SNAP-ON INCORPORATED Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations
Caution Regarding Forward-Looking Statements:
Statements in this document that are not historical facts, including statements that (i) are in the future tense, (ii) include the words "expects," "plans," "targets," "estimates," "believes," "anticipates," or similar words that referenceSnap-on Incorporated ("Snap-on" or "the company") or its management, (iii) are specifically identified as forward-looking, or (iv) describe Snapon'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, the factors discussed in its Annual Report on Form 10-K for the fiscal year endedJanuary 1, 2022 ("2021 year end"), and those discussed in this document, could affect the company's actual results and could cause its actual consolidated results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, Snap-on.
Risks and uncertainties include, without limitation:
•The evolving impact and unknown duration of the ongoing coronavirus
("COVID-19") pandemic, as well as the effects of governmental actions related
thereto on Snap-on's business, which has the potential to amplify the impact of
the other risks facing the company;
•Uncertainties related to estimates, assumptions and projections generally;
•The timing and progress with which Snap-on can attain value through its Snap-on
Value Creation Processes, including its ability to (i) realize efficiencies and
savings from its rapid continuous improvement and other cost reduction
initiatives, (ii) improve workforce productivity, (iii) achieve improvements in
the company's manufacturing footprint and greater efficiencies in its supply
chain, and (iv) enhance machine maintenance, plant productivity and
manufacturing line set-up and change-over practices, any or all of which could
result in production inefficiencies, higher costs and/or lost revenues;
•Snap-on's capability to successfully implement future strategies with respect
to its existing businesses;
•Snap-on's ability to refine its brand and franchise strategies, retain and
attract franchisees, and further enhance service and value to franchisees in
order to help improve the sales and profitability of franchisees;
•The company's ability to introduce successful new products;
•Risks related to pursuing, completing and integrating acquisitions;
•Snap-on's ability to withstand disruption arising from natural disasters,
including climate-related events or other unusual occurrences, impacting our
operations;
•The impact of labor interruptions or challenges;
•Snap-on's ability to successfully manage planned facility closures or to
withstand disruptions from unexpected closures;
•The effects of external economic factors, including adverse developments in
world financial markets, disruptions related to tariffs and other trade issues,
and global supply chain interruptions, including as a result of the current war
in Ukraine ;
•Weakness in certain geographic areas, including as a result of armed conflicts,
localized recessions, and the impact of matters related to the United Kingdom's
exit from the European Union ;
•Significant changes in the current competitive environment;
•Inflation, interest rate changes and other monetary and market fluctuations;
•Changes in tax rates, laws and regulations as well as uncertainty surrounding
potential changes;
•Price and supply fluctuations related to raw materials, components and certain
purchased finished goods, such as steel, plastics, and electronics;
•Snap-on's ability to successfully manage changes in prices and the availability
of energy sources, including gasoline;
37--------------------------------------------------------------------------------
Table of Contents
SNAP-ON INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
•The amount, rate and growth of Snap-on's general and administrative expenses,
including health care and postretirement costs, and continuing and potentially
increasing required contributions to pension and postretirement plans;
•The effects of new requirements, legislation, regulations or government-related
developments or issues, as well as third party actions, including those
addressing climate change;
•Risks associated with data security and technological systems and protections,
including the effects of new legislation, regulations or government-related
developments;
•Potential reputational damages and costs related to litigation;
•The ability to effectively manage human capital resources; and
•Other world or local events outside Snap-on's control, including terrorist
disruptions, other outbreaks of infectious diseases and civil unrest.
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 inthe United States of America ("GAAP") prescribe when a company should reserve for particular risks, including litigation exposures. Accordingly, results for a given reporting period could be significantly affected if and when a reserve is established for a major contingency. Reported results, therefore, may appear to be volatile in certain accounting periods.
Non-GAAP Measures
References in this report to "organic sales" refer to sales from continuing operations calculated in accordance with GAAP, adjusted to exclude acquisition-related sales and the impact of foreign currency translation. Management evaluates the company's sales performance based on organic sales growth, which primarily reflects growth from the company's existing businesses as a result of increased output, expanded customer base, geographic expansion, new product development and pricing changes, and excludes sales contributions from acquired operations the company did not own as of the comparable prior-year reporting period. Organic sales also exclude the effects of foreign currency translation as foreign currency translation is subject to volatility that can obscure underlying business trends. Management believes that the non-GAAP financial measure of organic sales is meaningful to investors as it provides them with useful information to aid in identifying underlying growth trends in the company's businesses and facilitates comparisons of its sales performance with prior periods. Recent Acquisitions OnAugust 1, 2021 , Snap-on acquiredAutoCrib EMEA GmbH ("AutoCrib Germany"), for a cash purchase price of$4.4 million (or$4.2 million , net of cash acquired). AutoCrib Germany, based inHamburg, Germany , distributes asset and tool control solutions for a variety of aerospace, automotive, military, natural resources and general industry operations. The acquisition of AutoCrib Germany, a former independent distributor, enhanced and expanded Snap-on's capabilities in providing solutions for the company's existing tool control offerings. OnJuly 1, 2021 , Snap-on exchanged its 35% equity interest inDeville S.A. , valued at$21.8 million , for 100% ownership of Secateurs Pradines ("Pradines"), a wholly owned subsidiary ofDeville S.A. with a fair value of$20.2 million (or$15.7 million , net of cash acquired), and cash of$1.6 million . Pradines, located in Bauge-en-Anjou ,France , designs and manufactures horticultural hand tools for professionals and individuals. Pradines has been the primary supplier of pruning products to Snap-on and the acquisition allows the company to improve and expand its pruning tool offering. OnFebruary 26, 2021 , Snap-on acquiredDealer-FX Group, Inc. ("Dealer-FX") for a cash purchase price of$200.1 million (or$200.0 million , net of cash acquired). Dealer-FX, based inMarkham, Ontario , is a leading developer, marketer and provider of service operations software solutions for automotive original equipment manufacturer ("OEM") customers and their dealers. Dealer-FX specializes in software as a service (SaaS) management systems, communications platforms, extensive data integrations, and offers a digitalized solution that increases productivity and enhances the vehicle owners' experience. The acquisition of Dealer-FX complemented and expanded Snap-on's existing OEM and dealership business that provides electronic parts catalogs, essential tool and diagnostic programs, and custom analytics to OEMs and dealerships. 38
--------------------------------------------------------------------------------
Table of Contents
SNAP-ON INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
For segment reporting purposes, the results of operations and assets of
Dealer-FX has been included in the Repair Systems & Information Group since the
acquisition date, and the results of operations and assets of AutoCrib Germany
and Pradines have been included in the Commercial & Industrial Group since the
respective acquisition dates.
