Note 3: Receivables

Trade and Other Accounts Receivable

Snap-on’s trade and other accounts receivable primarily arise from the sale of tools and diagnostic and equipment products 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 2015 and 2014 year end are as follows:


(Amounts in millions)	2015		2014
Trade and other accounts receivable	$	579.2	$	567.0
Allowances for doubtful accounts		(16.7)		(16.2)

Total trade and other accounts receivable – net	$	562.5	$	550.8

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’s products 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 Consolidated Statements of Earnings.

Snap-on’s 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 expected average payment terms of approximately three years. 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 and diagnostic and equipment products. 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 and/or diagnostic or equipment products financed and, for installment loans to franchisees, other franchisee assets.

The components of Snap-on’s current finance and contract receivables as of 2015 and 2014 year end are as follows:


(Amounts in millions)	2015		2014
Finance receivables, net of unearned finance charges of $16.9 million and $15.6 million, respectively	$	460.7	$	414.6
Contract receivables, net of unearned finance charges of $15.1 million and $13.9 million, respectively		83.5		75.5

Total		544.2		490.1

Allowances for doubtful accounts:
Finance receivables		(13.4)		(12.2)
Contract receivables		(1.4)		(1.0)

Total		(14.8)		(13.2)

Total current finance and contract receivables – net	$	529.4	$	476.9

Finance receivables – net	$	447.3	$	402.4
Contract receivables – net		82.1		74.5

Total current finance and contract receivables – net	$	529.4	$	476.9

The components of Snap-on’s finance and contract receivables with payment terms beyond one year as of 2015 and 2014 year end are as follows:


(Amounts in millions)	2015		2014
Finance receivables, net of unearned finance charges of $10.9 million and $9.9 million, respectively	$	797.5	$	671.0
Contract receivables, net of unearned finance charges of $21.1 million and $19.4 million, respectively		269.6		244.5

Total		1,067.1		915.5

Allowances for doubtful accounts:
Finance receivables		(24.8)		(20.5)
Contract receivables		(3.0)		(2.5)

Total		(27.8)		(23.0)

Total long-term finance and contract receivables – net	$	1,039.3	$	892.5

Finance receivables – net	$	772.7	$	650.5
Contract receivables – net		266.6		242.0

Total long-term finance and contract receivables – net	$	1,039.3	$	892.5

Long-term finance and contract receivables installments, net of unearned finance charges, as of 2015 and 2014 year end are scheduled as follows:


	2015				2014
(Amounts in millions) Due in Months:	Finance Receivables		Contract Receivables		Finance Receivables		Contract Receivables
13 – 24	$	361.0	$	65.1	$	320.2	$	58.7
25 – 36		252.8		56.6		212.0		50.1
37 – 48		137.8		46.5		106.2		41.7
49 – 60		45.9		35.0		32.6		31.6
Thereafter		–		66.4		–		62.4

Total	$	797.5	$	269.6	$	671.0	$	244.5

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. 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 2015 and 2014 year end, there were $18.2 million and $15.5 million, respectively, of impaired finance receivables, and there were $1.7 million and $1.5 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 2015 and 2014 year end 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 2015 and 2014 year end 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
2015 year end:
Finance receivables	$	12.1	$	7.6	$	11.9	$	31.6	$	1,226.6	$	1,258.2	$	9.1
Contract receivables		1.3		0.7		1.3		3.3		349.8		353.1		0.3
2014 year end:
Finance receivables	$	9.8	$	6.7	$	10.4	$	26.9	$	1,058.7	$	1,085.6	$	7.7
Contract receivables		0.9		0.7		1.1		2.7		317.3		320.0		0.1

The amount of performing and nonperforming finance and contract receivables based on payment activity as of 2015 and 2014 year end is as follows:


	2015				2014
(Amounts in millions)	Finance Receivables		Contract Receivables		Finance Receivables		Contract Receivables
Performing	$	1,240.0	$	351.4	$	1,070.1	$	318.5
Nonperforming		18.2		1.7		15.5		1.5

Total	$	1,258.2	$	353.1	$	1,085.6	$	320.0

The amount of finance and contract receivables on nonaccrual status as of 2015 and 2014 year end is as follows:


(Amounts in millions)	2015		2014
Finance receivables	$	9.3	$	7.9
Contract receivables		1.5		1.5

The following is a rollforward of the allowances for credit losses for finance and contract receivables for 2015 and 2014:


	2015				2014
(Amounts in millions)	Finance Receivables		Contract Receivables		Finance Receivables		Contract Receivables
Allowances for credit losses:
Beginning of year	$	32.7	$	3.5	$	27.8	$	3.3
Provision for bad debt expense		31.6		2.5		27.4		1.9
Charge-offs		(31.7)		(1.9)		(27.5)		(2.0)
Recoveries		5.9		0.4		5.1		0.4
Currency translation		(0.3)		(0.1)		(0.1)		(0.1)

End of year	$	38.2	$	4.4	$	32.7	$	3.5

The following is a rollforward of the combined allowances for doubtful accounts related to trade and other accounts receivable, as well as finance and contract receivables, for 2015, 2014 and 2013:


	Balance at Beginning of Year						Balance at End of Year
(Amounts in millions)	Balance at Beginning of Year		Expenses		Deductions ⁽¹⁾		Balance at End of Year
Allowances for doubtful accounts:
2015	$	52.4	$	45.1	$	(38.2)	$	59.3
2014		46.0		41.7		(35.3)		52.4
2013		48.7		30.7		(33.4)		46.0

⁽¹⁾	Represents write-offs of bad debts, net of recoveries, and the net impact of currency translation.