Revenue Recognition

12 Months Ended

Jan. 02, 2021

Revenue from Contract with Customer [Abstract]

Revenue Recognition

Revenue Recognition

Snap-on recognizes revenue from the sale of tools, diagnostic and equipment products and related services based on when control of the product passes to the customer or the service is provided and is recognized at an amount that reflects the consideration expected to be received in exchange for such goods or services.

Revenue disaggregation

The following table shows the consolidated revenues by revenue source:

(Amounts in millions)	2020		2019
Revenue from contracts with customers	$	3,569.3	$	3,708.3
Other revenues	23.2		21.7
Total net sales	3,592.5		3,730.0
Financial services revenue	349.7		337.7
Total revenues	$	3,942.2	$	4,067.7

Snap-on evaluates the performance of its operating segments based on segment revenues, including both external and intersegment net sales, and segment operating earnings. Snap-on accounts for both intersegment sales and transfers based primarily on standard costs with reasonable mark-ups established between the segments. Intersegment amounts are eliminated to arrive at Snap-on’s consolidated financial results.

The following table represents external net sales disaggregated by geography, based on the customers’ billing addresses:

	2020
	Commercial &		Snap-on		Repair Systems
	Industrial		Tools		& Information		Financial				Snap-on
(Amounts in millions)	Group		Group		Group		Services		Eliminations		Incorporated
Net sales:
North America*	$	432.3	$	1,442.8	$	720.7	$	—	$	—	$	2,595.8
Europe	276.2		125.7		214.9		—		—		616.8
All other	242.9		75.4		61.6		—		—		379.9
External net sales	951.4		1,643.9		997.2		—		—		3,592.5
Intersegment net sales	283.2		—		241.0		—		(524.2)		—
Total net sales	1,234.6		1,643.9		1,238.2		—		(524.2)		3,592.5
Financial services revenue	—		—		—		349.7		—		349.7
Total revenue	$	1,234.6	$	1,643.9	$	1,238.2	$	349.7	$	(524.2)	$	3,942.2

	2019
	Commercial &		Snap-on		Repair Systems
	Industrial		Tools		& Information		Financial				Snap-on
(Amounts in millions)	Group		Group		Group		Services		Eliminations		Incorporated
Net sales:
North America*	$	482.1	$	1,406.1	$	766.4	$	—	$	—	$	2,654.6
Europe	291.7		131.9		241.3		—		—		664.9
All other	264.4		74.9		71.2		—		—		410.5
External net sales	1,038.2		1,612.9		1,078.9		—		—		3,730.0
Intersegment net sales	307.5		—		255.6		—		(563.1)		—
Total net sales	1,345.7		1,612.9		1,334.5		—		(563.1)		3,730.0
Financial services revenue	—		—		—		337.7		—		337.7
Total revenue	$	1,345.7	$	1,612.9	$	1,334.5	$	337.7	$	(563.1)	$	4,067.7

* North America is comprised of the United States, Canada and Mexico.

The following table represents external net sales disaggregated by customer type:

	2020
	Commercial &		Snap-on		Repair Systems
	Industrial		Tools		& Information		Financial				Snap-on
(Amounts in millions)	Group		Group		Group		Services		Eliminations		Incorporated
Net sales:
Vehicle service professionals	$	87.2	$	1,643.9	$	997.2	$	—	$	—	$	2,728.3
All other professionals	864.2		—		—		—		—		864.2
External net sales	951.4		1,643.9		997.2		—		—		3,592.5
Intersegment net sales	283.2		—		241.0		—		(524.2)		—
Total net sales	1,234.6		1,643.9		1,238.2		—		(524.2)		3,592.5
Financial services revenue	—		—		—		349.7		—		349.7
Total revenue	$	1,234.6	$	1,643.9	$	1,238.2	$	349.7	$	(524.2)	$	3,942.2