Pro forma financial information has not been presented for these acquisitions as
the net effects were neither significant nor material to Snap-on's results of
operations or financial position.
Effect of COVID-19
Our markets and our operations possess and, indeed, have demonstrated considerable resilience against the effects of the pandemic. The company sustained the accommodation of its operations to the virus environment, continuing without significant disruption to serve its franchisees and other professional customers as they performed their essential work, while taking what it believes to be appropriate measures to ensure the health and safety of its people. Throughout the pandemic, Snap-on has generally maintained its workforce and manufacturing capacity, as well as its investments in brand building and product development. As the global supply chain inefficiencies and associated cost increases caused by the COVID-19 pandemic have developed, the company has taken steps to ensure access to raw materials, components and purchased finished goods, and to provide for counterbalancing price and efficiency offsets. See also Part I, Item 1A: Risk Factors in Snap-on's 2021 Form 10-K for an additional discussion of risks related to COVID-19 and Other Infectious Diseases.
RESULTS OF OPERATIONS
Results of operations for the three months ended
Three Months Ended
(Amounts in millions) October 1, 2022 October 2, 2021 Change
Net sales $ 1,102.5 100.0 % $ 1,037.7 100.0 % $ 64.8 6.2 %
Cost of goods sold (569.9) (51.7) % (517.0) (49.8) % (52.9) (10.2) %
Gross profit 532.6 48.3 % 520.7 50.2 % 11.9 2.3 %
Operating expenses (309.1) (28.0) % (319.4) (30.8) % 10.3 3.2 %
Operating earnings before financial
services 223.5 20.3 % 201.3 19.4 % 22.2 11.0 %
Financial services revenue 87.3 100.0 % 87.3 100.0 % -
-
Financial services expenses (20.9) (23.9) % (16.7) (19.1) % (4.2) (25.1) % Operating earnings from financial services 66.4 76.1 % 70.6 80.9 % (4.2) (5.9) % Operating earnings 289.9 24.4 % 271.9 24.2 % 18.0 6.6 % Interest expense (11.8) (1.0) % (13.2) (1.2) % 1.4 10.6 % Other income (expense) - net 13.1 1.1 % 3.7 0.3 % 9.4
NM
Earnings before income taxes 291.2 24.5 % 262.4 23.3 % 28.8 11.0 % Income tax expense (61.7) (5.2) % (60.9) (5.4) % (0.8) (1.3) % Net earnings 229.5 19.3 % 201.5 17.9 % 28.0 13.9 % Net earnings attributable to noncontrolling interests (5.6) (0.5) % (5.3) (0.5) % (0.3) (5.7) % Net earnings attributable to Snap-on Inc.$ 223.9 18.8 %$ 196.2 17.4 %$ 27.7 14.1 % NM: Not meaningful 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
39--------------------------------------------------------------------------------
Table of Contents
SNAP-ON INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Gross profit of $532.6 million in the third quarter of 2022 increased $11.9
million , or 2.3%, compared to $520.7 million last year. Gross margin (gross
profit as a percentage of net sales) of 48.3% in the quarter declined 190 basis
points (100 basis points ("bps") equals 1.0 percent) from the third quarter of
2021 primarily due to higher material and other costs, partially offset by
higher sales volumes and pricing actions, benefits from the company's "Rapid
Continuous Improvement" or "RCI" initiatives, and 30 bps of favorable foreign
currency effects.
Snap-on's RCI initiatives employ a structured set of tools and processes across
multiple businesses and geographies intended to eliminate waste and improve
operations. Savings from Snap-on's RCI initiatives reflect benefits from a wide
variety of ongoing efficiency, productivity and process improvements, including
savings generated from product design cost reductions, improved manufacturing
line set-up and change-over practices, lower-cost sourcing initiatives and
facility consolidations. Unless individually significant, it is not practicable
to disclose each RCI activity that generated savings and/or segregate RCI
savings embedded in sales volume increases.
Operating expenses of $309.1 million in the third quarter of 2022 compared to
$319.4 million last year. Operating expenses as a percentage of net sales of
28.0% improved 280 bps from last year primarily due to the higher sales volumes
and savings from RCI initiatives.
Operating earnings before financial services of
Financial services revenue of$87.3 million in the third quarter of 2022 was unchanged from last year. Financial services operating earnings of$66.4 million in the period compared to$70.6 million in 2021.
