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 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, the factors discussed in its Annual Report on Form 10-K for the fiscal year endedJanuary 2, 2021 , 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. 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 include the evolving impact and unknown duration of the coronavirus ("COVID-19") pandemic, which has the potential to amplify the impact of the other risks facing the company. These risks also include the impact of governmental actions related thereto on Snap-on's business, as well as 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, developments related to tariffs and other trade issues or disputes, weakness in certain areas of the global economy (including as a result of the impact of matters related to theUnited Kingdom's exit from theEuropean Union and the COVID-19 pandemic), 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 (as a result ofU.S. tariffs imposed on certain steel imports or otherwise) and gasoline, 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, the impact of changes in financial accounting standards, the ability to effectively manage human capital resources, and other world or local events outside Snap-on's control, including terrorist disruptions and 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. 38
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(continued)
Non-GAAP Measures
References in this report to "organic sales" refer to sales from continuing
operations calculated in accordance with 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, 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
On July 1, 2021 , Snap-on exchanged its 35% equity interest in Deville S.A. ,
valued at $21.8 million , for 100% ownership of Secateurs Pradines ("Pradines"),
a wholly owned subsidiary of Deville S.A. with a fair value of $20.0 million (or
$15.8 million , net of cash acquired), and cash of $1.8 million , receivable upon
settlement of the Pradines working capital adjustment, expected in the third
quarter of 2021. 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.
On February 26, 2021 , Snap-on acquired Dealer-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 in Markham, 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
diagnostics programs, and custom analytics to OEMs and dealerships.
On September 28, 2020 , Snap-on acquired substantially all of the assets of
AutoCrib, Inc. ("AutoCrib") for a cash purchase price of $35.4 million .
AutoCrib, based in Tustin, California , designs, manufactures and markets asset
and tool control solutions. The acquisition of AutoCrib complemented and
expanded Snap-on's existing tool control offering to customers in a variety of
industrial applications, including aerospace, automotive, military, natural
resources and general industry.
On January 31, 2020 , Snap-on acquired substantially all of the assets of the
TreadReader product line from Sigmavision Limited ("Sigmavision") for a cash
purchase price of $5.9 million . Sigmavision designs and manufactures handheld
devices and drive-over ramps that provide tire information for use in the
automotive industry. The acquisition of the TreadReader product line enhanced
and expanded Snap-on's existing capabilities in serving vehicle repair
facilities and expanded the company's presence with repair shop owners and
managers.
For segment reporting purposes, the results of operations and assets of
Dealer-FX and Sigmavision have been included in the Repair Systems & Information
Group since the respective acquisition dates, and the results of operations and
assets of Pradines and AutoCrib have been included in the Commercial &
Industrial Group since the acquisition date.
Pro forma financial information has not been presented for these acquisitions as
the net effects were neither significant nor material to Snap-on's results of
operations or financial position.
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(continued)Effect of COVID-19
During the second quarter of 2021, with ongoing advancement against the COVID-19 pandemic, the effects on the company have lessened from previous periods, particularly from the heavily-impacted second quarter of 2020. 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 essential work, while taking what it believes to be appropriate measures to ensure the health and safety of its personnel. Throughout the pandemic, Snap-on has generally maintained its headcount, manufacturing capacity, brand position and product development. The company's supply chain and distribution channels have not been materially impacted by the pandemic, and the company has taken steps to ensure access to raw materials and components, but it cannot provide assurances with respect to the future due to the evolving nature of the pandemic environment. In the first half of 2021, COVID-19-related costs were not significant. The ultimate impact of COVID-19 on our business, results of operations, financial condition and cash flows is dependent on future developments, including the duration of the pandemic and the related length of its impact on the global economy, which are uncertain and cannot be predicted at this time. See also Part I, Item 1A, Risk Factors in Snap-on's 2020 Form 10-K for an additional discussion of risks related to COVID-19.
RESULTS OF OPERATIONS
Results of operations for the three months ended
Three Months Ended
(Amounts in millions) July 3, 2021 June 27, 2020 Change
Net sales $ 1,081.4 100.0 % $ 724.3 100.0 % $ 357.1 49.3 %
Cost of goods sold (538.3) (49.8) % (383.1) (52.9) % (155.2) (40.5) %
Gross profit 543.1 50.2 % 341.2 47.1 % 201.9 59.2 %
Operating expenses (326.0) (30.1) % (250.1) (34.5) % (75.9) (30.3) %
Operating earnings before financial
services 217.1 20.1 % 91.1 12.6 % 126.0 138.3 %
Financial services revenue 86.9 100.0 % 84.6 100.0 % 2.3 2.7 %
Financial services expenses (18.0) (20.7) % (27.0) (31.9) % 9.0 33.3 %
Operating earnings from financial services 68.9 79.3 % 57.6 68.1 % 11.3 19.6 %
Operating earnings 286.0 24.5 % 148.7 18.4 % 137.3 92.3 %
Interest expense (14.3) (1.2) % (13.4) (1.6) % (0.9) (6.7) %
Other income (expense) - net 3.4 0.2 % 2.0 0.2 % 1.4 70.0 %
Earnings before income taxes and equity
earnings 275.1 23.5 % 137.3 17.0 % 137.8 100.4 %
Income tax expense (62.9) (5.3) % (31.9) (4.0) % (31.0) (97.2) %
Earnings before equity earnings 212.2 18.2 % 105.4 13.0 % 106.8 101.3 %
Equity earnings, net of tax 1.0 - 0.5 0.1 % 0.5 100.0 %
Net earnings 213.2 18.2 % 105.9 13.1 % 107.3 101.3 %
Net earnings attributable to noncontrolling
interests (5.2) (0.4) % (4.7) (0.6) % (0.5) (10.6) %
Net earnings attributable to Snap-on Inc. $ 208.0 17.8 % $ 101.2 12.5 % $ 106.8 105.5 %
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.
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Net sales of $1,081.4 million in the second quarter of 2021 increased $357.1
million , or 49.3% from 2020 levels, reflecting a $316.9 million , or 42.5%,
organic gain, $19.6 million of acquisition-related sales and $20.6 million of
favorable foreign currency translation.