	2019
	Commercial &		Snap-on		Repair Systems
	Industrial		Tools		& Information		Financial				Snap-on
(Amounts in millions)	Group		Group		Group		Services		Eliminations		Incorporated
Net sales:
Vehicle service professionals	$	85.5	$	1,612.9	$	1,078.9	$	—	$	—	$	2,777.3
All other professionals	952.7		—		—		—		—		952.7
External net sales	1,038.2		1,612.9		1,078.9		—		—		3,730.0
Intersegment net sales	307.5		—		255.6		—		(563.1)		—
Total net sales	1,345.7		1,612.9		1,334.5		—		(563.1)		3,730.0
Financial services revenue	—		—		—		337.7		—		337.7
Total revenue	$	1,345.7	$	1,612.9	$	1,334.5	$	337.7	$	(563.1)	$	4,067.7

Nature of goods and services: Snap-on derives net sales from a broad line of products and complementary services that are grouped into three categories: (i) tools; (ii) diagnostics, information and management systems; and (iii) equipment. The tools product category includes hand tools, power tools, tool storage products and other similar products. The diagnostics, information and management systems product category includes handheld and PC-based diagnostic products, service and repair information products, diagnostic software solutions, electronic parts catalogs, business management systems and services, point-of-sale systems, integrated systems for vehicle service shops, original equipment manufacturer (“OEM”) purchasing facilitation services, and warranty management systems and analytics to help OEM dealership service and repair shops (“OEM dealerships”) manage and track performance. The equipment product category includes solutions for the service of vehicles and industrial equipment. Snap-on supports the sale of its diagnostics and vehicle service shop equipment by offering training programs as well as after-sales support to its customers. Through its financial services businesses, Snap-on also derives revenue from various financing programs designed to facilitate the sales of its products and support its franchise business.

Approximately 90% of Snap-on’s net sales are products sold at a point in time through ship-and-bill performance obligations that also includes repair services. The remaining sales revenue is earned over time primarily on a subscription basis including software, extended warranty and other subscription service agreements.

Snap-on enters into contracts related to the selling of tools, diagnostic and repair information and equipment products and related services. At contract inception, an assessment of the goods and services promised in the contracts with customers is performed and a performance obligation is identified for each distinct promise to transfer to the customer a good or service (or bundle of goods or services). To identify the performance obligations, Snap-on considers all of the goods or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. Contracts with customers are comprised of customer purchase orders, invoices and written contracts.

When performance obligations are satisfied: For performance obligations related to the majority of ship-and-bill products, including repair services contracts, control transfers at a point in time when title transfers upon shipment of the product to the customer, and for some sales, control transfers when title is transferred at time of receipt by customer. Once a product or repaired product has shipped or has been delivered, the customer is able to direct the use of, and obtain substantially all of the remaining benefits from the asset, revenue is recognized. Snap-on considers control to have transferred upon shipment or delivery when Snap-on has a present right to payment, the customer has legal title to the asset, Snap-on has transferred physical possession of the asset, and the customer has significant risk and rewards of ownership of the asset.

For performance obligations related to software subscriptions, extended warranties and other subscription agreements, Snap-on transfers control and recognizes revenue over time on a ratable basis using a time-based output method. The performance obligations are typically satisfied as services are rendered on a straight-line basis over the contract term, which is generally for 12 months but can be for a term up to 60 months.

Significant payment terms: For ship-and-bill type contracts with customers, the contract states the final terms of the sale, including the description, quantity, and price of each product or service purchased. Payment terms are typically due upon delivery or up to 30 days after delivery but can range up to 120 days after delivery.

For subscription contracts, payment terms are in advance or in arrears of services on a monthly, quarterly or annual basis over the contract term, which is generally for 12 months but can be for a term up to 60 months depending on the product or service. The customer typically agrees to a stated rate and price in the contract that does not vary over the contract term. In some cases, customers prepay for their licenses, or in other cases, pay on a monthly or quarterly basis. When the timing of the payment made by the customer precedes the delivery of the performance obligation, a contract liability is recognized.

Variable consideration: In some cases, the nature of Snap-on’s contracts give rise to variable consideration, including rebates, credits, allowances for returns or other similar items that generally decrease the transaction price. These variable amounts generally are credited to the customer, based on achieving certain levels of sales activity, product returns and making payments within specific terms.

