FDX™)
socket system. Snap-on® sockets are already recognized as the very best.
5
The FDX™ innovation makes them even better, providing more turning
While sales to OEM dealers and of undercar equipment declined year over
power, a more secure fastener engagement, and greater efficiency when
year, we believe growth in sales of diagnostics and repair information
attacking those most difficult jobs.
products demonstrates the greater need in repair shops for data and
In 2018, once again, we received a number of national and international
recognitions confirming that a Snap-on Tools franchise provides
significant opportunities for entrepreneurs to build a successful and
sustainable business. Entrepreneur Magazine ranked Snap-on 11th
in its “America’s Top Global” listing of 200 franchises with global
presence, and Snap-on moved to #1 among all franchises evaluated in
the same publication’s “Top Franchises for Veterans.” In addition, the
Franchise Business Review again identified Snap-on on its annual list
of top franchises based on franchisee satisfaction.
In the Repair Systems & Information (RS&I) Group, which serves
owners and managers of independent and OEM dealership service and
repair shops, segment net sales of $1,334.4 million decreased 1.0%,
reflecting a $19.6 million, or 1.4%, organic sales decline, partially offset
by $0.7 million of acquisition-related sales and $6.1 million of favorable
foreign currency translation. The organic decrease reflects lower sales
to OEM dealerships and of undercar equipment, partially offset by
higher sales of diagnostics and repair information products to
independent repair shop owners and managers. Operating margin
of 25.7% improved 80 basis points compared to 24.9% in 2017,
including 20 basis points of unfavorable foreign currency effects.
insight to address increasing vehicle complexity and constantly changing
technologies. In 2018, we launched the Apollo-D8™, making Snap-on®
Intelligent Diagnostics software accessible to more technicians,
simplifying the diagnostic process, and enabling solutions for the most
complex of problems. We enhanced our Mitchell1® ProDemand® auto
repair information software with the addition of 1Search® Plus, a new
interface that streamlines the user experience to return only the specific
information the technician needs for solution, saving valuable time and
enabling shops to repair vehicles with more accuracy and speed.
We continue to build traction in heavy duty repair with our lineup of
products developed specifically for that significant market. Heavy duty
products, like our NEXIQ Pocket HD™, are designed using customer
connection for OEM and aftermarket repair centers as well as for fleet
maintenance facilities. The Pocket HD™ is both versatile and reliable,
with a larger display and user-friendly features, including intuitive
software, making diagnosing even those heavy duty vehicles much
easier. With Mitchell’s truck repair suite for the medium and heavy duty
trucking segments, professional truck mechanics are able to diagnose
and repair all makes of Class 4-8 trucks with expert data throughout the
repair process. From light vehicles to heavy duty, RS&I is making work
Speed and efficiency have become increasingly
important in the repair shop. Tighter spaces and
changing vehicle technology create the need for
new tools to complete more complex tasks.
1
1) The new, redesigned Flank Drive® Xtra, or FDX™,
socket system brings enhanced features to one of
the industry’s most frequently-used tools. Our new
design improves productivity for the technician
in the shop and provides 25 percent more strength
than its industry-leading predecessor.
2) As the space in today’s engine compartments
becomes more crowded, our flex-head ratcheting
wrench, with its narrow width and low height
offers access to the tightest spaces, and its
length provides maximum leverage.
3) With a range of 4-80 in. lbs., technicians can use
this ¼" drive electronic torque screwdriver in a
variety of advanced systems, such as tire pressure
monitoring and anti-lock braking, where greater
precision is required.
4) The speeder handle flex-head ratchet is a quick
way to manually tighten or loosen fasteners and
utilizes a flexible head to provide access to
compact locations.
6
2
3
4
easier in repair shops across the industry, and we believe there are
At the same time, our priorities for capital allocation remain to
abundant runways for further growth in that arena.
strategically invest, both organically and through acquisitions, along
Financial Services operating earnings of $230.1 million on revenue of
our defined runways for growth and improvement.
$329.7 million compared to operating earnings of $217.5 million on
In 2019, we expect to continue our journey along our runways for
revenue of $313.4 million a year ago. Originations of $1,057.5 million
improvement, the Snap-on Value Creation Processes, together with
declined 1.4%, reflecting the variability in the Snap-on Tools Group.
advancing along each of our runways for growth: enhance the franchise
Financial Services expenses were higher in 2018 primarily due to
network, expand with repair shop owners and managers, extend to
changes in both the provisions for credit losses and in the size of the
critical industries and build in emerging markets. Snap-on will remain
portfolio. Aimed at supporting essential big ticket purchases by
rooted in our respect for the dignity of work, providing working men and
technicians and shops, as well as enabling our franchisees’ investments
women with tools for diagnosing with data and insight, enabling them in
in their businesses, our Financial Services operation, with a strong
solving critical tasks with dedication and skill, and providing them with
connection to the Snap-on Tools Group, has a decades-long track
the visible sign of their pride declaring that what they do is special and
record of providing the advantage of customized financing to these
really does make a difference in building the world we know. Finally,
particular constituencies in a variety of economic environments.
as we move forward, I thank our franchisees and associates around the
During 2018, under our existing share repurchase programs, we
repurchased 1.77 million shares for $284.1 million. We believe Snap-on
has ample availability for future share repurchases under its current
authorizations. In November 2018, our Board of Directors raised
Snap-on’s quarterly cash dividend by 15.9% to $0.95 per share. This
is the ninth consecutive year with a dividend increase. Snap-on has
paid consecutive quarterly cash dividends, without interruption or
world for their contributions and dedication, our Board of Directors for
their support and counsel, and our customers and shareholders for their
confidence and commitment.
reduction, since 1939. These share repurchases and dividend actions
Nicholas T. Pinchuk
reinforce our commitment to create long-term value for our shareholders.
Chairman and Chief Executive Officer
2
1
3
The rising challenges of automotive
and heavy duty vehicle repair is giving
technicians and repair facilities a
greater need for diagnosing with data
and insight.
Snap-on’s unique Intelligent Diagnostics software
was included in the new Apollo-D8™ (1) full-function
scan tool, bringing this valuable capability to more
technicians, at all skill levels. The related software
package provides access to SureTrack® data, an
exclusive feature offering real fixes and repair short
cuts for specific vehicles, saving technician time
and generating greater efficiency in the shop. Our
sophisticated ProDemand® software was enhanced
with the addition of 1Search® Plus (2) technology,
which displays information in a unique graphical
layout aligned with the way a technician thinks
about diagnosis and repair, combining data, insight
and skill into an already powerful tool. Using
customer connection, the Pocket HD™ (3) handheld
diagnostic unit was specifically designed for heavy
duty OEM and aftermarket repair centers or fleet
maintenance facilities, providing immediate access
to critical information in a versatile, user-friendly
and reliable platform.
7
WHO WE ARE:
OUR MISSION
T H E M O S T V A L U E D P R O D U C T I V I T Y
S O L U T I O N S I N T H E W O R L D
B E L I E F S
V A L U E S
V I S I O N
We deeply believe in:
Non-negotiable Product
and Workplace Safety
Uncompromising Quality
Passionate
Customer Care
Fearless Innovation
Rapid Continuous
Improvement
Our behaviors
define our success:
To be acknowledged
as the:
We demonstrate
Integrity.
We tell the Truth.
We respect the
Individual.
We promote Teamwork.
We Listen.
Brands of Choice
Employer of Choice
Franchisor of Choice
Business Partner
of Choice
Investment of Choice
SNAP‑ON
VALUE
CREATION
PRINCIPLES AND PROCESSES
WE APPLY TO CREATE VALUE
Founded on our mission and beliefs, these are
strategic processes we use daily to create value
across our Corporation.
S A F ET Y
Q U A L I T Y
C U STO M E R CO N N E C T I O N
I N N OV AT I O N
R A P I D CO N T I N U O U S I M P R OV E M E N T
RECONCILIATION OF NON‑GAAP
FINANCIAL MEASURES
(Amounts in millions, except per share data)
AS REPORTED
Litigation-related matters
20 18
20 17
ADJUSTED INFORMATION - NON-GAAP
20 18
2017
1) Operating earnings before financial services
Pre-tax benefit from legal settlement
$ 4.3
$ —
As reported
Income tax expense related to legal settlement
(1.1)
—
Legal settlement
Pre-tax legal charges
Income tax benefit related to legal charges
—
—
(45.9)
17.5
Legal charges
As adjusted
Litigation-related matters, after tax
$ 3.2
$(28.4)
Gain on settlement of treasury lock and loss on
early extinguishment of debt (“net debt items”)
Pre-tax net debt items
Income tax expense
Net debt items, after tax
$ 5.5
$ —
(1.4)
—
$ 4.1
$ —
Adjustments related to U.S. tax legislation
Tax charges
$ (3.9)
$ (7.0)
Weighted-average shares outstanding - diluted
57.3
58.6
Diluted EPS - legal settlement
Diluted EPS - legal charges
Diluted EPS - net debt items
Diluted EPS - tax charges
$ 0.06
$ —
$ —
$(0.48)
$ 0.07
$ —
$(0.07)
$(0.12)
For 2018 and 2017, the company is including operating earnings before financial services, net earnings, and
diluted earnings per share, all as adjusted. In 2018, the adjustments exclude the impact of a pre-tax $4.3 million
benefit ($3.2 million after tax) for a settlement in an employment-related litigation matter that was being appealed;
while in 2017, the adjustments exclude the impact of pre-tax charges of $45.9 million ($28.4 million after tax)
related to judgments in litigation matters, including a patent-related litigation matter that is being appealed and
for the employment-related litigation matter that settled in 2018. In addition, for 2018, the adjustments exclude
the impact of a net pre-tax $5.5 million gain ($4.1 million after tax) related to net debt items and the impact of
a $3.9 million charge related to the implementation of tax legislation; while in 2017, the adjustments exclude
the impact of a $7.0 million charge related to the implementation of tax legislation. Management believes that
these are unusual events and therefore the non-GAAP financial measures provide more meaningful year-over-year
comparisons of the company’s 2018 operating performance.
8
Operating earnings before financial services
as a percentage of sales
As reported
As adjusted
2) Net earnings attributable to Snap-on Incorporated
As reported
Legal settlement, after tax
Legal charges, after tax
Net debt items, after tax
Tax charges
As adjusted
3) Diluted EPS
As reported
Legal settlement, after tax
Legal charges, after tax
Net debt items, after tax
Tax charges
As adjusted
$726.0
$664.6
$ (4.3)
—
—
45.9
$721.7
$710.5
19.4%
19.3%
18.0%
19.3%
$679.9
$557.7
(3.2)
—
—
28.4
(4.1)
3.9
—
7.0
$676.5
$593.1
$11.87
$ 9.52
(0.06)
—
—
0.48
(0.07)
0.07
—
0.12
$11.81
$10.12
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 29, 2018, or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-7724
(Exact name of registrant as specified in its charter)
Delaware
(State of incorporation)
39-0622040
(I.R.S. Employer Identification No.)
2801 80th Street, Kenosha, Wisconsin
(Address of principal executive offices)
53143
(Zip code)
(262) 656-5200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $1.00 par value
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in a definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The aggregate market value of voting and non-voting common equity held by non-affiliates (excludes 626,160 shares held by
directors and executive officers) computed by reference to the price ($160.72) at which common equity was last sold as of the last
business day of the registrant’s most recently completed second fiscal quarter (June 30, 2018) was $9.0 billion.
The number of shares of Common Stock ($1.00 par value) of the registrant outstanding as of February 8, 2019, was 55,616,137
shares.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K incorporates by reference certain information that will be set forth in Snap-on’s Proxy
Statement, which is expected to first be mailed to shareholders on or about March 11, 2019, prepared for the Annual Meeting of
Shareholders scheduled for April 25, 2019.
TABLE OF CONTENTS
Page
PART I
Item 1
Business
Item 1A
Risk Factors
Item 1B
Unresolved Staff Comments
Item 2
Properties
Item 3
Legal Proceedings
Item 4
Mine Safety Disclosures
PART II
Item 5
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6
Selected Financial Data
Item 7
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A
Quantitative and Qualitative Disclosures About Market Risk
Item 8
Financial Statements and Supplementary Data
Item 9
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A
Controls and Procedures
Item 9B
Other Information
PART III
Item 10
Directors, Executive Officers and Corporate Governance
Item 11
Executive Compensation
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13
Certain Relationships and Related Transactions, and Director Independence
Item 14
Principal Accounting Fees and Services
PART IV
Item 15
Exhibits, Financial Statement Schedules
Item 16
Form 10-K Summary
Signatures
Consent of Independent Registered Public Accounting Firm
Certifications
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19
19
21
21
21
24
26
55
56
56
57
59
59
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2
SNAP-ON INCORPORATED
PART I
Safe Harbor
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 this Annual Report on Form 10-K, particularly those in “Item 1A: Risk Factors,” 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.
These risks and uncertainties include, without limitation, uncertainties related to estimates, statements, assumptions and projections
generally, and the timing and progress with which Snap-on can attain value through its Snap-on Value Creation Processes, including
its ability to realize efficiencies and savings from its rapid continuous improvement and other cost reduction initiatives, improve
workforce productivity, achieve improvements in the company’s manufacturing footprint and greater efficiencies in its supply
chain, and 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. These risks also include uncertainties related
to Snap-on’s capability to implement future strategies with respect to its existing businesses, its ability to refine its brand and
franchise strategies, retain and attract franchisees, further enhance service and value to franchisees and thereby help improve their
sales and profitability, introduce successful new products, successfully pursue, complete and integrate acquisitions, as well as its
ability to withstand disruption arising from natural disasters, planned facility closures or other labor interruptions, the effects of
external negative factors, including adverse developments in world financial markets, weakness in certain areas of the global
economy (including as a result of the United Kingdom’s pending exit from the European Union), and significant changes in the
current competitive environment, inflation, interest rates and other monetary and market fluctuations, changes in tax rates, laws
and regulations as well as uncertainty surrounding potential changes, and the impact of energy and raw material supply and pricing,
including steel and gasoline, as well as tariffs and other trade protection measures put in place by the U.S. or other countries, the
amount, rate and growth of Snap-on’s general and administrative expenses, including health care and postretirement costs,
continuing and potentially increasing required contributions to pension and postretirement plans, the impacts of non-strategic
business and/or product line rationalizations, and the effects on business as a result of new legislation, regulations or government-
related developments or issues, risks associated with data security and technological systems and protections, potential reputational
damages and costs related to litigation as well as an inability to assure that costs will be reduced or eliminated on appeal, and other
world or local events outside Snap-on’s control, including terrorist disruptions. Snap-on disclaims any responsibility to update any
forward-looking statement provided in this document, except as required by law.
In addition, investors should be aware that generally accepted accounting principles in the United States of America (“GAAP”)
prescribe when a company should reserve for particular risks, including litigation exposures. Accordingly, results for a given
reporting period could be significantly affected if and when a reserve is established for a major contingency. Reported results,
therefore, may appear to be volatile in certain accounting periods.
Fiscal Year
Snap-on’s fiscal year ends on the Saturday that is on or nearest to December 31. Unless otherwise indicated, references in this
document to “fiscal 2018” or “2018” refer to the fiscal year ended December 29, 2018; references to “fiscal 2017” or “2017” refer
to the fiscal year ended December 30, 2017; and references to “fiscal 2016” or “2016” refer to the fiscal year ended December 31,
2016. Snap-on’s 2018, 2017 and 2016 fiscal years each contained 52 weeks of operating results. References in this document to
2018, 2017 and 2016 year end refer to December 29, 2018, December 30, 2017, and December 31, 2016, respectively.
2018 ANNUAL REPORT
3
Item 1: Business
Snap-on was incorporated under the laws of the state of Wisconsin in 1920 and reincorporated under the laws of the state of
Delaware in 1930. Snap-on is a leading global innovator, manufacturer and marketer of tools, equipment, diagnostics, repair
information and systems solutions for professional users performing critical tasks. Products and services include hand and power
tools, tool storage, diagnostics software, handheld and PC-based diagnostic products, information and management systems, shop
equipment and other solutions for vehicle dealerships and repair centers, as well as for customers in industries, such as aviation
and aerospace, agriculture, construction, government and military, mining, natural resources, power generation and technical
education. Snap-on also derives income from various financing programs designed to facilitate the sales of its products and support
its franchise business.
Snap-on markets its products and brands worldwide through multiple sales distribution channels in more than 130 countries.
Snap on’s largest geographic markets include the United States, Europe, Canada and Asia Pacific. Snap-on reaches its customers
through the company’s franchised, company-direct, distributor and internet channels.
The company began with the development of the original Snap-on interchangeable socket set in 1920 and subsequently pioneered
mobile tool distribution in the automotive repair market, where well stocked vans sell to professional vehicle technicians at their
place of business. Today, Snap-on defines its value proposition more broadly, extending its reach “beyond the garage” to deliver
a broad array of unique solutions that make work easier for serious professionals performing critical tasks. The company’s “coherent
growth” strategy focuses on developing and expanding its professional customer base in its legacy automotive market, as well as
in adjacent markets, additional geographies and other areas, including in critical industries, where the cost and penalties for failure
can be high. In addition to its coherent growth strategy, Snap-on is committed to its “Value Creation Processes” – a set of strategic
principles and processes designed to create value and employed in the areas of (i) safety; (ii) quality; (iii) customer connection;
(iv) innovation; and (v) rapid continuous improvement (“RCI”). 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.
Snap-on’s primary customer segments include: (i) commercial and industrial customers, including professionals in critical
industries and emerging markets; (ii) professional vehicle repair technicians who purchase products through the company’s mobile
tool distribution network; and (iii) other professional customers related to vehicle repair, including owners and managers of
independent and original equipment manufacturer (“OEM”) dealership service and repair shops (“OEM dealerships”). Snap-on’s
Financial Services customer segment includes: (i) franchisees’ customers, principally serving vehicle repair technicians, and
Snap on customers who require financing for the purchase or lease of tools and diagnostics and equipment products on an extended-
term payment plan; and (ii) franchisees who require financing for vehicle leases and business loans.
Snap-on’s business segments are based on the organization structure used by management for making operating and investment
decisions and for assessing performance. Snap-on’s reportable business segments are: (i) the Commercial & Industrial Group;
(ii) the Snap-on Tools Group; (iii) the Repair Systems & Information Group; and (iv) Financial Services. The Commercial &
Industrial Group consists of business operations serving a broad range of industrial and commercial customers worldwide, including
customers in the aerospace, natural resources, government, power generation, transportation and technical education market
segments (collectively, “critical industries”), primarily through direct and distributor channels. The Snap-on Tools Group consists
of business operations primarily serving vehicle service and repair technicians through the company’s worldwide mobile tool
distribution channel. The Repair Systems & Information Group consists of business operations serving other professional vehicle
repair customers worldwide, primarily owners and managers of independent repair shops and OEM dealerships, through direct
and distributor channels. Financial Services consists of the business operations of Snap-on Credit LLC (“SOC”), the company’s
financial services business in the United States, and Snap-on’s other financial services subsidiaries in those international markets
where Snap-on has franchise operations. See Note 19 to the Consolidated Financial Statements for information on business segments
and foreign operations.
4
SNAP-ON INCORPORATED
Snap-on evaluates the performance of its operating segments based on segment revenues, including both external and intersegment
net sales, and segment operating earnings. Snap-on accounts for intersegment sales and transfers based primarily on standard costs
with reasonable mark-ups established between the segments. Identifiable assets by segment are those assets used in the respective
reportable segment’s operations. Corporate assets consist of cash and cash equivalents (excluding cash held at Financial Services),
deferred income taxes and certain other assets. Intersegment amounts are eliminated to arrive at Snap-on’s consolidated financial
results.
Recent Acquisitions
On January 31, 2018, Snap-on acquired substantially all of the assets of George A. Sturdevant, Inc. (d/b/a Fastorq) for a cash
purchase price of $3.0 million. Fastorq, based in New Caney, Texas, designs, assembles and distributes hydraulic torque and
hydraulic tensioning products for use in critical industries. The acquisition of the Fastorq product line complemented and increased
Snap-on’s existing torque product offering and broadened its established capabilities in serving in critical industries. For segment
reporting purposes, the results of operations and assets of Fastorq have been included in the Commercial & Industrial Group since
the acquisition date.
On July 28, 2017, Snap-on acquired Torque Control Specialists Pty Ltd (“TCS”) for a cash purchase price of $3.6 million (or
$3.5 million, net of cash acquired). TCS, based in Adelaide, Australia, distributes a full range of torque products, including wrenches,
multipliers and calibrators, for use in critical industries. The acquisition of TCS enhanced and expanded Snap-on’s capabilities in
providing solutions that address torque requirements, which are increasingly essential to critical mechanical performance. For
segment reporting purposes, the results of operations and assets of TCS have been included in the Commercial & Industrial Group
since the acquisition date.
On May 4, 2017, Snap-on acquired Norbar Torque Tools Holdings Limited, along with its U.S. and Chinese joint ventures
(“Norbar”), for a cash purchase price of $71.6 million (or $69.9 million, net of cash acquired). Norbar, based in Banbury, U.K.,
designs and manufactures a full range of torque products, including wrenches, multipliers and calibrators, for use in critical
industries. The acquisition of Norbar enhanced and expanded Snap-on’s capabilities in providing solutions that address torque
requirements. For segment reporting purposes, the results of operations and assets of Norbar have been included in the
Commercial & Industrial Group since the acquisition date.
On January 30, 2017, Snap-on acquired BTC Global Limited (“BTC”) for a cash purchase price of $9.2 million. BTC, based in
Crewe, U.K., designs and implements automotive vehicle inspection and management software for OEM franchise repair shops.
The acquisition of BTC enhanced Snap-on’s capabilities to grow enterprise revenues and add increased productivity for repair
workshops. For segment reporting purposes, the results of operations and assets of BTC have been included in the Repair Systems &
Information Group since the acquisition date.
On November 16, 2016, Snap-on acquired Ryeson Corporation (d/b/a Sturtevant Richmont) for a cash purchase price of
$13.0 million (or $12.6 million, net of cash acquired). Sturtevant Richmont, based in Carol Stream, Illinois, designs, manufactures
and distributes mechanical and electronic torque wrenches as well as wireless torque error proofing systems for a variety of
industrial applications. The acquisition of Sturtevant Richmont enhanced and expanded Snap-on’s capabilities in providing
solutions that address torque requirements. For segment reporting purposes, the results of operations and assets of Sturtevant
Richmont have been included in the Commercial & Industrial Group since the acquisition date.
On October 31, 2016, Snap-on acquired Car-O-Liner Holding AB (“Car-O-Liner”) for a cash purchase price of $152.0 million (or
$148.1 million, net of cash acquired). Car-O-Liner, based in Gothenburg, Sweden, designs and manufactures collision repair
equipment, and information and truck alignment systems. The acquisition of Car-O-Liner complemented and increased Snap-on’s
existing equipment and repair and service information product offerings, broadened its established capabilities in serving vehicle
repair facilities and further expanded the company’s presence with repair shop owners and managers. For segment reporting
purposes, substantially all of Car-O-Liner’s results of operations and assets have been included in the Repair Systems & Information
Group since the acquisition date, with the remaining portions included in the Commercial & Industrial Group.
Pro forma financial information has not been presented for any of these acquisitions as the net effects, individually and collectively,
were neither significant nor material to Snap-on’s results of operations or financial position.
2018 ANNUAL REPORT
5
Information Available on the Company’s Website
Additional information regarding Snap-on and its products is available on the company’s website at www.snapon.com. Snap-on
is not including the information contained on its website as a part of, or incorporating it by reference into, this Annual Report on
Form 10-K. Snap-on’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Proxy Statements on Schedule 14A and
Current Reports on Form 8-K, as well as any amendments to those reports, are made available to the public at no charge through
the Investors section of the company’s website at www.snapon.com. Snap-on makes such material available on its website as soon
as reasonably practicable after it electronically files such material with, or furnishes it to, the Securities and Exchange Commission
(“SEC”). Copies of any materials the company files with the SEC can also be obtained free of charge through the SEC’s website
at www.sec.gov. In addition, Snap-on’s (i) charters for the Audit, Corporate Governance and Nominating, and Organization and
Executive Compensation Committees of the company’s Board of Directors; (ii) Corporate Governance Guidelines; and (iii) Code
of Business Conduct and Ethics are available on the company’s website. Snap-on will also post any amendments to these documents,
or information about any waivers granted to directors or executive officers with respect to the Code of Business Conduct and
Ethics, on the company’s website at www.snapon.com.
Products and Services
Tools; Diagnostics, Information and Management Systems; and Equipment
Snap-on offers a broad line of products and complementary services that are grouped into three product categories: (i) tools; (ii)
diagnostics, information and management systems; and (iii) equipment. Further product line information is not presented as it is
not practicable to do so. The following table shows the consolidated net sales of these product categories for the last three years:
(Amounts in millions)
Product Category:
Tools
Diagnostics, information and management systems
Equipment
2018
Net Sales
2017
2016
$
$
2,021.2
797.9
921.6
3,740.7
$
$
1,946.7
800.4
939.8
3,686.9
$
$
1,899.2
748.2
783.0
3,430.4
The tools product category includes hand tools, power tools, tool storage products and other similar products. Hand tools include
wrenches, sockets, ratchet wrenches, pliers, screwdrivers, punches and chisels, saws and cutting tools, pruning tools, torque
measuring instruments and other similar products. Power tools include cordless (battery), pneumatic (air), hydraulic and corded
(electric) tools, such as impact wrenches, ratchets, screwdrivers, drills, sanders, grinders and similar products. Tool storage includes
tool chests, roll cabinets and other similar products. For many industrial customers, Snap-on creates specific, engineered solutions,
including facility-level tool control and asset management hardware and software, custom kits in a wide range of configurations,
and custom-built tools designed to meet customer requirements. The majority of products are manufactured by Snap-on and, in
completing the product offering, other items are purchased from external manufacturers.
The diagnostics, information and management systems product category includes handheld and PC-based diagnostic products,
service and repair information products, diagnostic software solutions, electronic parts catalogs, business management systems
and services, point-of-sale systems, integrated systems for vehicle service shops, OEM purchasing facilitation services, and
warranty management systems and analytics to help OEM dealerships manage and track performance.
The equipment product category includes solutions for the service of vehicles and industrial equipment. Products include wheel
alignment equipment, wheel balancers, tire changers, vehicle lifts, test lane systems, collision repair equipment, vehicle air
conditioning service equipment, brake service equipment, fluid exchange equipment, transmission troubleshooting equipment,
safety testing equipment, battery chargers and hoists.
Snap-on supports the sale of its diagnostics and vehicle service shop equipment by offering training programs as well as after-
sales support for its customers, primarily focusing on the technologies and the application of specific products developed and
marketed by Snap-on.
6
SNAP-ON INCORPORATED
Products are marketed under a number of brand names and trademarks, many of which are well known in the vehicle service and
industrial markets served. Some of the major trade names and trademarks and the products and services with which they are
associated include the following:
Names
Snap-on
ATI
autoVHC
BAHCO
Blackhawk
Blue-Point
Cartec
Products and Services
Hand tools, power tools, tool storage products (including tool control software and hardware),
diagnostics, certain equipment and related accessories, mobile tool stores, websites, electronic parts
catalogs, warranty analytics solutions, business management systems and services, OEM specialty tools
and equipment development and distribution, and OEM facilitation services
Aircraft hand tools and machine tools
Vehicle inspection and training services
Saw blades, cutting tools, pruning tools, hand tools, power tools and tool storage
Collision repair equipment
Hand tools, power tools, tool storage, diagnostics, certain equipment and related accessories
Safety testing, brake testers, test lane equipment, dynamometers, suspension testers, emission testers
and other equipment
Car-O-Liner
Collision repair equipment, and information and truck alignment systems
CDI
Challenger
Ecotechnics
Fastorq
Torque tools
Vehicle lifts
Vehicle air conditioning service equipment
Hydraulic torque and tensioning products
Fish and Hook
Saw blades, cutting tools, pruning tools, hand tools, power tools and tool storage
Hofmann
Irimo
John Bean
Josam
Lindström
Mitchell1
Nexiq
Norbar
Pro-Cut
Sandflex
ShopKey
Sioux
Wheel balancers, vehicle lifts, tire changers, wheel aligners, brake testers and test lane equipment
Saw blades, cutting tools, hand tools, power tools and tool storage
Wheel balancers, vehicle lifts, tire changers, wheel aligners, brake testers and test lane equipment
Heavy duty alignment and collision repair solutions
Hand tools
Repair and service information, shop management systems and business services
Diagnostic tools, information and program distributions for fleet and heavy duty equipment
Torque tools
On-car brake lathes, related equipment and accessories
Hacksaw blades, bandsaws, saw blades, hole saws and reciprocating saw blades
Repair and service information, shop management systems and business services
Power tools
Sturtevant Richmont
Torque tools
Sun
TruckCam
Williams
Diagnostic tools, wheel balancers, vehicle lifts, tire changers, wheel aligners, air conditioning
products and emission testers
Commercial OEM factory solutions
Hand tools, tool storage, certain equipment and related accessories
2018 ANNUAL REPORT
7
Financial Services
Snap-on also generates revenue from various financing programs that include: (i) installment sales and lease contracts arising from
franchisees’ customers and Snap-on customers who require financing for the purchase or lease of tools and diagnostic and equipment
products on an extended-term payment plan; and (ii) business loans and vehicle leases to franchisees. The decision to finance
through Snap-on or another financing source is solely by election of the customer. When assessing customers for potential financing,
Snap-on considers various factors regarding ability to pay, including the customers’ financial condition, debt-servicing ability, past
payment experience, and credit bureau and proprietary Snap-on credit model information, as well as the value of the underlying
collateral.
Snap-on offers financing through SOC and the company’s international finance subsidiaries in those markets where Snap-on has
franchise operations. Financing revenue from contract originations is recognized over the life of the underlying contracts, with
interest computed primarily on the average daily balances of the underlying contracts.
Sales and Distribution
Snap-on markets and distributes its products and related services principally to professional tool and equipment users around the
world. The two largest market sectors are the vehicle service and repair sector and the industrial sector.
Vehicle Service and Repair Sector
The vehicle service and repair sector has three main customer groups: (i) professional technicians who purchase tools and diagnostic
and equipment products for use in their work; (ii) other professional customers related to vehicle repair, including owners and
managers of independent repair shops and OEM dealerships who purchase tools and diagnostic and equipment products for use
by multiple technicians within a service or repair facility; and (iii) OEMs.
Snap-on provides innovative tool, equipment and business solutions, as well as technical sales support and training, designed to
meet technicians’ evolving needs. Snap-on’s mobile tool distribution system offers technicians the convenience of purchasing
quality tools at their place of business with minimal disruption of their work routine. Snap-on also provides owners and managers
of repair shops, where technicians work, with tools, diagnostic equipment, and repair and service information, including electronic
parts catalogs and shop management products. Snap-on’s OEM facilitation business provides OEMs with products and services
including special and essential tools as well as consulting and facilitation services, which include product procurement, distribution
and administrative support to customers for their dealership equipment programs.
The vehicle service and repair sector is characterized by an increasing rate of technological change within motor vehicles, vehicle
population growth and increasing vehicle life, and the resulting effects of these changes on the businesses of both our suppliers
and customers. Snap-on believes it is a meaningful participant in the vehicle service and repair market sector.
Industrial Sector
Snap-on markets its products and services globally to a broad cross-section of commercial and industrial customers, including
maintenance and repair operations; manufacturing and assembly facilities; various government agencies, facilities and operations,
including military operations; schools with vocational and technical programs; aviation and aerospace operations; oil and gas
developers; mining operations; energy and power generation; equipment fabricators and operators; railroad manufacturing and
maintenance; customers in agriculture; infrastructure construction companies; and other customers that require instrumentation,
service tools and/or equipment for their products and business needs. The industrial sector for Snap-on focuses on providing value-
added products and services to an increasingly expanding global base of customers in critical industries.
The industrial sector is characterized by a highly competitive environment with multiple suppliers offering either a full line or
industry specific portfolios for tools and equipment. Industrial customers increasingly require specialized solutions that provide
repeatability and reliability in performing tasks of consequence that are specific to the particular end market in which they operate.
Snap-on believes it is a meaningful participant in the industrial tools and equipment market sector.
Distribution Channels
Snap-on serves customers primarily through the following channels of distribution: (i) the mobile van channel; (ii) company direct
sales; (iii) distributors; and (iv) e-commerce. The following discussion summarizes Snap-on’s general approach for each channel
and is not intended to be all-inclusive.
8
SNAP-ON INCORPORATED
Mobile Van Channel
In the United States, a significant portion of sales to the vehicle service and repair sector is conducted through Snap-on’s mobile
franchise van channel. Snap-on’s franchisees primarily serve vehicle repair technicians and vehicle service shop owners, generally
providing weekly contact at the customer’s place of business. Franchisees’ sales are concentrated in hand and power tools, tool
storage products, shop equipment, and diagnostic and repair information products, which can easily be transported in a van or
trailer and demonstrated during a brief sales call. Franchisees purchase Snap-on’s products at a discount from suggested list prices
and resell them at prices established by the franchisee. U.S. franchisees are provided a list of calls that serves as the basis of the
franchisee’s sales route. Snap-on’s franchisees also have the opportunity to add a limited number of additional franchises.
Snap-on charges nominal initial and ongoing monthly franchise fees. Franchise fee revenue, including nominal, non-refundable
initial and ongoing monthly fees (primarily for sales and business training, and marketing and product promotion programs), is
recognized as the fees are earned. Franchise fee revenue totaled $16.2 million, $15.2 million and $13.9 million in fiscal 2018,
2017 and 2016, respectively.
Snap-on also has a company-owned route program that is designed to: (i) provide another pool of potential field organization
personnel; (ii) service customers in select new and/or open routes not currently serviced by franchisees; and (iii) allow Snap-on
to pilot new sales and promotional ideas prior to introducing them to franchisees. As of 2018 year end, company-owned routes
comprised less than 3% of the total route population; Snap-on may elect to increase or reduce the number of company-owned
routes in the future.
In addition to its mobile van channel in the United States, Snap-on has replicated its U.S. franchise distribution model in certain
other countries, including the United Kingdom, Canada, Japan, Australia, Germany, Netherlands, South Africa, New Zealand,
Belgium and Ireland. In many of these markets, as in the United States, purchase decisions are generally made or influenced by
professional vehicle service technicians as well as repair shop owners and managers. As of 2018 year end, Snap-on’s worldwide
route count was approximately 4,800, including approximately 3,450 routes in the United States.
Through SOC, financing is available to U.S. franchisees, including financing for van leases, working capital loans and loans to
help enable new franchisees to fund the purchase of the franchise or the expansion of an existing franchise. In many international
markets, Snap-on offers a variety of financing options to its franchisees and/or customer networks through its international finance
subsidiaries. The decision to finance through Snap-on or another financing source is solely at the customer’s election.
Snap-on supports its franchisees with a field organization of regional offices, franchise performance teams, customer care centers
and distribution centers. Snap-on also provides sales and business training, and marketing and product promotion programs, as
well as customer and franchisee financing programs through SOC and the company’s international finance subsidiaries, all of
which are designed to strengthen franchisee sales. National Franchise Advisory Councils in the United States, the United Kingdom,
Canada and Australia, composed primarily of franchisees that are elected by franchisees, assist Snap-on in identifying and
implementing enhancements to the franchise program.
Company Direct Sales
A significant proportion of shop equipment sales in North America under the John Bean, Hofmann, Blackhawk, Car-O-Liner,
Challenger and Pro-Cut brands, diagnostic products under the Snap-on brand and information products under the Mitchell1 brand
are made by direct and independent sales forces that have responsibility for national and other accounts. As the vehicle service
and repair sector consolidates (with more business conducted by national chains and franchised service centers), Snap-on believes
these larger organizations can be serviced most effectively by sales people who can demonstrate and sell the full line of diagnostic
and equipment products and services. Snap-on also sells these products and services directly to OEMs and their franchised dealers.
Snap-on brand tools and equipment are marketed to industrial and governmental customers worldwide through both industrial
sales associates and independent distributors. Selling activities focus on industrial customers whose main purchase criteria are
quality and integrated solutions. As of 2018 year end, Snap-on had industrial sales associates and independent distributors primarily
in the United States, Canada and in various European, Latin American, Middle Eastern, Asian and African countries, with the
United States representing the majority of Snap-on’s total industrial sales.
Snap-on also sells software, services and solutions to the automotive, commercial, heavy duty, agriculture, power equipment and
power sports segments. Products and services are marketed to targeted groups, including OEMs and their dealerships, fleets and
individual repair shops. To effectively reach OEMs, which frequently have a multi-national presence, Snap-on has deployed focused
business teams globally.
2018 ANNUAL REPORT
9
Distributors
Sales of certain tools and equipment are made through independent distributors who purchase the items from Snap-on and resell
them to end users. Hand tools sold under the BAHCO, Fish and Hook, Irimo, Lindström, CDI, ATI, Fastorq, Norbar, Sioux,
Sturtevant Richmont and Williams brands and trade names, for example, are sold through distributors worldwide. Wheel service
and other vehicle service equipment are sold through distributors primarily under brands including Hofmann, John Bean, Car-O-
Liner, Challenger, Pro-Cut, Cartec, Blackhawk and Ecotechnics. Diagnostic and equipment products are marketed through
distributors in South America and Asia, and through both a direct sales force and distributors in Europe under the Snap-on, Sun
and Blue-Point brands.
E-commerce
Snap-on offers current and prospective customers online access to research and purchase products through its public website at
www.snapon.com. The site features an online catalog of Snap-on hand tools, power tools, tool storage units and diagnostic equipment
available to customers in the United States, the United Kingdom, Canada and Australia. E-commerce and certain other system
enhancement initiatives are designed to improve productivity and further leverage the one-on-one relationships and service Snap-
on has with its current and prospective customers. Sales through the company’s e-commerce distribution channel were not significant
in any of the last three years.
Competition
Snap-on competes on the basis of its product quality and performance, product line breadth and depth, service, brand awareness
and imagery, technological innovation and availability of financing (through SOC or its international finance subsidiaries). While
Snap-on does not believe that any single company competes with it across all of its product lines and distribution channels, various
companies compete in one or more product categories and/or distribution channels.
Snap-on believes it is a leading manufacturer and distributor of professional tools, tool storage, diagnostic and equipment products,
and repair software and solutions, offering a broad line of these products to both vehicle service and industrial marketplaces.
Various competitors target and sell to professional technicians in the vehicle service and repair sector through the mobile tool
distribution channel. Snap-on also competes with companies that sell tools and equipment to vehicle service and repair technicians
online and through retail stores, vehicle parts supply outlets and tool supply warehouses/distributorships. Within the power tools
category and the industrial sector, Snap-on has various other competitors, including companies with offerings that overlap with
other areas discussed herein. Major competitors selling diagnostics, shop equipment and information to vehicle dealerships and
independent repair shops include OEMs and their proprietary electronic parts catalogs and diagnostics and information systems,
and other companies that offer products serving this sector.
Raw Materials and Purchased Product
Snap-on’s supply of raw materials and purchased components are generally and readily available from numerous suppliers. Snap on
believes it has secured an ample supply of both bar and coil steel for the near future to ensure stable supply to meet material
demands. The company does not currently anticipate experiencing any significant impact in 2019 from steel pricing or availability
issues, though it is continuing to monitor the impact of tariffs and other trade protection measures put in place by the U.S. and
other countries.
Patents, Trademarks and Other Intellectual Property
Snap-on vigorously pursues and relies on patent protection to protect its intellectual property and position in its markets. As of
2018 year end, Snap-on and its subsidiaries held approximately 750 active and pending patents in the United States and
approximately 2,000 active and pending patents outside of the United States. Sales relating to any single patent did not represent
a material portion of Snap-on’s revenues in any of the last three years.
Examples of products that have features or designs that benefit from patent protection include hand tools (including sealed ratchets
and ratcheting screwdrivers), power tools, wheel alignment systems, wheel balancers, tire changers, vehicle lifts, tool storage, tool
control, collision measurement, test lanes, brake lathes, electronic torque instruments, emissions-sensing devices and diagnostic
equipment.
Much of the technology used in the manufacture of vehicle service tools and equipment is in the public domain. Snap-on relies
primarily on trade secret protection to protect proprietary processes used in manufacturing. Methods and processes are patented
when appropriate. Copyright protection is also utilized when appropriate.
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SNAP-ON INCORPORATED
Trademarks used by Snap-on are of continuing importance to Snap-on in the marketplace. Trademarks have been registered in the
United States and many other countries, and additional applications for trademark registrations are pending. Snap-on vigorously
polices proper use of its trademarks. Snap-on’s right to manufacture and sell certain products is dependent upon licenses from
others; however, these products under license do not represent a material portion of Snap-on’s net sales.
Domain names have become a valuable corporate asset for companies around the world, including Snap-on. Domain names often
contain a trademark or service mark or even a corporate name and are often considered intellectual property. The recognition and
value of the Snap-on name, trademark and domain name are core strengths of the company.
Snap-on strategically licenses the Snap-on brand to carefully selected manufacturing and distribution companies for items such
as apparel and a variety of other goods, in order to further build brand awareness and market presence for the company’s strongest
brand.
Environmental
Snap-on is subject to various environmental laws, ordinances, regulations, and other requirements of government authorities in
the United States and other nations. At Snap-on, these environmental liabilities are managed through the Snap-on Environmental,
Health and Safety Management System (“EH & SMS”), which is applied worldwide. The system is based upon continual
improvement and is certified to ISO 14001:2015 and OHSAS 18001:2007, verified through Det Norske Veritas (DNV) Certification,
Inc.
Snap-on believes that it complies with applicable environmental control requirements in its operations. Expenditures on
environmental matters through EH & SMS have not had, and Snap-on does not for the foreseeable future expect them to have, a
material effect upon Snap-on’s capital expenditures, earnings or competitive position.
Employees
Snap-on employed approximately 12,600 people at the end of both January 2019 and January 2018.
Approximately 2,650 employees, or 21% of Snap-on’s worldwide workforce, are represented by unions and/or covered under
collective bargaining agreements. The number of covered union employees whose contracts expire over the next five years
approximates 875 employees in 2019, 975 employees in 2020, 575 employees in 2021, 175 employees in 2022, and 50 employees
in 2023. In recent years, Snap-on has not experienced any significant work slowdowns, stoppages or other labor disruptions.
There can be no assurance that these and other future contracts with Snap-on’s unions will be renegotiated upon terms acceptable
to Snap-on.
Working Capital
Most of Snap-on’s businesses are not seasonal and their inventory needs are relatively constant. Snap-on did not have a significant
backlog of orders at 2018 year end. In recent years, Snap-on has been using its working capital to fund, in part, the continued
growth of the company’s financial services portfolio and the acquisitions discussed above.
Snap-on’s liquidity and capital resources and use of working capital are discussed herein in “Part II, Item 7, Management’s
Discussion and Analysis of Financial Condition and Results of Operations.”
As of 2018 year end, neither Snap-on nor any of its segments depend on any single customer, small group of customers or government
for any material part of its revenues.
Item 1A: Risk Factors
In evaluating the company, careful consideration should be given to the following risk factors, in addition to the other information
included in this Annual Report on Form 10-K, including the Consolidated Financial Statements and the related notes. Each of
these risk factors could adversely affect the company’s business, operating results, cash flows and/or financial condition, as well
as adversely affect the value of an investment in the company’s common stock.
2018 ANNUAL REPORT
11
Economic conditions and world events could affect our operating results.
We, our franchisees and our customers, may be adversely affected by changing economic conditions, including conditions that
may particularly impact specific regions. These conditions may result in reduced consumer and investor confidence, instability in
the credit and financial markets, volatile corporate profits, and reduced business and consumer spending. We, our franchisees and
our customers, and the economy as a whole, also may be affected by future world or local events outside our control, such as tariffs
and other trade protection measures put in place by the United States or other countries, acts of terrorism, developments in the war
on terrorism, conflicts in international situations, weather events and natural disasters, as well as government-related developments
or issues. These factors may affect our results of operations by reducing our sales, margins and/or net earnings as a result of a
slowdown in customer orders or order cancellations, impact the availability and/or pricing of raw materials and/or the supply chain,
and could potentially lead to future impairment of our intangible assets. In addition, political and social turmoil related to
international conflicts and terrorist acts may put pressure on economic conditions abroad. Unstable political, social and economic
conditions may make it difficult for our franchisees, customers, suppliers and us to accurately forecast and plan future business
activities. If such conditions persist, our business, financial condition, results of operations and cash flows could be negatively
affected.
In 2016, the United Kingdom voted in a referendum to exit the European Union (“Brexit”), which resulted in significant currency
exchange rate fluctuations and volatility. Negotiations continue to determine the terms of Brexit. Given the lack of comparable
precedent and the status of the negotiations, the implications of Brexit, or how such implications might affect Snap-on, continue
to remain unclear at this time. Brexit could, among other impacts, disrupt trade and the movement of goods, services and people
between the United Kingdom and the European Union or other countries as well as create legal and global economic uncertainty.
These and other potential implications could adversely affect our business and results of operations.
In 2018, Canada, Mexico and the United States negotiated the United States-Mexico-Canada Agreement (the “USMCA”), which
is intended to update and replace the North American Free Trade Agreement (“NAFTA”). THE USMCA must be ratified by all
three countries before it becomes fully effective and many of its provisions will not take effect until 2020. While the USMCA is
somewhat similar to NAFTA, it contains several new compliance obligations addressing such issues as rules of origin, labor
standard, certificate of origin documentation and de minimis thresholds, as well as new policies on labor and environmental
standards, intellectual property protections and some digital trade provisions. The Company is currently analyzing the expected
impact of the USMCA. While certain aspects of the USMCA are expected to be positive, others, including potentially higher
regulatory compliance costs, may have an adverse impact on our business.
These and other matters significantly impacting the regulation of trade could adversely affect our business and results of operations.
Raw material and energy price fluctuations and shortages (including steel and various fuel sources) could adversely affect the
ability to obtain needed manufacturing materials and could adversely affect our results of operations.
