Note 3: Accounts Receivable

Trade and Other Accounts Receivable

Snap-on’s trade and other accounts receivable primarily arise from the sale of tools, diagnostics and equipment to a broad range of industrial and commercial customers and to Snap-on’s independent franchise van channel on a non-extended-term basis with payment terms generally ranging from 30 to 120 days.

The components of Snap-on’s trade and other accounts receivable as of September 28, 2013, and December 29, 2012, are as follows:


	September 28,			December 29,
(Amounts in millions)	2013			2012
Trade and other accounts receivable	$	538.2		$	516.9
Allowances for doubtful accounts		(16.3	)		(19.0	)

Total trade and other accounts receivable – net	$	521.9		$	497.9

Finance and Contract Receivables

Snap-on Credit LLC (“SOC”), the company’s financial services operation in the United States, originates extended-term finance and contract receivables on sales of Snap-on product sold through the U.S. franchisee and customer network and to Snap-on’s industrial and other customers; Snap-on’s foreign finance subsidiaries provide similar financing internationally. Interest income on finance and contract receivables is included in “Financial services revenue” on the accompanying Condensed Consolidated Statements of Earnings.

Snap-on’s finance receivables are comprised of extended-term installment contracts to both technicians and independent shop owners (i.e., franchisees’ customers) to enable them to purchase tools, diagnostics and equipment on an extended-term payment plan, generally with expected average payment terms of 34 months. Contract receivables, with payment terms of up to 10 years, are comprised of extended-term installment payment contracts to a broad base of industrial and other customers worldwide, including shop owners, both independents and national chains, for their purchase of tools, diagnostics and equipment. Contract receivables also include extended-term installment loans to franchisees to meet a number of financing needs including working capital loans, loans to enable new franchisees to fund the purchase of the franchise and van leases. Finance and contract receivables are generally secured by the underlying tools, diagnostics or equipment financed and, for installment loans to franchisees, other franchisee assets.

During both the nine months ended September 28, 2013, and the fiscal year ended December 29, 2012, Snap-on did not have any significant purchases or sales of finance or contract receivables.

The components of Snap-on’s current finance and contract receivables as of September 28, 2013, and December 29, 2012, are as follows:


	September 28,			December 29,
(Amounts in millions)	2013			2012
Finance receivables, net of unearned finance charges of $13.6 million and $8.4 million, respectively	$	378.1		$	331.7
Contract receivables, net of unearned finance charges of $12.4 million and $9.3 million, respectively		74.5			63.7

Total		452.6			395.4

Allowances for doubtful accounts:
Finance receivables		(10.7	)		(8.6	)
Contract receivables		(1.4	)		(1.0	)

Total		(12.1	)		(9.6	)

Total current finance and contract receivables – net	$	440.5		$	385.8

Finance receivables – net	$	367.4		$	323.1
Contract receivables – net		73.1			62.7

Total current finance and contract receivables – net	$	440.5		$	385.8

The components of Snap-on’s finance and contract receivables with payment terms beyond one year as of September 28, 2013, and December 29, 2012, are as follows:


	September 28,			December 29,
(Amounts in millions)	2013			2012
Finance receivables, net of unearned finance charges of $8.5 million and $11.8 million, respectively	$	557.8		$	512.5
Contract receivables, net of unearned finance charges of $16.6 million and $18.1 million, respectively		213.4			196.6

Total		771.2			709.1

Allowances for doubtful accounts:
Finance receivables		(17.0	)		(17.9	)
Contract receivables		(2.0	)		(2.2	)

Total		(19.0	)		(20.1	)

Total long-term finance and contract receivables – net	$	752.2		$	689.0

Finance receivables – net	$	540.8		$	494.6
Contract receivables – net		211.4			194.4

Total long-term finance and contract receivables – net	$	752.2		$	689.0

Delinquency is the primary indicator of credit quality for finance and contract receivables. Receivable balances are considered delinquent when contractual payments become 30 days past due.

Finance receivables are generally placed on nonaccrual status (nonaccrual of interest and other fees) (i) when a customer is placed on repossession status; (ii) upon receipt of notification of bankruptcy; (iii) upon notification of the death of a customer; or (iv) in other instances in which management concludes collectability is not reasonably assured. Finance receivables that are considered nonperforming include receivables that are on nonaccrual status and receivables that are generally more than 90 days past due.