In the normal course of business, Snap-on allows franchisees to return product per the provisions in the franchise agreement that allow for the return of product in a saleable condition. For other customers, product returns are generally not accepted unless the item is defective as manufactured. Where applicable, Snap-on establishes provisions for estimated sales returns. Estimated product returns are recorded as a reduction in reported revenues at the time of sale based upon historical product return experience and is adjusted for known trends to arrive at the amount of consideration that Snap-on expects to receive.

Variable consideration is estimated at the most likely amount that is expected to be earned. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the anticipated performance and all information (historical, current and forecasted) that is reasonably available.

Warranties: Snap-on allows customers to return product when the product is defective as manufactured. Where applicable, Snap-on establishes provisions for estimated warranties. Estimated product warranties are provided for specific product lines and Snap-on accrues for estimated future warranty cost in the period in which the sale is recorded. The costs are included in “Cost of goods sold” on the accompanying Consolidated Statements of Earnings. Snap-on calculates its accrual requirements based on historic warranty loss experience that is periodically adjusted for recent actual experience, including the timing of claims during the warranty period and actual costs incurred. Snap-on does not typically provide customers with the right to a refund.

Practical expedients and exemptions of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606): Snap-on typically expenses incremental direct costs of obtaining a contract (sales commissions) when incurred because the amortization period is generally 12 months or less. Capitalized long-term contract costs are not significant. Contract costs are expensed or amortized in “Operating expenses” on the accompanying Consolidated Statements of Earnings.

Snap-on elected to account for shipping and handling activities that occur after control of the related good transfers to the customer as fulfillment activities and are therefore recognized upon shipment of the goods.

Snap-on has applied the portfolio approach to its ship-and-bill contracts that have similar characteristics as it reasonably expects

that the effects on the financial statements of applying this guidance to the portfolio of contracts would not differ materially from applying this guidance to the individual contracts within the portfolio.

Snap-on typically excludes from its sales transaction price any amounts collected from customers for sales (and similar) taxes.

For certain performance obligations related to software subscriptions, extended warranty and other subscription agreements that are settled over time, Snap-on has elected not to disclose the value of unsatisfied performance obligations for: (i) contracts that have an original expected length of one year or less; (ii) contracts where revenue is recognized as invoiced; and (iii) contracts with variable consideration related to unsatisfied performance obligations.  The remaining duration of these unsatisfied performance obligations generally range from one month up to 60 months.  Snap-on had approximately $217.0 million of long-term contracts that have fixed consideration that extends beyond one year as of January 2, 2021.  Snap-on expects to recognize approximately 70% of these contracts as revenue by the end of fiscal 2022, an additional 25% by the end of fiscal 2024 and the balance thereafter.

Contract liabilities (Deferred revenues): Contract liabilities are recorded when cash payments are received in advance of Snap-on’s performance.  The timing of payment is typically on a monthly, quarterly or annual basis. The balance of total contract liabilities was $61.0 million and $65.1 million at January 2, 2021 and December 28, 2019, respectively.  The current portion of contract liabilities is included in “Other accrued liabilities” and the non-current portion is included in “Other long-term liabilities” on the accompanying Consolidated Balance Sheets.  In 2020, Snap-on recognized revenue of $53.5 million that was included in the contract liability balance as of December 28, 2019, which was primarily from the amortization of software subscriptions, extended warranties and other subscription agreements.  The decrease in the total contract liabilities balance is primarily driven by the timing of cash payments received or due in advance of satisfying Snap-on’s performance obligations and growth in certain software subscriptions, partially offset by revenues recognized that were included in the contract liability balance at the beginning of the year.

Franchise fee revenue, including nominal, non-refundable initial fees, is recognized upon the granting of a franchise, which is when the company has performed substantially all initial services required by the franchise agreement. Franchise fee revenue also includes ongoing monthly fees (primarily for sales and business training as well as marketing and product promotion programs) that are recognized as the fees are earned. Franchise fee revenue in 2020, 2019 and 2018 totaled $16.2 million, $15.4 million and $16.2 million, respectively.