What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-19 compared with 2023-07-20 · 147 added, 148 removed, 387 unchanged (43% of the section changed)

29 unchanged sentences

• Potential reputational damages and costs related to litigation;

• The impact of outbreaks of infectious diseases, such as COVID-19 and its variants, as well as the effects of governmental actions related thereto on Snap-on’s business, which could have the potential to amplify the impact of the other risks facing the company;

• The impact of outbreaks of infectious diseases as well as the effects of governmental actions related thereto on Snap-on’s business, which could have the potential to amplify the impact of the other risks facing the company;

• Other world or local events outside Snap-on’s control, including terrorist disruptions, armed conflicts and civil unrest.

12 unchanged sentences

RESULTS OF OPERATIONS

Results of operations for the three months ended July 1, 2023, and July 2, 2022, are as follows:

Results of operations for the three months ended September 30, 2023, and October 1, 2022, are as follows:

Three Months Ended

(Amounts in millions) July 1, 2023 July 2, 2022 Change

(Amounts in millions) September 30, 2023 October 1, 2022 Change

Net sales $ 1,159.3 100.0 % $ 1,102.5 100.0 % $ 56.8 5.2 %

17 unchanged sentences

All income statement line item percentages below “Operating earnings from financial services” are calculated as a percentage of the sum of Net sales and Financial services revenue.

Net sales of $1,191.3 million in the second quarter of 2023 represented an increase of $54.7 million, or 4.8%, from 2022 levels, reflecting a $63.0 million, or 5.6%, organic gain, partially offset by $8.3 million of unfavorable foreign currency translation.

Gross profit of $603.7 million in the second quarter of 2023 compared to $553.5 million last year, an increase of $50.2 million or 9.1%.

Gross margin (gross profit as a percentage of net sales) in the quarter improved 200 basis points (100 basis points (“bps”) equals 1.0 percent) from the second quarter of 2022 primarily due to increased sales volumes and pricing actions , lower material and other costs, and benefits from the company’s “Rapid Continuous Improvement” or “RCI” initiatives.

Net sales of $1,159.3 million in the third quarter of 2023 represented an increase of $56.8 million, or 5.2%, from 2022 levels, reflecting a $52.4 million, or 4.7%, organic gain and $4.4 million of favorable foreign currency translation.

Gross profit of $578.2 million in the third quarter of 2023 compared to $532.6 million last year, an increase of $45.6 million or 8.6%.

Gross margin (gross profit as a percentage of net sales) in the quarter improved 160 basis points (100 basis points (“bps”) equals 1.0 percent) from the third quarter of 2022 primarily due to increased sales volumes and pricing actions , lower material and other costs, and benefits from the company’s “Rapid Continuous Improvement” or “RCI” initiatives.

These improvements were partially offset by 50 bps of unfavorable foreign currency effects.

2 unchanged sentences

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 $326.7 million in the second quarter of 2023 compared to $306.9 million in 2022.

Operating expenses as a percentage of net sales increased 40 bps from last year primarily due to increased personnel and other costs.

Operating earnings before financial services of $277.0 million in the second quarter of 2023 compared to $246.6 million in 2022, an increase of $30.4 million or 12.3%.

As a percentage of net sales, operating earnings before financial services of 23.3% compared to 21.7% last year.

Financial services revenue of $93.4 million in the second quarter of 2023 compared to $86.4 million last year.

Operating expenses of $333.0 million in the third quarter of 2023 compared to $309.1 million in 2022.

Operating expenses as a percentage of net sales rose 70 bps from last year primarily reflecting increased personnel and other costs.

Operating earnings before financial services of $245.2 million in the third quarter of 2023 compared to $223.5 million in 2022, an increase of $21.7 million or 9.7%.

As a percentage of net sales, operating earnings before financial services were 21.2% compared to 20.3% last year.

Financial services revenue of $94.9 million in the third quarter of 2023 compared to $87.3 million last year.

Financial services operating earnings of $69.4 million in the period compared to $66.4 million in 2022.

2 unchanged sentences

OF OPERATIONS

Operating earnings of $343.9 million in the second quarter of 2023 compared to $311.9 million in 2022, an increase of $32.0 million or 10.3%.

Operating earnings of $314.6 million in the third quarter of 2023 compared to $289.9 million in 2022, an increase of $24.7 million or 8.5%.

As a percentage of revenues (net sales plus financial services revenue), operating earnings of 25.1% in the quarter compared to 24.4% last year.

Interest expense in the second quarter of 2023 increased $0.9 million compared to last year.

Interest expense in the third quarter of 2023 increased $0.6 million compared to last year.

See Note 7 to the Condensed Consolidated Financial Statements for additional information on debt and credit facilities.

1 unchanged sentence

See Note 15 to the Condensed Consolidated Financial Statements for additional information on Other income (expense) – net.

The effective income tax rate on earnings attributable to Snap-on was 22.9% in the second quarter of 2023 and 23.8% in the second quarter of 2022.

The effective income tax rate on earnings attributable to Snap-on was 22.6% in the third quarter of 2023 and 21.6% in the third quarter of 2022.

S ee Note 6 to the Condensed Consolidated Financial Statements for additional information on income taxes.

Net earnings attributable to Snap-on of $264.0 million, or $4.89 per diluted share, in the second quarter of 2023 compared to $231.5 million, or $4.27 per diluted share, in the second quarter of 2022, an increase of $32.5 million or $0.62 per diluted share.