Gross profit of $543.1 million in the second quarter of 2021 increased $201.9
million , or 59.2%, compared to $341.2 million last year. Gross margin (gross
profit as a percentage of net sales) of 50.2% in the quarter improved 310 basis
points (100 basis points ("bps") equals 1.0 percent) from the second quarter of
2020 primarily due to higher sales volumes, 30 bps from lower costs related to
$2.0 million of exit and disposal activities ("restructuring actions") recorded
in the second quarter of 2020 and benefits from the company's "Rapid Continuous
Improvement" or "RCI" initiatives, partially offset by 20 bps of unfavorable
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 optimization. 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 $326.0 million in the second quarter of 2021 compared to
$250.1 million in the second quarter of last year. Operating expenses as a
percentage of net sales of 30.1% improved 440 bps from last year primarily due
to higher sales volumes and 20 bps from lower costs related to $2.0 million of
restructuring actions recorded in the second quarter of 2020. These items were
partially offset by costs associated with higher stock-based expenses and by 70
bps of unfavorable acquisition effects.
Operating earnings before financial services of $217.1 million in the second
quarter of 2021 increased $126.0 million , or 138.3%, compared to $91.1 million
in the second quarter of 2020, which included $4.0 million of charges for
restructuring actions. As a percentage of net sales, operating earnings before
financial services of 20.1% improved 750 bps from 12.6% last year, which
included 50 bps of costs from restructuring actions.
Financial services revenue of $86.9 million in the second quarter of 2021
compared to $84.6 million last year. Financial services operating earnings of
$68.9 million in the period compared to $57.6 million in 2020.
Operating earnings of $286.0 million in the second quarter of 2021 increased
$137.3 million , or 92.3%, compared to $148.7 million last year, which included
$4.0 million of charges for restructuring actions. As a percentage of revenues
(net sales plus financial services revenue), operating earnings of 24.5% in the
quarter compared to 18.4% last year, which included 50 bps of costs from
restructuring actions.
Interest expense in the second quarter of 2021 increased $0.9 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.
The 2021 second quarter effective income tax rate on earnings attributable to
Snap-on was 23.3%. The 2020 effective income tax rate was 24.1%, which included
a 20 bps increase related to the restructuring actions. See Note 8 to the
Condensed Consolidated Financial Statements for information on income taxes.
Net earnings attributable to Snap-on in the second quarter of 2021 were
$208.0 million , or $3.76 per diluted share. Net earnings attributable to Snap-on
in the second quarter of 2020 were $101.2 million , or $1.85 per diluted share,
which included a $3.3 million , or $0.06 per diluted share, after-tax charge
related to the restructuring actions.
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(continued)
Results of operations for the six months ended
Six Months Ended
(Amounts in millions) July 3, 2021 June 27, 2020 Change
Net sales $ 2,106.0 100.0 % $ 1,576.5 100.0 % $ 529.5 33.6 %
Cost of goods sold (1,049.3) (49.8) % (813.7) (51.6) % (235.6) (29.0) %
Gross profit 1,056.7 50.2 % 762.8 48.4 % 293.9 38.5 %
Operating expenses (638.7) (30.4) % (532.8) (33.8) % (105.9) (19.9) %
Operating earnings before financial
services 418.0 19.8 % 230.0 14.6 % 188.0 81.7 %
Financial services revenue 175.5 100.0 % 170.5 100.0 % 5.0 2.9 %
Financial services expenses (41.3) (23.5) % (56.0) (32.8) % 14.7 26.3 %
Operating earnings from financial services 134.2 76.5 % 114.5 67.2 % 19.7 17.2 %
Operating earnings 552.2 24.2 % 344.5 19.7 % 207.7 60.3 %
Interest expense (28.6) (1.2) % (24.8) (1.4) % (3.8) (15.3) %
Other income (expense) - net 7.7 0.3 % 3.5 0.2 % 4.2 120.0 %
Earnings before income taxes and equity
earnings 531.3 23.3 % 323.2 18.5 % 208.1 64.4 %
Income tax expense (122.0) (5.4) % (75.8) (4.3) % (46.2) (60.9) %
Earnings before equity earnings 409.3 17.9 % 247.4 14.2 % 161.9 65.4 %
Equity earnings, net of tax 1.5 0.1 % 0.5 - 1.0 NM
Net earnings 410.8 18.0 % 247.9 14.2 % 162.9 65.7 %
Net earnings attributable to noncontrolling
interests (10.2) (0.4) % (9.5) (0.6) % (0.7) (7.4) %
Net earnings attributable to Snap-on Inc. $ 400.6 17.6 % $ 238.4 13.6 % $ 162.2 68.0 %
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 $2,106.0 million in the first six months of 2021 increased $529.5
million , or 33.6% from 2020 levels, reflecting a $458.8 million , or 28.4%,
organic gain, $30.9 million of acquisition-related sales and $39.8 million of
favorable foreign currency translation.
Gross profit of $1,056.7 million in the first six months of 2021 increased
$293.9 million , or 38.5%, compared to $762.8 million last year. Gross margin of
50.2% in the first six months of 2021 improved 180 basis points from last year
primarily due to higher sales volumes, 40 bps from lower costs related to $7.1
million of exit and disposal activities recorded last year and benefits from the
company's RCI initiatives, partially offset by 30 bps of unfavorable foreign
currency effects.
Operating expenses of $638.7 million in the first six months of 2021 compared to
$532.8 million in 2020. Operating expenses as a percentage of net sales of 30.4%
improved 340 bps from last year primarily due to higher sales volumes and 30 bps
from lower costs related to $4.4 million of restructuring actions recorded in
2020. These items were partially offset by costs associated with higher
stock-based expenses and by 50 bps of unfavorable acquisition effects.
Operating earnings before financial services of $418.0 million in the first six
months of 2021 increased $188.0 million , or 81.7%, compared to $230.0 million in
2020, which included $11.5 million of charges for restructuring actions. As a
percentage of net sales, operating earnings before financial services of 19.8%
improved 520 bps from 14.6% last year, which included 70 bps of costs from
restructuring actions.