Operating earnings of
Interest expense in the third quarter of 2022 decreased$1.4 million compared to last year. See Note 9 to the Condensed Consolidated Financial Statements for information on Snap-on's debt and credit facilities. Other income (expense) - net primarily 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 Condensed Consolidated Financial Statements for information on Other income (expense) - net. Snap-on's effective income tax rate on earnings attributable to Snap-on was 21.6% in the third quarter of 2022 and 23.7% in the third quarter of 2021. The lower rate in the third quarter of 2022 was primarily due to tax benefits realized from the favorable settlements of income tax audits. See Note 8 to the Condensed Consolidated Financial Statements for information on income taxes. Net earnings attributable to Snap-on in the third quarter of 2022 were$223.9 million , or$4.14 per diluted share. Net earnings attributable to Snap-on in the third quarter of 2021 were$196.2 million , or$3.57 per diluted share. 40
--------------------------------------------------------------------------------
Table of Contents
SNAP-ON INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Results of operations for the nine months ended
Nine Months Ended
(Amounts in millions) October 1, 2022 October 2, 2021 Change
Net sales $ 3,336.9 100.0 % $ 3,143.7 100.0 % $ 193.2 6.1 %
Cost of goods sold (1,716.5) (51.4) % (1,566.3) (49.8) % (150.2) (9.6) %
Gross profit 1,620.4 48.6 % 1,577.4 50.2 % 43.0 2.7 %
Operating expenses (927.2) (27.8) % (958.1) (30.5) % 30.9 3.2 %
Operating earnings before financial
services 693.2 20.8 % 619.3 19.7 % 73.9 11.9 %
Financial services revenue 261.4 100.0 % 262.8 100.0 % (1.4) (0.5) % Financial services expenses (59.3) (22.7) % (58.0) (22.1) % (1.3) (2.2) % Operating earnings from financial services 202.1 77.3 % 204.8 77.9 % (2.7) (1.3) % Operating earnings 895.3 24.9 % 824.1 24.2 % 71.2 8.6 % Interest expense (35.1) (1.0) % (41.8) (1.2) % 6.7 16.0 % Other income (expense) - net 30.7 0.9 % 11.4 0.3 % 19.3
NM
Earnings before income taxes and equity earnings 890.9 24.8 % 793.7 23.3 % 97.2 12.2 % Income tax expense (201.5) (5.6) % (182.9) (5.4) % (18.6) (10.2) % Earnings before equity earnings 689.4 19.2 % 610.8 17.9 % 78.6 12.9 % Equity earnings, net of tax - - 1.5 0.1 % (1.5) NM Net earnings 689.4 19.2 % 612.3 18.0 % 77.1 12.6 % Net earnings attributable to noncontrolling interests (16.6) (0.5) % (15.5) (0.5) % (1.1) (7.1) % Net earnings attributable to Snap-on Inc.$ 672.8 18.7 %$ 596.8 17.5 %$ 76.0 12.7 % NM: Not meaningful 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$3,336.9 million in the first nine months of 2022 increased$193.2 million , or 6.1%, from 2021 levels, reflecting a$271.9 million , or 8.9%, organic gain and$8.5 million of acquisition-related sales, partially offset by$87.2 million of unfavorable foreign currency translation. Gross profit of$1,620.4 million in the first nine months of 2022 increased$43.0 million , or 2.7%, compared to$1,577.4 million last year. Gross margin of 48.6% in the quarter declined 160 bps from last year primarily due to higher material and other costs, partially offset by higher sales volumes and pricing actions, benefits from the company's RCI initiatives, and 30 bps of favorable foreign currency effects. Operating expenses of$927.2 million in the first nine months of 2022 compared to$958.1 million last year. Operating expenses as a percentage of net sales of 27.8% improved 270 bps from last year primarily due to the higher sales volumes, savings from RCI initiatives, and lower costs associated with stock-based expenses. Operating earnings before financial services of$693.2 million in the first nine months of 2022 increased$73.9 million , or 11.9%, compared to$619.3 million in 2021. As a percentage of net sales, operating earnings before financial services of 20.8% compared to 19.7% last year. Financial services revenue of$261.4 million in the first nine months of 2022 compared to$262.8 million last year. Financial services operating earnings of$202.1 million in the period compared to$204.8 million in 2021. Operating earnings of$895.3 million in the first nine months of 2022 increased$71.2 million , or 8.6%, compared to$824.1 million last year. As a percentage of revenues, operating earnings of 24.9% in the quarter compared to 24.2% last year. 41
--------------------------------------------------------------------------------
Table of Contents
SNAP-ON INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Interest expense in the first nine months of 2022 decreased
Other income (expense) - net primarily 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 Condensed Consolidated Financial Statements for information on Other income (expense) - net.
Snap-on's effective income tax rate on earnings attributable to Snap-on was 23.0% in the first nine months of 2022 and 23.5% in 2021. See Note 8 to the Condensed Consolidated Financial Statements for information on income taxes.
Net earnings attributable to Snap-on in the first nine months of 2022 were
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) theCommercial & Industrial Group ; (ii) theSnap-on Tools Group ; (iii) theRepair 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'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. Intersegment amounts are eliminated to arrive at Snap-on's consolidated financial results.Commercial & Industrial Group Three Months Ended (Amounts in millions) October 1, 2022 October 2, 2021 Change External net sales$ 262.8 73.7 %$ 271.7 77.3 %$ (8.9) (3.3) % Intersegment net sales 94.0 26.3 % 79.7 22.7 % 14.3 17.9 % Segment net sales 356.8 100.0 % 351.4 100.0 % 5.4 1.5 % Cost of goods sold (225.0) (63.1) % (217.3) (61.8) % (7.7) (3.5) % Gross profit 131.8 36.9 % 134.1 38.2 % (2.3) (1.7) % Operating expenses (79.5) (22.2) % (80.5) (22.9) % 1.0 1.2 % Segment operating earnings$ 52.3 14.7 %$ 53.6 15.3 %$ (1.3) (2.4) % Segment net sales of$356.8 million in the third quarter of 2022 increased$5.4 million , or 1.5%, from 2021 levels, reflecting a$26.2 million , or 7.9%, organic sales increase, partially offset by$20.8 million of unfavorable foreign currency translation. The organic increase primarily reflects double-digit gains in the segment'sAsia Pacific operations and specialty tools business, as well as a low single-digit increase in sales to customers in critical industries, despite lower activity with the military. Segment gross margin in the third quarter of 36.9% declined 130 bps from last year, primarily due to increased material and other costs, partially offset by benefits from the higher sales volumes and pricing actions, and 20 bps of favorable foreign currency effects. 42
--------------------------------------------------------------------------------
Table of Contents
SNAP-ON INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)Segment operating expenses as a percentage of sales in the third quarter of 22.2% improved 70 bps as compared to 2021 primarily due to the effects of higher sales volumes.