Results of operations for the six months ended July 1, 2023, and July 2, 2022, are as follows:

Six Months Ended

(Amounts in millions) July 1, 2023 July 2, 2022 Change

Net earnings attributable to Snap-on of $243.1 million, or $4.51 per diluted share, in the third quarter of 2023 compared to $223.9 million, or $4.14 per diluted share, in the third quarter of 2022, an increase of $19.2 million or $0.37 per diluted share.

Results of operations for the nine months ended September 30, 2023, and October 1, 2022, are as follows:

Nine Months Ended

(Amounts in millions) September 30, 2023 October 1, 2022 Change

Net sales $ 3,533.6 100.0 % $ 3,336.9 100.0 % $ 196.7 5.9 %

17 unchanged sentences

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 $2,374.3 million in the first six months of 2023 represented an increase of $139.9 million, or 6.3%, from 2022 levels, reflecting a $172.2 million, or 7.8%, organic gain, partially offset by $32.3 million of unfavorable foreign currency translation.

Gross profit of $1,193.3 million in the first six months of 2023 compared to $1,087.8 million last year, an increase of $105.5 million or 9.7%.

Gross margin in the first six months improved 160 bps from 2022 primarily due to increased sales volume s and pricing actions, lower material and other costs, and benefits from the company’s RCI initiatives.

Net sales of $3,533.6 million in the first nine months of 2023 represented an increase of $196.7 million, or 5.9%, from 2022 levels, reflecting a $224.6 million, or 6.8%, organic gain, partially offset by $27.9 million of unfavorable foreign currency translation.

Gross profit of $1,771.5 million in the first nine months of 2023 compared to $1,620.4 million last year, an increase of $151.1 million or 9.3%.

Gross margin improved 150 bps from 2022 primarily due to increased sales volume s and pricing actions, lower material and other costs, and benefits from the company’s RCI initiatives.

These improvements were partially offset by 40 bps of unfavorable foreign currency effects.

2 unchanged sentences

OF OPERATIONS

Operating expenses of $656.5 million in the first six months of 2023 compared to $618.1 million last year.

Operating expenses as a percentage of net sales was unchanged from 2022.

Operating earnings before financial services of $536.8 million in the first six months of 2023 compared to $469.7 million in 2022, an increase of $67.1 million or 14.3%.

As a percentage of net sales, operating earnings before financial services of 22.6% compared to 21.0% last year.

Financial services revenue of $186.0 million in the first six months of 2023 compared to $174.1 million last year.

Operating expenses of $989.5 million in the first nine months of 2023 compared to $927.2 million last year.

Operating expenses as a percentage of net sales rose 20 bps from last year primarily reflecting increased personnel and other costs, partially offset by benefits from higher sales volumes.

Operating earnings before financial services of $782.0 million in the first nine months of 2023 compared to $693.2 million in 2022, an increase of $88.8 million or 12.8%.

As a percentage of net sales, operating earnings before financial services were 22.1% compared to 20.8% last year.

Financial services revenue of $280.9 million in the first nine months of 2023 compared to $261.4 million last year.

Financial services operating earnings of $202.6 million in the period compared to $202.1 million in 2022.

Operating earnings of $670.0 million in the first six months of 2023 compared to $605.4 million in 2022, an increase of $64.6 million or 10.7%.

Operating earnings of $984.6 million in the first nine months of 2023 compared to $895.3 million in 2022, an increase of $89.3 million or 10.0%.

As a percentage of revenues, operating earnings of 25.8% compared to 24.9% last year.

Interest expense in the first six months of 2023 increased $1.7 million compared to last year.

Interest expense in the first nine months of 2023 increased $2.3 million compared to last year.

See Note 7 to the Condensed Consolidated Financial Statements for additional information on debt and credit facilities.

1 unchanged sentence

See Note 15 to the Condensed Consolidated Financial Statements for additional information on Other income (expense) – net.

The effective income tax rate on earnings attributable to Snap-on was 23.0% in the first six months of 2023 and 23.7% in 2022.

The effective income tax rate on earnings attributable to Snap-on was 22.9% in the first nine months of 2023 and 23.0% in 2022.

S ee Note 6 to the Condensed Consolidated Financial Statements for additional information on income taxes.

Net earnings attributable to Snap-on of $512.7 million, or $9.49 per diluted share, in the first six months of 2023 compared to $448.9 million, or $8.27 per diluted share, in 2022, an increase of $63.8 million or $1.22 per diluted share.

Net earnings attributable to Snap-on of $755.8 million, or $14.00 per diluted share, in the first nine months of 2023 compared to $672.8 million, or $12.41 per diluted share, in 2022, an increase of $83.0 million or $1.59 per diluted share.

Segment Results

19 unchanged sentences

Three Months Ended

(Amounts in millions) July 1, 2023 July 2, 2022 Change

(Amounts in millions) September 30, 2023 October 1, 2022 Change

External net sales $ 280.5 76.6 % $ 262.8 73.7 % $ 17.7 6.7 %

5 unchanged sentences

Segment operating earnings $ 58.1 15.9 % $ 52.3 14.7 % $ 5.8 11.1 %

Segment net sales of $364.2 million in the second quarter of 2023 represented an increase of $5.1 million, or 1.4%, from 2022 levels, reflecting a $10.7 million, or 3.0%, organic sales gain, partially offset by $5.6 million of unfavorable foreign currency translation.

The organic increase is primarily due to a double-digit gain in sales to customers in critical industries, partially offset by a double-digit decline in sales of power tools.

Segment gross margin in the second quarter improved 220 bps from last year, primarily due to increased sales volumes in the higher-gross-margin critical industry sector, pricing actions, lower material and other costs, and benefits from the segment’s RCI initiatives.