Financial services revenue of $175.5 million in the first six months of 2021
compared to $170.5 million last year. Financial services operating earnings of
$134.2 million in the period compared to $114.5 million in 2020, which included
a $2.6 million charge related to higher credit reserves resulting from the
economic uncertainty associated with the COVID-19 pandemic.
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(continued)
Operating earnings of $552.2 million in the first six months of 2021 increased
$207.7 million , or 60.3%, compared to $344.5 million last year, which included
$11.5 million of charges for restructuring actions. As a percentage of revenues,
operating earnings of 24.2% compared to 19.7% last year, which included 70 bps
of costs from restructuring actions.
Interest expense in the first six months of 2021 increased $3.8 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.
In the first six months of 2021, Snap-on's effective income tax rate on earnings
attributable to Snap-on was 23.4%. The 2020 effective income tax rate was 24.2%,
which included a 20 bps increase related to the restructuring actions. See Note
8 to the Condensed Consolidated Financial Statements for information on income
taxes.
Net earnings attributable to Snap-on in the first six months of 2021 were $400.6
million , or $7.26 per diluted share. Net earnings attributable to Snap-on in the
first six months of 2020 were $238.4 million , or $4.34 per diluted share, which
included a $9.3 million , or $0.17 per diluted share, after-tax charge related to
the restructuring actions.
Exit and Disposal Activities
Snap-on did not record any costs for exit and disposal activities in the three
and six month periods ended July 3, 2021 . For the respective three and six month
periods ended June 27, 2020 , Snap-on recorded costs of $4.0 million and
$11.5 million for exit and disposal activities. See Note 7 to the Condensed
Consolidated Financial Statements for information on Snap-on's exit and disposal
activities.
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 (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.
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.
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(continued)
Commercial & Industrial Group
Three Months Ended
(Amounts in millions) July 3, 2021 June 27, 2020 Change
External net sales $ 274.7 78.4 % $ 204.5 78.1 % $ 70.2 34.3 %
Intersegment net sales 75.8 21.6 % 57.4 21.9 % 18.4 32.1 %
Segment net sales 350.5 100.0 % 261.9 100.0 % 88.6 33.8 %
Cost of goods sold (212.0) (60.5) % (171.7) (65.6) % (40.3) (23.5) %
Gross profit 138.5 39.5 % 90.2 34.4 % 48.3 53.5 %
Operating expenses (83.0) (23.7) % (67.3) (25.7) % (15.7) (23.3) %
Segment operating earnings $ 55.5 15.8 % $ 22.9 8.7 % $ 32.6 142.4 %
Segment net sales of $350.5 million in the second quarter of 2021 increased
$88.6 million , or 33.8% from 2020 levels, reflecting a $71.3 million , or 26.3%,
organic sales increase, $7.7 million of acquisition-related sales and $9.6
million of favorable foreign currency translation. The organic gain reflects
higher activity in all of the segment's operations and includes mid-teen
increases in sales to customers in critical industries.
Segment gross margin in the second quarter of 39.5% improved 510 bps from last
year, primarily due to benefits from higher sales volumes and 80 bps from lower
costs related to $2.0 million of restructuring actions recorded in the second
quarter of 2020, partially offset by 60 bps of unfavorable foreign currency
effects.
Segment operating expense as a percentage of sales in the second quarter of 23.7% improved 200 bps as compared to 2020 primarily due to higher sales volumes.
As a result of these factors, segment operating earnings of$55.5 million in the second quarter of 2021, including$1.1 million of unfavorable foreign currency effects, increased$32.6 million , or 142.4%, compared to$22.9 million in 2020, which included$2.0 million of restructuring charges. Operating margin (segment operating earnings as a percentage of segment net sales) for theCommercial & Industrial Group of 15.8% in the second quarter of 2021 compared to 8.7% in 2020. Six Months Ended (Amounts in millions) July 3, 2021 June 27, 2020 Change External net sales$ 545.8 78.4 %$ 431.5 76.8 %$ 114.3 26.5 % Intersegment net sales 150.4 21.6 % 130.3 23.2 % 20.1 15.4 % Segment net sales 696.2 100.0 % 561.8 100.0 % 134.4 23.9 % Cost of goods sold (423.8) (60.9) % (361.1) (64.3) % (62.7) (17.4) % Gross profit 272.4 39.1 % 200.7 35.7 % 71.7 35.7 % Operating expenses (166.2) (23.8) % (146.3) (26.0) % (19.9) (13.6) % Segment operating earnings$ 106.2 15.3 %$ 54.4 9.7 %$ 51.8 95.2 % Segment net sales of$696.2 million in the first six months of 2021 increased$134.4 million , or 23.9% from 2020 levels, reflecting a$100.6 million , or 17.3%, organic sales increase,$15.0 million of acquisition-related sales and$18.8 million of favorable foreign currency translation. The organic increase primarily includes gains of over 25% in the segment's European-based hand tools business andAsia Pacific operations, as well as a high single-digit increase to customers in critical industries. 44
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Segment gross margin in the first six months of 39.1% improved 340 bps from last
year, primarily due to benefits from higher sales volumes and 110 bps from lower
costs related to $6.4 million of restructuring actions recorded in 2020,
partially offset by 60 bps of unfavorable foreign currency effects.
Segment operating expense as a percentage of sales in the first six months of 23.8% improved 220 bps as compared to 2020 primarily due to higher sales volumes.
As a result of these factors, segment operating earnings of$106.2 million in the first six months of 2021, including$2.5 million of unfavorable foreign currency effects, increased$51.8 million , or 95.2%, compared to$54.4 million in 2020, which included$6.4 million of restructuring charges. Operating margin for theCommercial & Industrial Group of 15.3% in the first six months of 2021 compared to 9.7% in 2020.Snap-on Tools Group Three Months Ended (Amounts in millions) July 3, 2021 June 27, 2020 Change Segment net sales$ 484.1 100.0 %$ 323.3 100.0 %$ 160.8 49.7 % Cost of goods sold (257.6) (53.2) % (188.5) (58.3) % (69.1) (36.7) % Gross profit 226.5 46.8 % 134.8 41.7 % 91.7 68.0 % Operating expenses (123.0) (25.4) % (96.4) (29.8) % (26.6) (27.6) % Segment operating earnings$ 103.5 21.4 %$ 38.4 11.9 %$ 65.1 169.5 % Segment net sales of$484.1 million in the second quarter of 2021 increased$160.8 million , or 49.7% from 2020 levels, reflecting a$154.1 million , or 46.7%, organic sales gain and$6.7 million of favorable foreign currency translation. The organic increase reflects a gain of approximately 40% in theU.S. franchise business and a gain of approximately 80% in the segment's international operations. Segment gross margin in the second quarter of 46.8% improved 510 bps from last year primarily due to higher sales volumes, benefits from RCI initiatives, and 50 bps of favorable foreign currency effects. Segment operating expenses as a percentage of net sales in the second quarter of 25.4% improved 440 bps from last year primarily due to higher sales volumes and 20 bps from lower costs related to$0.6 million of restructuring actions recorded in 2020, partially offset by higher stock-based expenses related to the company's franchisee stock purchase plan. As a result of these factors, segment operating earnings of$103.5 million in the second quarter of 2021, including$3.6 million of favorable foreign currency effects, increased$65.1 million , or 169.5%, compared to$38.4 million in 2020, which included$0.6 million of restructuring charges. Operating margin for theSnap-on Tools Group of 21.4% in the second quarter of 2021 compared to 11.9% last year. Six Months Ended (Amounts in millions) July 3, 2021 June 27, 2020 Change Segment net sales$ 962.4 100.0 %$ 699.2 100.0 %$ 263.2 37.6 % Cost of goods sold (516.2) (53.6) % (404.0) (57.8) % (112.2) (27.8) % Gross profit 446.2 46.4 % 295.2 42.2 % 151.0 51.2 % Operating expenses (243.8) (25.4) % (208.2) (29.8) % (35.6) (17.1) % Segment operating earnings$ 202.4 21.0 %$ 87.0 12.4 %$ 115.4 132.6 % Segment net sales of$962.4 million in the first six months of 2021 increased$263.2 million , or 37.6% from 2020 levels, reflecting a$249.8 million , or 35.1%, organic sales gain and$13.4 million of favorable foreign currency translation. The organic increase reflects a gain of approximately 30% in theU.S. franchise business and a gain of approximately 50% in the segment's international operations. 45
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Segment gross margin in the first six months of 46.4% improved 420 bps from last
year primarily due to higher sales volumes, benefits from RCI initiatives, and
40 bps of favorable foreign currency effects.
Segment operating expenses as a percentage of net sales in the first six months
of 25.4% improved 440 bps from last year primarily due to higher sales volumes
and 10 bps from lower costs related to $0.6 million of restructuring actions
recorded in 2020, partially offset by higher stock-based expenses related to the
company's franchisee stock purchase plan.
As a result of these factors, segment operating earnings of $202.4 million in
the first six months of 2021, including $5.9 million of favorable foreign
currency effects, increased $115.4 million , or 132.6%, compared to $87.0 million
in 2020. Operating margin for the Snap-on Tools Group of 21.0% in the first six
months of 2021 compared to 12.4% last year.
Three Months Ended
(Amounts in millions) July 3, 2021 June 27, 2020 Change
External net sales $ 322.6 80.9 % $ 196.5 80.2 % $ 126.1 64.2 %
Intersegment net sales 76.0 19.1 % 48.5 19.8 % 27.5 56.7 %
Segment net sales 398.6 100.0 % 245.0 100.0 % 153.6 62.7 %
Cost of goods sold (220.5) (55.3) % (128.8) (52.6) % (91.7) (71.2) %
Gross profit 178.1 44.7 % 116.2 47.4 % 61.9 53.3 %
Operating expenses (91.4) (22.9) % (65.6) (26.7) % (25.8) (39.3) %
Segment operating earnings $ 86.7 21.8 % $ 50.6 20.7 % $ 36.1 71.3 %
Segment net sales of $398.6 million in the second quarter of 2021 increased
$153.6 million , or 62.7% from 2020 levels, reflecting a $135.7 million , or
54.1%, organic sales increase, $11.9 million of acquisition-related sales and
$6.0 million of favorable foreign currency translation. The higher activity
reflects an increase of approximately 80% in sales of undercar equipment, as
well as a gain of approximately 50% in sales to OEM dealerships and an increase
of approximately 30% in sales of diagnostic and repair information products to
independent repair shop owners and managers.
Segment gross margin in the second quarter of 44.7% declined 270 bps from last
year primarily due to the impact of higher sales in lower gross margin
businesses and 40 bps of unfavorable foreign currency effects, partially offset
by 70 bps of benefits from acquisitions.
Segment operating expenses as a percentage of net sales in the second quarter of
22.9%, improved 380 bps from 2020 primarily due to higher sales volumes and 50
bps from lower costs related to $1.4 million of restructuring actions recorded
in the second quarter of 2020, partially offset by 190 bps of unfavorable
acquisition effects.
As a result of these factors, segment operating earnings of $86.7 million in the
second quarter of 2021, including $1.1 million of unfavorable foreign currency
effects, increased $36.1 million , or 71.3%, from $50.6 million in 2020, which
included $1.4 million of restructuring charges. Operating margin for the Repair
Systems & Information Group of 21.8% in the second quarter of 2021 compared to
20.7% last year.
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Six Months Ended
(Amounts in millions) July 3, 2021 June 27, 2020 Change
External net sales $ 597.8 80.1 % $ 445.8 79.7 % $ 152.0 34.1 %
Intersegment net sales 148.4 19.9 % 113.8 20.3 % 34.6 30.4 %
Segment net sales 746.2 100.0 % 559.6 100.0 % 186.6 33.3 %
Cost of goods sold (408.1) (54.7) % (292.7) (52.3) % (115.4) (39.4) %
Gross profit 338.1 45.3 % 266.9 47.7 % 71.2 26.7 %
Operating expenses (170.0) (22.8) % (139.0) (24.8) % (31.0) (22.3) %
Segment operating earnings $ 168.1 22.5 % $ 127.9 22.9 % $ 40.2 31.4 %
Segment net sales of $746.2 million in the first six months of 2021 increased
$186.6 million , or 33.3% from 2020 levels, reflecting a $159.9 million , or
28.0%, organic sales increase, $15.9 million of acquisition-related sales and
$10.8 million of favorable foreign currency translation. The organic gain
reflects higher activity in all of the segment's operations and includes
high-teen increases in sales of diagnostic and repair information products to
independent repair shop owners and managers.
Segment gross margin in the first six months of 45.3% declined 240 bps from last
year primarily due to the impact of higher sales in lower gross margin
businesses and 50 bps of unfavorable foreign currency effects, partially offset
by 50 bps of benefits from acquisitions.
Segment operating expenses as a percentage of net sales in the first six months
of 22.8%, improved 200 bps from 2020 primarily due to higher sales volumes and
70 bps from lower costs related to $3.8 million of restructuring actions
recorded in 2020, partially offset by 140 bps of unfavorable acquisition
effects.
As a result of these factors, segment operating earnings of $168.1 million in
the first six months of 2021, including $2.6 million of unfavorable foreign
currency effects, increased $40.2 million , or 31.4%, from $127.9 million in
2020, which included $4.5 million of restructuring charges. Operating margin for
the Repair Systems & Information Group of 22.5% in the first six months of 2021
compared to 22.9% last year.
Financial Services
Three Months Ended
(Amounts in millions) July 3, 2021 June 27, 2020 Change
Financial services revenue
100.0 % $ 2.3 2.7 %
Financial services expenses (18.0) (20.7) % (27.0) (31.9) % 9.0 33.3 %
Segment operating earnings $ 68.9 79.3 % $ 57.6 68.1 % $ 11.3 19.6 %
Financial services revenue in the second quarter of 2021 increased $2.3 million ,
or 2.7%, from 2020, primarily due to $2.6 million from growth in the company's
financial services portfolio, partially offset by a $0.3 million decrease from
lower average portfolio yields. In the second quarters of 2021 and 2020, the
respective average yields on finance receivables were 17.5% and 17.6%. In the
second quarters of 2021 and 2020, the respective average yields on contract
receivables were 8.5% and 8.2%. The lower yield on contract receivables in the
second quarter of 2020 includes the impact of business operation support loans
provided to franchisees during that period in response to the COVID-19
environment. Originations of $285.8 million in the second quarter of 2021
increased $30.0 million , or 11.7%, from 2020 levels.
Financial services expenses primarily include personnel-related and other
general and administrative costs, as well as provisions for credit losses. These
expenses are generally more dependent on changes in the size of the financial
services portfolio than they are on the revenue of the segment. Financial
services expenses in the second quarter of 2021 decreased primarily due to lower
provisions for credit losses compared to the second quarter of 2020. As a
percentage of the average financial services portfolio, financial services
expenses were 0.8% in the second quarter of 2021 and 1.3% in 2020.
Financial services operating earnings in the second quarter of 2021, including
$1.0 million of favorable foreign currency effects, increased $11.3 million , or
19.6%, from 2020 levels.
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Six Months Ended
(Amounts in millions) July 3, 2021 June 27, 2020 Change
Financial services revenue
100.0 % $ 5.0 2.9 %
Financial services expenses (41.3) (23.5) % (56.0) (32.8) % 14.7 26.3 %
Segment operating earnings $ 134.2 76.5 % $ 114.5 67.2 % $ 19.7 17.2 %
Financial services revenue in the first six months of 2021 increased $5.0
million , or 2.9%, from 2020, primarily due to $6.2 million from growth in the
company's financial services portfolio, partially offset by a $1.2 million
decrease from lower average portfolio yields. In the first six months of 2021
and 2020, the respective average yields on finance receivables were 17.5% and
17.7%. In the first six months of 2021 and 2020, the respective average yields
on contract receivables were 8.4% and 8.6%. Originations of $547.6 million in
the first six months of 2021 increased $36.2 million , or 7.1%, from 2020 levels.
Financial services expenses in the first six months of 2021 decreased primarily
due to lower provisions for credit losses compared to 2020, which included a
$2.6 million charge related to higher credit reserves resulting from the
economic uncertainty associated with the COVID-19 pandemic. As a percentage of
the average financial services portfolio, financial services expenses were 1.9%
in the first six months of 2021 and 2.6% in 2020.
Financial services operating earnings in the first six months of 2021, including
$1.7 million of favorable foreign currency effects, increased $19.7 million , or
17.2%, from 2020 levels.
Corporate
Snap-on's second quarter 2021 general corporate expenses of$28.6 million compared to$20.8 million last year. Snap-on's general corporate expenses in the first six months of 2021 of$58.7 million compared to$39.3 million last year. The increased year-over-year general corporate expenses primarily reflect higher stock-based compensation, including costs associated with the company's employee stock purchase plan. 48
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(continued)
Non-GAAP Supplemental Data
The following non-GAAP supplemental data is presented for informational purposes
to provide readers with insight into the information used by management for
assessing the operating performance of Snap-on 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
reported on the equity method. The supplemental Financial Services data reflects
the results of operations and financial position of Snap-on's U.S. and
international financial services operations. The financing needs of Financial
Services are met through intersegment borrowings and cash generated from
Operations; Financial Services is charged interest expense on intersegment
borrowings at market rates. Income taxes are charged to Financial Services on
the basis of the specific tax attributes generated by the U.S. and international
financial services businesses. Transactions between the Operations and Financial
Services businesses are eliminated to arrive at the Condensed Consolidated
Financial Statements.
Non-GAAP Supplemental Consolidating Data - Supplemental Condensed Statements of
Earnings information for the three months ended July 3, 2021 , and June 27, 2020 ,
is as follows:
Operations* Financial Services
July 3, June 27, July 3, June 27,
(Amounts in millions) 2021 2020 2021 2020
Net sales $ 1,081.4 $ 724.3 $ - $ -
Cost of goods sold (538.3) (383.1) - -
Gross profit 543.1 341.2 - -
Operating expenses (326.0) (250.1) - -
Operating earnings before financial services 217.1 91.1 - -
Financial services revenue - - 86.9 84.6
Financial services expenses - - (18.0) (27.0)
Operating earnings from financial services - - 68.9 57.6
Operating earnings 217.1 91.1 68.9 57.6
Interest expense (14.2) (13.4) (0.1) -
Intersegment interest income (expense) - net 14.8 16.5 (14.8) (16.5)
Other income (expense) - net 3.3 2.0 0.1 -
Earnings before income taxes and equity earnings 221.0 96.2 54.1 41.1
Income tax expense (49.2) (21.3) (13.7) (10.6)
Earnings before equity earnings 171.8 74.9 40.4 30.5
Financial services - net earnings attributable to
Snap-on 40.4 30.5 - -
Equity earnings, net of tax 1.0 0.5 - -
Net earnings 213.2 105.9 40.4 30.5
Net earnings attributable to noncontrolling
interests (5.2) (4.7) - -
Net earnings attributable to Snap-on $ 208.0 $ 101.2 $ 40.4 $ 30.5 * Snap-on with Financial Services on the equity method.
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(continued)
Non-GAAP Supplemental Consolidating Data - Supplemental Condensed Statements of
Earnings information for the six months ended July 3, 2021 , and June 27, 2020 ,
is as follows:
Operations* Financial Services
July 3, June 27, July 3, June 27,
(Amounts in millions) 2021 2020 2021 2020
Net sales $ 2,106.0 $ 1,576.5 $ - $ -
Cost of goods sold (1,049.3) (813.7) - -
Gross profit 1,056.7 762.8 - -
Operating expenses (638.7) (532.8) - -
Operating earnings before financial
services 418.0 230.0 - -
Financial services revenue - - 175.5 170.5
Financial services expenses - - (41.3) (56.0)
Operating earnings from financial services - - 134.2 114.5
Operating earnings 418.0 230.0 134.2 114.5
Interest expense (28.5) (24.7) (0.1) (0.1)
Intersegment interest income (expense) -
net 29.2 34.6 (29.2) (34.6)
Other income (expense) - net 7.6 3.5 0.1 -
Earnings before income taxes and equity
earnings 426.3 243.4 105.0 79.8
Income tax expense (95.7) (55.1) (26.3) (20.7)
Earnings before equity earnings 330.6 188.3 78.7 59.1
Financial services - net earnings
attributable to Snap-on 78.7 59.1 - -
Equity earnings, net of tax 1.5 0.5 - -
Net earnings 410.8 247.9 78.7 59.1
Net earnings attributable to noncontrolling
interests (10.2) (9.5) - -
Net earnings attributable to Snap-on
$ 78.7 $ 59.1
* Snap-on with Financial Services on the equity method.
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(continued)
Non-GAAP Supplemental Consolidating Data - Supplemental Condensed Balance Sheet
information as of
Operations* Financial Services
July 3, January 2, July 3, January 2,
(Amounts in millions) 2021 2021 2021 2021
ASSETS
Current assets:
Cash and cash equivalents $ 965.6 $ 923.2 $ 0.3 $ 0.2
Intersegment receivables 15.2 14.6 - 0.2
Trade and other accounts receivable - net 644.7 639.7 0.7 1.0
Finance receivables - net - - 535.3 530.2
Contract receivables - net 6.8 7.0 97.1 105.5
Inventories - net 760.9 746.5 - -
Prepaid expenses and other assets 138.2 131.1 9.6 7.8
Total current assets 2,531.4 2,462.1 643.0 644.9
Property and equipment - net 524.1 524.4 2.0 1.8
Operating lease right-of-use assets 50.3 49.7 2.1 2.2
Investment in Financial Services 349.4 349.8 - -
Deferred income tax assets 27.7 27.6 24.4 22.7
Intersegment long-term notes receivable 314.5 316.9 - -
Long-term finance receivables - net - - 1,124.4 1,136.3
Long-term contract receivables - net 10.9 12.4 369.0 362.3
Goodwill 1,177.6 982.4 - -
Other intangibles - net 255.2 260.8 - -
Other assets 86.5 103.9 0.1 0.1
Total assets $ 5,327.6 $ 5,090.0 $ 2,165.0 $ 2,170.3 * Snap-on with Financial Services on the equity method.
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(continued)
Non-GAAP Supplemental Consolidating Data - Condensed Balance Sheets Information
(continued):
Operations* Financial Services
July 3, January 2, July 3, January 2,
(Amounts in millions) 2021 2021 2021 2021
LIABILITIES AND EQUITY
Current liabilities:
Notes payable and current maturities of
long-term debt $ 18.1 $ 18.5 $ 250.0 $ 250.0
Accounts payable 279.4 222.3 0.8 0.6
Intersegment payables - - 15.2 14.8
Accrued benefits 54.2 59.7 - -
Accrued compensation 89.2 87.2 2.5 2.7
Franchisee deposits 78.3 78.4 - -
Other accrued liabilities 425.5 418.8 33.6 35.9
Total current liabilities 944.7 884.9 302.1 304.0
Long-term debt and intersegment long-term debt - - 1,497.0 1,499.0
Deferred income tax liabilities 81.8 70.4 - -
Retiree health care benefits 33.0 34.5 - -
Pension liabilities 111.6 127.1 - -
Operating lease liabilities 32.3 31.6 1.9 2.4
Other long-term liabilities 98.7 94.9 14.6 15.1
Total liabilities 1,302.1 1,243.4 1,815.6 1,820.5
Total shareholders' equity attributable to
Snap-on 4,003.4 3,824.9 349.4 349.8
Noncontrolling interests 22.1 21.7 - -
Total equity 4,025.5 3,846.6 349.4 349.8
Total liabilities and equity $ 5,327.6 $ 5,090.0 $ 2,165.0 $ 2,170.3 * Snap-on with Financial Services on the equity method.
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(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 (including the maturity
of the 2021 Notes as defined below), 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 July 16, 2021 ,
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, based on current macroeconomic
conditions resulting from the on-going uncertainty caused by the COVID-19
pandemic, 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
Condensed Consolidated Balance Sheets.
As of July 3, 2021 , working capital (current assets less current liabilities) of
$1,927.6 million increased $9.5 million from $1,918.1 million as of January 2,
2021 (fiscal 2020 year-end) primarily as a result of the net changes discussed
below.
The following represents the company's working capital position as of July 3,
2021 , and January 2, 2021 :
(Amounts in millions) July 3, 2021 January 2, 2021
Cash and cash equivalents $ 965.9 $ 923.4
Trade and other accounts receivable - net 645.4 640.7
Finance receivables - net 535.3 530.2
Contract receivables - net 103.9 112.5
Inventories - net 760.9 746.5
Prepaid expenses and other assets 138.3 129.7
Total current assets 3,149.7 3,083.0
Notes payable and current maturities of long-term debt (268.1) (268.5)
Accounts payable (280.2) (222.9)
Other current liabilities (673.8) (673.5)
Total current liabilities (1,222.1) (1,164.9)
Working capital $ 1,927.6 $ 1,918.1
Cash and cash equivalents of $965.9 million as of July 3, 2021 , increased
$42.5 million from 2020 year-end levels primarily due to: (i) $557.5 million of
cash generated from operations; (ii) $447.9 million of cash from collections of
finance receivables; (iii) $154.8 million of cash proceeds from stock purchase
and option plan exercises and (iv) $2.9 million of net proceeds from other
short-term borrowings. These increases in cash and cash equivalents were
partially offset by: (i) the funding of $454.5 million of new finance
receivables; (ii) the repurchase of 1,288,900 shares of the company's common
stock for $289.3 million ; (iii) the funding of $195.8 million for acquisitions;
(iv) dividend payments to shareholders of $133.4 million ; and (v) the funding of
$37.6 million of capital expenditures.
Of the $965.9 million of cash and cash equivalents as of July 3, 2021 ,
$276.5 million was held outside of the United States . Snap-on maintains non-U.S.
funds in its foreign operations to: (i) provide adequate working capital;
(ii) satisfy various regulatory requirements; and/or (iii) take advantage of
business expansion opportunities as they arise. Although the Tax Cuts and Jobs
Act ("Tax Act") generally eliminated U.S. federal taxation of dividends from
foreign subsidiaries, such dividends may still be subject to state income
taxation and foreign withholding taxes. Snap-on periodically evaluates its cash
held outside the United States and may pursue opportunities to repatriate
certain foreign cash amounts to the extent that it can be accomplished in a tax
efficient manner.
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Trade and other accounts receivable - net of $645.4 million as of July 3, 2021 ,
increased $4.7 million from 2020 year-end levels, primarily due to $8.9 million
from acquisitions, partially offset by $1.3 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 56 days at July 3, 2021 , and 64 days at January 2,
2021 .
The current portions of net finance and contract receivables of $639.2 million
as of July 3, 2021 , compared to $642.7 million at 2020 year end. The long-term
portions of net finance and contract receivables of $1,504.3 million as of
July 3, 2021 , compared to $1,511.0 million at 2020 year end. The combined
$10.2 million decrease in net current and long-term finance and contract
receivables over 2020 year-end levels primarily reflects increases from
originations and $6.4 million of foreign currency translation, more than offset
by collections and other reductions.
Inventories - net of $760.9 million as of July 3, 2021 , increased $14.4 million
from 2020 year-end levels primarily to support higher customer demand and new
product innovation and $2.3 million from acquisitions, partially offset by $2.1
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 2.7 turns and 2.4 turns as of July 3,
2021 , and January 2, 2021 , respectively. Inventories accounted for using the
first-in, first-out ("FIFO") method approximated 58% and 57% of total
inventories as of July 3, 2021 and January 2, 2021 , respectively. All other
inventories are accounted for using the last-in, first-out ("LIFO") method. The
company's LIFO reserve was $84.8 million and $84.0 million as of July 3, 2021 ,
and January 2, 2021 , respectively.
Notes payable and current maturities of long-term debt of $268.1 million as of
July 3, 2021 , consisted of $250.0 million of unsecured 6.125% notes that mature
on September 1, 2021 (the "2021 Notes") and $17.5 million of other notes and
$0.6 million from the net effects of debt amortization costs and fair value
adjustments of interest rate swaps. Notes payable and current maturities of
long-term debt of $268.5 million as of 2020 year end, consisted of
$250.0 million of the 2021 Notes, and $14.9 million of other notes and $3.6
million from the net effects of debt amortization costs and fair value
adjustments of interest rate swaps.
Accounts payable of $280.2 million as of July 3, 2021 , increased $57.3 million
from 2020 year-end levels primarily due to the timing of payments and $3.6
million from acquisitions, partially offset by $1.1 million of foreign currency
translation.
Other accrued liabilities of $449.6 million as of July 3, 2021 , increased $4.1
million from 2020 year-end levels primarily due to $2.4 million from
acquisitions, partially offset by $1.4 million of foreign currency translation.
Long-term debt of $1,182.5 million as of July 3, 2021 , consisted of: (i)
$300 million of unsecured 3.25% notes that mature on March 1, 2027 (the "2027
Notes"); (ii) $400 million of unsecured 4.10% notes that mature on March 1, 2048
(the "2048 Notes"); and (iii) $500 million of 3.10% notes that mature on May 1,
2050 ("the 2050 Notes"), partially offset by $17.5 million from the net effects
of debt amortization costs.
Snap-on has an $800 million multi-currency revolving credit facility that
terminates on September 16, 2024 (the "Credit Facility"); no amounts were
outstanding under the Credit Facility as of July 3, 2021 . Borrowings under the
Credit Facility bear interest at varying rates based on either: (i) Snap-on's
then-current, long-term debt ratings; or (ii) Snap-on's then-current ratio of
consolidated debt net of certain cash adjustments ("Consolidated Net Debt") to
earnings before interest, taxes, depreciation, amortization and certain other
adjustments for the preceding four fiscal quarters then ended (the "Consolidated
Net Debt to EBITDA Ratio"). The Credit Facility's financial covenant requires
that Snap-on maintain, as of each fiscal quarter end, either (i) a ratio not
greater than 0.60 to 1.00 of Consolidated Net Debt to the sum of Consolidated
Net Debt plus total equity and less accumulated other comprehensive income or
loss (the "Leverage Ratio"); or (ii) a Consolidated Net Debt to EBITDA Ratio not
greater than 3.50 to 1.00. Snap-on may, up to two times during any five-year
period during the term of the Credit Facility (including any extensions
thereof), elect to increase the maximum Leverage Ratio to 0.65 to 1.00 and/or
increase the maximum Consolidated Net Debt to EBITDA Ratio to 4.00 to 1.00 for
four consecutive fiscal quarters in connection with certain material
acquisitions (as defined in the related credit agreement). As of July 3, 2021 ,
the company's actual ratios of 0.11 and 0.44 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.
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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, however, it is continuing to monitor the impact
of the COVID-19 pandemic on its business and the credit and financial markets.
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 scheduled debt
payments, including the maturity of the 2021 Notes, 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 $9.2 million to its foreign
pension plans and $2.2 million to its domestic pension plans in 2021, as
required by law. Depending on market and other conditions, Snap-on may make
discretionary cash contributions to its pension plans in 2021.
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 $557.5 million and $467.0 million
in the first six months of 2021 and 2020, respectively. The $90.5 million
year-over-year increase in net cash provided by operating activities primarily
reflects a $162.9 million increase in net earnings, offset by a $80.5 million
decrease from net changes in operating assets and liabilities.
Investing Activities
Net cash used by investing activities of $236.9 million in the first six months
of 2021 included additions to finance receivables of $454.5 million , offset by
collections of $447.9 million . Net cash used by investing activities of
$95.4 million in the first six months of 2020 included additions to finance
receivables of $414.6 million , partially offset by collections of
$357.5 million . Finance receivables are comprised of extended-term installment
payment contracts to both technicians and independent shop owners (i.e.,
franchisees' customers) to enable them to purchase tools and diagnostic and
equipment products on an extended-term payment plan, generally with payment
terms of approximately four years.
Net cash used by investing activities in the respective first six month periods
of 2021 and 2020 also included a net $195.8 million and $6.1 million for
acquisitions. See Note 3 to the Condensed Consolidated Financial Statements for
information about acquisitions.
Capital expenditures were $37.6 million and $29.0 million in the first six
months of 2021 and 2020, respectively. Capital expenditures in both years
included continued investments related to the company's execution of its
strategic Value Creation Processes around safety, quality, customer connection,
innovation and RCI.
Financing Activities
Net cash used by financing activities of $278.9 million in the first six months
of 2021 included net proceeds from notes payable and other short-term borrowings
of $2.9 million . Net cash provided by financing activities of $132.4 million in
the first six months of 2020 included Snap-on's sale, on April 30, 2020 , of $500
million of the 2050 Notes at a discount, from which Snap-on received $489.9
million of net proceeds, reflecting $4.4 million of transaction costs, partially
offset by repayments of notes payable and other short-term borrowings of
$190.0 million .
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SNAP-ON INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Proceeds from stock purchase and option plan exercises totaled $154.8 million
and $13.8 million in the first six months of 2021 and 2020, respectively.
Snap-on has undertaken stock repurchases from time to time to offset dilution
created by shares issued for employee and franchisee stock purchase plans, as
well as stock options, and for other corporate purposes. In the first six months
of 2021, Snap-on repurchased 1,288,900 shares of its common stock for
$289.3 million under its previously announced share repurchase programs. In the
first six months of 2020, Snap-on repurchased 349,000 shares of its common stock
for $50.5 million under its previously announced share repurchase programs. As
of July 3, 2021 , Snap-on had remaining availability to repurchase up to an
additional $251.6 million in common stock pursuant to its Board's
authorizations. The purchase of Snap-on common stock is at the company's
discretion, subject to prevailing financial and market conditions. Snap-on
believes that its cash generated from operations, available cash on hand, and
funds available from its credit facilities, will be sufficient to fund the
company's additional share repurchases, if any.
Snap-on has paid consecutive quarterly cash dividends, without interruption or
reduction, since 1939. Cash dividends totaled $133.4 million and $117.7 million
in the first six months of 2021 and 2020, respectively. On November 6, 2020 , the
Board increased the quarterly cash dividend by 13.9% to $1.23 per share ($4.92
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.
Off-Balance Sheet Arrangements
The company had no off-balance sheet arrangements as of July 3, 2021 .
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 January 2,
2021 , have not materially changed since the report was filed.
Outlook
With ongoing advancement against the COVID-19 pandemic, many national and local
governments around the world have revised restrictive measures that were
previously in place, and economic activity continues to progress towards
pre-pandemic levels in most geographies. During 2021, the company believes the
trajectory of advancement may be uncertain due to the evolving nature and
duration of the pandemic and quarterly year-over-year comparisons to 2020
performance may be less meaningful than comparisons to pre-pandemic periods.
Snap-on expects to make continued progress along its defined runways for
coherent growth, leveraging capabilities already demonstrated in the automotive
repair arena and developing and expanding its professional customer base, not
only in automotive repair, but in adjacent markets, additional geographies and
other areas, including extending in critical industries, where the cost and
penalties for failure can be high. In pursuit of these initiatives, the company
expects that capital expenditures in 2021 will be in the range of $90 million to
$100 million , of which $37.6 million was incurred in the first six months of the
year. Snap-on continues to respond to the global macroeconomic challenges
through its RCI, sourcing and other cost reduction initiatives.
Snap-on currently anticipates that its full year 2021 effective income tax rate
will be in the range of 23% to 24%.
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