As a result of these factors, segment operating earnings of$52.3 million in the third quarter of 2022, including$2.1 million of unfavorable foreign currency effects, decreased$1.3 million , or 2.4%, compared to$53.6 million in 2021. Operating margin (segment operating earnings as a percentage of segment net sales) for theCommercial & Industrial Group of 14.7% in the third quarter of 2022 compared to 15.3% in 2021. Nine Months Ended (Amounts in millions) October 1, 2022 October 2, 2021 Change External net sales$ 800.1 75.8 %$ 817.5 78.0 %$ (17.4) (2.1) % Intersegment net sales 255.9 24.2 % 230.1 22.0 % 25.8 11.2 % Segment net sales 1,056.0 100.0 % 1,047.6 100.0 % 8.4 0.8 % Cost of goods sold (666.7) (63.1) % (641.1) (61.2) % (25.6) (4.0) % Gross profit 389.3 36.9 % 406.5 38.8 % (17.2) (4.2) % Operating expenses (239.6) (22.7) % (246.7) (23.5) % 7.1 2.9 % Segment operating earnings$ 149.7 14.2 %$ 159.8 15.3 %$ (10.1) (6.3) % Segment net sales of$1,056.0 million in the first nine months of 2022 increased$8.4 million , or 0.8%, from 2021 levels, reflecting a$55.1 million , or 5.5%, organic sales increase, partially offset by$46.7 million of unfavorable foreign currency translation. The organic gain primarily reflects a double-digit increase in the segment'sAsia Pacific operations, a mid single-digit gain in the segment's European-based hand tools business, and a low single-digit increase in sales to customers in critical industries, despite lower activity with the military. Segment gross margin in the first nine months of 36.9% declined 190 bps from last year, primarily due to increased material and other costs, partially offset by benefits from the higher sales volumes and pricing actions, as well as from the segment's RCI initiatives. Segment operating expenses as a percentage of sales in the first nine months of 22.7% improved 80 bps as compared to 2021 primarily due to the effects of higher sales volumes. As a result of these factors, segment operating earnings of$149.7 million in the first nine months of 2022, including$6.3 million of unfavorable foreign currency effects, decreased$10.1 million , or 6.3%, compared to$159.8 million in 2021. Operating margin for theCommercial & Industrial Group of 14.2% in the first nine months of 2022 compared to 15.3% in 2021.Snap-on Tools Group Three Months Ended (Amounts in millions) October 1, 2022 October 2, 2021 Change Segment net sales$ 496.6 100.0 %$ 471.4 100.0 %$ 25.2 5.3 % Cost of goods sold (273.4) (55.1) % (255.5) (54.2) % (17.9) (7.0) % Gross profit 223.2 44.9 % 215.9 45.8 % 7.3 3.4 % Operating expenses (121.0) (24.3) % (117.7) (25.0) % (3.3) (2.8) % Segment operating earnings$ 102.2 20.6 %$ 98.2 20.8 %$ 4.0 4.1 % Segment net sales of$496.6 million in the third quarter of 2022 increased$25.2 million , or 5.3%, from 2021 levels, reflecting a$34.1 million , or 7.4%, organic sales gain, partially offset by$8.9 million of unfavorable foreign currency translation. The organic increase is due to a high single-digit gain in theU.S. franchise business, partially offset by a low single-digit decrease in the segment's international operations. 43
--------------------------------------------------------------------------------
Table of Contents
SNAP-ON INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Segment gross margin in the third quarter of 44.9% declined 90 bps from last
year primarily due to increased material and other costs, and 40 bps of
unfavorable foreign currency effects, which were partially offset by benefits
from the higher sales volumes and pricing actions.
Segment operating expenses as a percentage of net sales in the third quarter of 24.3% improved 70 bps from last year primarily due to the effects of higher sales volumes and benefits from the segment's RCI initiatives.
As a result of these factors, segment operating earnings of$102.2 million in the third quarter of 2022, including$4.2 million of unfavorable foreign currency effects, increased$4.0 million , or 4.1%, compared to$98.2 million in 2021. Operating margin for theSnap-on Tools Group of 20.6% in the third quarter of 2022 compared to 20.8% last year. Nine Months Ended (Amounts in millions) October 1, 2022 October 2, 2021 Change Segment net sales$ 1,529.3 100.0 %$ 1,433.8 100.0 %$ 95.5 6.7 % Cost of goods sold (833.4) (54.5) % (771.7) (53.8) % (61.7) (8.0) % Gross profit 695.9 45.5 % 662.1 46.2 % 33.8 5.1 % Operating expenses (353.3) (23.1) % (361.5) (25.2) % 8.2 2.3 % Segment operating earnings$ 342.6 22.4 %$ 300.6 21.0 %$ 42.0 14.0 % Segment net sales of$1,529.3 million in the first nine months of 2022 increased$95.5 million , or 6.7%, from 2021 levels, reflecting a$115.1 million , or 8.1%, organic sales gain, partially offset by$19.6 million of unfavorable foreign currency translation. The organic increase includes a double-digit gain in theU.S. franchise business, partially offset by a low single-digit decrease in the segment's international operations. Segment gross margin in the first nine months of 45.5% declined 70 bps from last year primarily due to increased material and other costs, which were partially offset by benefits from the higher sales volumes and pricing actions. Segment operating expenses as a percentage of net sales in the first nine months of 23.1% improved 210 bps from last year and includes the effects of lower expenses related to the company's franchisee stock purchase plan, benefits from higher sales volumes, and savings associated with RCI initiatives. As a result of these factors, segment operating earnings of$342.6 million in the first nine months of 2022, including$5.6 million of unfavorable foreign currency effects, increased$42.0 million , or 14.0%, compared to$300.6 million in 2021. Operating margin for theSnap-on Tools Group of 22.4% in the first nine months of 2022 compared to 21.0% last year.
Three Months Ended
(Amounts in millions) October 1, 2022 October 2, 2021 Change
External net sales $ 343.1 82.9 % $ 294.6 80.8 % $ 48.5 16.5 %
Intersegment net sales 70.9 17.1 % 69.8 19.2 % 1.1 1.6 %
Segment net sales 414.0 100.0 % 364.4 100.0 % 49.6 13.6 %
Cost of goods sold (236.4) (57.1) % (193.7) (53.2) % (42.7) (22.0) %
Gross profit 177.6 42.9 % 170.7 46.8 % 6.9 4.0 %
Operating expenses (82.2) (19.9) % (87.4) (23.9) % 5.2 5.9 %
Segment operating earnings $ 95.4 23.0 % $ 83.3 22.9 % $ 12.1 14.5 %
Segment net sales of $414.0 million in the third quarter of 2022 increased $49.6
million , or 13.6%, from 2021 levels, reflecting a $60.8 million , or 17.2%,
organic sales increase, partially offset by $11.2 million of unfavorable foreign
currency translation. The organic gain includes double-digit increases in
activity with OEM dealerships and in sales of undercar equipment, and a low
single-digit gain in sales of diagnostic and repair information products to
independent repair shop owners and managers.
44--------------------------------------------------------------------------------
Table of Contents
SNAP-ON INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Segment gross margin in the third quarter of 42.9% declined 390 bps from last
year primarily due to higher material and other costs, and increased sales in
lower gross margin businesses. These declines were partially offset by benefits
from pricing actions and savings from RCI initiatives, as well as 40 bps of
favorable foreign currency effects.