Segment net sales of $366.4 million in the third quarter of 2023 represented an increase of $9.6 million, or 2.7%, from 2022 levels, reflecting an $11.2 million, or 3.2%, organic sales gain, partially offset by $1.6 million of unfavorable foreign currency translation.

The organic increase is primarily due to a double-digit gain in sales to customers in critical industries, partially offset by a double-digit decline in the segment’s Asia Pacific operations.

Segment gross margin in the third quarter improved 210 bps from last year, primarily reflecting increased sales volumes in the higher-gross-margin critical industry sector, pricing actions, and benefits from the segment’s RCI initiatives.

These improvements were partially offset by 60 bps of unfavorable foreign currency effects.

Segment operating expenses as a percentage of sales in the second quarter increased 60 bps as compared to 2022 primarily due to increased sales in higher-expense businesses.

As a result of these factors, segment operating earnings of $58.1 million in the second quarter of 2023, including $2.7 million of unfavorable foreign currency effects, compared to $51.7 million in 2022, an increase of $6.4 million or 12.4%.

Operating margin (segment operating earnings as a percentage of segment net sales) for the Commercial & Industrial Group of 16.0% in the second quarter of 2023 compared to 14.4% in 2022.

Six Months Ended

(Amounts in millions) July 1, 2023 July 2, 2022 Change

Segment operating expenses as a percentage of sales in the third quarter rose 90 bps as compared to 2022 primarily due to increased sales in higher-expense businesses, as well as increased personnel and other costs.

As a result of these factors, segment operating earnings of $58.1 million in the third quarter of 2023, including $2.9 million of unfavorable foreign currency effects, compared to $52.3 million in 2022, an increase of $5.8 million or 11.1%.

Operating margin (segment operating earnings as a percentage of segment net sales) for the Commercial & Industrial Group of 15.9% in the third quarter of 2023 compared to 14.7% in 2022.

Nine Months Ended

(Amounts in millions) September 30, 2023 October 1, 2022 Change

External net sales $ 848.9 77.6 % $ 800.1 75.8 % $ 48.8 6.1 %

5 unchanged sentences

Segment operating earnings $ 172.0 15.7 % $ 149.7 14.2 % $ 22.3 14.9 %

Segment net sales of $728.0 million in the first six months of 2023 represented an increase of $28.8 million, or 4.1%, from 2022 levels, reflecting a $46.9 million, or 6.9%, organic sales gain, partially offset by $18.1 million of unfavorable foreign currency translation.

The organic increase primarily reflects a double-digit gain in sales to customers in critical industries and a high single-digit increase in the segment’s specialty tools business.

Segment gross margin in the first six months improved 230 bps from last year, primarily due to increased sales volumes in the higher-gross-margin critical industry sector, pricing actions, and benefits from the segment’s RCI initiatives.

Segment net sales of $1,094.4 million in the first nine months of 2023 represented an increase of $38.4 million, or 3.6%, from 2022 levels, reflecting a $58.1 million, or 5.6%, organic sales gain, partially offset by $19.7 million of unfavorable foreign currency translation.

The organic increase primarily reflects a double-digit gain in sales to customers in critical industries.

Segment gross margin in the first nine months improved 220 bps from last year, primarily due to increased sales volumes in the higher-gross-margin critical industry sector, pricing actions, and benefits from the segment’s RCI initiatives.

These improvements were partially offset by 30 bps of unfavorable foreign currency effects.

Segment operating expenses as a percentage of sales in the first six months increased 60 bps as compared to 2022 primarily due to increased sales in higher-expense businesses.

Segment operating expenses as a percentage of sales in the first nine months rose 70 bps as compared to 2022 primarily reflecting increased sales in higher-expense businesses.

SNAP-ON INCORPORATED

1 unchanged sentence

OF OPERATIONS

As a result of these factors, segment operating earnings of $113.9 million in the first six months of 2023, including $4.7 million of unfavorable foreign currency effects, compared to $97.4 million in 2022, an increase of $16.5 million or 16.9%.

Operating margin for the Commercial & Industrial Group of 15.6% in the first six months of 2023 compared to 13.9% in 2022.

As a result of these factors, segment operating earnings of $172.0 million in the first nine months of 2023, including $7.6 million of unfavorable foreign currency effects, compared to $149.7 million in 2022, an increase of $22.3 million or 14.9%.

Operating margin for the Commercial & Industrial Group of 15.7% in the first nine months of 2023 compared to 14.2% in 2022.

Snap-on Tools Group

Three Months Ended

(Amounts in millions) July 1, 2023 July 2, 2022 Change

(Amounts in millions) September 30, 2023 October 1, 2022 Change

Segment net sales $ 515.4 100.0 % $ 496.6 100.0 % $ 18.8 3.8 %

3 unchanged sentences

Segment operating earnings $ 113.4 22.0 % $ 102.2 20.6 % $ 11.2 11.0 %

Segment net sales of $523.1 million in the second quarter of 2023 represented an increase of $2.5 million, or 0.5%, from 2022 levels, reflecting a $5.7 million, or 1.1%, organic sales gain, partially offset by $3.2 million of unfavorable foreign currency translation.

The organic increase is due to a mid single-digit gain in the segment’s international operations and slightly higher sales in the U.S.

franchise business.

Segment gross margin in the second quarter improved 300 bps from last year primarily due to increased sales volumes and pricing actions, lower material and other costs, and benefits from the segment’s RCI initiatives .

Segment net sales of $515.4 million in the third quarter of 2023 represented an increase of $18.8 million, or 3.8%, from 2022 levels, reflecting an $18.3 million, or 3.7%, organic sales gain and $0.5 million of favorable foreign currency translation.