The principal raw material used in the manufacture of our products is steel, which we purchase in competitive, price-sensitive
markets. To meet Snap-on’s high quality standards, our steel needs range from specialized alloys, which are available only from
a limited group of approved suppliers, to common alloys, which are available from multiple suppliers. Some of these materials
have been, and in the future may be, in short supply, particularly in the event of mill shutdowns or production cut backs. As some
steel alloys require specialized manufacturing procedures, we could experience inventory shortages if we were required to use an
alternative manufacturer on short notice. These raw materials exhibit price and demand cyclicality, including tariffs and other trade
protection measures enacted in fiscal 2018 and which could continue to in fiscal 2019. Unexpected price increases for raw materials
could result in an erosion of the margins on our products or higher prices to our customers.
We believe our ability to sell our products is also dependent on the number of vehicles on the road, the number of miles driven
and the general aging of vehicles. These factors affect the frequency, type and amount of service and repair performed on vehicles
by technicians, and therefore affect the demand for the number of technicians, the prosperity of technicians and, consequently, the
demand technicians have for our tools, other products and services, and the value technicians place on those products and services.
The use of other methods of transportation, including more frequent use of public transportation, could result in a decrease in the
use of privately operated vehicles. A decrease in the use of privately operated vehicles may lead to fewer repairs and less demand
for our products.
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SNAP-ON INCORPORATED
We use various energy sources to transport, produce and distribute products, and some of our products have components that are
petroleum based. Petroleum and energy prices have periodically increased significantly over short periods of time; future volatility
and changes may be caused by market fluctuations, supply and demand, currency fluctuations, production and transportation
disruptions, world events and changes in governmental programs. Energy price increases raise both our operating costs and the
costs of our materials, and we may not be able to increase our prices enough to offset these costs. Higher prices also may reduce
the level of future customer orders and our profitability.
The performance of Snap-on’s mobile tool distribution business depends on the success of its franchisees.
Approximately 40% of our consolidated net revenues in 2018 were generated by the Snap-on Tools Group, which consists of
Snap on’s business operations primarily serving vehicle service and repair technicians through the company’s worldwide mobile
tool distribution channel. Snap-on’s success is dependent on its relationships with franchisees, individually and collectively, as
they are the primary sales and service link between the company and vehicle service and repair technicians, who are an important
class of end users for Snap-on’s products and services. If our franchisees are not successful, or if we do not maintain an effective
relationship with our franchisees, the delivery of products, the collection of receivables and/or our relationship with end users
could be adversely affected and thereby negatively impact our business, financial condition, results of operations and cash flows.
In addition, if we are unable to maintain effective relationships with franchisees, Snap-on or the franchisees may choose to terminate
the relationship, which may result in (i) open routes, in which end-user customers are not provided reliable service; (ii) litigation
resulting from termination; (iii) reduced collections or increased charge-offs of franchisee receivables owed to Snap-on; and/or
(iv) reduced collections or increased charge-offs of finance and contract receivables.
Exposure to credit risks of customers and resellers may make it difficult to collect receivables, and our allowances for credit losses
for receivables may prove inadequate, which could adversely affect operating results and financial condition.
Our financial services portfolio represents a significant portion of the company’s assets. A decline in industry and/or economic
conditions could have the potential to weaken the financial position of some of our customers, including financial services customers.
If circumstances surrounding our customers’ ability to repay their credit obligations were to deteriorate and result in the write-
down or charge-off of such receivables, it would negatively affect our operating results for the period in which they occur and, if
large, could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We maintain allowances for credit losses for receivables to provide for defaults and nonperformance, which represent an estimate
of losses of our receivables portfolios. The determination of the appropriate levels of the allowances for credit losses inherently
involves a high degree of subjectivity and judgment, and requires us to make estimates of current credit risks, which may undergo
material changes. The allowances may not be adequate to cover actual losses, and future allowances for credit losses could materially
and adversely affect our financial condition, results of operations and cash flows.
Our inability to provide acceptable financing alternatives to franchisees and other end-user customers could adversely impact
our operating results.
An integral component of our business and profitability is our ability to offer competitive financing alternatives to franchisees and
other end-user customers. The lack of our ability to offer such alternatives or obtain capital resources or other financing to support
our receivables on terms that we believe are attractive, whether resulting from the state of the financial markets, our own operating
performance, or other factors, would negatively affect our operating results and financial condition. Adverse fluctuations in interest
rates and/or our ability to provide competitive financing programs could also have an adverse impact on our revenue and profitability.
Adverse developments in the credit and financial markets could negatively impact the availability of credit that we and our customers
need to operate our businesses.
We depend upon the availability of credit to operate our business, including the financing of receivables from end-user customers
that are originated by our financial services businesses. Our end-user customers, franchisees and suppliers also require access to
credit for their businesses. At times, world financial markets have been unstable and subject to uncertainty. Adverse developments
in the credit and financial markets, or unfavorable changes in Snap-on’s credit rating, could negatively impact the availability of
future financing and the terms on which it might be available to Snap-on, its end-user customers, franchisees and suppliers. Inability
to access credit or capital markets, or a deterioration in the terms on which financing might be available, could have an adverse
impact on our business, financial condition, results of operations and cash flows.
2018 ANNUAL REPORT
13
Increasing our financial leverage could affect our operations and profitability.
The maximum available credit under our multi-currency revolving credit facility is $700 million. The company’s leverage ratio
may affect both our availability of additional capital resources as well as our operations in several ways, including:
• The terms on which credit may be available to us could be less attractive, both in the economic terms of the credit and
the covenants stipulated by the credit terms;
• The possible lack of availability of additional credit or access to the commercial paper market;
• The potential for higher levels of interest expense to service or maintain our outstanding debt;
• The possibility of additional borrowings in the future to repay our indebtedness when it comes due; and
• The possible diversion of capital resources from other uses.
While we believe we will have the ability to service our debt and obtain additional resources in the future if and when needed,
that will depend upon our results of operations and financial position at the time, the then-current state of the credit and financial
markets, and other factors that may be beyond our control. Therefore, we cannot give assurances that credit will be available on
terms that we consider attractive, or at all, if and when necessary or beneficial to us.
Data security and information technology infrastructure and security are critical to supporting business objectives; failure of our
systems to operate effectively could adversely affect our business and reputation.
We depend heavily on information technology infrastructure to achieve our business objectives and to protect sensitive information,
and continually invest in improving such systems. Problems that impair or compromise this infrastructure, including natural
disasters, power outages, major network failures, security breaches or malicious attacks, or during system upgrades and/or new
system implementations, could impede our ability to record or process orders, manufacture and ship in a timely manner, manage
our financial services operations including originating, processing, accounting for and collecting receivables, protect sensitive data
of the company, our customers, our suppliers and business partners, or otherwise carry on business in the normal course. Any such
events, if significant, could cause us to lose customers and/or revenue and could require us to incur significant expense to remediate,
including as a result of legal or regulatory claims, proceedings, fines or penalties, and could also damage our reputation. While
we have taken steps to maintain adequate data security and address these risks and uncertainties by implementing security
technologies, internal controls, network and data center resiliency, and redundancy and recovery processes, as well as by securing
insurance, these measures may be inadequate.
In association with initiatives to better integrate business units, rationalize operating footprint and improve responsiveness to
franchisees and customers, Snap-on is continually replacing and enhancing its global Enterprise Resource Planning (ERP)
management information systems. As we integrate, implement and deploy new information technology processes and enhance
our common information infrastructure across our global operations, we could experience disruptions in our business that could
have an adverse effect on our business, financial condition, results of operations and cash flows.
Changes to legislation and regulations may affect our business, reputation, results of operations and financial condition.
Significant changes to legislative and regulatory activity and compliance burdens, including those associated with sales to our
government, military and defense contractor customers, as well as the manner in which they are applied, could significantly impact
our business and the economy as a whole.
Financial services businesses of all kinds are subject to significant and complex regulations and enforcement. In addition to
potentially increasing the costs of doing business due to compliance obligations, new laws and regulations, or changes to existing
laws and regulations, as well as the enforcement thereof, may affect the relationships between creditors and debtors, inhibit the
rights of creditors to collect amounts owed to them, expand liability for certain actions or inactions, or limit the types of financial
products or services offered, any or all of which could have a material adverse effect on our financial condition, results of operations
and cash flows. Failure to comply with any of these laws or regulations could also result in civil, criminal, monetary and/or non-
monetary penalties, damage to our reputation, and/or the incurrence of remediation costs.
In fiscal 2018, Snap-on’s results of operations were impacted, and in the future could be further affected, by changes in the
company’s effective tax rate as a result of changes in statutory tax rates, laws and regulations, as well as related guidance. The Tax
Cuts and Jobs Act in the United States (the “Tax Act”), which made significant changes to the U.S. Tax Code and affects, among
other items, the company’s tax rate, previously unremitted foreign earnings and valuations of deferred tax assets and liabilities. If
new guidance is issued on the recently enacted tax revisions, depending on the circumstances, this (and other) tax legislation could
adversely affect our results of operations.
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SNAP-ON INCORPORATED
These developments, and other potential future legislation and regulations, as well as the factors in the strict regulatory environment,
including the growing international regulation of privacy rights, may also adversely affect the customers to which, and the markets
into which, we sell our products, and increase our costs and otherwise negatively affect our business, reputation, results of operations
and financial condition, including in ways that cannot yet be foreseen.
Failure to achieve expected investment returns on pension plan assets, as well as changes in interest rates or plan demographics,
could adversely impact our results of operations, financial condition and cash flows.
Snap-on sponsors various defined benefit pension plans (the “pension plans”). The assets of the pension plans are diversified in
an attempt to mitigate the risk of a large loss. Required funding for the company’s domestic defined benefit pension plans is
determined in accordance with guidelines set forth in the federal Employee Retirement Income Security Act (“ERISA”); foreign
defined benefit pension plans are funded in accordance with local statutes or practice. Additional contributions to enhance the
funded status of the pension plans can be made at the company’s discretion. However, there can be no assurance that the value of
the pension plan assets, or the investment returns on those plan assets, will be sufficient to meet the future benefit obligations of
such plans. In addition, during periods of adverse investment market conditions and declining interest rates, the company may be
required to make additional cash contributions to the pension plans that could reduce our financial flexibility. Changes in plan
demographics, including an increase in the number of retirements or changes in life expectancy assumptions, may also increase
the costs and funding requirements of the obligations related to the company’s pension plans.
Our pension plan obligations are affected by changes in market interest rates. Significant fluctuations in market interest rates have
added, and may further add, volatility to our pension plan obligations. In periods of declining market interest rates, our pension
plan obligations generally increase; in periods of increasing market interest rates, our pension plan obligations generally decrease.
While our plan assets are broadly diversified, there are inherent market risks associated with investments; if adverse market
conditions occur, our plan assets could incur significant or material losses. Since we may need to make additional contributions
to address changes in obligations and/or a loss in plan assets, the combination of declining market interest rates, past or future plan
asset investment losses, and/or changes in plan demographics could adversely impact our results of operations, financial condition
and cash flows.
The company’s pension plan expense is comprised of the following factors: (i) service cost; (ii) interest on projected benefit
obligations; (iii) expected return on plan assets; (iv) the amortization of prior service costs and credits; (v) effects of actuarial gains
and losses; and (vi) settlement/curtailment costs, when applicable. The accounting for pensions involves the estimation of a number
of factors that are highly uncertain. Certain factors, such as the interest on projected benefit obligations and the expected return
on plan assets, are impacted by changes in market interest rates and the value of plan assets. A significant decrease in market
interest rates and a decrease in the fair value of plan assets would increase net pension expense and may adversely affect the
company’s future results of operations. See Note 12 to the Consolidated Financial Statements for further information on the
company’s pension plans.
Failure to maintain effective distribution of products and services could adversely impact revenue, gross margin and profitability.
We use a variety of distribution methods to sell our products and services. Successfully managing the interaction of our distribution
efforts to reach various potential customer segments for our products and services is a complex process. Moreover, since each
distribution method has distinct risks, costs and gross margins, our failure to implement the most advantageous balance in the
delivery model for our products and services could adversely affect our revenue and gross margins and therefore our profitability.
Risks associated with the disruption of manufacturing operations could adversely affect profitability or competitive position.
We manufacture a significant portion of the products we sell. Any prolonged disruption in the operations of our existing
manufacturing facilities, whether due to technical or labor difficulties, facility consolidation or closure actions, lack of raw material
or component availability, destruction of or damage to any facility (as a result of natural disasters, weather events, use and storage
of hazardous materials, acts of war, sabotage or terrorism, or other events), or other reasons, could have a material adverse effect
on our business, financial condition, results of operations and cash flows.
2018 ANNUAL REPORT
15
The inability to continue to introduce new products that respond to customer needs and achieve market acceptance could result
in lower revenues and reduced profitability.
Sales from new products represent a significant portion of our net sales and are expected to continue to represent a significant
component of our future net sales. We may not be able to compete effectively unless we continue to enhance existing products or
introduce new products to the marketplace in a timely manner. Product improvements and new product introductions require
significant financial and other resources, including significant planning, design, development, and testing at the technological,
product and manufacturing process levels. Our competitors’ new products may beat our products to market, be more effective with
more features, be less expensive than our products, and/or render our products obsolete. Any new products that we develop may
not receive market acceptance or otherwise generate any meaningful net sales or profits for us relative to our expectations based
on, among other things, existing and anticipated investments in manufacturing capacity and commitments to fund advertising,
marketing, promotional programs and research and development.
The global tool, equipment, and diagnostics and repair information industries are competitive.
We face strong competition in all of our market segments. Price competition in our various industries is intense and pricing pressures
from competitors and customers are increasing. In general, as a manufacturer and marketer of premium products and services, the
expectations of Snap-on’s customers and its franchisees are high and continue to increase. Any inability to maintain customer
satisfaction could diminish Snap-on’s premium image and reputation and could result in a lessening of our ability to command
premium pricing. We expect that the level of competition will remain high in the future, which could limit our ability to maintain
or increase market share or profitability.
Product liability claims and litigation could affect our business, reputation, financial condition, results of operations and cash
flows.
The products that we design and/or manufacture, and/or the services we provide, can lead to product liability claims or other legal
claims being filed against us. To the extent that plaintiffs are successful in showing that a defect in a product’s design, manufacture
or warnings led to personal injury or property damage, or that our provision of services resulted in similar injury or damage, we
may be subject to claims for damages. Although we are insured for damages above a certain amount, we bear the costs and expenses
associated with defending claims, including frivolous lawsuits, and are responsible for damages up to the insurance retention
amount. In addition to claims concerning individual products, as a manufacturer, we can be subject to costs, potential negative
publicity and lawsuits related to product recalls, which could adversely impact our results of operations and damage our reputation.
Legal disputes could adversely affect our business, reputation, financial condition, results of operations and cash flows.
From time to time we are subject to legal disputes that are being litigated and/or settled in the ordinary course of business. Disputes
or future lawsuits could result in the diversion of management’s time and attention away from business operations. Additionally,
negative developments with respect to legal disputes and the costs incurred in defending ourselves, even if successful, could have
an adverse impact on the company and its reputation. Successful outcomes, at trial or on appeal, can never be assured. Adverse
outcomes or settlements could also require us to pay damages, potentially in excess of amounts reserved, or incur liability for other
remedies that could have a material adverse effect on our business, reputation, financial condition, results of operations and cash
flows.
Failure to adequately protect intellectual property, or claims of infringement, could adversely affect our business, reputation,
financial condition, results of operations and cash flows.
Intellectual property rights are an important and integral component of our business and failure to obtain or maintain adequate
protection of our intellectual property rights for any reason could have a material adverse effect on our business. We attempt to
protect our intellectual property rights through a combination of patent, trademark, copyright and trade secret laws, as well as
licensing agreements and third-party nondisclosure and assignment agreements. In addition, we have been, and in the future may
be, subject to claims of intellectual property infringement against us by third parties; whether or not these claims have merit, we
could be required to expend significant resources in defense of those claims. Adverse determinations in a judicial or administrative
proceeding could prevent us from manufacturing and selling our products, prevent us from stopping others from manufacturing
and selling competing products, and/or result in payments for damages. In the event of an infringement claim, we may also be
required to spend significant resources to develop alternatives or obtain licenses which may not be available on reasonable terms
or at all, and may reduce our sales and disrupt our production. Failure to obtain or maintain adequate protection of our intellectual
property rights for any reason could have a material adverse effect on our business.
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SNAP-ON INCORPORATED
Foreign operations are subject to political, economic, currency exchange and other risks that could adversely affect our business,
financial condition, results of operations and cash flows.
Approximately 33% of our revenues in 2018 were generated outside of the United States. Future growth rates and success of our
business depends in large part on continued growth in our non-U.S. operations, including growth in emerging markets and critical
industries. Numerous risks and uncertainties affect our non-U.S. operations. These risks and uncertainties include political,
economic and social instability, such as acts of war, civil disturbance or acts of terrorism, local labor conditions, changes in
government policies and regulations, including imposition or increases in withholding and other taxes on remittances and other
payments by international subsidiaries, as well as the exposure to liabilities under anti-corruption laws in various countries, such
as the U.S. Foreign Corrupt Practices Act, currency volatility, transportation delays or interruptions, sovereign debt uncertainties
and difficulties in enforcement of contract and intellectual property rights, as well as natural disasters. Should the economic
environment in our non-U.S. markets deteriorate from current levels, our results of operations and financial position could be
materially impacted, including as a result of the effects of potential impairment write-downs of goodwill and/or other intangible
assets related to these businesses.
The reporting currency for Snap-on’s consolidated financial statements is the U.S. dollar. Certain of the company’s assets, liabilities,
expenses and revenues are denominated in currencies other than the U.S. dollar. In preparing Snap-on’s Consolidated Financial
Statements, those assets, liabilities, expenses and revenues are translated into U.S. dollars at applicable exchange rates. Increases
or decreases in exchange rates between the U.S. dollar and other currencies affect the U.S. dollar value of those items, as reflected
in the Consolidated Financial Statements. Substantial fluctuations in the value of the U.S. dollar could have a significant impact
on the company’s financial condition and results of operations.
We are also affected by changes in inflation rates and interest rates. Additionally, cash generated in certain non-U.S. jurisdictions
may be difficult to repatriate to the United States in a tax-efficient manner. Our foreign operations are also subject to other risks
and challenges, such as the need to staff and manage diverse workforces, respond to the needs of multiple national and international
marketplaces, and differing business climates and cultures in various countries.
We may not successfully integrate businesses we acquire, which could have an adverse impact on our business, financial condition,
results of operations and cash flows.
The pursuit of growth through acquisitions, including participation in joint ventures, involves significant risks that could have a
material adverse effect on our business, financial condition, results of operations and cash flows. These risks include:
Inability to integrate successfully the acquired businesses’ operations;
Inability to coordinate management and integrate and retain employees of the acquired businesses;
• Loss of the acquired businesses’ customers;
•
•
• Unforeseen or contingent liabilities of the acquired businesses;
• Large write-offs or write-downs, or the impairment of goodwill or other intangible assets;
• Difficulties in implementing and maintaining consistent standards, controls, procedures, policies and information systems;
Failure to realize anticipated synergies, economies of scale or other anticipated benefits, or to maintain operating margins;
•
Strain on our personnel, systems and resources, and diversion of attention from other priorities;
•
Incurrence of additional debt and related interest expense; and
•
• The dilutive effect in the event of the issuance of additional equity securities.
The recognition of impairment charges on goodwill or other intangible assets would adversely impact our future financial condition
and results of operations.
We have a substantial amount of goodwill and purchased intangible assets, almost all of which are booked in the Commercial &
Industrial Group and in the Repair Systems & Information Group. We are required to perform impairment tests on our goodwill
and other intangibles annually or at any time when events occur that could impact the value of our business segments. Our
determination of whether impairment has occurred is based on a comparison of each of our reporting units’ fair market value with
its carrying value.
2018 ANNUAL REPORT
17
Significant and unanticipated changes in circumstances, such as significant and long-term adverse changes in business climate,
adverse actions by regulators, unanticipated competition, the loss of key customers, and/or changes in technology or markets,
could require a provision for impairment in a future period that could substantially impact our reported earnings and reduce our
consolidated net worth and shareholders’ equity. Should the economic environment in these markets deteriorate, our results of
operations and financial position could be materially impacted, including as a result of the effects of potential impairment write-
downs of goodwill and/or other intangible assets related to these businesses.
Our operations expose us to the risk of environmental liabilities, costs, litigation and violations that could adversely affect our
financial condition, results of operations and reputation.
Certain of our operations are subject to environmental laws and regulations in the jurisdictions in which they operate, which impose
limitations on the discharge of pollutants into the ground, air and water and establish standards for the generation, treatment, use,
storage and disposal of hazardous wastes. We must also comply with various health and safety regulations in the United States
and abroad in connection with our operations. Failure to comply with any of these laws could result in civil and criminal, monetary
and non-monetary penalties and damage to our reputation. In addition, we may incur costs related to remedial efforts or alleged
environmental damage associated with past or current waste disposal practices. We cannot provide assurance that our costs of
complying with current or future environmental protection and health and safety laws will not exceed our estimates.
The inability to successfully defend claims from taxing authorities could adversely affect our financial condition, results of
operations and cash flows.
We conduct business in many countries, which requires us to interpret the income tax laws and rulings in each of those taxing
jurisdictions. Due to the subjectivity of tax laws between those jurisdictions, as well as the subjectivity of factual interpretations,
our estimates of income tax liabilities may differ from actual payments or assessments. Claims from taxing authorities related to
these differences could have an adverse impact on our financial condition, results of operations and cash flows.
Failure to attract and retain qualified personnel could lead to a loss of revenue and/or profitability.
Snap-on’s success depends, in part, on the efforts and abilities of its senior management team and other key employees. Their
skills, experience and industry contacts significantly benefit our operations and administration. The failure to attract and retain
members of our senior management team and other key employees could have a negative effect on our operating results. In addition,
transitions of important responsibilities to new individuals inherently include the possibility of disruptions to our business and
operations, which could negatively affect our business, financial condition, results of operations and cash flows.
The steps taken to restructure operations, rationalize operating footprint, lower operating expenses and achieve greater efficiencies
in the supply chain could disrupt business.
We have taken steps in the past, and expect to take additional steps in the future, intended to improve customer service and drive
further efficiencies and reduce costs, some of which could be disruptive to our business. These actions, collectively across our
operating groups, are focused on the following:
• Continuing to invest in initiatives focused on building a strong sales and operating presence in emerging growth markets;
• Continuing to enhance service and value to our franchisees and customers;
• Continuing to implement efficiency and productivity initiatives throughout the company to drive further efficiencies and
reduce costs;
• Continuing on the company’s existing path to improve and transform global manufacturing and the supply chain into a
market-demand-based replenishment system with lower costs;
• Continuing to invest in developing and marketing new, innovative, higher-value-added products and advanced
technologies;
• Extending our products and services into additional and/or adjacent markets or to new customers; and
• Continuing to provide financing for, and grow our portfolio of, receivables within our financial services businesses.
A failure to succeed in the implementation of any or all of these actions could result in an inability to achieve our financial goals
and could be disruptive to the business.
18
SNAP-ON INCORPORATED
In addition, any future reductions to headcount and other cost reduction measures may result in the loss of technical expertise and
could adversely affect our research and development efforts as well as our ability to meet product development schedules. Efforts
to reduce components of expense could result in the recording of charges for inventory and technology-related write-offs, workforce
reduction costs or other charges relating to the consolidation or closure of facilities. If we were to incur a substantial charge to
further these efforts, our earnings per share would be adversely affected in such period. If we are unable to effectively manage our
cost reduction and restructuring efforts, our business, financial condition, results of operations and cash flows could be negatively
affected.
Item 1B: Unresolved Staff Comments
None.
Item 2: Properties
Snap-on maintains leased and owned manufacturing, software development, warehouse, distribution, research and development
and office facilities throughout the world. Snap-on believes that its facilities currently in use are suitable and have adequate capacity
to meet its present and foreseeable future demand. Snap-on’s facilities in the United States occupy approximately 3.5 million
square feet, of which 71% is owned, including its corporate and general office facility located in Kenosha, Wisconsin. Snap-on’s
facilities outside the United States occupy approximately 4.6 million square feet, of which approximately 72% is owned. Certain
Snap-on facilities are leased through operating and capital lease agreements. See Note 16 to the Consolidated Financial Statements
for information on the company’s operating and capital leases. Snap-on management continually monitors the company’s capacity
needs and makes adjustments as dictated by market and other conditions.
2018 ANNUAL REPORT
19
The following table provides information about our corporate headquarters and financial services operations, and each of Snap on’s
principal active manufacturing locations, distribution centers and software development locations (exceeding 50,000 square feet)
as of 2018 year end:
Location
Principal Property Use
Owned/Leased
Segment*
U.S. Locations:
Elkmont, Alabama
Conway, Arkansas
City of Industry, California
Poway, California
San Jose, California
Columbus, Georgia
Crystal Lake, Illinois
Libertyville, Illinois
Algona, Iowa
Louisville, Kentucky
Olive Branch, Mississippi
Carson City, Nevada
Murphy, North Carolina
Richfield, Ohio
Robesonia, Pennsylvania
Elizabethton, Tennessee
Kenosha, Wisconsin
Milwaukee, Wisconsin
Non-U.S. Locations:
Santo Tome, Argentina
New South Wales, Australia
Minsk, Belarus
Santa Bárbara d’Oeste, Brazil
Calgary, Canada
Mississauga, Canada
Beijing, China
Kunshan, China
Xiaoshan, China
Banbury, England
Bramley, England
Kettering, England
Sopron, Hungary
Correggio, Italy
Tokyo, Japan
Helmond, Netherlands
Vila do Conde, Portugal
Irun, Spain
Placencia, Spain
Vitoria, Spain
Bollnäs, Sweden
Edsbyn, Sweden
Kungsör, Sweden
Lidköping, Sweden
Manufacturing
Manufacturing and distribution
Manufacturing
Software development
Software development
Distribution
Distribution
Financial services
Manufacturing and distribution
Manufacturing and distribution
Distribution
Distribution
Manufacturing and distribution
Software development
Distribution
Manufacturing
Distribution and corporate
Manufacturing
Manufacturing
Distribution and financial services
Manufacturing
Manufacturing and distribution
Distribution
Distribution
Manufacturing and distribution
Manufacturing
Manufacturing
Manufacturing and distribution
Manufacturing
Distribution and financial services
Manufacturing
Manufacturing
Distribution
Distribution
Manufacturing
Manufacturing
Manufacturing
Manufacturing and distribution
Manufacturing
Manufacturing
Manufacturing and distribution
Manufacturing
Owned
Owned
Leased
Leased
Leased
Owned
Owned and leased
Leased
Owned and leased
Leased
Owned
Owned and leased
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Owned
Owned
Leased
Leased
Leased
Owned
Owned
Owned
Owned
Owned and leased
Owned
Owned
Leased
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
SOT
RS&I
C&I
RS&I
RS&I
C&I
SOT
FS
SOT
RS&I
SOT
SOT
C&I
RS&I
SOT
SOT
SOT, C&I, RS&I
SOT
C&I
SOT, FS
C&I
RS&I
SOT
SOT, RS&I
C&I
C&I
C&I
C&I
C&I
SOT, C&I, FS
RS&I
RS&I
C&I
C&I
C&I
C&I
C&I
C&I
C&I
C&I
RS&I
C&I
* Segment abbreviations:
C&I – Commercial & Industrial Group
SOT – Snap-on Tools Group
RS&I – Repair Systems & Information Group
FS – Financial Services
20
SNAP-ON INCORPORATED
Item 3: Legal Proceedings
Snap-on is involved in various legal matters that are being litigated and/or settled in the ordinary course of business. Although it
is not possible to predict the outcome of these legal matters, management believes that the results of these legal matters will not
have a material impact on Snap-on’s consolidated financial position, results of operations or cash flows.
Item 4: Mine Safety Disclosures
Not applicable.
PART II
Item 5: Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Snap-on had 55,610,781 shares of common stock outstanding as of 2018 year end. Snap-on’s stock is listed on the New York Stock
Exchange under the ticker symbol “SNA.” At February 8, 2019, there were 4,704 registered holders of Snap-on common stock.
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 fourth quarter of fiscal 2018, 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 created by shares issued for employee
and franchisee stock purchase plans, and equity plans, 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.
Shares
purchased
90,000
335,000
205,000
630,000
Average price
per share
$149.28
$159.35
$160.20
$158.19
Shares purchased as
part of publicly
announced plans or
programs
90,000
335,000
205,000
630,000
Approximate
value of shares
that may yet be
purchased under
publicly
announced plans
or programs*
$292.4 million
$239.1 million
$215.7 million
N/A
Period
09/30/18 to 10/27/18
10/28/18 to 11/24/18
11/25/18 to 12/29/18
Total/Average
______________________
N/A: Not applicable
* Subject to further adjustment pursuant to the 1996 Authorization described below, as of December 29, 2018, the approximate value of shares that may yet be
purchased pursuant to the outstanding Board authorizations discussed below is $215.7 million.
•
In 1996, the Board authorized the company to repurchase shares of the company’s common stock from time to time in the open market or in privately
negotiated transactions (“the 1996 Authorization”). The 1996 Authorization allows the repurchase of up to the number of shares issued or delivered from
treasury from time to time under the various plans the company has in place that call for the issuance of the company’s common stock. Because the
number of shares that are purchased pursuant to the 1996 Authorization will change from time to time as (i) the company issues shares under its various
plans; and (ii) shares are repurchased pursuant to this authorization, the number of shares authorized to be repurchased will vary from time to time. The
1996 Authorization will expire when terminated by the Board. When calculating the approximate value of shares that the company may yet purchase
under the 1996 Authorization, the company assumed a price of $148.71, $161.00 and $144.25 per share of common stock as of the end of the fiscal 2018
months ended October 27, 2018, November 24, 2018, and December 29, 2018, respectively.
•
In 2017, the Board authorized the repurchase of an aggregate of up to $500 million of the company’s common stock (“the 2017 Authorization”). The
2017 Authorization will expire when the aggregate repurchase price limit is met, unless terminated earlier by the Board.
2018 ANNUAL REPORT
21
Other Purchases or Sales of Equity Securities
The following chart discloses information regarding transactions in shares of Snap-on’s common stock by Citibank, N.A.
(“Citibank”) during the fourth quarter of 2018 pursuant to a prepaid equity forward agreement (the “Agreement”) with Citibank
that is intended to reduce the impact of market risk associated with the stock-based portion of the company’s deferred compensation
plans. The company’s stock-based deferred compensation liabilities, which are impacted by changes in the company’s stock price,
increase as the company’s stock price rises and decrease as the company’s stock price declines. Pursuant to the Agreement, Citibank
may purchase or sell shares of the company’s common stock (for Citibank’s account) in the market or in privately negotiated
transactions. The Agreement has no stated expiration date and does not provide for Snap-on to purchase or repurchase its shares.
Citibank Purchases of Snap-on Stock
Period
09/30/18 to 10/27/18
10/28/18 to 11/24/18
11/25/18 to 12/29/18
Total/Average
Shares purchased
2,800
—
1,000
3,800
Average price
per share
$149.19
—
$152.45
$150.05
22
SNAP-ON INCORPORATED
Five-year Stock Performance Graph
The graph below illustrates the cumulative total shareholder return on Snap-on common stock since December 31, 2013, of a $100
investment, assuming that dividends were reinvested quarterly. The graph compares Snap-on’s performance to that of the Standard &
Poor’s 500 Industrials Index (“S&P 500 Industrials”) and Standard & Poor’s 500 Stock Index (“S&P 500”).
Fiscal Year Ended (1)
December 31, 2013
December 31, 2014
December 31, 2015
December 31, 2016
December 31, 2017
December 31, 2018
Snap-on
Incorporated
$100.00
126.77
161.15
163.63
169.61
144.41
S&P 500
Industrials
$100.00
109.83
107.04
127.23
153.99
133.53
S&P 500
$100.00
113.69
115.26
129.05
157.22
150.33
(1) The company’s fiscal year ends on the Saturday that is on or nearest to December 31 of each year; for ease of calculation, the fiscal year end is assumed to be
December 31.
2018 ANNUAL REPORT
23
Item 6: Selected Financial Data
The selected financial data presented below has been derived from, and should be read in conjunction with, the respective historical
consolidated financial statements of the company, including the notes thereto, and “Part II, Item 7, Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
Impact of Accounting Standards Update (“ASU”) No. 2017-07
At the beginning of fiscal 2018, Snap-on adopted ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715) - Improving
the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The ASU requires changes to be
applied retrospectively; as such, prior periods have been adjusted to reflect this adoption and conform to the 2018 presentation.
See Note 1 to the Consolidated Financial Statements for further information on the effect of adoption of this ASU.
24
SNAP-ON INCORPORATED
Five-year Data
(Amounts in millions, except per share data)
Results of Operations
Net sales
Gross profit
Operating expenses
Operating earnings before financial services
Financial services revenue
Financial services expenses
Operating earnings from financial services
Operating earnings
Interest expense
Earnings before income taxes and equity earnings
Income tax expense
Earnings before equity earnings
Equity earnings, net of tax
Net earnings
Net earnings attributable to noncontrolling interests
Net earnings attributable to Snap-on
Financial Position
Cash and cash equivalents
Trade and other accounts receivable – net
Finance receivables – net (current)
Contract receivables – net (current)
Inventories – net
Property and equipment – net
Long-term finance receivables – net
Long-term contract receivables – net
Total assets
Notes payable and current maturities of long-term
debt
Accounts payable
Long-term debt
Total debt
Total shareholders’ equity attributable to Snap-on
Common Share Summary
Weighted-average shares outstanding – diluted
Net earnings per share attributable to Snap-on:
Basic
Diluted
Cash dividends paid per share
Shareholders’ equity per basic share
2018
2017
2016
2015
2014
$
$
$
$
3,740.7
1,870.0
1,144.0
726.0
329.7
99.6
230.1
956.1
50.4
909.9
214.4
695.5
0.7
696.2
(16.3)
679.9
140.9
692.6
518.5
98.3
673.8
495.1
1,074.4
344.9
5,373.1
186.3
201.1
946.0
1,132.3
3,098.8
$
$
3,686.9
1,825.9
1,161.3
664.6
313.4
95.9
217.5
882.1
52.4
821.9
250.9
571.0
1.2
572.2
(14.5)
557.7
92.0
675.6
505.4
96.8
638.8
484.4
1,039.2
322.6
5,249.1
433.2
178.2
753.6
1,186.8
2,953.9
$
$
3,430.4
1,710.4
1,048.0
662.4
281.4
82.7
198.7
861.1
52.2
801.4
244.3
557.1
2.5
559.6
(13.2)
546.4
77.6
598.8
472.5
88.1
530.5
425.2
934.5
286.7
4,723.2
301.4
170.9
708.8
1,010.2
2,617.2
$
$
3,352.8
1,649.3
1,041.3
608.0
240.3
70.1
170.2
778.2
51.9
710.5
221.2
489.3
1.3
490.6
(11.9)
478.7
92.8
562.5
447.3
82.1
497.8
413.5
772.7
266.6
4,331.1
18.4
148.3
861.7
880.1
2,412.7
3,277.7
1,585.3
1,042.3
543.0
214.9
65.8
149.1
692.1
52.9
630.9
199.5
431.4
0.7
432.1
(10.2)
421.9
132.9
550.8
402.4
74.5
475.5
404.5
650.5
242.0
4,162.0
56.6
145.0
862.7
919.3
2,207.8
57.3
58.6
59.4
59.1
59.1
$
$
12.08
11.87
3.41
55.04
$
9.72
9.52
2.95
51.46
$
9.40
9.20
2.54
45.05
$
8.24
8.10
2.20
41.53
7.26
7.14
1.85
38.00
2018 ANNUAL REPORT
25
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management Overview
References in this 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 generally accepted accounting principles in the United
States of America (“GAAP”), excluding 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, customer base and geographic expansion, new product development and/or
pricing, and excludes sales contributions from acquired operations the company did not own as of the comparable prior-year
reporting period. The company’s organic sales disclosures 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 our businesses and facilitating comparisons of our sales performance with prior periods.
We believe our 2018 operating results demonstrate our commitment in providing repeatability and reliability to a wide range of
professional customers performing critical tasks in workplaces of consequence. Leveraging capabilities already demonstrated in
the automotive repair arena, our “coherent growth” strategy focuses on developing and expanding our professional customer base,
not only in automotive repair, but in adjacent markets, additional geographies and other areas, including in critical industries,
where the cost and penalties for failure can be high. Snap-on’s value proposition of making work easier for serious professionals
in workplaces of consequence is an ongoing strength as we move forward along our runways for coherent growth:
• Enhancing the franchise network, where we continued to focus on helping our franchisees extend their reach through
innovative selling processes and productivity initiatives that break the traditional time and space barriers inherent in a
mobile van;
• Expanding in the vehicle repair garage, where we continued to make progress in connecting with customers and translating
•
the resulting insights into innovation that solves specific challenges in the repair facility;
Further extending in critical industries, where we continued to grow our lines of products customized for specific industries,
including through acquisitions; and
• Building in emerging markets, where we continued to build manufacturing capacity, focused product lines and distribution
capability.
Our strategic priorities and plans for 2019 will continue to build on our Snap-on Value Creation Processes – our suite of strategic
principles and processes we employ every day designed to create value, and employed in the areas of safety, quality, customer
connection, innovation and rapid continuous improvement (“Rapid Continuous Improvement” or “RCI”). We expect to continue
to deploy these processes in our existing operations as well as into our recently acquired businesses.
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.
Our global financial services operations continue to serve a significant strategic role in offering financing options to our franchisees,
to their customers, and to customers in other parts of our business. We expect that our global financial services business, which
includes both Snap-on Credit LLC (“SOC”) in the United States and our other international finance subsidiaries, will continue to
be a meaningful contributor to our operating earnings going forward.
Snap-on has significant international operations and is subject to risks inherent with foreign operations, including foreign currency
translation fluctuations.
26
SNAP-ON INCORPORATED
Recent Acquisitions
On January 31, 2018, Snap-on acquired substantially all of the assets of George A. Sturdevant, Inc. (d/b/a Fastorq) for a cash
purchase price of $3.0 million. Fastorq, based in New Caney, Texas, designs, assembles and distributes hydraulic torque and
hydraulic tensioning products for use in critical industries. The acquisition of the Fastorq product line complemented and increased
Snap-on’s existing torque product offering and broadened its established capabilities in serving in critical industries. For segment
reporting purposes, the results of operations and assets of Fastorq have been included in the Commercial & Industrial Group since
the acquisition date.
On July 28, 2017, Snap-on acquired Torque Control Specialists Pty Ltd (“TCS”) for a cash purchase price of $3.6 million (or
$3.5 million, net of cash acquired). TCS, based in Adelaide, Australia, distributes a full range of torque products, including wrenches,
multipliers and calibrators, for use in critical industries. The acquisition of TCS enhanced and expanded Snap-on’s capabilities in
providing solutions that address torque requirements, which are increasingly essential to critical mechanical performance. For
segment reporting purposes, the results of operations and assets of TCS have been included in the Commercial & Industrial Group
since the acquisition date.
On May 4, 2017, Snap-on acquired Norbar Torque Tools Holdings Limited, along with its U.S. and Chinese joint ventures
(“Norbar”), for a cash purchase price of $71.6 million (or $69.9 million, net of cash acquired). Norbar, based in Banbury, U.K.,
designs and manufactures a full range of torque products, including wrenches, multipliers and calibrators, for use in critical
industries. The acquisition of Norbar enhanced and expanded Snap-on’s capabilities in providing solutions that address torque
requirements. For segment reporting purposes, the results of operations and assets of Norbar have been included in the
Commercial & Industrial Group since the acquisition date.
On January 30, 2017, Snap-on acquired BTC Global Limited (“BTC”) for a cash purchase price of $9.2 million. BTC, based in
Crewe, U.K., designs and implements automotive vehicle inspection and management software for original equipment manufacturer
(“OEM”) franchise repair shops. The acquisition of BTC enhanced Snap-on’s capabilities to grow enterprise revenues and add
increased productivity for repair workshops. For segment reporting purposes, the results of operations and assets of BTC have
been included in the Repair Systems & Information Group since the acquisition date.
On November 16, 2016, Snap-on acquired Ryeson Corporation (d/b/a Sturtevant Richmont) for a cash purchase price of
$13.0 million (or $12.6 million, net of cash acquired). Sturtevant Richmont, based in Carol Stream, Illinois, designs, manufactures
and distributes mechanical and electronic torque wrenches as well as wireless torque error proofing systems for a variety of
industrial applications. The acquisition of Sturtevant Richmont enhanced and expanded Snap-on’s capabilities in providing
solutions that address torque requirements. For segment reporting purposes, the results of operations and assets of Sturtevant
Richmont have been included in the Commercial & Industrial Group since the acquisition date.
On October 31, 2016, Snap-on acquired Car-O-Liner Holding AB (“Car-O-Liner”) for a cash purchase price of $152.0 million (or
$148.1 million, net of cash acquired). Car-O-Liner, based in Gothenburg, Sweden, designs and manufactures collision repair
equipment, and information and truck alignment systems. The acquisition of Car-O-Liner complemented and increased Snap-on’s
existing equipment and repair and service information product offerings, broadened its established capabilities in serving vehicle
repair facilities and further expanded the company’s presence with repair shop owners and managers. For segment reporting
purposes, substantially all of Car-O-Liner’s results of operations and assets have been included in the Repair Systems & Information
Group since the acquisition date, with the remaining portions included in the Commercial & Industrial Group.
Pro forma financial information has not been presented for any of these acquisitions as the net effects, individually and collectively,
were neither significant nor material to Snap-on’s results of operations or financial position.
Impact of Accounting Standards Update No. 2017-07
At the beginning of fiscal 2018, Snap-on adopted ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715) - Improving
the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The ASU requires changes to be
applied retrospectively; as such, prior periods have been adjusted to reflect this adoption and conform to the 2018 presentation.
See Note 1 to the Consolidated Financial Statements for further information on the effect of adoption of this ASU.
2018 ANNUAL REPORT
27
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Summary of Consolidated Performance
Consolidated net sales of $3,740.7 million in 2018 increased $53.8 million, or 1.5%, from 2017 levels, reflecting a $19.3 million,
or 0.5%, increase in organic sales (a non-GAAP financial measure that excludes acquisition-related sales and the impact of foreign
currency translation), $24.2 million of acquisition-related sales and $10.3 million of favorable foreign currency translation.
Operating earnings before financial services of $726.0 million in 2018, including $4.4 million of favorable foreign currency effects,
increased $61.4 million, or 9.2%, as compared to $664.6 million last year. Fiscal 2018 results included a $4.3 million benefit
related to a settlement in an employment-related litigation matter that was being appealed (the “legal settlement”). Fiscal 2017
results included $45.9 million of charges related to the judgment that was the subject of the legal settlement and a judgment in a
patent-related litigation matter that is being appealed (collectively the “legal charges”). The company can provide no assurance
as to the result of the appeal. As a percentage of net sales, operating earnings before financial services of 19.4% in 2018 compared
to 18.0% last year.
Operating earnings of $956.1 million in 2018, including the $4.3 million benefit for the legal settlement and $4.7 million of
favorable foreign currency effects, increased $74.0 million, or 8.4% from $882.1 million last year. In 2017, operating earnings
included $45.9 million of expense for the legal charges. As a percentage of revenues, operating earnings of 23.5% compared to
22.1% last year.
In 2018, net earnings attributable to Snap-on were $679.9 million, or $11.87 per diluted share, increased $122.2 million, or $2.35
per diluted share, from $557.7 million, or $9.52 per diluted share, in 2017. In 2018, net earnings attributable to Snap-on included
a $4.1 million, or $0.07 per diluted share, benefit from an after-tax net gain of $4.1 million associated with a treasury lock settlement
of $10.0 million related to the issuance of debt, partially offset by $5.9 million of expense related to the early extinguishment of
debt (collectively, the “net debt items”), as well as $3.2 million, or $0.06 per diluted share, for the after-tax benefit related to the
legal settlement, partially offset by $3.9 million, or $0.07 per diluted share, of tax expense for newly issued guidance associated
with the U.S. Tax Cuts and Jobs Act (the “Tax Act”) or (“tax charge”). Net earnings attributable to Snap-on in 2017 included $28.4
million, or $0.48 per diluted share, for the after-tax expense related to the legal charges, and $7.0 million, or $0.12 per diluted
share, of tax expense as a result of the implementation of the Tax Act.
Impact of the Tax Act
On December 22, 2017, the U.S. government passed the Tax Act. The Tax Act makes broad and complex changes to the U.S. tax
code, including, but not limited to: (i) reducing the future U.S. federal corporate tax rate from 35 percent to 21 percent; (ii) requiring
companies to pay a one-time transition tax on certain unremitted earnings of foreign subsidiaries; and (iii) bonus depreciation that
will allow for full expensing of qualified property.
The Tax Act also established new tax laws that affected 2018, including, but not limited to: (i) the reduction of the U.S. federal
corporate tax rate discussed above; (ii) a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries;
(iii) a new provision designed to tax global intangible low-taxed income (“GILTI”); (iv) the repeal of the domestic production
activity deductions; (v) limitations on the deductibility of certain executive compensation; (vi) limitations on the use of foreign
tax credits to reduce the U.S. income tax liability; and (vii) a new provision that allows a domestic corporation an immediate
deduction for a portion of its foreign derived intangible income (“FDII”).
The Securities and Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118, which provides guidance on
accounting for the tax effects of the Tax Act, for the company’s year ended December 30, 2017. SAB 118 provides a measurement
period that should not extend beyond one year from the Tax Act enactment date for companies to complete the related accounting
under Accounting Standards Codification (“ASC”) 740, Accounting for Income Taxes. In accordance with SAB 118, a company
must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the
extent that a company’s accounting for a certain income tax effect of the Tax Act is incomplete, but it is able to determine a
reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional
estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax
laws that were in effect immediately before the enactment of the Tax Act.