Segment operating expenses as a percentage of net sales in the third quarter of
19.9% improved 400 bps from 2021 primarily due to benefits from sales volume
leverage, higher activity in lower expense businesses, and savings from RCI
initiatives.
As a result of these factors, segment operating earnings of
Nine Months Ended
(Amounts in millions) October 1, 2022 October 2, 2021 Change
External net sales $ 1,007.5 82.0 % $ 892.4 80.4 % $ 115.1 12.9 %
Intersegment net sales 221.5 18.0 % 218.2 19.6 % 3.3 1.5 %
Segment net sales 1,229.0 100.0 % 1,110.6 100.0 % 118.4 10.7 %
Cost of goods sold (693.8) (56.5) % (601.8) (54.2) % (92.0) (15.3) %
Gross profit 535.2 43.5 % 508.8 45.8 % 26.4 5.2 %
Operating expenses (252.5) (20.5) % (257.4) (23.2) % 4.9 1.9 %
Segment operating earnings $ 282.7 23.0 % $ 251.4 22.6 % $ 31.3 12.5 %
Segment net sales of $1,229.0 million in the first nine months of 2022 increased
$118.4 million , or 10.7%, from 2021 levels, reflecting a $133.9 million , or
12.3%, organic sales increase and $8.5 million of acquisition-related sales,
partially offset by $24.0 million of unfavorable foreign currency translation.
The organic gain is comprised of double-digit increases in sales of undercar
equipment and in activity with OEM dealerships, and a low single-digit increase
in sales of diagnostic and repair information products to independent repair
shop owners and managers.
Segment gross margin in the first nine months of 43.5% declined 230 bps from
last year primarily due to higher material and other costs, and increased sales
in lower gross margin businesses. These declines were partially offset by
benefits from pricing actions and savings from RCI initiatives, as well as 40
bps of favorable foreign currency effects.
Segment operating expenses as a percentage of net sales in the first nine months
of 20.5%, improved 270 bps from 2021 primarily due to benefits from sales volume
leverage, higher activity in lower expense businesses, and savings from RCI
initiatives.
As a result of these factors, segment operating earnings of $282.7 million in
the first nine months of 2022, including $2.7 million of favorable foreign
currency effects, increased $31.3 million , or 12.5%, from $251.4 million in
2021. Operating margin for the Repair Systems & Information Group of 23.0% in
the first nine months of 2022 compared to 22.6% last year.
Financial Services
Three Months Ended
(Amounts in millions) October 1, 2022 October 2, 2021 Change
Financial services revenue $ 87.3 100.0 % $ 87.3 100.0 % $ - -
Financial services expenses (20.9) (23.9) % (16.7) (19.1) % (4.2) (25.1) %
Segment operating earnings $ 66.4 76.1 % $ 70.6 80.9 % $ (4.2) (5.9) %
Financial services revenue is generally dependent on the size of the average
financial services portfolio during the period, as well as on the average yield
on receivables. Financial services revenue in the third quarter of 2022 was
unchanged from 2021. In the third quarters of 2022 and 2021, the respective
average yields on finance receivables were 17.7% and 17.8%. In the third
quarters of 2022 and 2021, the average yields on contract receivables were 8.6%
and 8.5%, respectively. Originations of $300.2 million in the third quarter of
2022 increased $30.9 million , or 11.5%, from 2021 levels.
45--------------------------------------------------------------------------------
Table of Contents
SNAP-ON INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Financial services expenses primarily include personnel-related and other
general and administrative costs, as well as provisions for credit losses. These
expenses are generally more dependent on changes in the size of the financial
services portfolio than they are on the revenue of the segment. Financial
services expenses in the third quarter of 2022 increased primarily due to higher
provisions for credit losses as compared to those recorded in the third quarter
of 2021. As a percentage of the average financial services portfolio, expenses
were 0.9% in the third quarter of 2022 and 0.8% in 2021.
Segment operating earnings in the third quarter of 2022, including $0.8 million
of unfavorable foreign currency effects, decreased $4.2 million , or 5.9%, from
2021 levels.
Nine Months Ended
(Amounts in millions) October 1, 2022 October 2, 2021 Change
Financial services revenue $ 261.4 100.0 % $ 262.8 100.0 % $ (1.4) (0.5) %
Financial services expenses (59.3) (22.7) % (58.0) (22.1) % (1.3) (2.2) %
Segment operating earnings $ 202.1 77.3 % $ 204.8 77.9 % $ (2.7) (1.3) %
Financial services revenue in the first nine months of 2022 decreased $1.4
million , or 0.5%, from 2021. In both the first nine months of 2022 and 2021, the
average yields on finance receivables and contract receivables were 17.6% and
8.5%, respectively. Originations of $853.4 million in the first nine months of
2022 increased $36.5 million , or 4.5%, from 2021 levels.
Financial services expenses in the first nine months of 2022 increased primarily
due to higher provisions for credit losses as compared to those recorded in the
first nine months of 2021. As a percentage of the average financial services
portfolio, expenses were 2.7% in the first nine months of 2022 and 2.6% in 2021.
Segment operating earnings in the first nine months of 2022, including
Corporate
Snap-on's third quarter 2022 general corporate expenses of
Snap-on's general corporate expenses of$81.8 million in the first nine months of 2022 decreased$10.7 million from$92.5 million last year. The year-over-year decrease primarily reflects lower costs associated with the company's employee stock purchase plan and decreased 100th anniversary expenses, partially offset by other cost increases. Non-GAAP Supplemental Data
The following non-GAAP supplemental data is presented for informational purposes to provide readers with insight into the information used by management for assessing the operating performance of Snap-on's non-financial services ("Operations") and "Financial Services" businesses.