The organic increase is due to a double-digit gain in the segment’s international operations and a low single-digit increase in the U.S.

Segment gross margin in the third quarter improved 140 bps from last year primarily reflecting increased sales volumes and pricing actions, and benefits from the segment’s RCI initiatives .

These improvements were partially offset by 50 bps of unfavorable foreign currency effects.

Segment operating expenses as a percentage of net sales in the second quarter increased 60 bps from last year primarily due to increased personnel and other costs.

As a result of these factors, segment operating earnings of $137.7 million in the second quarter of 2023, including $3.6 million of unfavorable foreign currency effects, compared to $124.4 million in 2022, an increase of $13.3 million or 10.7%.

Operating margin for the Snap-on Tools Group of 26.3% in the second quarter of 2023 compared to 23.9% last year.

Six Months Ended

(Amounts in millions) July 1, 2023 July 2, 2022 Change

Segment operating expenses as a percentage of net sales in the third quarter was unchanged from last year with benefits from higher sales volumes offset by increased personnel and other costs.

As a result of these factors, segment operating earnings of $113.4 million in the third quarter of 2023, including $2.7 million of unfavorable foreign currency effects, compared to $102.2 million in 2022, an increase of $11.2 million or 11.0%.

Operating margin for the Snap-on Tools Group of 22.0% in the third quarter of 2023 compared to 20.6% last year.

Nine Months Ended

(Amounts in millions) September 30, 2023 October 1, 2022 Change

Segment net sales $ 1,575.5 100.0 % $ 1,529.3 100.0 % $ 46.2 3.0 %

3 unchanged sentences

Segment operating earnings $ 382.8 24.3 % $ 342.6 22.4 % $ 40.2 11.7 %

Segment net sales of $1,060.1 million in the first six months of 2023 represented an increase of $27.4 million, or 2.7%, from 2022 levels, reflecting a $37.7 million, or 3.7%, organic sales gain, partially offset by $10.3 million of unfavorable foreign currency translation.

Segment net sales of $1,575.5 million in the first nine months of 2023 represented an increase of $46.2 million, or 3.0%, from 2022 levels, reflecting a $56.0 million, or 3.7%, organic sales gain, partially offset by $9.8 million of unfavorable foreign currency translation.

The organic increase is due to a low single-digit gain in the U.S.

franchise business and a mid single-digit increase in the segment’s international operations.

Segment gross margin in the first six months improved 230 bps from last year primarily due to increased sales volumes and pricing actions, lower material and other costs, and benefits from the segment’s RCI initiatives.

operations and a high single-digit increase in the segment’s international operations.

Segment gross margin in the first nine months improved 200 bps from last year primarily reflecting increased sales volumes and pricing actions, lower material and other costs, and benefits from the segment’s RCI initiatives.

These improvements were partially offset by 60 bps of unfavorable foreign currency effects.

Segment operating expenses as a percentage of net sales in the first six months increased 20 bps from last year.

As a result of these factors, segment operating earnings of $269.4 million in the first six months of 2023, including $9.7 million of unfavorable foreign currency effects, compared to $240.4 million in 2022, an increase of $29.0 million or 12.1%.

Operating margin for the Snap-on Tools Group of 25.4% in the first six months of 2023 compared to 23.3% last year.

Segment operating expenses as a percentage of net sales in the first nine months rose 10 bps from last year primarily due to increased personnel and other costs, mostly offset by benefits from higher sales volumes.

As a result of these factors, segment operating earnings of $382.8 million in the first nine months of 2023, including $12.4 million of unfavorable foreign currency effects, compared to $342.6 million in 2022, an increase of $40.2 million or 11.7%.

Operating margin for the Snap-on Tools Group of 24.3% in the first nine months of 2023 compared to 22.4% last year.

SNAP-ON INCORPORATED

3 unchanged sentences

Three Months Ended

(Amounts in millions) July 1, 2023 July 2, 2022 Change

(Amounts in millions) September 30, 2023 October 1, 2022 Change

External net sales $ 363.4 84.2 % $ 343.1 82.9 % $ 20.3 5.9 %

5 unchanged sentences

Segment operating earnings $ 104.9 24.3 % $ 95.4 23.0 % $ 9.5 10.0 %

Segment net sales of $452.0 million in the second quarter of 2023 represented an increase of $35.2 million, or 8.4%, from 2022 levels, reflecting a $35.5 million, or 8.5%, organic sales gain, partially offset by $0.3 million of unfavorable foreign currency translation.

The organic increase includes a double-digit gain in sales of undercar equipment, a high single-digit increase in activity with OEM dealerships, and a mid single-digit gain in sales of diagnostic and repair information products to independent repair shop owners and managers.

Segment gross margin in the second quarter improved 180 bps from last year primarily due to increased sales volumes and pricing actions, lower material and other costs, and savings from RCI initiatives.

Segment operating expenses as a percentage of net sales in the second quarter increased 40 bps from 2022 primarily due to increased personnel and other costs.

As a result of these factors, segment operating earnings of $110.4 million in the second quarter of 2023, including $0.2 million of favorable foreign currency effects, compared to $95.7 million in 2022, an increase of $14.7 million or 15.4%.

Operating margin for the Repair Systems & Information Group of 24.4% in the second quarter of 2023 compared to 23.0% last year.

Six Months Ended

(Amounts in millions) July 1, 2023 July 2, 2022 Change

Segment net sales of $431.8 million in the third quarter of 2023 represented an increase of $17.8 million, or 4.3%, from 2022 levels, reflecting a $13.0 million, or 3.1%, organic sales gain and $4.8 million of favorable foreign currency translation.