Contract receivables are generally placed on nonaccrual status (i) when a receivable is more than 90 days past due or at the point a customer’s account is placed on terminated status regardless of its delinquency status; (ii) upon notification of the death of a customer; or (iii) in other instances in which management concludes collectability is not reasonably assured. Contract receivables that are considered nonperforming include receivables that are on nonaccrual status and receivables that are generally more than 90 days past due.

The accrual of interest and other fees is resumed when the finance or contract receivable becomes contractually current and collection of all remaining contractual amounts due is reasonably assured. Finance and contract receivables are evaluated for impairment on a collective basis; however, in circumstances where the company is aware of a specific customer’s inability to meet its financial obligations, a specific reserve is recorded against amounts due to reduce the net recognized receivable to the amount reasonably expected to be collected. A receivable is impaired when it is probable that all amounts related to the receivable will not be collected according to the contractual terms of the applicable agreement. Impaired receivables are covered by the company’s finance and contract allowances for doubtful accounts reserves and are charged-off against the reserves when appropriate. As of September 28, 2013, and December 29, 2012, there were $13.8 million and $13.4 million, respectively, of impaired finance receivables, and $1.1 million and $0.9 million, respectively, of impaired contract receivables.

It is the general practice of Snap-on’s financial services business to not engage in contract or loan modifications. In limited instances, Snap-on’s financial services business may modify certain impaired receivables in troubled debt restructurings. The amount and number of restructured finance and contract receivables as of September 28, 2013, and December 29, 2012, were immaterial to both the financial services portfolio and the company’s results of operations and financial position.

The aging of finance and contract receivables as of September 28, 2013, and December 29, 2012, is as follows:


(Amounts in millions)	30-59 Days Past Due		60-90 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Total Not Past Due		Total		Greater Than 90 Days Past Due and Accruing
September 28, 2013:
Finance receivables	$	8.9	$	5.5	$	8.3	$	22.7	$	913.2	$	935.9	$	6.0
Contract receivables		0.6		0.3		0.9		1.8		286.1		287.9		0.1
December 29, 2012:
Finance receivables	$	9.2	$	5.5	$	8.4	$	23.1	$	821.1	$	844.2	$	6.2
Contract receivables		1.3		0.6		1.0		2.9		257.4		260.3		0.3

The amount of performing and nonperforming finance and contract receivables based on payment activity as of September 28, 2013, and December 29, 2012, is as follows:


	September 28, 2013				December 29, 2012
(Amounts in millions)	Finance Receivables		Contract Receivables		Finance Receivables		Contract Receivables
Performing	$	922.1	$	286.8	$	830.8	$	259.4
Nonperforming		13.8		1.1		13.4		0.9

Total	$	935.9	$	287.9	$	844.2	$	260.3

The amount of finance and contract receivables on nonaccrual status as of September 28, 2013, and December 29, 2012, is as follows:


	September 28,		December 29,
(Amounts in millions)	2013		2012
Finance receivables	$	7.9	$	7.2
Contract receivables		1.1		0.9

The following is a rollforward of the allowances for credit losses for finance and contract receivables for the three and nine month periods ended September 28, 2013:


	Three Months Ended September 28, 2013						Nine Months Ended September 28, 2013
(Amounts in millions)	Finance Receivables			Contract Receivables			Finance Receivables			Contract Receivables
Allowances for doubtful accounts:
Beginning of period	$	26.6		$	3.5		$	26.5		$	3.2
Provision for bad debt expense		5.5			0.2			15.0			1.7
Charge-offs		(5.5	)		(0.4	)		(17.1	)		(1.6	)
Recoveries		1.1			0.1			3.4			0.2
Currency translation		—			—			(0.1	)		(0.1	)

End of period	$	27.7		$	3.4		$	27.7		$	3.4

The following is a rollforward of the allowances for credit losses for finance and contract receivables for the three and nine month periods ended September 29, 2012:


	Three Months Ended September 29, 2012						Nine Months Ended September 29, 2012
(Amounts in millions)	Finance Receivables			Contract Receivables			Finance Receivables			Contract Receivables
Allowances for doubtful accounts:
Beginning of period	$	25.4		$	4.2		$	24.2		$	4.1
Provision for bad debt expense		5.1			(0.5	)		13.8			0.1
Charge-offs		(4.9	)		(0.5	)		(14.5	)		(1.2	)
Recoveries		1.1			0.1			3.2			0.3

End of period	$	26.7		$	3.3		$	26.7		$	3.3