The supplemental Operations data reflects the results of operations and financial position of Snap-on's tools, diagnostics, equipment products, software, and other non-financial services operations with Financial Services presented on the equity method. The supplemental Financial Services data reflects the results of operations and financial position of Snap-on'sU.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 theU.S. and international financial services businesses. Transactions between the Operations and Financial Services businesses are eliminated to arrive at the Condensed Consolidated Financial Statements. 46
--------------------------------------------------------------------------------
Table of Contents
SNAP-ON INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Non-GAAP Supplemental Consolidating Data - Supplemental Condensed Statements of
Earnings information for the three months ended October 1, 2022 , and October 2,
2021 , are as follows:
Operations* Financial Services
October 1, October 2,
(Amounts in millions) 2022 2021 October 1, 2022 October 2, 2021
Net sales $ 1,102.5 $ 1,037.7 $ - $ -
Cost of goods sold (569.9) (517.0) - -
Gross profit 532.6 520.7 - -
Operating expenses (309.1) (319.4) - -
Operating earnings before financial services 223.5 201.3 - -
Financial services revenue - - 87.3 87.3
Financial services expenses - - (20.9) (16.7)
Operating earnings from financial services - - 66.4 70.6
Operating earnings 223.5 201.3 66.4 70.6
Interest expense (11.7) (13.2) (0.1) -
Intersegment interest income (expense) - net 14.7 13.6 (14.7) (13.6)
Other income (expense) - net 13.0 3.7 0.1 -
Earnings before income taxes and equity earnings 239.5 205.4 51.7 57.0
Income tax expense (48.4) (47.1) (13.3) (13.8)
Earnings before equity earnings 191.1 158.3 38.4 43.2
Financial services - net earnings attributable to 38.4 43.2 - -
Snap-on
Net earnings 229.5 201.5 38.4 43.2
Net earnings attributable to noncontrolling (5.6) (5.3) - -
interests
Net earnings attributable to Snap-on$ 223.9 $ 196.2 $ 38.4 $ 43.2
* Snap-on with Financial Services presented on the equity method.
47--------------------------------------------------------------------------------
Table of Contents
SNAP-ON INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Non-GAAP Supplemental Consolidating Data - Supplemental Condensed Statements of
Earnings information for the nine months ended October 1, 2022 , and October 2,
2021 , are as follows:
Operations* Financial Services
October 1, October 2,
(Amounts in millions) 2022 2021 October 1, 2022 October 2, 2021
Net sales $ 3,336.9 $ 3,143.7 $ - $ -
Cost of goods sold (1,716.5) (1,566.3) - -
Gross profit 1,620.4 1,577.4 - -
Operating expenses (927.2) (958.1) - -
Operating earnings before financial 693.2 619.3 - -
services
Financial services revenue - - 261.4 262.8
Financial services expenses - - (59.3) (58.0)
Operating earnings from financial services - - 202.1 204.8
Operating earnings 693.2 619.3 202.1 204.8
Interest expense (35.0) (41.7) (0.1) (0.1)
Intersegment interest income (expense) - 44.5 42.8 (44.5) (42.8)
net
Other income (expense) - net 30.5 11.3 0.2 0.1 Earnings before income taxes and equity 733.2 631.7 157.7 162.0
earnings
Income tax expense (160.9) (142.8) (40.6) (40.1) Earnings before equity earnings 572.3 488.9 117.1 121.9 Financial services - net earnings 117.1 121.9 - - attributable to Snap-on Equity earnings, net of tax - 1.5 - - Net earnings 689.4 612.3 117.1 121.9 Net earnings attributable to noncontrolling (16.6) (15.5) - -
interests
Net earnings attributable to Snap-on
$ 117.1 $ 121.9
* Snap-on with Financial Services presented on the equity method.
48--------------------------------------------------------------------------------
Table of Contents
SNAP-ON INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Non-GAAP Supplemental Consolidating Data - Supplemental Condensed Balance Sheet
information as of
Operations* Financial Services
October 1, January 1, October 1, January 1,
(Amounts in millions) 2022 2022 2022 2022
ASSETS
Current assets:
Cash and cash equivalents $ 759.2 $ 779.9 $ 0.1 $ 0.1
Intersegment receivables 13.2 12.5 - -
Trade and other accounts receivable - net 738.4 681.7 0.6 0.6
Finance receivables - net - - 558.0 542.3
Contract receivables - net 5.8 6.4 107.0 104.0
Inventories - net 955.1 803.8 - -
Prepaid expenses and other assets 150.0 136.8 5.2 7.4
Total current assets 2,621.7 2,421.1 670.9 654.4
Property and equipment - net 488.3 516.5 1.8 1.7
Operating lease right-of-use assets 50.5 50.0 1.5 1.9
Investment in Financial Services 354.9 350.6 - -
Deferred income tax assets 45.2 26.5 21.1 23.0
Intersegment long-term notes receivable 590.8 570.1 - -
Long-term finance receivables - net - - 1,129.3 1,114.0
Long-term contract receivables - net 9.3 9.7 366.7 368.5
Goodwill 1,010.6 1,116.5 - -
Other intangibles - net 271.3 301.7 - -
Other assets 182.9 188.6 0.2 0.1
Total assets $ 5,625.5 $ 5,551.3 $ 2,191.5 $ 2,163.6 * Snap-on with Financial Services presented on the equity method.
49--------------------------------------------------------------------------------
Table of Contents
SNAP-ON INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)Non-GAAP Supplemental Consolidating Data - Supplemental Condensed Balance Sheets Information (continued):
Operations* Financial Services
October 1, January 1, October 1, January 1,
(Amounts in millions) 2022 2022 2022 2022
LIABILITIES AND EQUITY
Current liabilities:
Notes payable $ 17.7 $ 17.4 $ - $ -
Accounts payable 303.9 276.6 1.4 1.0
Intersegment payables - - 13.2 12.5
Accrued benefits 60.4 67.4 0.1 -
Accrued compensation 83.0 110.9 3.0 3.9
Franchisee deposits 83.3 80.7 - -
Other accrued liabilities 421.2 407.1 29.3 26.8
Total current liabilities 969.5 960.1 47.0 44.2
Long-term debt and intersegment long-term debt - - 1,774.4 1,753.0
Deferred income tax liabilities 93.7 122.7 - -
Retiree health care benefits 28.9 31.1 - -
Pension liabilities 70.5 104.9 - -
Operating lease liabilities 35.3 32.5 1.2 1.7
Other long-term liabilities 88.1 96.2 14.0 14.1
Total liabilities 1,286.0 1,347.5 1,836.6 1,813.0
Total shareholders' equity attributable to
Snap-on 4,317.2 4,181.9 354.9 350.6
Noncontrolling interests 22.3 21.9 - -
Total equity 4,339.5 4,203.8 354.9 350.6
Total liabilities and equity $ 5,625.5 $ 5,551.3 $ 2,191.5 $ 2,163.6 * Snap-on with Financial Services presented on the equity method.
50--------------------------------------------------------------------------------
Table of Contents
SNAP-ON INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)Liquidity and Capital Resources
Snap-on's growth has historically been funded by a combination of cash provided by operating activities and debt financing. Snap-on believes that its cash from operations and collections of finance receivables, coupled with its sources of borrowings and available cash on hand, are sufficient to fund its currently anticipated requirements for scheduled debt repayments, payments of interest and dividends, new receivables originated by our financial services businesses, capital expenditures, working capital, 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 ofOctober 14, 2022 , 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 byStandard & Poor's ; and A and F1 by Fitch Ratings. Snap-on believes that its current credit arrangements are sound and that the strength of its balance sheet affords the company the financial flexibility, including through access to financial markets for potential new financing, to respond to both internal growth opportunities and those available through acquisitions. However, Snap-on cannot provide any assurance that financing will be available in the future on acceptable terms, or that its debt ratings will not decrease.
The following discussion focuses on information included in the accompanying Condensed Consolidated Balance Sheets.
As ofOctober 1, 2022 , working capital (current assets less current liabilities) of$2,276.1 million increased$204.9 million from$2,071.2 million as ofJanuary 1, 2022 (fiscal 2021 year end), primarily as a result of the net changes discussed below. The following represents the company's working capital position as ofOctober 1, 2022 , andJanuary 1, 2022 : (Amounts in millions) October 1, 2022 January 1, 2022 Cash and cash equivalents $ 759.3 $ 780.0 Trade and other accounts receivable - net 739.0 682.3 Finance receivables - net 558.0 542.3 Contract receivables - net 112.8 110.4 Inventories - net 955.1 803.8 Prepaid expenses and other assets 145.4 134.6 Total current assets 3,269.6 3,053.4 Notes payable (17.7) (17.4) Accounts payable (305.3) (277.6) Other current liabilities (670.5) (687.2) Total current liabilities (993.5) (982.2) Working capital$ 2,276.1 $ 2,071.2 Cash and cash equivalents of$759.3 million as ofOctober 1, 2022 , decreased$20.7 million from 2021 year-end levels primarily due to: (i) the funding of$703.7 million of new finance receivables; (ii) dividend payments to shareholders of$227.1 million ; (iii) the repurchase of 615,000 shares of the company's common stock for$132.8 million ; and (iv) the funding of$61.5 million of capital expenditures. These decreases in cash and cash equivalents were partially offset by: (i)$622.1 million of cash from collections of finance receivables; (ii)$464.6 million of cash generated from operations; (iii)$41.4 million of cash proceeds from stock purchase and option plan exercises; and (iv)$2.6 million of net proceeds from other short-term borrowings. Of the$759.3 million of cash and cash equivalents as ofOctober 1, 2022 ,$217.1 million was held outside ofthe United States . Snap-on maintains non-U.S. funds in its foreign operations to: (i) provide adequate working capital; (ii) satisfy various regulatory requirements; and/or (iii) take advantage of business expansion opportunities as they arise. Although the Tax Cuts and Jobs Act ("Tax Act") generally eliminatedU.S. federal taxation of dividends from foreign subsidiaries, such dividends may still be subject to state income taxation and foreign withholding taxes. Snap-on periodically evaluates its cash held outsidethe 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. 51
--------------------------------------------------------------------------------
Table of Contents
SNAP-ON INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Trade and other accounts receivable - net of $739.0 million as of October 1,
2022 , increased $56.7 million from 2021 year-end levels primarily due to higher
sales, partially offset by $35.6 million of foreign currency translation. Days
sales outstanding (trade and other accounts receivable - net as of the
respective period end, divided by the respective trailing 12 months sales, times
360 days) was 60 days at October 1, 2022 , and 58 days at January 1, 2022 .
The current portions of net finance and contract receivables of $670.8
million as of October 1, 2022 , compared to $652.7 million at 2021 year end. The
long-term portions of net finance and contract receivables of $1,505.3 million
as of October 1, 2022 , compared to $1,492.2 million at 2021 year end. The
combined $31.2 million increase in net current and long-term finance and
contract receivables over 2021 year-end levels is primarily due to an increase
in net receivable originations, offset by $36.0 million of foreign currency
translation.
Inventories - net of $955.1 million as of October 1, 2022 , increased
$151.3 million from 2021 year-end levels primarily to support higher customer
demand and new product innovation, partially offset by $56.0 million of foreign
currency translation. Inventory turns (trailing 12 months of cost of goods sold,
divided by the average of the beginning and ending inventory balance for the
trailing 12 months) were 2.6 turns and 2.8 turns as of October 1, 2022 , and
January 1, 2022 , respectively. Inventories accounted for using the first-in,
first-out ("FIFO") method approximated 59% and 60% of total inventories as of
October 1, 2022 , and January 1, 2022 , respectively. All other inventories are
accounted for using the last-in, first-out ("LIFO") method. The company's LIFO
reserve was $92.3 million and $87.2 million as of October 1, 2022 , and January
1, 2022 , respectively.