The organic increase includes a high single-digit gain in sales of undercar equipment and a low single-digit increase in sales of diagnostic and repair information products to independent repair shop owners and managers, partially offset by a low single-digit decline in activity with OEM dealerships.

Segment gross margin in the third quarter improved 260 bps from last year primarily due to lower material and other costs, increased sales volumes, and savings from RCI initiatives.

Segment operating expenses as a percentage of net sales in the third quarter rose 130 bps from 2022 primarily reflecting increased personnel and other costs.

As a result of these factors, segment operating earnings of $104.9 million in the third quarter of 2023, including $0.2 million of favorable foreign currency effects, compared to $95.4 million in 2022, an increase of $9.5 million or 10.0%.

Operating margin for the Repair Systems & Information Group of 24.3% in the third quarter of 2023 compared to 23.0% last year.

Nine Months Ended

(Amounts in millions) September 30, 2023 October 1, 2022 Change

External net sales $ 1,109.2 83.4 % $ 1,007.5 82.0 % $ 101.7 10.1 %

5 unchanged sentences

Segment operating earnings $ 319.9 24.0 % $ 282.7 23.0 % $ 37.2 13.2 %

Segment net sales of $898.6 million in the first six months of 2023 represented an increase of $83.6 million, or 10.3%, from 2022 levels, reflecting an $89.9 million, or 11.1%, organic sales increase, partially offset by $6.3 million of unfavorable foreign currency translation.

The organic gain includes double-digit increases in sales of undercar equipment and in activity with OEM dealerships, and a mid single-digit gain in sales of diagnostic and repair information products to independent repair shop owners and managers.

Segment gross margin in the first six months improved 40 bps from last year primarily due to 20 bps of favorable foreign currency and higher sales volumes and pricing actions, which were partially offset by the effects of increased sales in lower gross margin businesses.

Segment operating expenses as a percentage of net sales in the first six months improved 50 bps from 2022 primarily due to benefits from sales volume leverage and higher activity in lower-expense businesses.

Segment net sales of $1,330.4 million in the first nine months of 2023 represented an increase of $101.4 million, or 8.3%, from 2022 levels, reflecting a $102.9 million, or 8.4%, organic sales increase, partially offset by $1.5 million of unfavorable foreign currency translation.

The organic gain includes double-digit increases in sales of undercar equipment, high single-digit gains 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 improved 120 bps from last year primarily due to increased sales volumes and pricing actions, lower material and other costs, and savings from RCI initiatives.

Segment operating expenses as a percentage of net sales in the first nine months rose 20 bps from 2022, primarily reflecting increased personnel and other costs, partially offset by benefits from sales volume leverage.

SNAP-ON INCORPORATED

1 unchanged sentence

OF OPERATIONS

As a result of these factors, segment operating earnings of $215.0 million in the first six months of 2023, including $0.7 million of favorable foreign currency effects, compared to $187.3 million in 2022, an increase of $27.7 million or 14.8%.

Operating margin for the Repair Systems & Information Group of 23.9% in the first six months of 2023 compared to 23.0% last year.

As a result of these factors, segment operating earnings of $319.9 million in the first nine months of 2023, including $0.9 million of favorable foreign currency effects, compared to $282.7 million in 2022, an increase of $37.2 million or 13.2%.

Operating margin for the Repair Systems & Information Group of 24.0% in the first nine months of 2023 compared to 23.0% last year.

Financial Services

Three Months Ended

(Amounts in millions) July 1, 2023 July 2, 2022 Change

(Amounts in millions) September 30, 2023 October 1, 2022 Change

Financial services revenue $ 94.9 100.0 % $ 87.3 100.0 % $ 7.6 8.7 %

2 unchanged sentences

Financial services revenue is generally dependent on the size of the average financial services portfolio during the period, as well as on the average yield on receivables.

Financial services revenue of $93.4 million in the second quarter of 2023 increased $7.0 million, or 8.1%, from last year.

In the second quarters of 2023 and 2022, the respective average yields on finance receivables were 17.6% and 17.5%.

In the second quarters of 2023 and 2022, the average yields on contract receivables were 8.6% and 8.5%, respectively.

Originations of $326.3 million in the second quarter of 2023 represented an increase of $18.7 million, or 6.1%, from 2022 levels.

Financial services revenue of $94.9 million in the third quarter of 2023 increased $7.6 million, or 8.7%, from last year.

In the third quarters of both 2023 and 2022, the average yield on finance receivables was 17.7%.

In the third quarters of 2023 and 2022, the average yields on contract receivables were 8.8% and 8.6%, respectively.

Originations of $305.2 million in the third quarter of 2023 represented an increase of $5.0 million, or 1.7%, from 2022 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 2023 increased primarily due to higher provisions for credit losses as compared to those recorded in the second quarter of 2022.

As a percentage of the average financial services portfolio, expenses were 1.1% in the second quarter of 2023 and 1.0% in 2022.

Segment operating earnings in the second quarter of 2023, including $0.2 million of unfavorable foreign currency effects, increased $1.6 million, or 2.5%, from 2022 levels.

Six Months Ended

(Amounts in millions) July 1, 2023 July 2, 2022 Change

Financial services expenses in the third quarter of 2023 increased primarily due to higher provisions for credit losses as compared to those recorded in the third quarter of 2022.

As a percentage of the average financial services portfolio, expenses were 1.1% in the third quarter of 2023 and 0.9% in 2022.

Segment operating earnings in the third quarter of 2023 increased $3.0 million, or 4.5%, from 2022 levels.

