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Stock-based Compensation and Other Stock Plans | 3 Months Ended
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Mar. 28, 2020
Share-based Payment Arrangement [Abstract] |
Stock-based Compensation and Other Stock Plans | Stock-based Compensation and Other Stock Plans The 2011 Incentive Stock and Awards Plan (the “2011 Plan”) provides for the grant of stock options, performance awards, stock appreciation rights (“SARs”) and restricted stock awards (which may be designated as “restricted stock units” or “RSUs”). No further grants are being made under its predecessor, the 2001 Incentive Stock and Awards Plan (the “2001 Plan”), although outstanding awards under the 2001 Plan will continue in accordance with their terms. As of March 28, 2020, the 2011 Plan had 1,421,784 shares available for future grants. The company uses treasury stock to deliver shares under both the 2001 and 2011 Plans. Net stock-based compensation expense was $1.1 million and $7.3 million for the respective three months ended March 28, 2020, and March 30, 2019. Cash received from stock purchase and option plan exercises during the respective three months ended March 28, 2020, and March 30, 2019 totaled $1.5 million and $4.8 million. The tax benefit realized from both the exercise and vesting of share-based payment arrangements was $1.5 million and $2.7 million for the respective three months ended March 28, 2020, and March 30, 2019. Stock Options: Stock options are granted with an exercise price equal to the market value of a share of Snap-on’s common stock on the date of grant and have a contractual term of ten years. Stock option grants vest ratably on the first, second and third anniversaries of the date of grant. The fair value of each stock option award is estimated on the date of grant using the Black-Scholes valuation model. The company uses historical data regarding stock option exercise and forfeiture behaviors for different participating groups to estimate the period of time that options granted are expected to be outstanding. Expected volatility is based on the historical volatility of the company’s stock for the length of time corresponding to the expected term of the option. The expected dividend yield is based on the expected annual dividend as a percentage of the market value of our common stock as of the date of grant. The risk-free interest rate is based on the U.S. treasury yield curve on the grant date for the expected term of the option. The following weighted-average assumptions were used in calculating the fair value of stock options granted during the three months ended March 28, 2020, and March 30, 2019, using the Black-Scholes valuation model:
| Three Months Ended |  |
| March 28, 2020 |  | March 30, 2019
Expected term of option (in years) | 5.53 |  | 5.53
Expected volatility factor | 21.67% |  |  | 21.30% |
Expected dividend yield | 2.78% |  |  | 1.79% |
Risk-free interest rate | 1.50% |  |  | 2.54% |
A summary of stock option activity as of and for the three months ended March 28, 2020, is presented below:
| Shares (in thousands) |  | Exercise Price Per Share* |  | Remaining Contractual Term* (in years) |  | Aggregate Intrinsic Value (in millions)
Outstanding at December 28, 2019 | 3,114 |  |  | $ | 135.60 |  |  |  |  |
Granted | 459 |  |  | 155.34 |  |  |  |  |
Exercised | (17) |  |  | 83.61 |  |  |  |  |
Forfeited or expired | (9) |  |  | 159.17 |  |  |  |  |
Outstanding at March 28, 2020 | 3,547 |  |  | 138.36 |  |  | 6.4 |  | $ | 22.1 |
Exercisable at March 28, 2020 | 2,637 |  |  | 132.11 |  |  | 5.4 |  | 22.1 |
* | Weighted-average |
The weighted-average grant date fair value of options granted during the three months ended March 28, 2020, and March 30, 2019, was $22.95 and $29.98, respectively. The intrinsic value of options exercised was $1.4 million and $4.9 million during the respective three months ended March 28, 2020, and March 30, 2019. The fair value of stock options vested was $14.6 million and $15.7 million during the respective three months ended March 28, 2020, and March 30, 2019. As of March 28, 2020, there was $22.6 million of unrecognized compensation cost related to non-vested stock options that is expected to be recognized as a charge to earnings over a weighted-average period of 2.2 years. Performance Awards: Performance awards, which are granted as performance share units (“PSUs”) and performance-based RSUs, are earned and expensed using the fair