Notes payable of
Accounts payable of
Other accrued liabilities of$440.7 million as ofOctober 1, 2022 , increased$16.4 million from 2021 year-end levels primarily due to higher tax accruals, offset by$22.0 million of foreign currency translation. Long-term debt of$1,183.6 million as ofOctober 1, 2022 , consisted of: (i)$300 million of unsecured 3.25% notes that mature onMarch 1, 2027 (the "2027 Notes"); (ii)$400 million of unsecured 4.10% notes that mature onMarch 1, 2048 (the "2048 Notes"); and (iii)$500 million of 3.10% notes that mature onMay 1, 2050 ("the 2050 Notes"), partially offset by$16.4 million of unamortized debt issuance costs. Snap-on has an$800 million multi-currency revolving credit facility that terminates onSeptember 16, 2024 (the "Credit Facility"); no amounts were outstanding under the Credit Facility as ofOctober 1, 2022 . OnSeptember 15, 2022 , the Credit Facility was amended to replace the London Interbank Offered Rate ("LIBOR") with other benchmark interest rates. Borrowings under the Credit Facility bear interest at varying rates based on either: (i) Snap-on's then-current, long-term debt ratings; or (ii) Snap-on's then-current ratio of consolidated debt net of certain cash adjustments ("Consolidated Net Debt") to earnings before interest, taxes, depreciation, amortization and certain other adjustments for the preceding four fiscal quarters then ended (the "Consolidated Net Debt to EBITDA Ratio"). The Credit Facility's financial covenant requires that Snap-on maintain, as of each fiscal quarter end, either (i) a ratio not greater than 0.60 to 1.00 of Consolidated Net Debt to the sum of Consolidated Net Debt plus total equity and less accumulated other comprehensive income or loss (the "Leverage Ratio"); or (ii) a Consolidated Net Debt to EBITDA Ratio not greater than 3.50 to 1.00. Snap-on may, up to two times during any five-year period during the term of the Credit Facility (including any extensions thereof), elect to increase the maximum Leverage Ratio to 0.65 to 1.00 and/or increase the maximum Consolidated Net Debt to EBITDA Ratio to 4.00 to 1.00 for four consecutive fiscal quarters in connection with certain material acquisitions (as defined in the related credit agreement). As ofOctober 1, 2022 , the company's actual ratios of 0.09 and 0.37 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. As ofOctober 1, 2022 , there were no commercial paper issuances outstanding. 52
--------------------------------------------------------------------------------
Table of Contents
SNAP-ON INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Snap-on believes it has sufficient available cash and access to both committed
and uncommitted credit facilities to cover its expected funding needs on both a
short-term and long-term basis. Snap-on manages its aggregate short-term
borrowings so as not to exceed its availability under the Credit Facility.
Snap-on believes that it can access short-term debt markets, predominantly
through commercial paper issuances and existing lines of credit, to fund its
short-term requirements and to ensure near-term liquidity. Snap-on regularly
monitors the credit and financial markets and, if it believes conditions are
favorable, it may take advantage of such conditions to issue long-term debt to
further improve its liquidity and capital resources. Near-term liquidity
requirements for Snap-on include payments of interest and dividends, funding to
support new receivables originated by our financial services businesses, capital
expenditures, working capital, the funding of pension plans, and funding for
share repurchases and acquisitions, if and as they arise. Snap-on intends to
make contributions of $9.4 million to its foreign pension plans and $9.5 million
to its domestic pension plans in 2022, as required by law. Depending on market
and other conditions, Snap-on may make discretionary cash contributions to its
pension plans in 2022.
Snap-on's long-term financing strategy is to maintain continuous access to the
debt markets to accommodate its liquidity needs, including the potential use of
commercial paper, additional fixed-term debt and/or securitizations.
The following discussion focuses on information included in the accompanying Condensed Consolidated Statements of Cash Flows.
Operating Activities
Net cash provided by operating activities was$464.6 million and$743.9 million in the first nine months of 2022 and 2021, respectively. The$279.3 million year-over-year decrease in net cash provided by operating activities primarily reflects a$327.1 million decrease from net changes in operating assets and liabilities, partially offset by a$77.1 million increase in net earnings.
Investing Activities
Net cash used by investing activities of$138.3 million in the first nine months of 2022 included additions to finance receivables of$703.7 million , offset by collections of$622.1 million . Net cash used by investing activities of$266.6 million in the first nine months of 2021 included additions to finance receivables of$662.6 million , offset by collections of$648.4 million . Finance receivables are comprised of extended-term installment payment contracts to both technicians and independent shop owners (i.e., franchisees' customers) to enable them to purchase tools, diagnostics, and equipment products on an extended-term payment plan, with average payment terms of approximately four years. Net cash used by investing activities in the respective first nine months of 2022 and 2021 also included$0.5 million of cash provided by and$199.7 million of cash used for acquisitions. See Note 3 to the Condensed Consolidated Financial Statements for information about acquisitions.
Capital expenditures were
Financing Activities Net cash used by financing activities of$339.2 million in the first nine months of 2022 included net proceeds from other short-term borrowings of$2.6 million . Net cash used by financing activities of$664.7 million in the first nine months of 2021 included theSeptember 2021 repayment of$250 million of long-term notes at maturity ("the 2021 Notes") and net proceeds from other short-term borrowings of$3.0 million . Proceeds from stock purchase and option plan exercises totaled$41.4 million and$158.4 million in the first nine months of 2022 and 2021, respectively. In the first nine months of 2022, Snap-on repurchased 615,000 shares of its common stock for$132.8 million under its previously announced share repurchase programs. In the first nine months of 2021, Snap-on repurchased 1,588,900 shares of its common stock for$355.8 million under its previously announced share repurchase programs. As ofOctober 1, 2022 , Snap-on had remaining availability to repurchase up to an additional$396.0 million in common stock pursuant to its Board's authorizations. The repurchase of Snap-on common stock to offset dilution related to equity plan issuances or for other corporate purposes is at the company's discretion, subject to prevailing financial and market conditions. Snapon believes that its cash generated from operations, available cash on hand, and funds available from its credit facilities, will be sufficient to fund the company's additional share repurchases, if any. 53
--------------------------------------------------------------------------------
Table of Contents
SNAP-ON INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Snap-on has paid consecutive quarterly cash dividends, without interruption or
reduction, since 1939. Cash dividends totaled $227.1 million and $199.7 million
in the first nine months of 2022 and 2021, respectively. On November 4, 2021 ,
the Board increased the quarterly cash dividend by 15.4% to $1.42 per share
($5.68 per share annualized). Snap-on believes that its cash generated from
operations, available cash on hand, and funds available from its credit
facilities, will be sufficient to pay dividends.
Critical Accounting Policies and Estimates
Snap-on's discussion of its critical accounting policies and estimates,
contained in its Annual Report on Form 10-K for the fiscal year ended
Outlook
COVID-19 and its subsequent variants, as well as supply chain inefficiencies, continue to impact economic activity worldwide in 2022. The company believes that our markets and our operations possess and, indeed, have demonstrated considerable resilience against the impact of the virus and that there will be ongoing advancement even in the midst of the turbulence. The trajectory, however, may be uncertain due to the evolving nature of the situation. Snap-on expects to make continued progress in 2022 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, the company anticipates that capital expenditures in 2022 will be in a range of$90 million to$100 million , of which$61.5 million was incurred in the first nine months of the year. Snap-on continues to respond to the global macroeconomic challenges through its RCI process and other cost reduction initiatives.
Snap-on currently anticipates that its full year 2022 effective income tax rate will be in the range of 23% to 24%.
54--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