Nine Months Ended

(Amounts in millions) September 30, 2023 October 1, 2022 Change

Financial services revenue $ 280.9 100.0 % $ 261.4 100.0 % $ 19.5 7.5 %

1 unchanged sentence

Segment operating earnings $ 202.6 72.1 % $ 202.1 77.3 % $ 0.5 0.2 %

Financial services revenue of $186.0 million in the first six months of 2023 increased $11.9 million, or 6.8%, from 2022.

In the first six months of 2023 and 2022, the respective average yields on finance receivables were 17.6% and 17.5%.

In the first six months of 2023 and 2022, the average yields on contract receivables were 8.7% and 8.5%, respectively.

Originations of $627.2 million in the first six months of 2023 represented an increase of $74.0 million, or 13.4%, from 2022 levels.

Financial services expenses in the first six months of 2023 increased primarily due to higher provisions for credit losses as compared to those recorded in 2022.

As a percentage of the average financial services portfolio, expenses were 2.3% in the first six months of 2023 and 1.7% in the same period in 2022.

Segment operating earnings in the first six months of 2023, including $0.9 million of unfavorable foreign currency effects, decreased $2.5 million, or 1.8%, from 2022 levels.

Snap-on’s second quarter 2023 general corporate expenses of $29.2 million compared to $25.2 million last year.

For the first six months of 2023, expenses of $61.5 million compared to $55.4 million recorded in 2022.

Financial services revenue of $280.9 million in the first nine months of 2023 increased $19.5 million, or 7.5%, from 2022.

In the first nine months of 2023 and 2022, the respective average yields on finance receivables were 17.7% and 17.6%.

In the first nine months of 2023 and 2022, the average yields on contract receivables were 8.7% and 8.5%, respectively.

Originations of $932.4 million in the first nine months of 2023 represented an increase of $79.0 million, or 9.3%, from 2022 levels.

Financial services expenses in the first nine months of 2023 increased primarily due to higher provisions for credit losses as compared to those recorded in 2022.

As a percentage of the average financial services portfolio, expenses were 3.3% in the first nine months of 2023 and 2.7% in the same period in 2022.

Segment operating earnings in the first nine months of 2023, including $0.8 million of unfavorable foreign currency effects, increased $0.5 million, or 0.2%, from 2022 levels.

Snap-on’s third quarter 2023 general corporate expenses of $31.2 million compared to $26.4 million last year.

For the first nine months of 2023, expenses of $92.7 million compared to $81.8 million recorded in 2022.

The year-over-year increases in corporate expenses in 2023 for both periods primarily reflect higher stock-based and performance-based compensation.

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Transactions between the Operations and Financial Services businesses were 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 1, 2023, and July 2, 2022, are as follows:

Non-GAAP Supplemental Consolidating Data – Supplemental Condensed Statements of Earnings information for the three months ended September 30, 2023, and October 1, 2022, is as follows:

Operations* Financial Services

(Amounts in millions) July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

(Amounts in millions) September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022

Net sales $ 1,159.3 $ 1,102.5 $ — $ —

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OF OPERATIONS

Non-GAAP Supplemental Consolidating Data – Supplemental Condensed Statements of Earnings information for the six months ended July 1, 2023, and July 2, 2022, are as follows:

Non-GAAP Supplemental Consolidating Data – Supplemental Condensed Statements of Earnings information for the nine months ended September 30, 2023, and October 1, 2022, is as follows:

Operations* Financial Services

(Amounts in millions) July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

(Amounts in millions) September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022

Net sales $ 3,533.6 $ 3,336.9 $ — $ —

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OF OPERATIONS

Non-GAAP Supplemental Consolidating Data – Supplemental Condensed Balance Sheet information as of July 1, 2023, and December 31, 2022, is as follows:

Non-GAAP Supplemental Consolidating Data – Supplemental Condensed Balance Sheet information as of September 30, 2023, and December 31, 2022, is as follows:

Operations* Financial Services

(Amounts in millions) July 1,

2023 December 31, 2022 July 1,

(Amounts in millions) September 30,

2023 December 31, 2022 September 30,

2023 December 31, 2022

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Goodwill 1,035.9 1,045.3 — —

Other intangibles – net 269.5 275.6 — —

Other intangible assets – net 263.0 275.6 — —

Pension assets 72.7 70.6 — —

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Operations* Financial Services

(Amounts in millions) July 1,

2023 December 31, 2022 July 1,

(Amounts in millions) September 30,

2023 December 31, 2022 September 30,

2023 December 31, 2022

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Due to Snap-on’s credit rating over the years, external funds have been available at an acceptable cost.

As of July 14, 2023, Snap-on’s long-term debt and commercial paper were rated, respectively, A2 and P-1 by Moody’s Investors Service;

As of October 13, 2023, 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;

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The following discussion focuses on information included in the accompanying Condensed Consolidated Balance Sheets.

Working capital (current assets less current liabilities) of $2,571.1 million as of July 1, 2023, represented an increase of $173.8 million from $2,397.3 million as of December 31, 2022 (fiscal 2022 year end), primarily as a result of the net changes discussed below.

The following represents the company’s working capital position as of July 1, 2023, and December 31, 2022:

(Amounts in millions) July 1,

Working capital (current assets less current liabilities) of $2,623.1 million as of September 30, 2023, represented an increase of $225.8 million from $2,397.3 million as of December 31, 2022 (fiscal 2022 year end), primarily as a result of the net changes discussed below.