value of the award over a contractual term of three years based on the company’s performance. Vesting of the performance awards is dependent upon performance relative to pre-defined goals for revenue growth and return on net assets for the applicable performance period. For performance achieved above specified levels, the recipient may earn additional shares of stock, not to exceed 100% of the number of performance awards initially granted. The PSUs have a three-year performance period based on the results of the consolidated financial metrics of the company. The performance-based RSUs have a one-year performance period based on the results of the consolidated financial metrics of the company followed by a two-year cliff vesting schedule, assuming continued employment. The fair value of performance awards is calculated using the market value of a share of Snap-on’s common stock on the date of grant and assumed forfeitures based on recent historical experience; in recent years, forfeitures have not been significant. The weighted-average grant date fair value of performance awards granted during the three months ended March 28, 2020, and March 30, 2019, was $155.34 and $155.92, respectively. PSUs related to 21,184 shares and 32,114 shares were paid out during the respective three months ended March 28, 2020, and March 30, 2019. Earned PSUs vest and are generally paid out following the conclusion of the applicable performance period upon approval by the Organization and Executive Compensation Committee of the company’s Board of Directors (the “Board”). Based on the company’s 2019 performance, none of the RSUs granted in 2019 were earned. Based on the company’s 2018 performance, 33,170 RSUs granted in 2018 were earned; assuming continued employment, these RSUs will vest at the end of fiscal 2020. Based on the company’s 2017 performance, 13,648 RSUs granted in 2017 were earned; these RSUs vested as of fiscal 2019 year end and were paid out shortly thereafter. Changes to the company’s non-vested performance awards during the three months ended March 28, 2020, are as follows:
| Shares (in thousands) |  | Fair Value Price per Share*
Non-vested performance awards at December 28, 2019 | 98 |  |  | $ | 158.94 |
Granted | 82 |  |  | 155.34 |
Vested | — |  |  | — |
Cancellations and other | (74) |  |  | 157.51 |
Non-vested performance awards at March 28, 2020 | 106 |  |  | 157.17 |
* | Weighted-average |
As of March 28, 2020, there was $10.2 million of unrecognized compensation cost related to non-vested performance awards that is expected to be recognized as a charge to earnings over a weighted-average period of 2.2 years. Stock Appreciation Rights (“SARs”): The company also issues stock-settled and cash-settled SARs to certain key non-U.S. employees. SARs have a contractual term of ten years and vest ratably on the first, second and third anniversaries of the date of grant. SARs are granted with an exercise price equal to the market value of a share of Snap-on’s common stock on the date of grant. Stock-settled SARs are accounted for as equity instruments and provide for the issuance of Snap-on common stock equal to the amount by which the company’s stock has appreciated over the exercise price. Stock-settled SARs have an effect on dilutive shares and shares outstanding as any appreciation of Snap-on’s common stock value over the exercise price will be settled in shares of common stock. Cash-settled SARs provide for the cash payment of the excess of the fair market value of Snap-on’s common stock price on the date of exercise over the grant price. Cash-settled SARs have no effect on dilutive shares or shares outstanding as any appreciation of Snap-on’s common stock over the grant price is paid in cash and not in common stock. The fair value of stock-settled SARs is estimated on the date of grant using the Black-Scholes valuation model. The fair value of cash-settled SARs is revalued (mark-to-market) each reporting period using the Black-Scholes valuation model based on Snap-on’s period-end stock price. The company uses historical data regarding SARs exercise and forfeiture behaviors for different participating groups to estimate the expected term of the SARs granted based on the period of time that similar instruments granted are expected to be outstanding. Expected volatility is based on the historical volatility of the company’s stock for the length of time corresponding to the expected term of the SARs. The expected dividend yield is based on the expected annual dividend as a percentage of the market value of our common stock as of the date of grant (for stock-settled SARs) or reporting date (for cash-settled SARs). The risk-free interest rate is based on the U.S. treasury yield curve in effect as of the grant date (for stock-settled SARs) or reporting date (for cash-settled SARs) for the length of time corresponding to the expected term of the SARs. The following weighted-average assumptions were used in calculating the fair value of stock-settled SARs granted during the three months ended March 28, 2020, and March 30, 2019, using the Black-Scholes valuation model:
| Three Months Ended |  |
| March 28, 2020 |  | March 30, 2019
Expected term of stock-settled SARs (in years) | 3.75 |  | 3.65
Expected volatility factor | 22.50% |  |  | 22.60% |
Expected dividend yield | 2.78% |  |  | 1.81% |
Risk-free interest rate | 1.42% |  |  | 2.48% |
Changes to the company’s stock-settled SARs during the three months ended March 28, 2020, are as follows:
| Stock-settled SARs (in thousands) |  | Exercise Price Per Share* |  | Remaining Contractual Term* (in years) |  | Aggregate Intrinsic Value (in millions)
Outstanding at December 28, 2019 | 450 |  |  | $ | 149.18 |  |  |  |  |
Granted | 92 |  |  | 155.34 |  |  |  |  |
Exercised | — |  |  | — |  |  |  |  |
Forfeited or expired | (1) |  |  | 129.37 |  |  |  |  |
Outstanding at March 28, 2020 | 541 |  |  | 150.32 |  |  | 7.2 |  | $ | 0.4 |
Exercisable at March 28, 2020 | 358 |  |  | 147.18 |  |  | 6.2 |  | 0.4 |
* | Weighted-average |
The weighted-average grant date fair value of stock-settled SARs granted during the three months ended March 28, 2020, and March 30, 2019, was $21.31 and $26.45, respectively. The intrinsic value of stock-settled SARs exercised was zero during both the three months ended March 28, 2020, and March 30, 2019. The fair value of stock-settled SARs vested was $2.3 million and $2.1 million during the respective three months ended March 28, 2020, and March 30, 2019. As of March 28, 2020, there was $4.0 million of unrecognized compensation cost related to non-vested stock-settled SARs that is expected to be recognized as a charge to earnings over a weighted-average period of 2.2 years. The following weighted-average assumptions were used in calculating the fair value of cash-settled SARs granted during the three months ended March 28, 2020, and March 30, 2019, using the Black-Scholes valuation model:
| Three Months Ended |  |
| March 28, 2020 |  | March 30, 2019
Expected term of cash-settled SARs (in years) | 3.66 |  | 3.58
Expected volatility factor | 27.06% |  |  | 22.55% |
Expected dividend yield | 4.01% |  |  | 1.81% |
Risk-free interest rate | 0.30% |  |  | 2.21% |
The intrinsic value of cash-settled SARs exercised was $0.1 million and $0.3 million during the respective three months ended March 28, 2020, and March 30, 2019. The fair value of cash-settled SARs vested was zero during both the three months ended March 28, 2020, and March 30, 2019. Changes to the company’s non-vested cash-settled SARs during the three months ended March 28, 2020, are as follows:
| Cash-settled SARs (in thousands) |  | Fair Value Price per Share*
Non-vested cash-settled SARs at December 28, 2019 | 2 |  |  | $ | 25.96 |
Granted | 1 |  |  | 5.41 |
Vested | (1) |  |  | 3.51 |
Non-vested cash-settled SARs at March 28, 2020 | 2 |  |  | 4.97 |
* | Weighted-average |
As of March 28, 2020, there was $0.1 million of unrecognized compensation cost related to non-vested cash-settled SARs that is expected to be recognized as a charge to earnings over a weighted-average period of 2.2 years. Restricted Stock Awards – Non-employee Directors: The company awarded 7,380 shares and 7,605 shares of restricted stock to non-employee directors for the respective three months ended March 28, 2020, and March 30, 2019. The fair value of the restricted stock awards is expensed over a one-year vesting period based on the fair value on the date of grant. All restrictions generally lapse upon the earlier of the first anniversary of the grant date, the recipient’s death or disability or in the event of a change in control, as defined in the 2011 Plan. If termination of the recipient’s service occurs prior to the first anniversary of the grant date for any reason other than death or disability, the shares of restricted stock would be forfeited, unless otherwise determined by the Board.

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