28
SNAP-ON INCORPORATED
The company’s accounting for certain elements of the Tax Act was incomplete as of December 30, 2017. However, the company
was able to make reasonable estimates of the effects and, therefore, recorded provisional estimates for these items. In connection
with its initial analysis of the impact of the Tax Act, the company recorded a provisional discrete net tax expense of $7.0 million
in the fiscal year ended December 29, 2017. This provisional estimate consists of a net expense of $13.7 million for the one-time
transition tax and a net benefit of $6.7 million related to revaluation of deferred tax assets and liabilities, caused by the new lower
corporate tax rate. To determine the transition tax, the company must determine the amount of post-1986 accumulated earnings
and profits of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. While the company
was able to make a reasonable estimate of the transition tax for 2017, it continued to gather additional information to more precisely
compute the final amount reported on its 2017 U.S. federal tax return which was filed in October 2018. The actual transition tax
reported was $8.3 million greater than the company’s initial estimate and was included in income tax expense for 2018. Likewise,
while the company was able to make a reasonable estimate of the impact of the reduction to the corporate tax rate, it was affected
by other analyses related to the Tax Act, including, but not limited to, the state tax effect of adjustments made to federal temporary
differences. During 2018, the company recorded additional net tax benefits of $4.4 million attributable to pension contributions
made in 2018 that were deductible for 2017 at the higher 35% federal tax rate and other changes to the 2017 tax provision related
to the Tax Act and subsequently issued tax guidance. Due to the complexity of the new GILTI tax rules, the company continued
to evaluate this provision of the Tax Act and the application of ASC 740 throughout 2018. Under GAAP, the company is allowed
to make an accounting policy choice to either: (i) treat taxes due on future U.S. inclusions in taxable income related to GILTI as
a current-period expense when incurred (the “period cost method”); or (ii) factor in such amounts into a company’s measurement
of its deferred taxes (the “deferred method”). The company selected to apply the “period cost method” to account for the new
GILTI tax, and treated it as a current-period expense for 2018. The company will continue to analyze the full effects of the Tax
Act on its financial statements in 2019 as additional guidance is issued and interpretations evolve.
Summary of Segment Performance
The Commercial & Industrial Group consists of business operations serving a broad range of industrial and commercial customers
worldwide, including customers in the aerospace, natural resources, government, power generation, transportation and technical
education market segments (collectively, “critical industries”), primarily through direct and distributor channels. Segment net sales
of $1,343.3 million in 2018 increased $78.3 million, or 6.2%, from 2017 levels, reflecting a $52.1 million, or 4.1%, organic sales
gain, $23.5 million of acquisition-related sales and $2.7 million of favorable foreign currency translation. The organic sales increase
includes higher sales to customers in critical industries, in the Asia Pacific operations, in power tools operations and in the European-
based hand tools business. Operating earnings of $199.3 million in 2018, increased $12.8 million, or 6.9%, from 2017 levels,
primarily due to increased organic sales volume and acquisitions, partially offset by $2.5 million of unfavorable foreign currency
effects.
The Commercial & Industrial Group intends to continue building on the following strategic priorities in 2019:
• Continuing to invest in emerging market growth initiatives;
• Expanding our business with existing customers and reaching new customers in critical industries and other market
segments;
• Broadening our product offering designed particularly for critical industry segments;
•
•
Increasing our customer-connection-driven understanding of work across multiple industries;
Investing in innovation that, guided by that understanding of work, delivers an ongoing stream of productivity-enhancing
custom engineered solutions; and
• Continuing to reduce structural and operating costs, as well as improve efficiencies, through RCI initiatives.
The Snap-on Tools Group consists of business operations primarily serving vehicle service and repair technicians through the
company’s worldwide mobile tool distribution channel. Segment net sales of $1,613.8 million in 2018 decreased $11.3 million,
or 0.7%, from 2017 levels, reflecting a $15.6 million, or 1.0%, organic sales decrease, partially offset by $4.3 million of favorable
foreign currency translation. The organic sales decrease includes a decline in the company’s international franchise operations
while sales in the U.S. franchise operations were essentially flat. Operating earnings of $264.2 million in 2018 decreased
$10.5 million, or 3.8%, from 2017 levels primarily due to the impact of lower sales volumes and higher costs, partially offset by
$7.7 million of favorable foreign currency effects and benefits from the company’s RCI initiatives.
2018 ANNUAL REPORT
29
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Despite the sales challenges in 2018, the Snap-on Tools Group remained focused on its fundamental, strategic initiatives to
strengthen the franchise network and enhance franchisee profitability. In 2019, the Snap-on Tools Group intends to continue these
initiatives, with specific focus on the following:
• Continuing to improve franchisee satisfaction, productivity, profitability and commercial health;
• Developing new programs and products to expand market coverage, reaching new technician customers and increasing
•
•
penetration with existing customers;
Increasing investment in new product innovation and development; and
Increasing customer service levels and productivity in back office support functions, manufacturing and the supply chain
through RCI initiatives and investment.
By focusing on these areas, we believe that Snap-on, as well as its franchisees, will have the opportunity to continue to serve
customers more effectively, more profitably and with improved satisfaction.
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. Segment net sales of $1,334.4 million in 2018 decreased $12.8 million, or 1.0%, from 2017 levels, reflecting a
$19.6 million, or 1.4%, organic sales decline, partially offset by $0.7 million of acquisition-related sales and $6.1 million of
favorable foreign currency translation. The organic sales decrease primarily reflects lower sales to OEM dealerships and in sales
of undercar equipment, partially offset by increased sales of diagnostic and repair information products to independent repair shop
owners and managers. Operating earnings of $342.6 million in 2018 increased $7.3 million, or 2.2%, from 2017 levels, primarily
due to benefits from the company’s RCI initiatives, partially offset by $0.8 million of unfavorable foreign currency effects.
The Repair Systems & Information Group intends to focus on the following strategic priorities in 2019:
• Expanding the product offering with new products and services, thereby providing more to sell to repair shop owners and
managers;
• Continuing software and hardware upgrades to further improve functionality, performance and efficiency;
• Leveraging integration of software solutions;
• Continuing productivity advancements through RCI initiatives and leveraging of resources; and
•
Increasing penetration in geographic markets, including emerging markets.
Financial Services revenue was $329.7 million in 2018 and $313.4 million in 2017; originations of $1,057.5 million in 2018
decreased $14.5 million, or 1.4%, from 2017 levels. In 2018, operating earnings from financial services of $230.1 million, including
$0.3 million of favorable foreign currency effects, increased $12.6 million, or 5.8%, from $217.5 million last year. In recent years,
Snap-on has steadily grown its financial services portfolio by providing financing for new finance and contract receivables originated
by our global financial services operations.
Financial Services intends to focus on the following strategic priorities in 2019:
• Delivering financial products and services that attract and sustain profitable franchisees and support Snap-on’s
•
strategies for expanding market coverage and penetration;
Improving productivity levels and ensuring high quality in all financial products and processes through the use of RCI
initiatives; and
• Maintaining healthy portfolio performance levels.
Cash Flows
Net cash provided by operating activities of $764.5 million in 2018 increased $156.0 million from $608.5 million in 2017. The
$156.0 million increase is primarily due to $124.0 million of higher net earnings and $34.0 million from net changes in operating
assets and liabilities. Net cash provided by operating activities was $576.1 million in 2016.
30
SNAP-ON INCORPORATED
Net cash used by investing activities of $210.2 million in 2018 included additions to finance receivables of $865.6 million, partially
offset by collections of $747.7 million, as well as $3.0 million for the acquisition of Fastorq. Net cash used by investing activities
of $341.4 million in 2017 included additions to finance receivables of $892.0 million, partially offset by collections of $712.7
million, as well as a total of $82.9 million (net of $1.8 million of cash acquired) for the acquisitions of BTC, Norbar, and TCS,
and working capital adjustments for the Car-O-Liner and Sturtevant Richmont acquisitions. Net cash used by investing activities
of $473.4 million in 2016 included additions to finance receivables of $915.0 million, partially offset by collections of $671.7
million, as well as, on a preliminary basis, $160.4 million (net of $4.3 million of cash acquired) for the acquisitions of Car-O-
Liner and Sturtevant Richmont. Capital expenditures in 2018, 2017 and 2016 totaled $90.9 million, $82.0 million and $74.3 million,
respectively. Capital expenditures in all three years included investments to support the company’s execution of its strategic growth
initiatives and Value Creation Processes around safety, quality, customer connection, innovation and RCI.
Net cash used by financing activities of $502.2 million in 2018 included repayments of $250 million of the unsecured 4.25% notes,
due January 16, 2018 (the “2018 Notes”), at maturity, and $200 million of the unsecured 6.70% notes that were scheduled to mature
on March 1, 2019 (the “2019 Notes”), and a $7.8 million loss on early extinguishment of debt. These amounts were partially offset
by Snap-on’s sale, on February 20, 2018, of $400 million of unsecured 4.10% notes that mature on March 1, 2048 (the “2048
Notes”) at a discount, from which Snap-on received $395.4 million of net proceeds, reflecting $3.5 million of transaction costs.
Net cash used by financing activities in 2018 also included $284.1 million for the repurchase of 1,769,000 shares of Snap-on’s
common stock and $192.0 million for dividend payments to shareholders, partially offset by $55.5 million of proceeds from stock
purchase and option plan exercises and $4.9 million of proceeds from a net increase in notes payable and other short-term borrowings.
Net cash used by financing activities of $256.1 million in 2017 included the January 2017 repayment of $150 million of 5.5%
unsecured notes upon maturity (the “2017 Notes”). These amounts were partially offset by Snap-on’s sale, on February 15, 2017,
of $300 million of unsecured 3.25% notes that mature on March 1, 2027 (the “2027 Notes”) at a discount, from which Snap-on
received $297.8 million of net proceeds, reflecting $1.9 million of transaction costs. Net cash used by financing activities in 2017
also included $287.9 million for the repurchase of 1,820,000 shares of Snap-on’s common stock, and $169.4 million for dividend
payments to shareholders, partially offset by $46.2 million of proceeds from stock purchase and option plan exercises and $30.6
million of proceeds from a net increase in notes payable and other short-term borrowings. Net cash used by financing activities
of $116.0 million in 2016 included $147.5 million for dividend payments to shareholders and $120.4 million for the repurchase
of 758,000 shares of Snap-on’s common stock, partially offset by $134.2 million of proceeds from a net increase in notes payable
and other short-term borrowings and $41.8 million of proceeds from stock purchase and option plan exercises.
Fiscal Year
Snap-on’s fiscal year ends on the Saturday that is on or nearest to December 31. Unless otherwise indicated, references in this
Management’s Discussion and Analysis of Financial Condition and Results of Operations to “fiscal 2018” or “2018” refer to the
fiscal year ended December 29, 2018; references to “fiscal 2017” or “2017” refer to the fiscal year ended December 30, 2017; and
references to “fiscal 2016” or “2016” refer to the fiscal year ended December 31, 2016. References in this document to 2018, 2017
and 2016 year end refer to December 29, 2018, December 30, 2017, and December 31, 2016, respectively.
Snap-on’s 2018, 2017 and 2016 fiscal years each contained 52 weeks of operating results.
2018 ANNUAL REPORT
31
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Results of Operations
2018 vs. 2017
Results of operations for 2018 and 2017 are as follows:
(Amounts in millions)
Net sales
Cost of goods sold
Gross profit
Operating expenses
Operating earnings before financial services
Financial services revenue
Financial services expenses
Operating earnings from financial services
Operating earnings
Interest expense
Other income (expense) – net
Earnings before income taxes and equity
earnings
Income tax expense
Earnings before equity earnings
Equity earnings, net of tax
Net earnings
Net earnings attributable to noncontrolling
interests
Net earnings attributable to Snap-on Inc.
NM: Not meaningful
2018
2017
Change
$ 3,740.7
(1,870.7)
1,870.0
(1,144.0)
726.0
100.0 % $ 3,686.9
(50.0)% (1,861.0)
1,825.9
50.0 %
(30.6)% (1,161.3)
664.6
19.4 %
100.0 % $
(50.5)%
49.5 %
(31.5)%
18.0 %
329.7
(99.6)
230.1
956.1
(50.4)
4.2
909.9
(214.4)
695.5
0.7
696.2
100.0 %
(30.2)%
69.8 %
23.5 %
(1.2)%
0.1 %
22.4 %
(5.3)%
17.1 %
—
17.1 %
313.4
(95.9)
217.5
882.1
(52.4)
(7.8)
821.9
(250.9)
571.0
1.2
572.2
100.0 %
(30.6)%
69.4 %
22.1 %
(1.3)%
(0.3)%
20.5 %
(6.2)%
14.3 %
—
14.3 %
53.8
(9.7)
44.1
17.3
61.4
16.3
(3.7)
12.6
74.0
2.0
12.0
88.0
36.5
124.5
(0.5)
124.0
(16.3)
679.9
$
(0.4)%
16.7 % $
(14.5)
557.7
(0.4)%
13.9 % $
(1.8)
122.2
1.5 %
(0.5)%
2.4 %
1.5 %
9.2 %
5.2 %
(3.9)%
5.8 %
8.4 %
3.8 %
NM
10.7 %
14.5 %
21.8 %
(41.7)%
21.7 %
(12.4)%
21.9 %
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 $3,740.7 million in 2018 increased $53.8 million, or 1.5%, from 2017 levels, reflecting a $19.3 million, or 0.5%,
organic sales gain, $24.2 million of acquisition-related sales and $10.3 million of favorable foreign currency translation.
Gross profit of $1,870.0 million in 2018 compared to $1,825.9 million last year. Gross margin (gross profit as a percentage of net
sales) of 50.0% in 2018 improved 50 basis points (100 basis points (“bps”) equals 1.0 percent) from 49.5% last year primarily due
to a shift in sales that included increased volumes of higher gross margin products and savings from the company’s RCI initiatives,
partially offset by higher material and other costs.
Operating expenses of $1,144.0 million in 2018, including a $4.3 million benefit for the legal settlement, compared to
$1,161.3 million, including $45.9 million for the legal charges, in 2017. The operating expense margin (operating expenses as a
percentage of net sales) of 30.6% in 2018 improved 90 bps from 31.5% last year primarily due to 130 bps for the legal charges
that occurred in 2017 and 10 bps for the legal settlement, partially offset by 10 bps of operating expenses from acquisitions and
higher costs.
Operating earnings before financial services of $726.0 million in 2018, including $4.4 million of favorable foreign currency effects,
increased $61.4 million, or 9.2%, as compared to $664.6 million last year. Fiscal 2018 results included a $4.3 million benefit for
the legal settlement. Fiscal 2017 results included $45.9 million for the legal charges. As a percentage of net sales, operating
earnings before financial services, including the legal settlement, of 19.4% compared to 18.0% last year, which included the legal
charges.
32
SNAP-ON INCORPORATED
Financial services revenue of $329.7 million in 2018 compared to revenue of $313.4 million last year. Financial services operating
earnings of $230.1 million, including $0.3 million of favorable foreign currency effects in 2018, increased $12.6 million, or 5.8%,
as compared to $217.5 million last year. The year-over-year increases in both revenue and operating earnings primarily reflect
continued growth of the company’s financial services portfolio.
Operating earnings of $956.1 million in 2018, including $4.7 million of favorable foreign currency effects, increased $74.0 million,
or 8.4%, from $882.1 million last year. Fiscal 2018 results included a $4.3 million benefit for the legal settlement. Fiscal 2017
included $45.9 million of expense for the legal charges. As a percentage of revenues, operating earnings of 23.5% compared to
22.1% last year.
Interest expense of $50.4 million in 2018 decreased $2.0 million from $52.4 million last year. See Note 10 to the Consolidated
Financial Statements for information on Snap-on’s debt and credit facilities.
Other income (expense) – net was income of $4.2 million in 2018 and expense of $7.8 million in 2017. Other income (expense)
– net in fiscal 2018 includes a net gain of $5.5 million for the net debt items. Other income (expense) - net also includes net gains
and losses associated with hedging and currency exchange rate transactions, non-service components of net periodic benefit costs,
and interest income. See Note 17 to the Consolidated Financial Statements for information on other income (expense) – net.
Snap-on’s effective income tax rate on earnings attributable to Snap-on was 24.0% in 2018, including a 50 bps charge related to
the newly issued guidance associated with the Tax Act, as compared to 31.1% in 2017, which included a 40 bps benefit from the
legal charges, and a net $7.0 million charge, or 90 bps impact, from the implementation of the Tax Act. See Note 9 to the Consolidated
Financial Statements for information on income taxes.
Net earnings attributable to Snap-on in 2018 of $679.9 million, or $11.87 per diluted share, increased $122.2 million, or $2.35 per
diluted share, from $557.7 million, or $9.52 per diluted share, in 2017. In 2018, net earnings attributable to Snap-on included a
$4.1 million, or $0.07 per diluted share, benefit from the after-tax net debt items, as well as a $3.2 million, or $0.06 per diluted
share, after-tax benefit related to the legal settlement, and $3.9 million, or $0.07 per diluted share, for the tax charge. Net earnings
attributable to Snap-on in 2017 included $28.4 million, or $0.48 per diluted share, of after-tax legal charges, and $7.0 million, or
$0.12 per diluted share, of tax expense as a result of the implementation of the Tax Act.
Segment Results
Snap-on’s business segments are based on the organization structure used by management for making operating and investment
decisions and for assessing performance. Snap-on’s reportable business segments are: (i) the Commercial & Industrial Group;
(ii) the Snap-on Tools Group; (iii) the Repair Systems & Information Group; and (iv) Financial Services. The Commercial &
Industrial Group consists of business operations serving a broad range of industrial and commercial customers worldwide, including
customers in the aerospace, natural resources, government, power generation, transportation and technical education market
segments, primarily through direct and distributor channels. The Snap-on Tools Group consists of business operations primarily
serving vehicle service and repair technicians through the company’s worldwide mobile tool distribution channel. The Repair
Systems & Information Group consists of business operations serving other professional vehicle repair customers worldwide,
primarily owners and managers of independent repair shops and OEM dealerships through direct and distributor channels. Financial
Services consists of the business operations of Snap-on’s finance subsidiaries.
Snap-on evaluates the performance of its operating segments based on segment revenues, including both external and intersegment
net sales, and segment operating earnings. Snap-on accounts for intersegment sales and transfers based primarily on standard costs
with reasonable mark-ups established between the segments. Identifiable assets by segment are those assets used in the respective
reportable segment’s operations. Corporate assets consist of cash and cash equivalents (excluding cash held at Financial Services),
deferred income taxes and certain other assets. All significant intersegment amounts are eliminated to arrive at Snap-on’s
consolidated financial results.
2018 ANNUAL REPORT
33
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Commercial & Industrial Group
(Amounts in millions)
External net sales
Intersegment net sales
Segment net sales
Cost of goods sold
Gross profit
Operating expenses
Segment operating earnings
$
$
2018
2017
Change
1,051.6
291.7
1,343.3
(817.7)
525.6
(326.3)
199.3
78.3 % $
21.7 %
100.0 %
(60.9)%
39.1 %
(24.3)%
14.8 % $
986.1
278.9
1,265.0
(766.4)
498.6
(312.1)
186.5
78.0 % $
22.0 %
100.0 %
(60.6)%
39.4 %
(24.7)%
14.7 % $
65.5
12.8
78.3
(51.3)
27.0
(14.2)
12.8
6.6 %
4.6 %
6.2 %
(6.7)%
5.4 %
(4.5)%
6.9 %
Segment net sales of $1,343.3 million in 2018 increased $78.3 million, or 6.2%, from 2017 levels, reflecting a $52.1 million or
4.1%, organic sales gain, $23.5 million of acquisition-related sales and $2.7 million of favorable foreign currency translation. The
organic sales increase primarily includes mid single-digit gains in sales to customers in both critical industries and in the segment’s
Asia Pacific operations, as well as low single-digit gains in sales in the power tools operations and in the European-based hand
tools business.
Segment gross profit of $525.6 million in 2018 compared to $498.6 million last year. Gross margin of 39.1% in 2018 declined 30
bps from 39.4% last year primarily due to 10 bps of unfavorable foreign currency effects and higher material and other costs,
partially offset by benefits from the company’s RCI initiatives.
Segment operating expenses of $326.3 million in 2018 compared to $312.1 million last year. The operating expense margin of
24.3% in 2018 improved 40 bps from 24.7% last year as benefits from higher sales volumes were partially offset by 10 bps of
unfavorable foreign currency effects.
As a result of these factors, segment operating earnings of $199.3 million in 2018, including $2.5 million of unfavorable foreign
currency effects, increased $12.8 million from 2017 levels. Operating margin (segment operating earnings as a percentage of
segment net sales) for the Commercial & Industrial Group was 14.8% and 14.7%, in 2018 and 2017, respectively.
Snap-on Tools Group
(Amounts in millions)
Segment net sales
Cost of goods sold
Gross profit
Operating expenses
Segment operating earnings
2018
2017
Change
$
$
1,613.8
(910.8)
703.0
(438.8)
264.2
100.0 % $
(56.4)%
43.6 %
(27.2)%
16.4 % $
1,625.1
(930.9)
694.2
(419.5)
274.7
100.0 % $
(57.3)%
42.7 %
(25.8)%
16.9 % $
(11.3)
20.1
8.8
(19.3)
(10.5)
(0.7)%
2.2 %
1.3 %
(4.6)%
(3.8)%
Segment net sales of $1,613.8 million in 2018 decreased $11.3 million, or 0.7%, from 2017 levels, reflecting a $15.6 million, or
1.0% organic sales decrease, partially offset by $4.3 million of favorable foreign currency translation. The organic sales decline
reflects a low single-digit decline in the company’s international franchise operations while sales in the U.S. operations were
essentially flat.
Segment gross profit of $703.0 million in 2018 compared to $694.2 million last year. Gross margin of 43.6% in 2018 improved
from 42.7% last year primarily due to increased sales of higher gross margin products, benefits from the company’s RCI initiatives
and 40 bps of favorable foreign currency effects.
Segment operating expenses of $438.8 million in 2018 compared to $419.5 million last year. The operating expense margin of
27.2% in 2018 increased 140 bps from 25.8% last year primarily due to higher costs.
As a result of these factors, segment operating earnings of $264.2 million in 2018, including $7.7 million of favorable foreign
currency effects, decreased $10.5 million from 2017 levels. Operating margin for the Snap-on Tools Group of 16.4% in 2018
compared to 16.9% last year.
34
SNAP-ON INCORPORATED
Repair Systems & Information Group
(Amounts in millions)
External net sales
Intersegment net sales
Segment net sales
Cost of goods sold
Gross profit
Operating expenses
Segment operating earnings
$
$
2018
2017
Change
1,075.3
259.1
1,334.4
(693.0)
641.4
(298.8)
342.6
80.6 % $
19.4 %
100.0 %
(51.9)%
48.1 %
(22.4)%
25.7 % $
1,075.7
271.5
1,347.2
(714.1)
633.1
(297.8)
335.3
79.8 % $
20.2 %
100.0 %
(53.0)%
47.0 %
(22.1)%
24.9 % $
(0.4)
(12.4)
(12.8)
21.1
8.3
(1.0)
7.3
—
(4.6)%
(1.0)%
3.0 %
1.3 %
(0.3)%
2.2 %
Segment net sales of $1,334.4 million in 2018 decreased $12.8 million, or 1.0%, from 2017 levels, reflecting a $19.6 million, or
1.4%, organic sales decline, partially offset by $0.7 million of acquisition-related sales and $6.1 million of favorable foreign
currency translation. The organic sales decrease includes low single-digit decreases in sales to OEM dealerships and in sales of
undercar equipment, partially offset by a low single-digit increase in sales of diagnostic and repair information products to
independent repair shop owners and managers.
Segment gross profit of $641.4 million in 2018 compared to $633.1 million last year. Gross margin of 48.1% in 2018 improved
110 bps from 47.0% last year, primarily as a result of a shift in sales that included lower volumes of lower gross margin products
and savings from the company’s RCI initiatives, partially offset by 20 bps of unfavorable foreign currency effects.
Segment operating expenses of $298.8 million in 2018 compared to $297.8 million last year. The operating expense margin of
22.4% in 2018 increased 30 bps from 22.1% last year primarily due to the effect of lower sales volumes, partially offset by benefits
from the company’s RCI initiatives.
As a result of these factors, segment operating earnings of $342.6 million in 2018, including $0.8 million of unfavorable foreign
currency effects, increased $7.3 million from 2017 levels. Operating margin for the Repair Systems & Information Group of 25.7%
in 2018 compared to 24.9% last year.
Financial Services
(Amounts in millions)
Financial services revenue
Financial services expenses
Segment operating earnings
$
$
2018
329.7
(99.6)
230.1
100.0 % $
(30.2)%
69.8 % $
2017
313.4
(95.9)
217.5
100.0 % $
(30.6)%
69.4 % $
Change
16.3
(3.7)
12.6
5.2 %
(3.9)%
5.8 %
Financial services revenue of $329.7 million in 2018 increased $16.3 million, or 5.2%, from $313.4 million last year primarily
reflecting $18.9 million of higher revenue as a result of continued growth of the company’s financial services portfolio, partially
offset by $2.6 million of decreased revenue from lower average yields on finance receivables. In 2018 and 2017, the respective
average yields on finance receivables were 17.7% and 17.9%, and the average yield on contract receivables was 9.2% in both
years. Originations of $1,057.5 million in 2018 decreased $14.5 million, or 1.4%, from 2017 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 financial services portfolio than they are on the
revenue of the segment. Financial services expenses of $99.6 million in 2018 increased from $95.9 million last year primarily due
to increases in both the provisions for credit losses and in the size of the portfolio. As a percentage of the average financial services
portfolio, financial services expenses were 4.9% and 5.0% in 2018 and 2017, respectively.
Financial services operating earnings of $230.1 million in 2018, including $0.3 million of favorable foreign currency effects,
increased $12.6 million, or 5.8%, from 2017 levels.
See Note 1 and Note 4 to the Consolidated Financial Statements for further information on financial services.
2018 ANNUAL REPORT
35
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Corporate
Snap-on’s general corporate expenses in 2018 of $80.1 million decreased $51.8 million from $131.9 million last year. The year-
over-year decrease in general corporate expenses primarily reflects a $4.3 million benefit in 2018 from the legal settlement and
$45.9 million in 2017 for the legal charges.
Fourth Quarter
Results of operations for the fourth quarters of 2018 and 2017 are as follows:
(Amounts in millions)
Net sales
Cost of goods sold
Gross profit
Operating expenses
Operating earnings before financial services
Financial services revenue
Financial services expenses
Operating earnings from financial services
Operating earnings
Interest expense
Other income (expense) – net
Earnings before income taxes and equity
earnings
Income tax expense
Earnings before equity earnings
Equity earnings, net of tax
Net earnings
Net earnings attributable to noncontrolling
interests
Net earnings attributable to Snap-on Inc.
NM: Not meaningful
Fourth Quarter
2018
2017
Change
$
952.5
(495.1)
457.4
(275.3)
182.1
100.0 % $
(52.0)%
48.0 %
(28.9)%
19.1 %
974.6
(509.0)
465.6
(307.6)
158.0
100.0 % $
(52.2)%
47.8 %
(31.6)%
16.2 %
(22.1)
13.9
(8.2)
32.3
24.1
2.8
(1.1)
1.7
25.8
1.2
4.8
31.8
14.3
46.1
—
46.1
(2.3)%
2.7 %
(1.8)%
10.5 %
15.3 %
3.5 %
(4.3)%
3.1 %
12.1 %
8.8 %
NM
16.1 %
22.4 %
34.6 %
—
34.6 %
100.0 %
(32.2)%
67.8 %
23.0 %
(1.2)%
0.3 %
22.1 %
(4.8)%
17.3 %
—
17.3 %
79.9
(25.5)
54.4
212.4
(13.6)
(1.8)
197.0
(63.8)
133.2
—
133.2
100.0 %
(31.9)%
68.1 %
20.1 %
(1.3)%
(0.1)%
18.7 %
(6.1)%
12.6 %
—
12.6 %
82.7
(26.6)
56.1
238.2
(12.4)
3.0
228.8
(49.5)
179.3
—
179.3
(4.3)
175.0
$
(0.4)%
16.9 % $
(3.7)
129.5
(0.3)%
12.3 % $
(0.6)
45.5
(16.2)%
35.1 %
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 $952.5 million in the fourth quarter of 2018 decreased $22.1 million, or 2.3%, from 2017 levels, reflecting a $5.4 million,
or 0.6%, organic sales decrease and $17.1 million of unfavorable foreign currency translation, partially offset by $0.4 million of
acquisition-related sales.
Gross profit of $457.4 million in the fourth quarter of 2018 compared to $465.6 million last year. Gross margin of 48.0% in the
quarter improved 20 bps from 47.8% last year primarily due to savings from the company’s RCI initiatives, partially offset by
higher material and other costs.
Operating expenses of $275.3 million in the fourth quarter of 2018 compared to $307.6 million last year, as 2018 included a $4.3
million benefit for the legal settlement, while 2017 included a $30.9 million legal charge. The operating expense margin of 28.9%
in the quarter improved 270 bps from 31.6% last year primarily due to 320 bps related to the legal charge occurring in fiscal 2017
and 40 bps for the 2018 legal settlement, partially offset by 10 bps of unfavorable foreign currency effects and higher costs.
36
SNAP-ON INCORPORATED
Operating earnings before financial services of $182.1 million in the fourth quarter of 2018, including a $4.3 million benefit for
the legal settlement and $4.2 million of unfavorable foreign currency effects, increased $24.1 million, or 15.3%, as compared to
$158.0 million last year, which included $30.9 million for the legal charge. As a percentage of net sales, operating earnings before
financial services of 19.1% in the quarter, including the legal settlement, compared to 16.2% last year, including the legal charge.
Financial services revenue of $82.7 million in the fourth quarter of 2018 compared to revenue of $79.9 million last year. Financial
services operating earnings of $56.1 million in the fourth quarter of 2018, including $0.3 million of unfavorable foreign currency
effects, increased $1.7 million, or 3.1%, as compared to $54.4 million last year. The year-over-year increases in both revenue and
operating earnings primarily reflect continued growth of the company’s financial services portfolio.
Operating earnings of $238.2 million in the fourth quarter of 2018, including a $4.3 million benefit for the legal settlement and
$4.5 million of unfavorable foreign currency effects, increased $25.8 million, or 12.1%, from $212.4 million last year, which
included $30.9 million of expense for the legal charge. As a percentage of revenues, operating earnings of 23.0% in the quarter
compared to 20.1% last year.
Interest expense of $12.4 million in the fourth quarter of 2018 decreased $1.2 million from $13.6 million last year. See Note 10
to the Consolidated Financial Statements for information on Snap-on’s debt and credit facilities.
Other income (expense) – net was income of $3.0 million and expense of $1.8 million in the respective fourth quarters of 2018
and 2017. See Note 17 to the Consolidated Financial Statements for information on other income (expense) – net.
Snap-on’s fourth quarter effective income tax rate on earnings attributable to Snap-on was 22.0% in 2018 compared to 33.0% in
2017, which included a 120 bps benefit from the legal charge, and $7.0 million, or 360 bps impact, related to the implementation
of the Tax Act. See Note 9 to the Consolidated Financial Statements for information on income taxes.
Net earnings attributable to Snap-on in the fourth quarter of 2018 of $175.0 million, or $3.09 per diluted share, increased $45.5
million, or $0.85 per diluted share, from $129.5 million or $2.24 per diluted share in 2017. The fourth quarter of 2018, included
$3.2 million, or $0.06 per diluted share, for the after-tax benefit from the legal settlement, while the fourth quarter of 2017 included
$19.1 million, or $0.33 per diluted share, for the after-tax expense associated with the legal charge, and a $7.0 million, or $0.12
per diluted share, charge related to the Tax Act.
Segment Results
Commercial & Industrial Group
(Amounts in millions)
External net sales
Intersegment net sales
Segment net sales
Cost of goods sold
Gross profit
Operating expenses
Segment operating earnings
Fourth Quarter
2018
2017
Change
$
$
270.0
73.7
343.7
(211.3)
132.4
(81.6)
50.8
78.6 % $
21.4 %
100.0 %
(61.5)%
38.5 %
(23.7)%
14.8 % $
273.2
68.5
341.7
(207.5)
134.2
(82.9)
51.3
80.0 % $
20.0 %
100.0 %
(60.7)%
39.3 %
(24.3)%
15.0 % $
(3.2)
5.2
2.0
(3.8)
(1.8)
1.3
(0.5)
(1.2)%
7.6 %
0.6 %
(1.8)%
(1.3)%
1.6 %
(1.0)%
Segment net sales of $343.7 million in the fourth quarter of 2018 increased $2.0 million, or 0.6%, from 2017 levels, reflecting an
$11.5 million, or 3.5%, organic sales gain and $0.4 million of acquisition-related sales, partially offset by $9.9 million of
unfavorable foreign currency translation. The organic sales increase primarily includes double-digit gains in both the segment’s
Asia Pacific operations and specialty tools business, as well as low single-digit gains in sales in the European-based hand tools
business and in sales to customers in critical industries.
Segment gross profit of $132.4 million in the fourth quarter of 2018 compared to $134.2 million last year. Gross margin of 38.5%
in the quarter declined 80 bps from 39.3% last year primarily due to higher sales volumes of lower gross margin products and
higher material and other costs, partially offset by benefits from the company’s RCI initiatives.
2018 ANNUAL REPORT
37
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Segment operating expenses of $81.6 million in the fourth quarter of 2018 compared to $82.9 million last year. The operating
expense margin of 23.7% in the quarter, improved 60 bps from 24.3% last year primarily due to the benefits of sales volume
leverage.
As a result of these factors, segment operating earnings of $50.8 million in the fourth quarter of 2018, including $1.5 million of
unfavorable foreign currency effects, decreased $0.5 million from 2017 levels. Operating margin for the Commercial & Industrial
Group of 14.8% in the fourth quarter of 2018 compared to 15.0% last year.
Snap-on Tools Group
Fourth Quarter
(Amounts in millions)
Segment net sales
Cost of goods sold
Gross profit
Operating expenses
Segment operating earnings
2018
2017
Change
$
$
407.4
(243.7)
163.7
(106.7)
57.0
100.0 % $
(59.8)%
40.2 %
(26.2)%
14.0 % $
409.2
(239.9)
169.3
(102.0)
67.3
100.0 % $
(58.6)%
41.4 %
(25.0)%
16.4 % $
(1.8)
(3.8)
(5.6)
(4.7)
(10.3)
(0.4)%
(1.6)%
(3.3)%
(4.6)%
(15.3)%
Segment net sales of $407.4 million in the fourth quarter of 2018 decreased $1.8 million, or 0.4%, from 2017 levels, reflecting a
$1.6 million, or 0.4%, organic sales increase, which was more than offset by $3.4 million of unfavorable foreign currency translation.
The organic sales increase reflects a low single-digit increase in the company’s U.S. franchise operations, partially offset by a low
single-digit decline in the segments international operations.
Segment gross profit of $163.7 million in the fourth quarter of 2018 compared to $169.3 million last year. Gross margin of 40.2%,
in the quarter declined 120 bps from 41.4% primarily due to 20 bps of unfavorable foreign currency effects, increased sales of
lower gross margin products, and higher material and other costs.
Segment operating expenses of $106.7 million in the fourth quarter of 2018 increased from $102.0 million last year. The operating
expense margin of 26.2% in the quarter increased 120 bps from 25.0% last year primarily due to efforts to provide increased levels
of field and technical support to franchisees.
As a result of these factors, segment operating earnings of $57.0 million in the fourth quarter of 2018, including $1.4 million of
unfavorable foreign currency effects, decreased $10.3 million from 2017 levels. Operating margin for the Snap-on Tools Group
of 14.0% in the fourth quarter of 2018 compared to 16.4% last year.
Repair Systems & Information Group
(Amounts in millions)
External net sales
Intersegment net sales
Segment net sales
Cost of goods sold
Gross profit
Operating expenses
Segment operating earnings
Fourth Quarter
2018
2017
Change
$
$
275.1
64.8
339.9
(178.6)
161.3
(73.9)
87.4
80.9 % $
19.1 %
100.0 %
(52.5)%
47.5 %
(21.8)%
25.7 % $
292.2
64.6
356.8
(194.7)
162.1
(71.9)
90.2
81.9 % $
18.1 %
100.0 %
(54.6)%
45.4 %
(20.1)%
25.3 % $
(17.1)
0.2
(16.9)
16.1
(0.8)
(2.0)
(2.8)
(5.9)%
0.3 %
(4.7)%
8.3 %
(0.5)%
(2.8)%
(3.1)%
Segment net sales of $339.9 million in the fourth quarter of 2018 decreased $16.9 million, or 4.7%, from 2017 levels, reflecting
a $12.2 million, or 3.5%, organic sales decline and $4.7 million of unfavorable foreign currency translation. The organic sales
decrease includes a high single-digit decline in sales to OEM dealerships and a low single-digit decline in sales of undercar
equipment.
38
SNAP-ON INCORPORATED
Segment gross profit of $161.3 million in the fourth quarter of 2018 compared to $162.1 million last year. Gross margin of 47.5%
in the quarter improved 210 bps from 45.4% last year as a result of a shift in sales that included decreased volumes of lower gross
margin products and savings from the company’s RCI initiatives.
Segment operating expenses of $73.9 million in the fourth quarter of 2018 compared to $71.9 million last year. The operating
expense margin of 21.8% increased 170 bps from 20.1% last year primarily due to the effect of lower sales volume and higher
costs.
As a result of these factors, segment operating earnings of $87.4 million in the fourth quarter of 2018, including $1.3 million of
unfavorable foreign currency effects, decreased $2.8 million from 2017 levels. Operating margin for the Repair Systems &
Information Group of 25.7% in the fourth quarter of 2018 compared to 25.3% last year.
Financial Services
(Amounts in millions)
Financial services revenue
Financial services expenses
Segment operating earnings
2018
82.7
(26.6)
56.1
$
$
100.0 % $
(32.2)%
67.8 % $
2017
79.9
(25.5)
54.4
100.0 % $
(31.9)%
68.1 % $
Change
2.8
(1.1)
1.7
3.5 %
(4.3)%
3.1 %
Fourth Quarter
Financial services revenue of $82.7 million in the fourth quarter of 2018 increased $2.8 million, or 3.5%, from $79.9 million last
year primarily reflecting $3.1 million of higher revenue as a result of continued growth of the company’s financial services portfolio,
partially offset by $0.3 million of decreased revenue from lower average yields on finance receivables. In the fourth quarters of
2018 and 2017, the respective average yields on finance receivables were 17.7% and 17.8%, and the average yields on contract
receivables were 9.2% in both periods. Originations of $267.1 million in the fourth quarter of 2018 increased $2.1 million, or
0.8%, from 2017 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 financial services portfolio than they are on the
revenue of the segment. Financial services expenses of $26.6 million in the fourth quarter of 2018 increased from $25.5 million
last year primarily due to increases in both the provisions for credit losses and in the size of the portfolio. As a percentage of the
average financial services portfolio, financial services expenses were 1.3% for both the fourth quarters of 2018 and 2017.
Financial services operating earnings of $56.1 million in the fourth quarter of 2018, including $0.3 million of unfavorable foreign
currency effects, increased $1.7 million, or 3.1%, from 2017 levels.
See Note 1 and Note 4 to the Consolidated Financial Statements for further information on financial services.
Corporate
Snap-on’s fourth quarter 2018 general corporate expenses of $13.1 million decreased $37.7 million from $50.8 million last year.
The year-over-year decrease in general corporate expenses primarily reflects a $4.3 million benefit in 2018 from the legal settlement
and a $30.9 million legal charge in 2017.
2018 ANNUAL REPORT
39
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
2017 vs. 2016
Results of operations for 2017 and 2016 are as follows:
(Amounts in millions)
Net sales
Cost of goods sold
Gross profit
Operating expenses
Operating earnings before financial services
2017
2016
Change
$ 3,686.9
(1,861.0)
1,825.9
(1,161.3)
664.6
100.0 % $ 3,430.4
(50.5)% (1,720.0)
49.5 %
1,710.4
(31.5)% (1,048.0)
662.4
18.0 %
100.0 % $
(50.1)%
49.9 %
(30.6)%
19.3 %
256.5
(141.0)
115.5
(113.3)
2.2
Financial services revenue
Financial services expenses
Operating earnings from financial services
Operating earnings
Interest expense
Other income (expense) – net
Earnings before income taxes and equity
earnings
Income tax expense
Earnings before equity earnings
Equity earnings, net of tax
Net earnings
Net earnings attributable to noncontrolling
interests
Net earnings attributable to Snap-on Inc.
NM: Not meaningful
313.4
(95.9)
217.5
882.1
(52.4)
(7.8)
821.9
(250.9)
571.0
1.2
572.2
100.0 %
(30.6)%
69.4 %
22.1 %
(1.3)%
(0.3)%
20.5 %
(6.2)%
14.3 %
—
14.3 %
281.4
(82.7)
198.7
861.1
(52.2)
(7.5)
801.4
(244.3)
557.1
2.5
559.6
100.0 %
(29.4)%
70.6 %
23.2 %
(1.4)%
(0.2)%
21.6 %
(6.6)%
15.0 %
0.1 %
15.1 %
(14.5)
557.7
$
(0.4)%
13.9 % $
(13.2)
546.4
(0.4)%
14.7 % $
32.0
(13.2)
18.8
21.0
(0.2)
(0.3)
20.5
(6.6)
13.9
(1.3)
12.6
(1.3)
11.3
7.5 %
(8.2)%
6.8 %
(10.8)%
0.3 %
11.4 %
(16.0)%
9.5 %
2.4 %
(0.4)%
(4.0)%
2.6 %
(2.7)%
2.5 %
NM
2.3 %
(9.8)%
2.1 %
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 $3,686.9 million in 2017 increased $256.5 million, or 7.5%, from 2016 levels, reflecting a $115.0 million, or 3.4%,
organic sales gain and $141.5 million of acquisition-related sales. Foreign currency translation had no effect on net sales in 2017.
Gross profit of $1,825.9 million in 2017 compared to $1,710.4 million in 2016. Gross margin of 49.5% in 2017 decreased 40 basis
points from 49.9% in 2016 due to 20 bps of unfavorable foreign currency effects and a 20 bps impact from acquisitions. Restructuring
costs included in gross profit were $0.8 million in 2016.
Operating expenses of $1,161.3 million in 2017 compared to $1,048.0 million in 2016, as 2017 included $45.9 million for the
legal charges. The operating expense margin (operating expenses as a percentage of net sales) of 31.5% in 2017 increased 90 bps
from 30.6% in 2016 as 130 bps for the legal charges and 30 bps of operating expenses from acquisitions were partially offset by
benefits from sales volume leverage. Restructuring costs included in operating expenses were $0.1 million in 2016.
Operating earnings before financial services of $664.6 million in 2017, including $45.9 million of expense for the legal charges
and $8.6 million of unfavorable foreign currency effects, increased $2.2 million, or 0.3%, as compared to $662.4 million in 2016.
As a percentage of net sales, operating earnings before financial services of 18.0%, including 130 bps impact from the legal charges,
compared to 19.3% in 2016.
Financial services revenue of $313.4 million in 2017 compared to revenue of $281.4 million in 2016. Financial services operating
earnings of $217.5 million in 2017 increased $18.8 million, or 9.5%, as compared to $198.7 million in 2016, including $0.4 million
of unfavorable foreign currency effects. The year-over-year increases in both revenue and operating earnings primarily reflect
continued growth of the company’s financial services portfolio.
40
SNAP-ON INCORPORATED
Operating earnings of $882.1 million in 2017, including $45.9 million of expense related to the legal charges and $9.0 million of
unfavorable foreign currency effects, increased $21.0 million, or 2.4%, from $861.1 million in 2016. As a percentage of revenues,
operating earnings of 22.1% compared to 23.2% in 2016.
Interest expense of $52.4 million in 2017 increased $0.2 million from $52.2 million in 2016. See Note 10 to the Consolidated
Financial Statements for information on Snap-on’s debt and credit facilities.
Other income (expense) - net was expense of $7.8 million and $7.5 million in 2017 and 2016, respectively. Other income (expense)
- net reflects net losses and gains associated with hedging and currency exchange rate transactions, non-service cost components
of net periodic pension and postretirement costs, and interest income. See Note 17 to the Consolidated Financial Statements for
information on other income (expense) - net.
Snap-on’s effective income tax rate on earnings attributable to Snap-on was 31.1% in 2017, including a 0.4% benefit from the
legal charges, compared to 31.0% in 2016. The 2017 tax rate includes a net $7.0 million charge, or 90 bps impact, from the
implementation of the Tax Act, including the estimated transition tax of $13.7 million on previously unremitted foreign earnings,
partially offset by a $6.7 million estimated tax benefit related to revaluation of deferred tax assets and liabilities. See Note 9 to
the Consolidated Financial Statements for information on income taxes.
Net earnings attributable to Snap-on of $557.7 million, or $9.52 per diluted share, in 2017, including $28.4 million, or $0.48 per
diluted share, for the after-tax expense related to the legal charges, and $7.0 million, or $0.12 per diluted share related to the Tax
Act, increased $11.3 million, or $0.32 per diluted share, from 2016 levels. Net earnings attributable to Snap-on in 2016 were
$546.4 million or $9.20 per diluted share.
Segment Results
Commercial & Industrial Group
(Amounts in millions)
External net sales
Intersegment net sales
Segment net sales
Cost of goods sold
Gross profit
Operating expenses
Segment operating earnings
$
$
2017
2016
Change
986.1
278.9
1,265.0
(766.4)
498.6
(312.1)
186.5
78.0 % $
22.0 %
100.0 %
(60.6)%
39.4 %
(24.7)%
14.7 % $
863.0
285.3
1,148.3
(697.8)
450.5
(281.7)
168.8
75.2 % $
24.8 %
100.0 %
(60.8)%
39.2 %
(24.5)%
14.7 % $
123.1
(6.4)
116.7
(68.6)
48.1
(30.4)
17.7
14.3 %
(2.2)%
10.2 %
(9.8)%
10.7 %
(10.8)%
10.5 %
Segment net sales of $1,265.0 million in 2017 increased $116.7 million, or 10.2%, from 2016 levels, reflecting a $52.0 million or
4.5%, organic sales gain and $65.5 million of acquisition-related sales, partially offset by $0.8 million of unfavorable foreign
currency translation. The organic sales increase primarily includes a high single-digit gain in sales to customers in critical industries,
and a mid single-digit gain in the segment’s European-based hand tools business. These organic sales gains were partially offset
by a low single-digit decline in sales in the segment’s power tools operations.
Segment gross profit of $498.6 million in 2017 compared to $450.5 million in 2016. Gross margin of 39.4% in 2017 improved
20 bps from 39.2% in 2016 primarily due to savings from RCI and other cost reduction initiatives.
Segment operating expenses of $312.1 million in 2017 compared to $281.7 million in 2016. The operating expense margin of
24.7% in 2017 increased 20 bps from 24.5% in 2016 as 40 bps of operating expenses from acquisitions and increased costs for
research and engineering activities were partially offset by benefits from sales volume leverage.
As a result of these factors, segment operating earnings of $186.5 million in 2017, including $0.4 million of favorable foreign
currency effects, increased $17.7 million from 2016 levels. Operating margin (segment operating earnings as a percentage of
segment net sales) for the Commercial & Industrial Group was 14.7% in both years.
2018 ANNUAL REPORT
41
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Snap-on Tools Group
(Amounts in millions)
Segment net sales
Cost of goods sold
Gross profit
Operating expenses
Segment operating earnings
2017
2016
Change
$
$
1,625.1
(930.9)
694.2
(419.5)
274.7
100.0 % $
(57.3)%
42.7 %
(25.8)%
16.9 % $
1,633.9
(929.9)
704.0
(423.6)
280.4
100.0 % $
(56.9)%
43.1 %
(25.9)%
17.2 % $
(8.8)
(1.0)
(9.8)
4.1
(5.7)
(0.5)%
(0.1)%
(1.4)%
1.0 %
(2.0)%
Segment net sales of $1,625.1 million in 2017 decreased $8.8 million, or 0.5%, from 2016 levels, reflecting a $6.9 million, or
0.4%, organic sales decrease and $1.9 million of unfavorable foreign currency translation. The organic sales decrease reflects a
low single-digit decline in the company’s U.S. franchise operations partially offset by a high single-digit gain in the international
franchise operations.
Segment gross profit of $694.2 million in 2017 compared to $704.0 million in 2016. Gross margin of 42.7% in 2017 decreased
from 43.1% in 2016 due to 40 bps of unfavorable foreign currency effects.
Segment operating expenses of $419.5 million in 2017 compared to $423.6 million in 2016. The operating expense margin of
25.8% in 2017 improved 10 bps from 25.9% in 2016.
As a result of these factors, segment operating earnings of $274.7 million in 2017, including $7.9 million of unfavorable foreign
currency effects, decreased $5.7 million from 2016 levels. Operating margin for the Snap-on Tools Group of 16.9% in 2017
compared to 17.2% in 2016.
Repair Systems & Information Group
(Amounts in millions)
External net sales
Intersegment net sales
Segment net sales
Cost of goods sold
Gross profit
Operating expenses
Segment operating earnings
$
$
2017
2016
Change
1,075.7
271.5
1,347.2
(714.1)
633.1
(297.8)
335.3
79.8 % $
20.2 %
100.0 %
(53.0)%
47.0 %
(22.1)%
24.9 % $
933.5
246.4
1,179.9
(624.0)
555.9
(257.3)
298.6
79.1 % $
20.9 %
100.0 %
(52.9)%
47.1 %
(21.8)%
25.3 % $
142.2
25.1
167.3
(90.1)
77.2
(40.5)
36.7
15.2 %
10.2 %
14.2 %
(14.4)%
13.9 %
(15.7)%
12.3 %
Segment net sales of $1,347.2 million in 2017 increased $167.3 million, or 14.2%, from 2016 levels, reflecting an $89.6 million,
or 7.6%, organic sales gain, $76.0 million of acquisition-related sales and $1.7 million of favorable foreign currency translation.
The organic sales increase includes a double-digit gain in sales to OEM dealerships, a high single-digit gain in sales of diagnostic
and repair information products to independent repair shop owners and managers, and mid single-digit increases in sales of undercar
equipment.
Segment gross profit of $633.1 million in 2017 compared to $555.9 million in 2016. Gross margin of 47.0% in 2017 decreased
10 bps from 47.1% in 2016, as the impact from higher sales of lower gross margin products were partially offset by savings from
RCI initiatives and 20 bps of benefits from acquisitions. Restructuring costs included in gross profit were $0.8 million in 2016.
Segment operating expenses of $297.8 million in 2017 compared to $257.3 million in 2016. The operating expense margin of
22.1% in 2017 increased 30 bps from 21.8% in 2016 primarily due to a 120 bps impact from acquisitions, partially offset by
benefits from sales volume leverage. Restructuring costs included in operating expenses were $0.1 million in 2016.
42
SNAP-ON INCORPORATED
As a result of these factors, segment operating earnings of $335.3 million in 2017, including $1.1 million of unfavorable foreign
currency effects, increased $36.7 million from 2016 levels. Operating margin for the Repair Systems & Information Group of
24.9% in 2017 compared to 25.3% in 2016.
Financial Services
(Amounts in millions)
Financial services revenue
Financial services expenses
Segment operating earnings
$
$
2017
313.4
(95.9)
217.5
100.0 % $
(30.6)%
69.4 % $
2016
281.4
(82.7)
198.7
100.0 % $
(29.4)%
70.6 % $
Change
32.0
(13.2)
18.8
11.4 %
(16.0)%
9.5 %
Financial services revenue of $313.4 million in 2017 increased $32.0 million, or 11.4%, from $281.4 million in 2016 primarily
reflecting $34.9 million of higher revenue as a result of continued growth of the company’s financial services portfolio, partially
offset by $2.9 million of decreased revenue from lower average yields on finance and contract receivables. In 2017 and 2016, the
respective average yields on finance receivables were 17.9% and 18.0%, and the respective average yield on contract receivables
were 9.2% and 9.4%. Originations of $1,072.0 million in 2017 decreased $3.7 million, or 0.3%, from 2016 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 financial services portfolio than they are on the
revenue of the segment. Financial services expenses of $95.9 million in 2017 increased from $82.7 million in 2016 primarily due
to changes in both the provisions for credit losses and in the size of the portfolio. As a percentage of the average financial services
portfolio, financial services expenses were 5.0% and 4.9% in 2017 and 2016, respectively.
Financial services operating earnings of $217.5 million in 2017, including $0.4 million of unfavorable foreign currency effects,
increased $18.8 million, or 9.5%, from 2016 levels.
See Note 1 and Note 4 to the Consolidated Financial Statements for further information on financial services.
Corporate
Snap-on’s general corporate expenses in 2017 of $131.9 million increased $46.5 million from $85.4 million in 2016. The year-
over-year increase in general corporate expenses primarily reflects $45.9 million of expense for the legal charges.
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 Incorporated’s (“Snap-on”) 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, diagnostic and
equipment products, software and other non-financial services operations with Financial Services 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 were eliminated to arrive at the
Consolidated Financial Statements.
2018 ANNUAL REPORT
43
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Non-GAAP Supplemental Consolidating Data – Supplemental Statements of Earnings information for 2018, 2017 and 2016 is as
follows:
(Amounts in millions)
Net sales
Cost of goods sold
Gross profit
Operating expenses
Operating earnings before financial services
Financial services revenue
Financial services expenses
Operating earnings from financial services
Operating earnings
Interest expense
Intersegment interest income (expense) – net
Other income (expense) – net
Earnings before income taxes and equity
earnings
Income tax expense
Earnings before equity earnings
Financial services – net earnings attributable to
Snap-on
Equity earnings, net of tax
Net earnings
Net earnings attributable to noncontrolling
interests
Net earnings attributable to Snap-on
* Snap-on with Financial Services on the equity method.
2018
$ 3,740.7
(1,870.7)
1,870.0
(1,144.0)
726.0
Operations*
2017
$ 3,686.9
(1,861.0)
1,825.9
(1,161.3)
664.6
$
2016
$ 3,430.4
(1,720.0)
1,710.4
(1,048.0)
662.4
—
—
—
726.0
(50.1)
69.7
4.1
749.7
(173.1)
576.6
118.9
0.7
696.2
—
—
—
664.6
(52.1)
70.8
(7.8)
675.5
(196.8)
478.7
92.3
1.2
572.2
—
—
—
662.4
(51.9)
72.2
(7.6)
675.1
(197.7)
477.4
79.7
2.5
559.6
(16.3)
679.9
$
(14.5)
557.7
$
(13.2)
546.4
$
$
Financial Services
2017
2016
2018
— $
—
—
—
—
— $
—
—
—
—
329.7
(99.6)
230.1
230.1
(0.3)
(69.7)
0.1
160.2
(41.3)
118.9
—
—
118.9
—
118.9
$
313.4
(95.9)
217.5
217.5
(0.3)
(70.8)
—
146.4
(54.1)
92.3
—
—
92.3
—
92.3
$
—
—
—
—
—
281.4
(82.7)
198.7
198.7
(0.3)
(72.2)
0.1
126.3
(46.6)
79.7
—
—
79.7
—
79.7
44
SNAP-ON INCORPORATED
Non-GAAP Supplemental Consolidating Data – Supplemental Balance Sheet Information as of 2018 and 2017 year end is as
follows:
(Amounts in millions)
ASSETS
Current assets:
Cash and cash equivalents
Intersegment receivables
Trade and other accounts receivable – net
Finance receivables – net
Contract receivables – net
Inventories – net
Prepaid expenses and other assets
Total current assets
Property and equipment – net
Investment in Financial Services
Deferred income tax assets
Intersegment long-term notes receivable
Long-term finance receivables – net
Long-term contract receivables – net
Goodwill
Other intangibles – net
Other assets
Total assets
* Snap-on with Financial Services on the equity method.
Operations*
Financial Services
2018
2017
2018
2017
$
$
140.5
15.1
692.1
—
6.6
673.8
100.2
1,628.3
493.5
329.5
45.8
701.3
—
11.9
902.2
232.9
51.9
4,397.3
$
$
91.8
17.1
674.9
—
9.4
638.8
117.6
1,549.6
482.4
317.4
25.2
583.7
—
13.2
924.1
253.7
63.1
4,212.4
$
$
0.4
—
0.5
518.5
91.7
—
0.5
611.6
1.6
—
18.9
—
1,074.4
333.0
—
—
0.1
2,039.6
$
$
0.2
—
0.7
505.4
87.4
—
0.7
594.4
2.0
—
26.8
—
1,039.2
309.4
—
—
—
1,971.8
2018 ANNUAL REPORT
45
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Non-GAAP Supplemental Consolidating Data – Supplemental Balance Sheet Information (continued):
(Amounts in millions)
LIABILITIES AND EQUITY
Current liabilities:
Notes payable and current maturities of long-term
debt
Accounts payable
Intersegment payables
Accrued benefits
Accrued compensation
Franchisee deposits
Other accrued liabilities
Total current liabilities
Long-term debt and intersegment long-term debt
Deferred income tax liabilities
Retiree health care benefits
Pension liabilities
Other long-term liabilities
Total liabilities
Total shareholders’ equity attributable to Snap-on
Noncontrolling interests
Total equity
Total liabilities and equity
* Snap-on with Financial Services on the equity method.
Operations*
Financial Services
2018
2017
2018
2017
$
$
186.3
199.6
—
52.0
66.8
67.5
355.4
927.6
—
41.4
31.8
171.3
106.6
1,278.7
3,098.8
19.8
3,118.6
4,397.3
$
$
183.2
177.1
—
55.8
67.8
66.5
366.0
916.4
—
28.4
36.0
158.9
100.4
1,240.1
2,953.9
18.4
2,972.3
4,212.4
$
$
— $
1.5
15.1
—
4.7
—
26.1
47.4
1,647.3
—
—
—
15.4
1,710.1
329.5
—
329.5
2,039.6
$
250.0
1.1
17.1
—
3.7
—
29.7
301.6
1,337.3
—
—
—
15.5
1,654.4
317.4
—
317.4
1,971.8
46
SNAP-ON INCORPORATED
Liquidity and Capital Resources
Snap-on’s growth has historically been funded by a combination of cash provided by operating activities and debt financing. On
February 20, 2018, the company issued $400 million (with net proceeds of $395.4 million) of the 2048 Notes; the company used
the proceeds from the offering to repay, prior to maturity, $200 million of the 2019 Notes, as well as to reduce outstanding
commercial paper borrowings. In addition, on January 16, 2018, Snap-on repaid $250 million of the 2018 Notes upon maturity
with available cash and cash generated from issuances of commercial paper. Snap-on believes that its cash from operations and
collections of finance receivables, coupled with its sources of borrowings and available cash on hand, are sufficient to fund its
currently anticipated requirements for scheduled debt repayments, payments of interest and dividends, new receivables originated
by our financial services businesses, capital expenditures, working capital, the funding of pension plans, and funding for share
repurchases and acquisitions, if and as they arise.
Due to Snap-on’s credit rating over the years, external funds have been available at an acceptable cost. As of the close of business
on February 8, 2019, 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 assurances of the availability of future financing or the terms on which it might be available,
or that its debt ratings may not decrease.
The following discussion focuses on information included in the accompanying Consolidated Balance Sheets.
As of 2018 year end, working capital (current assets less current liabilities) of $1,264.9 million increased $338.9 million from
$926.0 million as of 2017 year end primarily as a result of other net changes in working capital discussed below.
The following represents the company’s working capital position as of 2018 and 2017 year end:
(Amounts in millions)
Cash and cash equivalents
Trade and other accounts receivable – net
Finance receivables – net
Contract receivables – net
Inventories – net
Prepaid expenses and other assets
Total current assets
Notes payable and current maturities of long-term debt
Accounts payable
Other current liabilities
Total current liabilities
Working capital
2018
2017
$
140.9
692.6
518.5
98.3
673.8
92.8
2,216.9
(186.3)
(201.1)
(564.6)
(952.0)
1,264.9
$
92.0
675.6
505.4
96.8
638.8
110.7
2,119.3
(433.2)
(178.2)
(581.9)
(1,193.3)
926.0
$
$
Cash and cash equivalents of $140.9 million as of 2018 year end increased $48.9 million from 2017 year-end levels primarily due
to: (i) $764.5 million of cash generated from operations, net of $50.0 million of discretionary cash contributions to the company’s
domestic pension plans; (ii) $747.7 million of cash from collections of finance receivables; (iii) $395.4 million of net proceeds
from the 2048 Notes; (iv) $55.5 million of cash proceeds from stock purchase and option plan exercises; and (v) $4.9 million of
net proceeds from notes payable and other short-term borrowings. These increases in cash and cash equivalents were partially
offset by: (i) the funding of $865.6 million of new finance receivables; (ii) the repurchase of 1,769,000 shares of the company’s
common stock for $284.1 million; (iii) the repayment of $250 million of the 2018 Notes; (iv) the repayment of $200 million of
the 2019 Notes; (v) dividend payments to shareholders of $192.0 million; (vi) the funding of $90.9 million of capital expenditures;
and (vii) the funding of $3.0 million for acquisitions.
2018 ANNUAL REPORT
47
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Of the $140.9 million of cash and cash equivalents as of 2018 year end, $121.4 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 Act generally
eliminates U.S. federal taxation on 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.
Trade and other accounts receivable – net of $692.6 million as of 2018 year end increased $17.0 million from 2017 year-end levels
primarily due to an increase in days sales outstanding and $0.2 million of receivables related to the Fastorq acquisition, partially
offset by $20.8 million of unfavorable foreign currency translation. Days sales outstanding (trade and other accounts receivable
– net as of the respective period end, divided by the respective trailing 12 months sales, times 360 days) was 67 days at 2018 year
end and 66 days at 2017 year end.
The current portions of net finance and contract receivables of $616.8 million as of 2018 year end compared to $602.2 million at
2017 year end. The long-term portions of net finance and contract receivables of $1,419.3 million as of 2018 year end compared
to $1,361.8 million at 2017 year end. The combined $72.1 million increase in net current and long-term finance and contract
receivables over 2017 year-end levels is primarily due to continued growth of the company’s financial services portfolio, partially
offset by $16.8 million of unfavorable foreign currency translation.
Inventories – net of $673.8 million as of 2018 year end increased $35.0 million from 2017 year-end levels primarily due to $20.9
million related to the adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), continued support for
new product introductions, as well as $0.7 million of inventories related to the Fastorq acquisition, partially offset by $23.2 million
of foreign currency translation. As of 2018 and 2017 year end, inventory turns (trailing 12 months of cost of goods sold, divided
by the average of the beginning and ending inventory balance for the trailing 12 months) were 2.9 turns and 3.2 turns, respectively.
Inventories accounted for using the first-in, first-out (“FIFO”) method as of both 2018 and 2017 year end approximated 61% of
total inventories. All other inventories are accounted for using the last-in, first-out (“LIFO”) method. The company’s LIFO reserve
was $78.4 million and $75.1 million at 2018 and 2017 year end, respectively.
Notes payable and current maturities of long-term debt of $186.3 million as of 2018 year end included $177.1 million of commercial
paper borrowings and $9.2 million of other notes. Notes payable and current maturities of long-term debt of $433.2 million as of
2017 year end consisted of $250 million of the 2018 Notes (which were subsequently repaid), $151 million of commercial paper
borrowings and $32.2 million of other notes.
Average notes payable outstanding, including commercial paper borrowings, were $167.7 million and $126.8 million in 2018 and
2017, respectively. The weighted-average interest rate of 2.84% in 2018 increased from 2.45% last year primarily due to the impact
of higher rates on commercial paper borrowings. Average commercial paper borrowings were $154.9 million and $103.3 million
in 2018 and 2017, respectively, and the weighted-average interest rate of 2.03% in 2018 increased from 1.14% last year. At 2018
year end, the weighted-average interest rate on outstanding notes payable of 3.21% compared with 2.34% at 2017 year end. The
2018 year-end rate increased primarily due to higher rates on commercial borrowings.
Accounts payable of $201.1 million as of 2018 year end increased $22.9 million from 2017 year-end levels primarily due to the
timing of payments, partially offset by $5.0 million of foreign currency translation.
Other accrued liabilities of $373.6 million as of 2018 year end decreased $14.5 million from 2017 year-end levels primarily due
to lower income tax accruals, the settlement of an employment-related litigation matter and $8.7 million of foreign currency
translation.
Long-term debt of $946.0 million as of 2018 year end consisted of: (i) $250.0 million of unsecured 6.125% notes that mature in
2021; (ii) $300.0 million of the 2027 Notes; (iii) $400 million of the 2048 Notes, partially offset by $4.0 million of fair value
adjustments related to interest rate swaps.
48
SNAP-ON INCORPORATED
Snap-on has a five-year, $700 million multi-currency revolving credit facility that terminates on December 15, 2020 (the “Credit
Facility”); no amounts were outstanding under the Credit Facility as of December 29, 2018. Borrowings under the Credit Facility
bear interest at varying rates based on Snap-on’s then-current, long-term debt ratings. The Credit Facility’s financial covenant
requires that Snap-on maintain, as of each fiscal quarter end, either (i) a ratio not greater than 0.60 to 1.00 of consolidated net debt
(consolidated debt net of certain cash adjustments) to the sum of such consolidated net debt plus total equity and less accumulated
other comprehensive income or loss (the “Debt Ratio”); or (ii) a ratio not greater than 3.50 to 1.00 of such consolidated net debt
to earnings before interest, taxes, depreciation, amortization and certain other adjustments for the preceding four fiscal quarters
then ended (the “Debt to EBITDA Ratio”). Snap-on may, up to two times during any five-year period during the term of the Credit
Facility (including any extensions thereof), increase the maximum Debt Ratio to 0.65 to 1.00 and/or increase the maximum Debt
to EBITDA Ratio to 3.75 to 1.00 for four consecutive fiscal quarters in connection with certain material acquisitions (as defined
in the related credit agreement). As of 2018 year end, the company’s actual ratios of 0.23 and 0.99, respectively, were both within
the permitted ranges set forth in this financial covenant. Snap-on generally issues commercial paper to fund its financing needs
on a short-term basis and uses the Credit Facility as back-up liquidity to support such commercial paper issuances.
Snap-on’s Credit Facility and other debt agreements also contain certain usual and customary borrowing, affirmative, negative
and maintenance covenants. As of 2018 year end, Snap-on was in compliance with all covenants of its Credit Facility and other
debt agreements.
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 revolving 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 may take advantage of what it believes are favorable
market conditions to issue long-term debt to further improve its liquidity and capital resources. Near-term liquidity requirements
for Snap-on include scheduled debt payments, payments of interest and dividends, funding to support new receivables originated
by our financial services businesses, capital expenditures, working capital, the funding of pension plans, and funding for share
repurchases and acquisitions, if and as they arise. Snap-on intends to make contributions of $9.4 million to its foreign pension
plans and $1.9 million to its domestic pension plans in 2019, as required by law. Depending on market and other conditions,
Snap on may make additional discretionary cash contributions to its pension plans in 2019.
Snap-on’s long-term financing strategy is to maintain continuous access to the debt markets to accommodate its liquidity needs,
including the use of commercial paper, additional fixed-term debt and/or securitizations.
The following discussion focuses on information included in the accompanying Consolidated Statements of Cash Flows.
Operating Activities
Net cash provided by operating activities of $764.5 million in 2018 increased $156.0 million from $608.5 million in 2017. The
$156.0 million increase is primarily due to $124.0 million of higher net earnings and $34.0 million from net changes in operating
assets and liabilities. Net cash provided by operating activities was $576.1 million in 2016.
Depreciation expense was $68.8 million in 2018, $65.6 million in 2017 and $61.4 million in 2016. Amortization expense was
$25.3 million in 2018, $27.6 million in 2017 and $24.2 million in 2016. See Note 7 to the Consolidated Financial Statements for
information on goodwill and other intangible assets.
Investing Activities
Net cash used by investing activities of $210.2 million in 2018 included additions to finance receivables of $865.6 million, partially
offset by collections of $747.7 million. Net cash used by investing activities of $341.4 million in 2017 included additions to finance
receivables of $892.0 million, partially offset by collections of $712.7 million. Net cash used by investing activities of $473.4
million in 2016 included additions to finance receivables of $915.0 million, partially offset by collections of $671.7 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 and diagnostic and equipment products on an extended-term payment
plan, generally with average payment terms of approximately four years.
2018 ANNUAL REPORT
49
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Net cash used by investing activities in 2018 also included a total of $3.0 million for the acquisition of Fastorq. Net cash used by
investing activities in 2017 included, a total of $82.9 million (net of $1.8 million of cash acquired) for the acquisitions of BTC,
Norbar and TCS, as well as working capital adjustments for the Car-O-Liner and Sturtevant Richmont acquisitions. Net cash used
by investing activities in 2016 included, on a preliminary basis, $160.4 million (net of $4.3 million of cash acquired) for the
acquisitions of Car-O-Liner and Sturtevant Richmont. See Note 3 to the Consolidated Financial Statements for information on
acquisitions.
Capital expenditures in 2018, 2017 and 2016 totaled $90.9 million, $82.0 million and $74.3 million, respectively. Capital
expenditures in all three years included continued investments related to the company’s execution of its strategic Value Creation
Processes and strategic growth initiatives. The company also invested in: (i) new product, efficiency, safety and cost reduction
initiatives that are intended to expand and improve its manufacturing and distribution capabilities worldwide; (ii) new production
and machine tooling to enhance manufacturing operations, as well as ongoing replacements of manufacturing and distribution
equipment, particularly in the United States; (iii) the ongoing replacement and enhancement of the company’s global enterprise
resource planning (ERP) management information systems; and (iv) improvements to the company’s research and development
facilities and corporate headquarters in Kenosha, Wisconsin. Snap-on believes that its cash generated from operations, as well as
its available cash on hand and funds available from its credit facilities will be sufficient to fund the company’s capital expenditure
requirements in 2019.
Financing Activities
Net cash used by financing activities of $502.2 million in 2018 included repayments of $250 million of the 2018 Notes at maturity
and $200 million of the 2019 Notes prior to maturity, as well as a $7.8 million loss on early extinguishment of debt. These amounts
were partially offset by Snap-on’s sale, on February 20, 2018, of $400 million of the 2048 Notes at a discount, from which Snap on
received $395.4 million of net proceeds, reflecting $3.5 million of transaction costs, and $4.9 million of proceeds from the net
increase in notes payable and other short-term borrowings. Net cash used by financing activities of $256.1 million in 2017 included
the January 2017 repayment of $150 million of the 2017 Notes. These amounts were partially offset by Snap-on’s sale, on February
15, 2017, of $300 million of the 2027 Notes sold at a discount, from which Snap-on received $297.8 million of net proceeds,
reflecting $1.9 million of transaction costs, and $30.6 million of proceeds from a net increase in notes payable and other short-
term borrowings. Net cash used by financing activities of $116.0 million in 2016 included $134.2 million of proceeds from a net
increase in notes payable and other short-term borrowings.
Proceeds from stock purchase and option plan exercises totaled $55.5 million in 2018, $46.2 million in 2017 and $41.8 million in
2016. Snap-on has undertaken stock repurchases from time to time to offset dilution created by shares issued for employee and
franchisee stock purchase plans, stock options and other corporate purposes. In 2018, Snap-on repurchased 1,769,000 shares of
its common stock for $284.1 million under its previously announced share repurchase programs. As of 2018 year end, Snap-on
had remaining availability to repurchase up to an additional $215.7 million in common stock pursuant to its Board of Directors’ (the
“Board”) authorizations. The purchase of Snap-on common stock is at the company’s discretion, subject to prevailing financial
and market conditions. Snap-on repurchased 1,820,000 shares of its common stock for $287.9 million in 2017 and Snap-on
repurchased 758,000 shares of its common stock for $120.4 million in 2016. 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 share repurchases,
if any, in 2019.
Snap-on has paid consecutive quarterly cash dividends, without interruption or reduction, since 1939. Cash dividends paid in 2018,
2017 and 2016 totaled $192.0 million, $169.4 million and $147.5 million, respectively. On November 8, 2018, the company
announced that its Board increased the quarterly cash dividend by 15.9% to $0.95 per share ($3.80 per share annualized). Quarterly
dividends in 2018 were $0.95 per share in the fourth quarter and $0.82 per share in the first three quarters ($3.41 per share for the
year). Quarterly dividends in 2017 were $0.82 per share in the fourth quarter and $0.71 per share in the first three quarters ($2.95
per share for the year). Quarterly dividends in 2016 were $0.71 per share in the fourth quarter and $0.61 per share in the first three
quarters ($2.54 per share for the year).
Cash dividends paid per common share
Cash dividends paid as a percent of prior-year retained earnings
$
3.41
$
5.1%
2.95
$
5.0%
2.54
4.9%
2018
2017
2016
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 in 2019.
50
SNAP-ON INCORPORATED
Off-Balance-Sheet Arrangements
Except as included below in the section labeled “Contractual Obligations and Commitments” and Note 16 to the Consolidated
Financial Statements, the company had no off-balance-sheet arrangements as of 2018 year end.
Contractual Obligations and Commitments
A summary of Snap-on’s future contractual obligations and commitments as of 2018 year end are as follows:
(Amounts in millions)
Contractual obligations:
Notes payable and current
maturities of long-term debt
Long-term debt
Interest on fixed rate debt
Operating leases
Capital leases
Purchase obligations
Total
Total
2019
2020-2021
2022-2023
2024 and
thereafter
$
186.3
$
186.3
$
— $
— $
946.0
598.7
77.0
16.0
72.5
—
41.5
25.6
3.3
65.2
254.0
77.8
32.3
6.1
7.1
—
52.3
14.7
4.7
—
—
692.0
427.1
4.4
1.9
0.2
$
1,896.5
$
321.9
$
377.3
$
71.7
$
1,125.6
Snap-on intends to make contributions of $9.4 million to its foreign pension plans and $1.9 million to its domestic pension plans
in 2019, as required by law. Depending on market and other conditions, Snap-on may make additional discretionary cash
contributions to its pension plans in 2019. Snap-on has not presented estimated pension and postretirement funding contributions
in the table above as the funding can vary from year to year based on changes in the fair value of the plan assets and actuarial
assumptions; see Note 12 and Note 13 to the Consolidated Financial Statements for information on the company’s benefit plans
and payments.
Due to the uncertainty of the timing of settlements with taxing authorities, Snap-on is unable to make reasonably reliable estimates
of the period of cash settlement of unrecognized tax benefits for its remaining uncertain tax liabilities. As a result, $11.1 million
of unrecognized tax benefits have been excluded from the table above; see Note 9 to the Consolidated Financial Statements for
information on income taxes.
Environmental Matters
Snap-on is subject to various federal, state and local government requirements regulating the discharge of materials into the
environment or otherwise relating to the protection of the environment. Snap-on’s policy is to comply with these requirements
and the company believes that, as a general matter, its policies, practices and procedures are properly designed to prevent
unreasonable risk of environmental damage, and of resulting financial liability, in connection with its business. Some risk of
environmental damage is, however, inherent in some of Snap-on’s operations and products, as it is with other companies engaged
in similar businesses.
Snap-on is and has been engaged in the handling, manufacture, use and disposal of many substances classified as hazardous or
toxic by one or more regulatory agencies. Snap-on believes that, as a general matter, its handling, manufacture, use and disposal
of these substances are in accordance with environmental laws and regulations. It is possible, however, that future knowledge or
other developments, such as improved capability to detect substances in the environment or increasingly strict environmental laws
and standards and enforcement policies, could bring into question the company’s handling, manufacture, use or disposal of these
substances.
New Accounting Standards
See Note 1 to the Consolidated Financial Statements for information on new accounting standards.
2018 ANNUAL REPORT
51
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Critical Accounting Policies and Estimates
The Consolidated Financial Statements and related notes contain information that is pertinent to management’s discussion and
analysis. The preparation of financial statements in conformity with accounting principles generally accepted in the United States
of America (“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. These estimates are generally based on historical experience, current conditions
and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and liabilities that are not readily available from other sources, as well
as identifying and assessing our accounting treatment with respect to commitments and contingencies. Actual results could differ
from those estimates.
In addition to the company’s significant accounting policies described in Note 1 to the Consolidated Financial Statements, Snap-
on considers the following policies and estimates to be the most critical in understanding the judgments that are involved in the
preparation of the company’s consolidated financial statements and the uncertainties that could impact the company’s financial
position, results of operations and cash flows.
Impairment of Goodwill and Other Indefinite-lived Intangible Assets: Goodwill and other indefinite-lived intangible assets are
tested for impairment annually or more frequently if events or changes in circumstances indicate that the assets might be impaired.
Annual impairment tests are performed by the company in the second quarter of each year using information available as of fiscal
April month end.
Snap-on evaluates the recoverability of goodwill by estimating the future discounted cash flows of the businesses to which the
goodwill relates. Estimated cash flows and related goodwill are grouped at the reporting unit level. The company has determined
that its reporting units for testing goodwill impairment are its operating segments or components of an operating segment that
constitute a business for which discrete financial information is available and for which segment management regularly reviews
the operating results. Within its four reportable operating segments, the company has identified 11 reporting units.
Snap-on evaluates the recoverability of goodwill by utilizing an income approach that estimates the fair value of the future discounted
cash flows of the reporting units to which the goodwill relates. The future projections, which are based on both past performance
and the projections and assumptions used in the company’s operating plans, are subject to change as a result of changing economic
and competitive conditions. This approach reflects management’s internal outlook at the reporting units, which management
believes provides the best determination of value due to management’s insight and experience with the reporting units. Significant
estimates used by management in the discounted cash flows methodology include estimates of future cash flows based on expected
growth rates, price increases, working capital levels, expected benefits from RCI initiatives, and a weighted-average cost of capital
that reflects the specific risk profile of the reporting unit being tested. The company’s methodologies for valuing goodwill are
applied consistently on a year-over-year basis; the assumptions used in performing the second quarter 2018 impairment calculations
were evaluated in light of then-current market and business conditions. Snap-on continues to believe that the future discounted
cash flow valuation model provides the most reasonable and meaningful fair value estimate based upon the reporting units’
projections of future operating results and cash flows and replicates how market participants would value the company’s reporting
units in an orderly transaction.
In the event the fair value of a reporting unit is less than the carrying value, including goodwill, the company would then record
an impairment charge based on the excess of a reporting units carrying amount over its fair value.
Snap-on also evaluates the recoverability of its indefinite-lived trademarks by utilizing an income approach that estimates the fair
value of the future discounted cash flows of each of its trademarks. The future projections, which are based on both past performance
and the projections and assumptions used in the company’s operating plans, are subject to change as a result of changing economic
and competitive conditions. Significant estimates used by management in the discounted cash flows methodology include estimates
of future cash flows based on expected growth and royalty rates, expected synergies, and a weighted-average cost of capital that
reflects the specific risk profile of the trademark being tested. The company’s methodologies for valuing trademarks are applied
consistently on a year-over-year basis; the assumptions used in performing the second quarter 2018 impairment calculations were
evaluated in light of then-current market and business conditions. Snap-on continues to believe that the future discounted cash
flow valuation model provides the most reasonable and meaningful fair value estimate based upon the trademarks’ projected future
cash flows and replicates how market participants would value the company’s trademarks in an orderly transaction.
52
SNAP-ON INCORPORATED
Inherent in fair value determinations are significant judgments and estimates, including material assumptions about future revenue,
profitability and cash flows, the company’s operational plans and its interpretation of current economic indicators. Should the
operations of the businesses with which goodwill or other indefinite-lived intangible assets are associated incur significant declines
in profitability and cash flow due to significant and long-term deterioration in macroeconomic, industry and market conditions,
the loss of key customers, changes in technology or markets, significant changes in key personnel or litigation, a significant and
sustained decrease in share price and/or other events, including effects from the sale or disposal of a reporting unit, some or all of
the recorded goodwill or other indefinite-lived intangible assets could be subject to impairment and could result in a material
adverse effect on Snap-on’s financial position or results of operations.
Snap-on completed its annual impairment testing of goodwill and other indefinite-lived intangible assets in the second quarter of
2018, which did not result in any impairment. As of 2018 year end, the company has no accumulated impairment losses. Although
the company consistently uses the same methods in developing the assumptions and estimates underlying the fair value calculations,
such estimates are uncertain by nature and can vary from actual results. In performing its annual impairment testing the company
performed a sensitivity analysis on the material assumptions used in the discounted cash flow valuation models for each of its 11
reporting units. Based on the company’s second quarter 2018 impairment testing and assuming a hypothetical 10% decrease in
the estimated fair values of each of its 11 reporting units, the hypothetical fair value of each of the company’s 11 reporting units
would have been greater than its carrying value. See Note 7 to the Consolidated Financial Statements for further information about
goodwill and other intangible assets.
Pension Benefits: The pension benefit obligation and related pension expense are calculated in accordance with GAAP and are
impacted by certain actuarial assumptions. Changes in these assumptions are primarily influenced by factors outside of Snap-on’s
control, such as changes in economic conditions, and can have a significant effect on the amounts reported in the financial statements.
Snap-on believes that the two most critical assumptions are (i) the expected return on plan assets; and (ii) the assumed discount
rate.
Snap-on’s domestic pension plans have a long-term investment horizon and a total return strategy that emphasizes a capital growth
objective. In 2018, the long-term investment performance objective for Snap-on’s domestic plans’ assets was to achieve net of
expense returns that met or exceeded the 7.45% domestic expected return on plan assets assumption. Snap-on uses a three-year,
market-related value asset method of amortizing the difference between actual and expected returns on its domestic plans’ assets.
As of 2018 year end, Snap-on’s domestic pension plans’ assets comprised approximately 86% of the company’s worldwide pension
plan assets.
Based on forward-looking capital market expectations, Snap-on selected an expected return on plan assets assumption for its U.S.
pension plans of 7.45%, the same as 2018, to be used in determining pension expense for 2019. In estimating the domestic expected
return on plan assets, Snap-on utilizes a nominal returns forecasting method. For each asset class, future returns are estimated by
identifying the premium of riskier asset classes over lower risk alternatives. The methodology constructs expected returns using
a “building block” approach to the individual components of total return. These forecasts are stated in both nominal and real (after
inflation) terms. This process first considers the long-term historical return premium based on the longest set of data available for
each asset class. These premiums, calculated using the geometric mean, are then adjusted based on current relative valuation levels,
macro-economic conditions, and the expected alpha related to active investment management. The asset return assumption is also
adjusted by an implicit expense load for estimated administrative and investment-related expenses. Since asset allocation is a key
determinant of expected investment returns, the current and expected mix of plan assets are also considered when setting the
assumption.
Pension expense increases as the expected rate of return on plan assets decreases. Lowering the expected rate of return assumption
for Snap-on’s domestic pension plans’ assets by 50 bps would have increased Snap-on’s 2018 domestic pension expense by
approximately $5.3 million.
The objective of Snap-on’s discount rate assumption is to reflect the rate at which the pension benefits could be effectively settled. In
making this determination, the company takes into account the timing and amount of benefits that would be available under the
plans. The domestic discount rate as of 2018 and 2017 year end was selected based on a cash flow matching methodology developed
by the company’s outside actuaries and which incorporates a review of current economic conditions. This methodology matches
the plans’ yearly projected cash flows for benefits and service costs to those of hypothetical bond portfolios using high-quality,
AA rated or better, corporate bonds from either Moody’s Investors Service or Standard & Poor’s credit rating agencies available
at the measurement date. This technique calculates bond portfolios that produce adequate cash flows to pay the plans’ projected
yearly benefits and then selects the portfolio with the highest yield and uses that yield as the recommended discount rate.
2018 ANNUAL REPORT
53
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
The selection of the 4.4% weighted-average discount rate for Snap-on’s domestic pension plans as of 2018 year end (compared
to 3.9% as of 2017 year end) represents the single rate that produces the same present value of cash flows as the estimated benefit
plan payments. Lowering Snap-on’s domestic discount rate assumption by 50 bps would have increased Snap-on’s 2018 domestic
pension expense and projected benefit obligation by approximately $3.7 million and $62.9 million, respectively. As of 2018 year
end, Snap-on’s domestic projected benefit obligation comprised approximately 83% of Snap-on’s worldwide projected benefit
obligation. The weighted-average discount rate for Snap-on’s foreign pension plans of 3.0% (compared to 2.7% as of 2017 year
end) represents the single rate that produces the same present value of cash flows as the estimated benefit plan payments. Lowering
Snap-on’s foreign discount rate assumption by 50 bps would have increased Snap-on’s 2018 foreign pension expense and projected
benefit obligation by approximately $1.9 million and $21.0 million, respectively.
Actuarial gains and losses in excess of 10 percent of the greater of the projected benefit obligation or market-related value of assets
are amortized on a straight-line basis over the average remaining service period of active participants or over the average remaining
life expectancy for plans with primarily inactive participants. Prior service costs and credits resulting from plan amendments are
amortized in equal annual amounts over the average remaining service period of active participants or over the average remaining
life expectancy for plans with primarily inactive participants.
To determine the 2019 net periodic benefit cost, Snap-on is using weighted-average discount rates for its domestic and foreign
pension plans of 4.4% and 3.0%, respectively, and an expected return on plan assets for its domestic pension plans of 7.45%. The
expected returns on plan assets for foreign pension plans ranged from 2.0% and 6.1% as of 2018 year end. The net change in these
two key assumptions from those used in 2018 is expected to decrease pension expense in 2019. Other factors, such as changes in
plan demographics and discretionary contributions, may further increase or decrease pension expense in 2019. See Note 12 to the
Consolidated Financial Statements for further information on pension plans.
Allowance for Doubtful Accounts on Finance Receivables: The allowance for doubtful accounts on finance receivables is maintained
at a level management believes is adequate to cover probable losses inherent in Snap-on’s finance receivables portfolio as of the
measurement date. The allowance represents management’s estimate of the losses inherent in the company’s receivables portfolio
based on ongoing assessments and evaluations of collectability and historical loss experience. Determination of the proper level
of the allowance requires management to exercise judgment about the timing, frequency and severity of credit losses that could
materially affect the provision for credit losses and, as a result, net earnings. The allowance takes into consideration numerous
quantitative and qualitative factors that include receivable type, historical loss experience, loss migration, delinquency trends,
collection experience, current economic conditions and credit risk characteristics. Some of these factors are influenced by items
such as the customers’ financial condition, debt-servicing ability, past payment experience, and credit bureau and proprietary
Snap on credit model information, as well as the value of the underlying collateral. Changes in economic conditions and
assumptions, including the resulting credit quality metrics relative to the performance of the finance receivable portfolio create
uncertainty and could result in a change to both the allowance for doubtful accounts and provision for credit losses.
Management utilizes established policies and procedures in an effort to ensure the estimates and assumptions are well controlled,
reviewed and consistently applied. As of December 29, 2018, the ratio of the allowance for doubtful accounts for finance receivables
was 3.71%. As of December 30, 2017, the allowance ratio was 3.53%. While management believes it exercises prudent judgment
and applies reasonable assumptions in establishing its estimate for the allowance for finance receivables, there can be no assurance
that changes in economic conditions or other factors would not adversely impact the financial health of our customers and result
in changes to the estimates used in the allowance calculation. For reference, a 100 bps increase in the allowance ratio for finance
receivables as of December 29, 2018, would have increased Snap-on’s 2018 provision expense and related allowance for doubtful
accounts by approximately $16.5 million.
For additional information on Snap-on’s allowances for doubtful accounts, see Note 1 and Note 4 to the Consolidated Financial
Statements.
Outlook
Snap-on expects to make continued progress in 2019 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, Snap-on expects that capital expenditures in 2019 will be in a
range of $90 million to $100 million.
Snap-on currently anticipates that its full year 2019 effective income tax rate will be comparable to its full year 2018 effective tax
rate of 24.0%.
54
SNAP-ON INCORPORATED
Item 7A: Quantitative and Qualitative Disclosures About Market Risk
Market, Credit and Economic Risks
Market risk is the potential economic loss that may result from adverse changes in the fair value of financial instruments. Snap on
is exposed to market risk from changes in interest rates and foreign currency exchange rates. Snap-on is also exposed to market
risk associated with the stock-based portion of its deferred compensation plans. Snap-on monitors its exposure to these risks and
attempts to manage the underlying economic exposures through the use of financial instruments such as foreign currency forward
contracts, interest rate swap agreements, treasury lock agreements and prepaid equity forward agreements (“equity forwards”).
Snap-on does not use derivative instruments for speculative or trading purposes. Snap-on’s broad-based business activities help
to reduce the impact that volatility in any particular area or related areas may have on its operating earnings as a whole. Snap-on’s
management takes an active role in the risk management process and has developed policies and procedures that require specific
administrative and business functions to assist in the identification, assessment and control of various risks.
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. See Note 11 to the Consolidated Financial Statements for information on foreign currency risk management.
Interest Rate Risk Management
Snap-on aims to control funding costs by managing the exposure created by the differing maturities and interest rate structures of
Snap-on’s borrowings through the use of interest rate swap agreements. Treasury lock agreements are used from time to time to
manage the potential change in interest rates in anticipation of the possible issuance of fixed rate debt. See Note 11 to the
Consolidated Financial Statements for information on interest rate risk management.
Snap-on utilizes a Value-at-Risk (“VAR”) model to determine the potential one-day loss in the fair value of its interest rate and
foreign exchange-sensitive financial instruments from adverse changes in market factors. The VAR model estimates were made
assuming normal market conditions and a 95% confidence level. Snap-on’s computations are based on the inter-relationships
among movements in various currencies and interest rates (variance/co-variance technique). These inter-relationships were
determined by observing interest rate and foreign currency market changes over the preceding quarter.
The estimated maximum potential one-day loss in fair value, calculated using the VAR model, as of 2018 and 2017 year end was
$7.7 million and $1.5 million, respectively, on interest rate-sensitive financial instruments, and zero and $0.1 million, respectively,
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.
Stock-based Deferred Compensation Risk Management
Snap-on aims to manage market risk associated with the stock-based portion of its deferred compensation plans through the use
of 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 compensation expense that may result from such mark-to-market changes. See Note 11 to the Consolidated Financial
Statements for additional information on stock-based deferred compensation risk management.
Credit Risk
Credit risk is the possibility of loss from a customer’s failure to make payments according to contract terms. Prior to extending
credit, each customer is evaluated, taking into consideration various factors, including the customer’s financial condition, debt-
servicing ability, past payment experience, credit bureau information, and other financial and qualitative factors that may affect
the customer’s ability to repay, as well as the value of the underlying collateral. Financial receivable credit risk is also monitored
regularly through the use of internal proprietary custom scoring models to evaluate each transaction at the time of the application
for credit. Snap-on evaluates credit quality through the use of an internal proprietary measuring system that provides a framework
to analyze finance receivables on the basis of risk factors of the individual obligor as well as transaction specific risk. The finance
receivables are typically monitored through an asset quality review process that closely monitors past due accounts and initiates
a progressive collection action process when appropriate.
2018 ANNUAL REPORT
55
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.
Economic Risk
Economic risk is the possibility of loss resulting from economic instability in certain areas of the world. Snap-on continually
monitors its exposure in these markets; for example, the company is monitoring the potential effects of the United Kingdom’s
pending exit from the European Union, although it is too soon to know what effects this might have on the world economy or the
company. Inflation has not had a significant impact on the company.
As a result of the above market, credit and economic risks, net earnings and revenues in any particular period may not be
representative of full-year results and may vary significantly from year to year.
Commodity Risk
Snap-on is a purchaser of certain commodities such as steel, natural gas and electricity. The company is also a purchaser
of components and parts that are integrated into the company’s end products, as well as the purchaser of certain finished goods,
all of which may contain various commodities including steel, aluminum, nickel, copper and others. Snap-on’s supply of raw
materials and purchased components are generally and readily available from numerous suppliers.
The principal raw material used in the manufacture of the company’s products is steel, which the company purchases in competitive,
price-sensitive markets. To meet Snap-on’s high quality standards, the company’s steel needs range from specialized alloys, which
are available only from a limited group of approved suppliers, to common alloys, which are available from multiple suppliers.
These raw materials have historically exhibited price and demand cyclicality. Some of these materials have been, and in the future
may be, in short supply, particularly in the event of mill shutdowns or production cut backs. As some steel alloys require specialized
manufacturing procedures, Snap-on could experience inventory shortages if it were required to use an alternative manufacturer
on short notice. Additionally, price increases for raw materials, including as a result of tariffs and other trade protection measures
put in place by the United States or other countries, such as those the company experienced in fiscal 2018 and expects to continue
to experience in fiscal 2019, could result in higher prices to Snap-on’s customers or an erosion of the margins on its products.
Snap-on believes its ability to sell product is also dependent on the number of vehicles on the road, the number of miles driven
and the general aging of vehicles. These factors affect the frequency, type and amount of service and repair performed on vehicles
by technicians, and therefore affect the demand for the number of technicians, the prosperity of the technicians and, consequently,
the demand technicians have for the company’s tools, other products and services, and the value technicians place on those products
and services. The use of other methods of transportation, including more frequent use of public transportation, could result in a
decrease in the use of privately operated vehicles. A decrease in the use of privately operated vehicles may lead to fewer repairs
and less demand for the company’s products.
To the extent that commodity prices increase and the company does not have firm pricing agreements with its suppliers, the
company may experience margin declines to the extent that it is not able to increase the selling prices of its products.
Item 8: Financial Statements and Supplementary Data
The financial statements and schedules are listed in Part IV, Item 15(a) and are incorporated by reference into this Item 8.
Item 9: Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
56
SNAP-ON INCORPORATED
Item 9A: 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 December 29, 2018. 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 December 29, 2018, 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
During the quarter ended December 29, 2018, the company implemented a plan that calls for modifications and additions to internal
control over financial reporting related to the accounting for leases as a result of the new lease standard, ASC 842. The modified
and new controls have been designed to address risks associated with gathering the lease information for recognizing a “right-of-
use” asset and the related liability required by the new standard. The company has added additional controls over financial reporting
by implementing a company-wide lease system to gather lessee information required for financial statement presentation, as well
as to provide for the additional disclosure information required by the new standard. There were no other changes in internal
controls during the quarter ended December 29, 2018, that have materially affected, or are 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)).
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended). Under the supervision and
with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the
effectiveness of our internal control over financial reporting based on the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013). Based on this assessment, the
company’s management believes that, as of December 29, 2018, our internal control over financial reporting was effective at a
reasonable assurance level. The company’s internal control over financial reporting as of December 29, 2018, has been audited
by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in its attestation report, which is included
herein.
Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our internal control over
financial reporting will prevent all error or fraud. Because of inherent limitations, a system of internal control over financial
reporting can provide only reasonable assurance and may not prevent or detect misstatements. Further, because of changes in
conditions, the effectiveness of internal control over financial reporting may vary over time.
2018 ANNUAL REPORT
57
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Snap-on Incorporated:
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Snap-on Incorporated and subsidiaries (the “Company”) as of
December 29, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 29, 2018, based on criteria established in Internal
Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated financial statements as of and for the year ended December 29, 2018, of the Company and our report
dated February 14, 2019, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
February 14, 2019
58
SNAP-ON INCORPORATED
Item 9B: Other Information
None.
PART III
Item 10: Directors, Executive Officers and Corporate Governance
Incorporated by reference to sections entitled “Item 1: Election of Directors,” “Corporate Governance Practices and Board
Information” and “Other Information” in Snap-on’s 2019 Annual Meeting Proxy Statement, which is expected to be mailed to
shareholders on or about March 11, 2019 (the “2019 Proxy Statement”).
The Section 16(a) filing compliance disclosure pursuant to Item 405 of Regulation S-K is contained in Snap-on’s 2019 Proxy
Statement in the section entitled “Other Information – Section 16(a) Beneficial Ownership Reporting Compliance,” and is
incorporated herein by reference.
Information regarding Snap-on’s executive officers, including their ages, business experience (for at least the last five years) and
titles as of December 29, 2018, is presented below:
Nicholas T. Pinchuk (72) – Chairman of the Board of Directors since 2009, President and Chief Executive Officer since December
2007, and President and Chief Operating Officer during 2007. Senior Vice President and President – Worldwide Commercial &
Industrial Group from 2002 to 2007. Prior to joining Snap-on, Mr. Pinchuk held various positions, including President of Global
Refrigeration Operations and President of Asia Pacific Operations, at Carrier Corporation, a producer of air conditioning, heating
and refrigeration systems, and a subsidiary of United Technologies Corporation. Mr. Pinchuk serves on the board of directors of
Columbus McKinnon Corporation.
Aldo J. Pagliari (64) – Senior Vice President – Finance and Chief Financial Officer since 2010.
Anup R. Banerjee (68) – Senior Vice President, Human Resources and Chief Development Officer since 2015, and President,
Commercial Group from 2011 to 2015.
Iain Boyd (56) – Vice President, Operations Development since 2015. Vice President – Human Resources from 2007 to 2015.
Thomas L. Kassouf (66) – Senior Vice President and President – Snap-on Tools Group since 2010.
June C. Lemerand (56) – Vice President and Chief Information Officer since 2017. Vice President of Information Technology
Services from 2015 to 2017, and Senior Director, Information Technology Sales and Marketing Applications from 2005 to 2015.
Richard T. Miller (48) – Vice President, General Counsel and Secretary since July 2018. Associate General Counsel from 2012
to 2018.
Richard K. Strege (61) – Vice President and Controller since 2017. Vice President, Internal Audit, Controls and Compliance from
2007 to 2017.
Thomas J. Ward (66) – Senior Vice President and President – Repair Systems & Information Group since 2010.
There is no family relationship among the executive officers and there has been no involvement in legal proceedings during the
past ten years that would be material to the evaluation of the ability or integrity of any of the executive officers. Executive officers
may either be elected by the Board or may be appointed by the Chief Executive Officer at the regular meeting of the Board that
follows the Annual Shareholders’ Meeting, which is ordinarily held in April each year, or at such other times as new positions are
created or vacancies must be filled.
Code of Ethics and Website Disclosure
Snap-on has adopted a written code of ethics that applies to its Chief Executive Officer, Chief Financial Officer, Vice President
and Controller, and all other financial officers and executives performing similar functions. Snap-on has posted a copy of the code
of ethics in the Investors/Corporate Governance section on the company’s website at www.snapon.com. Snap-on will also post
any amendments to these documents, or information about any waivers granted to directors or executive officers with respect to
the Code of Business Conduct and Ethics, on the company’s website at www.snapon.com.
Snap-on intends to satisfy the disclosure requirements under Item 10 of Form 8-K regarding amendments to, or waivers from, the
code of ethics by posting such information in the “Investors” section of its corporate website at www.snapon.com.
2018 ANNUAL REPORT
59
Item 11: Executive Compensation
The information required by Item 11 is contained in Snap-on’s 2019 Proxy Statement in the sections entitled “Executive
Compensation,” “Board Compensation,” “Compensation Committee Report,” and “Other Information” and is incorporated herein
by reference.
Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth information about Snap-on’s equity compensation plans at 2018 year end:
Plan category
Equity compensation plans approved by
security holders
Equity compensation plans not approved by
security holders
Total
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding securities
reflected in column (a))
(c)
3,539,442 (1)
$ 129.68 (2)
3,561,642 (3)
70,657 (4)
3,610,099
Not Applicable
$ 129.68 (2)
– (5)
3,561,642 (5)
(1)
Includes (i) options to acquire 306,839 shares granted under the 2001 Incentive Stock and Awards Plan (the “2001 Plan”); (ii) options and stock appreciation
rights to acquire 3,195,879 shares granted under the 2011 Incentive Stock and Awards Plan (the “2011 Plan,” and collectively with the 2001 Plan, the
“Incentive Plans”); and (iii) 36,724 shares represented by deferred share units under the Directors’ Fee Plan. Excludes 50,528 shares issuable in connection
with the vesting of restricted stock units and restricted stock under the 2001 Plan, and 170,673 shares issuable in connection with the vesting of performance
share awards, restricted stock units and restricted stock under the 2011 Plan. Also excludes shares of common stock that may be issuable under the employee
and franchisee stock purchase plans.
(2) Reflects only the weighted-average exercise price of outstanding stock options and stock appreciation rights granted under the Incentive Plans and does
not include shares represented by deferred share units under the Directors’ Fee Plan and shares issuable in connection with the vesting of restricted stock
units or performance units under the Incentive Plans for which there are no exercise prices. Also excludes shares of common stock that may be issuable
under the employee and franchisee stock purchase plans.
Includes (i) 2,654,112 shares reserved for issuance under the 2011 Plan; (ii) 176,724 shares reserved for issuance under the Directors’ Fee Plan; and (iii)
730,806 shares reserved for issuance under the employee stock purchase plan.
(3)
(4) Consists of deferred share units under Snap-on’s Deferred Compensation Plan, which allows elected and appointed officers of Snap-on to defer all or a
percentage of their respective annual salary and/or incentive compensation. The deferred share units are payable in shares of Snap-on common stock on
a one-for-one basis and are calculated at fair market value. Shares of common stock delivered under the Deferred Compensation Plan are previously
issued shares reacquired and held by Snap-on.
(5) The Deferred Compensation Plan provides that Snap-on will make available, as and when required, a sufficient number of shares of common stock to
meet the needs of the plan. It further provides that such shares shall be previously issued shares reacquired and held by Snap-on.
The additional information required by Item 12 is contained in Snap-on’s 2019 Proxy Statement in the sections entitled “Executive
Compensation,” “Security Ownership of Certain Beneficial Owners and Management,” and “Other Information,” and is
incorporated herein by reference.
Item 13: Certain Relationships and Related Transactions, and Director Independence
Incorporated by reference to the sections entitled “Corporate Governance Practices and Board Information – Board Information”
and “Other Information – Transactions with the Company” in Snap-on’s 2019 Proxy Statement.
Item 14: Principal Accounting Fees and Services
Incorporated by reference to the section entitled “Deloitte & Touche LLP Fee Disclosure” in Snap-on’s 2019 Proxy Statement.
60
SNAP-ON INCORPORATED
PART IV
Item 15: Exhibits, Financial Statement Schedules
Item 15(a): Documents Filed as Part of This Report:
1. List of Financial Statements
Unless otherwise indicated, references to “fiscal 2018” or “2018” refer to the fiscal year ended December 29, 2018; references to
“fiscal 2017” or “2017” refer to the fiscal year ended December 30, 2017; and references to “fiscal 2016” or “2016” refer to the
fiscal year ended December 31, 2016. References to 2018, 2017 and 2016 year end refer to December 29, 2018, December 30,
2017, and December 31, 2016, respectively.
The following consolidated financial statements of Snap-on and the Report of Independent Registered Public Accounting Firm
thereon, are filed as part of this report:
• Report of Independent Registered Public Accounting Firm.
• Consolidated Statements of Earnings for the 2018, 2017 and 2016 fiscal years.
• Consolidated Statements of Comprehensive Income for the 2018, 2017 and 2016 fiscal years.
• Consolidated Balance Sheets as of 2018 and 2017 year end.
• Consolidated Statements of Equity for the 2018, 2017 and 2016 fiscal years.
• Consolidated Statements of Cash Flows for the 2018, 2017 and 2016 fiscal years.
• Notes to Consolidated Financial Statements.
2. Financial Statement Schedules
All schedules are omitted because they are not applicable, or the required information is included in the consolidated financial
statements or notes thereto.
3. List of Exhibits(*)
(3)
(a)
Restated Certificate of Incorporation of Snap-on Incorporated, as amended through April 25, 2013
(incorporated by reference to Exhibit 3.1 to Snap-on’s Quarterly Report on Form 10-Q for the quarterly
period ended September 28, 2013 (Commission File No. 1-7724))
(b)
Bylaws of Snap-on Incorporated, as amended and restated as of April 26, 2018 (incorporated by reference
to Exhibit 3.1 to Snap-on’s Current Report on Form 8-K dated April 26, 2018 (Commission File No.
1-7724))
(4)
(a)
Indenture, dated as of January 8, 2007, between Snap-on Incorporated and U.S. Bank National Association
as trustee (incorporated by reference to Exhibit (4)(b) to Form S-3 Registration Statement (Registration
No. 333-139863))
(b)
(c)
(d)
Officer’s Certificate, dated as of August 14, 2009, providing for the $250,000,000 6.125% Notes due 2021
(incorporated by reference to Exhibit 4.1 to Snap-on’s Current Report on Form 8-K dated August 11, 2009
(Commission File No. 1-7724))
Officer’s Certificate, dated as of February 21, 2017, providing for the $300,000,000 3.25% Notes due 2027
(incorporated by reference to Exhibit 4.2 to Snap-on’s Current Report on Form 8-K dated February 15,
2017 (Commission File No. 1-7724))
Officer's Certificate, dated as of February 26, 2018, providing for the $400,000,000 4.10% Notes due 2048
(incorporated by reference to Exhibit 4.2 to Snap on's Current Report on Form 8 K dated February 20,
2018 (Commission File No. 1-7724))
2018 ANNUAL REPORT
61
Except for the foregoing, Snap-on and its subsidiaries have no unregistered long-term debt agreement for which the related
outstanding debt exceeds 10% of consolidated total assets as of December 29, 2018. Copies of debt instruments for which the
related debt is less than 10% of consolidated total assets will be furnished to the Commission upon request.
(10)
Material Contracts
(a)
(b)
(c)
Amended and Restated Snap-on Incorporated 2001 Incentive Stock and Awards Plan (Amended and
Restated as of April 27, 2006, as further amended on August 6, 2009) (incorporated by reference to Exhibit
10.1 to Snap-on’s Quarterly Report on Form 10-Q for the quarterly period ended October 3, 2009
(Commission File No. 1-7724))** (superseded except as to outstanding awards)
Snap-on Incorporated 2011 Incentive Stock and Awards Plan (As Amended and Restated) (incorporated
by reference to Exhibit 10(b) to Snap-on’s Annual Report on Form 10-K for the fiscal year ended December
30, 2017 (Commission File No. 1-7724))**
Form of Restated Executive Agreement between Snap-on Incorporated and each of its executive officers**
(incorporated by reference to Exhibit 10(c) to Snap-on’s Annual Report on Form 10-K for the fiscal year
ended December 30, 2017 (Commission File No. 1-7724))**
(d)(1)
Form of Indemnification Agreement between Snap-on Incorporated and certain executive officers
(incorporated by reference to Exhibit 10.1 to Snap-on’s Annual Report on Form 10-K for the fiscal year
ended January 1, 2011 (Commission File No. 1-7724))**
(d)(2)
Form of Indemnification Agreement between Snap-on Incorporated and directors (incorporated by
reference to Exhibit 10.1 to Snap-on’s Annual Report on Form 10-K for the fiscal year ended January 1,
2011 (Commission File No. 1-7724))**
(e)(1)
Amended and Restated Snap-on Incorporated Directors’ 1993 Fee Plan (as amended through August 5,
2010) (incorporated by reference to Exhibit 10.1 to Snap-on’s Quarterly Report on Form 10-Q for the
quarterly period ended October 2, 2010 (Commission File No. 1-7724))**
(e)(2)
Amendment to Amended and Restated Snap-on Incorporated Directors’ 1993 Fee Plan (incorporated by
reference to Exhibit 10(e)(2) to Snap-on’s Annual Report on Form 10-K for the fiscal year ended December
28, 2013 (Commission File No. 1-7724))**
(f)(1)
Snap-on Incorporated Deferred Compensation Plan (as amended and restated as of September 1, 2011)
(incorporated by reference to Exhibit 10(g) to Snap-on’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2011 (Commission File No. 1-7724))**
(f)(2)
Amendment to Snap-on Incorporated Deferred Compensation Plan (incorporated by reference to Exhibit
10(f)(2) to Snap-on’s Annual Report on Form 10-K for the fiscal year ended December 28, 2013
(Commission File No. 1-7724))**
(g)
(h)
(i)
Snap-on Incorporated Supplemental Retirement Plan for Officers (as amended through June 11, 2010)
(incorporated by reference to Exhibit 10.2 to Snap-on’s Quarterly Report on Form 10-Q for the quarterly
period ended July 3, 2010 (Commission File No. 1-7724))**
Form of Non-Qualified Stock Option Agreement under the 2001 Incentive Stock and Awards Plan (and
accompanying Non-Qualified Stock Option Grant Offer Letter) (incorporated by reference to Exhibit 10.1
to Snap-on’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2007 (Commission
File No. 1-7724))** (superseded except as to outstanding awards)
Form of Restricted Stock Unit Agreement for Directors under the 2001 Incentive Stock and Awards Plan
(and accompanying Restricted Stock Unit Offer Letter) (incorporated by reference to Exhibit 10.2 to Snap-
on’s Quarterly Report on Form 10-Q for the quarterly period ended October 3, 2009 (Commission File
No. 1-7724))** (superseded except as to outstanding awards)
62
SNAP-ON INCORPORATED
(j)
(k)
(l)
Form of Non-Qualified Stock Option Agreement under the 2011 Incentive Stock and Awards Plan (and
accompanying Non-Qualified Stock Option Grant Offer Letter) (incorporated by reference to Exhibit 10.1
to Snap-on’s Quarterly Report on Form 10-Q for the quarterly period ended October 1, 2011 (Commission
File No. 1-7724))**
Form of Performance Share Unit Award Agreement under the 2011 Incentive Stock and Awards Plan
(incorporated by reference to Exhibit 10.1 to Snap-on’s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2012 (Commission File No. 1-7724))**
Form of Restricted Unit Award Agreement for Executive Officers under the 2011 Incentive Stock and
Awards Plan (incorporated by reference to Exhibit 10.1 to Snap-on’s Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 2012 (Commission File No. 1-7724))**
(m)
Form of Restricted Unit Award Agreement for Directors under the 2011 Incentive Stock and Awards Plan
(incorporated by reference to Exhibit 10.1 to Snap-on’s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2012 (Commission File No. 1-7724))**
(n)
(o)
(p)
(q)
Form of Restricted Stock Award Agreement for Directors under the 2011 Incentive Stock and Awards Plan
(incorporated by reference to Exhibit 10.1 to Snap-on’s Quarterly Report on Form 10-Q for the quarterly
period ended March 30, 2013 (Commission File No. 1-7724))**
Second Amended and Restated Five Year Credit Agreement, dated as of December 15, 2015, among Snap-
on Incorporated and the lenders and agents listed on the signature pages thereof, and J.P. Morgan Securities
LLC, Citigroup Global Markets Inc. and U.S. Bank National Association as joint lead arrangers and joint
bookrunners (incorporated by reference to Exhibit 10.1 to Snap-on’s Current Report on Form 8-K dated
December 15, 2015 (Commission File No. 1-7724))
Underwriting Agreement, dated as of February 15, 2017, among Snap-on Incorporated, Citigroup Global
Markets Inc. and J.P. Morgan Securities LLC, as representatives of the several underwriters named therein.
(incorporated by reference to Exhibit 1.1 to Snap-on’s Current Report on Form 8-K dated February 15,
2017 (Commission File No. 1-7724))
Underwriting Agreement, dated as of February 20, 2018, among Snap-on Incorporated, Citigroup Global
Markets Inc., J.P. Morgan Securities LLC and U.S. Bancorp Investments, Inc., as representatives of the
several underwriters named therein. (incorporated by reference to Exhibit 1.1 to Snap-on’s Current Report
on Form 8-K dated February 20, 2018 (Commission File No. 1-7724)
Snap-on Incorporated Section 406 of the Sarbanes-Oxley Act Code of Ethics (incorporated by reference to Exhibit
10(aa) to Snap-on’s Annual Report on Form 10-K for the fiscal year ended January 3, 2004 (Commission File No.
1-7724))
Subsidiaries of the Corporation
Consent of Independent Registered Public Accounting Firm
(14)
(21)
(23)
(31.1)
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(31.2)
Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(32.1)
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
2018 ANNUAL REPORT
63
(32.2)
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
(101.INS)
XBRL Instance Document***
(101.SCH) XBRL Taxonomy Extension Schema Document***
(101.CAL) XBRL Taxonomy Extension Calculation Linkbase Document***
(101.DEF) XBRL Taxonomy Extension Definition Linkbase Document***
(101.LAB) XBRL Taxonomy Extension Label Linkbase Document***
(101.PRE) XBRL Taxonomy Extension Presentation Linkbase Document***
*
Filed electronically or incorporated by reference as an exhibit to this Annual Report on Form 10-K. Copies of any materials the company files with the
SEC can also be obtained free of charge through the SEC’s website at www.sec.gov.
**
Represents a management compensatory plan or agreement.
***
Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated
Statements of Earnings for the twelve months ended December 29, 2018, December 30, 2017, and December 31, 2016; (ii) Consolidated Statements of
Comprehensive Income for the twelve months ended December 29, 2018, December 30, 2017, and December 31, 2016; (iii) Consolidated Balance Sheets
as of December 29, 2018, and December 30, 2017; (iv) Consolidated Statements of Equity for the twelve months ended December 29, 2018, December 30,
2017, and December 31, 2016; (v) Consolidated Statements of Cash Flows for the twelve months ended December 29, 2018, December 30, 2017, and
December 31, 2016; and (vi) Notes to Consolidated Financial Statements.
Item 16: Form 10-K Summary
None.
64
SNAP-ON INCORPORATED
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders and of Snap-on Incorporated:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Snap-on Incorporated and subsidiaries (the “Company”) as of
December 29, 2018, and December 30, 2017, and the related consolidated statements of earnings, comprehensive income, equity,
and cash flows for each of the three years in the period ended December 29, 2018, and the related notes (collectively referred to
as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position
of the Company as of December 29, 2018, and December 30, 2017, and the results of its operations and its cash flows for each of
the three years in the period ended December 29, 2018, in conformity with accounting principles generally accepted in the United
States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the Company’s internal control over financial reporting as of December 29, 2018, based on criteria established in
Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 14, 2019, expressed an unqualified opinion on the Company’s internal control over
financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
February 14, 2019
We have served as the Company’s auditor since 2002.
2018 ANNUAL REPORT
65
Snap-on Incorporated – Consolidated Statements of Earnings
(Amounts in millions, except per share data)
Net sales
Cost of goods sold
Gross profit
Operating expenses
Operating earnings before financial services
Financial services revenue
Financial services expenses
Operating earnings from financial services
Operating earnings
Interest expense
Other income (expense) – net
Earnings before income taxes and equity earnings
Income tax expense
Earnings before equity earnings
Equity earnings, net of tax
Net earnings
Net earnings attributable to noncontrolling interests
Net earnings attributable to Snap-on Incorporated
Net earnings per share attributable to Snap-on Incorporated:
Basic
Diluted
Weighted-average shares outstanding:
Basic
Effect of dilutive securities
Diluted
$
$
$
2018
2017
2016
$
3,740.7
(1,870.7)
1,870.0
(1,144.0)
726.0
$
3,686.9
(1,861.0)
1,825.9
(1,161.3)
664.6
3,430.4
(1,720.0)
1,710.4
(1,048.0)
662.4
329.7
(99.6)
230.1
956.1
(50.4)
4.2
909.9
(214.4)
695.5
0.7
696.2
(16.3)
679.9
12.08
11.87
56.3
1.0
57.3
$
$
313.4
(95.9)
217.5
882.1
(52.4)
(7.8)
821.9
(250.9)
571.0
1.2
572.2
(14.5)
557.7
9.72
9.52
57.4
1.2
58.6
$
$
281.4
(82.7)
198.7
861.1
(52.2)
(7.5)
801.4
(244.3)
557.1
2.5
559.6
(13.2)
546.4
9.40
9.20
58.1
1.3
59.4
See Notes to Consolidated Financial Statements.
66
SNAP-ON INCORPORATED
Snap-on Incorporated – Consolidated Statements of Comprehensive Income
(Amounts in millions)
Comprehensive income (loss):
Net earnings
Other comprehensive income (loss):
Foreign currency translation*
Unrealized cash flow hedges, net of tax:
Other comprehensive income (loss) before
reclassifications
Reclassification of cash flow hedges to net earnings
Defined benefit pension and postretirement plans:
Net prior service costs and credits and unrecognized
(loss) gain
Income tax (expense) benefit
Net of tax
Amortization of net prior service costs and credits and
unrecognized loss included in net periodic benefit cost
Income tax benefit
Net of tax
Total comprehensive income
2018
2017
2016
$
696.2
$
572.2
$
559.6
(95.4)
135.2
(99.2)
(0.8)
(1.5)
(79.0)
20.0
(59.0)
31.1
(7.6)
23.5
563.0
6.9
(1.6)
15.9
(4.1)
11.8
26.6
(9.4)
17.2
741.7
8.8
(0.3)
(93.3)
30.7
(62.6)
30.1
(11.1)
19.0
425.3
(13.2)
412.1
Comprehensive income attributable to noncontrolling interests
Comprehensive income attributable to Snap-on Incorporated
$
(16.3)
546.7
$
(14.5)
727.2
$
* There is no reclassification adjustment as there was no sale or liquidation of any foreign entity during any period presented.
See Notes to Consolidated Financial Statements.
2018 ANNUAL REPORT
67
Snap-on Incorporated – Consolidated Balance Sheets
(Amounts in millions, except share data)
ASSETS
Current assets:
Cash and cash equivalents
Trade and other accounts receivable – net
Finance receivables – net
Contract receivables – net
Inventories – net
Prepaid expenses and other assets
Total current assets
Property and equipment – net
Deferred income tax assets
Long-term finance receivables – net
Long-term contract receivables – net
Goodwill
Other intangibles – net
Other assets
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Notes payable and current maturities of long-term debt
Accounts payable
Accrued benefits
Accrued compensation
Franchisee deposits
Other accrued liabilities
Total current liabilities
Long-term debt
Deferred income tax liabilities
Retiree health care benefits
Pension liabilities
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 16)
Equity
Shareholders’ equity attributable to Snap-on Incorporated:
Preferred stock (authorized 15,000,000 shares of $1 par value; none outstanding)
Common stock (authorized 250,000,000 shares of $1 par value; issued 67,415,091
and 67,407,704 shares, respectively)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock at cost (11,804,310 and 10,717,455 shares, respectively)
Total shareholders’ equity attributable to Snap-on Incorporated
Noncontrolling interests
Total equity
Total liabilities and equity
See Notes to Consolidated Financial Statements.
68
SNAP-ON INCORPORATED
Fiscal Year End
2018
2017
$
$
$
$
$
$
$
140.9
692.6
518.5
98.3
673.8
92.8
2,216.9
495.1
64.7
1,074.4
344.9
902.2
232.9
42.0
5,373.1
186.3
201.1
52.0
71.5
67.5
373.6
952.0
946.0
41.4
31.8
171.3
112.0
2,254.5
—
67.4
359.4
4,257.6
(462.2)
(1,123.4)
3,098.8
19.8
3,118.6
5,373.1
$
92.0
675.6
505.4
96.8
638.8
110.7
2,119.3
484.4
52.0
1,039.2
322.6
924.1
253.7
53.8
5,249.1
433.2
178.2
55.8
71.5
66.5
388.1
1,193.3
753.6
28.4
36.0
158.9
106.6
2,276.8
—
67.4
343.2
3,772.3
(329.0)
(900.0)
2,953.9
18.4
2,972.3
5,249.1
Snap-on Incorporated – Consolidated Statements of Equity
(Amounts in millions, except share
data)
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Noncontrolling
Interests
Total
Equity
Shareholders’ Equity Attributable to Snap-on Incorporated
Balance at January 2, 2016
$
67.4
$
296.3
$
2,986.9
$
(364.2) $
(573.7) $
Net earnings for 2016
Other comprehensive loss
Cash dividends – $2.54 per share
Stock compensation plans
Share repurchases – 758,000
shares
Other
—
—
—
—
—
—
—
—
—
21.0
—
—
Balance at December 31, 2016
67.4
317.3
Net earnings for 2017
Other comprehensive income
Cash dividends – $2.95 per share
Stock compensation plans
Share repurchases – 1,820,000
shares
Other
—
—
—
—
—
—
—
—
—
25.9
—
—
Balance at December 30, 2017
67.4
343.2
Net earnings for 2018
Other comprehensive loss
Cash dividends – $3.41 per share
Stock compensation plans
Share repurchases – 1,769,000
shares
Other
—
—
—
—
—
—
—
—
—
16.2
—
—
546.4
—
(147.5)
—
—
(0.9)
3,384.9
557.7
—
(169.4)
—
—
(0.9)
3,772.3
679.9
—
(192.0)
—
—
(2.6)
—
(134.3)
—
—
—
—
—
—
—
40.2
(120.4)
—
(498.5)
(653.9)
—
169.5
—
—
—
—
—
—
—
41.8
(287.9)
—
(329.0)
(900.0)
—
(133.2)
—
—
—
—
—
—
—
60.7
(284.1)
—
18.0
13.2
—
—
—
—
(13.2)
18.0
14.5
—
—
—
—
(14.1)
18.4
16.3
—
—
—
—
(14.9)
$
2,430.7
559.6
(134.3)
(147.5)
61.2
(120.4)
(14.1)
2,635.2
572.2
169.5
(169.4)
67.7
(287.9)
(15.0)
2,972.3
696.2
(133.2)
(192.0)
76.9
(284.1)
(17.5)
Balance at December 29, 2018
$
67.4
$
359.4
$
4,257.6
$
(462.2) $ (1,123.4) $
19.8
$
3,118.6
See Notes to Consolidated Financial Statements.
2018 ANNUAL REPORT
69
Snap-on Incorporated – Consolidated Statements of Cash Flows
(Amounts in millions)
Operating activities:
Net earnings
Adjustments to reconcile net earnings to net cash provided (used) by operating
activities:
2018
2017
2016
$
696.2
$
572.2
$
559.6
Depreciation
Amortization of other intangibles
Provision for losses on finance receivables
Provision for losses on non-finance receivables
Stock-based compensation expense
Deferred income tax provision
Loss (gain) on sales of assets
Settlement of treasury lock
Loss on early extinguishment of debt
Changes in operating assets and liabilities, net of effects of acquisitions:
Increase in trade and other accounts receivable
Increase in contract receivables
Increase in inventories
(Increase) decrease in prepaid and other assets
Increase (decrease) in accounts payable
Increase (decrease) in accruals and other liabilities
Net cash provided by operating activities
Investing activities:
Additions to finance receivables
Collections of finance receivables
Capital expenditures
Acquisitions of businesses, net of cash acquired
Disposals of property and equipment
Other
Net cash used by investing activities
Financing activities:
Proceeds from issuance of long-term debt
Repayments of long-term debt
Proceeds from notes payable
Repayments of notes payable
Net increase in other short-term borrowings
Cash dividends paid
Purchases of treasury stock
Proceeds from stock purchase and option plans
Other
Net cash used by financing activities
Effect of exchange rate changes on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental cash flow disclosures:
Cash paid for interest
Net cash paid for income taxes
$
$
See Notes to Consolidated Financial Statements.
70
SNAP-ON INCORPORATED
68.8
25.3
57.5
12.8
27.2
13.7
0.5
—
7.8
(47.7)
(30.9)
(38.6)
10.4
27.5
(66.0)
764.5
(865.6)
747.7
(90.9)
(3.0)
0.7
0.9
(210.2)
395.4
(457.8)
—
(16.8)
21.7
(192.0)
(284.1)
55.5
(24.1)
(502.2)
65.6
27.6
54.6
10.5
30.3
12.3
(0.2)
14.9
—
(55.5)
(41.8)
(76.0)
(10.0)
(2.2)
6.2
608.5
(892.0)
712.7
(82.0)
(82.9)
1.5
1.3
(341.4)
297.8
(150.0)
16.8
(4.5)
18.3
(169.4)
(287.9)
46.2
(23.4)
(256.1)
(3.2)
48.9
92.0
140.9
$
3.4
14.4
77.6
92.0
$
61.4
24.2
44.0
7.5
31.0
1.3
0.2
—
—
(41.0)
(31.9)
(32.7)
(11.9)
16.3
(51.9)
576.1
(915.0)
671.7
(74.3)
(160.4)
2.2
2.4
(473.4)
—
—
4.5
(5.3)
135.0
(147.5)
(120.4)
41.8
(24.1)
(116.0)
(1.9)
(15.2)
92.8
77.6
(51.5) $
(188.0)
(51.2) $
(228.1)
(51.0)
(247.3)
Notes to Consolidated Financial Statements
Note 1: Summary of Accounting Policies
Principles of consolidation and presentation: The Consolidated Financial Statements include the accounts of Snap-on
Incorporated and its wholly-owned and majority-owned subsidiaries (collectively, “Snap-on” or “the company”).
Certain prior year amounts have been reclassified on the Consolidated Statements of Earnings to conform to the 2018 presentation
following the retrospective adoption of Accounting Standards Update (“ASU”) No. 2017-07, Compensation - Retirement Benefits
(Topic 715) - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The following
items were reclassified to “Other income (expense) - net” in the indicated fiscal year: income of $1.0 million and $0.8 million for
2017 and 2016, respectively, that was previously included in “Cost of goods sold” and expense of $0.4 million for 2017 and income
of $6.1 million for 2016, that were previously included in “Operating expenses.” As a result, previously reported “Cost of goods
sold” of $1,862.0 million and $1,720.8 million are now $1,861.0 million and $1,720.0 million for 2017 and 2016, respectively,
“Operating expenses” of $1,160.9 million and $1,054.1 million are now $1,161.3 million and $1,048.0 million for 2017 and 2016,
respectively, and “Other income (expense) - net” of $7.2 million and $0.6 million of expense are now $7.8 million and $7.5 million
of expense for 2017 and 2016, respectively. Additionally, prior year “Operating earnings” for certain reportable business segments
have been restated to reflect these reclassifications. See Note 19 for information on Snap-on’s reportable business segments.
Snap-on accounts for investments in unconsolidated affiliates where Snap-on has a non-significant ownership interest under the
equity method of accounting. Investments in unconsolidated affiliates of $18.5 million as of December 29, 2018, and $18.6 million
as of December 30, 2017, are included in “Other assets” on the accompanying Consolidated Balance Sheets; no equity investment
dividends were received in any period presented. In the normal course of business, the company may purchase products or services
from, or sell products or services to, unconsolidated affiliates. Purchases from unconsolidated affiliates were $11.2 million, $11.6
million and $12.9 million in 2018, 2017 and 2016, respectively, and sales to unconsolidated affiliates were $0.8 million in 2018,
$0.5 million in 2017 and $0.2 million in 2016. The Consolidated Financial Statements do not include the accounts of the company’s
independent franchisees. Snap-on’s Consolidated Financial Statements are prepared in conformity with generally accepted
accounting principles in the United States of America (“GAAP”). Intercompany accounts and transactions have been eliminated.
Fiscal year accounting period: Snap-on’s fiscal year ends on the Saturday that is on or nearest to December 31. The 2018 fiscal
year ended on December 29, 2018 (“2018”). The 2017 fiscal year ended on December 30, 2017 (“2017”). The 2016 fiscal year
ended on December 31, 2016 (“2016”). The 2018, 2017 and 2016 fiscal years each contained 52 weeks of operating results.
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 11 for further information on financial instruments.
Revenue recognition: Snap-on recognizes revenue from the sale of tools, diagnostic and equipment products and related services
based on when control of the product passes to the customer or the service is provided and is recognized at an amount that reflects
the consideration expected to be received in exchange for such goods or services. See Note 2 for information on revenue recognition.
Financial services revenue: Snap-on also generates revenue from various financing programs that include: (i) installment sales
and lease contracts arising from franchisees’ customers and Snap-on customers who require financing for the purchase or lease of
tools and diagnostic and equipment products on an extended-term payment plan; and (ii) business loans and vehicle leases to
franchisees. These financing programs are offered through Snap-on’s wholly owned finance subsidiaries. Financial services revenue
consists primarily of interest income on finance and contract receivables and is recognized over the life of the underlying contracts,
with interest computed primarily on the average daily balances of the underlying contracts.
2018 ANNUAL REPORT
71
Notes to Consolidated Financial Statements (continued)
The decision to finance through Snap-on or another financing source is solely at the election of the customer. When assessing
customers for potential financing, Snap-on considers various factors regarding ability to pay, including the customers’ financial
condition, debt-servicing ability, past payment experience, and credit bureau and proprietary Snap-on credit model information,
as well as the value of the underlying collateral. For finance receivables, Snap-on assesses these factors through the use of credit
quality indicators consisting primarily of customer credit risk scores combined with internal credit risk grades, collection experience,
franchise input and other internal metrics. For contract receivables, Snap-on assesses these factors through the use of credit quality
indicators consisting primarily of customer credit risk scores combined with internal credit risk grades, collection experience and
other internal metrics.
Financial services lease arrangements: Snap-on accounts for its financial services leases as direct financing or sales-type leases.
The company determines the gross investment in the lease as the present value of the minimum lease payments using the interest
rate implicit in the lease, net of amounts, if any, included therein for executor costs to be paid by Snap-on, together with any profit
thereon. The difference between the gross investment in the lease and the related undiscounted minimum lease payments for the
leased property is reported as unearned finance charges. Unearned finance charges are amortized to income over the life of the
contract. The default covenants included in the lease arrangements are usual and customary, consistent with industry practice, and
do not impact the lease classification. Except in circumstances where the company has concluded that a lessee’s financial condition
has deteriorated, the other default covenants under Snap-on’s lease arrangements are objectively determinable.
Research and engineering: Snap-on incurred research and engineering costs of $61.2 million, $60.9 million and $53.4 million
in 2018, 2017 and 2016, respectively. Research and engineering costs are included in “Operating expenses” on the accompanying
Consolidated Statements of Earnings.
Internally developed software: Costs incurred in the development of software that will ultimately be sold are capitalized from
the time technological feasibility has been attained and capitalization ceases when the related product is ready for general release.
During 2018, 2017 and 2016, Snap-on capitalized $9.7 million, $11.3 million and $10.8 million, respectively, of such costs.
Amortization of capitalized software development costs, which is included in “Cost of goods sold” on the accompanying
Consolidated Statements of Earnings, was $13.4 million in 2018, $14.7 million in 2017 and $13.8 million in 2016. Unamortized
capitalized software development costs of $40.2 million as of 2018 year end and $43.6 million as of 2017 year end are included
in “Other intangibles – net” on the accompanying Consolidated Balance Sheets.
Internal-use software: Costs that are incurred in creating software solutions and enhancements to those solutions are capitalized
only for the application development stage of the project.
Shipping and handling: Amounts billed to customers for shipping and handling are included as a component of sales. Costs
incurred by Snap-on for shipping and handling are included as a component of cost of goods sold when the costs relate to
manufacturing activities. In 2018, 2017 and 2016, Snap-on incurred shipping and handling charges of $53.7 million, $49.7 million
and $43.1 million, respectively, that were recorded in “Cost of goods sold” on the accompanying Consolidated Statements of
Earnings. Shipping and handling costs incurred in conjunction with selling or distribution activities are included as a component
of operating expenses. Shipping and handling charges were $84.3 million in 2018, $82.3 million in 2017 and $81.2 million in
2016; these charges were recorded in “Operating expenses” on the accompanying Consolidated Statements of Earnings.
Advertising and promotion: Production costs of future media advertising are deferred until the advertising occurs. All other
advertising and promotion costs are expensed when incurred. For 2018, 2017 and 2016, advertising and promotion expenses totaled
$55.6 million, $55.7 million and $52.6 million, respectively. Advertising and promotion costs are included in “Operating expenses”
on the accompanying Consolidated Statements of Earnings.
Warranties: Snap-on provides product warranties for specific product lines and accrues for estimated future warranty costs in the
period in which the sale is recorded. See Notes 2 and 16 for information on warranties.
Foreign currency: The financial statements of Snap-on’s foreign subsidiaries are translated into U.S. dollars. Assets and liabilities
of foreign subsidiaries are translated at current rates of exchange, and income and expense items are translated at the average
exchange rates for the period. The resulting translation adjustments are recorded directly into “Accumulated other comprehensive
loss” on the accompanying Consolidated Balance Sheets. Foreign exchange transactions, net of foreign currency hedges, resulted
in pretax losses of $3.9 million, $7.0 million and $1.3 million in 2018, 2017 and 2016, respectively. Foreign exchange transaction
gains and losses are reported in “Other income (expense) – net” on the accompanying Consolidated Statements of Earnings.
72
SNAP-ON INCORPORATED
Change in Functional Currency: Argentina’s economy has been determined to be highly inflationary effective July 1, 2018. As
a result the functional currency for the company’s subsidiary in Argentina changed from the Argentinian Peso to the U.S. Dollar.
The impact of the change in functional currency did not have a material impact on the company’s consolidated financial statements.
Income taxes: Current tax assets and liabilities are based upon an estimate of taxes refundable or payable for each of the jurisdictions
in which the company is subject to tax. In the ordinary course of business, there is inherent uncertainty in quantifying income tax
positions. Snap-on assesses income tax positions and records tax benefits for all years subject to examination based upon
management’s evaluation of the facts, circumstances and information available at the reporting dates. For those tax positions where
it is more-likely-than-not that a tax benefit will be sustained, Snap-on records the largest amount of tax benefit with a greater than
50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.
For those income tax positions where it is not more-likely-than-not that a tax benefit will be sustained, no tax benefit is recognized
in the financial statements. When applicable, associated interest and penalties are recognized as a component of income tax expense.
Accrued interest and penalties are included within the related tax asset or liability on the accompanying Consolidated Balance
Sheets.
Deferred income taxes are provided for temporary differences arising from differences in bases of assets and liabilities for tax and
financial reporting purposes. Deferred income taxes are recorded on temporary differences using enacted tax rates in effect for the
year in which the temporary differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and
liabilities is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more-likely-than-not that some portion or all of the deferred tax assets will
not be realized. See Note 9 for further information on income taxes.
Per share data: Basic earnings per share calculations were computed by dividing net earnings attributable to Snap-on Incorporated
by the corresponding weighted-average number of common shares outstanding for the period. The dilutive effect of the potential
exercise of outstanding options and stock-settled stock appreciation rights (“SARs”) to purchase common shares is calculated
using the treasury stock method. As of December 29, 2018, there were 685,533 awards outstanding that were anti-dilutive; as of
December 30, 2017, there were 722,715 awards outstanding that were anti-dilutive; and as of December 31, 2016 there were 1,600
awards outstanding that were anti-dilutive. Performance-based equity awards are included in the diluted earnings per share
calculation based on the attainment of the applicable performance metrics to date. Snap-on had dilutive securities totaling 986,984
shares, 1,207,285 shares and 1,307,914 shares, as of the end of 2018, 2017 and 2016, respectively. See Note 14 for further information
on equity awards.
Stock-based compensation: Snap-on recognizes the cost of employee services in exchange for awards of equity instruments based
on the grant date fair value of those awards. That cost, based on the estimated number of awards that are expected to vest, is
recognized on a straight-line basis over the period during which the employee is required to provide the service in exchange for
the award. No compensation cost is recognized for awards for which employees do not render the requisite service. The grant date
fair value of employee stock options and similar instruments is estimated using the Black-Scholes valuation model.
The Black-Scholes valuation model requires the input of subjective assumptions, including the expected life of the stock-based
award and stock price volatility. The assumptions used are management’s best estimates, but the estimates involve inherent
uncertainties and the application of management judgment. As a result, if other assumptions had been used, the recorded stock-
based compensation expense could have been materially different from that depicted in the financial statements. See Note 14 for
further information on stock-based compensation.
Derivatives: Snap-on utilizes derivative financial instruments, including foreign currency forward contracts, interest rate swap
agreements, treasury lock agreements and prepaid equity forward agreements to manage its exposures to foreign currency exchange
rate risks, interest rate risks, and market risk associated with the stock-based portion of its deferred compensation plans. Snap-on
accounts for its derivative instruments at fair value. Snap-on does not hold or issue financial instruments for speculative or trading
purposes. See Note 11 for further information on derivatives.
Cash equivalents: Snap-on considers all highly liquid investments with an original maturity of three months or less to be cash
equivalents. There were no cash equivalents as of 2018 and 2017 year ends.
2018 ANNUAL REPORT
73
Notes to Consolidated Financial Statements (continued)
Receivables and allowances for doubtful accounts: All trade, finance and contract receivables are reported on the Consolidated
Balance Sheets at their outstanding principal balance adjusted for any charge-offs and net of allowances for doubtful accounts.
Finance and contract receivables also include accrued interest and contract acquisition costs, net of contract acquisition fees.
Snap-on maintains allowances for doubtful accounts to absorb probable losses inherent in its portfolio of receivables. The allowances
for doubtful accounts represent management’s estimate of the losses inherent in the company’s receivables portfolio based on
ongoing assessments and evaluations of collectability and historical loss experience. In estimating losses inherent in each of its
receivable portfolios (trade, finance and contract receivables), Snap-on uses historical loss experience rates by portfolio and applies
them to a related aging analysis. Determination of the proper level of allowances by portfolio requires management to exercise
judgment about the timing, frequency and severity of credit losses that could materially affect the provision for credit losses and,
as a result, net earnings. The allowances take into consideration numerous quantitative and qualitative factors that include receivable
type, historical loss experience, loss migration, delinquency trends, collection experience, current economic conditions and credit
risk characteristics as follows:
•
•
Snap-on evaluates the collectability of receivables based on a combination of various financial and qualitative factors
that may affect its customers’ ability to pay. These factors may include customers’ financial condition, debt-servicing
ability, 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 collection experience and other internal metrics as follows:
Collection experience – Snap-on conducts monthly reviews of credit and collection performance for each of its
finance and contract receivable portfolios focusing on data such as delinquency trends, non-performing assets,
and charge-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.
Other internal metrics – Snap-on maintains a system that aggregates credit exposure by customer, risk
classification and geographical area, among other factors, to further monitor changing risk profiles.
Management performs detailed reviews of its receivables on a monthly and/or quarterly basis to assess the adequacy of the
allowances based on historical and current trends and other factors affecting credit losses and to determine if any impairment has
occurred. A receivable is impaired when it is probable that all amounts related to the receivable will not be collected according to
the contractual terms of the agreement. Additions to the allowances for doubtful accounts are maintained through adjustments to
the provision for credit losses, which are charged to current period earnings; amounts determined to be uncollectable are charged
directly against the allowances, while amounts recovered on previously charged-off accounts increase the allowances. Net charge-
offs include the principal amount of losses charged-off as well as charged-off interest and fees. Recovered interest and fees
previously charged-off are recorded through the allowances for doubtful accounts and increase the allowances. Finance receivables
are assessed for charge-off when an account becomes 120 days past due and are charged-off typically within 60 days of asset
repossession. Contract receivables related to equipment leases are generally charged-off when an account becomes 150 days past
due, while contract receivables related to franchise finance and van leases are generally charged-off up to 180 days past the asset
return date. For finance and contract receivables, customer bankruptcies are generally charged-off upon notification that the
associated debt is not being reaffirmed or, in any event, no later than 180 days past due.
Snap-on does not believe that its trade accounts, finance or contract receivables represent significant concentrations of credit risk
because of the diversified portfolio of individual customers and geographical areas. See Note 4 for further information on receivables
and allowances for doubtful accounts.
74
SNAP-ON INCORPORATED
Other accrued liabilities: Supplemental balance sheet information for “Other accrued liabilities” as of 2018 and 2017 year end
is as follows:
(Amounts in millions)
Income taxes
Accrued warranty
Deferred subscription revenue
Accrued new tool return
Accrued property, payroll and other taxes
Accrued selling and promotion expense
Accrued legal charges
Other
Total other accrued liabilities
2018
2017
34.4
17.1
47.3
43.7
40.1
28.7
30.9
131.4
373.6
$
$
41.6
17.2
38.9
23.9
45.4
28.6
45.9
146.6
388.1
$
$
Inventories: Snap-on values its inventory at the lower of cost or market and adjusts for the value of inventory that is estimated to
be excess, obsolete or otherwise unmarketable. Snap-on records allowances for excess and obsolete inventory based on historical
and estimated future demand and market conditions. Allowances for raw materials are largely based on an analysis of raw material
age and actual physical inspection of raw material for fitness for use. As part of evaluating the adequacy of allowances for work-
in-progress and finished goods, management reviews individual product stock-keeping units (SKUs) by product category and
product life cycle. Cost adjustments for each product category/product life-cycle state are generally established and maintained
based on a combination of historical experience, forecasted sales and promotions, technological obsolescence, inventory age and
other actual known conditions and circumstances. Should actual product marketability and raw material fitness for use be affected
by conditions that are different from management estimates, further adjustments to inventory allowances may be required.
Snap-on adopted the “last-in, first-out” (“LIFO”) inventory valuation method in 1973 for its U.S. locations. Snap-on’s U.S.
inventories accounted for on a LIFO basis consist of purchased product and inventory manufactured at the company’s heritage
U.S. manufacturing facilities (primarily hand tools and tool storage). Since Snap-on began acquiring businesses in the 1990’s, the
company has used the “first-in, first-out” (“FIFO”) inventory valuation methodology for acquisitions; the company does not adopt
the LIFO inventory valuation methodology for new acquisitions. See Note 5 for further information on inventories.
Property and equipment: Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation
and amortization are provided on a straight-line basis over estimated useful lives. Major repairs that extend the useful life of an
asset are capitalized, while routine maintenance and repairs are expensed as incurred. Capitalized software included in property
and equipment reflects costs related to internally developed or purchased software for internal use and is amortized on a straight-
line basis over their estimated useful lives. Long-lived assets are evaluated for impairment when events or circumstances indicate
that the carrying amount of the long-lived asset may not be recoverable. See Note 6 for further information on property and
equipment.
Goodwill and other intangible assets: Goodwill and other indefinite-lived assets are tested for impairment annually or more
frequently if events or changes in circumstances indicate that the assets might be impaired. Annual impairment tests are performed
by the company in the second quarter of each year using information available as of fiscal April month end. Snap-on evaluates the
existence of goodwill and indefinite-lived intangible asset impairment on the basis of whether the assets are fully recoverable from
projected, discounted cash flows of the related reportable unit or asset. Intangible assets with finite lives are amortized over their
estimated useful lives using straight-line and accelerated methods depending on the nature of the particular asset. See Note 7 for
further information on goodwill and other intangible assets.
2018 ANNUAL REPORT
75
Notes to Consolidated Financial Statements (continued)
New accounting standards
The following new accounting pronouncements were adopted in fiscal year 2018:
In March 2017, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2017-07, Compensation - Retirement
Benefits (Topic 715) - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Retirement Benefit Cost, which
provides additional guidance on the presentation of net periodic pension and postretirement benefit costs in the income statement
and on the components eligible for capitalization. The amendments in this ASU require that an employer report the service cost
component of the net periodic benefit costs in the same income statement line item as other compensation costs arising from
services rendered by employees during the period. The non-service-cost components of net periodic benefit costs are to be presented
in the income statement separately from the service cost components and outside a subtotal of income from operations. The ASU
also allows for the capitalization of the service cost components, when applicable (i.e., as a cost of internally manufactured inventory
or a self-constructed asset).
Snap-on adopted this ASU at the beginning of its 2018 fiscal year, with the changes related to the presentation in the statements
of earnings of the service cost and non-service-cost components of net periodic benefit costs applied retrospectively, using the
practical expedient permitting the use of the amounts disclosed in pension and other postretirement benefit plan notes as the
estimation basis for the presentation of the prior comparative periods. For fiscal 2018 and all comparative periods, the non-service
cost components of net periodic benefit costs are included in “Other income (expense) - net” on the accompanying Consolidated
Statements of Earnings. Beginning in fiscal 2018, changes related to the capitalization in assets of the service cost component of
net periodic benefit costs were applied prospectively. The adoption of this ASU did not have a significant impact on the company’s
Consolidated Statements of Earnings.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740) - Intra-Entity Transfers of Assets Other Than
Inventory. The ASU eliminates the requirement to defer the recognition of current and deferred income taxes for an intra-entity
asset transfer until the asset has been sold to an outside party. Under the new guidance, an entity should recognize the income tax
consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The ASU is effective for fiscal
years beginning after December 15, 2017, including interim periods within those fiscal years. The amendments in this ASU were
to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings at the time of
adoption. The adoption of this ASU did not have an impact on the company’s consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), which adds and/or clarifies guidance
on the classification of certain cash receipts and payments in the statement of cash flows. The new guidance is intended to reduce
diversity in practice in how certain transactions are classified in the statement of cash flows. This ASU is effective for fiscal years
beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of this ASU did not have a
significant impact to the designations of operating, investing and financing activities on the company’s Consolidated Statements
of Cash Flows.
On December 31, 2017, the beginning of Snap-on’s 2018 fiscal year, Snap-on adopted ASU No. 2014-09, Revenue from Contracts
with Customers (Topic 606), which outlines a single comprehensive model for entities to use in accounting for revenue arising
from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance.
Topic 606 is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers
in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Topic
606 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from
customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill
a contract. Snap-on adopted Topic 606 using the modified retrospective approach applied to those contracts that were not completed
as of December 31, 2017, which means Topic 606 has been applied to the fiscal 2018 financial statements and disclosures going
forward, but that prior period financial statements and disclosures reflect the prior revenue recognition standard. See Note 2 for
additional information on revenue recognition.
76
SNAP-ON INCORPORATED
Snap-on’s revenues are primarily from the selling of products that are shipped and billed, services provided to customers and from
subscriptions, including software subscriptions. Approximately 90% of net sales are earned at a point in time through ship-and
bill performance obligations. The remaining performance obligations that are recorded over time relate primarily to software
subscriptions and to a lesser extent extended warranty and other subscription agreements. Revenues are recognized when control
is transferred to customers, in an amount that reflects the consideration Snap-on expects to be entitled to in exchange for those
goods and services. Revenue recognition is evaluated through the following five steps: (i) identification of the contract, or contracts,
with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv)
allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when or as a
performance obligation is satisfied.
Revenue related to software subscriptions, as well as extended warranty and other subscription agreements, is generally recognized
over time on a ratable basis over the contract term beginning on the date that our service is made available to the customer. Contracts
with customers may include multiple performance obligations related to sales of hardware, software and software-related services.
For these contracts, individual performance obligations are recorded separately if they are distinct. The transaction price, including
any discounts, is allocated to each separate performance obligation based on its relative standalone selling price. The standalone
selling prices are determined based on the prices charged to customers or by using an expected cost plus margin approach. The
amount assigned to the products or services is recognized when the product is delivered and/or when the services are performed.
In instances where the product and/or services are performed over an extended period, as is the case with subscription agreements,
revenue is generally recognized over time on a ratable basis using a time-based output method applied over the contract term
beginning on the date that the service is made available to the customer. These contracts are generally for 12 months but can be
for a term up to 60 months.
The following new accounting pronouncements, and related impacts on adoption, are being evaluated by the company:
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to
the Disclosure Requirements for Fair Value Measurement, which is designed to improve the effectiveness of disclosures by
removing, modifying and adding disclosures related to fair value measurements. ASU No. 2018-13 is effective for fiscal years
beginning after December 15, 2019, including interim periods within those fiscal years; the ASU allows for early adoption in any
interim period after issuance of the update. The adoption of this ASU is not expected to have a significant impact on the company’s
consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General Subtopic
715-20 - Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans, which is designed to improve
the effectiveness of disclosures by removing and adding disclosures related to defined benefit plans. ASU No. 2018-14 is effective
for fiscal years ending after December 15, 2020; the ASU allows for early adoption in any year end after issuance of the update.
The adoption of this ASU is not expected to have a significant impact on the company’s consolidated financial statements.
In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income - Reclassification
of Certain Tax Effects from Accumulated Other Comprehensive Income (Topic 220), which allows for a reclassification from
accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act
(the “Tax Act”). ASU No. 2018-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within
those fiscal years. The adoption of this ASU will reclassify approximately $46 million from accumulated other comprehensive
income to retained earnings on the company’s consolidated financial statements.
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting
for Hedging Activities, which improves the financial reporting of hedging relationships to better portray the economic results of
an entity’s risk management activities in its financial statements. The amendments in this update also make certain targeted
improvements to simplify the application of the hedge accounting guidance in current GAAP. ASU No. 2017-12 is effective for
fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The adoption of this ASU is
not expected to have a significant impact on the company’s consolidated financial statements.
2018 ANNUAL REPORT
77
Notes to Consolidated Financial Statements (continued)
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), to require the measurement
of expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and
reasonable forecasts. The main objective of this ASU is to provide financial statement users with more decision-useful information
about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each
reporting date. ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within
those fiscal years; the ASU allows for early adoption as of the beginning of an interim or annual reporting period beginning after
December 15, 2018. The company is currently assessing the impact this ASU will have on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), to increase transparency and comparability among
organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing
arrangements. The ASU is intended to represent an improvement over previous GAAP, which did not require lease assets and lease
liabilities to be recognized for most leases. This ASU, which supersedes most current lease guidance, affects any entity that enters
into a lease (as that term is defined in the ASU), with some specified scope exemptions. ASU No. 2016-02 is effective for fiscal
years beginning after December 15, 2018.
Snap-on commenced its assessment of Topic 842 during the second half of 2017 and developed a comprehensive project plan that
included representatives from across the company’s business segments. The project plan included evaluating Snap-on’s lease
information, analyzing the standard’s impact on the company’s various types of lease contracts and identifying the reporting
requirements of the new standard. The company identified and implemented appropriate changes to its business processes, systems
and controls to support lease accounting and disclosures under Topic 842.
As of December 29, 2018, and subject to the company’s ongoing evaluation of new lease contracts, the company has substantially
completed its evaluation of the expected impact of adopting Topic 842 and anticipates that the adoption of this standard will not
have a significant impact on the company’s consolidated financial statements. As a result of the adoption of this standard, a right-
of-use asset and a related lease liability of approximately $61 million will be established to reflect the present value of the future
lease payments.
The company will adopt Topic 842 at the beginning of 2019 using the modified retrospective approach with prior periods following
existing guidance.
Note 2: Revenue Recognition
Snap-on recognizes revenue from the sale of tools, diagnostic and equipment products and related services based on when control
of the product passes to the customer or the service is provided and is recognized at an amount that reflects the consideration
expected to be received in exchange for such goods or services.
The effects of adjustments to the December 30, 2017 Consolidated Balance Sheet for the adoption of Topic 606 were as follows:
(Amounts in millions)
Assets
Inventories - net
Deferred income tax assets
Liabilities and Equity
Other accrued liabilities
Retained earnings
Balance at
Topic 606
Opening Balance at
December 30, 2017
Adjustments
December 31, 2017
$
$
638.8
$
52.0
388.1
$
3,772.3
20.9
$
0.6
$
23.3
(1.8)
659.7
52.6
411.4
3,770.5
78
SNAP-ON INCORPORATED
The adoption of Topic 606 did not have a significant impact on the company’s consolidated financial statements. The adoption
resulted in the recognition of an inventory asset related to certain product returns by increasing the returns liability and recognizing
an inventory asset for the anticipated value of the returns to recognize Snap-on’s contractual obligation to recover products from
customers; this gross up had no corresponding impact on the Consolidated Statement of Earnings. For the anticipated value of the
returns, the adoption resulted in the recognition of an increase in the inventory obsolescence reserve of $2.4 million with a
corresponding adjustment to fiscal 2018 beginning retained earnings. Other than the amounts recorded for the adoption of Topic
606 on the Consolidated Balance Sheets, there were no other changes since the adoption that would be materially different from
previous accounting standards that would affect the Consolidated Statements of Earnings, Balance Sheets, or Cash Flows.
Revenue Disaggregation
The following table shows the consolidated revenues by revenue source:
(Amounts in millions)
Revenue from contracts with customers
Other revenues
Total net sales
Financial services revenue
Total revenues
2018
3,719.6
21.1
3,740.7
329.7
4,070.4
$
$
Snap-on evaluates the performance of its operating segments based on segment revenues, including both external and intersegment
net sales, and segment operating earnings. Snap-on accounts for both intersegment sales and transfers based primarily on standard
costs with reasonable mark-ups established between the segments. Intersegment amounts are eliminated to arrive at Snap-on’s
consolidated financial results.
The following table represents external net sales disaggregated by geography, based on the customers’ billing addresses:
Commercial &
Snap-on
Repair Systems
2018
Industrial
Group
Tools
Group
& Information
Financial
Snap-on
Group
Services
Eliminations
Incorporated
(Amounts in millions)
Net sales:
North America*
$
466.5
$
1,378.7
$
747.1
$
— $
— $
2,592.3
Europe
All other
External net sales
Intersegment net sales
Total net sales
Financial services revenue
311.9
273.2
1,051.6
291.7
1,343.3
—
151.3
83.8
1,613.8
—
1,613.8
—
255.2
73.0
1,075.3
259.1
1,334.4
—
—
—
—
—
—
329.7
Total revenue
$
1,343.3
$
1,613.8
$
1,334.4
$
329.7
$
—
—
—
(550.8)
(550.8)
—
(550.8) $
718.4
430.0
3,740.7
—
3,740.7
329.7
4,070.4
* North America is comprised of the United States, Canada and Mexico.
2018 ANNUAL REPORT
79
Notes to Consolidated Financial Statements (continued)
The following table represents external net sales disaggregated by customer type:
Commercial &
Snap-on
Repair Systems
2018
Industrial
Group
Tools
Group
& Information
Group
Financial
Services
Eliminations
Snap-on
Incorporated
(Amounts in millions)
Net sales:
Vehicle service professionals
$
91.1
$
1,613.8
$
1,075.3
$
— $
— $
2,780.2
All other professionals
External net sales
Intersegment net sales
Total net sales
Financial services revenue
960.5
1,051.6
291.7
1,343.3
—
—
1,613.8
—
1,613.8
—
—
1,075.3
259.1
1,334.4
—
—
—
—
—
329.7
Total revenue
$
1,343.3
$
1,613.8
$
1,334.4
$
329.7
$
—
—
(550.8)
(550.8)
—
(550.8) $
960.5
3,740.7
—
3,740.7
329.7
4,070.4
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 PC-based diagnostic products, service and repair information products, diagnostic software
solutions, electronic parts catalogs, business management systems and services, point-of-sale systems, integrated systems for
vehicle service shops, original equipment manufacturer (“OEM”) purchasing facilitation services, and warranty management
systems and analytics to help OEM 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 also derives revenue from various financing programs designed to facilitate
the sales of its products and support its franchise business.
Approximately 90% of Snap-on’s net sales are products sold at a point in time through ship-and-bill performance obligations that
also includes service repair services. The remaining sales revenue is earned over time primarily on a subscription basis including
software, extended warranty and other subscription service agreements.
Snap-on enters into contracts related to the selling of tools, diagnostic and repair information and equipment products and related
services. At contract inception, an assessment of the goods and services promised in the contracts with customers is performed
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.
When Performance Obligations Are Satisfied
For performance obligations related to the majority of ship-and-bill products, including repair services contracts, control transfers
at a point in time when title transfers upon shipment of the product to the customer, and for some sales, control transfers when
title is transferred at time of receipt by customer. Once a product or repaired product has shipped or has been delivered, the
customer is able to direct the use of, and obtain substantially all of the remaining benefits from the asset, revenue is recognized.
Snap-on considers control to have transferred upon shipment or delivery when Snap-on has a present right to payment, the customer
has legal title to the asset, Snap-on has transferred physical possession of the asset, and the customer has significant risk and
rewards of ownership of the asset.
For performance obligations related to software subscriptions, extended warranties and other subscription agreements, Snap-on
transfers control and recognizes revenue over time on a ratable basis using a time-based output method. The performance obligations
are typically satisfied as services are rendered on a straight-line basis over the contract term, which is generally for 12 months but
can be for a term up to 60 months.
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SNAP-ON INCORPORATED
Significant Payment Terms
For ship-and-bill type contracts with customers, the contract states the final terms of the sale, including the description, quantity,
and price of each product or service purchased. Payment terms are typically due upon delivery or up to 30 days after delivery but
can range up to 120 days after delivery.
For subscription contracts, payment terms are in advance or in arrears of services on a monthly, quarterly or annual basis over the
contract term, which is generally for 12 months but can be for a term up to 60 months depending on the product or service. The
customer typically agrees to a stated rate and price in the contract that does not vary over the contract term. In some cases, customers
prepay for their licenses, or in other cases, pay on a monthly or quarterly basis. When the timing of the payment made by the
customer precedes the delivery of the performance obligation, a contract liability is recognized.
Variable Consideration
In some cases, the nature of Snap-on’s contracts give rise to variable consideration, including rebates, credits, allowances for
returns or other similar items that generally decrease the transaction price. These variable amounts generally are credited to the
customer, based on achieving certain levels of sales activity, product returns and making payments within specific terms.
In the normal course of business, Snap-on allows franchisees to return product per the provisions in the franchise agreement that
allow for the return of product in a saleable condition. For other customers, product returns are generally not accepted unless the
item is defective as manufactured. Where applicable, Snap-on establishes provisions for estimated sales returns. Estimated product
returns are recorded as a reduction in reported revenues at the time of sale based upon historical product return experience and is
adjusted for known trends to arrive at the amount of consideration to which Snap-on expects to receive.
Variable consideration is estimated at the most likely amount that is expected to be earned. Estimated amounts are included in the
transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the
uncertainty associated with the variable consideration is resolved. Estimates of variable consideration and determination of whether
to include estimated amounts in the transaction price are based largely on an assessment of the anticipated performance and all
information (historical, current and forecasted) that is reasonably available.
Warranties
Snap-on allows customers to return product when the product is defective as manufactured. Where applicable, Snap-on establishes
provisions for estimated warranties. Estimated product warranties are provided for specific product lines and Snap-on accrues for
estimated future warranty cost in the period in which the sale is recorded. The costs are included in “Cost of goods sold” on the
accompanying Consolidated Statements of Earnings. 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 does not typically provide customers with the right to a refund.
Practical Expedients and Exemptions
Snap-on typically expenses incremental direct costs of obtaining a contract (sales commissions) when incurred because the
amortization period is generally 12 months or less. Capitalized long-term contract costs are not significant. Contract costs are
expensed or amortized in “Operating expenses” on the accompanying Consolidated Statements of Earnings.
Snap-on elected to account for shipping and handling activities that occur after control of the related good transfers to the customer
as fulfillment activities and are therefore recognized upon shipment of the goods.
Snap-on has applied the portfolio approach to its ship-and-bill contracts that have similar characteristics as it reasonably expects
that the effects on the financial statements of applying this guidance to the portfolio of contracts would not differ materially from
applying this guidance to the individual contracts within the portfolio.
Snap-on typically excludes from its sales transaction price any amounts collected from customers for sales (and similar) taxes.
For certain performance obligations related to software subscriptions, extended warranty and other subscription agreements that
are settled over time, Snap-on has elected not to disclose the value of unsatisfied performance obligations for: (i) contracts that
have an original expected length of one year or less; (ii) contracts where revenue is recognized as invoiced; and (iii) contracts with
variable consideration related to unsatisfied performance obligations. The remaining duration of these unsatisfied performance
obligations generally range from one month up to 60 months. Snap-on had approximately $221.0 million of long-term contracts
that have fixed consideration that extends beyond one year as of December 29, 2018. Snap-on expects to recognize approximately
50% of these contracts as revenue by the end of fiscal 2020, an additional 40% by the end of fiscal 2022 and the balance thereafter.
2018 ANNUAL REPORT
81
Notes to Consolidated Financial Statements (continued)
Contract Liabilities (Deferred Revenues)
Contract liabilities are recorded when cash payments are received in advance of Snap-on’s performance. The timing of payment
is typically on a monthly, quarterly or annual basis. The balance of total contract liabilities at December 29, 2018, was $63.8 million
and was $49.4 million at the beginning of fiscal 2018. The current portion of contract liabilities and the non-current portion are
included in “Other accrued liabilities” and “Other long-term liabilities”, respectively, on the accompanying Consolidated Balance
Sheets. In 2018, Snap-on recognized revenue of $37.4 million that was included in the contract liability balance as of December
30, 2017, which was primarily from the amortization of software subscriptions, extended warranties and other subscription
agreements. The increase in the total contract liabilities balance is primarily driven by the timing of cash payments received or
due in advance of satisfying Snap-on’s performance obligations and growth in certain software subscriptions, partially offset by
revenues recognized that were included in the contract liability balance at the beginning of the year.
Franchise fee revenue, including nominal, non-refundable initial fees, was recognized upon the granting of a franchise, which was
when the company performed substantially all initial services required by the franchise agreement. Franchise fee revenue also
included ongoing monthly fees (primarily for sales and business training as well as marketing and product promotion programs)
that were recognized as the fees were earned. Franchise fee revenue in 2018, 2017 and 2016 totaled $16.2 million, $15.2 million
and $13.9 million, respectively.
Revenue Recognition Prior to 2018
Revenue recognition prior to 2018, as presented, is based on Revenue Recognition (Topic 605). Snap-on recognized revenue from
the sale of tools and diagnostic and equipment products when contract terms were met, the price was fixed or determinable,
collectability was reasonably assured and a product was shipped or risk of ownership had been transferred to and accepted by the
customer. For sales contingent upon customer acceptance, revenue recognition was deferred until such obligations were fulfilled.
Estimated product returns were recorded as a reduction in reported revenues at the time of sale based upon historical product return
experience and gross profit margin was adjusted for known trends. Provisions for customer volume rebates, discounts and
allowances were also recorded as a reduction in reported revenues at the time of sale based on historical experience and known
trends. Revenue related to extended warranty and subscription agreements was recognized over the terms of the respective
agreements.
Snap-on also recognized revenue related to multiple element arrangements, including sales of hardware, software and software-
related services. When a sales arrangement contained multiple elements, such as hardware and software products and/or services,
Snap-on used the relative selling price method to allocate revenues between hardware and software elements. For software elements
that were not essential to the hardware’s functionality and related software post-contract customer support, vendor specific objective
evidence (“VSOE”) of fair value was used to further allocate revenue to each element based on its relative fair value and, when
necessary, the residual method was used to assign value to the delivered elements when VSOE only existed for the undelivered
elements. The amount assigned to the products or services was recognized when the product was delivered and/or when the services
were performed. In instances where the product and/or services were performed over an extended period, as is the case with
subscription agreements or the providing of ongoing support, revenue was generally recognized on a straight-line basis over the
term of the agreement, which generally ranged from 12 months to 60 months.
Note 3: Acquisitions
On January 31, 2018, Snap-on acquired substantially all of the assets of George A. Sturdevant, Inc. (d/b/a Fastorq) for a cash
purchase price of $3.0 million. Fastorq, based in New Caney, Texas, designs, assembles and distributes hydraulic torque and
hydraulic tensioning products for use in critical industries.
In fiscal 2018, the company completed the purchase accounting valuations for the acquired net assets of Fastorq. The $2.6 million
excess of the purchase price over the fair value of the net assets acquired was recorded in “Goodwill” on the accompanying
Consolidated Balance Sheets. For segment reporting purposes, the results of operations and assets of Fastorq have been included
in the Commercial & Industrial Group since the acquisition date.
On July 28, 2017, Snap-on acquired Torque Control Specialists Pty Ltd (“TCS”) for a cash purchase price of $3.6 million (or $3.5
million, net of cash acquired). TCS, based in Adelaide, Australia, distributes a full range of torque products, including wrenches,
multipliers and calibrators, for use in critical industries.
In fiscal 2018, the company completed the purchase accounting valuations for the acquired net assets of TCS. The $2.0 million
excess of purchase price over the fair value of the net assets acquired was recorded in “Goodwill” on the accompanying Consolidated
Balance Sheets. For segment reporting purposes, the results of operations and assets of TCS have been included in the Commercial &
Industrial Group since the acquisition date.
82
SNAP-ON INCORPORATED
On May 4, 2017, Snap-on acquired Norbar Torque Tools Holdings Limited, along with its U.S. and Chinese joint ventures
(“Norbar”), for a cash purchase price of $71.6 million (or $69.9 million, net of cash acquired). Norbar, based in Banbury, U.K.,
designs and manufactures a full range of torque products, including wrenches, multipliers and calibrators for use in critical industries.
In fiscal 2018, the company completed the purchase accounting valuations for the acquired net assets of Norbar, including intangible
assets. The $25.1 million excess of purchase price over the fair value of the net assets acquired was recorded in “Goodwill” on
the accompanying Consolidated Balance Sheets. For segment reporting purposes, the results of operations and assets of Norbar
have been included in the Commercial & Industrial Group since the acquisition date.
On January 30, 2017, Snap-on acquired BTC Global Limited (“BTC”) for a cash purchase price of $9.2 million. BTC, based in
Crewe, U.K., designs and implements automotive vehicle inspection and management software for original equipment manufacturer
(“OEM”) franchise repair shops.
In fiscal 2017, the company completed the purchase accounting valuations for the acquired net assets of BTC, including intangible
assets. The $5.9 million excess of purchase price over the fair value of the net assets acquired was recorded in “Goodwill” on the
accompanying Consolidated Balance Sheets. For segment reporting purposes, the results of operations and assets of BTC have
been included in the Repair Systems and Information Group since the acquisition date.
On November 16, 2016, Snap-on acquired Ryeson Corporation (d/b/a Sturtevant Richmont) for a cash purchase price of $13.0
million (or $12.6 million, net of cash acquired). Sturtevant Richmont, based in Carol Stream, Illinois, designs, manufactures and
distributes mechanical and electronic torque wrenches as well as wireless torque error proofing systems for a variety of industrial
applications.
In fiscal 2017, the company completed the purchase accounting valuations for the acquired net assets of Sturtevant Richmont,
including intangible assets. The $5.0 million excess of purchase price over the fair value of the net assets acquired was recorded
in “Goodwill” on the accompanying Consolidated Balance Sheets. For segment reporting purposes, the results of operations and
assets of Sturtevant Richmont have been included in the Commercial & Industrial Group since the acquisition date.
On October 31, 2016, Snap-on acquired Car-O-Liner Holding AB (“Car-O-Liner”) for a cash purchase price of $152.0 million (or
$148.1 million, net of cash acquired). Car-O-Liner, based in Gothenburg, Sweden, designs and manufactures collision repair
equipment, and information and truck alignment systems.
In fiscal 2017, the company completed the purchase accounting valuations for the acquired net assets of Car-O-Liner, including
intangible assets. The $77.3 million excess of purchase price over the fair value of the net assets acquired was recorded in “Goodwill”
on the accompanying Consolidated Balance Sheets. For segment reporting purposes, substantially all of Car-O-Liner’s results of
operations and assets have been included in the Repair Systems & Information Group since the acquisition date, with the remaining
portions included in the Commercial & Industrial Group.
Pro forma financial information has not been presented for any of these acquisitions as the net effects, individually and collectively,
were neither significant nor material to Snap-on’s results of operations or financial position. See Note 7 for further information
on goodwill and other intangible assets.
Note 4: Receivables
Trade and Other Accounts Receivable
Snap-on’s trade and other accounts receivable primarily arise from the sale of tools and diagnostic and equipment products to a
broad range of industrial and commercial customers and to Snap-on’s independent franchise van channel on a non-extended-term
basis with payment terms generally ranging from 30 to 120 days.
The components of Snap-on’s trade and other accounts receivable as of 2018 and 2017 year end are as follows:
(Amounts in millions)
Trade and other accounts receivable
Allowances for doubtful accounts
Total trade and other accounts receivable – net
2018
2017
$
$
710.1
(17.5)
692.6
$
$
690.2
(14.6)
675.6
2018 ANNUAL REPORT
83
Notes to Consolidated Financial Statements (continued)
Finance and Contract Receivables
Snap-on Credit LLC (“SOC”), the company’s financial services operation in the United States, originates extended-term finance
and contract receivables on sales of Snap-on’s products sold through the U.S. franchisee and customer network and to certain other
customers of Snap-on; Snap-on’s foreign finance subsidiaries provide similar financing internationally. Interest income on finance
and contract receivables is included in “Financial services revenue” on the accompanying Consolidated Statements of Earnings.
Snap-on’s finance receivables are comprised of extended-term installment payment contracts to both technicians and independent
shop owners (i.e., franchisees’ customers) to enable them to purchase tools and diagnostic and equipment products on an extended-
term payment plan, generally with average payment terms of approximately four years. Finance receivables are generally secured
by the underlying tools and/or diagnostic or equipment products financed.
Snap-on’s contract receivables, with payment terms of up to 10 years, are comprised of extended-term installment payment contracts
to a broad base of customers worldwide, including shop owners, both independents and national chains, for their purchase of tools
and diagnostic and equipment products. Contract receivables also include extended-term installment loans to franchisees to meet
a number of financing needs, including working capital loans, loans to enable new franchisees to fund the purchase of the franchise
and van leases, or the expansion of an existing franchise. Contract receivables are generally secured by the underlying tools and/
or diagnostic or equipment products financed and, for installment loans to franchisees, other franchisee assets.
The components of Snap-on’s current finance and contract receivables as of 2018 and 2017 year end are as follows:
(Amounts in millions)
Finance receivables
Contract receivables
Total
Allowances for doubtful accounts:
Finance receivables
Contract receivables
Total
Total current finance and contract receivables – net
Finance receivables – net
Contract receivables – net
Total current finance and contract receivables – net
2018
2017
538.1
99.5
637.6
(19.6)
(1.2)
(20.8)
616.8
518.5
98.3
616.8
$
$
$
$
523.1
98.1
621.2
(17.7)
(1.3)
(19.0)
602.2
505.4
96.8
602.2
$
$
$
$
The components of Snap-on’s finance and contract receivables with payment terms beyond one year as of 2018 and 2017 year
end are as follows:
(Amounts in millions)
Finance receivables
Contract receivables
Total
Allowances for doubtful accounts:
Finance receivables
Contract receivables
Total
Total long-term finance and contract receivables – net
Finance receivables – net
Contract receivables – net
Total long-term finance and contract receivables – net
2018
2017
1,116.2
348.0
1,464.2
(41.8)
(3.1)
(44.9)
1,419.3
1,074.4
344.9
1,419.3
$
$
$
$
1,078.0
325.9
1,403.9
(38.8)
(3.3)
(42.1)
1,361.8
1,039.2
322.6
1,361.8
$
$
$
$
84
SNAP-ON INCORPORATED
Long-term finance and contract receivables installments, net of unearned finance charges, as of 2018 and 2017 year end are
scheduled as follows:
(Amounts in millions)
Due in Months:
13 – 24
25 – 36
37 – 48
49 – 60
Thereafter
Total
2018
2017
Finance
Receivables
Contract
Receivables
Finance
Receivables
Contract
Receivables
$
$
428.7
345.0
232.8
109.7
—
1,116.2
$
$
82.2
72.5
60.5
48.8
84.0
348.0
$
$
415.1
333.3
225.5
104.1
—
1,078.0
$
$
77.6
67.6
56.5
42.8
81.4
325.9
Delinquency is the primary indicator of credit quality for finance and contract receivables. The entire receivable balance of a
contract is considered delinquent when contractual payments become 30 days past due. Depending on the contract, payments for
finance and contract receivables are due on a monthly or weekly basis. Weekly payments are converted into a monthly equivalent
for purposes of calculating delinquency. Delinquencies are assessed at the end of each month following the monthly equivalent
due date. Removal from delinquent status occurs when the cumulative number of monthly equivalent payments due has been
received by the company.
Finance receivables are generally placed on nonaccrual status (nonaccrual of interest and other fees): (i) when a customer is placed
on repossession status; (ii) upon receipt of notification of bankruptcy; (iii) upon notification of the death of a customer; or (iv) in
other instances in which management concludes collectability is not reasonably assured. Finance receivables that are considered
nonperforming include receivables that are on nonaccrual status and receivables that are generally more than 90 days past due.
Contract receivables are generally placed on nonaccrual status: (i) when a receivable is more than 90 days past due or at the point
a customer’s account is placed on terminated status regardless of its delinquency status; (ii) upon notification of the death of a
customer; or (iii) in other instances in which management concludes collectability is not reasonably assured. Contract receivables
that are considered nonperforming include receivables that are on nonaccrual status and receivables that are generally more than
90 days past due.
The accrual of interest and other fees is resumed when the finance or contract receivable becomes contractually current and
collection of all remaining contractual amounts due is reasonably assured. Finance and contract receivables are evaluated for
impairment on a collective basis. A receivable is impaired when it is probable that all amounts related to the receivable will not
be collected according to the contractual terms of the applicable agreement. Impaired finance and contract receivables are covered
by the company’s respective allowances for doubtful accounts and are charged-off against the allowances when appropriate. As
of 2018 and 2017 year end, there were $27.9 million and $28.0 million, respectively, of impaired finance receivables, and there
were $6.0 million and $2.3 million, respectively, of impaired contract receivables.
It is the general practice of Snap-on’s financial services business to not engage in contract or loan modifications. In limited instances,
Snap-on’s financial services business may modify certain impaired receivables in troubled debt restructurings. The amount and
number of restructured finance and contract receivables as of 2018 and 2017 year end were immaterial to both the financial services
portfolio and the company’s results of operations and financial position.
2018 ANNUAL REPORT
85
Notes to Consolidated Financial Statements (continued)
The aging of finance and contract receivables as of 2018 and 2017 year end is as follows:
(Amounts in millions)
2018 year end:
Finance receivables
Contract receivables
2017 year end:
Finance receivables
Contract receivables
$
$
30-59
Days Past
Due
60-90
Days Past
Due
Greater
Than 90
Days Past
Due
Total Past
Due
Total Not
Past
Due
$
$
19.4
1.7
19.3
1.2
$
$
12.1
1.2
13.9
0.6
$
$
20.3
5.2
20.1
1.9
$
$
51.8
8.1
53.3
3.7
$
$
1,602.5
439.4
1,547.8
420.3
Greater
Than 90
Days Past
Due and
Accruing
15.9
0.2
15.4
0.6
Total
1,654.3
447.5
1,601.1
424.0
$
$
The amount of performing and nonperforming finance and contract receivables based on payment activity as of 2018 and 2017
year end is as follows:
421.7
2.3
424.0
12.6
1.7
(Amounts in millions)
Performing
Nonperforming
Total
2018
2017
Finance
Receivables
Contract
Receivables
Finance
Receivables
Contract
Receivables
$
$
1,626.4
27.9
1,654.3
$
$
441.5
6.0
447.5
$
$
1,573.1
28.0
1,601.1
$
$
The amount of finance and contract receivables on nonaccrual status as of 2018 and 2017 year end is as follows:
(Amounts in millions)
Finance receivables
Contract receivables
2018
2017
$
$
12.0
5.8
The following is a rollforward of the allowances for doubtful accounts for finance and contract receivables for 2018 and 2017:
(Amounts in millions)
Allowances for doubtful accounts:
Beginning of year
Provision
Charge-offs
Recoveries
Currency translation
End of year
2018
2017
Finance
Receivables
Contract
Receivables
Finance
Receivables
Contract
Receivables
$
$
56.5
57.5
(59.4)
7.1
(0.3)
61.4
$
$
4.6
2.0
(2.5)
0.4
(0.2)
4.3
$
$
48.6
54.6
(53.3)
6.6
—
56.5
$
$
3.9
2.7
(2.5)
0.4
0.1
4.6
The following is a rollforward of the combined allowances for doubtful accounts related to trade and other accounts receivable,
as well as finance and contract receivables, for 2018, 2017 and 2016:
(Amounts in millions)
Allowances for doubtful accounts:
2018
2017
2016
Balance at
Beginning
of Year
Expenses
Deductions (1)
Balance at
End of
Year
$
$
75.7
66.5
59.3
$
70.3
65.1
51.5
(62.8) $
(55.9)
(44.3)
83.2
75.7
66.5
(1) Represents write-offs of bad debts, net of recoveries, and the net impact of currency translation.
86
SNAP-ON INCORPORATED
Note 5: Inventories
Inventories by major classification as of 2018 and 2017 year end are as follows:
(Amounts in millions)
Finished goods
Work in progress
Raw materials
Total FIFO value
Excess of current cost over LIFO cost
Total inventories – net
2018
2017
577.0
51.7
123.5
752.2
(78.4)
673.8
$
$
541.9
49.3
122.7
713.9
(75.1)
638.8
$
$
Inventories accounted for using the FIFO method approximated 61% of total inventories as of both 2018 and 2017 year end. The
company accounts for its non-U.S. inventory on the FIFO method. As of 2018 year end, approximately 35% of the company’s
U.S. inventory was accounted for using the FIFO method and 65% was accounted for using the LIFO method. There were no
LIFO inventory liquidations in 2018, 2017 or 2016.
Note 6: Property and Equipment
Property and equipment (which are carried at cost) as of 2018 and 2017 year end are as follows:
(Amounts in millions)
Land
Buildings and improvements
Machinery, equipment and computer software
Property and equipment – gross
Accumulated depreciation and amortization
Property and equipment – net
The estimated service lives of property and equipment are principally as follows:
Buildings and improvements
Machinery, equipment and computer software
2018
2017
$
$
31.7
368.6
944.4
1,344.7
(849.6)
495.1
$
$
24.5
357.4
889.2
1,271.1
(786.7)
484.4
3 to 50 years
2 to 15 years
The cost and accumulated depreciation of property and equipment under capital leases as of 2018 and 2017 year end are as follows:
(Amounts in millions)
Buildings and improvements
Accumulated depreciation
Net book value
2018
2017
$
$
21.8
(15.4)
6.4
$
$
21.4
(14.0)
7.4
Depreciation expense was $68.8 million, $65.6 million and $61.4 million in 2018, 2017 and 2016, respectively.
Note 7: Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill by segment for 2018 and 2017 are as follows:
(Amounts in millions)
Balance as of 2016 year end
Currency translation
Acquisitions
Balance as of 2017 year end
Currency translation
Acquisitions
Balance as of 2018 year end
Commercial
& Industrial
Group
Snap-on
Tools Group
Repair Systems
&
Information
Group
Total
$
$
$
242.4
30.3
25.7
298.4
(16.3)
4.1
286.2
$
$
$
2018 ANNUAL REPORT
12.5
—
—
12.5
—
—
12.5
$
$
$
640.6
15.8
(43.2)
613.2
(9.7)
—
603.5
$
$
$
895.5
46.1
(17.5)
924.1
(26.0)
4.1
902.2
87
Notes to Consolidated Financial Statements (continued)
Goodwill of $902.2 million as of 2018 year end includes: (i) $25.1 million from the acquisition of Norbar, (ii) $2.6 million from
the acquisition of Fastorq, and (iii) $2.0 million from the acquisition of TCS. The goodwill from the Norbar, Fastorq and TCS
acquisitions is included in the Commercial & Industrial Group.
Goodwill of $924.1 million as of 2017 year end includes the following from 2017 acquisitions: (i) $23.7 million, on a preliminary
basis, from the acquisition of Norbar, (ii) $5.9 million from the acquisition of BTC, and (iii) $1.9 million, on a preliminary basis,
from the acquisition of TCS. As of 2017 year end goodwill also includes, from 2016 acquisitions: (i) $77.3 million from the
acquisition of Car-O-Liner; and (ii) $5.0 million from the acquisition of Sturtevant Richmont.
During 2018, the purchase accounting valuation for the acquired net assets, including intangible assets, of Norbar and TCS were
completed resulting in an increase in goodwill of $1.4 million for Norbar and $0.1 million for TCS from 2017 year end. During
2017, the purchase accounting valuations for the acquired net assets, including intangible assets, of Car-O-Liner were completed,
resulting in a reduction of goodwill of $50.8 million from 2016 year end, with a $49.1 million reduction in the Repair Systems &
Information Group and $1.7 million in the Commercial & Industrial Group. Additionally, purchase accounting for Sturtevant
Richmont was also completed in 2017, resulting in a $1.8 million increase in goodwill from 2016 year end.
The goodwill from the Car-O-Liner acquisition is distributed as follows: $76.5 million in the Repair Systems & Information Group
and $0.8 million in the Commercial & Industrial Group. The goodwill from Sturtevant Richmont is included in the Commercial
& Industrial Group and the goodwill from the BTC acquisition is included in the Repair Systems & Information Group. See Note
3 for additional information on acquisitions.
Additional disclosures related to other intangible assets as of 2018 and 2017 year end are as follows:
(Amounts in millions)
Amortized other intangible assets:
Customer relationships
Developed technology
Internally developed software
Patents
Trademarks
Other
Total
Non-amortized trademarks
Total other intangible assets
2018
2017
Gross
Carrying Value
Accumulated
Amortization
Gross
Carrying Value
Accumulated
Amortization
$
$
172.2
18.5
156.6
35.7
3.2
7.3
393.5
109.7
503.2
$
$
(107.6) $
(18.3)
(116.6)
(22.9)
(2.0)
(2.9)
(270.3)
—
(270.3) $
175.2
18.9
177.0
34.1
3.0
7.7
415.9
115.2
531.1
$
$
(98.2)
(18.4)
(133.4)
(22.7)
(2.0)
(2.7)
(277.4)
—
(277.4)
There were no acquisitions during 2018 that resulted in the recognition of other intangible assets as of year-end 2018. As of year-
end 2017, the gross carrying value of the customer relationships includes $28.8 million related to the Car-O-Liner acquisition,
$1.2 million related to the BTC acquisition and $1.1 million related to the Norbar acquisition. The gross carrying value of non-
amortized trademarks as of 2018 year end includes $29.8 million related to the Car-O-Liner acquisition, $16.9 million related to
the Norbar acquisition and $2.1 million related to the BTC acquisition.
Significant and unanticipated changes in circumstances, such as declines in profitability and cash flow due to significant and long-
term deterioration in macroeconomic, industry and market conditions, the loss of key customers, changes in technology or markets,
significant changes in key personnel or litigation, a significant and sustained decrease in share price and/or other events, including
effects from the sale or disposal of a reporting unit, could require a provision for impairment of goodwill and/or other intangible
assets in a future period. As of 2018 year end, the company had no accumulated impairment losses.
88
SNAP-ON INCORPORATED
The weighted-average amortization periods related to other intangible assets are as follows:
Customer relationships
Developed technology
Internally developed software
Patents
Trademarks
Other
In Years
15
3
5
8
6
39
Snap-on is amortizing its customer relationships on both an accelerated and straight-line basis over a 15 year weighted-average
life; the remaining intangibles are amortized on a straight-line basis. The weighted-average amortization period for all amortizable
intangibles on a combined basis is 11 years.
The company’s customer relationships generally have contractual terms of three to five years and are typically renewed without
significant cost to the company. The weighted-average 15 year life for customer relationships is based on the company’s historical
renewal experience. Intangible asset renewal costs are expensed as incurred.
The aggregate amortization expense was $25.3 million in 2018, $27.6 million in 2017 and $24.2 million in 2016. Based on current
levels of amortizable intangible assets and estimated weighted-average useful lives, estimated annual amortization expense is
expected to be $21.5 million in 2019, $17.5 million in 2020, $14.8 million in 2021, $12.6 million in 2022, and $12.0 million in
2023.
Note 8: Exit and Disposal Activities
In 2018 and 2017, Snap-on did not record any costs for exit and disposal activities. In 2016, the company’s Repair Systems &
Information Group recorded $0.9 million of severance costs for exit and disposal activities, all of which qualified for accrual
treatment. The exit and disposal accrual of $0.6 million as of 2017 year end was fully utilized in 2018.
Note 9: Income Taxes
The source of earnings before income taxes and equity earnings consisted of the following:
(Amounts in millions)
United States
Foreign
Total
The provision (benefit) for income taxes consisted of the following:
(Amounts in millions)
Current:
Federal
Foreign
State
Total current
Deferred:
Federal
Foreign
State
Total deferred
Total income tax provision
2018
2017
2016
$
$
$
$
2018
735.4
174.5
909.9
117.9
52.4
30.4
200.7
18.7
(8.4)
3.4
13.7
214.4
$
$
$
$
2017
645.5
176.4
821.9
166.9
41.1
30.6
238.6
8.7
2.9
0.7
12.3
250.9
$
$
$
$
2016
644.0
157.4
801.4
175.9
39.9
27.2
243.0
6.3
(6.7)
1.7
1.3
244.3
2018 ANNUAL REPORT
89
Notes to Consolidated Financial Statements (continued)
The following is a reconciliation of the statutory federal income tax rate to Snap-on’s effective tax rate:
Statutory federal income tax rate
Increase (decrease) in tax rate resulting from:
State income taxes, net of federal benefit
Noncontrolling interests
Repatriation of foreign earnings
Change in valuation allowance for deferred tax assets
Adjustments to tax accruals and reserves
Foreign rate differences
Domestic production activities deduction
Excess tax benefits related to equity compensation
U.S. tax reform, net impact
Other
Effective tax rate
2018
21.0%
2.9
(0.4)
(0.1)
0.3
(0.2)
0.4
—
(0.8)
0.4
0.1
23.6%
2017
35.0%
2.4
(0.6)
(1.2)
0.1
(0.3)
(2.4)
(2.1)
(1.4)
0.9
0.1
30.5%
2016
35.0%
2.4
(0.6)
(0.1)
(1.0)
0.3
(2.1)
(1.9)
(1.8)
—
0.3
30.5%
Snap-on’s effective income tax rate on earnings attributable to Snap-on Incorporated was 24.0% in 2018, 31.1% in 2017, and
31.0% in 2016. The effective tax rate for 2018 reflects the reduction of the U.S. federal corporate income tax rate from 35% to
21%. It also includes an additional non-recurring net tax cost attributable to the prior year’s U.S. tax reform changes. The effective
tax rate for 2017 included the one-time net tax costs associated with the Tax Cuts and Jobs Act (the “Tax Act”), which was signed
into law in the fourth quarter of 2017, as well as tax benefits associated with certain legal charges. The effective tax rate for 2016
included tax benefits from the reversal of deferred tax asset valuation allowances that are now expected to be realized in future
years, as well as tax benefits associated with the January 3, 2016 adoption of ASU No. 2016-09, Compensation – Stock
Compensation (Topic 718) – Improvements to Employee Share-Based Payment Accounting; these tax benefits were partially offset
by tax contingency reserves established for certain non-U.S. tax audits.
On December 22, 2017, the U.S. government passed the Tax Act. The Tax Act makes broad and complex changes to the U.S. tax
code, including, but not limited to: (i) reducing the future U.S. federal corporate tax rate from 35 percent to 21 percent; (ii) requiring
companies to pay a one-time transition tax on certain unremitted earnings of foreign subsidiaries; and (iii) bonus depreciation that
will allow for full expensing of qualified property.
The Tax Act also established new tax laws that affected 2018, including, but not limited to: (i) the reduction of the U.S. federal
corporate tax rate discussed above; (ii) a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries;
(iii) a new provision designed to tax global intangible low-taxed income (“GILTI”); (iv) the repeal of the domestic production
activity deductions; (v) limitations on the deductibility of certain executive compensation; (vi) limitations on the use of foreign
tax credits to reduce the U.S. income tax liability; and (vii) a new provision that allows a domestic corporation an immediate
deduction for a portion of its foreign derived intangible income (“FDII”).
The Securities and Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118, which provides guidance on
accounting for the tax effects of the Tax Act, for the company’s year ended December 30, 2017. SAB 118 provides a measurement
period that should not extend beyond one year from the Tax Act enactment date for companies to complete the related accounting
under ASC 740, Accounting for Income Taxes. In accordance with SAB 118, a company must reflect the income tax effects of
those aspects of the Tax Act for which the accounting under Accounting Standards Codification (“ASC”) 740 is complete. To the
extent that a company’s accounting for a certain income tax effect of the Tax Act is incomplete, but it is able to determine a
reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional
estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax
laws that were in effect immediately before the enactment of the Tax Act.
90
SNAP-ON INCORPORATED
The company’s accounting for certain elements of the Tax Act was incomplete as of December 30, 2017. However, the company
was able to make reasonable estimates of the effects and, therefore, recorded provisional estimates for these items. In connection
with its initial analysis of the impact of the Tax Act, the company recorded a provisional discrete net tax expense of $7.0 million
in the fiscal year ended December 30, 2017. This provisional estimate consists of a net expense of $13.7 million for the one-time
transition tax and a net benefit of $6.7 million related to revaluation of deferred tax assets and liabilities, caused by the new lower
corporate tax rate. To determine the transition tax, the company must determine the amount of post-1986 accumulated earnings
and profits of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. While the company
was able to make a reasonable estimate of the transition tax for 2017, it continued to gather additional information to more precisely
compute the final amount reported on its 2017 U.S. federal tax return which was filed in October 2018. The actual transition tax
was $8.3 million greater than the company’s initial estimate and was included in income tax expense for 2018. Likewise, while
the company was able to make a reasonable estimate of the impact of the reduction to the corporate tax rate, it was affected by
other analyses related to the Tax Act, including, but not limited to, the state tax effect of adjustments made to federal temporary
differences. During 2018, the company recorded additional net tax benefits of $4.4 million attributable to pension contributions
made in 2018 that were deductible for 2017 at the higher 35% federal tax rate and other changes to the 2017 tax provision related
to the Tax Act and subsequently-issued tax guidance. Due to the complexity of the new GILTI tax rules, the company continued
to evaluate this provision of the Tax Act and the application of ASC 740 throughout 2018. Under GAAP, the company is allowed
to make an accounting policy choice to either: (i) treat taxes due on future U.S. inclusions in taxable income related to GILTI as
a current-period expense when incurred (the “period cost method”); or (ii) factor in such amounts into a company’s measurement
of its deferred taxes (the “deferred method”). The company selected to apply the “period cost method” to account for the new
GILTI tax, and treated it as a current-period expense for 2018. The company will continue to analyze the full effects of the Tax
Act on its financial statements in 2019 as additional guidance is issued and interpretations evolve.
Temporary differences that give rise to the net deferred income tax asset as of 2018, 2017 and 2016 year end are as follows:
(Amounts in millions)
Long-term deferred income tax assets (liabilities):
2018
2017
2016
Inventories
Accruals not currently deductible
Tax credit carryforward
Employee benefits
Net operating losses
Depreciation and amortization
Valuation allowance
Equity-based compensation
Undistributed non-U.S. earnings
Cash flow hedge
Other
Net deferred income tax asset
$
$
33.6
72.9
1.8
56.5
40.9
(167.5)
(25.1)
16.6
(6.0)
—
(0.4)
23.3
$
$
28.8
61.7
2.1
56.8
44.0
(161.3)
(25.2)
17.1
—
(0.3)
(0.1)
23.6
$
$
33.3
77.7
15.1
108.1
42.8
(209.8)
(21.7)
24.3
—
(5.5)
(4.6)
59.7
As of 2018 year end, Snap-on had tax net operating loss carryforwards totaling $224.8 million as follows:
(Amounts in millions)
Year of expiration:
2019-2023
2024-2028
2029-2033
2034-2038
Indefinite
Total net operating loss carryforwards
State
Federal
Foreign
Total
$
$
0.2
0.1
90.6
—
—
90.9
$
$
— $
—
—
—
—
— $
52.5
38.9
6.8
—
35.7
133.9
$
$
52.7
39.0
97.4
—
35.7
224.8
2018 ANNUAL REPORT
91
Notes to Consolidated Financial Statements (continued)
A valuation allowance totaling $25.1 million, $25.2 million and $21.7 million as of 2018, 2017 and 2016 year end, respectively,
has been established for deferred income tax assets primarily related to certain subsidiary loss carryforwards that may not be
realized. Realization of the net deferred income tax assets is dependent on generating sufficient taxable income prior to their
expiration. Although realization is not assured, management believes it is more-likely-than-not that the net deferred income tax
assets will be realized. The amount of the net deferred income tax assets considered realizable, however, could change in the near
term if estimates of future taxable income during the carryforward period fluctuate.
The following is a reconciliation of the beginning and ending amounts of unrecognized tax benefits for 2018, 2017 and 2016:
(Amounts in millions)
Unrecognized tax benefits at beginning of year
Gross increases – tax positions in prior periods
Gross decreases – tax positions in prior periods
Gross increases – tax positions in the current period
Settlements with taxing authorities
Lapsing of statutes of limitations
Unrecognized tax benefits at end of year
2018
2017
2016
$
$
7.7
1.3
(0.1)
2.8
—
(0.6)
11.1
$
$
9.4
1.4
—
1.0
(3.6)
(0.5)
7.7
$
$
7.2
2.5
(0.3)
0.5
—
(0.5)
9.4
The unrecognized tax benefits of $11.1 million, $7.7 million and $9.4 million as of 2018, 2017 and 2016 year end, respectively,
would impact the effective income tax rate if recognized. As of December 29, 2018, unrecognized tax benefits of $1.7 million and
$9.4 million were included in “Deferred income tax assets” and “Other long-term liabilities,” respectively, on the accompanying
Consolidated Balance Sheets. Interest and penalties related to unrecognized tax benefits are recorded in income tax expense. As
of 2018, 2017 and 2016 year end, the company had provided for $0.8 million, $0.6 million and $0.9 million, respectively, of
accrued interest and penalties related to unrecognized tax benefits. During 2018, the company increased the reserve attributable
to interest and penalties associated with unrecognized tax benefits by a net $0.2 million. As of December 29, 2018, $0.8 million
of accrued interest and penalties were included in “Other long-term liabilities” on the accompanying Consolidated Balance Sheets.
Snap-on and its subsidiaries file income tax returns in the United States and in various state, local and foreign jurisdictions. It is
reasonably possible that certain unrecognized tax benefits may either be settled with taxing authorities or the statutes of limitations
for such items may lapse within the next 12 months, causing Snap-on’s gross unrecognized tax benefits to decrease by a range of
zero to $2.4 million. Over the next 12 months, Snap-on anticipates taking certain tax positions on various tax returns for which
the related tax benefit does not meet the recognition threshold. Accordingly, Snap-on’s gross unrecognized tax benefits may increase
by a range of zero to $1.0 million over the next 12 months for uncertain tax positions expected to be taken in future tax filings.
With few exceptions, Snap-on is no longer subject to U.S. federal and state/local income tax examinations by tax authorities for
years prior to 2013, and Snap-on is no longer subject to non-U.S. income tax examinations by tax authorities for years prior to
2012.
In general, it is Snap-on’s practice and intention to reinvest certain earnings of its non-U.S. subsidiaries in those operations. As of
2018 year end, the company has not made a provision for incremental U.S. income taxes or additional foreign withholding taxes
on approximately $205.6 million of such undistributed earnings that is deemed indefinitely reinvested. Determination of the amount
of unrecognized deferred tax liability related to these earnings is not practicable. As a result of the Tax Act, which subjected the
majority of the company’s undistributed foreign earnings to taxation for the 2017 tax year, the company can now repatriate non-
U.S. cash in a tax efficient manner. Accordingly, the company has reversed its prior assertion concerning the indefinite reinvestment
of the majority of its undistributed foreign earnings and has recorded a deferred tax liability for the incremental tax costs associated
with the future repatriation of such earnings.
92
SNAP-ON INCORPORATED
Note 10: Short-term and Long-term Debt
Short-term and long-term debt as of 2018 and 2017 year end consisted of the following:
(Amounts in millions)
4.25% unsecured notes due 2018
6.70% unsecured notes due 2019, paid in February 2018
6.125% unsecured notes due 2021
3.25% unsecured notes due 2027
4.10% unsecured notes due 2048
Other debt*
Less: notes payable and current maturities of long-term debt:
Current maturities of long-term debt
Commercial paper borrowings
Other notes
Total long-term debt
* Includes fair value adjustments related to interest rate swaps.
2018
2017
$
$
$
— $
—
250.0
300.0
400.0
182.3
1,132.3
— $
(177.1)
(9.2)
(186.3)
946.0
$
250.0
200.0
250.0
300.0
—
186.8
1,186.8
(250.0)
(151.0)
(32.2)
(433.2)
753.6
The annual maturities of Snap-on’s long-term debt and notes payable over the next five years are $186.3 million in 2019, no
maturities in 2020, $250 million in 2021, and no maturities in both 2022 and 2023.
Average notes payable outstanding, including commercial paper borrowings, were $167.7 million and $126.8 million in 2018 and
2017, respectively. The weighted-average interest rate of 2.84% in 2018 increased from 2.45% last year primarily due to the impact
of higher rates on commercial paper borrowings. Average commercial paper borrowings were $154.9 million and $103.3 million
in 2018 and 2017, respectively, and the weighted-average interest rate of 2.03% in 2018 increased from 1.14% last year. At 2018
year end, the weighted-average interest rate on outstanding notes payable of 3.21% compared with 2.34% at 2017 year end. The
2018 year-end rate increased primarily due to higher rates on commercial paper borrowings.
On February 20, 2018, Snap-on commenced a tender offer to repurchase $200 million in principal amount of its unsecured 6.70%
notes that were scheduled to mature on March 1, 2019 (the “2019 Notes”), with $26.1 million of the 2019 Notes tendered and
repaid on February 27, 2018. On February 20, 2018, Snap-on also issued a notice of redemption for remaining outstanding 2019
Notes not tendered, with the redemption completed on March 22, 2018. The total cash cost for this tender and redemption was
$209.1 million, including accrued interest of $1.5 million. Snap-on recorded $7.8 million for the loss on the early extinguishment
of debt related to the 2019 Notes, which included the redemption premium and other issuance costs associated with this debt in
“Other income (expense) - net” on the accompanying Consolidated Statement of Earnings. See Note 17 for additional information
on Other income (expense) - net.
On February 20, 2018, Snap-on sold, at a discount, $400 million of unsecured 4.10% long-term notes that mature on March 1,
2048 (the”2048 Notes”). Interest on the 2048 Notes accrues at a rate of 4.10% per year and is payable semi-annually beginning
September 1, 2018. Snap-on used a portion of the $395.4 million of net proceeds from the sale of the 2048 Notes, reflecting $3.5
million of transaction costs, to repay the 2019 Notes. The remaining net proceeds were used to repay a portion of its then-
outstanding commercial paper borrowings and for general corporate purposes.
2018 ANNUAL REPORT
93
Notes to Consolidated Financial Statements (continued)
Snap-on has a five-year, $700 million multi-currency revolving credit facility that terminates on December 15, 2020 (the “Credit
Facility”); no amounts were outstanding under the Credit Facility as of December 29, 2018. Borrowings under the Credit Facility
bear interest at varying rates based on Snap-on’s then-current, long-term debt ratings. The Credit Facility’s financial covenant
requires that Snap-on maintain, as of each fiscal quarter end, either (i) a ratio not greater than 0.60 to 1.00 of consolidated net debt
(consolidated debt net of certain cash adjustments) to the sum of such consolidated net debt plus total equity and less accumulated
other comprehensive income or loss (the “Debt Ratio”); or (ii) a ratio not greater than 3.50 to 1.00 of such consolidated net debt
to earnings before interest, taxes, depreciation, amortization and certain other adjustments for the preceding four fiscal quarters
then ended (the “Debt to EBITDA Ratio”). Snap-on may, up to two times during any five-year period during the term of the Credit
Facility (including any extensions thereof), increase the maximum Debt Ratio to 0.65 to 1.00 and/or increase the maximum Debt
to EBITDA Ratio to 3.75 to 1.00 for four consecutive fiscal quarters in connection with certain material acquisitions (as defined
in the related credit agreement). As of 2018 year end, the company’s actual ratios of 0.23 and 0.99, respectively, were both within
the permitted ranges set forth in this financial covenant. Snap-on generally issues commercial paper to fund its financing needs
on a short-term basis and uses the Credit Facility as back-up liquidity to support such commercial paper issuances.
Note 11: Financial Instruments
Derivatives: All derivative instruments are reported in the Consolidated Financial Statements at fair value. Changes in the fair
value of derivatives are recorded each period in earnings or on the accompanying Consolidated Balance Sheets, depending on
whether the derivative is designated and effective as part of a hedged transaction. Gains or losses on derivative instruments recorded
in Accumulated other comprehensive income (loss) (“Accumulated OCI”) must be reclassified to earnings in the period in which
earnings are affected by the underlying hedged item and the ineffective portion of all hedges must be recognized in earnings in
the period that such portion is determined to be ineffective.
The criteria used to determine if hedge accounting treatment is appropriate are: (i) the designation of the hedge to an underlying
exposure; (ii) whether or not overall risk is being reduced; and (iii) if there is a correlation between the value of the derivative
instrument and the underlying hedged item. On the date a derivative contract is entered into, Snap-on designates the derivative as
a fair value hedge, a cash flow hedge, a hedge of a net investment in a foreign operation, or a natural hedging instrument whose
change in fair value is recognized as an economic hedge against changes in the value of the hedged item. Snap-on does not use
derivative instruments for speculative or trading purposes.
The company is exposed to global market risks, including the effects of changes in foreign currency exchange rates, interest rates,
and the company’s stock price, and therefore uses derivatives to manage financial exposures that occur in the normal course of
business. The primary risks managed by using derivative instruments are foreign currency risk, interest rate risk and stock-based
deferred compensation risk.
Foreign currency risk management: Snap-on has significant international operations and is subject to certain risks inherent with
foreign operations that include currency fluctuations. Foreign currency exchange risk exists to the extent that Snap-on has payment
obligations or receipts denominated in currencies other than the functional currency, including intercompany loans denominated
in foreign currencies. To manage these exposures, Snap-on identifies naturally offsetting positions and then purchases hedging
instruments to protect the residual net exposures. Snap-on manages most of these exposures on a consolidated basis, which allows
for netting of certain exposures to take advantage of natural offsets. Foreign currency forward contracts (“foreign currency
forwards”) are used to hedge the net exposures. Gains or losses on net foreign currency hedges are intended to offset losses or
gains on the underlying net exposures in an effort to reduce the earnings volatility resulting from fluctuating foreign currency
exchange rates. Snap-on’s foreign currency forwards are typically not designated as hedges. The fair value changes of these
contracts are reported in earnings as foreign exchange gain or loss, which is included in “Other income (expense) – net” on the
accompanying Consolidated Statements of Earnings.
94
SNAP-ON INCORPORATED
As of 2018 year end, Snap-on had $26.3 million of net foreign currency forward buy contracts outstanding comprised of buy
contracts including $26.7 million in euros, $23.6 million in Swedish kronor, $21.0 million in Hong Kong dollars, $10.2 million
in Chinese renminbi, $8.6 million in Singapore dollars, $7.0 million in South Korean won, $6.3 million in Norwegian kroner, and
$5.1 million in other currencies, and sell contracts comprised of $37.4 million in British pounds, $14.6 million in Canadian dollars,
$11.0 million in Japanese yen, $8.2 million in Indian rupees, $4.1 million in Australian dollars, $3.1 million in Thai baht, and $3.8
million in other currencies. As of 2017 year end, Snap-on had $53.8 million of net foreign currency forward buy contracts outstanding
comprised of buy contracts including $64.9 million in euros, $15.4 million in Swedish kronor, $13.1 million in Hong Kong dollars,
$11.3 million in Singapore dollars, $6.8 million in South Korean won, $5.7 million in Norwegian kroner, and $8.0 million in other
currencies, and sell contracts comprised of $29.7 million in British pounds, $13.8 million in Canadian dollars, $11.8 million in
Australian dollars, $6.0 million in Indian rupees, $3.4 million in Thai baht, and $6.7 million in other currencies.
Interest rate risk management: Snap-on aims to control funding costs by managing the exposure created by the differing maturities
and interest rate structures of Snap-on’s borrowings through the use of interest rate swap agreements (“interest rate swaps”) and
treasury lock agreements (“treasury locks”).
Interest rate swaps: Snap-on enters into interest rate swaps to manage risks associated with changing interest rates related to the
company’s fixed rate borrowings. Interest rate swaps are accounted for as fair value hedges. The differentials paid or received on
interest rate swaps are recognized as adjustments to “Interest expense” on the accompanying Consolidated Statements of
Earnings. The effective portion of the change in fair value of the derivative is recorded in “Long-term debt” on the accompanying
Consolidated Balance Sheets, while any ineffective portion is recorded as an adjustment to “Interest expense” on the accompanying
Consolidated Statements of Earnings. The notional amount of interest rate swaps outstanding and designated as fair value hedges
was $100 million as of both 2018 and 2017 year end.
Treasury locks: Snap-on uses treasury locks to manage the potential change in interest rates in anticipation of the issuance of fixed
rate debt. Treasury locks are accounted for as cash flow hedges. The effective differentials to be paid or received on treasury locks
related to the anticipated issuance of fixed rate debt are initially recorded in Accumulated OCI, net of tax effect. 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 Consolidated Statements of Earnings.
Snap-on entered into a $300 million treasury lock in the fourth quarter of 2017 to manage the potential change in interest rates in
anticipation of the issuance of fixed rate debt in the first quarter of 2018. As of 2017 year end, an unrecognized gain of $0.8 million
had been recorded in Accumulated OCI on the accompanying Consolidated Balance Sheets.
In the first quarter of 2018, Snap-on settled the outstanding $300 million treasury lock after it was deemed to be an ineffective
hedge for the 2048 Notes which were issued in February 2018. The $13.3 million gain on the settlement of the treasury lock was
recorded in “Other income (expense) - net” on the accompanying Consolidated Statements of Earnings. The notional amount of
treasury locks outstanding and designated as cash flow hedges was zero as of December 29, 2018, and $300 million as of
December 30, 2017. See Note 17 for additional information on Other income (expense) - net.
In fiscal 2017, Snap-on settled a $250 million treasury lock in conjunction with the February 2017 issuance of $300 million of
unsecured 3.25% notes that mature on March 1, 2027 (the “2027 Notes”). The $14.9 million gain on the settlement of the treasury
lock was recorded in Accumulated OCI and is being amortized over the term of the 2027 Notes and recognized as an adjustment
to interest expense on the Consolidated Statements of Earnings. There were no treasury locks settled in 2016.
Stock-based deferred compensation risk management: Snap-on aims to manage market risk associated with the stock-based
portion of its deferred compensation plans through the use of prepaid equity forward agreements (“equity forwards”). Equity
forwards are used to aid in offsetting the potential mark-to-market effect on stock-based deferred compensation from changes in
Snap-on’s stock price. Since stock-based deferred compensation liabilities increase as the company’s stock price rises and decrease
as the company’s stock price declines, the equity forwards are intended to mitigate the potential impact on deferred compensation
expense that may result from such mark-to-market changes. As of 2018 and 2017 year end, Snap-on had equity forwards in place
intended to manage market risk with respect to 99,100 shares and 102,300 shares, respectively, of Snap-on common stock associated
with its deferred compensation plans.
2018 ANNUAL REPORT
95
Notes to Consolidated Financial Statements (continued)
Fair value measurements: Snap-on has derivative assets and liabilities related to interest rate swaps, treasury locks, foreign
currency forwards and equity forwards that are measured at Level 2 fair value on a recurring basis. The fair values of derivative
instruments included within the accompanying Consolidated Balance Sheets as of 2018 and 2017 year end are as follows:
(Amounts in millions)
Derivatives designated as
hedging instruments:
Interest rate swaps
Treasury locks
Derivatives not designated as
hedging instruments:
Foreign currency forwards
Foreign currency forwards
Equity forwards
Total derivative instruments
2018
2017
Balance Sheet
Presentation
Asset
Derivatives
Fair Value
Liability
Derivatives
Fair Value
Asset
Derivatives
Fair Value
Liability
Derivatives
Fair Value
Other assets
Other assets
Prepaid expenses and
other assets
Other accrued liabilities
Prepaid expenses and
other assets
$
$
$
4.6
—
4.6
2.8
—
14.3
17.1
21.7
$
$
$
— $
—
—
— $
3.2
—
3.2
3.2
$
7.3
1.4
8.7
4.1
—
17.8
21.9
30.6
$
$
$
—
—
—
—
6.5
—
6.5
6.5
As of 2018 and 2017 year end, the fair value adjustment to long-term debt related to the interest rate swaps was $4.6 million and
$7.3 million, respectively.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between participants at the measurement date. Level 2 fair value measurements for derivative assets and liabilities are measured
using quoted prices in active markets for similar assets and liabilities. Interest rate swaps are valued based on the six-month LIBOR
swap rate for similar instruments. Treasury locks are valued based on the 10-year U.S. treasury interest rate. Foreign currency
forwards are valued based on exchange rates quoted by domestic and foreign banks for similar instruments. Equity forwards are
valued using a market approach based primarily on the company’s stock price at the reporting date. The company did not have
any derivative assets or liabilities measured at Level 1 or Level 3, nor did it implement any changes in its valuation techniques as
of and for its 2018 and 2017 years ended.
The effect of derivative instruments designated as fair value hedges as included in the Consolidated Statements of Earnings is as
follows:
(Amounts in millions)
Derivatives designated as fair
value hedges:
Interest rate swaps
Statement of
Earnings
Presentation
Effective Portion of Gain
Recognized in Income
2017
2016
2018
Interest expense
$
1.5
$
2.8
$
2.9
The effect of derivative instruments designated as cash flow hedges as included in Accumulated OCI on the Consolidated Balance
Sheets and the Consolidated Statements of Earnings is as follows:
Effective Portion of Gain
Recognized in
Accumulated OCI
2017
2016
2018
(Amounts in millions)
Derivatives designated as
cash flow hedges:
Treasury locks
$
(0.8) $
6.9
$
8.8
Statement of
Earnings
Presentation
Interest
expense
96
SNAP-ON INCORPORATED
Effective Portion of Gain
Reclassified from
Accumulated OCI into
Income
2017
2016
2018
$
1.5
$
1.6
$
0.3
The effects of derivative instruments not designated as hedging instruments as included in the Consolidated Statements of Earnings
are as follows:
(Amounts in millions)
Derivatives not designated as hedging
instruments:
Foreign currency forwards
Equity forwards
Statement of
Earnings
Presentation
Gain (Loss) Recognized in
Income
2017
2016
2018
Other income
(expense) – net
$
Operating expenses
(40.4)
(2.1)
(25.8)
0.9
(7.4)
0.8
Snap-on’s foreign currency forwards are typically not designated as hedges for financial reporting purposes. The fair value changes
of foreign currency forwards not designated as hedging instruments are reported in earnings as foreign exchange gain or loss in
“Other income (expense) – net” on the accompanying Consolidated Statements of Earnings. In 2018, the $40.4 million derivative
loss was substantially offset by transaction gains on net exposures of $36.5 million, resulting in a net foreign exchange loss of
$3.9 million. In 2017, the $25.8 million derivative loss was partially offset by transaction gains on net exposures of $18.8 million,
resulting in a net foreign exchange loss of $7.0 million. In 2016, the $7.4 million derivative loss was partially offset by transaction
gains on net exposures of $6.1 million, resulting in a net foreign exchange loss of $1.3 million. The resulting net foreign exchange
losses are included in “Other income (expense) – net” on the accompanying Consolidated Statements of Earnings. See Note 17
for additional information on “Other income (expense) – net.”
Snap-on’s equity forwards are not designated as hedges for financial reporting purposes. Fair value changes of both the equity
forwards and related stock-based (mark-to-market) deferred compensation liabilities are reported in “Operating expenses” on the
accompanying Consolidated Statements of Earnings. The $2.1 million derivative loss recognized in 2018 was primarily offset by
$2.0 million of mark-to-market deferred compensation gain. The $0.9 million derivative gain recognized in 2017 was primarily
offset by $0.8 million of mark-to-market deferred compensation expense. The $0.8 million derivative gain recognized in 2016 was
largely offset by $0.3 million of mark-to-market deferred compensation expense.
As of 2018 year end, the maximum maturity date of any fair value hedge was three years. During the next 12 months, Snap-on
expects to reclassify into earnings net gains from Accumulated OCI of approximately $1.1 million after tax at the time the underlying
hedge transactions are realized.
Counterparty risk: Snap-on is exposed to credit losses in the event of non-performance by the counterparties to its various
financial agreements, including its foreign currency forward contracts, interest rate swap agreements, treasury lock agreements
and prepaid equity forward agreements. Snap-on does not obtain collateral or other security to support financial instruments subject
to credit risk, but monitors the credit standing of the counterparties and generally enters into agreements with financial institution
counterparties with a credit rating of A- or better. Snap-on does not anticipate non-performance by its counterparties, but cannot
provide assurances.
Fair value of financial instruments: The fair values of financial instruments that do not approximate the carrying values in the
financial statements as of 2018 and 2017 year end are as follows:
(Amounts in millions)
Finance receivables – net
Contract receivables – net
Long-term debt, notes payable and current
maturities of long-term debt
2018
2017
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
$
$
1,592.9
443.2
$
1,845.4
481.2
$
1,544.6
419.4
1,132.3
1,136.0
1,186.8
1,791.5
459.1
1,235.6
2018 ANNUAL REPORT
97
Notes to Consolidated Financial Statements (continued)
The following methods and assumptions were used in estimating the fair value of financial instruments:
•
•
Finance and contract receivables include both short-term and long-term receivables. The fair value estimates of finance
and contract receivables are derived utilizing discounted cash flow analyses performed on groupings of receivables that
are similar in terms of loan type and characteristics. The cash flow analyses consider recent prepayment trends where
applicable. The cash flows are discounted over the average life of the receivables using a current market discount rate of
a similar term adjusted for credit quality. Significant inputs to the fair value measurements of the receivables are
unobservable and, as such, are classified as Level 3.
Fair value of long-term debt and current maturities of long-term debt were estimated, using Level 2 fair value
measurements, based on quoted market values of Snap-on’s publicly traded senior debt. The carrying value of long-term
debt includes adjustments related to fair value hedges. The fair value of notes payable approximates such instruments’
carrying value due to their short-term nature.
• The fair value of all other financial instruments, including trade and other accounts receivable, accounts payable and other
financial instruments, approximates such instruments’ carrying value due to their short-term nature.
Note 12: Pension Plans
Snap-on has several non-contributory defined benefit pension plans covering most U.S. employees and certain employees in foreign
countries. Snap-on also has foreign contributory defined benefit pension plans covering certain foreign employees. Retirement
benefits are generally provided based on employees’ years of service and average earnings or stated amounts for years of service.
Normal retirement age is 65, with provisions for earlier retirement.
The status of Snap-on’s pension plans as of 2018 and 2017 year end is as follows:
(Amounts in millions)
Change in projected benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Plan participant contributions
Plan amendments
Plan settlements
Benefits paid
Actuarial (gain) loss
Foreign currency impact
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Actual (loss) gain on plan assets
Employer contributions
Plan participant contributions
Plan settlements
Benefits paid
Foreign currency impact
Fair value of plan assets at end of year
Unfunded status at end of year
2018
2017
1,467.6
25.1
52.8
0.5
1.0
—
(68.5)
(77.9)
(13.7)
1,386.9
$
$
$
1,305.0
(72.8)
61.3
0.5
—
(68.5)
(9.9)
1,215.6
$
(171.3) $
1,361.4
22.7
56.1
0.6
—
(0.3)
(66.6)
69.5
24.2
1,467.6
1,110.8
175.7
69.6
0.6
(0.3)
(66.6)
15.2
1,305.0
(162.6)
$
$
$
$
$
98
SNAP-ON INCORPORATED
Amounts recognized in the Consolidated Balance Sheets as of 2018 and 2017 year end are as follows:
(Amounts in millions)
Other assets
Accrued benefits
Pension liabilities
Net liability
2018
2017
$
$
$
4.3
(4.3)
(171.3)
(171.3) $
1.5
(5.2)
(158.9)
(162.6)
Amounts included in Accumulated OCI on the accompanying Consolidated Balance Sheets as of 2018 and 2017 year end are as
follows:
(Amounts in millions)
Net loss, net of tax of $158.8 million and $146.4 million, respectively
Prior service credit, net of tax of $0.4 million and $0.9 million, respectively
2018
2017
$
$
(301.9) $
(0.2)
(302.1) $
(266.7)
1.5
(265.2)
The accumulated benefit obligation for Snap-on’s pension plans as of 2018 and 2017 year end was $1,316.1 million and $1,385.0
million, respectively.
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for Snap-on’s pension plans in which
the accumulated benefit obligation exceeds the fair value of plan assets as of 2018 and 2017 year end are as follows:
(Amounts in millions)
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
2018
2017
$
$
1,081.3
1,028.6
916.2
398.7
378.1
275.6
The components of net periodic benefit cost and changes recognized in “Other comprehensive income (loss)” (“OCI”) are as
follows:
(Amounts in millions)
Net periodic benefit cost:
Service cost
Interest cost
Expected return on plan assets
Amortization of unrecognized loss
Amortization of prior service credit
Settlement loss
Net periodic benefit cost
Changes in benefit obligations recognized in OCI, net of
tax:
Net (gain) loss
Prior service cost
Total recognized in OCI
2018
2017
2016
$
$
$
$
25.1
52.8
(88.6)
32.7
(1.2)
—
20.8
35.2
1.7
36.9
$
$
$
$
22.7
56.1
(83.4)
27.9
(1.1)
0.1
22.3
$
$
(30.3) $
0.7
(29.6) $
19.3
56.5
(81.0)
31.3
(1.1)
—
25.0
43.3
0.6
43.9
The components of net periodic pension cost, other than the service cost component, are included in “Other income (expense) -
net” on the accompanying Consolidated Statements of Earnings. See Note 17 for additional information on Other income (expense)
- net.
2018 ANNUAL REPORT
99
Notes to Consolidated Financial Statements (continued)
Amounts in Accumulated OCI that are expected to be amortized as net expense into net periodic benefit cost during 2019 are as
follows:
(Amounts in millions)
Amortization of unrecognized loss
Amortization of prior service credit
Total to be recognized in net periodic benefit cost
Amount
24.9
(0.9)
24.0
$
$
The worldwide weighted-average assumptions used to determine Snap-on’s full-year pension costs are as follows:
Discount rate
Expected return on plan assets
Rate of compensation increase
2018
3.7%
7.1%
3.4%
2017
4.2%
7.2%
3.4%
2016
4.5%
7.4%
3.6%
The worldwide weighted-average assumptions used to determine Snap-on’s projected benefit obligation as of 2018 and 2017 year
end are as follows:
Discount rate
Rate of compensation increase
2018
4.4%
3.4%
2017
3.7%
3.4%
The objective of Snap-on’s discount rate assumption is to reflect the rate at which the pension benefits could be effectively settled. In
making this determination, the company takes into account the timing and amount of benefits that would be available under the
plans. The domestic discount rate as of 2018 and 2017 year end was selected based on a cash flow matching methodology developed
by the company’s outside actuaries and which incorporates a review of current economic conditions. This methodology matches
the plans’ yearly projected cash flows for benefits and service costs to those of hypothetical bond portfolios using high-quality,
AA rated or better, corporate bonds from either Moody’s Investors Service or Standard & Poor’s credit rating agencies available
at the measurement date. This technique calculates bond portfolios that produce adequate cash flows to pay the plans’ projected
yearly benefits and then selects the portfolio with the highest yield and uses that yield as the recommended discount rate.
The weighted-average discount rate for Snap-on’s domestic pension plans of 4.4% represents the single rate that produces the
same present value of cash flows as the estimated benefit plan payments. Lowering Snap-on’s domestic discount rate assumption
by 50 basis points (100 basis points (“bps”) equals 1.0 percent) would have increased Snap-on’s 2018 domestic pension expense
and projected benefit obligation by approximately $3.7 million and $62.9 million, respectively. As of 2018 year end, Snap-on’s
domestic projected benefit obligation comprised approximately 83% of Snap-on’s worldwide projected benefit obligation. The
weighted-average discount rate for Snap-on’s foreign pension plans of 3.0% represents the single rate that produces the same
present value of cash flows as the estimated benefit plan payments. Lowering Snap-on’s foreign discount rate assumption by 50
bps would have increased Snap-on’s 2018 foreign pension expense and projected benefit obligation by approximately $1.9 million
and $21.0 million, respectively.
Actuarial gains and losses in excess of 10 percent of the greater of the projected benefit obligation or market-related value of assets
are amortized on a straight-line basis over the average remaining service period of active participants or over the average remaining
life expectancy for plans with primarily inactive participants. Prior service costs and credits resulting from plan amendments are
amortized in equal annual amounts over the average remaining service period of active participants or over the average remaining
life expectancy for plans with primarily inactive participants.
As a practical expedient, Snap-on uses the calendar year end as the measurement date for its plans. Snap-on funds its pension plans
as required by governmental regulation and may consider discretionary contributions as conditions warrant. Snap-on intends to
make contributions of $9.4 million to its foreign pension plans and $1.9 million to its domestic pension plans in 2019, as required
by law. Depending on market and other conditions, Snap-on may make discretionary cash contributions to its pension plans in
2019.
100
SNAP-ON INCORPORATED
The following benefit payments, which reflect expected future service, are expected to be paid as follows:
(Amounts in millions)
Year:
2019
2020
2021
2022
2023
2024-2028
Amount
$
76.2
80.1
82.4
92.4
88.8
474.9
Snap-on’s domestic pension plans have a long-term investment horizon and a total return strategy that emphasizes a capital growth
objective. The long-term investment performance objective for Snap-on’s domestic plans’ assets is to achieve net of expense returns
that meet or exceed the 7.45% domestic long-term return on plan assets assumption used for reporting purposes. Snap-on uses a
three-year, market-related value asset method of amortizing the difference between actual and expected returns on its domestic
plans’ assets. As of 2018 year end, Snap-on’s domestic pension plans’ assets comprised approximately 86% of the company’s
worldwide pension plan assets.
The basis for determining the overall expected long-term return on plan assets assumption is a nominal returns forecasting method.
For each asset class, future returns are estimated by identifying the premium of riskier asset classes over lower risk alternatives.
The methodology constructs expected returns using a “building block” approach to the individual components of total return.
These forecasts are stated in both nominal and real (after inflation) terms. This process first considers the long-term historical
return premium based on the longest set of data available for each asset class. These premiums, which are calculated using the
geometric mean, are then adjusted based on current relative valuation levels, macro-economic conditions, and the expected alpha
related to active investment management. The asset return assumption is also adjusted by an implicit expense load for estimated
administrative and investment-related expenses.
For risk and correlation assumptions, the actual experience for each asset class is reviewed for the longest time period available.
Expected relationships for a 10 to 20 year time horizon are determined based upon historical results, with adjustments made for
material changes.
Investments are diversified to attempt to minimize the risk of large losses. Since asset allocation is a key determinant of expected
investment returns, assets are periodically rebalanced to the targeted allocation to correct significant deviations from the asset
allocation policy that are caused by market fluctuations and cash flow. Asset/liability studies are conducted periodically to determine
if any revisions to the strategic asset allocation policy are necessary.
Snap-on’s domestic pension plans’ target allocation and actual weighted-average asset allocation by asset category and fair value
of plan assets as of 2018 and 2017 year end are as follows:
Asset category:
Equity securities
Debt securities and cash and cash equivalents
Real estate and other real assets
Hedge funds
Total
Target
2018
2017
51%
37%
2%
10%
100%
49%
40%
1%
10%
100%
51%
38%
1%
10%
100%
Fair value of plan assets (Amounts in millions)
$
1,049.0
$
1,122.7
The fair value measurement hierarchy prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority
(“Level 1”) to unadjusted quoted prices in active markets for identical assets and liabilities and the lowest priority (“Level 3”) to
unobservable inputs. Fair value measurements primarily based on observable market information are given a “Level 2” priority.
2018 ANNUAL REPORT
101
Notes to Consolidated Financial Statements (continued)
Certain equity and debt securities are valued at quoted per share or unit market prices for which an official close or last trade
pricing on an active exchange is available and are categorized as Level 1 in the fair value hierarchy. If quoted market prices are
not readily available for specific securities, values are estimated using quoted prices of securities with similar characteristics and
are categorized as Level 2 in the fair value hierarchy. Insurance contracts are valued at the present value of the estimated future
cash flows promised under the terms of the insurance contracts and are categorized as Level 2 in the fair value hierarchy.
Commingled equity securities and commingled multi-strategy funds are valued at the Net Asset Value (“NAV”) per share or unit
multiplied by the number of shares or units held as of the measurement date, as reported by the fund managers. The share or unit
price is quoted on a private market and is based on the value of the underlying investments, which are primarily based on observable
inputs; such investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not
been classified in the fair value hierarchy.
Private equity partnership funds, hedge funds, and real estate and other real assets are valued at the NAV as reported by the fund
managers. Private equity partnership funds, certain hedge funds, and certain real estate and other real assets are valued based on
the proportionate interest or share of net assets held by the pension plan, which is based on the estimated fair market value of the
underlying investments. Certain other hedge funds and real estate and other real assets are valued at the NAV per share or unit
multiplied by the number of shares or units held as of the measurement date, based on the estimated value of the underlying
investments as reported by the fund managers. These investments are measured at fair value using the NAV per share (or its
equivalent) practical expedient and have not been classified in the fair value hierarchy.
The company regularly reviews fund performance directly with its investment advisor and the fund managers, and performs
qualitative analysis to corroborate the reasonableness of the reported NAVs. For funds for which the company did not receive a
year-end NAV, the company recorded an estimate of the change in fair value for the latest period based on return estimates and
other fund activity obtained from the fund managers.
The columns labeled “Investments Measured at NAV” in the following tables reflect certain investments that are measured at fair
value using the NAV per share (or its equivalent) practical expedient and have not been categorized in the fair value hierarchy.
The fair value amounts presented in these tables are intended to permit a reconciliation of the fair value hierarchy to the pension
plan assets.
The following is a summary, by asset category, of the fair value and the level within the fair value hierarchy of Snap-on’s domestic
pension plans’ assets as of 2018 year end:
(Amounts in millions)
Asset category:
Cash and cash equivalents
Equity securities:
Domestic
Foreign
Commingled funds – domestic
Commingled funds – foreign
Private equity partnerships
Debt securities:
Government
Corporate bonds
Real estate and other real assets
Hedge funds
Total
Quoted
Prices for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Investments
Measured at
NAV
Total
$
17.8
$
— $
— $
17.8
70.5
87.5
—
—
—
131.2
—
—
—
307.0
$
—
—
—
—
—
2.6
271.3
—
—
273.9
$
—
—
200.6
128.4
22.7
—
—
11.9
104.5
468.1
$
70.5
87.5
200.6
128.4
22.7
133.8
271.3
11.9
104.5
1,049.0
$
102
SNAP-ON INCORPORATED
The following is a summary, by asset category, of the fair value and the level within the fair value hierarchy of Snap-on’s domestic
pension plans’ assets as of 2017 year end:
(Amounts in millions)
Asset category:
Cash and cash equivalents
Equity securities:
Domestic
Foreign
Commingled funds – domestic
Commingled funds – foreign
Private equity partnerships
Debt securities:
Government
Corporate bonds
Real estate and other real assets
Hedge funds
Total
Quoted
Prices for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Investments
Measured at
NAV
Total
$
20.6
$
— $
— $
20.6
73.4
100.1
—
—
—
152.8
—
—
—
346.9
$
—
—
—
—
—
2.2
253.0
—
—
255.2
$
—
—
225.0
148.8
27.5
—
—
13.2
106.1
520.6
$
73.4
100.1
225.0
148.8
27.5
155.0
253.0
13.2
106.1
1,122.7
$
Snap-on’s primary investment objective for its foreign pension plans’ assets is to meet the projected obligations to the beneficiaries
over a long period of time, and to do so in a manner that is consistent with the company’s risk tolerance. The foreign asset allocation
policies consider the company’s financial strength and long-term asset class risk/return expectations, since the obligations are long
term in nature. The company believes the foreign pension plans’ assets, which are managed locally by professional investment
firms, are well diversified.
The expected long-term rates of return on foreign plans’ assets, which ranged from 2.0% to 6.1% as of 2018 year end, reflect
management’s expectations of long-term average rates of return on funds invested to provide benefits included in the plans’
projected benefit obligation. The expected returns are based on outlooks for inflation, fixed income returns and equity returns,
asset allocations and investment strategies. Differences between actual and expected returns on foreign pension plans’ assets are
recorded as an actuarial gain or loss and amortized accordingly.
Snap-on’s foreign pension plans’ target allocation and actual weighted-average asset allocation by asset category and fair value
of plan assets as of 2018 and 2017 year end are as follows:
Asset category:
Equity securities*
Debt securities* and cash and cash equivalents
Insurance contracts and hedge funds
Total
Target
35%
40%
25%
100%
2018
35%
42%
23%
100%
2017
36%
42%
22%
100%
Fair value of plan assets (Amounts in millions)
$166.6
$182.3
* Includes commingled funds - multi-strategy
2018 ANNUAL REPORT
103
Notes to Consolidated Financial Statements (continued)
The following is a summary, by asset category, of the fair value and the level within the fair value hierarchy of Snap-on’s foreign
pension plans’ assets as of 2018 year end:
(Amounts in millions)
Asset category:
Cash and cash equivalents
Commingled funds – multi-strategy
Debt securities:
Government
Corporate bonds
Insurance contracts
Hedge fund
Total
Quoted
Prices for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Investments
Measured at
NAV
Total
$
$
1.2
—
8.3
—
—
—
9.5
$
$
— $
—
—
17.5
23.8
—
41.3
$
— $
101.5
—
—
—
14.3
115.8
$
1.2
101.5
8.3
17.5
23.8
14.3
166.6
The following is a summary, by asset category, of the fair value and the level within the fair value hierarchy of Snap-on’s foreign
pension plans’ assets as of 2017 year end:
(Amounts in millions)
Asset category:
Cash and cash equivalents
Commingled funds – multi-strategy
Debt securities:
Government
Corporate bonds
Insurance contracts
Hedge fund
Total
Quoted
Prices for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Investments
Measured at
NAV
Total
$
$
0.7
—
8.8
—
—
—
9.5
$
$
— $
—
—
18.3
24.2
—
42.5
$
— $
114.2
—
—
—
16.1
130.3
$
0.7
114.2
8.8
18.3
24.2
16.1
182.3
Snap-on has several 401(k) plans covering certain U.S. employees. Snap-on’s employer match to the 401(k) plans is made with
cash contributions. For 2018, 2017 and 2016, Snap-on recognized $9.4 million, $8.9 million and $8.2 million, respectively, of
expense related to its 401(k) plans.
Note 13: Postretirement Plans
Snap-on provides health care benefits for certain retired U.S. employees. Employees retiring prior to 1989 were eligible for retiree
medical coverage upon reaching early retirement age, with no retiree contributions required. Benefits are paid based on deductibles
and percentages of covered expenses and take into consideration payments made by Medicare and other insurance coverage.
Since 1989, U.S. retirees have been eligible for comprehensive major medical plans. Benefits are paid based on deductibles and
percentages of covered expenses, and plan provisions allow for benefit and coverage changes. Most retirees are required to pay
the entire cost of the coverage, but Snap-on may elect to subsidize the cost of coverage under certain circumstances.
Snap-on has a Voluntary Employees Beneficiary Association (“VEBA”) trust for the funding of existing postretirement health care
benefits for certain non-salaried retirees in the United States; all other retiree health care plans are unfunded.
104
SNAP-ON INCORPORATED
The status of Snap-on’s U.S. postretirement health care plans as of 2018 and 2017 year end is as follows:
(Amounts in millions)
Change in accumulated postretirement benefit obligation:
2018
2017
Benefit obligation at beginning of year
Service cost
Interest cost
Plan participant contributions
Benefits paid
Actuarial (gain) loss
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Plan participant contributions
Benefits paid
Fair value of plan assets at end of year
Unfunded status at end of year
$
$
$
$
$
$
$
$
52.5
—
1.8
0.3
(4.5)
(3.3)
46.8
13.4
(0.2)
3.1
0.3
(4.5)
12.1
$
(34.7) $
Amounts recognized in the Consolidated Balance Sheets as of 2018 and 2017 year end are as follows:
(Amounts in millions)
Accrued benefits
Retiree health care benefits
Net liability
2018
2017
$
$
(2.9) $
(31.8)
(34.7) $
53.2
—
2.1
0.4
(4.3)
1.1
52.5
13.2
1.3
2.8
0.4
(4.3)
13.4
(39.1)
(3.1)
(36.0)
(39.1)
Amounts included in Accumulated OCI on the accompanying Consolidated Balance Sheets as of 2018 and 2017 year end are as
follows:
(Amounts in millions)
Net gain, net of tax of $3.1 million and $2.6 million, respectively
2018
2017
$
5.6
$
4.2
The components of net periodic benefit cost and changes recognized in OCI are as follows:
(Amounts in millions)
Net periodic benefit cost:
Service cost
Interest cost
Expected return on plan assets
Amortization of unrecognized gain
Net periodic benefit cost
Changes in benefit obligations recognized in OCI, net of tax:
Net (gain) loss
2018
2017
2016
$
$
$
— $
1.8
(0.8)
(0.4)
0.6
$
— $
2.1
(0.8)
(0.3)
1.0
$
0.1
2.2
(0.9)
(0.1)
1.3
(1.4) $
0.6
$
(0.3)
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 Consolidated Statements of Earnings. See Note 17 for additional information on
Other income (expense) - net.
2018 ANNUAL REPORT
105
Notes to Consolidated Financial Statements (continued)
Snap-on expects to recognize $0.8 million of prior unrecognized gains, included in Accumulated OCI on the accompanying 2018
Consolidated Balance Sheet, in net periodic benefit cost during 2019.
The weighted-average discount rate used to determine Snap-on’s postretirement health care expense is as follows:
Discount rate
2018
3.6%
2017
4.1%
The weighted-average discount rate used to determine Snap-on’s accumulated benefit obligation is as follows:
Discount rate
2018
4.2%
2016
4.1%
2017
3.6%
The methodology for selecting the year-end 2018 and 2017 weighted-average discount rate for the company’s domestic
postretirement plans was to match the plans’ yearly projected cash flows for benefits and service costs to those of hypothetical
bond portfolios using high-quality, AA rated or better, corporate bonds from either Moody’s Investors Service or Standard & Poor’s
credit rating agencies available at the measurement date. As a practical expedient, Snap-on uses the calendar year end as the
measurement date for its plans.
For 2019, the actuarial calculations assume a pre-65 health care cost trend rate of 5.7% and a post-65 health care cost trend rate
of 6.3%, both decreasing gradually to 4.5% in 2038 and thereafter. As of 2018 year end, a one-percentage-point increase in the
health care cost trend rate for future years would increase the accumulated postretirement benefit obligation by approximately
$0.5 million and the aggregate of the service cost and interest cost components by less than $0.1 million. Conversely, a one-
percentage-point decrease in the health care cost trend rate for future years would decrease the accumulated postretirement benefit
obligation by $0.6 million and the aggregate of the service cost and interest rate components by less than $0.1 million.
The following benefit payments, which reflect expected future service, are expected to be paid as follows:
(Amounts in millions)
Year:
2019
2020
2021
2022
2023
2024-2028
Amount
$
3.8
3.9
4.0
4.1
4.1
21.2
The objective of the VEBA trust is to achieve net of expense returns that meet or exceed the 6.3% long-term return on plan assets
assumption used for reporting purposes. Investments are diversified to attempt to minimize the risk of large losses. Since asset
allocation is a key determinant of expected investment returns, assets are periodically rebalanced to the targeted allocation to
correct significant deviations from the asset allocation policy that are caused by market fluctuations and cash flow.
The basis for determining the overall expected long-term return on plan assets assumption is a nominal returns forecasting method.
For each asset class, future returns are estimated by identifying the premium of riskier asset classes over lower risk alternatives.
The methodology constructs expected returns using a “building block” approach to the individual components of total return.
These forecasts are stated in both nominal and real (after inflation) terms. This process first considers the long-term historical
return premium based on the longest set of data available for each asset class. These premiums, which are calculated using the
geometric mean, are then adjusted based on current relative valuation levels and macro-economic conditions. The asset return
assumption is also adjusted by an implicit expense load for estimated administrative and investment-related expenses.
106
SNAP-ON INCORPORATED
Snap-on’s VEBA plan target allocation and actual weighted-average asset allocation by asset category and fair value of plan assets
as of 2018 and 2017 year end are as follows:
Asset category:
Debt securities and cash and cash equivalents
Equity securities
Hedge funds
Total
Target
2018
2017
46%
29%
25%
100%
56%
26%
18%
100%
42%
29%
29%
100%
Fair value of plan assets (Amounts in millions)
$
12.1
$
13.4
The fair value measurement hierarchy prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority
(Level 1) to unadjusted quoted prices in active markets for identical assets and liabilities and the lowest priority (Level 3) to
unobservable inputs. Fair value measurements primarily based on observable market information are given a Level 2 priority.
Debt securities are valued at quoted per share or unit market prices for which an official close or last trade pricing on an active
exchange is available and are categorized as Level 1 in the fair value hierarchy.
Equity securities are valued at the NAV per share or unit multiplied by the number of shares or units held as of the measurement
date, as reported by the fund managers. The share or unit price is quoted on a private market and is based on the value of the
underlying investments, which are primarily based on observable inputs; such investments that are measured at fair value using
the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.
Hedge funds are stated at the NAV per share or unit (based on the estimated fair market value of the underlying investments)
multiplied by the number of shares or units held as of the measurement date, as reported by the fund managers. These investments
are measured at fair value using the NAV per share (or its equivalent) practical expedient and have not been classified in the fair
value hierarchy.
The company regularly reviews fund performance directly with its investment advisor and the fund managers, and performs
qualitative analysis to corroborate the reasonableness of the reported NAVs. For funds for which the company did not receive a
year-end NAV, the company recorded an estimate of the change in fair value for the latest period based on return estimates and
other fund activity obtained from the fund managers.
The columns labeled “Investments Measured at NAV” in the following tables are measured at fair value using the NAV per share
(or its equivalent) practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented
in these tables are intended to permit a reconciliation of the fair value hierarchy to the VEBA plan assets.
The following is a summary, by asset category, of the fair value and the level within the fair value hierarchy of the VEBA plan
assets as of 2018 year end:
(Amounts in millions)
Asset category:
Cash and cash equivalents
Debt securities
Equity securities
Hedge fund
Total
Quoted
Prices for
Identical
Assets
(Level 1)
Investments
Measured at
NAV
Total
$
$
1.3
5.5
—
—
6.8
$
$
— $
—
3.1
2.2
5.3
$
1.3
5.5
3.1
2.2
12.1
2018 ANNUAL REPORT
107
Notes to Consolidated Financial Statements (continued)
The following is a summary, by asset category, of the fair value and the level within the fair value hierarchy of the VEBA plan
assets as of 2017 year end:
(Amounts in millions)
Asset category:
Cash and cash equivalents
Debt securities
Equity securities
Hedge fund
Total
Quoted
Prices for
Identical
Assets
(Level 1)
Investments
Measured at
NAV
Total
$
$
0.2
5.5
—
—
5.7
$
$
— $
—
3.8
3.9
7.7
$
0.2
5.5
3.8
3.9
13.4
Note 14: Stock-based Compensation and Other Stock Plans
The 2011 Incentive Stock and Awards Plan (the “2011 Plan”) provides for the grant of stock options, performance awards, stock
appreciation rights (“SARs”) and restricted stock awards (which may be designated as “restricted stock units” or “RSUs”). No
further grants are being made under its predecessor, the 2001 Incentive Stock and Awards Plan (the “2001 Plan”), although
outstanding awards under the 2001 Plan will continue in accordance with their terms. As of 2018 year end, the 2011 Plan had
2,654,112 shares available for future grants. The company uses treasury stock to deliver shares under both the 2001 and 2011
Plans.
Net stock-based compensation expense was $27.2 million in 2018, $30.3 million in 2017 and $31.0 million in 2016. Cash received
from stock purchase and option plan exercises was $55.5 million in 2018, $46.2 million in 2017 and $41.8 million in 2016. The
tax benefit realized from both the exercise and vesting of share-based payment arrangements was $14.8 million in 2018, $20.9
million in 2017 and $24.8 million in 2016.
Stock Options
Stock options are granted with an exercise price equal to the market value of a share of Snap-on’s common stock on the date of
grant and have a contractual term of ten years. Stock option grants vest ratably on the first, second and third anniversaries of the
date of grant.
The fair value of each stock option award is estimated on the date of grant using the Black-Scholes valuation model. The company
uses historical data regarding stock option exercise and forfeiture behaviors for different participating groups to estimate the period
of time that options granted are expected to be outstanding. Expected volatility is based on the historical volatility of the company’s
stock for the length of time corresponding to the expected term of the option. The expected dividend yield is based on the company’s
historical dividend payments. The risk-free interest rate is based on the U.S. treasury yield curve on the grant date for the expected
term of the option.
The following weighted-average assumptions were used in calculating the fair value of stock options granted during 2018, 2017
and 2016, using the Black-Scholes valuation model:
Expected term of option (in years)
Expected volatility factor
Expected dividend yield
Risk-free interest rate
2018
2017
2016
5.35
20.08%
1.68%
2.71%
5.15
22.01%
1.63%
1.78%
5.05
22.17%
1.77%
1.04%
108
SNAP-ON INCORPORATED
A summary of stock option activity during 2018 is presented below:
Outstanding at beginning of year
Granted
Exercised
Forfeited or expired
Outstanding at end of year
Exercisable at end of year
* Weighted-average
$
Shares
(in thousands)
3,198
515
(537)
(46)
3,130
2,047
Exercise
Price per
Share*
Remaining
Contractual
Term*
(in years)
Aggregate
Intrinsic
Value
(in millions)
115.30
161.18
84.00
159.33
127.57
110.48
$
6.3
5.1
75.3
74.1
The weighted-average grant date fair value of options granted was $30.21 in 2018, $31.13 in 2017 and $22.99 in 2016. The intrinsic
value of options exercised was $43.8 million in 2018, $33.3 million in 2017 and $35.2 million in 2016. The fair value of stock
options vested was $16.0 million in 2018, $14.0 million in 2017 and $12.7 million in 2016.
As of 2018 year end, there was $18.0 million of unrecognized compensation cost related to non-vested stock options that is expected
to be recognized as a charge to earnings over a weighted-average period of 1.4 years.
Performance Awards
Performance awards, which are granted as performance share units (“PSUs”) and performance-based RSUs, are earned and
expensed using the fair value of the award over a contractual term of three years based on the company’s performance. Vesting of
the performance awards is dependent upon performance relative to pre-defined goals for revenue growth and return on net assets
for the applicable performance period. For performance achieved above specified levels, the recipient may earn additional shares
of stock, not to exceed 100% of the number of performance awards initially granted.
The PSUs have a three-year performance period based on the results of the consolidated financial metrics of the company. The
performance-based RSUs have a one-year performance period based on the results of the consolidated financial metrics of the
company followed by a two-year cliff vesting schedule, assuming continued employment.
The fair value of performance awards is calculated using the market value of a share of Snap-on’s common stock on the date of
grant and assumed forfeitures based on recent historical experience; in recent years, forfeitures have not been significant. The
weighted-average grant date fair value of performance awards granted during 2018, 2017 and 2016 was $161.18, $168.70 and
$138.83, respectively. Vested PSUs totaled 32,154 shares as of 2018 year end, 50,316 shares as of 2017 year end and 61,149 shares
as of 2016 year end. PSUs related to 50,182 shares, 60,980 shares and 94,186 shares were paid out in 2018, 2017 and 2016,
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”).
Based on the company’s 2018 performance, 33,170 RSUs granted in 2018 were earned; assuming continued employment, these
RSUs will vest at the end of fiscal 2020. Based on the company’s 2017 performance, 13,648 RSUs granted in 2017 were earned;
assuming continued employment, these RSUs will vest at the end of fiscal 2019. Based on the company’s 2016 performance,
45,502 RSUs granted in 2016 were earned; these RSUs vested as of fiscal 2018 year end and were paid out shortly thereafter.
Changes to the company’s non-vested performance awards in 2018 are as follows:
Non-vested performance awards at beginning of year
Granted
Vested
Cancellations and other
Non-vested performance awards at end of year
* Weighted-average
2018 ANNUAL REPORT
Shares
(in thousands)
Fair Value
Price per
Share*
$
132
87
(74)
(25)
120
149.93
161.18
138.11
156.63
164.00
109
Notes to Consolidated Financial Statements (continued)
As of 2018 year end, there was $10.6 million of unrecognized compensation cost related to non-vested performance awards that
is expected to be recognized as a charge to earnings over a weighted-average period of 1.8 years.
Stock Appreciation Rights (“SARs”)
The company also issues stock-settled and cash-settled SARs to certain key non-U.S. employees. SARs have a contractual term
of ten years and vest ratably on the first, second and third anniversaries of the date of grant. SARs are granted with an exercise
price equal to the market value of a share of Snap-on’s common stock on the date of grant.
Stock-settled SARs are accounted for as equity instruments and provide for the issuance of Snap-on common stock equal to the
amount by which the company’s stock has appreciated over the exercise price. Stock-settled SARs have an effect on dilutive shares
and shares outstanding as any appreciation of Snap-on’s common stock value over the exercise price will be settled in shares of
common stock. Cash-settled SARs provide for the cash payment of the excess of the fair market value of Snap-on’s common stock
price on the date of exercise over the grant price. Cash-settled SARs have no effect on dilutive shares or shares outstanding as any
appreciation of Snap-on’s common stock over the grant price is paid in cash and not in common stock.
The fair value of stock-settled SARs is estimated on the date of grant using the Black-Scholes valuation model. The fair value of
cash-settled SARs is revalued (mark-to-market) each reporting period using the Black-Scholes valuation model based on Snap on’s
period-end stock price. The company uses historical data regarding SARs exercise and forfeiture behaviors for different participating
groups to estimate the expected term of the SARs granted based on the period of time that similar instruments granted are expected
to be outstanding. Expected volatility is based on the historical volatility of the company’s stock for the length of time corresponding
to the expected term of the SARs. The expected dividend yield is based on the company’s historical dividend payments. The risk-
free interest rate is based on the U.S. treasury yield curve in effect as of the grant date (for stock-settled SARs) or reporting date
(for cash-settled SARs) for the length of time corresponding to the expected term of the SARs.
The following weighted-average assumptions were used in calculating the fair value of stock-settled SARs granted during 2018,
2017 and 2016, using the Black-Scholes valuation model:
Expected term of stock-settled SARs (in years)
Expected volatility factor
Expected dividend yield
Risk-free interest rate
Changes to the company’s stock-settled SARs in 2018 are as follows:
2018
2017
2016
3.58
20.08%
1.63%
2.40%
3.99
19.39%
1.46%
1.55%
4.03
20.09%
1.66%
1.11%
Outstanding at beginning of year
Granted
Exercised
Forfeited or expired
Outstanding at end of year
Exercisable at end of year
* Weighted-average
Stock-settled
SARs
(in thousands)
Exercise
Price per
Share*
Remaining
Contractual
Term*
(in years)
Aggregate
Intrinsic
Value
(in millions)
360
89
(24)
(53)
372
191
$
138.63
161.18
105.55
129.40
147.41
135.42
$
7.4
6.3
2.6
2.4
The weighted-average grant date fair value of stock-settled SARs granted was $24.71 in 2018, $24.13 in 2017 and $19.47 in 2016.
The intrinsic value of stock-settled SARs exercised was $1.8 million in 2018, $0.9 million in 2017 and $1.9 million in 2016. The
fair value of stock-settled SARs vested was $2.2 million in 2018 and $2.1 million in both 2017 and 2016.
As of 2018 year end there was $2.5 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 1.4 years.
110
SNAP-ON INCORPORATED
The following weighted-average assumptions were used in calculating the fair value of cash-settled SARs granted during 2018,
2017 and 2016, using the Black-Scholes valuation model:
Expected term of cash-settled SARs (in years)
Expected volatility factor
Expected dividend yield
Risk-free interest rate
2018
2017
2016
2.76
21.96%
1.75%
2.50%
3.09
19.93%
1.59%
1.98%
3.11
19.53%
1.56%
1.47%
The intrinsic value of cash-settled SARs exercised was $3.4 million in 2018, $1.6 million in 2017 and $3.3 million in 2016. The
fair value of cash-settled SARs vested during 2018 was zero and $0.2 million during both 2017 and 2016.
Changes to the company’s non-vested cash-settled SARs in 2018 are as follows:
Non-vested cash-settled SARs at beginning of year
Granted
Vested
Non-vested cash-settled SARs at end of year
* Weighted-average
Cash-settled
SARs
(in thousands)
Fair Value
Price per
Share*
$
5
1
(3)
3
35.41
14.98
15.61
14.89
As of 2018 year end there was $0.1 million of unrecognized compensation cost related to non-vested cash-settled SARs that is
expected to be recognized as a charge to earnings over a weighted-average period of 1.1 years.
Restricted Stock Awards – Non-employee Directors
The company awarded 6,975 shares, 6,966 shares and 7,145 shares of restricted stock to non-employee directors in 2018, 2017
and 2016, respectively. The fair value of the restricted stock awards is expensed over a one-year vesting period based on the fair
value on the date of grant. All restrictions for the restricted stock generally lapse upon the earlier of the first anniversary of the
grant date, the 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.
Directors’ Fee Plan
Under the Directors’ 1993 Fee Plan, as amended, non-employee directors may elect to receive up to 100% of their fees and retainer
in shares of Snap-on’s common stock. Directors may elect to defer receipt of all or part of these shares. For 2018, 2017 and 2016,
issuances under the Directors’ Fee Plan totaled 1,727 shares, 1,800 shares and 2,579 shares, respectively, of which 1,315 shares,
1,312 shares and 2,019 shares, respectively, were deferred. As of 2018 year end, shares reserved for issuance to directors under
this plan totaled 176,724 shares.
Employee Stock Purchase Plan
Substantially all Snap-on employees in the United States and Canada are eligible to participate in an employee stock purchase
plan. The purchase price of the company's common stock to participants is the lesser of the mean of the high and low price of the
stock on the beginning date (May 15) or ending date (the following May 14) of each plan year. For 2018, 2017 and 2016, issuances
under this plan totaled 22,794 shares, 26,963 shares and 27,156 shares, respectively. As of 2018 year end, shares reserved for
issuance under this plan totaled 730,806 shares and Snap-on held participant contributions of approximately $2.8 million.
Participants are able to withdraw from the plan at any time prior to the ending date and receive back all contributions made during
the plan year. Compensation expense for plan participants was $0.3 million in 2018, $0.1 million in 2017 and zero in 2016.
2018 ANNUAL REPORT
111
Notes to Consolidated Financial Statements (continued)
Franchisee Stock Purchase Plan
All franchisees in the United States and Canada are eligible to participate in a franchisee stock purchase plan. The purchase price
of the company's common stock to participants is the lesser of the mean of the high and low price of the stock on the beginning
date (May 15) or ending date (the following May 14) of each plan year. For 2018, 2017 and 2016, issuances under this plan totaled
46,704 shares, 47,314 shares and 42,867 shares, respectively. As of 2018 year end, shares reserved for issuance under this plan
totaled 519,451 shares and Snap-on held participant contributions of approximately $4.9 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. The company
recognized mark-to-market expense of $0.6 million in 2018, and $0.2 million in 2017, and a mark-to-market benefit of $0.2 million
in 2016.
Note 15: Capital Stock
Snap-on has undertaken repurchases of Snap-on common stock from time to time to offset dilution created by shares issued for
employee and franchisee stock purchase plans, stock awards and other corporate purposes. Snap-on repurchased 1,769,000 shares,
1,820,000 shares and 758,000 shares in 2018, 2017 and 2016, respectively. As of 2018 year end, Snap-on has remaining availability
to repurchase up to an additional $215.7 million in common stock pursuant to Board authorizations. The purchase of Snap-on
common stock is at the company’s discretion, subject to prevailing financial and market conditions.
Cash dividends paid in 2018, 2017 and 2016 totaled $192.0 million, $169.4 million and $147.5 million, respectively. Cash dividends
per share in 2018, 2017 and 2016 were $3.41, $2.95 and $2.54, respectively. On February 14, 2019, the company’s Board declared
a quarterly dividend of $0.95 per share, payable on March 11, 2019, to shareholders of record on February 25, 2019.
Note 16: Commitments and Contingencies
Snap-on leases facilities, office equipment and vehicles under non-cancelable operating and capital leases that extend for varying
amounts of time. Snap-on’s future minimum lease commitments under these leases, net of sub-lease rental income, are as follows:
(Amounts in millions)
Year:
2019
2020
2021
2022
2023
2024 and thereafter
Total minimum lease payments
Less: amount representing interest
Total present value of minimum capital lease payments
Operating
Leases
Capital
Leases
$
$
25.6
18.4
13.9
9.8
4.9
4.4
77.0
$
$
3.3
3.2
2.9
2.5
2.2
1.9
16.0
(0.9)
15.1
Amounts included in the accompanying Consolidated Balance Sheets for the present value of minimum capital lease payments as
of 2018 year end are as follows:
(Amounts in millions)
Other accrued liabilities
Other long-term liabilities
Total present value of minimum capital lease payments
2018
3.0
12.1
15.1
$
$
112
SNAP-ON INCORPORATED
Rent expense for worldwide facilities, office equipment and vehicles, net of sub-lease rental income, was $33.0 million, $35.2
million and $31.2 million in 2018, 2017 and 2016, respectively.
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 2018, 2017 and 2016 is as follows:
(Amounts in millions)
Warranty accrual:
Beginning of year
Additions
Usage
End of year
2018
2017
2016
$
$
17.2
14.9
(15.0)
17.1
$
$
16.0
15.2
(14.0)
17.2
$
$
16.4
12.8
(13.2)
16.0
Approximately 2,650 employees, or 21% of Snap-on’s worldwide workforce, are represented by unions and/or covered under
collective bargaining agreements. The number of covered union employees whose contracts expire over the next five years
approximates 875 employees in 2019, 975 employees in 2020, 575 employees in 2021, 175 employees in 2022, and 50 employees
in 2023. In recent years, Snap-on has not experienced any significant work slowdowns, stoppages or other labor disruptions.
Snap-on is involved in various legal matters that are being litigated and/or settled in the ordinary course of business. For the year
ended December 30, 2017, accruals were recorded for $45.9 million related to judgments in a patent-related litigation matter that
is being appealed, and an employment-related litigation matter, which was subsequently settled in 2018. The company recognized
a $4.3 million benefit in operating expenses in 2018 as a result of the settlement.
Although it is not possible to predict the outcome of the above and other 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 17: Other Income (Expense) – Net
“Other income (expense) – net” on the accompanying Consolidated Statements of Earnings consists of the following:
(Amounts in millions)
Interest income
Net foreign exchange loss
Net periodic pension and postretirement benefits (costs) -
non-service
Settlement of treasury lock
Loss on early extinguishment of debt
Other
Total other income (expense) – net
2018
2017
2016
$
$
$
0.6
(3.9)
3.7
13.3
(7.8)
(1.7)
4.2
$
$
0.3
(7.0)
(0.6)
—
—
(0.5)
(7.8) $
0.6
(1.3)
(6.9)
—
—
0.1
(7.5)
2018 ANNUAL REPORT
113
Notes to Consolidated Financial Statements (continued)
Note 18: Accumulated Other Comprehensive Income (Loss)
The following is a summary of net changes in Accumulated OCI by component and net of tax for 2018 and 2017:
(Amounts in millions)
Balance as of 2016 year end
Other comprehensive income before reclassifications
Amounts reclassified from Accumulated OCI
Net other comprehensive income
Balance as of 2017 year end
Other comprehensive loss before reclassifications
Amounts reclassified from Accumulated OCI
Net other comprehensive loss
Balance as of 2018 year end
$
$
$
Foreign
Currency
Translation
Cash Flow
Hedges
Defined
Benefit
Pension and
Postretirement
Plans
(217.7) $
135.2
—
135.2
(82.5) $
(95.4)
—
(95.4)
(177.9) $
9.2
$
6.9
(1.6)
5.3
14.5
(0.8)
(1.5)
(2.3)
12.2
$
$
(290.0) $
11.8
17.2
29.0
(261.0) $
(59.0)
23.5
(35.5)
(296.5) $
Total
(498.5)
153.9
15.6
169.5
(329.0)
(155.2)
22.0
(133.2)
(462.2)
The reclassifications out of Accumulated OCI in 2018 and 2017 are as follows:
(Amounts in millions)
Gains on cash flow hedges:
Treasury locks
Income tax expense
Net of tax
Amortization of net unrecognized losses and prior service
credits
Income tax benefit
Net of tax
Total reclassifications for the period, net of tax
Amounts Reclassified from
Accumulated OCI
Statement of Earnings
Presentation
2018
2017
$
$
$
1.5
—
1.5
(31.1)
7.6
(23.5)
(22.0) $
Interest expense
1.6
— Income tax expense
1.6
(26.6) See footnote below*
Income tax expense
9.4
(17.2)
(15.6)
* These Accumulated OCI components are included in the computation of net periodic pension and postretirement health care costs; See Note 12 and Note 13
for further information.
Note 19: 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, power generation, transportation and technical education market
segments (collectively, “critical industries”), primarily through direct and distributor channels. The Snap-on Tools Group consists
of business operations primarily serving vehicle service and repair technicians through the company’s worldwide mobile tool
distribution channel. The Repair Systems & Information Group consists of business operations serving other professional vehicle
repair customers worldwide, primarily owners and managers of independent repair shops and OEM 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.
114
SNAP-ON INCORPORATED
Snap-on evaluates the performance of its operating segments based on segment revenues, including both external and intersegment
net sales, and segment operating earnings. Snap-on accounts for intersegment sales and transfers based primarily on standard costs
with reasonable mark-ups established between the segments. Identifiable assets by segment are those assets used in the respective
reportable segment’s operations. Corporate assets consist of cash and cash equivalents (excluding cash held at Financial Services),
deferred income taxes and certain other assets. Intersegment amounts are eliminated to arrive at Snap-on’s consolidated financial
results. See Note 1 for additional information on the retrospective adoption of ASU No. 2017-07 for full year 2017 and 2016.
Neither Snap-on nor any of its segments depend on any single customer, small group of customers or government for more than
10% of its revenues.
Financial Data by Segment:
(Amounts in millions)
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 and equity earnings
(Amounts in millions)
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
2018
2017
2016
$
$
$
$
$
1,343.3
1,613.8
1,334.4
4,291.5
(550.8)
3,740.7
329.7
4,070.4
199.3
264.2
342.6
230.1
1,036.2
(80.1)
956.1
(50.4)
4.2
909.9
$
$
$
$
$
1,265.0
1,625.1
1,347.2
4,237.3
(550.4)
3,686.9
313.4
4,000.3
186.5
274.7
335.3
217.5
1,014.0
(131.9)
882.1
(52.4)
(7.8)
821.9
$
$
$
$
$
2018
2017
$
$
1,087.9
752.7
1,306.3
2,039.6
5,186.5
249.2
(62.6)
5,373.1
$
$
1,148.3
1,633.9
1,179.9
3,962.1
(531.7)
3,430.4
281.4
3,711.8
168.8
280.4
298.6
198.7
946.5
(85.4)
861.1
(52.2)
(7.5)
801.4
1,113.9
714.3
1,314.3
1,971.8
5,114.3
200.6
(65.8)
5,249.1
2018 ANNUAL REPORT
115
Notes to Consolidated Financial Statements (continued)
Financial Data by Segment (continued):
(Amounts in millions)
Capital expenditures:
Commercial & Industrial Group
Snap-on Tools Group
Repair Systems & Information Group
Financial Services
Total from reportable segments
Corporate
Total capital expenditures
Depreciation and amortization:
Commercial & Industrial Group
Snap-on Tools Group
Repair Systems & Information Group
Financial Services
Total from reportable segments
Corporate
Total depreciation and amortization
Revenues by geographic region:*
United States
Europe
All other
Total revenues
(Amounts in millions)
Long-lived assets:**
United States
Sweden
All other
Total long-lived assets
2018
2017
2016
19.3
38.3
13.1
0.6
71.3
3.0
74.3
20.7
27.6
33.9
0.6
82.8
2.8
85.6
2,588.8
654.4
468.6
3,711.8
$
$
$
$
$
$
$
$
21.5
46.0
19.7
0.5
87.7
3.2
90.9
23.6
29.9
36.7
0.8
91.0
3.1
94.1
2,727.9
784.7
557.8
4,070.4
2018
1,091.2
227.4
311.6
1,630.2
$
$
$
$
$
$
$
$
$
$
$
$
$
$
22.6
40.1
13.4
1.2
77.3
4.7
82.0
22.8
29.1
37.8
0.6
90.3
2.9
93.2
2,703.3
748.8
548.2
4,000.3
2017
1,081.2
252.6
328.4
1,662.2
* Revenues are attributed to countries based on origin of the sale.
** Long-lived assets consist of Property and equipment - net, Goodwill, and Other intangibles - net.
Products 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 PC-based diagnostic products, service and repair information
products, diagnostic software solutions, electronic parts catalogs, business management systems and services, point-of-sale systems,
integrated systems for vehicle service shops, OEM purchasing facilitation services, and warranty management systems and analytics
to help OEM dealerships manage and track performance. The equipment product category includes solutions for the service of
vehicles and industrial equipment. Snap-on supports the sale of its diagnostics and vehicle service shop equipment by offering
training programs as well as after-sales service support to its customers. Through its financial services businesses, Snap-on also
derives revenue from various financing programs designed to facilitate the sales of its products and support its franchise business.
Further product line information is not presented as it is not practicable to do so.
116
SNAP-ON INCORPORATED
The following table shows the consolidated net sales and revenues of these product groups in the last three years:
(Amounts in millions)
Net sales:
Tools
Diagnostics, information and management systems
Equipment
Total net sales
Financial services revenue
Total revenues
Note 20: Quarterly Data (unaudited)
(Amounts in millions, except per share data)
2018
Net sales
Gross profit
Financial services revenue
Financial services expenses
Net earnings
Net earnings attributable to Snap-on Incorporated
Earnings per share – basic
Earnings per share – diluted
Cash dividends paid per share
2017
Net sales
Gross profit
Financial services revenue
Financial services expenses
Net earnings
Net earnings attributable to Snap-on Incorporated
Earnings per share – basic
Earnings per share – diluted
Cash dividends paid per share
2018
2017
2016
$
$
2,021.2
797.9
921.6
3,740.7
329.7
4,070.4
$
$
1,946.7
800.4
939.8
3,686.9
313.4
4,000.3
$
$
1,899.2
748.2
783.0
3,430.4
281.4
3,711.8
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
$
$
$
935.5
471.6
83.0
(26.1)
166.8
163.0
2.87
2.82
0.82
$
954.6
487.1
82.0
(24.2)
182.7
178.7
3.17
3.12
0.82
$
898.1
453.9
82.0
(22.7)
167.4
163.2
2.90
2.85
0.82
952.5
457.4
82.7
(26.6)
179.3
175.0
3.14
3.09
0.95
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
887.1
448.3
76.8
(24.3)
145.1
141.6
2.45
2.39
0.71
$
921.4
463.2
77.7
(23.1)
156.8
153.2
2.65
2.60
0.71
$
903.8
448.8
79.0
(23.0)
137.1
133.4
2.33
2.29
0.71
974.6
465.6
79.9
(25.5)
133.2
129.5
2.28
2.24
0.82
$
$
3,740.7
1,870.0
329.7
(99.6)
696.2
679.9
12.08
11.87
3.41
Total
3,686.9
1,825.9
313.4
(95.9)
572.2
557.7
9.72
9.52
2.95
2018 ANNUAL REPORT
117
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Snap-on has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
SNAP-ON INCORPORATED
By:
/s/ Nicholas T. Pinchuk
Nicholas T. Pinchuk, Chairman, President
and Chief Executive Officer
Date: February 14, 2019
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of Snap-on and in the capacities and on the date indicated.
/s/ Nicholas T. Pinchuk
Nicholas T. Pinchuk, Chairman, President
and Chief Executive Officer
/s/ Aldo J. Pagliari
Aldo J. Pagliari, Principal Financial Officer, Senior
Vice President – Finance and Chief Financial Officer
/s/ Richard K. Strege
Richard K. Strege, Principal Accounting Officer,
Vice President and Controller
Date: February 14, 2019
Date: February 14, 2019
Date: February 14, 2019
118
SNAP-ON INCORPORATED
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of Snap-on and in the capacities and on the date indicated.
SIGNATURES
By:
/s/ David C. Adams
David C. Adams, Director
By:
/s/ Karen L. Daniel
Karen L. Daniel, Director
By:
/s/ Ruth Ann M. Gillis
Ruth Ann M. Gillis, Director
By:
/s/ James P. Holden
James P. Holden, Director
By:
/s/ Nathan J. Jones
Nathan J. Jones, Director
By:
/s/ Henry W. Knueppel
Henry W. Knueppel, Director
By:
/s/ W. Dudley Lehman
W. Dudley Lehman, Director
By:
/s/ Nicholas T. Pinchuk
Nicholas T. Pinchuk, Director
By:
/s/ Gregg M. Sherrill
Gregg M. Sherrill, Director
By:
/s/ Donald J. Stebbins
Donald J. Stebbins, Director
Date: February 14, 2019
Date: February 14, 2019
Date: February 14, 2019
Date: February 14, 2019
Date: February 14, 2019
Date: February 14, 2019
Date: February 14, 2019
Date: February 14, 2019
Date: February 14, 2019
Date: February 14, 2019
2018 ANNUAL REPORT
119
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EXHIBIT 23
We consent to the incorporation by reference in Registration Statement Nos. 33-37924, 333-21285, and 333-228730 on Form S-3
and Registration Statement Nos. 33-57898, 33-58939, 333-21277, 333-62098, 333-142412, 333-91712, 333-177794, 333-177795
and 333-208479 on Form S-8 of our reports dated February 14, 2019, relating to the consolidated financial statements of Snap-on
Incorporated, and the effectiveness of Snap-on Incorporated’s internal control over financial reporting, appearing in this Annual
Report on Form 10-K of Snap-on Incorporated for the year ended December 29, 2018.
/s/ DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
February 14, 2019
120
SNAP-ON INCORPORATED
EXHIBIT 31.1
Certification of the Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Nicholas T. Pinchuk, certify that:
1. I have reviewed this annual report on Form 10-K of Snap-on Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 14, 2019
/s/ Nicholas T. Pinchuk
Nicholas T. Pinchuk
Chief Executive Officer
2018 ANNUAL REPORT
121
EXHIBIT 31.2
Certification of the Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Aldo J. Pagliari, certify that:
1. I have reviewed this annual report on Form 10-K of Snap-on Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 14, 2019
/s/ Aldo J. Pagliari
Aldo J. Pagliari
Principal Financial Officer
122
SNAP-ON INCORPORATED
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
EXHIBIT 32.1
In connection with the Annual Report of Snap-on Incorporated (the “Company”) on Form 10-K for the period ended December 29,
2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Nicholas T. Pinchuk as Chief
Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-
Oxley Act of 2002, to the best of his knowledge, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
/s/ Nicholas T. Pinchuk
Nicholas T. Pinchuk
Chief Executive Officer
February 14, 2019
2018 ANNUAL REPORT
123
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 32.2
In connection with the Annual Report of Snap-on Incorporated (the “Company”) on Form 10-K for the period ended December 29,
2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Aldo J. Pagliari as Principal
Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-
Oxley Act of 2002, to the best of his knowledge, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
/s/ Aldo J. Pagliari
Aldo J. Pagliari
Principal Financial Officer
February 14, 2019
124
SNAP-ON INCORPORATED
INVESTOR INFORMATION
EXCHANGE LISTING
Snap-on Incorporated’s common stock is listed on the New York
Stock Exchange under the ticker symbol SNA.
TRANSFER AGENT AND REGISTRAR
Computershare Trust Company, N.A.
462 South 4th Street
Suite 1600
Louisville, KY 40202, U.S.A.
Shareholders with questions may call our transfer agent,
Computershare Trust Company, N.A., toll-free at 800-446-2617
(in the United States) or 781-575-2723 (outside the United
States). The deaf and hearing impaired may call 800-952-9245.
An interactive automated system is available 24 hours a day,
every day. Operators are available Monday through Friday, 9
a.m. to 5 p.m. U.S. Eastern Time. More information is available
at www.computershare.com.
CERTIFICATE TRANSFERS
By mail:
Computershare Investor Services
P.O. Box 505000
Louisville, KY 40233-5000, U.S.A.
By overnight mail or private courier:
Computershare Investor Services
462 South 4th Street
Suite 1600
Louisville, KY 40202, U.S.A.
COMPUTERSHARE INVESTMENT PLAN
Investors may purchase Snap-on stock and increase their
investment through a no-commission dividend reinvestment and
direct stock purchase plan sponsored by Computershare Trust
Company, N.A. All fees and brokerage commissions in
connection with the purchase of stock, as well as most
administrative costs, are paid by Snap-on. For information visit
www.computershare.com or write to:
Computershare Investor Services
462 South 4th Street
Suite 1600
Louisville, KY 40202, U.S.A.
ANTICIPATED DIVIDEND RECORD AND PAYMENT
DATES FOR 2019
Quarter
First
Second
Third
Fourth
Record Date
February 25
May 21
August 20
November 20
Payment Date
March 11
June 10
September 10
December 10
FINANCIAL PUBLICATIONS
Publications are available without charge. Contact the Snap-on
investor relations department at 2801 80th Street, Kenosha, WI
to
53143, visit our website, or
InvestorRelations@snapon.com.
e-mail
send
an
WEBSITE
Snap-on’s website contains Form 10-Qs, Form 10-Ks, news
releases, annual reports, proxy statements and other information
about Snap-on. Our website address is www.snapon.com.
INDEPENDENT AUDITORS
Deloitte & Touche LLP
555 East Wells Street, Suite 1400
Milwaukee, WI 53202-3824, U.S.A.
INVESTOR RELATIONS
Investors and other interested parties should direct inquiries to:
Sara M. Verbsky
Vice President, Investor Relations
262-656-4869 or sara.m.verbsky@snapon.com
ANNUAL MEETING
The Annual Meeting of Shareholders will be held at the
IdeaForge located within the Snap-on Innovation Works at the
Company’s headquarters, 2801 80th Street, Kenosha, WI 53143,
at 10:00 a.m. U.S. Central Time on Thursday, April 25, 2019.
CORPORATE OFFICES
2801 80th Street
Kenosha, WI 53143, U.S.A.
262-656-5200
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING INFORMATION:
Statements in this Report that are not historical facts are forward-
looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements include those
that are in the future tense; include the words “expect,” “plan,”
“target,” “estimate,” “believe,” “anticipate,” or similar words;
are specifically identified as forward-looking; or describe Snap-
on’s or management’s outlook, plans, estimates, objectives or
goals.
These forward-looking statements are subject to
uncertainties, risks and other factors that could cause actual
results to differ materially from those described. Numerous
important factors, such as those in the Annual Report on Form
10-K (forming part of this Report) in Part I under "Safe Harbor"
or Item 1A: "Risk Factors," could affect Snap-on's actual results
and could cause its actual results to differ materially from those
expressed in any forward-looking statement.
SNAP-ON INCORPORATED
BOARD OF DIRECTORS
NICHOLAS T. PINCHUK
Chairman of the Board
and Chief Executive Officer
Snap-on Incorporated
Director since 2007
DAVID C. ADAMS (C)
Chairman of the Board
and Chief Executive Officer
Curtiss-Wright Corporation
Director since 2016
KAREN L. DANIEL (A)
Retired Division President
and Chief Financial Officer
Black & Veatch Corporation
Director since 2005
RUTH ANN M. GILLIS (A)
Retired Executive Vice
President and Chief
Administrative Officer
Exelon Corporation
Director since 2014
JAMES P. HOLDEN (B)
Lead Director
Retired President
and Chief Executive Officer
DaimlerChrysler Corporation
Director since 2007
NATHAN J. JONES (A)*
Retired President, Worldwide
Commercial & Consumer
Equipment Division
Deere & Company
Director since 2008
HENRY W. KNUEPPEL (C)*
Retired Chairman of the Board
and Chief Executive Officer
Regal Beloit Corporation
Director since 2011
W. DUDLEY LEHMAN (C)
Retired Group President
Kimberly-Clark Corporation
Director since 2003
GREGG M. SHERRILL (B)*
Chairman of the Board,
Retired Chief Executive Officer
Tenneco Inc.
Director since 2010
DONALD J. STEBBINS (B)
Retired President and
Chief Executive Officer
Superior Industries
International, Inc.
Director since 2015
Board Committees:
(A) Audit Committee
(B) Organization and Executive
Compensation Committee
(C) Corporate Governance and
Nominating Committee
* Denotes Chair
MANAGEMENT TEAM
EUGENIO AMADOR
President –
Equipment
GOVIND K. ARORA
Vice President –
Worldwide Strategic
Sourcing
JESUS ARREGUI
Senior Vice President
and President –
Commercial Group
ANUP R. BANERJEE
Senior Vice President –
Human Resources
and Chief Development
Officer
STEVEN K. BARTELS
Vice President –
Corporate Tax
MARY E. BAUERSCHMIDT
Vice President –
Human Resources
SAMUEL E. BOTTUM
Vice President and
Chief Marketing Officer
IAIN BOYD
Vice President –
Operations Development
BENNETT L. BRENTON
Vice President –
Innovation
JOSEPH J. BURGER
President –
Snap-on Credit
TIMOTHY L. CHAMBERS
Senior Vice President
and President –
Snap-on Tools Group
DAVID ELLINGEN
President –
Diagnostics and Mitchell 1
MICHAEL G. GENTILE
President –
Operations and
Product Management
Snap-on Tools Group
ROBERT J. HAMILTON
Vice President – Finance
Snap-on Tools Group
GARY S. HENNING
Vice President –
Manufacturing Development
DAVID T. HIETPAS
Vice President and
General Manager –
Specialty Tools
JEFFREY W. HOWE
Vice President –
North American Sales
Snap-on Tools Group
JEFFREY F. KOSTRZEWA
Vice President
and Treasurer
JUNE C. LEMERAND
Vice President and
Chief Information Officer
MANUEL MACEDO
Vice President –
Operations
SNA Europe
RICHARD T. MILLER
Vice President,
General Counsel
and Secretary
JAMES NG
President –
Snap-on Asia-Pacific
© 2019 Snap-on Incorporated; All rights reser ved
Snap-on as well as other marks are trademarks, registered in
the United States and other countries, of Snap-on Incorporated.
All other marks are marks of their respective holders.
BENNY OH
Chairman –
Snap-on Asia-Pacific
ALDO J. PAGLIARI
Senior Vice President –
Finance and Chief
Financial Officer
NICHOLAS T. PINCHUK
Chairman and
Chief Executive Officer
CHRISTOPHER H. POTTER
President –
Power Tools
RICHARD K. STREGE
Vice President
and Controller
IRENE S. SUDAC
Vice President –
Financial Services
KEVIN L. THATCHER
Vice President –
Business Development
DAVID L. THOMPSON
Vice President – Finance
Repair Systems &
Information Group
SARA M. VERBSKY
Vice President –
Investor Relations
THOMAS J. WARD
Senior Vice President
and President –
Repair Systems &
Information Group
MARIAN T. WELLS
President –
SNA Europe
BART A. WIGNALL
President –
Industrial
JOHN A. WOLF
President –
OEM Solutions
BARRIE YOUNG
Vice President –
International Sales
and Franchising
Snap-on Tools Group
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