The following represents the company’s working capital position as of September 30, 2023, and December 31, 2022:

(Amounts in millions) September 30,

2023 December 31, 2022

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Working capital $ 2,623.1 $ 2,397.3

Cash and cash equivalents of $871.3 million as of July 1, 2023, represented an increase of $114.1 million from 2022 year-end levels primarily due to:

Cash and cash equivalents of $959.3 million as of September 30, 2023, represented an increase of $202.1 million from 2022 year-end levels primarily due to:

(i) $857.3 million of cash generated from operations;

(ii) $626.5 million of cash from collections of finance receivables;

(iii) $84.6 million of cash proceeds from stock purchase plan and stock option exercises;

and (iv) $0.3 million of net proceeds from other short-term borrowings.

and (iii) $94.5 million of cash proceeds from stock purchase plan and stock option exercises.

These increases in cash and cash equivalents were partially offset by:

(i) the funding of $779.8 million of new finance receivables;

(ii) the repurchase of 715,000 shares of the company’s common stock for $182.0 million;

(iii) dividend payments to shareholders of $172.0 million;

(ii) dividend payments to shareholders of $257.6 million;

(iii) the repurchase of 909,000 shares of the company’s common stock for $233.8 million;

and (iv) the funding of $73.9 million of capital expenditures.

Of the $871.3 million of cash and cash equivalents as of July 1, 2023, $288.5 million was held outside of the United States.

Of the $959.3 million of cash and cash equivalents as of September 30, 2023, $359.3 million was held outside of the United States.

Snap-on maintains non-U.S.

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OF OPERATIONS

Trade and other accounts receivable – net of $786.8 million as of July 1, 2023, compared to $761.7 million last year, an increase of $25.1 million primarily due to higher sales and $5.4 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 61 days at both July 1, 2023, and December 31, 2022.

The current portions of net finance and contract receivables of $700.2 million as of July 1, 2023, compared to $672.1 million at 2022 year end.

The long-term portions of net finance and contract receivables of $1,625.1 million as of July 1, 2023, compared to $1,554.6 million at 2022 year end.

The combined $98.6 million increase in net current and long-term finance and contract receivables over 2022 year-end levels is primarily due to an increase in net receivable originations and $5.7 million of foreign currency translation.

Inventories – net of $1,046.1 million as of July 1, 2023, compared to $1,033.1 million last year, an increase of $13.0 million primarily due to higher demand, increased costs, efforts to manage the current supply chain situation and $6.3 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 2.4 turns and 2.5 turns as of July 1, 2023, and December 31, 2022, respectively.

Inventories accounted for using the first-in, first-out (“FIFO”) method approximated 60% and 61% of total inventories as of July 1, 2023, and December 31, 2022, respectively.

Trade and other accounts receivable – net of $776.8 million as of September 30, 2023, compared to $761.7 million last year, an increase of $15.1 million primarily due to higher sales, partially offset by $3.2 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 and 61 days for September 30, 2023, and December 31, 2022, respectively.

The current portions of net finance and contract receivables of $717.1 million as of September 30, 2023, compared to $672.1 million at 2022 year end.

The long-term portions of net finance and contract receivables of $1,645.8 million as of September 30, 2023, compared to $1,554.6 million at 2022 year end.

The combined $136.2 million increase in net current and long-term finance and contract receivables over 2022 year-end levels is primarily due to an increase in net receivable originations, partially offset by $2.6 million of foreign currency translation.

Inventories – net of $1,032.9 million as of September 30, 2023, compared to $1,033.1 million last year, a decrease of $0.2 million primaril y due to $9.7 million of foreign currency translation, partially offset by increases resulting from higher demand .

Inventories accounted for using the first-in, first-out (“FIFO”) method approximated 58% and 61% of total inventories as of September 30, 2023, and December 31, 2022, respectively.

All other inventories are accounted for using the last-in, first-out (“LIFO”) method.

The company’s LIFO reserve was $110.1 million and $108.6 million as of July 1, 2023, and December 31, 2022, respectively.

Notes payable of $17.8 million as of July 1, 2023, compared to $17.2 million as of 2022 year end.

Accounts payable of $274.2 million as of July 1, 2023, compared to $287.0 million last year, a decrease of $12.8 million primarily due to the timing of payments, partially offset by $0.1 million of foreign currency translation.

Other accrued liabilities of $457.2 million as of July 1, 2023, compared to $436.4 million last year, an increase of $20.8 million primarily due to higher tax accruals and $1.1 million of foreign currency translation.

Long-term debt of $1,184.2 million as of July 1, 2023, consisted of:

The company’s LIFO reserve was $113.9 million and $108.6 million as of September 30, 2023, and December 31, 2022, respectively.

Notes payable of $17.3 million as of September 30, 2023, compared to $17.2 million as of 2022 year end.

Accounts payable of $284.3 million as of September 30, 2023, compared to $287.0 million last year, a decrease of $2.7 million primarily due to the timing of payments, partially offset by $2.1 million of foreign currency translation.

Other accrued liabilities of $450.7 million as of September 30, 2023, compared to $436.4 million last year, an increase of $14.3 million primarily d ue to higher tax accruals, partially offset by $3.1 million of foreign currency translation.

Long-term debt of $1,184.4 million as of September 30, 2023, 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 $15.8 million of unamortized debt issuance costs.

Snap-on has an $800 million multi-currency revolving credit facility that terminates on September 16, 2024 (the “Credit Facility”);

no amounts were borrowed or outstanding under the Credit Facility for the six months ended and as of July 1, 2023.

and (iii) $500 million of 3.10% notes that mature on May 1, 2050 (“the 2050 Notes”), partially offset by $15.6 million of unamortized debt issuance costs and issuance discounts.

On September 12, 2023, Snap-on entered into a $900 million multi-currency revolving credit facility that terminates on September 12, 2028 (the “Credit Facility”), which amended and restated in its entirety the company’s previous $800 million multi-currency revolving credit facility that was set to terminate on September 16, 2024.

The Credit Facility contains an accordion feature that, subject to certain customary conditions, may allow the maximum commitment to be increased by up to $450 million with the approval of the lenders providing additional commitments.

No amounts were borrowed or outstanding under either Credit Facility during the nine months ended as of September 30, 2023.

Borrowings under the Credit Facility bear interest at varying rates based on either:

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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 1, 2023, the company’s actual ratios of 0.07 and 0.27 respectively, were both within the permitted ranges set forth in this financial covenant.

As of September 30, 2023, the company’s actual ratios of 0.05 and 0.21 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 of July 1, 2023, there were no commercial paper issuances outstanding.

As of September 30, 2023, there were no commercial paper issuances outstanding.

SNAP-ON INCORPORATED

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Operating Activities

Net cash provided by operating activities was $571.9 million and $334.7 million in the first six months of 2023 and 2022, respectively.

The $237.2 million year-over-year increase in net cash provided by operating activities primarily reflects a $156.3 million change in net operating assets and liabilities and a $64.3 million increase in net earnings.

Net cash provided by operating activities was $857.3 million and $464.6 million in the first nine months of 2023 and 2022, respectively.

The $392.7 million year-over-year increase in net cash provided by operating activities primarily reflects a $284.7 million change in net operating assets and liabilities and an $83.9 million increase in net earnings.

Investing Activities

Net cash used by investing activities of $167.5 million in the first six months of 2023 included additions to finance receivables of $536.3 million, offset by collections of $418.1 million.

Net cash used by investing activities of $80.4 million in the first six months of 2022 included additions to finance receivables of $469.6 million, offset by collections of $426.2 million.

Net cash used by investing activities of $227.2 million in the first nine months of 2023 included additions to finance receivables of $779.8 million, partially offset by collections of $626.5 million.

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, partially offset by collections of $622.1 million.

Finance receivables are comprised of extended-term installment payment contracts to both technicians and independent shop owners (i.e., franchisees’ customers) to enable them to purchase tools, diagnostics, and equipment products on an extended-term payment plan, with average payment terms of approximately four years.

Capital expenditures were $48.8 million and $41.5 million in the first six months of 2023 and 2022, respectively.

Capital expenditures were $73.9 million and $61.5 million in the first nine months of 2023 and 2022, 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 $288.6 million in the first six months of 2023 included net proceeds from other short-term borrowings of $0.3 million;

net cash used by financing activities of $218.5 million in the first six months of 2022 included net proceeds from other short-term borrowings of $2.8 million.

Proceeds from stock purchase plan and stock option exercises totaled $84.6 million and $29.2 million in the first six months of 2023 and 2022, respectively.

In the first six months of 2023, Snap-on repurchased 715,000 shares of its common stock for $182.0 million under its previously announced share repurchase programs.

In the first six months of 2022, Snap-on repurchased 387,000 shares of its common stock for $82.6 million under its previously announced share repurchase programs.

As of July 1, 2023, Snap-on had remaining availability to repurchase up to an additional $336.7 million in common stock pursuant to its Board’s authorizations.

Net cash used by financing activities was $423.9 million in the first nine months of 2023.

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.

Proceeds from stock purchase plan and stock option exercises totaled $94.5 million and $41.4 million in the first nine months of 2023 and 2022, respectively.

In the first nine months of 2023, Snap-on repurchased 909,000 shares of its common stock for $233.8 million under its previously announced share repurchase programs.

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.

As of September 30, 2023, Snap-on had remaining availability to repurchase up to an additional $304.5 million in common stock pursuant to its Board’s authorizations.

The repurchase of Snap-on common stock to offset dilution related to equity plan issuances or for other corporate purposes is at the company’s discretion, subject to prevailing financial and market conditions.

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Snap-on has paid consecutive quarterly cash dividends, without interruption or reduction, since 1939.

Cash dividends totaled $172.0 million and $151.4 million in the first six months of 2023 and 2022, respectively.

Cash dividends totaled $257.6 million and $227.1 million in the first nine months of 2023 and 2022, respectively.

On November 4, 2022, the Board increased the quarterly cash dividend by 14.1% to $1.62 per share ($6.48 per share annualized).

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We believe that our markets and our operations possess and have demonstrated continuing and considerable resilience against the uncertainties of the current environment.

In 2023, Snap-on expects to make ongoing progress along its defined runways for coherent growth, leveraging capabilities already demonstrated in the automotive repair arena and developing and expanding its professional customer base, not only in automotive repair, but in adjacent markets, additional geographies and other areas, including extending in critical industries, where the cost and penalties for failure can be high.

In pursuit of these initiatives, we project that capital expenditures in 2023 will approximate $100 million, of which $48.8 million was incurred in the first six months of the year.

Snap-on currently anticipates that its full year 2023 effective income tax rate will be in the range of 23% to 24%.

For the remainder of 2023, Snap-on expects to make ongoing progress along its defined runways for coherent growth, leveraging capabilities already demonstrated in the automotive repair arena and developing and expanding its professional customer base, not only in automotive repair, but in adjacent markets, additional geographies and other areas, including extending in critical industries, where the cost and penalties for failure can be high.

In pursuit of these initiatives, we project that capital expenditures in 2023 will approximate $100 million, of which $73.9 million was incurred in the first nine months of the year.

Snap-on currently anticipates that its full-year 2023 effective income tax rate will approximate 23%.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis