UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended January 2, 2021, or

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-7724

Snap-on Incorporated

(Exact name of registrant as specified in its charter)

Delaware			39-0622040
(State of incorporation)			(I.R.S. Employer Identification No.)
2801 80th Street	Kenosha	Wisconsin	53143
(Address of principal executive offices)			(Zip code)

(262) 656-5200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $1.00 par value	SNA	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐

Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The aggregate market value of voting and non-voting common equity held by non-affiliates (excludes 710,101 shares held by directors and executive officers) computed by reference to the price ($133.56) at which common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter (June 26, 2020) was $7.2 billion.

The number of shares of Common Stock ($1.00 par value) of the registrant outstanding as of February 5, 2021, was 54,203,094 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Annual Report on Form 10-K incorporates by reference certain information that will be set forth in Snap-on’s Proxy Statement, which is expected to first be mailed to shareholders on or about March 12, 2021, prepared for the Annual Meeting of Shareholders scheduled for April 29, 2021.

		Page
PART I
Item 1	Business	4
Item 1A	Risk Factors	12
Item 1B	Unresolved Staff Comments	21
Item 2	Properties	21
Item 3	Legal Proceedings	23
Item 4	Mine Safety Disclosures	23
PART II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	23
Item 6	Selected Financial Data	26
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	51
Item 8	Financial Statements and Supplementary Data	52
Item 9	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	52
Item 9A	Controls and Procedures	53
Item 9B	Other Information	55
PART III
Item 10	Directors, Executive Officers and Corporate Governance	55
Item 11	Executive Compensation	56
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	56
Item 13	Certain Relationships and Related Transactions, and Director Independence	56
Item 14	Principal Accounting Fees and Services	56
PART IV
Item 15	Exhibits, Financial Statement Schedules	56
Item 16	Form 10-K Summary	59
Signatures		120
Consent of Independent Registered Public Accounting Firm		125
Certifications		126
2	SNAP-ON INCORPORATED
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Safe Harbor

Statements in this document that are not historical facts, including statements that (i) are in the future tense; (ii) include the words “expects,” “plans,” “targets,” “estimates,” “believes,” “anticipates,” or similar words that reference Snap-on Incorporated (“Snap-on” or “the company”) or its management; (iii) are specifically identified as forward-looking; or (iv) describe Snap-on’s or management’s future outlook, plans, estimates, objectives or goals, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Snap-on cautions the reader that any forward-looking statements included in this document that are based upon assumptions and estimates were developed by management in good faith and are subject to risks, uncertainties or other factors that could cause (and in some cases have caused) actual results to differ materially from those described in any such statement. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results or regarded as a representation by the company or its management that the projected results will be achieved. For those forward-looking statements, Snap-on cautions the reader that numerous important factors, such as those listed below, as well as those factors discussed in this Annual Report on Form 10-K, particularly those in “Item 1A: Risk Factors,” could affect the company’s actual results and could cause its actual consolidated results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, Snap-on.

These risks and uncertainties include, without limitation, uncertainties related to estimates, statements, assumptions and projections generally, and the timing and progress with which Snap-on can attain value through its Snap-on Value Creation Processes, including its ability to realize efficiencies and savings from its rapid continuous improvement and other cost reduction initiatives, improve workforce productivity, achieve improvements in the company’s manufacturing footprint and greater efficiencies in its supply chain, and enhance machine maintenance, plant productivity and manufacturing line set-up and change-over practices, any or all of which could result in production inefficiencies, higher costs and/or lost revenues. These risks include the evolving impact and unknown duration of the coronavirus (“COVID-19”) pandemic, which has the potential to amplify the impact of the other risks facing the company. These risks also include the impact of governmental actions related thereto on Snap-on’s business, as well as uncertainties related to Snap-on’s capability to implement future strategies with respect to its existing businesses, its ability to refine its brand and franchise strategies, retain and attract franchisees, further enhance service and value to franchisees and thereby help improve their sales and profitability, introduce successful new products, successfully pursue, complete and integrate acquisitions, as well as its ability to withstand disruption arising from natural disasters, planned facility closures or other labor interruptions, the effects of external negative factors, including adverse developments in world financial markets, developments related to tariffs and other trade issues or disputes, weakness in certain areas of the global economy (including as a result of the United Kingdom’s exit from the European Union and the COVID-19 pandemic), and significant changes in the current competitive environment, inflation, interest rates and other monetary and market fluctuations, changes in tax rates, laws and regulations as well as uncertainty surrounding potential changes, and the impact of energy and raw material supply and pricing, including steel (as a result of U.S. tariffs imposed on certain steel imports or otherwise) and gasoline, the amount, rate and growth of Snap-on’s general and administrative expenses, including health care and postretirement costs (resulting from, among other matters, U.S. health care legislation and its ongoing implementation or reform), continuing and potentially increasing required contributions to pension and postretirement plans, the impacts of non-strategic business and/or product line rationalizations, and the effects on business as a result of new legislation, regulations or government-related developments or issues, risks associated with data security and technological systems and protections, potential reputational damages and costs related to litigation as well as an inability to assure that costs will be reduced or eliminated on appeal, the impact of changes in financial accounting standards, the ability to effectively manage human capital resources, and other world or local events outside Snap-on’s control, including terrorist disruptions, other outbreaks of infectious diseases and civil unrest. Snap-on disclaims any responsibility to update any forward-looking statement provided in this document, except as required by law.

In addition, investors should be aware that generally accepted accounting principles in the United States of America (“GAAP”) prescribe when a company should reserve for particular risks, including litigation exposures. Accordingly, results for a given reporting period could be significantly affected if and when a reserve is established for a major contingency. Reported results, therefore, may appear to be volatile in certain accounting periods.

Fiscal Year

Snap-on’s fiscal year ends on the Saturday that is on or nearest to December 31. Unless otherwise indicated, references in this document to “fiscal 2020” or “2020” refer to the fiscal year ended January 2, 2021; references to “fiscal 2019” or “2019” refer to the fiscal year ended December 28, 2019; and references to “fiscal 2018” or “2018” refer to the fiscal year ended December 29, 2018. References in this document to 2020, 2019 and 2018 year end refer to January 2, 2021, December 28, 2019, and December 29, 2018, respectively. Snap-on’s 2020 fiscal year contained 53 weeks of operating results with the extra week occurring in the fourth quarter. Snap-on’s 2019 and 2018 fiscal years each contained 52 weeks of operating results.

2020 ANNUAL REPORT	3

Item 1: Business

Snap-on is a leading global innovator, manufacturer and marketer of tools, equipment, diagnostics, repair information and systems solutions for professional users performing critical tasks. Products and services include hand and power tools, tool storage, diagnostics software, handheld and PC-based diagnostic products, information and management systems, shop equipment and other solutions for vehicle dealerships and repair centers, as well as for customers in industries, such as aviation and aerospace, agriculture, construction, government and military, mining, natural resources, power generation and technical education. Snap-on also derives income from various financing programs designed to facilitate the sales of its products and support its franchise business.

Snap-on markets its products and brands worldwide through multiple sales distribution channels in more than 130 countries. Snap-on’s largest geographic markets include the United States, Europe, Canada and Asia Pacific. Snap-on reaches its customers through the company’s franchised, company-direct, distributor and internet channels.

The company began with the development of the original Snap-on interchangeable socket set in 1920 and subsequently pioneered mobile tool distribution in the automotive repair market, where well-stocked vans sell to professional vehicle technicians at their place of business. Today, Snap-on defines its value proposition more broadly, extending its reach “beyond the garage” to deliver a broad array of unique solutions that make work easier for serious professionals performing critical tasks. The company’s “coherent growth” strategy focuses on developing and expanding its professional customer base in its legacy automotive market, as well as in adjacent markets, additional geographies and other areas, including in critical industries, where the cost and penalties for failure can be high. In addition to its coherent growth strategy, Snap-on is committed to its “Value Creation Processes” – a set of strategic principles and processes designed to create value and employed in the areas of (i) safety; (ii) quality; (iii) customer connection; (iv) innovation; and (v) rapid continuous improvement (“RCI”). Snap-on’s RCI initiatives employ a structured set of tools and processes across multiple businesses and geographies intended to eliminate waste and improve operations. Savings from Snap-on’s RCI initiatives reflect benefits from a wide variety of ongoing efficiency, productivity and process improvements, including savings generated from product design cost reductions, improved manufacturing line set-up and change-over practices, lower-cost sourcing initiatives and facility consolidations.

Snap-on’s primary customer segments include: (i) commercial and industrial customers, including professionals in critical industries and emerging markets; (ii) professional vehicle repair technicians who purchase products through the company’s mobile tool distribution network; and (iii) other professional customers related to vehicle repair, including owners and managers of independent and original equipment manufacturer (“OEM”) dealership service and repair shops (“OEM dealerships”). Snap-on’s Financial Services customer segment includes: (i) franchisees’ customers, principally serving vehicle repair technicians, and Snap-on customers who require financing for the purchase or lease of tools and diagnostics and equipment products on an extended-term payment plan; and (ii) franchisees who require financing options for vehicle and business needs.

Snap-on’s business segments are based on the organization structure used by management for making operating and investment decisions and for assessing performance. Snap-on’s reportable business segments are: (i) the Commercial & Industrial Group; (ii) the Snap-on Tools Group; (iii) the Repair Systems & Information Group; and (iv) Financial Services. The Commercial & Industrial Group consists of business operations serving a broad range of industrial and commercial customers worldwide, including customers in the aerospace, natural resources, government, power generation, transportation and technical education market segments (collectively, “critical industries”), primarily through direct and distributor channels. The Snap-on Tools Group consists of business operations primarily serving vehicle service and repair technicians through the company’s worldwide mobile tool distribution channel. The Repair Systems & Information Group consists of business operations serving other professional vehicle repair customers worldwide, primarily owners and managers of independent repair shops and OEM dealerships, through direct and distributor channels. Financial Services consists of the business operations of Snap-on Credit LLC (“SOC”), the company’s financial services business in the United States, and Snap-on’s other financial services subsidiaries in those international markets where Snap-on has franchise operations. See Note 20 to the Consolidated Financial Statements for information on business segments and foreign operations.

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 intersegment sales and transfers based primarily on standard costs with reasonable mark-ups established between the segments. Identifiable assets by segment are those assets used in the respective reportable segment’s operations. Corporate assets consist of cash and cash equivalents (excluding cash held at Financial Services), deferred income taxes and certain other assets. Intersegment amounts are eliminated to arrive at Snap-on’s consolidated financial results.

4	SNAP-ON INCORPORATED

Recent Acquisitions

Snap-on has continued to expand its business throughout the years via acquisitions. Below are acquisitions completed in the last three fiscal years:

On January 31, 2020, Snap-on acquired substantially all of the assets related to the TreadReader product line from Sigmavision Limited (“Sigmavision”) for a cash purchase price of $5.9 million. Sigmavision designs and manufactures handheld devices and drive-over ramps that provide tire information for use in the automotive industry. The acquisition of the TreadReader product line enhanced and expanded Snap-on’s existing capabilities in serving vehicle repair facilities and expanded the company’s presence with repair shop owners and managers.

On August 7, 2019, Snap-on acquired Cognitran Limited (“Cognitran”) for a cash purchase price of $30.6 million (or $29.6 million, net of cash acquired). Cognitran, based in Chelmsford, U.K., specializes in flexible, modular and highly scalable “Software as a Service” (SaaS) products for OEM customers and their dealers, focused on the creation and delivery of service, diagnostics, parts and repair information to the OEM dealers and connected vehicle platforms. The acquisition of Cognitran enhanced and expanded Snap-on’s capabilities in providing shop efficiency solutions through integrated upstream services to OEM customers in automotive, heavy duty, agricultural and recreational applications.

On April 2, 2019, Snap-on acquired Power Hawk Technologies, Inc. (“Power Hawk”) for a cash purchase price of $7.9 million. Power Hawk, based in Rockaway, New Jersey, designs, manufactures and distributes rescue tools and related equipment for a variety of military, governmental, fire and rescue, and emergency operations. The acquisition of the Power Hawk product line complemented and increased Snap-on’s existing product offering and broadened its established capabilities in serving critical industries.

On January 31, 2018, Snap-on acquired substantially all of the assets of George A. Sturdevant, Inc. (d/b/a Fastorq) for a cash purchase price of $3.0 million. Fastorq, based in New Caney, Texas, designs, assembles and distributes hydraulic torque and hydraulic tensioning products for use in critical industries. The acquisition of the Fastorq product line complemented and increased Snap-on’s existing torque product offering and broadened its established capabilities in serving in critical industries.

For segment reporting purposes, the results of operations and assets of Sigmavision, Cognitran and TMB have been included in the Repair Systems & Information Group since the respective acquisition dates, and the results of operations and assets of AutoCrib, Power Hawk and Fastorq have been included in the Commercial & Industrial Group since the respective acquisition dates.

Pro forma financial information has not been presented for any of these acquisitions as the net effects, individually and collectively, were neither significant nor material to Snap-on’s results of operations or financial position.

Information Available on the Company’s Website

Additional information regarding Snap-on and its products is available on the company’s website at www.snapon.com. Snap-on is not including the information contained on its website as a part of, or incorporating it by reference into, this Annual Report on Form 10-K. Snap-on’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Proxy Statements on Schedule 14A and Current Reports on Form 8-K, as well as any amendments to those reports, are made available to the public at no charge through the Investors section of the company’s website at www.snapon.com. Snap-on makes such material available on its website as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the Securities and Exchange Commission (“SEC”). Copies of any materials the company files with the SEC can also be obtained free of charge through the SEC’s website at www.sec.gov. In addition, Snap-on’s (i) charters for the Audit, Corporate Governance and Nominating, and Organization and Executive Compensation Committees of the company’s Board of Directors; (ii) Corporate Governance Guidelines; and (iii) Code of Business Conduct and Ethics are available on the company’s website. Snap-on will also post any amendments to these documents, or information about any waivers granted to directors or executive officers with respect to the Code of Business Conduct and Ethics, on the company’s website at www.snapon.com.

2020 ANNUAL REPORT	5

Products and Services

Tools; Diagnostics, Information and Management Systems; and Equipment

Snap-on offers a broad line of products and complementary services that are grouped into three product categories: (i) tools; (ii) diagnostics, information and management systems; and (iii) equipment. Further product line information is not presented as it is not practicable to do so. The following table shows the consolidated net sales of these product categories for the last three years:

	Net Sales
(Amounts in millions)	2020		2019		2018
Product Category:
Tools	$	1,984.7	$	2,017.5	$	2,021.2
Diagnostics, information and management systems	783.8		827.5		797.9
Equipment	824.0		885.0		921.6
	$	3,592.5	$	3,730.0	$	3,740.7

The tools product category includes hand tools, power tools, tool storage products and other similar products. Hand tools include wrenches, sockets, ratchet wrenches, pliers, screwdrivers, punches and chisels, saws and cutting tools, pruning tools, torque measuring instruments and other similar products. Power tools include cordless (battery), pneumatic (air), hydraulic and corded (electric) tools, such as impact wrenches, ratchets, screwdrivers, drills, sanders, grinders and similar products. Tool storage includes tool chests, roll cabinets and other similar products. For many industrial customers, Snap-on creates specific, engineered solutions, including facility-level tool control and asset management hardware and software, custom kits in a wide range of configurations, and custom-built tools designed to meet customer requirements. The majority of products are manufactured by Snap-on and, in completing the product offering, other items are purchased from external manufacturers.

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, OEM purchasing facilitation services, and warranty management systems and analytics to help OEM dealerships manage and track performance.

The equipment product category includes solutions for the service of vehicles and industrial equipment. Products include wheel alignment equipment, wheel balancers, tire changers, vehicle lifts, test lane equipment, collision repair equipment, vehicle air conditioning service equipment, brake service equipment, fluid exchange equipment, transmission troubleshooting equipment, safety testing equipment, battery chargers and hoists.

Snap-on supports the sale of its diagnostics and vehicle service shop equipment by offering training programs as well as after-sales support for its customers, primarily focusing on the technologies and the application of specific products developed and marketed by Snap-on.

6	SNAP-ON INCORPORATED

Products are marketed under a number of brand names and trademarks, many of which are well known in the vehicle service and industrial markets served. Some of the major trade names and trademarks and the products and services with which they are associated include the following:

Names	Products and Services
Snap-on	Hand tools, power tools, tool storage products (including tool control software and hardware), diagnostics, certain equipment and related accessories, mobile tool stores, websites, electronic parts catalogs, warranty analytics solutions, business management systems and services, OEM specialty tools and equipment development and distribution, and OEM facilitation services
ATI	Aircraft hand tools and machine tools
AutoCrib	Asset and tool control systems
autoVHC	Vehicle inspection and training services
BAHCO	Saw blades, cutting tools, pruning tools, hand tools, power tools and tool storage, including tool control systems
Blackhawk	Collision repair equipment
Blue-Point	Hand tools, power tools, tool storage, diagnostics, certain equipment and related accessories
Cartec	Safety testing, brake testers, test lane equipment, dynamometers, suspension testers, emission testers and other equipment
Car-O-Liner	Collision repair equipment, and information and truck alignment systems
CDI	Torque tools
Challenger	Vehicle lifts
Cognitran	OEM SaaS products
Ecotechnics	Vehicle air conditioning service equipment
Fastorq	Hydraulic torque and tensioning products
Fish and Hook	Saw blades, cutting tools, pruning tools, hand tools, power tools and tool storage
Hofmann	Wheel balancers, vehicle lifts, tire changers, wheel aligners, brake testers and test lane equipment
Irimo	Saw blades, cutting tools, hand tools, power tools and tool storage
John Bean	Wheel balancers, vehicle lifts, tire changers, wheel aligners, brake testers and test lane equipment
Josam	Heavy duty alignment and collision repair solutions
Lindström	Hand tools
Mitchell1	Repair and service information, shop management systems and business services
Nexiq	Diagnostic tools, information and program distributions for fleet and heavy duty equipment
Norbar	Torque tools
Power Hawk	Rescue tools and related equipment for military, government, fire and rescue
Pro-Cut	Brake service equipment and accessories
Sandflex	Hacksaw blades, bandsaws, saw blades, hole saws and reciprocating saw blades
ShopKey	Repair and service information, shop management systems and business services
Sioux	Power tools
Sturtevant Richmont	Torque tools
Sun	Diagnostic tools, wheel balancers, vehicle lifts, tire changers, wheel aligners, air conditioning products and emission testers
TreadReader	Automotive tire drive-over ramps and handheld devices
TruckCam	Commercial vehicle OEM factory solutions
Williams	Hand tools, tool storage, certain equipment and related accessories
2020 ANNUAL REPORT	7
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Financial Services

Snap-on also generates revenue from various financing programs that include: (i) installment sales and lease contracts arising from franchisees’ customers and Snap-on customers who require financing for the purchase or lease of tools and diagnostic and equipment products on an extended-term payment plan; and (ii) business and vehicle loans and leases to franchisees. The decision to finance through Snap-on or another financing source is solely by election of the customer. When assessing customers for potential financing, Snap-on considers various factors regarding ability to pay, including the customers’ financial condition, debt-servicing ability, past payment experience, and credit bureau and proprietary Snap-on credit model information, as well as the value of the underlying collateral.

Snap-on offers financing through SOC and the company’s international finance subsidiaries in most markets where Snap-on has franchise operations. Financing revenue from contract originations is recognized over the life of the underlying contracts, with interest or finance charges computed primarily on the average daily balances of the underlying contracts.

Markets

Sales and Distribution

Snap-on markets and distributes its products and related services principally to professional tool and equipment users around the world. The two largest market sectors are the vehicle service and repair sector and the industrial sector.

Vehicle Service and Repair Sector

The vehicle service and repair sector has three main customer groups: (i) professional technicians who purchase tools and diagnostic and equipment products for use in their work; (ii) other professional customers related to vehicle repair, including owners and managers of independent repair shops and OEM dealerships who purchase tools and diagnostic and equipment products for use by multiple technicians within a service or repair facility; and (iii) OEMs.

Snap-on provides innovative tool, equipment and business solutions, as well as technical sales support and training, designed to meet technicians’ evolving needs. Snap-on’s mobile tool distribution system offers technicians the convenience of purchasing quality tools at their place of business with minimal disruption of their work routine. Snap-on also provides owners and managers of repair shops, where technicians work, with tools, diagnostic equipment, and repair and service information, including electronic parts catalogs and shop management products. Snap-on’s OEM facilitation business provides OEMs with products and services including special and essential tools as well as consulting and facilitation services, which include product procurement, distribution and administrative support to customers for their dealership equipment programs.

The vehicle service and repair sector is characterized by an increasing rate of technological change within motor vehicles, vehicle population growth and increasing vehicle life, and the resulting effects of these changes on the businesses of both our suppliers and customers. Snap-on believes it is a meaningful participant in the vehicle service and repair market sector.

Industrial Sector

Snap-on markets its products and services globally to a broad cross-section of commercial and industrial customers, including maintenance and repair operations; manufacturing and assembly facilities; various government agencies, facilities and operations, including military operations; schools with vocational and technical programs; aviation and aerospace operations; oil and gas developers; mining operations; energy and power generation operations; equipment fabricators and operators; railroad manufacturing and maintenance; customers in agriculture; infrastructure construction companies; and other customers that require instrumentation, service tools and/or equipment for their products and business needs. The industrial sector for Snap-on focuses on providing value-added products and services to an increasingly expanding global base of customers in critical industries.

The industrial sector is characterized by a highly competitive environment with multiple suppliers offering either a full line or industry specific portfolios for tools and equipment. Industrial customers increasingly require specialized solutions that provide repeatability and reliability in performing tasks of consequence that are specific to the particular end market in which they operate. Snap-on believes it is a meaningful participant in the industrial tools and equipment market sector.

Distribution Channels

Snap-on serves customers primarily through the following channels of distribution: (i) the mobile van channel; (ii) company direct sales; (iii) distributors; and (iv) e-commerce. The following discussion summarizes Snap-on’s general approach for each channel and is not intended to be all-inclusive.

8	SNAP-ON INCORPORATED

Mobile Van Channel

In the United States, a significant portion of sales to the vehicle service and repair sector is conducted through Snap-on’s mobile franchise van channel. Snap-on’s franchisees primarily serve vehicle repair technicians and vehicle service shop owners, generally providing weekly contact at the customer’s place of business. Franchisees’ sales are concentrated in hand and power tools, tool storage products, shop equipment, and diagnostic and repair information products, which can be transported in a van or trailer and demonstrated during a sales call. Franchisees purchase Snap-on’s products at a discount from suggested list prices and resell them at prices established by the franchisee. U.S. franchisees are provided a list of calls that serves as the basis of the franchisee’s sales route. Snap-on’s franchisees also have the opportunity to add a limited number of additional franchises.

Snap-on charges nominal initial and ongoing monthly franchise fees. Franchise fee revenue, including nominal, non-refundable initial and ongoing monthly fees (primarily for sales and business training, marketing and product promotion programs, and technology support), is recognized as the fees are earned. Franchise fee revenue totaled $16.2 million, $15.4 million and $16.2 million in fiscal 2020, 2019 and 2018, respectively.

Snap-on also has a company-owned route program that is designed to: (i) provide another pool of potential field organization personnel; (ii) service customers in select new and/or open routes not currently serviced by franchisees; and (iii) allow Snap-on to pilot new sales and promotional ideas prior to introducing them to franchisees. As of 2020 year end, company-owned routes comprised approximately 4% of the total route population. Snap-on may elect to increase or reduce the number of company-owned routes in the future.

In addition to its mobile van channel in the United States, Snap-on has franchise distribution models in certain other countries, including Canada, the United Kingdom, Japan, Australia, Germany, Netherlands, South Africa, New Zealand, Belgium and Ireland. In many of these markets, as in the United States, purchase decisions are generally made or influenced by professional vehicle service technicians as well as repair shop owners and managers. As of 2020 year end, Snap-on’s worldwide route count was approximately 4,775, including approximately 3,425 routes in the United States.

Through SOC, financing is available to U.S. franchisees, including financing for van leases, working capital loans and loans to help enable new franchisees to fund the purchase of the franchise or the expansion of an existing franchise. In many international markets, Snap-on offers a variety of financing options to its franchisees and/or customer networks through its international finance subsidiaries. The decision to finance through Snap-on or another financing source is solely at the customer’s election.

Snap-on supports its franchisees with a field organization of regional offices, franchise performance teams, customer care centers and distribution centers. Snap-on also provides sales and business training, and marketing and product promotion programs, as well as customer and franchisee financing programs through SOC and the company’s international finance subsidiaries, all of which are designed to strengthen franchisee sales. National Franchise Advisory Councils in the United States, the United Kingdom, Canada and Australia, composed primarily of franchisees that are elected by franchisees, assist Snap-on in identifying and implementing enhancements to the franchise program.

Company Direct Sales

A significant proportion of shop equipment sales in North America under the John Bean, Hofmann, Blackhawk, Car-O-Liner, Challenger and Pro-Cut brands, diagnostic products under the Snap-on brand, and information and shop management products under the Mitchell1 brand are made by direct and independent sales forces that have responsibility for national and other accounts. As the vehicle service and repair sector consolidates (with more business conducted by national chains and franchised service centers), Snap-on believes these larger organizations can be serviced most effectively by sales people who can demonstrate and sell the full line of diagnostic and equipment products and services. Snap-on also sells these products and services directly to OEMs and their franchised dealers.

Snap-on brand tools and equipment are marketed to industrial and governmental customers worldwide through both industrial sales associates and independent distributors. Selling activities focus on industrial customers whose main purchase criteria are quality and integrated solutions. As of 2020 year end, Snap-on had industrial sales associates and independent distributors primarily in the United States, Canada and in various European, Latin American, Middle Eastern, Asian and African countries, with the United States representing the majority of Snap-on’s total industrial sales.

Snap-on also sells software, services and solutions to the automotive, commercial, heavy duty, agriculture, power equipment and power sports segments. Products and services are marketed to targeted groups, including OEMs and their dealerships, fleets and individual repair shops. To effectively reach OEMs, which frequently have a multi-national presence, Snap-on has deployed focused business teams globally.

2020 ANNUAL REPORT	9

Distributors

Sales of certain tools and equipment are made through independent distributors who purchase the items from Snap-on and resell them to end users. Hand tools sold under the BAHCO, Irimo, Lindström, CDI, ATI, Fastorq, Norbar, Sioux, Sturtevant Richmont and Williams brands and trade names, for example, are sold through distributors worldwide. Wheel service and other vehicle service equipment are sold through distributors primarily under brands including Hofmann, John Bean, Car-O-Liner, Challenger, Pro-Cut, Cartec, Blackhawk and Ecotechnics. Diagnostic and equipment products are marketed through distributors in South America and Asia, and through both a direct sales force and distributors in Europe under the Snap-on, Sun and Blue-Point brands.

E-commerce

Snap-on offers current and prospective customers online access to research and purchase products through its public website, www.snapon.com. The site features an online catalog of Snap-on hand tools, power tools, tool storage units and diagnostic equipment available to customers in the United States, the United Kingdom, Canada and Australia. E-commerce and certain other system enhancement initiatives are designed to improve productivity and further leverage the one-on-one relationships and service Snap-on has with its current and prospective customers. Sales through the company’s e-commerce distribution channel were not significant in any of the last three years.

Competition

Snap-on competes on the basis of its product quality and performance, product line breadth and depth, service, brand awareness and imagery, technological innovation and availability of financing (through SOC or its international finance subsidiaries). While Snap-on does not believe that any single company competes with it across all of its product lines and distribution channels, various companies compete in one or more product categories and/or distribution channels.

Snap-on believes it is a leading manufacturer and distributor of professional tools, tool storage, diagnostic and equipment products, and repair software and solutions, offering a broad line of these products to both vehicle service and industrial marketplaces. Various competitors target and sell to professional technicians in the vehicle service and repair sector through the mobile tool distribution channel. Snap-on also competes with companies that sell tools and equipment to vehicle service and repair technicians online and through retail stores, vehicle parts supply outlets and tool supply warehouses/distributorships. Within the power tools category and the industrial sector, Snap-on has various other competitors, including companies with offerings that overlap with other areas discussed herein. Major competitors selling diagnostics, shop equipment and information to vehicle dealerships and independent repair shops include OEMs and their proprietary electronic parts catalogs and diagnostics and information systems, and other companies that offer products serving this sector.

Resources

Raw Materials and Purchased Product

Snap-on’s supply of raw materials and purchased components are generally and readily available from numerous suppliers. Snap-on believes it has secured an ample supply of both bar and coil steel for the near future to ensure stable supply to meet material demands. The company does not currently anticipate experiencing any significant impact in 2021 from steel pricing or availability issues, though it is continuing to monitor the impact of tariffs and other trade protection measures put in place by the U.S. and other countries.

Patents, Trademarks and Other Intellectual Property

Snap-on vigorously pursues and relies on patent protection to protect its intellectual property and position in its markets. As of 2020 year end, Snap-on and its subsidiaries held approximately 800 active and pending patents in the United States and approximately 2,350 active and pending patents outside of the United States. Sales relating to any single patent did not represent a material portion of Snap-on’s revenues in any of the last three years.

Examples of products that have features or designs that benefit from patent protection include hand tools (including sealed ratchets and ratcheting screwdrivers), power tools, wheel alignment systems, wheel balancers, tire changers, vehicle lifts, tool storage, tool control, collision measurement, test lane equipment, brake lathes, electronic torque instruments, emissions-sensing devices and diagnostic equipment.

Much of the technology used in the manufacture of vehicle service tools and equipment is in the public domain. Snap-on relies primarily on trade secret protection for proprietary processes used in manufacturing. Methods and processes are patented when appropriate. Copyright protection is also utilized when appropriate.

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Trademarks used by Snap-on are of continuing importance in the marketplace. Trademarks have been registered in the United States and many other countries, and additional applications for trademark registrations are pending. Snap-on vigorously polices proper use of its trademarks. Snap-on’s right to manufacture and sell certain products is dependent upon licenses from others; however, these products under license do not represent a material portion of Snap-on’s net sales.

Domain names are a valuable corporate asset for companies around the world, including Snap-on. Domain names often contain a trademark or service mark or even a corporate name and are often considered intellectual property. The recognition and value of the Snap-on name, trademark and domain name are core strengths of the company.

Snap-on strategically licenses the Snap-on brand to carefully selected manufacturing and distribution companies for items such as apparel and a variety of other goods, in order to further build brand awareness and market presence for the company’s strongest brand.

Environmental and Government Regulations

Snap-on is subject to various environmental laws, ordinances, regulations, and requirements of government authorities in the United States and other nations. At Snap-on, these environmental liabilities are managed through the Snap-on Environmental, Health and Safety Management System (“EH & SMS”), which is applied worldwide. The system is based upon continual improvement and is certified to ISO 14001:2015 and OHSAS 18001:2007, verified through Det Norske Veritas (DNV) Certification, Inc.

Snap-on believes that it complies with applicable environmental and government requirements in its operations. Expenditures on environmental and governmental matters through EH & SMS have not had, and Snap-on does not for the foreseeable future expect them to have, a material effect upon Snap-on’s capital expenditures, earnings or competitive position.

Human Capital Management

As of January 2, 2021, Snap-on employed approximately 12,300 people worldwide, of which approximately 6,800 were employed in the United States and approximately 5,500 were outside the United States. Approximately 2,600 employees are represented by unions and/or covered under collective bargaining agreements with varying expiration dates through 2023. In recent years, Snap-on has not experienced any significant work slowdowns, stoppages or other labor disruptions.

Snap-on is guided by the beliefs and values in the company’s “Who We Are” mission statement and strives to be the “employer of choice” for its current and future associates. Furthermore, through our Snap-on Value Creation Processes, a suite of principles we use every day, the company remains committed to the areas of safety, quality, customer connection, innovation and RCI, which are closely linked to and contribute to improving employee engagement, productivity, and efficiency.

Successful execution of our way forward is dependent on attracting, developing and retaining key employees and members of our management team, which we achieve through the following:

•Snap-on believes strongly in work place safety. As a permanent priority agenda item at all operational meetings, safety comes first. Snap-on strives to maintain a safe workplace and expects its employees to broadly embrace the company’s safety programs. Snap-on invests in its strong safety culture and in elevating the importance of worker safety throughout all levels of the organization. For 2020, Snap-on had an overall safety incident rate of 0.85 (number of injuries and illnesses multiplied by 200,000, divided by hours worked).

•Snap-on is committed to its employees and provides developmental opportunities, as well as competitive pay and benefits. Leadership reviews to identify high potential talent in the organization are conducted on an ongoing basis with all business units and on an annual basis with the Board of Directors. Snap-on offers pension, postretirement and stock-based compensation as well as other stock plans, including an employee stock purchase plan for associates in the United States and Canada. Additional information related to these plans is included in Notes 12, 13 and 14 to the Consolidated Financial Statements. Other benefits, including skill training and tuition assistance programs, are available to employees, but vary from location to location.

•Snap-on’s people and the behaviors they display define our success, including integrity, respect and teamwork. Annual employee training is used to reinforce ethics, environmental matters, health and safety, and regulatory compliance.

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In response to the COVID-19 pandemic, Snap-on has generally maintained its headcount as the company accommodated its operations to the virus environment. Snap-on has taken what it believes to be appropriate measures to ensure the health and safety of its personnel, including enhancing cleaning protocols, providing protective equipment, permitting remote work and providing wages for quarantined associates. Snap-on also provided direct assistance to its franchisees as they accommodated the turbulence caused by the virus to enable continued service to their essential technician customers. Refer to the “Impact of the COVID-19” included in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information on actions taken by the company in response to the COVID-19 pandemic.

Social Responsibility

Snap-on is committed to conducting business and making decisions honestly, ethically, fairly and within the law, and is guided by the company’s mission statement. Snap-on is dedicated to earning and keeping the trust and confidence of its shareholders, customers, franchisees, distributors, retirees and associates, as well as of the communities where the company does business. Snap-on’s Code of Business Conduct and Ethics provides guidelines and a framework for conducting business in an ethical manner. These beliefs go beyond Snap-on and are expected of our suppliers as detailed in the company’s Supplier Code of Conduct. Snap-on has adopted policies that seek to eliminate human trafficking, slavery, forced labor and child labor from its global supply chain.

Snap-on’s sustainability framework is focused on key areas impacting our industry, including energy management, employee health and safety, and material management, and is aligned with the guidelines of the Sustainability Accounting Standards Board (SASB). Snap-on’s sustainability metrics are available on the company’s website at www.snapon.com.

Customers and Seasonality

Snap-on does not have any single customer or government on which its business was substantially dependent in any of the indicated periods. Most of Snap-on’s businesses are not seasonal and their inventory needs are relatively constant.

Item 1A: Risk Factors

In evaluating the company, careful consideration should be given to the following risk factors, in addition to the other information included in this Annual Report on Form 10-K, including the Consolidated Financial Statements and the related notes. Each of these risk factors could adversely affect the company’s business, operating results, cash flows and/or financial condition, as well as adversely affect the value of an investment in the company’s common stock.

Risk related to COVID-19 and Other Infectious Diseases

The COVID-19 pandemic has adversely affected, and is expected to continue to pose risks to our business, results of operations, financial condition and cash flows, and other epidemics or outbreaks of infectious diseases may have a similar impact.

We face risks related to outbreaks of infectious diseases, including the ongoing COVID-19 pandemic. COVID-19 spread across the globe during 2020 and continues to impact economic activity worldwide. COVID-19 caused disruption and volatility in the global capital markets, and authored an economic slowdown during 2020. The COVID-19 pandemic and its associated economic uncertainty negatively impacted Snap-on’s sales volumes in 2020 in most geographies and across a variety of customers, including those in automotive repair with the impact most pronounced in the first and second quarters of 2020. In response to COVID-19, national and local governments around the world instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, shelter-in-place orders and recommendations to practice social distancing. These measures resulted in attenuating activity and, in some cases, required temporary closures of certain of our facilities, among other impacts in 2020. The duration of these measures may be extended and additional measures may be imposed to combat the COVID-19 pandemic or future outbreaks of infectious diseases.

Among the effects of COVID-19, and potential effects of other similar outbreaks, on the company include, but are not limited to, the following:

•Reduced consumer and investor confidence, instability in the credit and financial markets, volatile corporate profits, and reduced business and consumer spending, which may adversely affect our results of operations by reducing our sales, margins and/or net income as a result of a slowdown in customer orders or order cancellations. In addition, volatility in the financial markets could increase the cost of capital and/or limit its availability.

•Economic uncertainties that make it difficult for our franchisees, customers, suppliers and the company to accurately forecast and plan future business activities.

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•As a result of government orders and social distancing, some of our franchisees would be expected to make fewer in-person sales calls during any such outbreak reflecting the reluctance of some customers to receive franchisee visits. Further, shelter-in-place orders could cause vehicle owners to temporarily refrain from bringing cars to repair shops. To the extent that there is significantly reduced driving due to shelter-in-place and similar orders and the aftermath of such orders, there could be fewer repairs and there could be a decrease in demand for our products; in addition, some repair shops may not be able to stay in business if these conditions continue to exist for an extended period of time.

•The potential to weaken the financial position of some of our customers, including customers utilizing our financing programs. If circumstances surrounding our customers’ financial capabilities were to deteriorate, write-downs or write-offs could negatively affect our operating results and, if large, or ongoing for extended periods, could have a material adverse effect on our business, financial condition, results of operations and cash flow.

•Disruptions could occur to our supply chain in connection with the sourcing of materials from geographic areas that continue to be impacted by an outbreak and by efforts to contain its spread.

•Volatility related to pension plan assets. While our plan assets are broadly diversified, there are inherent market risks associated with investments. We may need to make additional contributions to address an increase in obligations and/or a loss in plan assets as a result of the combination of declining market interest rates and/or past or future plan asset investment losses, which could adversely impact our financial condition, results of operations and cash flows.

•The need to incur additional restructuring charges to optimize our cost structure.

To the extent the COVID-19 pandemic, or a future outbreak, adversely affects our business, financial condition, results of operations and cash flows, it may also heighten many of the other risks described in this section. The ultimate impact of COVID-19, as well as future outbreaks of infectious diseases, on our business, results of operations, financial condition and cash flows is dependent on future developments, including the duration of the pandemic and the related length of its impact on the global economy, which are uncertain and cannot be predicted at this time.

Business Risks

The sales of many of our products are dependent on the health of the vehicle repair market and the changing requirements of vehicle repair.

We believe sales of many of our products are dependent on the changing vehicle repair requirements, the number of vehicles on the road, the general aging of vehicles and the number of miles driven. These factors affect the frequency, type and amount of service and repair performed on vehicles by technicians, and therefore affect the demand for the number of technicians, the prosperity of technicians and, consequently, the demand technicians have for our tools, other products and services, as well as the value technicians place on those products and services. The use of other methods of transportation, including more frequent use of public transportation in the future, could result in a decrease in the use of privately operated vehicles. A decrease in the use of privately operated vehicles may lead to fewer repairs and less demand for our products.

The performance of Snap-on’s mobile tool distribution business depends on the success of its franchisees.

Approximately 42% of our consolidated net revenues in 2020 were generated by the Snap-on Tools Group, which consists of Snap-on’s business operations primarily serving vehicle service and repair technicians through the company’s worldwide mobile tool distribution channel. Snap-on’s success is dependent on its relationships with franchisees, individually and collectively, as they are the primary sales and service link between the company and vehicle service and repair technicians, who are an important class of end users for Snap-on’s products and services.

If our franchisees are not successful, or if we do not maintain an effective relationship with our franchisees, the delivery of products, the collection of receivables and/or our relationship with end users could be adversely affected and thereby negatively impact our business, financial condition, results of operations and cash flows.

In addition, if we are unable to maintain effective relationships with franchisees, Snap-on or the franchisees may choose to terminate the relationship, which may result in: (i) open routes, in which end-user customers are not provided reliable service; (ii) litigation resulting from termination; (iii) reduced collections or increased charge-offs of franchisee receivables owed to Snap-on; and/or (iv) reduced collections or increased charge-offs of finance and contract receivables.

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The inability to continue to introduce new products that respond to customer needs and achieve market acceptance could result in lower revenues and reduced profitability.

Sales from new products represent a significant portion of our net sales and are expected to continue to represent a significant component of our future net sales. We may not be able to compete effectively unless we continue to enhance existing products or introduce new products to the marketplace in a timely manner. Product improvements and new product introductions require significant financial and other resources, including significant planning, design, development, and testing at the technological, product and manufacturing process levels. Our competitors’ new products may beat our products to market, be more effective, contain more features, be less expensive than our products, and/or render our products obsolete. Any new products that we develop may not receive market acceptance or otherwise generate any meaningful net sales or profits for us relative to our expectations based on, among other things, existing and anticipated investments in manufacturing capacity and commitments to fund advertising, marketing, promotional programs and research and development.

Failure to adequately protect intellectual property, or claims of infringement, could adversely affect our business, reputation, financial condition, results of operations and cash flows.

Intellectual property rights are an important and integral component of our business and failure to obtain or maintain adequate protection of our intellectual property rights for any reason could have a material adverse effect on our business. We attempt to protect our intellectual property rights through a combination of patent, trademark, copyright and trade secret laws, as well as licensing agreements and third-party nondisclosure and assignment agreements. In addition, we have been, and in the future may be, subject to claims of intellectual property infringement against us by third parties; whether or not these claims have merit, we could be required to expend significant resources in defense of those claims. Adverse determinations in a judicial or administrative proceeding or via a settlement could prevent us from manufacturing and selling our products, prevent us from stopping others from manufacturing and selling competing products, and/or result in payments for damages. In the event of an infringement claim, we may also be required to spend significant resources to develop alternatives or obtain licenses, which may not be available on reasonable terms or at all, and may reduce our sales and disrupt our production. Failure to obtain or maintain adequate protection of our intellectual property rights for any reason could have a material adverse effect on our business.

The global tool, equipment, and diagnostics and repair information industries are competitive.

We face strong competition in all of our market segments. Price competition in our various industries is intense and pricing pressures from competitors and customers continue to increase. In general, as a manufacturer and marketer of premium products and services, the expectations of Snap-on’s customers and its franchisees are high and continue to increase. Any inability to maintain customer satisfaction could diminish Snap-on’s premium image and reputation and could result in a lessening of our ability to command premium pricing. We expect that the level of competition will remain high in the future, which could limit our ability to maintain or increase market share or profitability.

Foreign operations are subject to political, economic and other risks that could adversely affect our business, financial condition, results of operations and cash flows.

Approximately 30% of our revenues in 2020 were generated outside of the United States. Future growth rates and success of our business depends in large part on continued growth in our non-U.S. operations, including growth in emerging markets and critical industries. Numerous risks and uncertainties affect our non-U.S. operations. These risks and uncertainties include political, economic and social instability, such as acts of war, civil disturbance or acts of terrorism, local labor conditions, trade relations with China, changes in government policies and regulations, including imposition or increases in withholding and other taxes on remittances and other payments by international subsidiaries, as well as exposure to liabilities under anti-bribery and anti-corruption laws in various countries, such as the U.S. Foreign Corrupt Practices Act, currency volatility, transportation delays or interruptions, sovereign debt uncertainties and difficulties in enforcement of contract and intellectual property rights, reputational risks related to, among other factors, different standards and practices among countries, as well as natural disasters and outbreaks of infectious diseases. Should the economic environment in our non-U.S. markets deteriorate from current levels, our results of operations and financial position could be materially impacted, including as a result of the effects of potential impairment write-downs of goodwill and/or other intangible assets related to these businesses.

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The United Kingdom (“U.K.”) formally left the European Union (“Brexit”) on January 31, 2020, and was in a transition period until December 31, 2020. The U.K. and the European Union reached an agreement regarding Brexit on December 24, 2020. As part of the agreement, there will be a new series of customs and regulatory checks, including rules of origin and stringent local content requirements. There will also be restrictions on the free movement of people and temporary visas for work-related purposes are being re-introduced. The implications of Brexit, or how such implications are expected to affect Snap-on, continue to be reviewed by the company. In addition to disruptions to trade and the movement of goods, services and people between the U.K. and the European Union or other countries, Brexit, among other impacts, could lead to additional cost, delays and volatility in currency exchange rates, as well as create legal and global economic uncertainty. These and other potential implications could adversely affect our business and results of operations.

Operational Risks

Risks associated with the disruption of manufacturing operations could adversely affect our profitability or competitive position.

We manufacture a significant portion of the products we sell. Any prolonged disruption in the operations of our existing manufacturing facilities, whether due to technical or labor difficulties, facility consolidation or closure actions, lack of raw material or component availability, destruction of or damage to any facility (as a result of natural disasters, weather events, use and storage of hazardous materials, acts of war, sabotage, or terrorism, civil unrest or other events), or other reasons, including outbreaks of infectious diseases, such as the current COVID-19 pandemic, could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Price fluctuations and shortages of raw materials, components, certain finished goods inventory and energy sources could adversely affect the ability to obtain needed materials or products and could adversely affect our results of operations.

The principal raw material used in the manufacture of our products is steel, which we purchase in competitive, price-sensitive markets. To meet Snap-on’s high quality standards, our steel needs range from specialized alloys, which are available only from a limited group of approved suppliers, to common alloys, which are available from multiple suppliers. Some of these materials have been, and in the future may be, in short supply, particularly in the event of mill shutdowns or production cut backs. In addition, outbreaks of infectious diseases, weather events or other circumstances beyond our control could also impact the availability of raw materials. As some steel alloys require specialized manufacturing procedures, we could experience inventory shortages if we were required to use an alternative manufacturer on short notice. These and other raw materials, components and certain finished goods inventory can exhibit price and demand cyclicality, including as a result of tariffs and other trade protection measures. Associated unexpected price increases could result in an erosion of product margins or require Snap-on to increase prices to customers to maintain margins.

We use various energy sources to transport, produce and distribute products, and some of our products have components that are petroleum based. Petroleum and energy prices have periodically increased significantly over short periods of time; future volatility and changes may be caused by market fluctuations, supply and demand, currency fluctuations, production and transportation disruptions, world events and changes in governmental programs. Energy price increases raise both our operating costs and the costs of our materials, and we may not be able to increase our prices enough to offset these costs. Higher prices also may reduce the level of future customer orders and our profitability.

Failure to maintain effective distribution of products and services could adversely impact revenue, gross margin and profitability.

We use a variety of distribution methods to sell our products and services. Successfully managing the interaction of our distribution efforts to reach various potential customer segments for our products and services is a complex process. Moreover, since each distribution method has distinct risks, costs and gross margins, our failure to implement the most advantageous balance in the delivery model for our products and services could adversely affect our revenue, gross margins and profitability.

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Data security and information technology infrastructure and security are critical to supporting business objectives; failure of our systems to operate effectively could adversely affect our business and reputation.

We depend heavily on information technology infrastructure to achieve our business objectives and to protect sensitive information, and continually invest in improving such systems. Problems that impair or compromise this infrastructure, including natural disasters, power outages, major network failures, security breaches or malicious attacks, or during system upgrades and/or new system implementations, could impede our ability to record or process orders, manufacture and ship in a timely manner, manage our financial services operations including originating, processing, accounting for and collecting receivables, protect sensitive data of the company, our customers, our suppliers and business partners, or otherwise carry on business in the normal course. Any such events, if significant, could cause us to lose customers and/or revenue and could require us to incur significant expense to remediate, including as a result of legal or regulatory claims, proceedings, fines or penalties, and could also damage our reputation. While we have taken steps to maintain adequate data security and address these risks and uncertainties by implementing security technologies, internal controls, network and data center resiliency, and redundancy and recovery processes, as well as by securing insurance, these measures may be inadequate. These risks may be heightened as greater numbers of associates work remotely in response to safety measures adopted to address the COVID-19 pandemic.

In association with initiatives to better integrate business units, rationalize our operating footprint and improve responsiveness to franchisees and customers, Snap-on is continually enhancing its global Enterprise Resource Planning (ERP) management information systems. As we integrate, implement and deploy new information technology processes and enhance our information infrastructure across our global operations, we could experience disruptions in our business that could have an adverse effect on our business, financial condition, results of operations and cash flows.

Failure to attract, retain and effectively manage qualified personnel could lead to a loss of revenue and/or profitability.

Snap-on’s success depends, in part, on the efforts and abilities of its senior management team and other key employees. Their skills, experience and industry contacts significantly benefit our operations and administration. The failure to attract and retain members of our senior management team and other key employees, to effectively develop personnel and to execute succession plans could have a negative effect on our operating results. In addition, transitions of important responsibilities to new individuals inherently include the possibility of disruptions to our business and operations, which could negatively affect our business, financial condition, results of operations and cash flows.

We may not successfully integrate businesses we acquire, which could have an adverse impact on our business, financial condition, results of operations and cash flows.

The pursuit of growth through acquisitions, including participation in joint ventures, involves significant risks that could have a material adverse effect on our business, financial condition, results of operations and cash flows. These risks include:

•Loss of the acquired businesses’ customers;

•Inability to integrate successfully the acquired businesses’ operations;

•Inability to coordinate management and integrate and retain employees of the acquired businesses;

•Unforeseen or contingent liabilities of the acquired businesses;

•Large write-offs or write-downs, or the impairment of goodwill or other intangible assets;

•Difficulties in implementing and maintaining consistent standards, controls, procedures, policies and information systems;

•Failure to realize anticipated synergies, economies of scale or other anticipated benefits, or to maintain operating margins;

•Strain on our personnel, systems and resources, and diversion of attention from other priorities;

•Incurrence of additional debt and related interest expense; and

•The dilutive effect in the event of the issuance of additional equity securities.

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The steps taken to restructure operations, rationalize operating footprint, lower operating expenses and achieve greater efficiencies in the supply chain could disrupt business.

We have taken steps in the past, and expect to take additional steps in the future, intended to improve customer service and drive further efficiencies as well as reduce costs, some of which could be disruptive to our business or adversely impact our results in certain periods. These actions, collectively across our operating groups, are focused on the following:

•Continuing to invest in initiatives focused on building a strong sales and operating presence in emerging growth markets;

•Continuing to enhance service and value to our franchisees and customers;

•Continuing to implement productivity initiatives throughout the company to drive further efficiencies and reduce energy and other operating costs;

•Continuing on the company’s existing path to improve and transform global manufacturing and the supply chain into a market-demand-based replenishment system with lower costs;

•Continuing to invest in developing and marketing new, innovative, higher-value-added products and advanced technologies;

•Extending our products and services into additional and/or adjacent markets or to new customers; and

•Continuing to provide financing for, and grow our portfolio of, receivables within our financial services businesses.

A failure to succeed in the implementation of any or all of these actions could result in an inability to achieve our financial goals and could be disruptive to the business.

In addition, any future reductions to headcount and other cost reduction measures may result in the loss of technical expertise and could adversely affect our research and development efforts as well as our ability to meet product development schedules. Efforts to reduce components of expense could result in the recording of charges for inventory and technology-related write-offs, workforce reduction costs or other charges relating to the consolidation or closure of facilities. If we were to incur a substantial charge to further these efforts or are unable to effectively manage our cost reduction and restructuring efforts, our business, financial condition, results of operations and cash flows could be adversely affected.

Financial Risks

Our inability to provide acceptable financing alternatives to franchisees and other end-user customers could adversely impact our operating results.

An integral component of our business and profitability is our ability to offer competitive financing alternatives to franchisees and other end-user customers. The lack of our ability to offer such alternatives or obtain capital resources or other financing to support our receivables on terms that we believe are attractive, whether resulting from the state of the financial markets, our own operating performance, or other factors, would negatively affect our operating results and financial condition. Adverse fluctuations in interest rates and/or our ability to provide competitive financing programs could also have an adverse impact on our revenue and profitability.

Exposure to credit risks of customers and resellers may make it difficult to collect receivables, and our allowances for credit losses for receivables may prove inadequate, which could adversely affect operating results and financial condition.

A decline in industry and/or economic conditions could have the potential to weaken the financial position of some of our customers, including financial services customers. If circumstances surrounding our customers’ ability to repay their credit obligations were to deteriorate and result in the write-down or write-off of such receivables, it would negatively affect our operating results for the relevant period and, if large, could have a material adverse effect on our business, financial condition, results of operations and cash flows.

The company maintains allowances for credit losses for receivables to provide for defaults and nonperformance. These allowances represent an estimate of losses over the remaining contractual lives of our receivables which include current market conditions and estimates for reasonable and supportable forecasts, when appropriate. The determination of the appropriate levels of the allowances for credit losses involves a high degree of subjectivity and judgement, and requires the company to make estimates of credit risks, which may undergo material changes as a result of economic conditions and other factors. The company’s allowances may not be adequate to cover actual losses, and future allowances for credit losses could materially and adversely affect our financial condition, results of operations and cash flows.

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Foreign operations are subject to currency exchange, inflation, interest and other risks that could adversely affect our business, financial condition, results of operations and cash flows.

The reporting currency for Snap-on’s consolidated financial statements is the U.S. dollar. Certain of the company’s assets, liabilities, expenses and revenues are denominated in currencies other than the U.S. dollar. In preparing Snap-on’s Consolidated Financial Statements, those assets, liabilities, expenses and revenues are translated into U.S. dollars at applicable exchange rates. Increases or decreases in exchange rates between the U.S. dollar and other currencies affect the U.S. dollar value of those items, as reflected in the Consolidated Financial Statements. Substantial fluctuations in the value of the U.S. dollar or other transactional currencies could have a significant impact on the company’s financial condition and results of operations.

We are also affected by changes in inflation rates and interest rates. Additionally, cash generated in certain non-U.S. jurisdictions may be difficult to repatriate to the United States in a tax-efficient manner. Our foreign operations are also subject to other risks and challenges, such as the need to staff and manage diverse workforces, respond to the needs of multiple national and international marketplaces, and differing business climates and cultures in various countries.

Adverse developments in the credit and financial markets could negatively impact the availability of credit that we and our customers need to operate our businesses.

We depend upon the availability of credit to operate our business, including the financing of receivables from end-user customers that are originated by our financial services businesses. Our end-user customers, franchisees and suppliers also require access to credit for their businesses. At times, world financial markets have been unstable and subject to uncertainty, such as during the COVID-19 pandemic in 2020. Adverse developments in the credit and financial markets, or unfavorable changes in Snap-on’s credit rating, could negatively impact the availability of future financing and the terms on which it might be available to Snap-on, its end-user customers, franchisees and suppliers. Inability to access credit or capital markets, or a deterioration in the terms on which financing might be available, could have an adverse impact on our business, financial condition, results of operations and cash flows.

Increasing our financial leverage could affect our operations and profitability.

The maximum available credit under our multi-currency revolving credit facility is $800 million. The company’s leverage ratio may affect both our availability of additional capital resources as well as our operations in several ways, including:

•The terms on which credit may be available to us could be less attractive, both in the economic terms of the credit and the covenants stipulated by the credit terms;

•The possible lack of availability of additional credit or access to the commercial paper market;

•The potential for higher levels of interest expense to service or maintain our outstanding debt;

•The possibility of additional borrowings in the future to repay our indebtedness when it comes due; and

•The possible diversion of capital resources from other uses.

While we believe we will have the ability to service our debt and obtain additional resources in the future if and when needed, that will depend upon our results of operations and financial position at the time, the then-current state of the credit and financial markets, and other factors that may be beyond our control. Therefore, we cannot give assurances that credit will be available on terms that we consider attractive, or at all, if and when necessary or beneficial to us.

Furthermore, a portion of our indebtedness bears interest at rates that fluctuate with changes in certain short-term prevailing interest rates, including the London Interbank Offer Rate (“LIBOR”). Although we attempt to manage our exposure to rate fluctuations via hedging arrangements, such arrangements may be ineffective or may not protect us to the extent we expect. In addition, the United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer persuade or compel panel banks to submit the rates required to calculate LIBOR, and it is unclear whether the banks currently reporting information used to set LIBOR will stop doing so after 2021. The United States (“U.S.”) Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee composed of large U.S. financial institutions, is considering replacing the U.S. dollar LIBOR with a new index, the Secured Overnight Financing Rate (“SOFR”), calculated using short-term repurchase agreements backed by Treasury securities. Although the consequences of these developments cannot be predicted at this time, the rates under our variable rate indebtedness could increase and access to capital could be limited.

18	SNAP-ON INCORPORATED

Failure to achieve expected investment returns on pension plan assets, as well as changes in interest rates or plan demographics, could adversely impact our results of operations, financial condition and cash flows.

Snap-on sponsors various defined benefit pension plans (the “pension plans”). The assets of the pension plans are diversified in an attempt to mitigate the risk of a large loss. Required funding for the company’s domestic defined benefit pension plans is determined in accordance with guidelines set forth in the federal Employee Retirement Income Security Act (“ERISA”); foreign defined benefit pension plans are funded in accordance with local statutes or practice. Additional contributions to enhance the funded status of the pension plans can be made at the company’s discretion. However, there can be no assurance that the value of the pension plan assets, or the investment returns on those plan assets, will be sufficient to meet the future benefit obligations of such plans. In addition, during periods of adverse investment market conditions and declining interest rates, the company may be required to make additional cash contributions to the pension plans that could reduce our financial flexibility. Changes in plan demographics, including an increase in the number of retirements or changes in life expectancy assumptions, may also increase the costs and funding requirements of the obligations related to the company’s pension plans.

Our pension plan obligations are affected by changes in market interest rates. Significant fluctuations in market interest rates have added, and may further add, volatility to our pension plan obligations. In periods of declining market interest rates, our pension plan obligations generally increase; in periods of increasing market interest rates, our pension plan obligations generally decrease. While our plan assets are broadly diversified, there are inherent market risks associated with investments; if adverse market conditions occur, our plan assets could incur significant or material losses. Since we may need to make additional contributions to address changes in obligations and/or a loss in plan assets, the combination of declining market interest rates, past or future plan asset investment losses, and/or changes in plan demographics could adversely impact our results of operations, financial condition and cash flows.

The company’s pension plan expense is comprised of the following factors: (i) service cost; (ii) interest on projected benefit obligations; (iii) expected return on plan assets; (iv) the amortization of prior service costs and credits; (v) effects of actuarial gains and losses; and (vi) settlement/curtailment costs, when applicable. The accounting for pensions involves the estimation of a number of factors that are highly uncertain. Certain factors, such as the interest on projected benefit obligations and the expected return on plan assets, are impacted by changes in market interest rates and the value of plan assets. A significant decrease in market interest rates and a decrease in the fair value of plan assets would increase net pension expense and may adversely affect the company’s future results of operations. See Note 12 to the Consolidated Financial Statements for further information on the company’s pension plans.

The recognition of impairment charges on goodwill or other intangible assets would adversely impact our future financial condition and results of operations.

We have a substantial amount of goodwill and purchased intangible assets, almost all of which are booked in the Commercial & Industrial Group and in the Repair Systems & Information Group. We are required to perform impairment tests on our goodwill and other intangibles annually or at any time when events occur that could impact the value of our business segments. Our determination of whether impairment has occurred is based on a comparison of each of our reporting units’ fair market value with its carrying value.

Significant and unanticipated changes in circumstances, such as significant and long-term adverse changes in business climate, adverse actions by regulators, unanticipated competition, the loss of key customers, and/or changes in technology or markets, could require a provision for impairment in a future period that could substantially impact our reported earnings and reduce our consolidated net worth and shareholders’ equity. Should the economic environment in these markets deteriorate, our results of operations and financial position could be materially impacted, including as a result of the effects of potential impairment write-downs of goodwill and/or other intangible assets related to these businesses.

2020 ANNUAL REPORT	19

Legal and Regulatory Risks

Legislation and regulations relating to our business and the countries where we operate, as well as any changes to such legislation or regulations, in addition to new compliance obligations or a failure to maintain existing compliance requirements, may, if significant, affect our business, reputation, results of operations and financial condition.

Significant changes to legislative and regulatory activity, and compliance burdens, including those associated with: (i) sales to our government, military and defense contractor customers; and (ii) classification of third parties, including our franchisees, as independent from the company, as well as the manner in which they are applied, could significantly impact our business and the economy as a whole.

Financial services businesses of all kinds are subject to significant and complex regulations and enforcement. In addition to potentially increasing the costs and other requirements of doing business due to compliance obligations, new laws and regulations, or changes to existing laws and regulations, as well as the enforcement thereof, may affect the relationships between creditors and debtors, inhibit the rights of creditors to collect amounts owed to them, expand liability for certain actions or inaction, or limit the types of financial products or services offered, any or all of which could have a material adverse effect on our financial condition, results of operations and cash flows. Failure to comply with any of these laws or regulations could also result in civil, criminal, monetary and/or non-monetary penalties, damage to our reputation, and/or the incurrence of remediation costs.

These developments, and other potential future legislation and regulations, including the increasing global regulation of privacy rights, may also adversely affect the customers to which, and the markets into which, we sell our products, and increase our costs and otherwise negatively affect our business, reputation, results of operations and financial condition, including in ways that cannot yet be foreseen.

Product liability claims and litigation could affect our business, reputation, financial condition, results of operations and cash flows.

The products that we design and/or manufacture, and/or the services we provide, can lead to product liability claims or other legal claims being filed against us. To the extent that plaintiffs are successful in showing that a defect in a product’s design, manufacture or warnings led to personal injury or property damage, or that our provision of services resulted in similar injury or damage, we may be subject to claims for damages. Although we are insured for damages above a certain amount, we bear the costs and expenses associated with defending claims, including frivolous lawsuits, and are responsible for damages up to the insurance retention amount. In addition to claims concerning individual products, as a manufacturer, we can be subject to costs, potential negative publicity and lawsuits related to product recalls, which could adversely impact our results of operations and damage our reputation.

Legal disputes could adversely affect our business, reputation, financial condition, results of operations and cash flows.

From time to time we are subject to legal disputes that are being litigated and/or settled in the ordinary course of business. Disputes or future lawsuits could result in the diversion of management’s time and attention away from business operations. Additionally, negative developments with respect to legal disputes and the costs incurred in defending ourselves, even if successful, could have an adverse impact on the company and its reputation. Successful outcomes, at trial or on appeal, can never be assured. Adverse outcomes or settlements could also require us to pay damages, potentially in excess of amounts reserved, or incur liability for other remedies that could have a material adverse effect on our business, reputation, financial condition, results of operations and cash flows.

Our operations expose us to the risk of environmental liabilities, costs, litigation and violations that could adversely affect our financial condition, results of operations and reputation.

Certain of our operations are subject to environmental laws and regulations in the jurisdictions in which they operate, which impose limitations on the discharge of pollutants into the ground, air and water and establish standards for the generation, treatment, use, storage and disposal of hazardous wastes. We must also comply with various health and safety regulations in the United States and abroad in connection with our operations. Failure to comply with any of these laws could result in civil and criminal, monetary and non-monetary penalties and damage to our reputation. In addition, we may incur costs related to remedial efforts or alleged environmental damage associated with past or current waste disposal practices. We cannot provide assurance that our costs of complying with current or future environmental protection and health and safety laws will not exceed our estimates.

20	SNAP-ON INCORPORATED

The inability to successfully defend claims from taxing authorities could adversely affect our financial condition, results of operations and cash flows.

We conduct business in many countries, which requires us to interpret the income tax laws and rulings in each of those taxing jurisdictions. Due to the subjectivity of tax laws in and between jurisdictions, as well as the subjectivity of factual interpretations, our estimates of income tax liabilities may differ from actual payments or assessments. Claims from taxing authorities related to these differences could have an adverse impact on our financial condition, results of operations and cash flows.

General Risk Factor

Economic conditions and world events could affect our operating results.

In addition to the specific risks above, we, our franchisees and our customers, may be adversely affected by changing economic conditions, including conditions that may particularly impact specific regions. These conditions may result in reduced consumer and investor confidence, instability in the credit and financial markets, volatile corporate profits, and reduced business and consumer spending. We, our franchisees and our customers, and the economy as a whole, also may be affected by future world or local events outside our control, such as tariffs and other trade protection measures put in place by the United States or other countries, acts of terrorism, developments in the war on terrorism, civil unrest, conflicts in international situations, weather events and natural disasters, outbreaks of infectious diseases such as the ongoing COVID-19 pandemic, as well as government-related developments or issues, including changes in tax laws and regulations. These factors may affect our results of operations by reducing our sales, margins and/or net earnings as a result of a slowdown in customer orders or order cancellations, impact the availability and/or pricing of raw materials and/or the supply chain, and could potentially lead to future impairment of goodwill or other intangible assets. In addition, political, social turmoil, international conflicts and terrorist acts may put pressure on global economic conditions. Unstable political, social and economic conditions may make it difficult for our franchisees, customers, suppliers and us to accurately forecast and plan future business activities. If such conditions persist, our business, financial condition, results of operations and cash flows could be negatively affected.

Item 1B: Unresolved Staff Comments

None.

Item 2: Properties

Snap-on maintains leased and owned manufacturing, software development, warehouse, distribution, research and development and office facilities throughout the world. Snap-on believes that its facilities currently in use are suitable and have adequate capacity to meet its present and foreseeable future demand. Snap-on’s facilities in the United States occupy approximately 3.9 million square feet, of which 75% is owned, including its corporate and general office facility located in Kenosha, Wisconsin. Snap-on’s facilities outside the United States occupy approximately 4.5 million square feet, of which approximately 73% is owned. Certain Snap-on facilities are leased through operating and finance lease agreements. See Note 17 to the Consolidated Financial Statements for information on the company’s operating and finance leases. Snap-on management continually monitors the company’s capacity needs and makes adjustments as dictated by market and other conditions.

2020 ANNUAL REPORT	21

The following table provides information about our corporate headquarters and financial services operations, and each of Snap-on’s principal active manufacturing locations, distribution centers and software development locations (exceeding 50,000 square feet) as of 2020 year end:

Location	Principal Property Use	Owned/Leased	Segment*
U.S. Locations:
Elkmont, Alabama	Manufacturing	Owned	SOT
Conway, Arkansas	Manufacturing and distribution	Owned	RS&I
City of Industry, California	Manufacturing	Leased	C&I
San Diego, California	Software development	Owned	RS&I
San Jose, California	Software development	Leased	RS&I
Tustin, California	Manufacturing and distribution	Leased	C&I
Columbus, Georgia	Distribution	Owned	C&I
Crystal Lake, Illinois	Distribution	Owned and leased	SOT
Libertyville, Illinois	Financial services	Leased	FS
Algona, Iowa	Manufacturing and distribution	Owned	SOT
Louisville, Kentucky	Manufacturing and distribution	Leased	RS&I
Olive Branch, Mississippi	Distribution	Owned	SOT
Carson City, Nevada	Distribution	Owned and leased	SOT
Murphy, North Carolina	Manufacturing and distribution	Owned and leased	C&I
Richfield, Ohio	Software development	Owned	RS&I
Robesonia, Pennsylvania	Distribution	Owned	SOT
Elizabethton, Tennessee	Manufacturing	Owned	SOT
Kenosha, Wisconsin	Distribution and corporate	Owned	SOT, C&I, RS&I
Milwaukee, Wisconsin	Manufacturing	Owned	SOT
Pleasant Prairie, Wisconsin	Distribution	Owned	SOT, C&I, RS&I
Non-U.S. Locations:
Santo Tome, Argentina	Manufacturing	Owned	C&I
New South Wales, Australia	Distribution and financial services	Leased	SOT, FS
Minsk, Belarus	Manufacturing	Owned	C&I
Santa Bárbara d’Oeste, Brazil	Manufacturing and distribution	Owned	RS&I
Calgary, Canada	Distribution	Leased	SOT
Mississauga, Canada	Distribution	Leased	SOT, RS&I
Beijing, China	Manufacturing and distribution	Leased	C&I
Kunshan, China	Manufacturing	Owned	C&I
Xiaoshan, China	Manufacturing	Owned	C&I
Banbury, England	Manufacturing and distribution	Owned	C&I
Bramley, England	Manufacturing	Owned	C&I
Kettering, England	Distribution and financial services	Owned and leased	SOT, C&I, FS
Sopron, Hungary	Manufacturing	Owned	RS&I
Correggio, Italy	Manufacturing	Owned	RS&I
Tokyo, Japan	Distribution	Leased	C&I
Helmond, Netherlands	Distribution	Owned	C&I
Vila do Conde, Portugal	Manufacturing	Owned	C&I
Irun, Spain	Manufacturing	Owned	C&I
Placencia, Spain	Manufacturing	Owned	C&I
Vitoria, Spain	Manufacturing and distribution	Owned	C&I
Bollnäs, Sweden	Manufacturing	Owned	C&I
Edsbyn, Sweden	Manufacturing	Owned	C&I
Kungsör, Sweden	Manufacturing and distribution	Owned	RS&I
Lidköping, Sweden	Manufacturing	Owned	C&I
* Segment abbreviations:
---

C&I – Commercial & Industrial Group SOT – Snap-on Tools Group RS&I – Repair Systems & Information Group FS – Financial Services

22	SNAP-ON INCORPORATED

Item 3: Legal Proceedings

Snap-on is involved in various legal matters that are being litigated and/or settled in the ordinary course of business. Although it is not possible to predict the outcome of these legal matters, management believes that the results of these legal matters will not have a material impact on Snap-on’s consolidated financial position, results of operations or cash flows.

Item 4: Mine Safety Disclosures

Not applicable.

PART II

Item 5: Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Snap-on had 54,102,099 shares of common stock outstanding as of 2020 year end. Snap-on’s stock is listed on the New York Stock Exchange under the ticker symbol “SNA.” At February 5, 2021, there were 4,400 registered holders of Snap-on common stock.

Issuer Purchases of Equity Securities

The following chart discloses information regarding the shares of Snap-on’s common stock repurchased by the company during the fourth quarter of fiscal 2020, all of which were purchased pursuant to the Board’s authorizations that the company has publicly announced. Snap-on has undertaken stock repurchases from time to time to offset dilution created by shares issued for employee and franchisee stock purchase plans, and equity plans, and for other corporate purposes, as well as when the company believes market conditions are favorable. The repurchase of Snap-on common stock is at the company’s discretion, subject to prevailing financial and market conditions.

Period	Shares<br> purchased	Average price<br>per share	Shares purchased as<br>part of publicly<br>announced plans or<br>programs	Approximate<br>value of shares<br>that may yet be<br>purchased under<br>publicly<br>announced plans<br>or programs*
09/27/20 to 10/24/20	—	—	—	$307.2 million
10/25/19 to 11/21/20	250,000	$165.61	250,000	$283.9 million
11/22/20 to 1/2/21	210,000	$177.42	210,000	$275.7 million
Total/Average	460,000	$171.00	460,000	N/A

______________________

N/A: Not applicable

* Subject to further adjustment pursuant to the 1996 Authorization described below, as of January 2, 2021, the approximate value of shares that may yet be purchased pursuant to the outstanding Board authorizations discussed below is $275.7 million.

•In 1996, the Board authorized the company to repurchase shares of the company’s common stock from time to time in the open market or in privately negotiated transactions (“the 1996 Authorization”). The 1996 Authorization allows the repurchase of up to the number of shares issued or delivered from treasury from time to time under the various plans the company has in place that call for the issuance of the company’s common stock. Because the number of shares that are purchased pursuant to the 1996 Authorization will change from time to time as (i) the company issues shares under its various plans; and (ii) shares are repurchased pursuant to this authorization, the number of shares authorized to be repurchased will vary from time to time. The 1996 Authorization will expire when terminated by the Board. When calculating the approximate value of shares that the company may yet purchase under the 1996 Authorization, the company assumed a price of $169.39, $172.92 and $171.14 per share of common stock as of the end of the fiscal 2020 months ended October 24, 2020, November 21, 2020, and January 2, 2021, respectively.

•On February 14, 2019, the Board authorized the repurchase of an aggregate of up to $500 million of the company’s common stock (the “2019 Authorization”). The 2019 Authorization will expire when the aggregate repurchase price limit is met, unless terminated earlier by the Board. The 2019 Authorization replaced the Board’s 2017 $500 million authorization, under which $206 million of the authorization remained at the time of its replacement.

2020 ANNUAL REPORT	23

Other Purchases or Sales of Equity Securities

The following chart discloses information regarding transactions in shares of Snap-on’s common stock by Citibank, N.A. (“Citibank”) during the fourth quarter of 2020 pursuant to a prepaid equity forward agreement (the “Agreement”) with Citibank that is intended to reduce the impact of market risk associated with the stock-based portion of the company’s deferred compensation plans. The company’s stock-based deferred compensation liabilities, which are impacted by changes in the company’s stock price, increase as the company’s stock price rises and decrease as the company’s stock price declines. Pursuant to the Agreement, Citibank may purchase or sell shares of the company’s common stock (for Citibank’s account) in the market or in privately negotiated transactions. The Agreement has no stated expiration date and does not provide for Snap-on to purchase or repurchase its shares.

Citibank Sales of Snap-on Stock

Period	Shares sold	Average price<br>per share
09/27/20 to 10/24/20	—	—
10/25/19 to 11/21/20	14,000	$172.37
11/22/20 to 1/2/21	5,900	$171.10
Total/Average	19,900	$171.99
24	SNAP-ON INCORPORATED
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Five-year Stock Performance Graph

The graph below illustrates the cumulative total shareholder return on Snap-on common stock since December 31, 2015, of a $100 investment, assuming that dividends were reinvested quarterly. The graph compares Snap-on’s performance to that of the Standard & Poor’s 500 Industrials Index (“S&P 500 Industrials”) and Standard & Poor’s 500 Stock Index (“S&P 500”).

Fiscal Year Ended (1)	Snap-on<br>Incorporated	S&P 500<br>Industrials	S&P 500
December 31, 2015	$100.00	$100.00	$100.00
December 31, 2016	$101.54	$118.86	$111.96
December 31, 2017	$105.24	$143.86	$136.40
December 31, 2018	$89.61	$124.74	$130.42
December 31, 2019	$107.12	$161.38	$171.49
December 31, 2020	$111.42	$179.23	$203.04

_______________________________

(1) The company’s fiscal year ends on the Saturday that is on or nearest to December 31 of each year; for ease of calculation, the fiscal year end is assumed to be December 31.

2020 ANNUAL REPORT	25

Item 6: Selected Financial Data

The selected financial data presented below has been derived from, and should be read in conjunction with, the respective historical consolidated financial statements of the company, including the notes thereto, and “Part II, Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Five-year Data
(Amounts in millions, except per share data)	2020		2019		2018		2017		2016
Results of Operations
Net sales	$	3,592.5	$	3,730.0	$	3,740.7	$	3,686.9	$	3,430.4
Gross profit	1,748.5		1,844.0		1,870.0		1,825.9		1,710.4
Operating expenses	1,116.6		1,127.6		1,144.0		1,161.3		1,048.0
Operating earnings before financial services	631.9		716.4		726.0		664.6		662.4
Financial services revenue	349.7		337.7		329.7		313.4		281.4
Financial services expenses	101.1		91.8		99.6		95.9		82.7
Operating earnings from financial services	248.6		245.9		230.1		217.5		198.7
Operating earnings	880.5		962.3		956.1		882.1		861.1
Interest expense	54.0		49.0		50.4		52.4		52.2
Earnings before income taxes and equity earnings	835.2		922.1		909.9		821.9		801.4
Income tax expense	189.1		211.8		214.4		250.9		244.3
Earnings before equity earnings	646.1		710.3		695.5		571.0		557.1
Equity earnings, net of tax	0.3		0.9		0.7		1.2		2.5
Net earnings	646.4		711.2		696.2		572.2		559.6
Net earnings attributable to noncontrolling interests	(19.4)		(17.7)		(16.3)		(14.5)		(13.2)
Net earnings attributable to Snap-on	627.0		693.5		679.9		557.7		546.4
Financial Position
Cash and cash equivalents	$	923.4	$	184.5	$	140.9	$	92.0	$	77.6
Trade and other accounts receivable – net	640.7		694.6		692.6		675.6		598.8
Finance receivables – net (current)	530.2		530.1		518.5		505.4		472.5
Contract receivables – net (current)	112.5		100.7		98.3		96.8		88.1
Inventories – net	746.5		760.4		673.8		638.8		530.5
Property and equipment – net	526.2		521.5		495.1		484.4		425.2
Long-term finance receivables – net	1,136.3		1,103.5		1,074.4		1,039.2		934.5
Long-term contract receivables – net	374.7		360.1		344.9		322.6		286.7
Total assets	6,557.3		5,693.5		5,373.1		5,249.1		4,723.2
Notes payable and current maturities of long-term debt	268.5		202.9		186.3		433.2		301.4
Accounts payable	222.9		198.5		201.1		178.2		170.9
Long-term debt	1,182.1		946.9		946.0		753.6		708.8
Total debt	1,450.6		1,149.8		1,132.3		1,186.8		1,010.2
Total shareholders’ equity attributable to Snap-on	3,824.9		3,409.1		3,098.8		2,953.9		2,617.2
Common Share Summary
Weighted-average shares outstanding – diluted	54.8		55.9		57.3		58.6		59.4
Net earnings per share attributable to Snap-on:
Basic	$	11.55	$	12.59	$	12.08	$	9.72	$	9.40
Diluted	11.44		12.41		11.87		9.52		9.20
Cash dividends paid per share	4.47		3.93		3.41		2.95		2.54
Shareholders’ equity per basic share	70.44		61.87		55.04		51.46		45.05
26	SNAP-ON INCORPORATED
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
---

Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management Overview

In 2020, the COVID-19 pandemic impacted the company’s sales and earnings as a result of decreased activity in the first half of the year. By safely pursuing opportunities in the COVID-19 environment, we believe our 2020 operating results demonstrate our continued commitment to providing repeatability and reliability to a wide range of professional customers performing critical and essential tasks in workplaces of consequence. Leveraging capabilities already demonstrated in the automotive repair arena, our strategy continued to focus on developing and expanding our professional customer base, not only in automotive repair, but in adjacent markets, additional geographies and other areas, including critical industries, where the cost and penalties for failure can be high. Snap-on’s value proposition of making work easier for serious professionals is an ongoing strength as we move forward along our runways for coherent growth:

•Enhancing the franchise network, where we continued to focus on helping our franchisees extend their reach through innovative selling processes and productivity initiatives that break the traditional time and space barriers inherent in a mobile van;

•Expanding with repair shop owners and managers, where we continued to make progress in connecting with customers and translating the resulting insights into innovation that solves specific challenges in the repair facility;

•Further extending to critical industries, where we continued to grow our lines of products customized for specific industries, including through acquisitions; and

•Building in emerging markets, where we continued to maintain manufacturing capacity, as well as refine product lines and distribution capabilities.

Our strategic priorities and plans for 2021 involve continuing to build on our Snap-on Value Creation Processes – our suite of strategic principles and processes we employ every day designed to create value, and employed in the areas of safety, quality, customer connection, innovation and rapid continuous improvement (“Rapid Continuous Improvement” or “RCI”). We expect to continue to deploy these processes in our existing operations as well as into our recently acquired businesses.

Snap-on’s RCI initiatives employ a structured set of tools and processes across multiple businesses and geographies intended to eliminate waste and improve operations. Savings from Snap-on’s RCI initiatives reflect benefits from a wide variety of ongoing efficiency, productivity and process improvements, including savings generated from product design cost reductions, improved manufacturing line set-up and change-over practices, lower-cost sourcing initiatives and facility consolidations. 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.

Our global financial services operations continue to serve a significant strategic role in offering financing options to our franchisees, to their customers, and to customers in other parts of our business. We expect that our global financial services business, which includes both Snap-on Credit LLC (“SOC”) in the United States and our other international finance subsidiaries, will continue to be a meaningful contributor to our operating earnings going forward.

Snap-on has significant international operations and is subject to risks inherent with foreign operations, including foreign currency translation fluctuations.

Recent Acquisitions

| 2020 ANNUAL REPORT | 27 | | --- | --- || Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | | --- |

On August 7, 2019, Snap-on acquired Cognitran Limited (“Cognitran”) for a cash purchase price of $30.6 million (or $29.6 million, net of cash acquired), which reflects a $0.2 million working capital adjustment finalized in fiscal 2020. Cognitran, based in Chelmsford, U.K., specializes in flexible, modular and highly scalable “Software as a Service” (SaaS) products for Original Equipment Manufacturer (“OEM”) customers and their dealers, focused on the creation and delivery of service, diagnostics, parts and repair information to the OEM dealers and connected vehicle platforms. The acquisition of Cognitran enhanced and expanded Snap-on’s capabilities in providing shop efficiency solutions through integrated upstream services to OEM customers in automotive, heavy duty, agricultural and recreational applications.

For segment reporting purposes, the results of operations and assets of Sigmavision, Cognitran and TMB have been included in the Repair Systems & Information Group since the respective acquisition dates, and the results of operations and assets of AutoCrib and Power Hawk have been included in the Commercial & Industrial Group since the respective acquisition dates.

Fiscal 2019 as Compared to Fiscal 2018

A discussion regarding our financial condition and results of operations for fiscal 2019 compared to fiscal 2018 can be found under “Part II, Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on the Form 10-K for the fiscal year ended December 28, 2019, which was filed with the SEC on February 13, 2020, and is available on the SEC’s website at www.sec.gov as well as in the “Investors” section of our corporate website at www.snapon.com.

Non-GAAP Measures

References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “organic sales” refer to sales from continuing operations calculated in accordance with generally accepted accounting principles in the United States of America (“GAAP”), excluding acquisition-related sales and the impact of foreign currency translation. Management evaluates the company’s sales performance based on organic sales growth, which primarily reflects growth from the company’s existing businesses as a result of increased output, customer base and geographic expansion, new product development and/or pricing, and excludes sales contributions from acquired operations the company did not own as of the comparable prior-year reporting period. The company’s organic sales disclosures also exclude the effects of foreign currency translation as foreign currency translation is subject to volatility that can obscure underlying business trends. Management believes that the non-GAAP financial measure of organic sales is meaningful to investors as it provides them with useful information to aid in identifying underlying growth trends in our businesses and facilitating comparisons of our sales performance with prior periods.

Fiscal Year

Snap-on’s 2020 fiscal year contained 53 weeks of operating results with the extra week occurring in the fourth quarter. Snap-on’s 2019 and 2018 fiscal years each contained 52 weeks of operating results. The impact of the additional week of operations in fiscal 2020 was not material to Snap-on’s full year or fourth quarter total revenues or net earnings.

28	SNAP-ON INCORPORATED

Impact of COVID-19

As discussed in Part I, Item 1A: Risk Factors, the company faces risks related to outbreaks of infectious diseases, including the ongoing COVID-19 pandemic, which caused disruption and volatility in the global capital markets and authored an economic slowdown. In response to COVID-19, national and local governments around the world instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, shelter-in-place orders and recommendations to practice social distancing. The challenges posed by the COVID-19 pandemic on the global economy increased significantly in the first quarter of 2020, impacting Snap-on’s sales volumes in most geographies and across a variety of customers, including those in automotive repair. In addition, the impact of economic uncertainty caused by COVID-19 led to an increase in the credit reserve requirements for the company’s financial services portfolio.

During the second quarter of 2020, the COVID-19 pandemic and associated government measures to limit the spread of the virus heavily impacted Snap-on’s sales and earnings and, as anticipated, resulted in substantially lower performance in that period as compared to 2019. The company accommodated its operations to the virus environment, continuing without significant disruption to serve its franchisees and other professional customers as they performed essential work, while taking what it believes to be appropriate measures to ensure the health and safety of its personnel. Snap-on also provided direct assistance to its franchisees as they accommodated the turbulence caused by the virus to enable continued service to their essential technician customers. As a result of these accommodations, the impact of the virus on operations lessened as the year progressed.

The company has invested in offsetting the virus impact, including absorbing temporary closures of certain facilities, wages for quarantined associates, event cancellation fees, as well as other related costs (collectively, “direct COVID-19-related costs” or “direct costs associated with COVID-19”). Snap-on has generally maintained its headcount, manufacturing capacity and product development, in anticipation of the return to pre-COVID-19 demand levels. The company’s supply chain and distribution channels have not been materially impacted by the pandemic, and the company has taken steps to ensure access to raw materials and components, but it cannot provide assurances with respect to the future due to the evolving nature of the pandemic.

The ultimate impact of COVID-19 on our business, results of operations, financial condition and cash flows is dependent on future developments, including the duration of the pandemic and the related length of its impact on the global economy, which are uncertain and cannot be predicted at this time.

Summary of Consolidated Performance

Consolidated net sales of $3,592.5 million in 2020, reflecting a $140.9 million, or 3.8%, decrease in organic sales and $10.9 million of unfavorable foreign currency translation, partially offset by $14.3 million of acquisition-related sales, compared to $3,730.0 million in 2019. The lower sales volume is primarily due to decreased activity in the first half of the year as a result of the initial economic impact associated with the COVID-19 pandemic.

Operating earnings before financial services of $631.9 million in 2020, including $12.5 million of exit and disposal (“restructuring”) charges, $11.9 million of direct costs associated with COVID-19 and $13.1 million of unfavorable foreign currency effects, compared to $716.4 million in 2019, which included an $11.6 million benefit from a legal settlement in a patent-related litigation matter that was being appealed (the “legal settlement”). As a percentage of net sales, operating earnings before financial services of 17.6%, compared to 19.2% last year.

Net earnings attributable to Snap-on in 2020 of $627.0 million, or $11.44 per diluted share, included a $10.3 million, or $0.19 per diluted share, after-tax charge related to restructuring actions. Net earnings attributable to Snap-on in 2019 were $693.5 million, or $12.41 per diluted share and included an $8.7 million, or $0.15 per diluted share, after-tax benefit from the legal settlement.

| 2020 ANNUAL REPORT | 29 | | --- | --- || Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | | --- |

Summary of Segment Performance

The Commercial & Industrial Group consists of business operations serving a broad range of industrial and commercial customers worldwide, including customers in the aerospace, natural resources, government, power generation, transportation and technical education market segments (collectively, “critical industries”), primarily through direct and distributor channels. Segment net sales of $1,234.6 million in 2020, reflecting a $115.8 million, or 8.6%, organic sales decline and $3.5 million of unfavorable currency translation, partially offset by $8.2 million of acquisition-related sales, compared to $1,345.7 million in 2019. The organic sales decrease primarily includes a double-digit decline in the segment’s Asia Pacific operations, a high single-digit decrease in sales to customers in critical industries and a low single-digit decline in sales in the segment’s European-based hand tools business. Operating earnings of $153.7 million in 2020, including $6.5 million of direct costs associated with COVID-19, $6.4 million of restructuring charges and $5.8 million of unfavorable foreign currency effects, compared to $188.7 million in 2019.

The Commercial & Industrial Group intends to continue building on the following strategic priorities in 2021:

•Continuing to invest in emerging market growth initiatives;

•Expanding our business with existing customers and reaching new customers in critical industries and other market segments;

•Broadening our product offering designed particularly for critical industry segments;

•Increasing our customer-connection-driven understanding of work across multiple industries;

•Investing in innovation that, guided by that understanding of work, delivers an ongoing stream of productivity-enhancing custom engineered solutions; and

•Continuing to reduce structural and operating costs, as well as improve efficiencies, through RCI initiatives.

The Snap-on Tools Group consists of business operations primarily serving vehicle service and repair technicians through the company’s worldwide mobile tool distribution channel. Segment net sales of $1,643.9 million in 2020, reflecting a $32.8 million, or 2.0%, organic sales gain, partially offset by $1.8 million of unfavorable foreign currency translation, compared to $1,612.9 million in 2019. The organic sales increase reflects a low single-digit gain in the U.S. franchise operations, partially offset by a low single-digit decline in the segment’s international operations. Operating earnings of $267.7 million in 2020, including $3.5 million of direct costs associated with COVID-19, $0.6 million of restructuring charges and $5.4 million of unfavorable foreign currency effects, compared to $245.8 million in 2019.

In 2021, the Snap-on Tools Group intends to continue these initiatives, with specific focus on the following:

•Continuing to improve franchisee satisfaction, productivity, profitability and commercial health;

•Developing new programs and products to expand market coverage, reaching new technician customers and increasing penetration with existing customers;

•Increasing investment in new product innovation and development; and

•Increasing customer service levels and productivity in back office support functions, manufacturing and the supply chain through RCI initiatives and investment.

By focusing on these areas, we believe that Snap-on, as well as its franchisees, will have the opportunity to continue to serve customers more effectively, more profitably and with improved satisfaction.

The Repair Systems & Information Group consists of business operations serving other professional vehicle repair customers worldwide, primarily owners and managers of independent repair shops and OEM dealership service and repair shops (“OEM dealerships”) through direct and distributor channels. Segment net sales of $1,238.2 million in 2020, reflecting a $97.6 million, or 7.3%, organic sales decline and $4.8 million of unfavorable foreign currency translation, partially offset by $6.1 million of acquisition-related sales, compared to $1,334.5 million in 2019. The organic sales decrease includes double-digit declines in both sales of undercar equipment and in sales to OEM dealerships. Sales of diagnostic and repair information products to independent repair shop owners and managers were essentially flat. Operating earnings of $298.0 million in 2020, including $5.5 million of costs related to restructuring actions, $1.2 million of direct costs associated with COVID-19 and $1.9 million of unfavorable foreign currency effects, compared to $342.7 million in 2019.

30	SNAP-ON INCORPORATED

The Repair Systems & Information Group intends to focus on the following strategic priorities in 2021:

•Expanding the product offering with new products and services, thereby providing more to sell to repair shop owners and managers;

•Continuing software and hardware upgrades to further improve functionality, performance and efficiency;

•Leveraging integration of software solutions;

•Continuing productivity advancements through RCI initiatives and leveraging of resources; and

•Increasing penetration in geographic markets, including emerging markets.

Financial Services revenue was $349.7 million in 2020 and $337.7 million in 2019. Originations of $1,036.6 million in 2020 increased $4.8 million, or 0.5%, from 2019 levels. Operating earnings from financial services in 2020 of $248.6 million, compared to $245.9 million last year. In 2020, financial services expenses included higher provisions for credit losses related to the company’s adoption of ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), and $2.6 million of higher credit reserve requirements associated with the COVID-19 pandemic, which were recorded in the first quarter of 2020. Snap-on continues to grow its financial services portfolio by providing financing for finance and contract receivables originated by our global financial services operations.

Financial Services intends to focus on the following strategic priorities in 2021:

•Delivering financial products and services that attract and sustain profitable franchisees and support Snap-on’s strategies for expanding market coverage and penetration;

•Improving productivity levels and ensuring high quality in all financial products and processes through the use of RCI initiatives; and

•Maintaining healthy portfolio performance levels.

Cash Flows

Net cash provided by operating activities of $1,008.6 million in 2020 increased $334.0 million from $674.6 million in 2019. The $334.0 million increase is primarily due to $430.2 million from net changes in operating assets and liabilities, partially offset by a $64.8 million decrease in net earnings.

Net cash used by investing activities of $187.8 million in 2020 included additions to finance receivables of $835.0 million, partially offset by collections of $750.3 million, as well as a total of $41.5 million for the acquisitions of Sigmavision and AutoCrib and a $0.2 million working capital adjustment for the 2019 Cognitran acquisition. Net cash used by investing activities of $222.1 million in 2019 included additions to finance receivables of $841.9 million, partially offset by collections of $754.3 million, as well as a total of $38.6 million (net of $1.0 million of cash acquired) for the acquisitions of TMB, Power Hawk and Cognitran. Capital expenditures in 2020 and 2019 totaled $65.6 million and $99.4 million, respectively. Capital expenditures in both years included continued investments related to the company’s execution of its strategic growth initiatives and Value Creation Processes around safety, quality, customer connection, innovation and RCI.

Net cash used by financing activities of $84.3 million in 2020 included $243.3 million for dividend payments to shareholders, $187.2 million for repayments of notes payable and other short-term borrowings and $174.3 million for the repurchase of 1,109,000 shares of Snap-on’s common stock. These amounts were partially offset by Snap-on’s sale, on April 27, 2020, of $500 million of unsecured 3.10% notes that mature on May 1, 2050 (the “2050 Notes”) at a discount, from which Snap-on received $489.9 million of net proceeds, reflecting $4.4 million of transaction costs, and $55.8 million of proceeds from stock purchase and option plan exercises. Net cash used by financing activities of $409.4 million in 2019 included $238.4 million for the repurchase of 1,495,000 shares of Snap-on’s common stock and $216.6 million for dividend payments to shareholders, partially offset by $51.4 million of proceeds from stock purchase and option plan exercises and $17.6 million of net proceeds from other short-term borrowings.

| 2020 ANNUAL REPORT | 31 | | --- | --- || Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | | --- |

Results of Operations

2020 vs. 2019

Results of operations for 2020 and 2019 are as follows:

(Amounts in millions)	2020				2019				Change
Net sales	$	3,592.5	100.0	%	$	3,730.0	100.0	%	$	(137.5)	(3.7)	%
Cost of goods sold	(1,844.0)		(51.3)	%	(1,886.0)		(50.6)	%	42.0		2.2	%
Gross profit	1,748.5		48.7	%	1,844.0		49.4	%	(95.5)		(5.2)	%
Operating expenses	(1,116.6)		(31.1)	%	(1,127.6)		(30.2)	%	11.0		1.0	%
Operating earnings before financial services	631.9		17.6	%	716.4		19.2	%	(84.5)		(11.8)	%
Financial services revenue	349.7		100.0	%	337.7		100.0	%	12.0		3.6	%
Financial services expenses	(101.1)		(28.9)	%	(91.8)		(27.2)	%	(9.3)		(10.1)	%
Operating earnings from financial services	248.6		71.1	%	245.9		72.8	%	2.7		1.1	%
Operating earnings	880.5		22.3	%	962.3		23.7	%	(81.8)		(8.5)	%
Interest expense	(54.0)		(1.3)	%	(49.0)		(1.2)	%	(5.0)		(10.2)	%
Other income (expense) – net	8.7		0.2	%	8.8		0.2	%	(0.1)		(1.1)	%
Earnings before income taxes and equity earnings	835.2		21.2	%	922.1		22.7	%	(86.9)		(9.4)	%
Income tax expense	(189.1)		(4.8)	%	(211.8)		(5.2)	%	22.7		10.7	%
Earnings before equity earnings	646.1		16.4	%	710.3		17.5	%	(64.2)		(9.0)	%
Equity earnings, net of tax	0.3		—		0.9		—		(0.6)		(66.7)	%
Net earnings	646.4		16.4	%	711.2		17.5	%	(64.8)		(9.1)	%
Net earnings attributable to noncontrolling interests	(19.4)		(0.5)	%	(17.7)		(0.5)	%	(1.7)		(9.6)	%
Net earnings attributable to Snap-on Inc.	$	627.0	15.9	%	$	693.5	17.0	%	$	(66.5)	(9.6)	%
Percentage Disclosure: 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.
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Net sales of $3,592.5 million in 2020, reflecting a $140.9 million, or 3.8%, decrease in organic sales and $10.9 million of unfavorable foreign currency translation, partially offset by $14.3 million of acquisition-related sales, compared to $3,730.0 million in 2019. The lower sales volume is primarily due to decreased activity in the first half of the year as a result of the initial economic impact associated with the COVID-19 pandemic.

Gross profit of $1,748.5 million in 2020, including $7.1 million of restructuring costs, $6.2 million of direct costs associated with COVID-19 and $15.6 million of unfavorable foreign currency effects, compared to $1,844.0 million in 2019. Gross margin (gross profit as a percentage of net sales) of 48.7% in 2020 declined 70 basis points (100 basis points (“bps”) equals 1.0 percent) from last year primarily due to the impact of lower sales volumes, including costs to maintain manufacturing capacity, 20 bps from costs related to restructuring actions outside of the United States, 10 bps of direct costs associated with COVID-19 and 30 bps of unfavorable foreign currency effects. These decreases were partially offset by benefits from the company’s RCI initiatives.

Operating expenses of $1,116.6 million in 2020, including $5.7 million of direct costs associated with COVID-19 and $5.4 million of restructuring charges, compared to $1,127.6 million in 2019, which included the $11.6 million benefit related to the legal settlement. Operating expenses as a percentage of net sales of 31.1% in 2020 increased 90 bps from last year primarily due to lower sales volumes, 30 bps of a non-recurring benefit from the legal settlement in 2019, 20 bps of direct costs associated with COVID-19 and 10 bps of costs from restructuring actions. These items were partially offset by savings from cost containment actions in response to lower sales volumes.

32	SNAP-ON INCORPORATED

Operating earnings before financial services of $631.9 million in 2020, including $12.5 million of restructuring charges, $11.9 million of direct costs associated with COVID-19 and $13.1 million of unfavorable foreign currency effects, compared to $716.4 million in 2019, which benefited from the $11.6 million legal settlement. As a percentage of net sales, operating earnings before financial services of 17.6%, including 30 bps of costs from restructuring actions, 30 bps of direct costs associated with COVID-19 and 30 bps of unfavorable foreign currency effects, compared to 19.2% last year, which included 30 bps of a non-recurring benefit from the legal settlement.

Financial services revenue of $349.7 million in 2020 compared to $337.7 million last year. Financial services operating earnings of $248.6 million in 2020, including a $2.6 million charge for higher credit reserve requirements associated with the impact of the COVID-19 pandemic recorded in the first quarter of 2020, and $0.1 million of unfavorable foreign currency effects, compared to $245.9 million last year.

Operating earnings of $880.5 million in 2020, including $12.5 million of restructuring charges, $11.9 million of direct costs associated with COVID-19 and $13.2 million of unfavorable foreign currency effects, compared to $962.3 million last year, which included a benefit from the $11.6 million legal settlement. As a percentage of revenues, operating earnings of 22.3%, including 30 bps of costs from restructuring actions, 30 bps of direct costs associated with COVID-19 and 30 bps of unfavorable foreign currency effects, compared to 23.7% last year, which included 30 bps of a non-recurring benefit from the legal settlement.

Interest expense in 2020 increased $5.0 million from last year. See Note 10 to the Consolidated Financial Statements for information on Snap-on’s debt and credit facilities.

Other income (expense) – net includes net gains and losses associated with hedging and currency exchange rate transactions, non-service components of net periodic benefit costs, and interest income. See Note 18 to the Consolidated Financial Statements for information on other income (expense) – net.

The effective income tax rate on earnings attributable to Snap-on in 2020 was 23.2%, which included a 10 bps increase related to restructuring actions. The 2019 effective tax rate was 23.4%. See Note 9 to the Consolidated Financial Statements for information on income taxes.

Net earnings attributable to Snap-on in 2020 of $627.0 million, or $11.44 per diluted share, included a $10.3 million, or $0.19 per diluted share, after-tax charge related to restructuring actions. Net earnings attributable to Snap-on in 2019 were $693.5 million, or $12.41 per diluted share, and included an $8.7 million, or $0.15 per diluted share, after-tax benefit from the legal settlement.

Exit and Disposal Activities

Snap-on recorded costs for exit and disposal activities outside of the United States of $12.5 million in 2020. Snap-on did not record any costs for exit and disposal activities in 2019. See Note 8 to the Consolidated Financial Statements for information on Snap-on’s exit and disposal activities.

Segment Results

Snap-on’s business segments are based on the organization structure used by management for making operating and investment decisions and for assessing performance. Snap-on’s reportable business segments are: (i) the Commercial & Industrial Group; (ii) the Snap-on Tools Group; (iii) the Repair Systems & Information Group; and (iv) Financial Services. The Commercial & Industrial Group consists of business operations serving a broad range of industrial and commercial customers worldwide, including customers in the aerospace, natural resources, government, power generation, transportation and technical education market segments, primarily through direct and distributor channels. The Snap-on Tools Group consists of business operations primarily serving vehicle service and repair technicians through the company’s worldwide mobile tool distribution channel. The Repair Systems & Information Group consists of business operations serving other professional vehicle repair customers worldwide, primarily owners and managers of independent repair shops and OEM dealerships, through direct and distributor channels. Financial Services consists of the business operations of Snap-on’s finance subsidiaries.

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 intersegment sales and transfers based primarily on standard costs with reasonable mark-ups established between the segments. Identifiable assets by segment are those assets used in the respective reportable segment’s operations. Corporate assets consist of cash and cash equivalents (excluding cash held at Financial Services), deferred income taxes and certain other assets. All significant intersegment amounts are eliminated to arrive at Snap-on’s consolidated financial results.

| 2020 ANNUAL REPORT | 33 | | --- | --- || Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | | --- |

Commercial & Industrial Group

(Amounts in millions)	2020				2019				Change
External net sales	$	951.4	77.1	%	$	1,038.2	77.1	%	$	(86.8)	(8.4)	%
Intersegment net sales	283.2		22.9	%	307.5		22.9	%	(24.3)		(7.9)	%
Segment net sales	1,234.6		100.0	%	1,345.7		100.0	%	(111.1)		(8.3)	%
Cost of goods sold	(781.2)		(63.3)	%	(833.8)		(62.0)	%	52.6		6.3	%
Gross profit	453.4		36.7	%	511.9		38.0	%	(58.5)		(11.4)	%
Operating expenses	(299.7)		(24.3)	%	(323.2)		(24.0)	%	23.5		7.3	%
Segment operating earnings	$	153.7	12.4	%	$	188.7	14.0	%	$	(35.0)	(18.5)	%

Segment net sales of $1,234.6 million in 2020, reflecting a $115.8 million, or 8.6%, organic sales decline and $3.5 million of unfavorable currency translation, partially offset by $8.2 million of acquisition-related sales, compared to $1,345.7 million in 2019. The organic sales decrease primarily includes a double-digit decline in the segment’s Asia Pacific operations, a high single-digit decrease in sales to customers in critical industries and a low single-digit decline in sales in the segment’s European-based hand tools business.

Segment gross margin of 36.7% in 2020 declined 130 bps from last year primarily due to the impact of decreased sales volumes, including lower utilization of manufacturing capacity, 60 bps from $6.4 million of costs related to restructuring actions in the segment’s European-based hand tools business, 30 bps for direct COVID-19-related costs and 40 bps of unfavorable foreign currency effects. These items were partially offset by material cost savings and benefits from RCI initiatives.

Segment operating expenses as a percentage of net sales of 24.3% in 2020, including 30 bps of direct costs associated with COVID-19, compared to 24.0% in 2019.

As a result of these factors, segment operating earnings of $153.7 million in 2020, including $6.5 million of direct costs associated with COVID-19, $6.4 million of restructuring charges and $5.8 million of unfavorable foreign currency effects, compared to $188.7 million in 2019. Operating margin (segment operating earnings as a percentage of segment net sales) for the Commercial & Industrial Group of 12.4% in 2020 compared to 14.0% in 2019.

Snap-on Tools Group

(Amounts in millions)	2020				2019				Change
Segment net sales	$	1,643.9	100.0	%	$	1,612.9	100.0	%	$	31.0	1.9	%
Cost of goods sold	(932.1)		(56.7)	%	(914.3)		(56.7)	%	(17.8)		(1.9)	%
Gross profit	711.8		43.3	%	698.6		43.3	%	13.2		1.9	%
Operating expenses	(444.1)		(27.0)	%	(452.8)		(28.1)	%	8.7		1.9	%
Segment operating earnings	$	267.7	16.3	%	$	245.8	15.2	%	$	21.9	8.9	%

Segment net sales of $1,643.9 million in 2020, reflecting a $32.8 million, or 2.0%, organic sales gain, partially offset by $1.8 million of unfavorable foreign currency translation, compared to $1,612.9 million in 2019. The organic sales increase reflects a low single-digit gain in the U.S. franchise operations, which more than overcame the impacts of the ongoing COVID-19 pandemic, partially offset by a low single-digit decline in the segment’s international operations.

Segment gross margin in 2020 of 43.3%, including 30 bps of unfavorable foreign currency effects, was unchanged from last year.

Segment operating expenses as a percentage of net sales of 27.0% in 2020 improved 110 bps from last year primarily due to savings from cost containment actions.

As a result of these factors, segment operating earnings of $267.7 million in 2020, including $3.5 million of direct costs associated with COVID-19, $0.6 million of restructuring charges and $5.4 million of unfavorable foreign currency effects, compared to $245.8 million in 2019. Operating margin for the Snap-on Tools Group of 16.3% in 2020 compared to 15.2% last year.

34	SNAP-ON INCORPORATED

Repair Systems & Information Group

(Amounts in millions)	2020				2019				Change
External net sales	$	997.2	80.5	%	$	1,078.9	80.8	%	$	(81.7)	(7.6)	%
Intersegment net sales	241.0		19.5	%	255.6		19.2	%	(14.6)		(5.7)	%
Segment net sales	1,238.2		100.0	%	1,334.5		100.0	%	(96.3)		(7.2)	%
Cost of goods sold	(654.9)		(52.9)	%	(701.0)		(52.5)	%	46.1		6.6	%
Gross profit	583.3		47.1	%	633.5		47.5	%	(50.2)		(7.9)	%
Operating expenses	(285.3)		(23.0)	%	(290.8)		(21.8)	%	5.5		1.9	%
Segment operating earnings	$	298.0	24.1	%	$	342.7	25.7	%	$	(44.7)	(13.0)	%

Segment net sales of $1,238.2 million in 2020, reflecting a $97.6 million, or 7.3%, organic sales decline and $4.8 million of unfavorable foreign currency translation, partially offset by $6.1 million of acquisition-related sales, compared to $1,334.5 million in 2019. The organic sales decrease includes double-digit declines in both sales of undercar equipment and in sales to OEM dealerships. Sales of diagnostic and repair information products to independent repair shop owners and managers were essentially flat.

Segment gross margin in 2020 of 47.1%, including 10 bps from $0.7 million of costs from restructuring actions in Europe and 10 bps of unfavorable foreign currency effects, declined 40 bps from last year.

Segment operating expenses as a percentage of net sales of 23.0% in 2020 increased 120 bps from last year primarily due to the impact of lower sales volumes and 30 bps related to $4.8 million of costs from restructuring actions, partially offset by savings from cost containment and RCI initiatives.

As a result of these factors, segment operating earnings of $298.0 million in 2020, including $5.5 million of costs related to restructuring actions, $1.2 million of direct costs associated with COVID-19 and $1.9 million of unfavorable foreign currency effects, compared to $342.7 million last year. Operating margin for the Repair Systems & Information Group was 24.1% in 2020 compared to 25.7% in 2019.

Financial Services

(Amounts in millions)	2020				2019				Change
Financial services revenue	$	349.7	100.0	%	$	337.7	100.0	%	$	12.0	3.6	%
Financial services expenses	(101.1)		(28.9)	%	(91.8)		(27.2)	%	(9.3)		(10.1)	%
Segment operating earnings	$	248.6	71.1	%	$	245.9	72.8	%	$	2.7	1.1	%

Financial services revenue of $349.7 million in 2020 increased $12.0 million, or 3.6%, from last year, primarily reflecting $13.9 million of higher revenue as a result of growth of the company’s financial services portfolio, partially offset by $1.9 million of decreased revenue from lower average portfolio yields. In 2020 and 2019, the respective average yields on finance receivables were 17.7% and 17.6%, and the respective average yields on contract receivables were 8.5% and 9.1%. The lower yield on contract receivables in 2020 includes the impact of business operation support loans provided to franchisees in the second quarter of 2020 in response to the COVID-19 environment. Financial Services continues to work closely with franchisees and customers to support those adversely impacted by the ongoing COVID-19 pandemic. Originations of $1,036.6 million in 2020 increased $4.8 million, or 0.5%, from 2019 levels.

Financial services expenses primarily include personnel-related and other general and administrative costs, as well as expenses for credit losses. These expenses are generally more dependent on changes in the financial services portfolio than they are on the revenue of the segment. Financial services expenses in 2020 increased $9.3 million from last year primarily due to increases in the provisions for credit losses including the company’s adoption of ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), $2.6 million of higher credit reserve requirements associated with the COVID-19 pandemic, recorded in the first quarter of 2020, as well as higher variable compensation and other costs. As a percentage of the average financial services portfolio, financial services expenses were 4.6% and 4.3% in 2020 and 2019, respectively.

Financial services operating earnings of $248.6 million in 2020, including $0.1 million of unfavorable foreign currency effects, increased $2.7 million, or 1.1%, from 2019 levels.

See Note 1 and Note 4 to the Consolidated Financial Statements for further information on financial services.

| 2020 ANNUAL REPORT | 35 | | --- | --- || Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | | --- |

Corporate

Snap-on’s general corporate expenses in 2020 of $87.5 million compared to $60.8 million last year, which included an $11.6 million non-recurring benefit from the legal settlement recorded in the first quarter of 2019. The year-over-year increase in general corporate expenses primarily reflects higher variable compensation, brand building and other costs.

Fourth Quarter

Results of operations for the fourth quarters of 2020 and 2019 are as follows:

	Fourth Quarter
(Amounts in millions)	2020				2019				Change
Net sales	$	1,074.4	100.0	%	$	955.2	100.0	%	$	119.2	12.5	%
Cost of goods sold	(558.2)		(52.0)	%	(504.7)		(52.8)	%	(53.5)		(10.6)	%
Gross profit	516.2		48.0	%	450.5		47.2	%	65.7		14.6	%
Operating expenses	(300.0)		(27.9)	%	(279.1)		(29.3)	%	(20.9)		(7.5)	%
Operating earnings before financial services	216.2		20.1	%	171.4		17.9	%	44.8		26.1	%
Financial services revenue	93.4		100.0	%	83.9		100.0	%	9.5		11.3	%
Financial services expenses	(24.9)		(26.7)	%	(21.7)		(25.9)	%	(3.2)		(14.7)	%
Operating earnings from financial services	68.5		73.3	%	62.2		74.1	%	6.3		10.1	%
Operating earnings	284.7		24.4	%	233.6		22.5	%	51.1		21.9	%
Interest expense	(15.4)		(1.3)	%	(12.1)		(1.2)	%	(3.3)		(27.3)	%
Other income (expense) – net	2.4		0.2	%	2.4		0.2	%	—		—
Earnings before income taxes and equity earnings	271.7		23.3	%	223.9		21.5	%	47.8		21.3	%
Income tax expense	(58.2)		(5.0)	%	(48.9)		(4.7)	%	(9.3)		(19.0)	%
Earnings before equity earnings	213.5		18.3	%	175.0		16.8	%	38.5		22.0	%
Equity earnings, net of tax	0.3		—		—		—		0.3		—
Net earnings	213.8		18.3	%	175.0		16.8	%	38.8		22.2	%
Net earnings attributable to noncontrolling interests	(4.9)		(0.4)	%	(4.4)		(0.4)	%	(0.5)		(11.4)	%
Net earnings attributable to Snap-on Inc.	$	208.9	17.9	%	$	170.6	16.4	%	$	38.3	22.5	%
Percentage Disclosure: 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 $1,074.4 million in the fourth quarter of 2020, reflecting a $102.1 million, or 10.6%, organic sales gain, $7.5 million of acquisition-related sales and $9.6 million of favorable foreign currency translation, compared to $955.2 million in 2019.

Gross profit of $516.2 million in the fourth quarter of 2020, including $0.9 million of direct costs associated with COVID-19 and $1.5 million of favorable foreign currency effects, compared to $450.5 million last year. Gross margin of 48.0% in the quarter improved 80 bps from 2019 primarily due to the impact of higher sales volumes and benefits from the company’s RCI initiatives, partially offset by 30 bps of unfavorable foreign currency effects.

Operating expenses of $300.0 million in the fourth quarter of 2020, including $1.9 million of direct costs associated with COVID-19, $1.0 million of restructuring charges in Europe and $3.0 million of unfavorable foreign currency effects, compared to $279.1 million in the fourth quarter of 2019. Operating expenses as a percentage of net sales of 27.9% in the quarter improved 140 bps from last year primarily due to the effects of higher sales volumes.

Operating earnings before financial services of $216.2 million in the fourth quarter of 2020, including $2.8 million of direct costs associated with COVID-19, $1.0 million of restructuring costs and $1.5 million of unfavorable foreign currency effects, compared to $171.4 million last year. As a percentage of net sales, operating earnings before financial services of 20.1%, including 30 bps of direct costs associated with COVID-19, 10 bps of costs from restructuring actions and 30 bps of unfavorable foreign currency effects in the quarter, improved 220 bps compared to 17.9% last year.

36	SNAP-ON INCORPORATED

Financial services revenue of $93.4 million in the fourth quarter of 2020 compared to $83.9 million in 2019. Financial services operating earnings of $68.5 million in the fourth quarter of 2020, including $0.2 million of favorable foreign currency effects, compared to $62.2 million last year.

Operating earnings of $284.7 million in the fourth quarter of 2020, including $2.8 million of direct costs associated with COVID-19, $1.0 million of restructuring charges and $1.3 million of unfavorable foreign currency effects, compared to $233.6 million last year. As a percentage of revenues, operating earnings of 24.4% in the quarter, including 20 bps of direct costs associated with COVID-19, 10 bps of costs from restructuring actions and 30 bps of unfavorable foreign currency effects, compared to 22.5% last year.

Interest expense in the fourth quarter of 2020 increased $3.3 million from last year. See Note 10 to the Consolidated Financial Statements for information on Snap-on’s debt and credit facilities.

Snap-on’s fourth quarter 2020 effective income tax rate on earnings attributable to Snap-on was 21.8%, which included a 10 bps increase related to restructuring actions, compared to 22.3% in 2019. See Note 9 to the Consolidated Financial Statements for information on income taxes.

Net earnings attributable to Snap-on in the fourth quarter of 2020 of $208.9 million, or $3.82 per diluted share, included a $1.0 million, or $0.02 per diluted share, after-tax charge related to restructuring actions. Net earnings attributable to Snap-on in the fourth quarter of 2019 were $170.6 million, or $3.08 per diluted share.

Exit and Disposal Activities

Snap-on recorded costs for exit and disposal activities in Europe of $1.0 million in the three months ended January 2, 2021. Snap-on did not record any exit and disposal costs for the three months ended December 28, 2019. See Note 8 to the Consolidated Financial Statements for information on Snap-on’s exit and disposal activities.

Segment Results

Commercial & Industrial Group

	Fourth Quarter
(Amounts in millions)	2020				2019				Change
External net sales	$	284.2	78.0	%	$	268.7	76.1	%	$	15.5	5.8	%
Intersegment net sales	80.2		22.0	%	84.2		23.9	%	(4.0)		(4.8)	%
Segment net sales	364.4		100.0	%	352.9		100.0	%	11.5		3.3	%
Cost of goods sold	(226.6)		(62.2)	%	(227.5)		(64.5)	%	0.9		0.4	%
Gross profit	137.8		37.8	%	125.4		35.5	%	12.4		9.9	%
Operating expenses	(81.6)		(22.4)	%	(80.4)		(22.7)	%	(1.2)		(1.5)	%
Segment operating earnings	$	56.2	15.4	%	$	45.0	12.8	%	$	11.2	24.9	%

Segment net sales of $364.4 million in the fourth quarter of 2020 increased $11.5 million, or 3.3%, from 2019 levels, including $7.5 million of acquisition-related sales and $6.5 million of favorable foreign currency translation, partially offset by a $2.5 million, or 0.7%, organic sales decline. The organic sales decrease primarily includes a mid single-digit decline in the segment’s Asia Pacific operations and a low single-digit decline in sales to customers in critical industries, partially offset by a double-digit increase in sales in the segment’s European-based hand tools business.

Segment gross margin in the fourth quarter of 2020 of 37.8% improved 230 bps from last year primarily due to increased sales in higher gross margin businesses and benefits from the segment’s RCI initiatives. These items were partially offset by 20 bps of direct costs associated with COVID-19 and 60 bps of unfavorable foreign currency effects.

Segment operating expenses as a percentage of net sales of 22.4% in the fourth quarter improved 30 bps as compared to last year.

| 2020 ANNUAL REPORT | 37 | | --- | --- || Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | | --- |

As a result of these factors, segment operating earnings of $56.2 million in the fourth quarter of 2020, including $1.0 million of direct costs associated with COVID-19 and $1.3 million of unfavorable foreign currency effects, increased $11.2 million from 2019 levels. Operating margin for the Commercial & Industrial Group of 15.4% in the quarter compared to 12.8% last year.

Snap-on Tools Group

	Fourth Quarter
(Amounts in millions)	2020				2019				Change
Segment net sales	$	494.9	100.0	%	$	411.7	100.0	%	$	83.2	20.2	%
Cost of goods sold	(282.8)		(57.1)	%	(246.3)		(59.8)	%	(36.5)		(14.8)	%
Gross profit	212.1		42.9	%	165.4		40.2	%	46.7		28.2	%
Operating expenses	(118.5)		(24.0)	%	(111.1)		(27.0)	%	(7.4)		(6.7)	%
Segment operating earnings	$	93.6	18.9	%	$	54.3	13.2	%	$	39.3	72.4	%

Segment net sales of $494.9 million in the fourth quarter of 2020, reflecting an $81.0 million, or 19.6%, organic sales increase and $2.2 million of favorable foreign currency translation, compared to $411.7 million in the fourth quarter of 2019. The organic sales increase reflects a double-digit gain in both the segment’s U.S. and international operations.

Segment gross margin in the fourth quarter of 42.9% improved 270 bps from last year primarily due to higher sales volumes and benefits from the company’s RCI initiatives.

Segment operating expenses as a percentage of net sales of 24.0% in the fourth quarter improved 300 bps from last year primarily due to the impact of higher sales volumes and savings from cost containment actions.

As a result of these factors, segment operating earnings of $93.6 million in the fourth quarter of 2020, including $1.2 million of direct costs associated with COVID-19, increased $39.3 million from 2019 levels. Operating margin for the Snap-on Tools Group of 18.9% in the quarter compared to 13.2% last year.

Repair Systems & Information Group

	Fourth Quarter
(Amounts in millions)	2020				2019				Change
External net sales	$	295.3	81.8	%	$	274.8	82.0	%	$	20.5	7.5	%
Intersegment net sales	65.8		18.2	%	60.2		18.0	%	5.6		9.3	%
Segment net sales	361.1		100.0	%	335.0		100.0	%	26.1		7.8	%
Cost of goods sold	(194.8)		(53.9)	%	(175.3)		(52.3)	%	(19.5)		(11.1)	%
Gross profit	166.3		46.1	%	159.7		47.7	%	6.6		4.1	%
Operating expenses	(76.3)		(21.2)	%	(72.5)		(21.7)	%	(3.8)		(5.2)	%
Segment operating earnings	$	90.0	24.9	%	$	87.2	26.0	%	$	2.8	3.2	%

Segment net sales of $361.1 million in the fourth quarter of 2020, reflecting a $23.7 million, or 7.0%, organic sales increase and $2.4 million of favorable foreign currency translation, compared to $335.0 million in the fourth quarter of 2019. The organic sales increase includes a double-digit gain in sales to OEM dealerships and a high 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 decrease in sales of undercar equipment.

Segment gross margin in the fourth quarter of 46.1%, including 10 bps of unfavorable foreign currency effects, decreased 160 bps from last year primarily due to the impact of higher sales in lower gross margin businesses.

Segment operating expenses as a percentage of net sales of 21.2% in the fourth quarter improved 50 bps from last year primarily due to the impact of higher sales volumes, partially offset by 30 bps related to $1.0 million of costs from restructuring actions in Europe and 10 bps of unfavorable foreign currency effects.

38	SNAP-ON INCORPORATED

As a result of these factors, segment operating earnings of $90.0 in the fourth quarter of 2020, including $1.0 million of costs related to restructuring actions, $0.2 million of direct costs associated with COVID-19 and $0.2 million of unfavorable foreign currency effects, compared to $87.2 million in 2019. Operating margin for the Repair Systems & Information Group of 24.9% in the quarter compared to 26.0% last year.

Financial Services

	Fourth Quarter
(Amounts in millions)	2020				2019				Change
Financial services revenue	$	93.4	100.0	%	$	83.9	100.0	%	$	9.5	11.3	%
Financial services expenses	(24.9)		(26.7)	%	(21.7)		(25.9)	%	(3.2)		(14.7)	%
Segment operating earnings	$	68.5	73.3	%	$	62.2	74.1	%	$	6.3	10.1	%

Financial services revenue of $93.4 million in the fourth quarter of 2020 increased $9.5 million, or 11.3%, from last year, primarily reflecting $9.4 million of higher revenue as a result of an additional week of interest income from the 53-week 2020 fiscal year, growth in the company’s financial services portfolio and $0.1 million of increased revenue from higher average portfolio yields. In the fourth quarters of 2020 and 2019, the respective average yields on finance receivables were 17.7% and 17.5%, and the respective average yields on contract receivables were 8.5% and 9.2%. The lower yield on contract receivables in 2020 includes the impact of business operations support loans that were provided to franchisees in the second quarter of 2020 in response to the COVID-19 environment. Originations of $272.4 million in the fourth quarter of 2020 increased $10.0 million, or 3.8%, from 2019 levels.

Financial services expenses in the fourth quarter of 2020 increased $3.2 million from last year primarily due to higher variable compensation and other costs, partially offset by lower provisions for credit losses. As a percentage of the average financial services portfolio, financial services expenses were 1.1% and 1.0% for the fourth quarters of 2020 and 2019, respectively.

Financial services operating earnings of $68.5 million in the fourth quarter of 2020, including $0.2 million of favorable foreign currency effects, increased $6.3 million, or 10.1%, from 2019 levels.

See Note 1 and Note 4 to the Consolidated Financial Statements for further information on financial services.

Corporate

Snap-on’s fourth quarter 2020 general corporate expenses of $23.6 million compared to $15.1 million last year. The year-over-year increase in general corporate expenses is primarily due to higher stock-based and variable compensation costs.

Non-GAAP Supplemental Data

The following non-GAAP supplemental data is presented for informational purposes to provide readers with insight into the information used by management for assessing the operating performance of Snap-on’s non-financial services (“Operations”) and “Financial Services” businesses.

The supplemental Operations data reflects the results of operations and financial position of Snap-on’s tools, diagnostic and equipment products, software and other non-financial services operations with Financial Services on the equity method. The supplemental Financial Services data reflects the results of operations and financial position of Snap-on’s U.S. and international financial services operations. The financing needs of Financial Services are met through intersegment borrowings and cash generated from Operations; Financial Services is charged interest expense on intersegment borrowings at market rates. Income taxes are charged to Financial Services on the basis of the specific tax attributes generated by the U.S. and international financial services businesses. Transactions between the Operations and Financial Services businesses were eliminated to arrive at the Consolidated Financial Statements.

| 2020 ANNUAL REPORT | 39 | | --- | --- || Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | | --- |

Non-GAAP Supplemental Consolidating Data – Supplemental Statements of Earnings information for 2020, 2019 and 2018 is as follows:

	Operations*						Financial Services
(Amounts in millions)	2020		2019		2018		2020		2019		2018
Net sales	$	3,592.5	$	3,730.0	$	3,740.7	$	—	$	—	$	—
Cost of goods sold	(1,844.0)		(1,886.0)		(1,870.7)		—		—		—
Gross profit	1,748.5		1,844.0		1,870.0		—		—		—
Operating expenses	(1,116.6)		(1,127.6)		(1,144.0)		—		—		—
Operating earnings before financial services	631.9		716.4		726.0		—		—		—
Financial services revenue	—		—		—		349.7		337.7		329.7
Financial services expenses	—		—		—		(101.1)		(91.8)		(99.6)
Operating earnings from financial services	—		—		—		248.6		245.9		230.1
Operating earnings	631.9		716.4		726.0		248.6		245.9		230.1
Interest expense	(53.8)		(48.8)		(50.1)		(0.2)		(0.2)		(0.3)
Intersegment interest income (expense) – net	68.5		70.5		69.7		(68.5)		(70.5)		(69.7)
Other income (expense) – net	8.5		8.9		4.1		0.2		(0.1)		0.1
Earnings before income taxes and equity earnings	655.1		747.0		749.7		180.1		175.1		160.2
Income tax expense	(142.7)		(166.6)		(173.1)		(46.4)		(45.2)		(41.3)
Earnings before equity earnings	512.4		580.4		576.6		133.7		129.9		118.9
Financial services – net earnings attributable to Snap-on	133.7		129.9		118.9		—		—		—
Equity earnings, net of tax	0.3		0.9		0.7		—		—		—
Net earnings	646.4		711.2		696.2		133.7		129.9		118.9
Net earnings attributable to noncontrolling interests	(19.4)		(17.7)		(16.3)		—		—		—
Net earnings attributable to Snap-on	$	627.0	$	693.5	$	679.9	$	133.7	$	129.9	$	118.9

* Snap-on with Financial Services on the equity method.

40	SNAP-ON INCORPORATED

Non-GAAP Supplemental Consolidating Data – Supplemental Balance Sheet Information as of 2020 and 2019 year end is as follows:

	Operations*				Financial Services
(Amounts in millions)	2020		2019		2020		2019
ASSETS
Current assets:
Cash and cash equivalents	$	923.2	$	184.4	$	0.2	$	0.1
Intersegment receivables	14.6		14.2		0.2		—
Trade and other accounts receivable – net	639.7		693.5		1.0		1.1
Finance receivables – net	—		—		530.2		530.1
Contract receivables – net	7.0		6.8		105.5		93.9
Inventories – net	746.5		760.4		—		—
Prepaid expenses and other assets	131.1		111.8		7.8		7.0
Total current assets	2,462.1		1,771.1		644.9		632.2
Property and equipment – net	524.4		519.8		1.8		1.7
Operating lease right-of-use assets	49.7		52.9		2.2		2.7
Investment in Financial Services	349.8		340.5		—		—
Deferred income tax assets	27.6		32.7		22.7		19.6
Intersegment long-term notes receivable	316.9		755.5		—		—
Long-term finance receivables – net	—		—		1,136.3		1,103.5
Long-term contract receivables – net	12.4		16.0		362.3		344.1
Goodwill	982.4		913.8		—		—
Other intangibles – net	260.8		243.9		—		—
Other assets	103.9		73.0		0.1		0.2
Total assets	$	5,090.0	$	4,719.2	$	2,170.3	$	2,104.0

* Snap-on with Financial Services on the equity method.

| 2020 ANNUAL REPORT | 41 | | --- | --- || Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | | --- |

Non-GAAP Supplemental Consolidating Data – Supplemental Balance Sheet Information (continued):

	Operations*				Financial Services
(Amounts in millions)	2020		2019		2020		2019
LIABILITIES AND EQUITY
Current liabilities:
Notes payable and current maturities of long-term debt	$	18.5	$	202.9	$	250.0	$	—
Accounts payable	222.3		197.3		0.6		1.2
Intersegment payables	—		—		14.8		14.2
Accrued benefits	59.7		53.2		—		0.1
Accrued compensation	87.2		52.2		2.7		1.7
Franchisee deposits	78.4		68.2		—		—
Other accrued liabilities	418.8		353.7		35.9		25.7
Total current liabilities	884.9		927.5		304.0		42.9
Long-term debt and intersegment long-term debt	—		—		1,499.0		1,702.4
Deferred income tax liabilities	70.4		69.3		—		—
Retiree health care benefits	34.5		33.6		—		—
Pension liabilities	127.1		122.1		—		—
Operating lease liabilities	31.6		34.5		2.4		3.0
Other long-term liabilities	94.9		101.4		15.1		15.2
Total liabilities	1,243.4		1,288.4		1,820.5		1,763.5
Total shareholders’ equity attributable to Snap-on	3,824.9		3,409.1		349.8		340.5
Noncontrolling interests	21.7		21.7		—		—
Total equity	3,846.6		3,430.8		349.8		340.5
Total liabilities and equity	$	5,090.0	$	4,719.2	$	2,170.3	$	2,104.0

* Snap-on with Financial Services on the equity method.

42	SNAP-ON INCORPORATED

Liquidity and Capital Resources

Snap-on’s growth has historically been funded by a combination of cash provided by operating activities and debt financing. Snap-on believes that its cash from operations and collections of finance receivables, coupled with its sources of borrowings and available cash on hand, are sufficient to fund its currently anticipated requirements for scheduled debt repayments, payments of interest and dividends, new receivables originated by our financial services businesses, capital expenditures, working capital, the funding of pension plans, and funding for share repurchases and acquisitions, if and as they arise.

Due to Snap-on’s credit rating over the years, external funds have been available at an acceptable cost. As of the close of business on February 5, 2021, 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; and A and F1 by Fitch Ratings. Snap-on believes that its current credit arrangements are sound and that the strength of its balance sheet affords the company the financial flexibility, including through access to financial markets for potential new financing, to respond to both internal growth opportunities and those available through acquisitions. However, based on current macroeconomic conditions resulting from the ongoing uncertainty caused by the COVID-19 pandemic, Snap-on cannot provide any assurances of the availability of future financing or the terms on which it might be available, or that its debt ratings may not decrease.

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

As of 2020 year end, working capital (current assets less current liabilities) of $1,918.1 million increased $485.2 million from $1,432.9 million as of 2019 year end primarily as a result of other net changes in working capital discussed below.

The following represents the company’s working capital position as of 2020 and 2019 year end:

(Amounts in millions)	2020		2019
Cash and cash equivalents	$	923.4	$	184.5
Trade and other accounts receivable – net	640.7		694.6
Finance receivables – net	530.2		530.1
Contract receivables – net	112.5		100.7
Inventories – net	746.5		760.4
Prepaid expenses and other assets	129.7		110.2
Total current assets	3,083.0		2,380.5
Notes payable and current maturities of long-term debt	(268.5)		(202.9)
Accounts payable	(222.9)		(198.5)
Other current liabilities	(673.5)		(546.2)
Total current liabilities	(1,164.9)		(947.6)
Working capital	$	1,918.1	$	1,432.9

Cash and cash equivalents of $923.4 million as of 2020 year end increased $738.9 million from 2019 year-end levels primarily due to: (i) $1,008.6 million of cash generated from operations; (ii) $750.3 million of cash from collections of finance receivables; (iii) $489.9 million of net proceeds from the 2050 Notes; and (iv) $55.8 million of cash proceeds from stock purchase and option plan exercises. These increases in cash and cash equivalents were partially offset by: (i) the funding of $835.0 million of new finance receivables; (ii) dividend payments to shareholders of $243.3 million; (iii) $187.2 million of net repayments on other short-term borrowings; (iv) the repurchase of 1,109,000 shares of the company’s common stock for $174.3 million; (v) the funding of $65.6 million of capital expenditures; and (vi) the funding of $41.5 million for acquisitions.

Of the $923.4 million of cash and cash equivalents as of 2020 year end, $262.7 million was held outside of the United States. Snap-on maintains non-U.S. funds in its foreign operations to: (i) provide adequate working capital; (ii) satisfy various regulatory requirements; and/or (iii) take advantage of business expansion opportunities as they arise. Although the Tax Cuts and Jobs Act (“Tax Act”) generally eliminated U.S. federal taxation on dividends from foreign subsidiaries, such dividends may still be subject to state income taxation and foreign withholding taxes. Snap-on periodically evaluates its cash held outside the United States and may pursue opportunities to repatriate certain foreign cash amounts to the extent that it can be accomplished in a tax efficient manner.

| 2020 ANNUAL REPORT | 43 | | --- | --- || Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | | --- |

Trade and other accounts receivable – net of $640.7 million as of 2020 year end decreased $53.9 million from 2019 year-end levels primarily due to the impact of lower sales volume as a result of the COVID-19 pandemic and collections of amounts due, partially offset by $5.1 million of receivables related to acquisitions and $13.0 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 64 days and 67 days at the respective 2020 and 2019 year ends.

The current portions of net finance and contract receivables of $642.7 million as of 2020 year end compared to $630.8 million at 2019 year end. The long-term portions of net finance and contract receivables of $1,511.0 million as of 2020 year end compared to $1,463.6 million at 2019 year end. The combined $59.3 million increase in net current and long-term finance and contract receivables over 2019 year-end levels is primarily due to continued growth of the company’s financial services portfolio and $12.0 million of foreign currency translation.

Inventories – net of $746.5 million as of 2020 year end decreased $13.9 million from 2019 year-end levels primarily due to $40.1 million of inventory reductions, partially offset by $3.0 million of inventories related to acquisitions and $23.2 million of foreign currency translation. As of 2020 and 2019 year end, 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 2.6 turns, respectively. Inventories accounted for using the first-in, first-out (“FIFO”) method as of 2020 and 2019 year end approximated 57% and 58% of total inventories, respectively. All other inventories are accounted for using the last-in, first-out (“LIFO”) method. The company’s LIFO reserve was $84.0 million and $84.5 million at 2020 and 2019 year end, respectively.

Notes payable and current maturities of long-term debt of $268.5 million as of 2020, consisted of $250.0 million of unsecured 6.125% notes that mature on September 1, 2021 (the “2021 Notes”) and $18.5 million of other notes. Notes payable of $202.9 million as of 2019 year end consisted of $193.6 million of commercial paper borrowings and $9.3 million of other notes.

Average notes payable outstanding, including commercial paper and short-term credit facility borrowings, were $68.4 million and $175.0 million in 2020 and 2019, respectively. The 2020 weighted-average interest rate on such borrowings of 2.98% compared with 2.87% in 2019. Average commercial paper borrowings were $41.0 million and $162.2 million for 2020 and 2019, respectively, and the weighted-average interest rate of 1.53% on such borrowings in 2020 decreased from 2.27% last year. No commercial paper was outstanding as of year-end 2020. Average short-term credit facility borrowings were $13.9 million in 2020 with a weighted-average interest rate of 1.70%. No amounts were outstanding under the short-term credit facility as of year-end 2020 and no amounts were borrowed under the short-term credit facility in 2019. At 2020 year end, the weighted-average interest rate on outstanding notes payable of 8.87% compared with 2.23% at 2019 year end. The 2020 year-end rate increased primarily due to higher local borrowings in emerging markets.

Accounts payable of $222.9 million as of 2020 year end increased $24.4 million from 2019 year-end levels, primarily due to the timing of payments, $1.1 million related to acquisitions and $5.9 million of foreign currency translation.

Other accrued liabilities of $445.5 million as of 2020 year end increased $74.7 million from 2019 year-end levels primarily due to higher tax accruals, $5.2 million related to acquisitions and $8.2 million of foreign currency translation.

Long-term debt of $1,182.1 million as of 2020 year end consisted of: (i) $300.0 million of the unsecured 3.25% notes that mature on March 1, 2027 (the “2027 Notes”); (ii) $400.0 million of unsecured 4.10% notes that mature on March 1, 2048 (“the 2048 Notes”); and (iii) $500.0 million of the 2050 Notes, partially offset by $17.9 million from the net effects of debt amortization costs.

44	SNAP-ON INCORPORATED

Snap-on has an $800 million multi-currency revolving credit facility that terminates on September 16, 2024 (the “Credit Facility”); no amounts were outstanding under the Credit Facility as of January 2, 2021. Borrowings under the Credit Facility bear interest at varying rates based on either: (i) Snap-on’s then-current, long-term debt ratings; or (ii) Snap-on’s then-current ratio of consolidated debt net of certain cash adjustments (“Consolidated Net Debt”) to earnings before interest, taxes, depreciation, amortization and certain other adjustments for the preceding four fiscal quarters then ended (the “Consolidated Net Debt to EBITDA Ratio”). The Credit Facility’s financial covenant requires that Snap-on maintain, as of each fiscal quarter end, either (i) a ratio not greater than 0.60 to 1.00 of Consolidated Net Debt to the sum of Consolidated Net Debt plus total equity and less accumulated other comprehensive income or loss (the “Leverage Ratio”); or (ii) a Consolidated Net Debt to EBITDA Ratio not greater than 3.50 to 1.00. 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 January 2, 2021, the company’s actual ratios of 0.12 and 0.57 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.

Snap-on’s Credit Facility and other debt agreements also contain certain usual and customary borrowing, affirmative, negative and maintenance covenants. As of 2020 year end, Snap-on was in compliance with all covenants of its Credit Facility and other debt agreements.

Snap-on believes it has sufficient available cash and access to both committed and uncommitted credit facilities to cover its expected funding needs on both a short-term and long-term basis; however, it is continuing to monitor the impact of the COVID-19 pandemic on its business and the credit and financial markets. Snap-on manages its aggregate short-term debt borrowings so as not to exceed its availability under the Credit Facility. Snap-on believes that it can access short-term debt markets, predominantly through commercial paper issuances and existing lines of credit, to fund its short-term requirements and to ensure near-term liquidity. Snap-on regularly monitors the credit and financial markets and, if it believes conditions are favorable, it may take advantage of such conditions to issue long-term debt to further improve its liquidity and capital resources. Near-term liquidity requirements for Snap-on include scheduled debt payments, including the maturity of the 2021 Notes, payments of interest and dividends, funding to support new receivables originated by our financial services businesses, capital expenditures, working capital, the funding of pension plans, and funding for share repurchases and acquisitions, if and as they arise. Snap-on intends to make contributions of $9.2 million to its foreign pension plans and $2.2 million to its domestic pension plans in 2021, as required by law. Depending on market and other conditions, Snap-on may make additional discretionary cash contributions to its pension plans in 2021.

Snap-on’s long-term financing strategy is to maintain continuous access to the debt markets to accommodate its liquidity needs, including the use of commercial paper, additional fixed-term debt and/or securitizations.

The following discussion focuses on information included in the accompanying Consolidated Statements of Cash Flows.

Operating Activities

Depreciation expense was $73.3 million in 2020 and $70.1 million in 2019. Amortization expense was $23.4 million in 2020 and $22.3 million in 2019. See Note 7 to the Consolidated Financial Statements for information on goodwill and other intangible assets.

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Investing Activities

Net cash used by investing activities of $187.8 million in 2020 included additions to finance receivables of $835.0 million, partially offset by collections of $750.3 million. Net cash used by investing activities of $222.1 million in 2019 included additions to finance receivables of $841.9 million, partially offset by collections of $754.3 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, diagnostic and equipment products on an extended-term payment plan, generally with average payment terms of approximately four years.

Net cash used by investing activities in 2020 also included a total of $41.5 million for the acquisitions of Sigmavision and AutoCrib and a $0.2 million working capital adjustment for the 2019 Cognitran acquisition. Net cash used by investing activities in 2019 included a total of $38.6 million (net of $1.0 million of cash acquired) for the acquisitions of TMB, Power Hawk and Cognitran. See Note 3 to the Consolidated Financial Statements for information on acquisitions.

Capital expenditures in 2020 and 2019 totaled $65.6 million and $99.4 million, respectively. The lower capital spending as compared to the prior year was a result of the decreased activity in response to the COVID-19 pandemic, particularly in the second and third quarters of 2020. Capital expenditures in both years included continued investments related to the company’s execution of its strategic growth initiatives and Value Creation Processes. The company also invested in: (i) new product, efficiency, safety and cost reduction initiatives that are intended to expand and improve its manufacturing and distribution capabilities worldwide; (ii) new production and machine tooling to enhance manufacturing operations, as well as ongoing replacements of manufacturing and distribution equipment, particularly in the United States; (iii) the ongoing enhancement of the company’s global enterprise resource planning (ERP) management information systems; and (iv) a consolidated warehouse facility for the company in Pleasant Prairie, Wisconsin. Snap-on believes that its cash generated from operations, as well as its available cash on hand and funds available from its credit facilities will be sufficient to fund the company’s capital expenditure requirements in 2021.

Financing Activities

Net cash used by financing activities of $84.3 million in 2020 included Snap-on’s sale, on April 27, 2020, of $500 million of the 2050 Notes at a discount, from which Snap-on received $489.9 million of net proceeds, reflecting $4.4 million of transaction costs, partially offset by repayments of notes payable and other short-term borrowings of $187.2 million. Net cash used by financing activities of $409.4 million in 2019 included net proceeds from other short-term borrowings of $17.6 million.

Proceeds from stock purchase and option plan exercises totaled $55.8 million in 2020 and $51.4 million in 2019. Snap-on has undertaken stock repurchases from time to time to offset dilution created by shares issued for employee and franchisee stock purchase plans, stock options and other corporate purposes. In 2020, Snap-on repurchased 1,109,000 shares of its common stock for $174.3 million under its previously announced share repurchase programs. As of 2020 year end, Snap-on had remaining availability to repurchase up to an additional $275.7 million in common stock pursuant to its Board of Directors’ (the “Board”) authorizations. The purchase of Snap-on common stock is at the company’s discretion, subject to prevailing financial and market conditions. Snap-on repurchased 1,495,000 shares of its common stock for $238.4 million in 2019. Snap-on believes that its cash generated from operations, available cash on hand, and funds available from its credit facilities, will be sufficient to fund the company’s share repurchases, if any, in 2021.

Snap-on has paid consecutive quarterly cash dividends, without interruption or reduction, since 1939. Cash dividends paid in 2020 and 2019 totaled $243.3 million and $216.6 million, respectively. On November 6, 2020, the company announced that its Board increased the quarterly cash dividend by 13.9% to $1.23 per share ($4.92 per share annualized). Quarterly dividends in 2020 were $1.23 per share in the fourth quarter and $1.08 per share in the first three quarters ($4.47 per share for the year). Quarterly dividends in 2019 were $1.08 per share in the fourth quarter and $0.95 per share in the first three quarters ($3.93 per share for the year).

	2020			2019
Cash dividends paid per common share	$	4.47		$	3.93
Cash dividends paid as a percentage of prior-year retained earnings	5.1		%	5.1		%

Snap-on believes that its cash generated from operations, available cash on hand and funds available from its credit facilities will be sufficient to pay dividends in 2021.

46	SNAP-ON INCORPORATED

Off-Balance-Sheet Arrangements

Except as included below in the section labeled “Contractual Obligations and Commitments” and Note 16 to the Consolidated Financial Statements, the company had no off-balance-sheet arrangements as of 2020 year end.

Contractual Obligations and Commitments

A summary of Snap-on’s future contractual obligations and commitments as of 2020 year end are as follows:

(Amounts in millions)	Total		2021		2022-2023		2024-2025		2026 and<br>thereafter
Contractual obligations:
Notes payable and current maturities of long-term debt	$	268.5	$	268.5	$	—	$	—	$	—
Long-term debt	1,182.1		—		—		—		1,182.1
Interest on fixed rate debt	970.5		51.9		83.3		83.3		752.0
Operating leases	55.7		20.3		25.3		8.9		1.2
Finance leases	10.8		3.0		5.4		2.4		—
Purchase obligations	117.6		113.6		3.8		0.2		—
Total	$	2,605.2	$	457.3	$	117.8	$	94.8	$	1,935.3

Snap-on intends to make contributions of $9.2 million to its foreign pension plans and $2.2 million to its domestic pension plans in 2021, as required by law. Depending on market and other conditions, Snap-on may make additional discretionary cash contributions to its pension plans in 2021. Snap-on has not presented estimated pension and postretirement funding contributions in the table above as the funding can vary from year to year based on changes in the fair value of the plan assets and actuarial assumptions; see Note 12 and Note 13 to the Consolidated Financial Statements for information on the company’s benefit plans and payments.

Due to the uncertainty of the timing of settlements with taxing authorities, Snap-on is unable to make reasonably reliable estimates of the period of cash settlement of unrecognized tax benefits for its remaining uncertain tax liabilities. As a result, $9.1 million of unrecognized tax benefits have been excluded from the table above; see Note 9 to the Consolidated Financial Statements for information on income taxes.

Environmental Matters

Snap-on is subject to various federal, state and local government requirements regulating the discharge of materials into the environment or otherwise relating to the protection of the environment. Snap-on’s policy is to comply with these requirements and the company believes that, as a general matter, its policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage, and of resulting financial liability, in connection with its business. Some risk of environmental damage is, however, inherent in some of Snap-on’s operations and products, as it is with other companies engaged in similar businesses.

Snap-on is and has been engaged in the handling, manufacture, use and disposal of many substances classified as hazardous or toxic by one or more regulatory agencies. Snap-on believes that, as a general matter, its handling, manufacture, use and disposal of these substances are in accordance with environmental laws and regulations. It is possible, however, that future knowledge or other developments, such as improved capability to detect substances in the environment or increasingly strict environmental laws and standards and enforcement policies, could bring into question the company’s handling, manufacture, use or disposal of these substances.

New Accounting Standards

See Note 1 to the Consolidated Financial Statements for information on new accounting standards.

| 2020 ANNUAL REPORT | 47 | | --- | --- || Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | | --- |

Critical Accounting Policies and Estimates

The Consolidated Financial Statements and related notes contain information that is pertinent to management’s discussion and analysis. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates are generally based on historical experience, current conditions and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources, as well as identifying and assessing our accounting treatment with respect to commitments and contingencies. Actual results could differ from those estimates.

In addition to the company’s significant accounting policies described in Note 1 to the Consolidated Financial Statements, Snap-on considers the following policies and estimates to be the most critical in understanding the judgments that are involved in the preparation of the company’s consolidated financial statements and the uncertainties that could impact the company’s financial position, results of operations and cash flows.

Allowance for Credit Losses on Finance Receivables: The allowance for credit losses on finance receivables is maintained at a level management believes is adequate to cover expected losses in Snap-on’s finance receivables portfolio as of the reporting date. The allowance represents management’s estimate of the expected losses in the company’s finance receivables portfolio based on ongoing assessments and evaluations of credit losses over the expected contractual life of the receivables portfolio considering collectability, historical loss experience, current conditions and future market changes. Determination of the proper level of allowance requires management to exercise judgment about the timing, frequency and severity of credit losses that could materially affect the expense for credit losses and, as a result, net earnings. The allowance takes into consideration numerous quantitative and qualitative factors that include receivable type, historical loss experience, delinquency trends, collection experience, current and future economic conditions and credit risk characteristics. Some of these factors are influenced by items such as the customers’ financial condition, past payment experience, credit bureau and proprietary Snap-on credit model information, as well as the value of the underlying collateral. Changes in economic conditions and assumptions, including the resulting credit quality metrics relative to the performance of the finance receivables portfolio, create uncertainty and could result in changes to both the allowance for credit losses and expense for credit losses.

Management utilizes established policies and procedures in an effort to ensure the estimates and assumptions are well controlled, reviewed and consistently applied. As of January 2, 2021, the ratio of the allowance for credit losses to finance receivables was 4.38%. In 2020, financial services expenses included higher provisions for credit losses related to the company’s adoption of ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326). As of December 28, 2019, the allowance ratio was 3.65%. While management believes it exercises prudent judgment and applies reasonable assumptions in establishing its estimates for allowances for finance receivables, there can be no assurance that changes in economic conditions or other factors would not adversely impact the financial health of our customers and result in changes to the estimates used in the allowance calculation. For reference, a 100 bps increase in the allowance ratios for finance receivables as of January 2, 2021, would have increased Snap-on’s 2020 expense for credit losses and related allowance for credit losses by approximately $17.5 million.

For additional information on Snap-on’s allowances for credit losses, see Note 1 and Note 4 to the Consolidated Financial Statements.

Impairment of Goodwill: Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the assets might be impaired. Annual impairment tests are performed by the company in the second quarter of each year using information available as of April month end.

Snap-on evaluates the recoverability of goodwill by estimating the future discounted cash flows of the businesses to which the goodwill relates. Estimated cash flows and related goodwill are grouped at the reporting unit level. The company has determined that its reporting units for testing goodwill impairment are its operating segments or components of an operating segment that constitute a business for which discrete financial information is available and for which segment management regularly reviews the operating results. Within its four reportable operating segments, the company has identified 11 reporting units.

48	SNAP-ON INCORPORATED

Snap-on evaluates the recoverability of goodwill by utilizing an income approach that estimates the fair value of the future discounted cash flows of the reporting units to which the goodwill relates. The future projections, which are based on both past performance and the projections and assumptions used in the company’s operating plans, are subject to change as a result of changing economic and competitive conditions. This approach reflects management’s internal outlook at the reporting units, which management believes provides the best determination of value due to management’s insight and experience with the reporting units. Significant estimates used by management in the discounted cash flows methodology include estimates of future cash flows based on expected growth rates, price increases, working capital levels, expected benefits from RCI initiatives, and a weighted-average cost of capital that reflects the specific risk profile of the reporting unit being tested. The company’s methodologies for valuing goodwill are applied consistently on a year-over-year basis; the assumptions used in performing the second quarter 2020 impairment calculations were evaluated in light of then-current market and business conditions. Snap-on continues to believe that the future discounted cash flow valuation model provides the most reasonable and meaningful fair value estimate based upon the reporting units’ projections of future operating results and cash flows and replicates how market participants would value the company’s reporting units in an orderly transaction.

In the event the fair value of a reporting unit is less than the carrying value, including goodwill, the company would then record an impairment charge based on the excess of a reporting units carrying amount over its fair value.

Inherent in fair value determinations are significant judgments and estimates, including material assumptions about future revenue, profitability and cash flows, the company’s operational plans and its interpretation of current economic indicators. Should the operations of the businesses with which goodwill is associated incur significant declines in profitability and cash flow due to significant and long-term deterioration in macroeconomic, industry and market conditions, the loss of key customers, changes in technology or markets, significant changes in key personnel or litigation, a significant and sustained decrease in share price and/or other events, including effects from the sale or disposal of a reporting unit, some or all of the recorded goodwill could be subject to impairment and could result in a material adverse effect on Snap-on’s financial position or results of operations.

Snap-on completed its annual impairment testing of goodwill in the second quarter of 2020, which did not result in any impairment. As of 2020 year end, the company has no accumulated impairment losses. Although the company consistently uses the same methods in developing the assumptions and estimates underlying the fair value calculations, such estimates are uncertain by nature and can vary from actual results. In performing its annual impairment testing the company performed a sensitivity analysis on the material assumptions used in the discounted cash flow valuation models for each of its 11 reporting units. Based on the company’s second quarter 2020 impairment testing, and assuming a hypothetical 10% decrease in the estimated fair values of each of its 11 reporting units, the hypothetical fair value of each of the company’s 11 reporting units would have been greater than its carrying value. See Note 7 to the Consolidated Financial Statements for further information about goodwill.

Pension Benefits: The pension benefit obligation and related pension expense are calculated in accordance with GAAP and are impacted by certain actuarial assumptions. Changes in these assumptions are primarily influenced by factors outside of Snap-on’s control, such as changes in economic conditions, and can have a significant effect on the amounts reported in the financial statements. Snap-on believes that the two most critical assumptions are (i) the expected return on plan assets; and (ii) the assumed discount rate.

Snap-on’s domestic pension plans have a long-term investment horizon and a total return strategy that emphasizes a capital growth objective. In 2020, the long-term investment performance objective for Snap-on’s domestic plans’ assets was to achieve net of expense returns that met or exceeded the 7.25% domestic expected return on plan assets assumption. Snap-on uses a three-year, market-related value asset method of amortizing the difference between actual and expected returns on its domestic plans’ assets. As of 2020 year end, Snap-on’s domestic pension plans’ assets comprised approximately 86% of the company’s worldwide pension plan assets.

Based on forward-looking capital market expectations, Snap-on selected an expected return on plan assets assumption for its U.S. pension plans of 6.75%, a decrease of 50 bps from 2020, to be used in determining pension expense for 2021. In estimating the domestic expected return on plan assets, Snap-on utilizes a nominal returns forecasting method. For each asset class, future returns are estimated by identifying the premium of riskier asset classes over lower risk alternatives. The methodology constructs expected returns using a “building block” approach to the individual components of total return. These forecasts are stated in both nominal and real (after inflation) terms. This process first considers the long-term historical return premium based on the longest set of data available for each asset class. These premiums, calculated using the geometric mean, are then adjusted based on current relative valuation levels, macro-economic conditions, and the expected alpha related to active investment management. The asset return assumption is also adjusted by an implicit expense load for estimated administrative and investment-related expenses. Since asset allocation is a key determinant of expected investment returns, the current and expected mix of plan assets are also considered when setting the assumption.

| 2020 ANNUAL REPORT | 49 | | --- | --- || Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) | | --- |

Pension expense increases as the expected rate of return on plan assets decreases. Lowering the expected rate of return assumption for Snap-on’s domestic pension plans’ assets by 50 bps would have increased Snap-on’s 2020 domestic pension expense by approximately $5.9 million.

The objective of Snap-on’s discount rate assumption is to reflect the rate at which the pension benefits could be effectively settled. In making this determination, the company takes into account the timing and amount of benefits that would be available under the plans. The domestic discount rate as of 2020 and 2019 year end was selected based on a cash flow matching methodology developed by the company’s outside actuaries and which incorporates a review of current economic conditions. This methodology matches the plans’ yearly projected cash flows for benefits and service costs to those of hypothetical bond portfolios using high-quality, AA rated or better, corporate bonds from either Moody’s Investors Service or Standard & Poor’s credit rating agencies available at the measurement date. This technique calculates bond portfolios that produce adequate cash flows to pay the plans’ projected yearly benefits and then selects the portfolio with the highest yield and uses that yield as the recommended discount rate.

The selection of the 2.7% weighted-average discount rate for Snap-on’s domestic pension plans as of 2020 year end (compared to 3.4% as of 2019 year end) represents the single rate that produces the same present value of cash flows as the estimated benefit plan payments. Lowering Snap-on’s domestic discount rate assumption by 50 bps would have increased Snap-on’s 2020 domestic pension expense and projected benefit obligation by approximately $4.5 million and $82.4 million, respectively. As of 2020 year end, Snap-on’s domestic projected benefit obligation comprised approximately 82% of Snap-on’s worldwide projected benefit obligation. The weighted-average discount rate for Snap-on’s foreign pension plans of 1.7% (compared to 2.1% as of 2019 year end) represents the single rate that produces the same present value of cash flows as the estimated benefit plan payments. Lowering Snap-on’s foreign discount rate assumption by 50 bps would have increased Snap-on’s 2020 foreign pension expense and projected benefit obligation by approximately $1.9 million and $32.3 million, respectively.

Actuarial gains and losses in excess of 10 percent of the greater of the projected benefit obligation or market-related value of assets are amortized on a straight-line basis over the average remaining service period of active participants or over the average remaining life expectancy for plans with primarily inactive participants. Prior service costs and credits resulting from plan amendments are amortized in equal annual amounts over the average remaining service period of active participants or over the average remaining life expectancy for plans with primarily inactive participants.

To determine the 2021 net periodic benefit cost, Snap-on is using weighted-average discount rates for its domestic and foreign pension plans of 2.7% and 1.7%, respectively, and an expected return on plan assets for its domestic pension plans of 6.75%. The expected returns on plan assets for foreign pension plans ranged from 1.0% to 5.4% as of 2020 year end. Due to the net change in these two key assumptions, in addition to the overall benefit plan status, pension expense in 2021 is expected to decrease. Other factors, such as changes in plan demographics and discretionary contributions, may further increase or decrease pension expense in 2021. See Note 12 to the Consolidated Financial Statements for further information on pension plans.

Outlook

COVID-19 spread across the globe during 2020 and continues to impact economic activity worldwide into 2021. Snap-on is accommodating to the related risks while safely pursuing opportunities in the COVID-19 environment. In 2021, the company believes there will be ongoing advancements against the virus-related turbulence, and that the trajectory of progress may be uncertain due to the evolving nature and duration of the pandemic.

Snap-on does expect to make continued progress in 2021 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, it is projected that capital expenditures in 2021 will be in a range of $90 million to $100 million. Snap-on continues to respond to global macroeconomic challenges through its RCI process and other cost reduction initiatives.

Snap-on currently anticipates that its full year 2021 effective income tax rate will be in the range of 23% to 24%.

50	SNAP-ON INCORPORATED

Item 7A: Quantitative and Qualitative Disclosures About Market Risk

Market, Credit and Economic Risks

Market risk is the potential economic loss that may result from adverse changes in the fair value of financial instruments. Snap-on is exposed to market risk from changes in interest rates and foreign currency exchange rates. Snap-on is also exposed to market risk associated with the stock-based portion of its deferred compensation plans. Snap-on monitors its exposure to these risks and attempts to manage the underlying economic exposures through the use of financial instruments such as foreign currency forward contracts, interest rate swap agreements, treasury lock agreements and prepaid equity forward agreements (“equity forwards”). Snap-on does not use derivative instruments for speculative or trading purposes. Snap-on’s broad-based business activities help to reduce the impact that volatility in any particular area or related areas may have on its operating earnings as a whole. Snap-on’s management takes an active role in the risk management process and has developed policies and procedures that require specific administrative and business functions to assist in the identification, assessment and control of various risks.

Foreign Currency Risk Management

Snap-on has significant international operations and is subject to certain risks inherent with foreign operations that include currency fluctuations. Foreign currency exchange risk exists to the extent that Snap-on has payment obligations or receipts denominated in currencies other than the functional currency, including intercompany loans denominated in foreign currencies. To manage these exposures, Snap-on identifies naturally offsetting positions and then purchases hedging instruments to protect the residual net exposures. See Note 11 to the Consolidated Financial Statements for information on foreign currency risk management.

Interest Rate Risk Management

Snap-on aims to control funding costs by managing the exposure created by the differing maturities and interest rate structures of Snap-on’s borrowings through the use of interest rate swap agreements. Treasury lock agreements are used from time to time to manage the potential change in interest rates in anticipation of the possible issuance of fixed rate debt. See Note 11 to the Consolidated Financial Statements for information on interest rate risk management.

Snap-on utilizes a Value-at-Risk (“VAR”) model to determine the potential one-day loss in the fair value of its interest rate and foreign exchange-sensitive financial instruments from adverse changes in market factors. The VAR model estimates were made assuming normal market conditions and a 95% confidence level. Snap-on’s computations are based on the inter-relationships among movements in various currencies and interest rates (variance/co-variance technique). These inter-relationships were determined by observing interest rate and foreign currency market changes over the preceding quarter.

The estimated maximum potential one-day loss in fair value, calculated using the VAR model, as of 2020 and 2019 year end was $13.9 million and $9.9 million, respectively, on interest rate-sensitive financial instruments, and $0.1 million and $0.2 million, respectively, on foreign currency-sensitive financial instruments. The VAR model is a risk management tool and does not purport to represent actual losses in fair value that will be incurred by Snap-on, nor does it consider the potential effect of favorable changes in market factors.

Stock-based Deferred Compensation Risk Management

Snap-on aims to manage market risk associated with the stock-based portion of its deferred compensation plans through the use of equity forwards. Equity forwards are used to aid in offsetting the potential mark-to-market effect on stock-based deferred compensation from changes in Snap-on’s stock price. Since stock-based deferred compensation liabilities increase as the company’s stock price rises and decrease as the company’s stock price declines, the equity forwards are intended to mitigate the potential impact on compensation expense that may result from such mark-to-market changes. See Note 11 to the Consolidated Financial Statements for additional information on stock-based deferred compensation risk management.

Credit Risk

Credit risk is the possibility of loss from a customer’s failure to make payments according to contract terms. Prior to extending credit, each customer is evaluated, taking into consideration various factors, including the customer’s financial condition, debt-servicing ability, past payment experience, credit bureau information, and other financial and qualitative factors that may affect the customer’s ability to repay, as well as the value of the underlying collateral. Finance receivable credit risk is also monitored regularly through the use of internal proprietary custom scoring models to evaluate each transaction at the time of the application for credit. Snap-on evaluates credit quality through the use of an internal proprietary measuring system that provides a framework to analyze finance receivables on the basis of risk factors of the individual obligor as well as transaction specific risk. The finance receivables are typically monitored through an asset quality review process that closely monitors past due accounts and initiates a progressive collection action process when appropriate.

2020 ANNUAL REPORT	51

Counterparty Risk

Snap-on is exposed to credit losses in the event of non-performance by the counterparties to its various financial agreements, including its foreign currency forward contracts, interest rate swap agreements, treasury lock agreements and prepaid equity forward agreements. Snap-on does not obtain collateral or other security to support financial instruments subject to credit risk, but monitors the credit standing of the counterparties and generally enters into agreements with financial institution counterparties with a credit rating of A- or better. Snap-on does not anticipate non-performance by its counterparties, but cannot provide assurances.

Economic Risk

Economic risk is the possibility of loss resulting from economic instability in certain areas of the world. Snap-on continually monitors its exposure in these markets. For example, the company is monitoring the impact of and developments related to the COVID-19 pandemic, which has created global economic uncertainty. In addition, the company is monitoring the effects of the United Kingdom’s exit from the European Union, although it is too soon to know what effects this might have on the world economy or the company. Inflation has not had a significant impact on the company.

As a result of the above market, credit and economic risks, net earnings and revenues in any particular period may not be representative of full-year results and may vary significantly from year to year.

Commodity Risk

Snap-on is a purchaser of certain commodities such as steel, natural gas and electricity. The company is also a purchaser of components and parts that are integrated into the company’s end products, as well as the purchaser of certain finished goods, all of which may contain various commodities including steel, aluminum, nickel, copper and others. Snap-on’s supply of raw materials and purchased components are generally and readily available from numerous suppliers.

The principal raw material used in the manufacture of the company’s products is steel, which the company purchases in competitive, price-sensitive markets. To meet Snap-on’s high quality standards, the company’s steel needs range from specialized alloys, which are available only from a limited group of approved suppliers, to common alloys, which are available from multiple suppliers. Some of these materials have been, and in the future may be, in short supply, particularly in the event of mill shutdowns or production cut backs. As some steel alloys require specialized manufacturing procedures, Snap-on could experience inventory shortages if it were required to use an alternative manufacturer on short notice. Steel and other raw materials, components and certain finished goods inventory can exhibit price and demand cyclicality, including as a result of tariffs and other trade protection measures. Associated unexpected price increases could result in an erosion of product margins or require Snap-on to increase prices to customers to maintain margins.

Snap-on believes its ability to sell product is also dependent on the changing vehicle repair requirements, the number of vehicles on the road, the general aging of vehicles and the number of miles driven. These factors affect the frequency, type and amount of service and repair performed on vehicles by technicians, and therefore affect the demand for the number of technicians, the prosperity of the technicians and, consequently, the demand technicians have for the company’s tools, other products and services, and the value technicians place on those products and services. The use of other methods of transportation, including more frequent use of public transportation, could result in a decrease in the use of privately operated vehicles. A decrease in the use of privately operated vehicles may lead to fewer repairs and less demand for the company’s products.

To the extent that commodity prices increase and the company does not have firm pricing agreements with its suppliers, the company may experience margin declines to the extent that it is not able to increase the selling prices of its products.

Item 8: Financial Statements and Supplementary Data

The financial statements and schedules are listed in Part IV, Item 15(a) and are incorporated by reference into this Item 8.

Item 9: Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

52	SNAP-ON INCORPORATED

Item 9A: Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Snap-on maintains a system of disclosure controls and procedures that is designed to provide reasonable assurance that material information relating to the company and its consolidated subsidiaries is timely communicated to the officers who certify Snap-on’s financial reports and to other members of senior management and the Board, as appropriate.

In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), the company’s management evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of the company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of January 2, 2021. Based upon their evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of January 2, 2021, to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission rules and forms, and to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control

There has not been any change in the company’s internal control over financial reporting during the quarter ended January 2, 2021, that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting (as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)).

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our internal control over financial reporting based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013). Based on this assessment, the company’s management believes that, as of January 2, 2021, our internal control over financial reporting was effective at a reasonable assurance level. The company’s internal control over financial reporting as of January 2, 2021, has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in its attestation report, which is included herein.

Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our internal control over financial reporting will prevent all errors or fraud. Because of inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.

2020 ANNUAL REPORT	53

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Snap-on Incorporated:

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Snap-on Incorporated and subsidiaries (the “Company”) as of January 2, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 2, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements as of and for the year ended January 2, 2021, of the Company and our report dated February 11, 2021, expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company’s adoption of Accounting Standard Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326).

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
February 11, 2021
54	SNAP-ON INCORPORATED
---	---

Item 9B: Other Information

None.

PART III

Item 10: Directors, Executive Officers and Corporate Governance

Incorporated by reference to the sections entitled “Item 1: Election of Directors,” “Corporate Governance Practices and Board Information” and “Other Information” in Snap-on’s 2021 Annual Meeting Proxy Statement, which is expected to be mailed to shareholders on or about March 12, 2021 (the “2021 Proxy Statement”).

The Section 16(a) filing compliance disclosure pursuant to Item 405 of Regulation S-K is contained in Snap-on’s 2021 Proxy Statement in the section entitled “Other Information – Delinquent Section 16(a) Reports,” and is incorporated herein by reference.

Information about our Executive Officers

Information regarding Snap-on’s executive officers, including their ages, business experience (for at least the last five years) and titles as of January 2, 2021, is presented below:

Nicholas T. Pinchuk (74) – Chairman of the Board of Directors since 2009, President and Chief Executive Officer since December 2007, and President and Chief Operating Officer during 2007. Senior Vice President and President – Worldwide Commercial & Industrial Group from 2002 to 2007. Prior to joining Snap-on, Mr. Pinchuk held various positions, including President of Global Refrigeration Operations and President of Asia Pacific Operations, at Carrier Corporation, a producer of air conditioning, heating and refrigeration systems, and a subsidiary of United Technologies Corporation. Mr. Pinchuk serves on the board of directors of Columbus McKinnon Corporation.

Aldo J. Pagliari (66) – Senior Vice President – Finance and Chief Financial Officer since 2010.

Jesus M. Arregui (55) – Senior Vice President and President – Commercial Group since 2019, President, SNA Europe from 2015 to 2019, and Vice President, SNA Europe Operations from 2008 to 2015.

Anup R. Banerjee (70) – Senior Vice President, Human Resources and Chief Development Officer since 2015, and President, Commercial Group from 2011 to 2015.

Iain Boyd (58) – Vice President – Operations Development since 2015. Vice President, Human Resources from 2007 to 2015.

Timothy L. Chambers (56) – Senior Vice President and President – Snap-on Tools Group since 2019, President, Commercial Group from 2015 to 2019 and President, Equipment from 2014 to 2015.

June C. Lemerand (58) – Vice President and Chief Information Officer since 2017. Vice President of Information Technology Services from 2015 to 2017, and Senior Director, Information Technology Sales and Marketing Applications from 2005 to 2015.

Richard T. Miller (50) – Vice President, General Counsel and Secretary since 2018. Associate General Counsel from 2012 to 2018.

Richard K. Strege (63) – Vice President and Controller since 2017. Vice President, Internal Audit, Controls and Compliance from 2007 to 2017.

Thomas J. Ward (68) – Senior Vice President and President – Repair Systems & Information Group since 2010.

There is no family relationship among the executive officers and there has been no involvement in legal proceedings during the past ten years that would be material to the evaluation of the ability or integrity of any of the executive officers. Executive officers may either be elected by the Board or may be appointed by the Chief Executive Officer at the regular meeting of the Board that follows the Annual Shareholders’ Meeting, which is ordinarily held in April each year, or at such other times as new positions are created or vacancies must be filled.

Code of Ethics and Website Disclosure

Snap-on has adopted a written code of ethics that applies to its Chief Executive Officer, Chief Financial Officer, Vice President and Controller, and all other financial officers and executives performing similar functions. Snap-on has posted a copy of the code of ethics in the Investors/Corporate Governance section on the company’s website at www.snapon.com. Snap-on will also post any amendments to these documents, or information about any waivers granted to directors or executive officers with respect to the Code of Business Conduct and Ethics, on the company’s website at www.snapon.com.

Snap-on intends to satisfy the disclosure requirements under Item 10 of Form 8-K regarding amendments to, or waivers from, the code of ethics by posting such information in the “Investors” section of its corporate website at www.snapon.com.

2020 ANNUAL REPORT	55

Item 11: Executive Compensation

The information required by Item 11 is contained in Snap-on’s 2021 Proxy Statement in the sections entitled “Executive Compensation,” “Board Compensation,” “Compensation Committee Report,” and “Other Information” and is incorporated herein by reference.

Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by Item 12 is contained in Snap-on’s 2021 Proxy Statement in the sections entitled “Executive Compensation,” “Security Ownership of Certain Beneficial Owners and Management,” “Other Information” and “Item 4: Approval of the Amendment to, and Restatement of, the Snap-on Incorporated 2011 Incentive Stock and Awards Plan,” and is incorporated herein by reference.

Item 13: Certain Relationships and Related Transactions, and Director Independence

Incorporated by reference to the sections entitled “Corporate Governance Practices and Board Information – Board Information” and “Other Information – Transactions with the Company” in Snap-on’s 2021 Proxy Statement.

Item 14: Principal Accounting Fees and Services

Incorporated by reference to the section entitled “Deloitte & Touche LLP Fee Disclosure” in Snap-on’s 2021 Proxy Statement.

PART IV

Item 15: Exhibits, Financial Statement Schedules

Item 15(a): Documents Filed as Part of This Report:

List of Financial Statements

Unless otherwise indicated, references to “fiscal 2020” or “2020” refer to the fiscal year ended January 2, 2021; references to “fiscal 2019” or “2019” refer to the fiscal year ended December 28, 2019; and references to “fiscal 2018” or “2018” refer to the fiscal year ended December 29, 2018. References to 2020, 2019 and 2018 year end refer to January 2, 2021, December 28, 2019, and December 29, 2018, respectively.

The following consolidated financial statements of Snap-on and the Report of Independent Registered Public Accounting Firm thereon, are filed as part of this report:

•Report of Independent Registered Public Accounting Firm.

•Consolidated Statements of Earnings for the 2020, 2019 and 2018 fiscal years.

•Consolidated Statements of Comprehensive Income for the 2020, 2019 and 2018 fiscal years.

•Consolidated Balance Sheets as of 2020 and 2019 year end.

•Consolidated Statements of Equity for the 2020, 2019 and 2018 fiscal years.

•Consolidated Statements of Cash Flows for the 2020, 2019 and 2018 fiscal years.

•Notes to Consolidated Financial Statements.

Financial Statement Schedules

All schedules are omitted because they are not applicable, or the required information is included in the consolidated financial statements or notes thereto.

56	SNAP-ON INCORPORATED

List of Exhibits(*)

(3)	(a)	Restated Certificate of Incorporation of Snap-on Incorporated, as amended through April 25, 2013 (incorporated by reference to Exhibit 3.1 to Snap-on’s Quarterly Report on Form 10-Q for the quarterly period ended September 28, 2013 (Commission File No. 1-7724))
	(b)	Bylaws of Snap-on Incorporated, as amended and restated as of April 6, 2020 (incorporated by reference to Exhibit 3.1 to Snap-on’s Current Report on Form 8-K dated April 6, 2020 (Commission File No. 1-7724))
(4)	(a)	Indenture, dated as of January 8, 2007, between Snap-on Incorporated and U.S. Bank National Association as trustee (incorporated by reference to Exhibit (4)(b) to Form S-3 Registration Statement (Registration No. 333-139863))
	(b)	Officer’s Certificate, dated as of August 14, 2009, providing for the $250,000,000 6.125% Notes due 2021 (the “2021 Notes”) (incorporated by reference to Exhibit 4.1 to Snap-on’s Current Report on Form 8-K dated August 11, 2009 (Commission File No. 1-7724))
	(c)	Officer’s Certificate, dated as of February 21, 2017, providing for the $300,000,000 3.25% Notes due 2027 (the “2027 Notes”) (incorporated by reference to Exhibit 4.2 to Snap-on’s Current Report on Form 8-K dated February 15, 2017 (Commission File No. 1-7724))
	(d)	Officer’s Certificate, dated as of February 26, 2018, providing for the $400,000,000 4.10% Notes due 2048 (the “2048 Notes”) (incorporated by reference to Exhibit 4.2 to Snap-on’s Current Report on Form 8-K dated February 20, 2018 (Commission File No. 1-7724))
	(e)	Officer’s Certificate, dated as of April 30, 2020, providing for the $500,000,000 3.10% Notes due 2050 (the “2050 Notes”) (incorporated by reference to Exhibit 4.2 to Snap‑on’s Current Report on Form 8‑K dated April 27, 2020 (Commission File No. 1-7724))
	(f)	Description of Securities
	(f)(1)	Description of Common Stockhttps://www.sec.gov/Archives/edgar/data/91440/000009144020000004/snafy19exhibit4e1.htm(incorporated by reference to Exhibit 4(e)(1) to Snap‑on ’s Annual Report on Form 10 ‑K for the fiscal year ended December 28, 2019 (Commission File No. 1-7724))
	(f)(2)	Description of 2021 Noteshttps://www.sec.gov/Archives/edgar/data/91440/000009144020000004/snafy19exhibit4e2.htm(incorporated by reference to Exhibit 4(e)(2 ) to Snap‑on ’s Annual Report on Form 10‑K for the fiscal year ended December 28, 2019 (Commission File No. 1-7724))
	(f)(3)	Description of 2027 Noteshttps://www.sec.gov/Archives/edgar/data/91440/000009144020000004/snafy19exhibit4e3.htm(incorporated by reference to Exhibit 4(e)(3 ) to Snap‑on ’s Annual Report on Form 10‑K for the fiscal year ended December 28, 2019 (Commission File No. 1-7724))
	(f)(4)	Description of 2048 Noteshttps://www.sec.gov/Archives/edgar/data/91440/000009144020000004/snafy19exhibit4e4.htm(incorporated by reference to Exhibit 4(e)(4 ) to Snap‑on ’s Annual Report on Form 10‑K for the fiscal year ended December 28, 2019 (Commission File No. 1-7724))
	(f)(5)	Description of 2050 Notes	2020 ANNUAL REPORT	57
---	---

Except for the foregoing, Snap-on and its subsidiaries have no unregistered long-term debt agreement for which the related outstanding debt exceeds 10% of consolidated total assets as of January 2, 2021. Copies of debt instruments for which the related debt is less than 10% of consolidated total assets will be furnished to the Commission upon request.

(10)	Material Contracts
	(a)	Amended and Restated Snap-on Incorporated 2001 Incentive Stock and Awards Plan (Amended and Restated as of April 27, 2006, as further amended on August 6, 2009) (incorporated by reference to Exhibit 10.1 to Snap-on’s Quarterly Report on Form 10-Q for the quarterly period ended October 3, 2009 (Commission File No. 1-7724))** (superseded except as to outstanding awards)
	(b)	Snap-on Incorporated 2011 Incentive Stock and Awards Plan (As Amended and Restated) (incorporated by reference to Exhibit 10(b) to Snap-on’s Annual Report on Form 10-K for the fiscal year ended December 30, 2017 (Commission File No. 1-7724))**
	(c)	Form of Restated Executive Agreement between Snap-on Incorporated and each of its executive officers (incorporated by reference to Exhibit 10(c) to Snap-on’s Annual Report on Form 10-K for the fiscal year ended December 30, 2017 (Commission File No. 1-7724))
	(d)(1)	Form of Indemnification Agreement between Snap-on Incorporated and certain executive officers (incorporated by reference to Exhibit 10.1 to Snap-on’s Annual Report on Form 10-K for the fiscal year ended January 1, 2011 (Commission File No. 1-7724))**
	(d)(2)	Form of Indemnification Agreement between Snap-on Incorporated and directors (incorporated by reference to Exhibit 10.1 to Snap-on’s Annual Report on Form 10-K for the fiscal year ended January 1, 2011 (Commission File No. 1-7724))**
	(e)(1)	Amended and Restated Snap-on Incorporated Directors’ 1993 Fee Plan (as amended through August 5, 2010) (incorporated by reference to Exhibit 10.1 to Snap-on’s Quarterly Report on Form 10-Q for the quarterly period ended October 2, 2010 (Commission File No. 1-7724))**
	(e)(2)	Amendment to Amended and Restated Snap-on Incorporated Directors’ 1993 Fee Plan (incorporated by reference to Exhibit 10(e)(2) to Snap-on’s Annual Report on Form 10-K for the fiscal year ended December 28, 2013 (Commission File No. 1-7724))**
	(f)(1)	Snap-on Incorporated Deferred Compensation Plan (as amended and restated as of September 1, 2011) (incorporated by reference to Exhibit 10(g) to Snap-on’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 (Commission File No. 1-7724))**
	(f)(2)	Amendment to Snap-on Incorporated Deferred Compensation Plan (incorporated by reference to Exhibit 10(f)(2) to Snap-on’s Annual Report on Form 10-K for the fiscal year ended December 28, 2013 (Commission File No. 1-7724))**
	(g)	Snap-on Incorporated Supplemental Retirement Plan for Officers (as amended through June 11, 2010) (incorporated by reference to Exhibit 10.2 to Snap-on’s Quarterly Report on Form 10-Q for the quarterly period ended July 3, 2010 (Commission File No. 1-7724))**
	(h)	Form of Non-Qualified Stock Option Agreement under the 2001 Incentive Stock and Awards Plan (and accompanying Non-Qualified Stock Option Grant Offer Letter) (incorporated by reference to Exhibit 10.1 to Snap-on’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2007 (Commission File No. 1-7724))** (superseded except as to outstanding awards)
	(i)	Form of Restricted Stock Unit Agreement for Directors under the 2001 Incentive Stock and Awards Plan (and accompanying Restricted Stock Unit Offer Letter) (incorporated by reference to Exhibit 10.2 to Snap-on’s Quarterly Report on Form 10-Q for the quarterly period ended October 3, 2009 (Commission File No. 1-7724))** (superseded except as to outstanding awards)
	(j)	Form of Non-Qualified Stock Option Agreement under the 2011 Incentive Stock and Awards Plan (and accompanying Non-Qualified Stock Option Grant Offer Letter) (incorporated by reference to Exhibit 10.1 to Snap-on’s Quarterly Report on Form 10-Q for the quarterly period ended October 1, 2011 (Commission File No. 1-7724))**
	(k)	Form of Performance Share Unit Award Agreement under the 2011 Incentive Stock and Awards Plan (incorporated by reference to Exhibit 10.1 to Snap-on’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2012 (Commission File No. 1-7724))**
	(l)	Form of Restricted Unit Award Agreement for Executive Officers under the 2011 Incentive Stock and Awards Plan (incorporated by reference to Exhibit 10.1 to Snap-on’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2012 (Commission File No. 1-7724))**	58	SNAP-ON INCORPORATED
---	---		(m)	Form of Restricted Unit Award Agreement for Directors under the 2011 Incentive Stock and Awards Plan (incorporated by reference to Exhibit 10.1 to Snap-on’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2012 (Commission File No. 1-7724))**
---	---	---
	(n)	Form of Restricted Stock Award Agreement for Directors under the 2011 Incentive Stock and Awards Plan (incorporated by reference to Exhibit 10.1 to Snap-on’s Quarterly Report on Form 10-Q for the quarterly period ended March 30, 2013 (Commission File No. 1-7724))**
	(o)	Form of Restricted Stock Unit Award Agreement for Executive Officers and Key Employees under the 2011 Incentive Stock and Awards Plan (form of award agreement consistent with the terms of the 2011 Incentive Stock and Awards Plan)**
	(p)	Third Amended and Restated Five Year Credit Agreement, dated as of September 16, 2019, among Snap-on Incorporated and the lenders and agents listed on the signature pages thereof, and JPMorgan Chase Bank, N.A., Citibank N.A. and U.S. Bank National Association as joint lead arrangers and joint bookrunners (incorporated by reference to Exhibit 10.1 to Snap-on’s Current Report on Form 8-K dated September 16, 2019 (Commission File No. 1-7724))
	(q)	Underwriting Agreement, dated as of April 27, 2020, among Snap-on Incorporated, Citigroup Global Markets Inc., J.P. Morgan Securities LLC and U.S. Bancorp Investments, Inc., as representatives of the several underwriters named therein (incorporated by reference to Exhibit 1.1 to Snap-on’s Current Report on Form 8-K dated April 27, 2020 (Commission File No. 1-7724))
(14)	Snap-on Incorporated Section 406 of the Sarbanes-Oxley Act Code of Ethics (incorporated by reference to Exhibit 10(aa) to Snap-on’s Annual Report on Form 10-K for the fiscal year ended January 3, 2004 (Commission File No. 1-7724))
(21)	Subsidiaries of the Corporation
(23)	Consent of Independent Registered Public Accounting Firm
(31.1)	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(31.2)	Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(32.1)	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(32.2)	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(101.INS)	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL (Extensible Business Reporting Language) tags are embedded within the Inline XBRL document
(101.SCH)	Inline XBRL Taxonomy Extension Schema Document
(101.CAL)	Inline XBRL Taxonomy Extension Calculation Linkbase Document
(101.DEF)	Inline XBRL Taxonomy Extension Definition Linkbase Document
(101.LAB)	Inline XBRL Taxonomy Extension Label Linkbase Document
(101.PRE)	Inline XBRL Taxonomy Extension Presentation Linkbase Document
(104)	Cover Page Interactive Data File (contained in Exhibit 101)

_______________________________

*	Filed electronically or incorporated by reference as an exhibit to this Annual Report on Form 10-K. Copies of any materials the company files with the SEC can also be obtained free of charge through the SEC’s website at www.sec.gov.
**	Represents a management compensatory plan or agreement.

Item 16: Form 10-K Summary

None.

2020 ANNUAL REPORT	59

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders and of Snap-on Incorporated:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Snap-on Incorporated and subsidiaries (the “Company”) as of January 2, 2021, and December 28, 2019, and the related consolidated statements of earnings, comprehensive income, equity, and cash flows for each of the three years in the period ended January 2, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 2, 2021, and December 28, 2019, and the results of its operations and its cash flows for each of the three years in the period ended January 2, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of January 2, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 11, 2021, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Change in Accounting Principles

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for credit losses in the year ended January 2, 2021, due to the adoption of Accounting Standard Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326) under the modified retrospective adoption method. The Company changed its method of accounting for leases in the year ended December 28, 2019 due to the adoption of Accounting Standard Update No. 2016-02, Leases (Topic 842) under the modified retrospective adoption method.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

60	SNAP-ON INCORPORATED

Finance Receivables - Net - Refer to Notes 1 and 4 to the financial statements

Critical Audit Matter Description

The Company’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, diagnostics, and equipment products on an extended-term payment plan, generally with average payment terms of approximately four years. The receivables are generally secured by the underlying tools and/or diagnostic or equipment products financed. At January 2, 2021, these loans totaled $1,742.8 million with an allowance of $76.3 million recorded against the receivables. Determining the proper level of allowance requires management to exercise judgment about the timing, frequency and severity of credit losses expected to occur over the life of the contracts. The Company estimates and records an allowance for credit losses over the expected contractual life of their contracts considering collectability, historical loss experience, current conditions and future market changes.

Evaluating the judgments related to the finance receivable allowance for credit losses is subjective and requires auditor judgment to effectively evaluate whether management’s judgments were reasonable.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the finance receivables allowance for credit losses balance included the following procedures, among others:

•We tested the design, implementation and operating effectiveness of management’s controls over the allowance for credit losses including controls over the completeness and accuracy of underlying data.

•Where appropriate, we assessed the reasonableness of, and evaluated support for, qualitative adjustments based on market conditions and/or portfolio performance metrics.

•We tested the completeness and accuracy and evaluated the relevance of the key data used as inputs in management’s allowance for credit losses calculation, including loan balances, recoveries, charge-offs, portfolio characteristics and other data.

•We tested the mathematical accuracy of the allowance for credit losses calculation with the assistance of our credit specialists and developed an expectation of the allowance for credit losses and compared it to the recorded balance.

•We performed a retrospective review based on net losses as compared to estimates in the Company’s allowance to highlight any inconsistencies.

/s/ DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
February 11, 2021

We have served as the Company’s auditor since 2002.

2020 ANNUAL REPORT	61
Snap-on Incorporated – Consolidated Statements of Earnings
---
(Amounts in millions, except per share data)	2020		2019		2018
---	---	---	---	---	---	---
Net sales	$	3,592.5	$	3,730.0	$	3,740.7
Cost of goods sold	(1,844.0)		(1,886.0)		(1,870.7)
Gross profit	1,748.5		1,844.0		1,870.0
Operating expenses	(1,116.6)		(1,127.6)		(1,144.0)
Operating earnings before financial services	631.9		716.4		726.0
Financial services revenue	349.7		337.7		329.7
Financial services expenses	(101.1)		(91.8)		(99.6)
Operating earnings from financial services	248.6		245.9		230.1
Operating earnings	880.5		962.3		956.1
Interest expense	(54.0)		(49.0)		(50.4)
Other income (expense) – net	8.7		8.8		4.2
Earnings before income taxes and equity earnings	835.2		922.1		909.9
Income tax expense	(189.1)		(211.8)		(214.4)
Earnings before equity earnings	646.1		710.3		695.5
Equity earnings, net of tax	0.3		0.9		0.7
Net earnings	646.4		711.2		696.2
Net earnings attributable to noncontrolling interests	(19.4)		(17.7)		(16.3)
Net earnings attributable to Snap-on Incorporated	$	627.0	$	693.5	$	679.9
Net earnings per share attributable to Snap-on Incorporated:
Basic	$	11.55	$	12.59	$	12.08
Diluted	11.44		12.41		11.87
Weighted-average shares outstanding:
Basic	54.3		55.1		56.3
Effect of dilutive securities	0.5		0.8		1.0
Diluted	54.8		55.9		57.3

See Notes to Consolidated Financial Statements.

62	SNAP-ON INCORPORATED
Snap-on Incorporated – Consolidated Statements of Comprehensive Income
---
(Amounts in millions)	2020		2019		2018
---	---	---	---	---	---	---
Comprehensive income (loss):
Net earnings	$	646.4	$	711.2	$	696.2
Other comprehensive income (loss):
Foreign currency translation*	112.7		(9.5)		(95.4)
Unrealized cash flow hedges, net of tax:
Other comprehensive income (loss) before reclassifications	1.4		—		(0.8)
Reclassification of cash flow hedges to net earnings	(1.6)		(1.5)		(1.5)
Defined benefit pension and postretirement plans:
Net prior service costs and credits and unrecognized (loss) gain	3.8		(6.7)		(79.0)
Income tax (expense) benefit	(0.3)		0.2		20.0
Net of tax	3.5		(6.5)		(59.0)
Amortization of unrecognized loss and net prior service costs included in net periodic benefit cost	34.5		23.5		31.1
Income tax benefit	(8.4)		(5.8)		(7.6)
Net of tax	26.1		17.7		23.5
Total comprehensive income	788.5		711.4		563.0
Comprehensive income attributable to noncontrolling interests	(19.4)		(17.7)		(16.3)
Comprehensive income attributable to Snap-on Incorporated	$	769.1	$	693.7	$	546.7

* There is no reclassification adjustment as there was no sale or liquidation of any foreign entity during any period presented.

See Notes to Consolidated Financial Statements.

2020 ANNUAL REPORT	63
Snap-on Incorporated – Consolidated Balance Sheets
---
	Fiscal Year End
---	---	---	---	---
(Amounts in millions, except share data)	2020		2019
ASSETS
Current assets:
Cash and cash equivalents	$	923.4	$	184.5
Trade and other accounts receivable – net	640.7		694.6
Finance receivables – net	530.2		530.1
Contract receivables – net	112.5		100.7
Inventories – net	746.5		760.4
Prepaid expenses and other assets	129.7		110.2
Total current assets	3,083.0		2,380.5
Property and equipment – net	526.2		521.5
Operating lease right-of-use assets	51.9		55.6
Deferred income tax assets	50.3		52.3
Long-term finance receivables – net	1,136.3		1,103.5
Long-term contract receivables – net	374.7		360.1
Goodwill	982.4		913.8
Other intangibles – net	260.8		243.9
Other assets	91.7		62.3
Total assets	$	6,557.3	$	5,693.5
LIABILITIES AND EQUITY
Current liabilities:
Notes payable and current maturities of long-term debt	$	268.5	$	202.9
Accounts payable	222.9		198.5
Accrued benefits	59.7		53.3
Accrued compensation	89.9		53.9
Franchisee deposits	78.4		68.2
Other accrued liabilities	445.5		370.8
Total current liabilities	1,164.9		947.6
Long-term debt	1,182.1		946.9
Deferred income tax liabilities	70.4		69.3
Retiree health care benefits	34.5		33.6
Pension liabilities	127.1		122.1
Operating lease liabilities	34.0		37.5
Other long-term liabilities	97.7		105.7
Total liabilities	2,710.7		2,262.7
Commitments and contingencies (Note 16)
Equity
Shareholders’ equity attributable to Snap-on Incorporated:
Preferred stock (authorized 15,000,000 shares of $1 par value; none outstanding)	—		—
Common stock (authorized 250,000,000 shares of $1 par value; issued 67,430,958 and 67,423,106 shares, respectively)	67.4		67.4
Additional paid-in capital	391.7		379.1
Retained earnings	5,156.9		4,779.7
Accumulated other comprehensive loss	(365.8)		(507.9)
Treasury stock at cost (13,328,859 and 12,772,882 shares, respectively)	(1,425.3)		(1,309.2)
Total shareholders’ equity attributable to Snap-on Incorporated	3,824.9		3,409.1
Noncontrolling interests	21.7		21.7
Total equity	3,846.6		3,430.8
Total liabilities and equity	$	6,557.3	$	5,693.5

See Notes to Consolidated Financial Statements.

| 64 | SNAP-ON INCORPORATED | | --- | --- || Snap-on Incorporated – Consolidated Statements of Equity | | --- || | Shareholders’ Equity Attributable to Snap-on Incorporated | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | (Amounts in millions, except share data) | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Noncontrolling Interests | | Total Equity | | | Balance at December 30, 2017 | $ | 67.4 | $ | 343.2 | $ | 3,772.3 | $ | (329.0) | $ | (900.0) | $ | 18.4 | $ | 2,972.3 | | Net earnings for 2018 | — | | — | | 679.9 | | — | | — | | 16.3 | | 696.2 | | | Other comprehensive loss | — | | — | | — | | (133.2) | | — | | — | | (133.2) | | | Cash dividends – $3.41 per share | — | | — | | (192.0) | | — | | — | | — | | (192.0) | | | Stock compensation plans | — | | 16.2 | | — | | — | | 60.7 | | — | | 76.9 | | | Share repurchases – 1,769,000 shares | — | | — | | — | | — | | (284.1) | | — | | (284.1) | | | Other | — | | — | | (2.6) | | — | | — | | (14.9) | | (17.5) | | | Balance at December 29, 2018 | 67.4 | | 359.4 | | 4,257.6 | | (462.2) | | (1,123.4) | | 19.8 | | 3,118.6 | | | Impact of the Tax Act on Accumulated Other Comprehensive Income (ASU No. 2018-02) | — | | — | | 45.9 | | (45.9) | | — | | — | | — | | | Balance at December 30, 2018 | 67.4 | | 359.4 | | 4,303.5 | | (508.1) | | (1,123.4) | | 19.8 | | 3,118.6 | | | Net earnings for 2019 | — | | — | | 693.5 | | — | | — | | 17.7 | | 711.2 | | | Other comprehensive income | — | | — | | — | | 0.2 | | — | | — | | 0.2 | | | Cash dividends – $3.93 per share | — | | — | | (216.6) | | — | | — | | — | | (216.6) | | | Stock compensation plans | — | | 19.7 | | — | | — | | 52.6 | | — | | 72.3 | | | Share repurchases – 1,495,000 shares | — | | — | | — | | — | | (238.4) | | — | | (238.4) | | | Other | — | | — | | (0.7) | | — | | — | | (15.8) | | (16.5) | | | Balance at December 28, 2019 | 67.4 | | 379.1 | | 4,779.7 | | (507.9) | | (1,309.2) | | 21.7 | | 3,430.8 | | | Impact of adopting the Credit Loss Standard (ASU No. 2016-13) | — | | — | | (6.1) | | — | | — | | — | | (6.1) | | | Balance at December 29, 2019 | 67.4 | | 379.1 | | 4,773.6 | | (507.9) | | (1,309.2) | | 21.7 | | 3,424.7 | | | Net earnings for 2020 | — | | — | | 627.0 | | — | | — | | 19.4 | | 646.4 | | | Other comprehensive income | — | | — | | — | | 142.1 | | — | | — | | 142.1 | | | Cash dividends – $4.47 per share | — | | — | | (243.3) | | — | | — | | — | | (243.3) | | | Stock compensation plans | — | | 12.6 | | — | | — | | 58.2 | | — | | 70.8 | | | Share repurchases – 1,109,000 shares | — | | — | | — | | — | | (174.3) | | — | | (174.3) | | | Other | — | | — | | (0.4) | | — | | — | | (19.4) | | (19.8) | | | Balance at January 2, 2021 | $ | 67.4 | $ | 391.7 | $ | 5,156.9 | $ | (365.8) | $ | (1,425.3) | $ | 21.7 | $ | 3,846.6 |

See Notes to Consolidated Financial Statements.

| 2020 ANNUAL REPORT | 65 | | --- | --- || Snap-on Incorporated – Consolidated Statements of Cash Flows | | --- || (Amounts in millions) | 2020 | | 2019 | | 2018 | | | --- | --- | --- | --- | --- | --- | --- | | Operating activities: | | | | | | | | Net earnings | $ | 646.4 | $ | 711.2 | $ | 696.2 | | Adjustments to reconcile net earnings to net cash provided (used) by operating activities: | | | | | | | | Depreciation | 73.3 | | 70.1 | | 68.8 | | | Amortization of other intangibles | 23.4 | | 22.3 | | 25.3 | | | Provision for losses on finance receivables | 54.6 | | 49.9 | | 57.5 | | | Provision for losses on non-finance receivables | 22.7 | | 18.3 | | 12.8 | | | Stock-based compensation expense | 19.5 | | 23.8 | | 27.2 | | | Deferred income tax provision (benefit) | (8.2) | | 34.2 | | 13.7 | | | Loss on sales of assets | 1.4 | | 0.9 | | 0.5 | | | Settlement of treasury lock | 1.4 | | — | | — | | | Loss on early extinguishment of debt | — | | — | | 7.8 | | | Changes in operating assets and liabilities, net of effects of acquisitions: | | | | | | | | Trade and other accounts receivable | 47.9 | | (15.7) | | (47.7) | | | Contract receivables | (29.9) | | (20.9) | | (30.9) | | | Inventories | 34.2 | | (97.0) | | (38.6) | | | Prepaid and other assets | 8.5 | | (22.2) | | 10.4 | | | Accounts payable | 17.8 | | (2.6) | | 27.5 | | | Accruals and other liabilities | 95.6 | | (97.7) | | (66.0) | | | Net cash provided by operating activities | 1,008.6 | | 674.6 | | 764.5 | | | Investing activities: | | | | | | | | Additions to finance receivables | (835.0) | | (841.9) | | (865.6) | | | Collections of finance receivables | 750.3 | | 754.3 | | 747.7 | | | Capital expenditures | (65.6) | | (99.4) | | (90.9) | | | Acquisitions of businesses, net of cash acquired | (41.5) | | (38.6) | | (3.0) | | | Disposals of property and equipment | 1.8 | | 1.7 | | 0.7 | | | Other | 2.2 | | 1.8 | | 0.9 | | | Net cash used by investing activities | (187.8) | | (222.1) | | (210.2) | | | Financing activities: | | | | | | | | Proceeds from issuance of long-term debt | 489.9 | | — | | 395.4 | | | Repayments of long-term debt | — | | — | | (457.8) | | | Repayments of notes payable | — | | — | | (16.8) | | | Net increase (decrease) in other short-term borrowings | (187.2) | | 17.6 | | 21.7 | | | Cash dividends paid | (243.3) | | (216.6) | | (192.0) | | | Purchases of treasury stock | (174.3) | | (238.4) | | (284.1) | | | Proceeds from stock purchase and option plans | 55.8 | | 51.4 | | 55.5 | | | Other | (25.2) | | (23.4) | | (24.1) | | | Net cash used by financing activities | (84.3) | | (409.4) | | (502.2) | | | Effect of exchange rate changes on cash and cash equivalents | 2.4 | | 0.5 | | (3.2) | | | Increase in cash and cash equivalents | 738.9 | | 43.6 | | 48.9 | | | Cash and cash equivalents at beginning of year | 184.5 | | 140.9 | | 92.0 | | | Cash and cash equivalents at end of year | $ | 923.4 | $ | 184.5 | $ | 140.9 | | Supplemental cash flow disclosures: | | | | | | | | Cash paid for interest | $ | (49.8) | $ | (46.3) | $ | (51.5) | | Net cash paid for income taxes | (188.4) | | (191.2) | | (188.0) | |

See Notes to Consolidated Financial Statements.

66	SNAP-ON INCORPORATED
Notes to Consolidated Financial Statements
---

Note 1: Summary of Accounting Policies

Principles of consolidation and presentation: The Consolidated Financial Statements include the accounts of Snap-on Incorporated and its wholly-owned and majority-owned subsidiaries (collectively, “Snap-on” or “the company”).

Snap-on accounts for investments in unconsolidated affiliates where Snap-on has a non-significant ownership interest under the equity method of accounting. Investments in unconsolidated affiliates of $21.0 million as of January 2, 2021, and $18.8 million as of December 28, 2019, are included in “Other assets” on the accompanying Consolidated Balance Sheets; no equity investment dividends were received in any period presented.

In the normal course of business, the company may purchase products or services from, or sell products or services to, unconsolidated affiliates. Purchases from unconsolidated affiliates were $9.3 million, $10.4 million and $11.2 million in 2020, 2019 and 2018, respectively, and sales to unconsolidated affiliates were $0.5 million in 2020, $0.6 million in 2019 and $0.8 million in 2018. The Consolidated Financial Statements do not include the accounts of the company’s independent franchisees. Snap-on’s Consolidated Financial Statements are prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”). Intercompany accounts and transactions have been eliminated.

Fiscal year accounting period: Snap-on’s fiscal year ends on the Saturday that is on or nearest to December 31. The 2020 fiscal year ended on January 2, 2021 (“2020”). The 2019 fiscal year ended on December 28, 2019 (“2019”). The 2018 fiscal year ended on December 29, 2018 (“2018”). The 2020 fiscal year contained 53 weeks of operating results, with the additional week occurring in the fourth quarter. The impact of the additional week of operations was not material to Snap-on’s 2020 total revenues or net earnings. The 2019 and 2018 fiscal years each contained 52 weeks of operating results.

Use of estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Financial instruments: The fair value of the company’s derivative financial instruments is generally determined using quoted prices in active markets for similar assets and liabilities. The carrying value of the company’s non-derivative financial instruments either approximates fair value, due to their short-term nature, or the amount disclosed for fair value is based upon a discounted cash flow analysis or quoted market values. See Note 11 for further information on financial instruments.

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. See Note 2 for information on revenue recognition.

Financial services revenue: Snap-on generates revenue from various financing programs that include: (i) installment sales and lease contracts arising from franchisees’ customers and Snap-on customers who require financing for the purchase or lease of tools and diagnostic and equipment products on an extended-term payment plan; and (ii) business and vehicle loans and leases to franchisees. These financing programs are offered through Snap-on’s wholly owned finance subsidiaries. Financial services revenue consists primarily of interest income on finance and contract receivables and is recognized over the life of the underlying contracts, with interest computed primarily on the average daily balances of the underlying contracts.

The decision to finance through Snap-on or another financing source is solely at the election of the customer. When assessing customers for potential financing, Snap-on considers various factors regarding ability to pay, including the customers’ financial condition, past payment experience, and credit bureau and proprietary Snap-on credit model information, as well as the value of the underlying collateral. For finance and contract receivables, Snap-on assesses quantitative and qualitative factors through the use of credit quality indicators consisting primarily of collection experience and related internal metrics. Delinquency is the primary indicator of credit quality for finance and contract receivables. Snap-on conducts monthly reviews of credit and collection performance for both the finance and contract receivable portfolios, focusing on data such as delinquency trends, nonaccrual receivables, and write-off and recovery activity.

| 2020 ANNUAL REPORT | 67 | | --- | --- || Notes to Consolidated Financial Statements (continued) | | --- |

Financial services lease arrangements: Snap-on accounts for its financial services leases as sales-type leases. The company recognizes the net investment in the lease as the present value of the lease payments not yet received plus the present value of the unguaranteed residual value, using the interest rate implicit in the lease. The difference between the undiscounted lease payments received over the lease term and the related net investment in the lease is reported as unearned finance charges. Unearned finance charges are amortized to income over the life of the contract. The default covenants included in the lease arrangements are usual and customary, consistent with industry practice, and do not impact the lease classification. Except in circumstances where the company has concluded that a lessee’s financial condition has deteriorated, the other default covenants under Snap-on’s lease arrangements are objectively determinable. See Notes 4 and 17 for further information on finance and contract receivables and lessor accounting.

Research and engineering: Snap-on incurred research and engineering costs of $57.4 million, $59.1 million and $61.2 million in 2020, 2019 and 2018, respectively. Research and engineering costs are included in “Operating expenses” on the accompanying Consolidated Statements of Earnings.

Internally developed software: Costs incurred in the development of software that will ultimately be sold are capitalized from the time technological feasibility has been attained and capitalization ceases when the related product is ready for general release. During 2020, 2019 and 2018, Snap-on capitalized $12.0 million, $12.6 million and $9.7 million, respectively, of such costs. Amortization of capitalized software development costs, which is included in “Cost of goods sold” on the accompanying Consolidated Statements of Earnings, was $10.5 million in 2020, $10.1 million in 2019 and $13.4 million in 2018. Unamortized capitalized software development costs of $44.2 million as of 2020 year end and $42.6 million as of 2019 year end are included in “Other intangibles – net” on the accompanying Consolidated Balance Sheets.

Internal-use software: Costs that are incurred in creating software solutions and enhancements to those solutions are capitalized only for the application development stage of the project.

Shipping and handling: Amounts billed to customers for shipping and handling are included as a component of sales. Costs incurred by Snap-on for shipping and handling are included as a component of cost of goods sold when the costs relate to manufacturing activities. In 2020, 2019 and 2018, Snap-on incurred shipping and handling charges of $53.7 million, $56.5 million and $53.7 million, respectively, that were recorded in “Cost of goods sold” on the accompanying Consolidated Statements of Earnings. Shipping and handling costs incurred in conjunction with selling or distribution activities are included as a component of operating expenses. Shipping and handling charges were $94.2 million in 2020, $88.7 million in 2019 and $84.3 million in 2018; these charges were recorded in “Operating expenses” on the accompanying Consolidated Statements of Earnings.

Advertising and promotion: Production costs of future media advertising are deferred until the advertising occurs. All other advertising and promotion costs are expensed when incurred. For 2020, 2019 and 2018, advertising and promotion expenses totaled $38.0 million, $47.7 million and $55.6 million, respectively. Advertising and promotion costs are included in “Operating expenses” on the accompanying Consolidated Statements of Earnings.

Warranties: Snap-on provides product warranties for specific product lines and accrues for estimated future warranty costs in the period in which the sale is recorded. See Notes 2 and 16 for information on warranties.

Foreign currency: The financial statements of Snap-on’s foreign subsidiaries are translated into U.S. dollars. Assets and liabilities of foreign subsidiaries are translated at current rates of exchange, and income and expense items are translated at the average exchange rates for the period. The resulting translation adjustments are recorded directly into “Accumulated other comprehensive loss” on the accompanying Consolidated Balance Sheets. Foreign exchange transactions, net of foreign currency hedges, resulted in pretax losses of $3.9 million, $3.6 million and $3.9 million in 2020, 2019 and 2018, respectively. Foreign exchange transaction gains and losses are reported in “Other income (expense) – net” on the accompanying Consolidated Statements of Earnings.

68	SNAP-ON INCORPORATED

Income taxes: Current tax assets and liabilities are based upon an estimate of taxes refundable or payable for each of the jurisdictions in which the company is subject to tax. In the ordinary course of business, there is inherent uncertainty in quantifying income tax positions. Snap-on assesses income tax positions and records tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances and information available at the reporting dates. For those tax positions where it is more-likely-than-not that a tax benefit will be sustained, Snap-on records the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more-likely-than-not that a tax benefit will be sustained, no tax benefit is recognized in the financial statements. When applicable, associated interest and penalties are recognized as a component of income tax expense. Accrued interest and penalties are included within the related tax asset or liability on the accompanying Consolidated Balance Sheets.

Deferred income taxes are provided for temporary differences arising from differences in bases of assets and liabilities for tax and financial reporting purposes. Deferred income taxes are recorded on temporary differences using enacted tax rates in effect for the year in which the temporary differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. See Note 9 for further information on income taxes.

Per share data: Basic earnings per share calculations were computed by dividing net earnings attributable to Snap-on Incorporated by the corresponding weighted-average number of common shares outstanding for the period. The dilutive effect of the potential exercise of outstanding options and stock-settled stock appreciation rights (“SARs”) to purchase common shares is calculated using the treasury stock method. As of January 2, 2021, there were 2,207,411 awards outstanding that were anti-dilutive; as of December 28, 2019, there were 1,215,695 awards outstanding that were anti-dilutive; and as of December 29, 2018 there were 685,533 awards outstanding that were anti-dilutive. Performance-based equity awards are included in the diluted earnings per share calculation based on the attainment of the applicable performance metrics to date. Snap-on had dilutive securities totaling 473,196 shares, 748,395 shares and 986,984 shares, as of the end of 2020, 2019 and 2018, respectively. See Note 14 for further information on equity awards.

Stock-based compensation: Snap-on recognizes the cost of employee services in exchange for awards of equity instruments based on the grant date fair value of those awards. That cost, based on the estimated number of awards that are expected to vest, is recognized on a straight-line basis over the period during which the employee is required to provide the service in exchange for the award. No compensation cost is recognized for awards for which employees do not render the requisite service. The grant date fair value of employee stock options and similar instruments is estimated using the Black-Scholes valuation model.

The Black-Scholes valuation model requires the input of subjective assumptions, including the expected life of the stock-based award and stock price volatility. The assumptions used are management’s best estimates, but the estimates involve inherent uncertainties and the application of management judgment. As a result, if other assumptions had been used, the recorded stock-based compensation expense could have been materially different from that depicted in the financial statements. See Note 14 for further information on stock-based compensation.

Derivatives: Snap-on utilizes derivative financial instruments, including foreign currency forward contracts, interest rate swap agreements, treasury lock agreements and prepaid equity forward agreements to manage its exposures to foreign currency exchange rate risks, interest rate risks, and market risk associated with the stock-based portion of its deferred compensation plans. Snap-on accounts for its derivative instruments at fair value. Snap-on does not use financial instruments for speculative or trading purposes. See Note 11 for further information on derivatives.

Cash equivalents: Snap-on considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents consisted of investments in money market funds and bank deposits at January 2, 2021. There were no cash equivalents as of December 28, 2019.

| 2020 ANNUAL REPORT | 69 | | --- | --- || Notes to Consolidated Financial Statements (continued) | | --- |

Receivables and allowances for credit losses: All trade, finance and contract receivables are reported on the Consolidated Balance Sheets at their amortized cost adjusted for any write-offs and net of allowances for credit losses. The amortized costs for finance and contract receivables is the amount originated adjusted for applicable accrued interest and net of deferred fees or costs, net of collections and write-offs.

Snap-on maintains allowances for credit losses, which represent an estimate of expected losses over the remaining contractual life of its receivables considering current market conditions and supportable forecasts when appropriate. The estimate is a result of the company’s ongoing assessments and evaluations of collectability, historical loss experience, and future expectations in estimating credit losses in each of its receivable portfolios (trade, finance and contract receivables). For trade receivables, Snap-on uses historical loss experience rates by portfolio and applies them to a related aging analysis while also considering customer and/or economic risk where appropriate. For finance receivables, Snap-on uses a vintage loss experience analysis. For contract receivables, a weighted-average remaining maturity method is primarily used. Determination of the proper amount of allowances by portfolio requires management to exercise judgment about the timing, frequency and severity of credit losses that could materially affect the provision for credit losses and, as a result, net earnings. The allowances take into consideration numerous quantitative and qualitative factors that include receivable type, historical loss experience, delinquency trends, collection experience, current economic conditions, supportable forecasts, when appropriate, and credit risk characteristics.

Snap-on evaluates the credit risk of the customer when extending credit based on a combination of various financial and qualitative factors that may affect its customers’ ability to pay. These factors may include the customer’s financial condition, past payment experience, and credit bureau and proprietary Snap-on credit model information, as well as the value of the underlying collateral.

Management performs detailed reviews of its receivables on a monthly and/or quarterly basis to assess the adequacy of the allowances and to determine if any impairment has occurred. Monthly reviews of credit and collection performance are conducted for both its finance and contract receivable portfolios focusing on data such as delinquency trends, non-performing assets, and write-off and recovery activity. These reviews allow for the formulation of collection strategies and potential collection policy modifications in response to changing risk profiles in the finance and contract receivable portfolios. A receivable may have credit losses when it is expected that all amounts related to the receivable will not be collected according to the contractual terms of the agreement. Amounts determined to be uncollectable are charged directly against the allowances, while amounts recovered on previously written-off accounts increase the allowances. For both finance and contract receivables, net write-offs include the principal amount of losses written off as well as written-off interest and fees, and recourse from franchisees on finance receivables. Recovered interest and fees previously written off are recorded through the allowances for credit losses and increase the allowance. Finance receivables are assessed for write-off when an account becomes 120 days past due and are written off typically within 60 days of asset repossession. Contract receivables related to equipment leases are generally written off when an account becomes 150 days past due, while contract receivables related to franchise finance and van leases are generally written off up to 180 days past the asset return date. For finance and contract receivables, customer bankruptcies are generally written off upon notification that the associated debt is not being reaffirmed or, in any event, no later than 180 days past due. Changes to the allowances for credit losses are maintained through adjustments to the provision for credit losses, which are charged to current period earnings.

Actual amounts as of the balance sheet dates may be materially different than the amounts reported in future periods due to the uncertainty in the estimation process. Also, future amounts could differ materially from those estimates due to changes in circumstances after the balance sheet date.

Snap-on does not believe that its trade, finance or contract receivables represent significant concentrations of credit risk because of the diversified portfolio of individual customers and geographical areas. See Note 4 for further information on receivables and allowances for credit losses.

70	SNAP-ON INCORPORATED

Other accrued liabilities: Supplemental balance sheet information for “Other accrued liabilities” as of 2020 and 2019 year end is as follows:

(Amounts in millions)	2020		2019
Income taxes	$	32.8	$	23.9
Accrued warranty	17.6		17.3
Operating lease liability	19.3		19.5
Deferred subscription revenue	53.6		55.1
Accrued new tool return	56.3		50.9
Accrued property, payroll and other taxes	62.8		38.6
Accrued selling and promotion expense	33.2		28.3
Accrued restructuring expense	10.0		—
Other	159.9		137.2
Total other accrued liabilities	$	445.5	$	370.8

Inventories: Snap-on values its inventory at the lower of cost or market and adjusts for the value of inventory that is estimated to be excess, obsolete or otherwise unmarketable. Snap-on records allowances for excess and obsolete inventory based on historical and estimated future demand and market conditions. Allowances for raw materials are largely based on an analysis of raw material age and actual physical inspection of raw material for fitness for use. As part of evaluating the adequacy of allowances for work-in-progress and finished goods, management reviews individual product stock-keeping units (SKUs) by product category and product life cycle. Cost adjustments for each product category/product life-cycle state are generally established and maintained based on a combination of historical experience, forecasted sales and promotions, technological obsolescence, inventory age and other actual known conditions and circumstances. Should actual product marketability and raw material fitness for use be affected by conditions that are different from management estimates, further adjustments to inventory allowances may be required.

Snap-on adopted the “last-in, first-out” (“LIFO”) inventory valuation method in 1973 for its U.S. locations. Snap-on’s U.S. inventories accounted for on a LIFO basis consist of purchased product and inventory manufactured at the company’s heritage U.S. manufacturing facilities (primarily hand tools and tool storage). Since Snap-on began acquiring businesses in the 1990’s, the company has used the “first-in, first-out” (“FIFO”) inventory valuation methodology for acquisitions; the company does not adopt the LIFO inventory valuation methodology for new acquisitions. See Note 5 for further information on inventories.

Property and equipment: Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization are provided on a straight-line basis over estimated useful lives. Major repairs that extend the useful life of an asset are capitalized, while routine maintenance and repairs are expensed as incurred. Capitalized software included in property and equipment reflects costs related to internally developed or purchased software for internal use and is amortized on a straight-line basis over their estimated useful lives. Long-lived assets are evaluated for impairment when events or circumstances indicate that the carrying amount of the long-lived asset may not be recoverable. See Note 6 for further information on property and equipment.

Goodwill and other intangible assets: Goodwill and other indefinite-lived assets are tested for impairment annually or more frequently if events or changes in circumstances indicate that the assets might be impaired. Annual impairment tests are performed by the company in the second quarter of each year using information available as of April month end. Snap-on evaluates the existence of goodwill and indefinite-lived intangible asset impairment on the basis of whether the assets are fully recoverable from projected, discounted cash flows of the related reportable unit or asset. Intangible assets with finite lives are amortized over their estimated useful lives using straight-line and accelerated methods depending on the nature of the particular asset. Intangible assets with finite lives are evaluated for impairment when events or circumstances indicate that the carrying amount of the intangible asset may not be recoverable. See Note 7 for further information on goodwill and other intangible assets.

| 2020 ANNUAL REPORT | 71 | | --- | --- || Notes to Consolidated Financial Statements (continued) | | --- |

New accounting standards

The following new accounting pronouncements were adopted in fiscal year 2020:

On December 29, 2019, the beginning of Snap-on’s 2020 fiscal year, the company adopted ASU No. 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which is designed to improve the effectiveness of disclosures by removing, modifying and adding disclosures related to fair value measurements. The adoption of this ASU did not have an impact on the company’s Consolidated Financial Statements or disclosures.

On December 29, 2019, the beginning of Snap-on’s 2020 fiscal year, the company adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), which requires the measurement of expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The main objective of this ASU is to provide financial statement users with more information about the expected credit losses over the contractual life of financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.

Snap-on adopted ASU No. 2016-13 under the modified retrospective approach for receivables measured at amortized costs with prior periods reported in accordance with previously applicable guidance. See Note 4 for a discussion about the impact the adoption of this ASU had on the company and further information on credit losses.

The following new accounting pronouncement will be adopted in fiscal year 2021:

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, which is designed to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. ASU No. 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The adoption of this ASU is not expected to have a significant impact on the company’s consolidated financial statements.

Note 2: 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

72	SNAP-ON INCORPORATED

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.

| 2020 ANNUAL REPORT | 73 | | --- | --- || Notes to Consolidated Financial Statements (continued) | | --- |

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.

74	SNAP-ON INCORPORATED

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.

| 2020 ANNUAL REPORT | 75 | | --- | --- || Notes to Consolidated Financial Statements (continued) | | --- |

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.

Note 3: Acquisitions

On September 28, 2020, Snap-on acquired substantially all of the assets of AutoCrib, Inc. (“AutoCrib”) for a cash purchase price of $35.4 million. AutoCrib, based in Tustin, California, designs, manufactures and markets asset and tool control solutions for a variety of aerospace, automotive, military, natural resources and general industry operations. In fiscal 2020, the company substantially completed the purchase accounting valuations for the acquired net assets of AutoCrib, including intangible assets. Final purchase accounting valuations are expected to be completed in the first quarter of 2021. The preliminary $18.3 million excess of the purchase price over the fair value of the net assets acquired was recorded in “Goodwill” on the accompanying Consolidated Balance Sheets.

76	SNAP-ON INCORPORATED

On January 31, 2020, Snap-on acquired substantially all of the assets related to the TreadReader product line from Sigmavision Limited (“Sigmavision”) for a cash purchase price of $5.9 million. Sigmavision designs and manufactures handheld devices and drive-over ramps that provide tire information for use in the automotive industry. In fiscal 2020, the company completed the purchase accounting valuations for the acquired net assets of Sigmavision, including intangible assets. The $5.6 million excess of the purchase price over the fair value of the net assets acquired was recorded in “Goodwill” on the accompanying Consolidated Balance Sheets.

On August 7, 2019, Snap-on acquired Cognitran Limited (“Cognitran”) for a cash purchase price of $30.6 million (or $29.6 million, net of cash acquired), which reflects a $0.2 million working capital adjustment finalized in fiscal 2020. Cognitran, based in Chelmsford, U.K., specializes in flexible, modular and highly scalable “Software as a Service” (SaaS) products for OEM customers and their dealers, focused on the creation and delivery of service, diagnostics, parts and repair information to the OEM dealers and connected vehicle platforms. In fiscal 2020, the company completed the purchase accounting valuations for the acquired net assets of Cognitran, including intangible assets. The $14.5 million excess of the purchase price over the fair value of the net assets acquired in “Goodwill” on the accompanying Consolidated Balance Sheets.

On April 2, 2019, Snap-on acquired Power Hawk Technologies, Inc. (“Power Hawk”) for a cash purchase price of $7.9 million. Power Hawk, based in Rockaway, New Jersey, designs, manufactures and distributes rescue tools and related equipment for a variety of military, governmental, fire and rescue, and emergency operations. In fiscal 2019, the company completed the purchase accounting valuations for the acquired net assets of Power Hawk, including intangible assets. The $6.4 million excess of the purchase price over the fair value of the net assets acquired was recorded in “Goodwill” on the accompanying Consolidated Balance Sheets.

On January 25, 2019, Snap-on acquired substantially all of the assets of TMB GeoMarketing Limited (“TMB”) for a cash purchase price of $1.3 million. TMB, based in Dorking, U.K., designs planning software used by OEMs to optimize dealer locations and manage the performance of dealer outlets. In fiscal 2019, the company completed the purchase accounting valuations for the acquired net assets of TMB. Substantially all of the purchase price over the fair value of the net assets acquired was recorded in “Goodwill” on the accompanying Consolidated Balance Sheets.

On January 31, 2018, Snap-on acquired substantially all of the assets of George A. Sturdevant, Inc. (d/b/a Fastorq) for a cash purchase price of $3.0 million. Fastorq, based in New Caney, Texas, designs, assembles and distributes hydraulic torque and hydraulic tensioning products for use in critical industries. In fiscal 2018, the company completed the purchase accounting valuations for the acquired net assets of Fastorq. The $2.6 million excess of the purchase price over the fair value of the net assets acquired was recorded in “Goodwill” on the accompanying Consolidated Balance Sheets.

Note 4: Receivables

At the beginning of fiscal 2020, Snap-on adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326). The adoption did not have a significant impact on the company’s consolidated financial statements. Under ASU No. 2016-13, Snap-on is required to determine expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable forecasts.

| 2020 ANNUAL REPORT | 77 | | --- | --- || Notes to Consolidated Financial Statements (continued) | | --- |

The effects of adjustments to the December 28, 2019 Consolidated Balance Sheet as a result of the adoption of ASU No. 2016-13, including an increase in the allowance for credit losses of $8.1 million, were as follows:

	Balance at				Opening Balance at
(Amounts in millions)	December 28,<br>2019		Topic 326 Adjustments		December 29,<br>2019
Current assets
Finance receivables - allowance for credit losses	$	(19.7)	$	(1.7)	$	(21.4)
Contract receivables - allowance for credit losses	(1.5)		(0.5)		(2.0)
Long-term assets
Finance receivables - allowance for credit losses	(42.2)		(3.5)		(45.7)
Contract receivables - allowance for credit losses	(4.1)		(2.4)		(6.5)
Total allowances for credit losses	$	(67.5)	$	(8.1)	$	(75.6)
Deferred income tax assets	$	52.3	$	2.0	$	54.3
Equity
Retained Earnings	$	4,779.7	$	(6.1)	$	4,773.6

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 2020 and 2019 year end are as follows:

(Amounts in millions)	2020		2019
Trade and other accounts receivable	$	667.0	$	715.5
Allowances for credit losses	(26.3)		(20.9)
Total trade and other accounts receivable – net	$	640.7	$	694.6

The following is a rollforward of the allowances for credit losses related to trade and other accounts receivable for 2020:

(Amounts in millions)	2020
Allowances for credit losses:
Beginning of period	$	20.9
Provision for credit losses	18.9
Charge-offs	(13.6)
Recoveries	0.2
Currency translation	(0.1)
End of period	$	26.3

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 sold through the U.S. franchisee network and to certain other customers of Snap-on; 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.

78	SNAP-ON INCORPORATED

Snap-on’s finance receivables are comprised of extended-term 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 payment terms of approximately four years.

Contract receivables, with payment terms of up to 10 years, are comprised of extended-term payment contracts to a broad base of customers worldwide, including shop owners, both independents and national chains, for their purchase of tools and diagnostic and equipment products, as well as extended-term contracts 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, or the expansion of an existing franchise. Finance and contract receivables are generally secured by the underlying tools and/or diagnostic or equipment products financed and, for contracts to franchisees, other franchisee assets.

The components of Snap-on’s current finance and contract receivables as of 2020 and 2019 year end are as follows:

(Amounts in millions)	2020		2019
Finance installment receivables	$	533.9	$	511.9
Finance lease receivables, net of unearned finance charges of $4.4 million and $11.7 million, respectively	20.2		37.9
Total finance receivables	554.1		549.8
Contract installment receivables	59.1		50.8
Contract lease receivables, net of unearned finance charges of $18.2 million and $18.2 million, respectively	55.7		51.4
Total contract receivables	114.8		102.2
Total	668.9		652.0
Allowances for credit losses:
Finance installment receivables	(23.6)		(19.2)
Finance lease receivables	(0.3)		(0.5)
Total finance allowance for credit losses	(23.9)		(19.7)
Contract installment receivables	(1.4)		(0.5)
Contract lease receivables	(0.9)		(1.0)
Total contract allowance for credit losses	(2.3)		(1.5)
Total allowance for credit losses	(26.2)		(21.2)
Total current finance and contract receivables – net	$	642.7	$	630.8
Finance receivables – net	$	530.2	$	530.1
Contract receivables – net	112.5		100.7
Total current finance and contract receivables – net	$	642.7	$	630.8
2020 ANNUAL REPORT	79
---	---		Notes to Consolidated Financial Statements (continued)
---

The components of Snap-on’s finance and contract receivables with payment terms beyond one year as of 2020 and 2019 year end are as follows:

(Amounts in millions)	2020		2019
Finance installment receivables	$	1,173.1	$	1,106.0
Finance lease receivables, net of unearned finance charges of $2.5 million and $8.2 million, respectively	15.6		39.7
Total finance receivables	1,188.7		1,145.7
Contract installment receivables	199.7		195.5
Contract lease receivables, net of unearned finance charges of $30.2 million and $29.4 million, respectively	181.7		168.7
Total contract receivables	381.4		364.2
Total	1,570.1		1,509.9
Allowances for credit losses:
Finance installment receivables	(52.1)		(41.6)
Finance lease receivables	(0.3)		(0.6)
Total finance allowance for credit losses	(52.4)		(42.2)
Contract installment receivables	(3.1)		(1.8)
Contract lease receivables	(3.6)		(2.3)
Total contract allowance for credit losses	(6.7)		(4.1)
Total allowance for credit losses	(59.1)		(46.3)
Total long-term finance and contract receivables – net	$	1,511.0	$	1,463.6
Finance receivables – net	$	1,136.3	$	1,103.5
Contract receivables – net	374.7		360.1
Total long-term finance and contract receivables – net	$	1,511.0	$	1,463.6

Long-term finance and contract receivables installments, net of unearned finance charges, as of 2020 and 2019 year end are scheduled as follows:

	2020				2019
(Amounts in millions)	Finance<br>Receivables		Contract<br>Receivables		Finance<br>Receivables		Contract<br>Receivables
Due in Months:
13 – 24	$	444.6	$	92.0	$	439.1	$	86.4
25 – 36	360.3		78.9		352.4		76.9
37 – 48	250.9		67.1		238.0		65.6
49 – 60	132.9		51.3		116.2		51.3
Thereafter	—		92.1		—		84.0
Total	$	1,188.7	$	381.4	$	1,145.7	$	364.2
80	SNAP-ON INCORPORATED
---	---

Credit quality: The company’s receivable portfolio is comprised of two portfolio segments, finance and contract receivables, which are the same segments used to estimate expected credit losses reported in the allowance for credit losses. The amortized cost basis for finance and contract receivables is the amount originated adjusted for applicable accrued interest and net of deferred fees or costs, collection of cash, and write-offs. The company monitors and assesses credit risk based on the characteristics of each portfolio segment.

When extending credit, Snap-on evaluates the collectability of the receivables based on a combination of various financial and qualitative factors that may affect a customer’s ability to pay. These factors may include the customer’s financial condition, past payment experience, and credit bureau and proprietary Snap-on credit model information, as well as the value of the underlying collateral.

For finance and contract receivables, Snap-on assesses quantitative and qualitative factors through the use of credit quality indicators consisting primarily of collection experience and related internal metrics. Delinquency is the primary indicator of credit quality for finance and contract receivables. Snap-on conducts monthly reviews of credit and collection performance for both the finance and contract receivable portfolios focusing on data such as delinquency trends, nonaccrual receivables, and write-off and recovery activity. These reviews allow for the formulation of collection strategies and potential collection policy modifications in response to changing risk profiles in the finance and contract receivable portfolios. The other internal metrics include credit exposure by customer and delinquency classification to further monitor changing risk profiles. The company maintains a system that aggregates credit exposure and provides delinquency data by days past due aging categories. A receivable 30 days or more past due is considered delinquent. However, customers are monitored prior to becoming 30 days past due.

The amortized cost basis of finance and contract receivables by origination year as of 2020 year end is as follows:

(Amounts in millions)	2020		2019		2018		2017		2016		Prior		Total
Finance Receivables:
Delinquent	$	15.9	$	18.2	$	10.0	$	5.2	$	2.2	$	0.2	$	51.7
Non-delinquent	1,129.5		349.4		143.9		53.3		14.0		1.0		1,691.1
Total Finance receivables	$	1,145.4	$	367.6	$	153.9	$	58.5	$	16.2	$	1.2	$	1,742.8
Contract receivables:
Delinquent	$	0.6	$	0.6	$	0.8	$	0.5	$	0.6	$	0.3	$	3.4
Non-delinquent	180.5		124.8		84.7		52.5		24.6		25.7		492.8
Total Contract receivables	$	181.1	$	125.4	$	85.5	$	53.0	$	25.2	$	26.0	$	496.2

Allowance for credit losses: The allowance for credit losses utilizes an expected credit loss objective for the recognition of credit losses on receivables over the contractual life using historical experience, asset specific risk characteristics, current conditions, reasonable and supportable forecasts, and the appropriate reversion period, when applicable.

The allowance for credit losses is maintained at a level that is considered adequate to cover credit-related losses on the receivables. Management performs detailed reviews of its receivables on a monthly and/or quarterly basis to assess the adequacy of the allowance and determine if any impairment has occurred. A receivable may have credit losses when it is expected that all amounts related to the receivable will not be collected according to the contractual terms of the agreement. Amounts determined to be uncollectable are charged directly against the allowance, while amounts recovered on previously written-off accounts increase the allowance. For both finance and contract receivables, net write-offs include the principal amount of losses written off as well as written-off accrued interest and fees, and recourse from franchisees on finance receivables. Recovered interest and fees previously written off are recorded through the allowance for credit losses and increase the allowance. Finance receivables are assessed for write-off when an account becomes 120 days past due and are written off typically within 60 days of asset repossession. Contract receivables related to equipment leases are generally written off when an account becomes 150 days past due, while contract receivables related to franchise finance and van leases are generally written off up to 180 days past the asset return date. For finance and contract receivables, customer bankruptcies are generally written off upon notification that the associated debt is not being reaffirmed or, in any event, no later than 180 days past due. Changes to the allowances for credit losses are maintained through adjustments to the provision for credit losses.

| 2020 ANNUAL REPORT | 81 | | --- | --- || Notes to Consolidated Financial Statements (continued) | | --- |

For finance receivables, the company uses a vintage loss rate methodology to determine expected losses. Vintage analysis aims to calculate losses based on the timing of the losses relative to the origination of the receivables. The finance receivable portfolio contains a substantial amount of homogeneous contracts which fits well with the vintage analysis.

For contract receivables the company primarily uses a Weighted-Average Remaining Maturity methodology (“WARM”). The WARM methodology calculates the average annual write-off rate and applies it to the remaining term of the receivables. The WARM method is used since the contract receivables have limited loss experience over generally longer terms and, therefore, the predictive loss patterns are more difficult to estimate.

The company performed a correlation analysis to compare historical losses to many economic factors. The primary economic factors considered were real gross domestic product, civilian unemployment, industrial production index, and repair and maintenance employment rate; the company determined that there is limited correlation between the historical losses and economic factors. As a result, consideration was given to qualitative factors to adjust the reserve balance for asset specific risk characteristics, current conditions and future expectations. Similar qualitative factors are considered for both finance and contract receivables. The qualitative factors used in determining the estimate of expected credit losses are influenced by the changes in the composition of the portfolio, underwriting practices, and other relevant conditions that were different from the historical periods, which included considering the impact of the coronavirus (“COVID-19”) pandemic.

The allowance for credit losses is adjusted each period for changes in the credit risk and expected lifetime credit losses.

The following is a rollforward of the allowances for credit losses for finance and contract receivables for 2020 and 2019:

	2020				2019
(Amounts in millions)	Finance<br>Receivables		Contract<br>Receivables		Finance<br>Receivables		Contract<br>Receivables
Allowances for credit losses:
Beginning of year	$	61.9	$	5.6	$	61.4	$	4.3
Impact of adopting ASU No. 2016-13	5.2		2.9		—		—
Provision for credit losses	54.6		3.8		49.9		4.7
Charge-offs	(53.8)		(3.8)		(57.1)		(3.9)
Recoveries	8.2		0.4		7.7		0.5
Currency translation	0.2		0.1		—		—
End of year	$	76.3	$	9.0	$	61.9	$	5.6

Past due: Depending on the contract, payments for finance and contract receivables are due on a monthly or weekly basis. Weekly payments are converted into a monthly equivalent for purposes of calculating delinquency. Delinquencies are assessed at the end of each month following the monthly equivalent contractual payment due date. The entire receivable balance of a contract is considered delinquent when contractual payments become 30 days past due. Removal from delinquent status occurs when the cumulative amount of monthly contractual payments then due have been received by the company.

It is the general practice of Snap-on’s financial services business not to engage in contract or loan modifications. In limited instances, Snap-on’s financial services business may modify certain receivables in troubled debt restructurings. The amount and number of restructured finance and contract receivables as of 2020 and 2019 year end were immaterial to both the financial services portfolio and the company’s results of operations and financial position.

82	SNAP-ON INCORPORATED

The aging of finance and contract receivables as of 2020 and 2019 year end is as follows:

(Amounts in millions)	30-59<br>Days Past<br>Due		60-90<br>Days Past<br>Due		Greater<br>Than 90<br>Days Past<br>Due		Total Past<br>Due		Total Not Past<br>Due		Total		Greater<br>Than 90<br>Days Past<br>Due and<br>Accruing
2020 year end:
Finance receivables	$	18.4	$	12.2	$	21.1	$	51.7	$	1,691.1	$	1,742.8	$	18.2
Contract receivables	1.3		0.6		1.5		3.4		492.8		496.2		0.2
2019 year end:
Finance receivables	$	19.7	$	12.0	$	21.4	$	53.1	$	1,642.4	$	1,695.5	$	17.2
Contract receivables	1.5		0.9		1.5		3.9		462.5		466.4		0.5

Nonaccrual: SOC maintains the accrual of interest income during the progression through the various stages of delinquency prior to processing for write-off. At the time of write-off, the entire balance including the accrued but unpaid interest income amount is recorded as a loss.

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.

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.

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. A receivable may have credit losses when it is expected that all amounts related to the receivable will not be collected according to the contractual terms of the applicable agreement. Such finance and contract receivables are covered by the company’s respective allowances for credit losses and are written-off against the allowances when appropriate.

The amount of finance and contract receivables on nonaccrual status as of 2020 and 2019 year end is as follows:

(Amounts in millions)	2020		2019
Finance receivables	$	9.6	$	12.2
Contract receivables	2.4		2.2

Note 5: Inventories

Inventories by major classification as of 2020 and 2019 year end are as follows:

(Amounts in millions)	2020		2019
Finished goods	$	643.4	$	661.0
Work in progress	61.6		57.1
Raw materials	125.5		126.8
Total FIFO value	830.5		844.9
Excess of current cost over LIFO cost	(84.0)		(84.5)
Total inventories – net	$	746.5	$	760.4
2020 ANNUAL REPORT	83
---	---		Notes to Consolidated Financial Statements (continued)
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Inventories accounted for using the FIFO method approximated 57% and 58% of total inventories as of 2020 and 2019 year end, respectively. The company accounts for its non-U.S. inventory on the FIFO method. As of 2020 year end, approximately 30% of the company’s U.S. inventory was accounted for using the FIFO method and 70% was accounted for using the LIFO method. There were no LIFO inventory liquidations in 2020, 2019 or 2018.

Note 6: Property and Equipment

Property and equipment (which are carried at cost) as of 2020 and 2019 year end are as follows:

(Amounts in millions)	2020		2019
Land	$	34.0	$	31.9
Buildings and improvements	432.0		405.1
Machinery, equipment and computer software	1,033.4		988.0
Property and equipment – gross	1,499.4		1,425.0
Accumulated depreciation and amortization	(973.2)		(903.5)
Property and equipment – net	$	526.2	$	521.5

The estimated service lives of property and equipment are principally as follows:

Buildings and improvements	3 to 50 years
Machinery, equipment and computer software	2 to 15 years

Depreciation expense was $73.3 million, $70.1 million and $68.8 million in 2020, 2019 and 2018, respectively.

Note 7: Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill by segment for 2020 and 2019 are as follows:

(Amounts in millions)	Commercial<br>& Industrial<br>Group		Snap-on<br>Tools Group		Repair Systems <br>& Information<br>Group		Total
Balance as of 2018 year end	$	286.2	$	12.5	$	603.5	$	902.2
Currency translation	(6.4)		—		(1.1)		(7.5)
Acquisitions	6.4		—		12.7		19.1
Balance as of 2019 year end	$	286.2	$	12.5	$	615.1	$	913.8
Currency translation	26.7		(0.1)		15.0		41.6
Acquisitions	18.3		—		8.7		27.0
Balance as of 2020 year end	$	331.2	$	12.4	$	638.8	$	982.4

Goodwill of $982.4 million as of 2020 year end includes: (i) $5.6 million from the acquisition of certain assets of Sigmavision, (ii) $14.5 million from the acquisition of Cognitran; and (iii) $18.3 million, on a preliminary basis, from the acquisition of AutoCrib. During 2020, the purchase accounting valuations for the acquired net assets, including intangible assets, of Sigmavision and Cognitran were completed, resulting in an increase in goodwill of $3.1 million for Cognitran. The remaining purchase accounting valuations for the acquired net assets, including intangible assets, of AutoCrib are expected to be completed in the first quarter of 2021. The goodwill from the Sigmavision and Cognitran acquisitions is included in the Repair Systems & Information Group. The goodwill from the AutoCrib acquisition is included in the Commercial & Industrial Group.

Goodwill of $913.8 million as of 2019 year end includes: (i) $11.4 million, on a preliminary basis, from the acquisition of Cognitran; (ii) $6.4 million from the acquisition of Power Hawk; and (iii) $1.3 million from the acquisition of TMB. The goodwill from the Cognitran and TMB acquisitions is included in the Repair Systems & Information Group. The goodwill from the Power Hawk acquisition is included in the Commercial & Industrial Group.

84	SNAP-ON INCORPORATED

See Note 3 for additional information on acquisitions.

Additional disclosures related to other intangible assets as of 2020 and 2019 year end are as follows:

	2020				2019
(Amounts in millions)	Gross<br>Carrying Value		Accumulated<br>Amortization		Gross<br>Carrying Value		Accumulated<br>Amortization
Amortized other intangible assets:
Customer relationships	$	191.5	$	(130.1)	$	182.9	$	(117.9)
Developed technology	21.8		(19.9)		19.8		(18.9)
Internally developed software	172.2		(128.0)		168.0		(125.4)
Patents	43.2		(25.3)		38.5		(23.7)
Trademarks	3.9		(2.4)		3.5		(2.1)
Other	8.2		(3.9)		7.3		(3.1)
Total	440.8		(309.6)		420.0		(291.1)
Non-amortized trademarks	129.6		—		115.0		—
Total other intangible assets	$	570.4	$	(309.6)	$	535.0	$	(291.1)

As of year-end 2020, the gross carrying value of intangible assets includes $4.6 million of customer relationships, $1.7 million of developed technology and $7.4 million of non-amortized trademarks as a result of the AutoCrib acquisition, as well as $0.3 million of patents from the Sigmavision acquisition. As of year-end 2019, the gross carrying value of customer relationships includes $10.2 million related to the Cognitran acquisition and $0.9 million related to the Power Hawk acquisition. Additionally, the gross carrying value of intangible assets in 2019 includes $6.5 million of non-amortized trademarks and $1.1 million of developed technology as a result of the Cognitran acquisition.

Significant and unanticipated changes in circumstances, such as declines in profitability and cash flow due to significant and long-term deterioration in macroeconomic, industry and market conditions, the loss of key customers, changes in technology or markets, significant changes in key personnel or litigation, a significant and sustained decrease in share price and/or other events, including effects from the sale or disposal of a reporting unit, could require a provision for impairment of goodwill and/or other intangible assets in a future period. As of 2020 year end, the company had no accumulated impairment losses.

The weighted-average amortization periods related to other intangible assets are as follows:

	In Years
Customer relationships	15
Developed technology	3
Internally developed software	6
Patents	7
Trademarks	5
Other	39

Snap-on is amortizing its customer relationships on both an accelerated and straight-line basis over a 15 year weighted-average life; the remaining intangibles are amortized on a straight-line basis. The weighted-average amortization period for all amortizable intangibles on a combined basis is 11 years.

The company’s customer relationships generally have contractual terms of three to five years and are typically renewed without significant cost to the company. The weighted-average 15 year life for customer relationships is based on the company’s historical renewal experience. Intangible asset renewal costs are expensed as incurred.

The aggregate amortization expense was $23.4 million in 2020, $22.3 million in 2019 and $25.3 million in 2018. Based on current levels of amortizable intangible assets and estimated weighted-average useful lives, estimated annual amortization expense is expected to be $23.3 million in 2021, $20.2 million in 2022, $17.2 million in 2023, $12.5 million in 2024, and $8.2 million in 2025.

2020 ANNUAL REPORT	85
Notes to Consolidated Financial Statements (continued)
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Note 8: Exit and Disposal Activities

Snap-on recorded costs associated with exit and disposal activities of $12.5 million during 2020. Snap-on did not record any costs for exit and disposal activities in 2019. The 2020 costs associated with disposal activities by operating segment are as follows:

(Amounts in millions)	2020
Exit and disposal costs
Cost of goods sold:
Commercial & Industrial Group	$	6.4
Repair System & Information Group	0.7
Total cost of goods sold	$	7.1
Operating Expenses:
Snap-on Tools Group	$	0.6
Repair System & Information Group	4.8
Total operating expenses	$	5.4
Total exit and disposal costs:
Commercial & Industrial Group	$	6.4
Snap-on Tools Group	0.6
Repair System & Information Group	5.5
Total exit and disposal costs	$	12.5

Of the $12.5 million of costs incurred in 2020, $12.2 million qualified for accrual treatment. Costs associated with exit and disposal activities in 2020 primarily related to headcount reductions from the ongoing optimization of the company’s cost structure in Europe and various other management and realignment actions.

Snap-on’s exit and disposal accrual activity for 2020 is as follows:

	Balance at						Balance at
(Amounts in millions)	2019<br><br>Year End		Provision in<br><br>2020		Usage in<br><br>2020		2020<br><br>Year End
Severance costs:
Commercial & Industrial Group	$	—	$	6.4	$	(0.6)	$	5.8
Snap-on Tools Group	—		0.6		(0.2)		0.4
Repair System & Information Group	—		5.2		(1.4)		3.8
Total	$	—	$	12.2	$	(2.2)	$	10.0

As of January 2, 2021, the company expects that approximately $8.1 million of the $10.0 million exit and disposal accrual will be utilized in 2021, and the remainder thereafter, primarily for longer-term severance payments.

Snap-on expects to fund the remaining cash requirements of its exit and disposal activities with available cash on hand, cash flows from operating activities and borrowings under the company’s existing credit facilities. The estimated costs for the exit and disposal activities were based on management’s best business judgement under prevailing circumstances.

86	SNAP-ON INCORPORATED

Note 9: Income Taxes

The source of earnings before income taxes and equity earnings consisted of the following:

(Amounts in millions)	2020		2019		2018
United States	$	715.9	$	765.3	$	735.4
Foreign	119.3		156.8		174.5
Total	$	835.2	$	922.1	$	909.9

The provision (benefit) for income taxes consisted of the following:

(Amounts in millions)	2020		2019		2018
Current:
Federal	$	136.8	$	110.0	$	117.9
Foreign	29.9		38.1		52.4
State	30.6		29.5		30.4
Total current	197.3		177.6		200.7
Deferred:
Federal	(10.0)		26.6		18.7
Foreign	3.0		1.5		(8.4)
State	(1.2)		6.1		3.4
Total deferred	(8.2)		34.2		13.7
Total income tax provision	$	189.1	$	211.8	$	214.4

The following is a reconciliation of the statutory federal income tax rate to Snap-on’s effective tax rate:

	2020	2019	2018
Statutory federal income tax rate	21.0%	21.0%	21.0%
Increase (decrease) in tax rate resulting from:
State income taxes, net of federal benefit	2.9	2.9	2.9
Noncontrolling interests	(0.5)	(0.4)	(0.4)
Repatriation of foreign earnings	(0.7)	(0.1)	(0.1)
Change in valuation allowance for deferred tax assets	0.5	0.4	0.3
Adjustments to tax accruals and reserves	(0.5)	(0.4)	(0.2)
Foreign rate differences	0.5	0.4	0.4
Excess tax benefits related to equity compensation	(0.5)	(0.5)	(0.8)
U.S. tax reform, net impact	—	—	0.4
Other	(0.1)	(0.3)	0.1
Effective tax rate	22.6%	23.0%	23.6%

Snap-on’s effective income tax rate on earnings attributable to Snap-on Incorporated was 23.2% in 2020, 23.4% in 2019, and 24.0% in 2018. The effective tax rate for 2018 included an additional non-recurring net tax charge attributable to the prior year’s U.S. tax reform changes.

On December 22, 2017, the U.S. government passed the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act made broad and complex changes to the U.S. tax code, including, but not limited to: (i) reducing the U.S. federal corporate tax rate from 35% to 21%; (ii) requiring companies to pay a one-time transition tax on certain unremitted earnings of foreign subsidiaries; and (iii) bonus depreciation that allows for full expensing of qualified property.

| 2020 ANNUAL REPORT | 87 | | --- | --- || Notes to Consolidated Financial Statements (continued) | | --- |

The Tax Act also established new tax laws that affect years after 2017, including, but not limited to: (i) the reduction of the U.S. federal corporate tax rate discussed above; (ii) a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries; (iii) a new provision designed to tax global intangible low-taxed income (“GILTI”); (iv) the repeal of the domestic production activity deductions; (v) limitations on the deductibility of certain executive compensation; (vi) limitations on the use of foreign tax credits to reduce the U.S. income tax liability; and (vii) a new provision that allows a domestic corporation an immediate deduction for a portion of its foreign derived intangible income (“FDII”).

During 2018, the company recorded additional net tax benefits of $4.4 million attributable to pension contributions made in 2018 that were deductible for 2017 at the higher 35% federal tax rate and other changes to the 2017 tax provision related to the Tax Act and subsequently-issued tax guidance. Due to the complexity of the new GILTI tax rules, the company continued to evaluate this provision of the Tax Act and the application of Accounting Standards Codification (“ASC”) 740 throughout 2018. Under GAAP, the company is allowed to make an accounting policy choice to either: (i) treat taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”); or (ii) factor in such amounts into a company’s measurement of its deferred taxes (the “deferred method”). The company selected to apply the “period cost method” to account for the new GILTI tax, and treated it as a current-period expense for 2020, 2019 and 2018.

Temporary differences that give rise to the net deferred income tax asset (liability) as of 2020, 2019 and 2018 year end are as follows:

(Amounts in millions)	2020		2019		2018
Deferred income tax assets (liabilities):
Inventories	$	41.4	$	34.7	$	33.6
Accruals not currently deductible	75.1		62.4		72.9
Tax credit carryforward	2.4		2.0		1.8
Employee benefits	32.4		41.3		56.5
Net operating losses	37.1		40.4		40.9
Depreciation and amortization	(192.0)		(178.9)		(167.5)
Valuation allowance	(26.7)		(27.8)		(25.1)
Equity-based compensation	14.3		16.2		16.6
Undistributed non-U.S. earnings	(5.4)		(6.6)		(6.0)
Other	1.3		(0.7)		(0.4)
Net deferred income tax asset (liability)	$	(20.1)	$	(17.0)	$	23.3

As of 2020 year end, Snap-on had tax net operating loss carryforwards totaling $184.1 million as follows:

(Amounts in millions)	State		Federal		Foreign		Total
Year of expiration:
2021-2025	$	0.3	$	—	$	58.5	$	58.8
2026-2030	—		—		10.4		10.4
2031-2035	56.7		—		—		56.7
2036-2040	—		—		—		—
2041-2045	—		—		31.9		31.9
Indefinite	—		—		26.3		26.3
Total net operating loss carryforwards	$	57.0	$	—	$	127.1	$	184.1
88	SNAP-ON INCORPORATED
---	---

A valuation allowance totaling $26.7 million, $27.8 million and $25.1 million as of 2020, 2019 and 2018 year end, respectively, has been established for deferred income tax assets primarily related to certain subsidiary loss carryforwards that may not be realized. Realization of the net deferred income tax assets is dependent on generating sufficient taxable income prior to their expiration. Although realization is not assured, management believes it is more-likely-than-not that the net deferred income tax assets will be realized. The amount of the net deferred income tax assets considered realizable, however, could change in the near term if estimates of future taxable income during the carryforward period fluctuate.

The following is a reconciliation of the beginning and ending amounts of unrecognized tax benefits for 2020, 2019 and 2018:

(Amounts in millions)	2020		2019		2018
Unrecognized tax benefits at beginning of year	$	10.3	$	11.1	$	7.7
Gross increases – tax positions in prior periods	0.4		—		1.3
Gross decreases – tax positions in prior periods	—		(0.6)		(0.1)
Gross increases – tax positions in the current period	0.4		0.5		2.8
Settlements with taxing authorities	(1.4)		—		—
Lapsing of statutes of limitations	(0.6)		(0.7)		(0.6)
Unrecognized tax benefits at end of year	$	9.1	$	10.3	$	11.1

The unrecognized tax benefits of $9.1 million, $10.3 million and $11.1 million as of 2020, 2019 and 2018 year end, respectively, would impact the effective income tax rate if recognized. As of January 2, 2021, unrecognized tax benefits of $1.4 million and $7.7 million were included in “Deferred income tax assets” and “Other long-term liabilities,” respectively, on the accompanying Consolidated Balance Sheets. Interest and penalties related to unrecognized tax benefits are recorded in income tax expense. As of 2020, 2019 and 2018 year end, the company had provided for $1.1 million, $1.1 million and $0.8 million, respectively, of accrued interest and penalties related to unrecognized tax benefits. As of January 2, 2021, $1.1 million of accrued interest and penalties were included in “Other long-term liabilities” on the accompanying Consolidated Balance Sheets.

Snap-on and its subsidiaries file income tax returns in the United States and in various state, local and foreign jurisdictions. It is reasonably possible that certain unrecognized tax benefits may either be settled with taxing authorities or the statutes of limitations for such items may lapse within the next 12 months, causing Snap-on’s gross unrecognized tax benefits to decrease by a range of zero to $0.7 million. Over the next 12 months, Snap-on anticipates taking certain tax positions on various tax returns for which the related tax benefit does not meet the recognition threshold. Accordingly, Snap-on’s gross unrecognized tax benefits may increase by a range of zero to $0.8 million over the next 12 months for uncertain tax positions expected to be taken in future tax filings.

With few exceptions, Snap-on is no longer subject to U.S. federal and state/local income tax examinations by tax authorities for years prior to 2017, and Snap-on is no longer subject to non-U.S. income tax examinations by tax authorities for years prior to 2012.

In general, it is Snap-on’s practice and intention to reinvest certain earnings of its non-U.S. subsidiaries in those operations. As of 2020 year end, the company has not made a provision for incremental U.S. income taxes or additional foreign withholding taxes on approximately $319.1 million of such undistributed earnings that is deemed indefinitely reinvested. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable. As a result of the Tax Act, which subjected the majority of the company’s undistributed foreign earnings to taxation for the 2017 tax year, the company can now repatriate non-U.S. cash in a tax efficient manner. Accordingly, the company has reversed its prior assertion concerning the indefinite reinvestment of the majority of its undistributed foreign earnings and has recorded a deferred tax liability of $5.4 million for the incremental tax costs associated with the future potential repatriation of such earnings.

2020 ANNUAL REPORT	89
Notes to Consolidated Financial Statements (continued)
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Note 10: Short-term and Long-term Debt

Short-term and long-term debt as of 2020 and 2019 year end consisted of the following:

(Amounts in millions)	2020		2019
6.125% unsecured notes due 2021	$	250.0	$	250.0
3.25% unsecured notes due 2027	300.0		300.0
4.10% unsecured notes due 2048	400.0		400.0
3.10% unsecured notes due 2050	500.0		—
Other debt*	0.6		199.8
	1,450.6		1,149.8
Less: notes payable and current maturities of long-term debt:
Current maturities of long-term debt	$	(250.0)	$	—
Commercial paper borrowings	—		(193.6)
Other notes*	(18.5)		(9.3)
	(268.5)		(202.9)
Total long-term debt	$	1,182.1	$	946.9
* Includes the net effects of debt amortization costs and fair value adjustments related to interest rate swaps.
---

The annual maturities of Snap-on’s long-term debt and notes payable over the next five years are $268.5 million in 2021, with no maturities in 2022, 2023, 2024 and 2025.

Average notes payable outstanding, including commercial paper and short-term credit facility borrowings, were $68.4 million and $175.0 million in 2020 and 2019, respectively. The 2020 weighted-average interest rate on such borrowings of 2.98% compared with 2.87% in 2019. Average commercial paper borrowings were $41.0 million and $162.2 million in 2020 and 2019, respectively, and the weighted-average interest rate of 1.53% on such borrowings in 2020 decreased from 2.27% last year. No commercial paper was outstanding as of year-end 2020. Average short-term credit facility borrowings were $13.9 million in 2020 with a weighted-average interest rate of 1.70%. No amounts were outstanding under the short-term credit facility as of year-end 2020 and no amounts were borrowed under the short-term credit facility in 2019. At 2020 year end, the weighted-average interest rate on outstanding notes payable of 8.87% compared with 2.23% in 2019. The 2020 year-end rate increased primarily due to higher local borrowings in emerging markets.

On April 27, 2020, Snap-on sold, at a discount, $500 million of unsecured 3.10% notes that mature on May 1, 2050 (the “2050 Notes”). Interest on the 2050 Notes accrues at a rate of 3.10% and is paid semi-annually. Snap-on used the $489.9 million net proceeds from the sale of the 2050 Notes, reflecting $4.4 million of transaction costs, for general corporate purposes, which may include working capital, capital expenditures and potential acquisitions.

90	SNAP-ON INCORPORATED

Note 11: Financial Instruments

Derivatives: All derivative instruments are reported in the Consolidated Financial Statements at fair value. Changes in the fair value of derivatives are recorded each period in earnings or on the accompanying Consolidated Balance Sheets, depending on whether the derivative is designated and effective as part of a hedged transaction. Gains or losses on derivative instruments recorded in earnings are presented in the same Consolidated Statement of Earnings line that is used to present the earnings effect of the hedged item. Gains or losses on derivative instruments in accumulated other comprehensive income (loss) (“Accumulated OCI”) are reclassified to earnings in the period in which earnings are affected by the underlying hedged item.

The criteria used to determine if hedge accounting treatment is appropriate are: (i) the designation of the hedge to an underlying exposure; (ii) whether or not overall risk is being reduced; and (iii) if there is a correlation between the value of the derivative instrument and the underlying hedged item. Once a derivative contract is entered into, Snap-on designates the derivative as a fair value hedge, a cash flow hedge, a hedge of a net investment in a foreign operation, or a natural hedging instrument whose change in fair value is recognized as an economic hedge against changes in the value of the hedged item. Snap-on does not use derivative instruments for speculative or trading purposes.

The company is exposed to global market risks, including the effects of changes in foreign currency exchange rates, interest rates, and the company’s stock price, and therefore uses derivatives to manage financial exposures that occur in the normal course of business. The primary risks managed by using derivative instruments are foreign currency risk, interest rate risk and stock-based deferred compensation risk.

Foreign currency risk management: Snap-on has significant international operations and is subject to certain risks inherent with foreign operations that include currency fluctuations. Foreign currency exchange risk exists to the extent that Snap-on has payment obligations or receipts denominated in currencies other than the functional currency, including intercompany loans denominated in foreign currencies. To manage these exposures, Snap-on identifies naturally offsetting positions and then purchases hedging instruments to protect the residual net exposures. Snap-on manages most of these exposures on a consolidated basis, which allows for netting of certain exposures to take advantage of natural offsets. Foreign currency forward contracts (“foreign currency forwards”) are used to hedge the net exposures. Gains or losses on net foreign currency hedges are intended to offset losses or gains on the underlying net exposures in an effort to reduce the earnings volatility resulting from fluctuating foreign currency exchange rates. Snap-on’s foreign currency forwards are typically not designated as hedges. The fair value changes of these contracts are reported in earnings as foreign exchange gain or loss, which is included in “Other income (expense) - net” on the accompanying Consolidated Statements of Earnings. See Note 18 for additional information on Other income (expense) - net.

As of 2020 year end, Snap-on had $46.7 million of net foreign currency forward buy contracts outstanding comprised of buy contracts including $58.9 million in Swedish kronor, $43.5 million in British pounds, $26.1 million in Chinese renminbi, $22.5 million in Hong Kong dollars, $14.6 million in Singapore dollars, $6.2 million in Australian dollars, $5.8 million in Norwegian kroner, $5.1 million in Danish kroner, and $3.7 million in other currencies, and sell contracts comprised of $120.4 million in Canadian dollars, $7.9 million in Indian rupees, $3.5 million in Hungarian forints, and $7.9 million in other currencies. As of 2019 year end, Snap-on had $33.2 million of net foreign currency forward buy contracts outstanding comprised of buy contracts including $41.4 million in euros, $34.5 million in Swedish kronor, $17.4 million in Hong Kong dollars, $13.1 million in Chinese renminbi, $13.0 million in Singapore dollars, $6.0 million in Norwegian kroner, and $7.0 million in other currencies, and sell contracts comprised of $52.9 million in British pounds, $17.5 million in Canadian dollars, $10.0 million in Indian rupees, $9.6 million in Japanese yen, and $9.2 million in other currencies.

Interest rate risk management: Snap-on aims to control funding costs by managing the exposure created by the differing maturities and interest rate structures of Snap-on’s borrowings through the use of interest rate swap agreements (“interest rate swaps”) and treasury lock agreements (“treasury locks”).

Interest rate swaps: Snap-on enters into interest rate swaps to manage risks associated with changing interest rates related to the company’s fixed rate borrowings. Interest rate swaps are accounted for as fair value hedges. The differentials paid or received on interest rate swaps are recognized as adjustments to “Interest expense” on the accompanying Consolidated Statements of Earnings. The change in fair value of the designated and qualifying derivative is recorded in “Notes payable and current maturities of long-term debt” in 2020 and “Long-term debt” in 2019 on the accompanying Consolidated Balance Sheets. The notional amount of interest rate swaps outstanding and designated as fair value hedges was $100 million as of both 2020 and 2019 year end.

| 2020 ANNUAL REPORT | 91 | | --- | --- || Notes to Consolidated Financial Statements (continued) | | --- | | Consolidated Balance Sheets Line Item Where Hedge Item is Recorded | | Carrying Amount of the Hedged Assets/(Liabilities) | | | | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities) | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | (in millions) | | | | | | 2020 | | 2019 | | 2020 | | 2019 | | | Notes payable and current maturities of long-term debt* | | $ | (255.1) | $ | — | $ | (5.1) | $ | — | | Long-term debt* | | — | | (255.0) | | — | | (5.0) | | | * | The interest rate swap transacted in March 2010 was designated as a hedge of the first 100 million issuance of the 250 million, 6.125% unsecured notes due September 1, 2021. | | | | | | | | |

All values are in US Dollars.

Treasury locks: Snap-on uses treasury locks to manage the potential change in interest rates in anticipation of the issuance of fixed rate debt. Treasury locks are accounted for as cash flow hedges. The differentials to be paid or received on treasury locks related to the anticipated issuance of fixed rate debt are initially recorded in Accumulated OCI for derivative instruments that are designated and qualify as cash flow hedges. Upon the issuance of debt, the related amount in Accumulated OCI is released over the hedging instrument’s designated term and recognized as an adjustment to interest expense on the Consolidated Statements of Earnings.

In the second quarter of 2020, Snap-on entered into a $300.0 million treasury lock to manage changes in interest rates in anticipation of the issuance of fixed rate debt. Snap-on settled the $300.0 million treasury lock in conjunction with the April 2020 issuance of the 2050 Notes. The $1.4 million gain on the settlement of the treasury lock was recorded in Accumulated OCI and is being amortized over the initial 10-year term of the 2050 Notes and recognized as an adjustment to interest expense on the Consolidated Statements of Earnings.

There were no treasury locks outstanding as of both January 2, 2021 and December 28, 2019. See Note 18 for additional information on Other income (expense) - net.

Stock-based deferred compensation risk management: Snap-on aims to manage market risk associated with the stock-based portion of its deferred compensation plans through the use of prepaid equity forward agreements (“equity forwards”). Equity forwards are used to aid in offsetting the potential mark-to-market effect on stock-based deferred compensation from changes in Snap-on’s stock price. Since stock-based deferred compensation liabilities increase as the company’s stock price rises and decrease as the company’s stock price declines, the equity forwards are intended to mitigate the potential impact on deferred compensation expense that may result from such mark-to-market changes. As of 2020 and 2019 year end, Snap-on had equity forwards in place intended to manage market risk with respect to 78,800 shares and 89,600 shares, respectively, of Snap-on common stock associated with its deferred compensation plans.

Counterparty risk: Snap-on is exposed to credit losses in the event of non-performance by the counterparties to its various financial agreements, including its foreign currency forward contracts, interest rate swap agreements, treasury lock agreements and prepaid equity forward agreements. Snap-on does not obtain collateral or other security to support financial instruments subject to credit risk, but monitors the credit standing of the counterparties and generally enters into agreements with financial institution counterparties with a credit rating of A- or better. Snap-on does not anticipate non-performance by its counterparties, but cannot provide assurances.

92	SNAP-ON INCORPORATED

Fair value measurements: The fair value measurement hierarchy prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority (“Level 1”) to unadjusted quoted prices in active markets for identical assets and liabilities and the lowest priority (“Level 3”) to unobservable inputs. Fair value measurements primarily based on observable market information are given a “Level 2” priority.

Snap-on has derivative assets and liabilities related to interest rate swaps, treasury locks, foreign currency forwards and equity forwards that are measured at Level 2 fair value on a recurring basis. The fair values of derivative instruments included within the accompanying Consolidated Balance Sheets as of 2020 and 2019 year end are as follows:

		2020				2019
(Amounts in millions)	Balance Sheet<br>Presentation	Derivative<br>Assets<br>Fair Value		Derivative<br>Liability<br>Fair Value		Derivative<br>Assets<br>Fair Value		Derivative<br>Liability<br>Fair Value
Derivatives designated as<br><br>hedging instruments:
Interest rate swaps	Other assets	$	5.1	$	—	$	5.0	$	—
Derivatives not designated as hedging instruments:
Foreign currency forwards	Prepaid expenses and other assets	$	12.2	$	—	$	3.5	$	—
Foreign currency forwards	Other accrued liabilities	—		7.0		—		4.6
Equity forwards	Prepaid expenses and other assets	13.5		—		15.2		—
		25.7		7.0		18.7		4.6
Total derivative instruments		$	30.8	$	7.0	$	23.7	$	4.6

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between participants at the measurement date. Level 2 fair value measurements for derivative assets and liabilities are measured using quoted prices in active markets for similar assets and liabilities. Interest rate swaps are valued based on the six-month LIBOR swap rate for similar instruments. Foreign currency forwards are valued based on exchange rates quoted by domestic and foreign banks for similar instruments. Equity forwards are valued using a market approach based primarily on the company’s stock price at the reporting date. The company did not have any derivative assets or liabilities measured at Level 1 or Level 3, nor did it implement any changes in its valuation techniques in 2020 and 2019, respectively.

The effect of derivative instruments designated as cash flow hedges as included in the Accumulated OCI on the Consolidated Balance Sheets is as follows:

		Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivative
(Amounts in millions)	2020			2019			2018
Derivatives in Hedging Relationships:
Treasury locks		$	1.4		$	—		$	(0.8)
2020 ANNUAL REPORT	93
---	---		Notes to Consolidated Financial Statements (continued)
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The effect of derivative instruments designated as fair value and cash flow hedges as included in the Consolidated Statements of Earnings is as follows:

		Gain (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships
		2020						2019						2018
(Amounts in millions)	Interest expense			Other income (expense) - net			Interest expense			Other income (expense) - net			Interest expense			Other income (expense) - net
Total amounts of income and expense presented in the Consolidated Statements of Earnings:		$	(54.0)		$	8.7		$	(49.0)		$	8.8		$	(50.4)		$	4.2
Gain (loss) on fair value hedging relationships:
Interest rate swaps
Long-term debt		$	(15.7)		$	—		$	(15.4)		$	—		$	(15.4)		$	—
Derivatives designated as hedging instruments		3.9			—			2.0			—			1.5			—
Gain on cash flow hedging relationships:
Treasury locks
Gain reclassified from accumulated OCI into income		$	1.6		$	—		$	1.5		$	—		$	1.5		$	—
Gain on settlement		—			—			—			—			—			13.3

As of 2020 year end, the maximum maturity date of any fair value hedge was one year. During the next 12 months, Snap-on expects to reclassify into earnings net gains from Accumulated OCI of approximately $1.2 million after tax at the time the underlying hedge transactions are realized.

The effects of derivative instruments not designated as hedging instruments as included in the Consolidated Statements of Earnings are as follows:

	Statement of<br>Earnings<br>Presentation	Gain (Loss) Recognized in<br>Income on Derivatives
(Amounts in millions)		2020		2019		2018
Gain (loss) on derivative relationships:
Foreign currency forwards	Other income<br> (expense) – net	$	(6.6)	$	(20.0)	$	(40.4)
Net exposures	Other income<br> (expense) – net	2.7		16.4		36.5
Equity forwards	Operating expenses	$	1.0	$	3.0	$	(2.1)
Stock-based deferred compensation liabilities	Operating expenses	(1.2)		(3.0)		2.0
94	SNAP-ON INCORPORATED
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Snap-on’s foreign currency forwards are typically not designated as hedges for financial reporting purposes. The fair value changes of foreign currency forwards not designated as hedging instruments are reported in earnings as foreign exchange gain or loss in “Other income (expense) – net” on the accompanying Consolidated Statements of Earnings. See Note 18 for additional information on “Other income (expense) – net.”

Snap-on’s equity forwards are not designated as hedges for financial reporting purposes. Fair value changes of both the equity forwards and related stock-based (mark-to-market) deferred compensation liabilities are reported in “Operating expenses” on the accompanying Consolidated Statements of Earnings.

Fair value of financial instruments: The fair values of financial instruments that do not approximate the carrying values in the financial statements as of 2020 and 2019 year end are as follows:

	2020				2019
(Amounts in millions)	Carrying<br>Value		Fair<br>Value		Carrying<br>Value		Fair<br>Value
Finance receivables – net	$	1,666.5	$	2,024.4	$	1,633.6	$	1,920.6
Contract receivables – net	487.2		545.4		460.8		505.5
Long-term debt, notes payable and current maturities of long-term debt	1,450.6		1,678.2		1,149.8		1,238.8

The following methods and assumptions were used in estimating the fair value of financial instruments:

•Finance and contract receivables include both short-term and long-term receivables. The fair value estimates of finance and contract receivables are derived utilizing discounted cash flow analyses performed on groupings of receivables that are similar in terms of loan type and characteristics. The cash flow analyses consider recent prepayment trends where applicable. The cash flows are discounted over the average life of the receivables using a current market discount rate of a similar term adjusted for credit quality. Significant inputs to the fair value measurements of the receivables are unobservable and, as such, are classified as Level 3.

•Fair value of long-term debt and current maturities of long-term debt were estimated, using Level 2 fair value measurements, based on quoted market values of Snap-on’s publicly traded senior debt. The carrying value of long-term debt and the current maturities of long-term debt includes adjustments related to fair value hedges. The fair value of notes payable approximates such instruments’ carrying value due to their short-term nature.

•The fair value of all other financial instruments, including trade and other accounts receivable, accounts payable and other financial instruments, approximates such instruments’ carrying value due to their short-term nature.

Note 12: Pension Plans

Snap-on has several non-contributory defined benefit pension plans covering most U.S. employees and certain employees in foreign countries. Snap-on also has foreign contributory defined benefit pension plans covering certain foreign employees. Retirement benefits are generally provided based on employees’ years of service and average earnings or stated amounts for years of service. Normal retirement age is 65, with provisions for earlier retirement.

| 2020 ANNUAL REPORT | 95 | | --- | --- || Notes to Consolidated Financial Statements (continued) | | --- |

The status of Snap-on’s pension plans as of 2020 and 2019 year end is as follows:

(Amounts in millions)	2020		2019
Change in projected benefit obligation:
Benefit obligation at beginning of year	$	1,565.6	$	1,386.9
Service cost	27.0		23.5
Interest cost	48.7		56.4
Plan participant contributions	0.4		0.5
Plan amendments	0.1		—
Benefits paid	(72.1)		(73.0)
Actuarial loss	122.8		169.5
Foreign currency impact	17.5		1.8
Benefit obligation at end of year	$	1,710.0	$	1,565.6
Change in plan assets:
---	---	---	---	---
Fair value of plan assets at beginning of year	$	1,455.5	$	1,215.6
Actual gain on plan assets	227.9		258.7
Employer contributions	10.4		50.8
Plan participant contributions	0.4		0.4
Benefits paid	(72.1)		(73.0)
Foreign currency impact	10.3		3.0
Fair value of plan assets at end of year	$	1,632.4	$	1,455.5
Unfunded status at end of year	$	(77.6)	$	(110.1)

The increase in the defined benefit pension plans benefit obligations in 2020 was primarily due to a decrease in the discount rate in 2020 as compared to 2019.

Amounts recognized in the Consolidated Balance Sheets as of 2020 and 2019 year end are as follows:

(Amounts in millions)	2020		2019
Other assets	$	54.2	$	17.3
Accrued benefits	(4.7)		(5.3)
Pension liabilities	(127.1)		(122.1)
Net liability	$	(77.6)	$	(110.1)

Amounts included in Accumulated OCI on the accompanying Consolidated Balance Sheets as of 2020 and 2019 year end are as follows:

(Amounts in millions)	2020		2019
Net loss, net of tax of $95.4 million and $104.8 million, respectively	$	(302.2)	$	(333.8)
Prior service cost, net of tax of ($0.2) million and ($0.1) million, respectively	(0.7)		(0.6)
Total amount included in Accumulated OCI	$	(302.9)	$	(334.4)

The accumulated benefit obligation for Snap-on’s pension plans as of 2020 and 2019 year end was $1,621.5 million and $1,478.0 million, respectively.

96	SNAP-ON INCORPORATED

The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for Snap-on’s pension plans as of 2020 and 2019 year end are as follows:

(Amounts in millions)	2020		2019
Pension plans with accumulated benefit obligations in excess of plan assets:
Accumulated benefit obligation	$	266.3	$	231.0
Fair value of plan assets	152.6		126.5
Pension plans with projected benefit obligations in excess of plans assets:
Projected benefit obligation	$	284.4	$	1,336.9
Fair value of plan assets	152.6		1,209.5

The components of net periodic benefit cost and changes recognized in “Other comprehensive income (loss)” (“OCI”) are as follows:

(Amounts in millions)	2020		2019		2018
Net periodic benefit cost:
Service cost	$	27.0	$	23.5	$	25.1
Interest cost	48.7		56.4		52.8
Expected return on plan assets	(94.7)		(91.5)		(88.6)
Amortization of unrecognized loss	34.5		25.2		32.7
Amortization of prior service credit	—		(0.9)		(1.2)
Net periodic benefit cost	$	15.5	$	12.7	$	20.8
Changes in benefit obligations recognized in OCI, net of tax:
Net (gain) loss	$	(31.6)	$	31.9	$	35.2
Prior service cost	0.1		0.4		1.7
Total recognized in OCI	$	(31.5)	$	32.3	$	36.9

The components of net periodic pension cost, other than the service cost component, are included in “Other income (expense) - net” on the accompanying Consolidated Statements of Earnings. See Note 18 for additional information on Other income (expense) - net.

The worldwide weighted-average assumptions used to determine Snap-on’s full-year pension costs are as follows:

	2020	2019	2018
Discount rate	3.2%	4.2%	3.7%
Expected return on plan assets	7.0%	7.1%	7.1%
Rate of compensation increase	3.4%	3.4%	3.4%

The worldwide weighted-average assumptions used to determine Snap-on’s projected benefit obligation as of 2020 and 2019 year end are as follows:

	2020	2019
Discount rate	2.5%	3.2%
Rate of compensation increase	3.4%	3.4%
Interest crediting rate - U.S. cash balance plan	3.8%	3.8%		2020 ANNUAL REPORT	97
---	---		Notes to Consolidated Financial Statements (continued)
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The weighted-average discount rate for Snap-on’s domestic pension plans of 2.7% represents the single rate that produces the same present value of cash flows as the estimated benefit plan payments. Lowering Snap-on’s domestic discount rate assumption by 50 basis points (100 basis points (“bps”) equals 1.0 percent) would have increased Snap-on’s 2020 domestic pension expense and projected benefit obligation by approximately $4.5 million and $82.4 million, respectively. As of 2020 year end, Snap-on’s domestic projected benefit obligation comprised approximately 82% of Snap-on’s worldwide projected benefit obligation. The weighted-average discount rate for Snap-on’s foreign pension plans of 1.7% represents the single rate that produces the same present value of cash flows as the estimated benefit plan payments. Lowering Snap-on’s foreign discount rate assumption by 50 bps would have increased Snap-on’s 2020 foreign pension expense and projected benefit obligation by approximately $1.9 million and $32.3 million, respectively.

As a practical expedient, Snap-on uses the calendar year end as the measurement date for its plans. Snap-on funds its pension plans as required by governmental regulation and may consider discretionary contributions as conditions warrant. Snap-on intends to make contributions of $9.2 million to its foreign pension plans and $2.2 million to its domestic pension plans in 2021, as required by law. Depending on market and other conditions, Snap-on may make discretionary cash contributions to its pension plans in 2021.

The following benefit payments, which reflect expected future service, are expected to be paid as follows:

(Amounts in millions)	Amount
Year:
2021	$	81.6
2022	93.3
2023	88.9
2024	91.9
2025	93.9
2025-2029	493.8
98	SNAP-ON INCORPORATED
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Snap-on’s domestic pension plans have a long-term investment horizon and a total return strategy that emphasizes a capital growth objective. The long-term investment performance objective for Snap-on’s domestic plans’ assets is to achieve net of expense returns that meet or exceed the 6.75% domestic long-term return on plan assets assumption used for reporting purposes. Snap-on uses a three-year, market-related value asset method of amortizing the difference between actual and expected returns on its domestic plans’ assets. As of 2020 year end, Snap-on’s domestic pension plans’ assets comprised approximately 86% of the company’s worldwide pension plan assets.

The basis for determining the overall expected long-term return on plan assets assumption is a nominal returns forecasting method. For each asset class, future returns are estimated by identifying the premium of riskier asset classes over lower risk alternatives. The methodology constructs expected returns using a “building block” approach to the individual components of total return. These forecasts are stated in both nominal and real (after inflation) terms. This process first considers the long-term historical return premium based on the longest set of data available for each asset class. These premiums, which are calculated using the geometric mean, are then adjusted based on current relative valuation levels, macro-economic conditions, and the expected alpha related to active investment management. The asset return assumption is also adjusted by an implicit expense load for estimated administrative and investment-related expenses.

For risk and correlation assumptions, the actual experience for each asset class is reviewed for the longest time period available. Expected relationships for a 10 to 20 year time horizon are determined based upon historical results, with adjustments made for material changes.

Investments are diversified to attempt to minimize the risk of large losses. Since asset allocation is a key determinant of expected investment returns, assets are periodically rebalanced to the targeted allocation to correct significant deviations from the asset allocation policy that are caused by market fluctuations and cash flow. Asset/liability studies are conducted periodically to determine if any revisions to the strategic asset allocation policy are necessary.

Snap-on’s domestic pension plans’ target allocation and actual weighted-average asset allocation by asset category and fair value of plan assets as of 2020 and 2019 year end are as follows:

	Target	2020	2019
Asset category:
Equity securities	54%	54%	51%
Debt securities and cash and cash equivalents	41%	41%	40%
Real estate and other real assets	—	—	1%
Hedge funds	5%	5%	8%
Total	100%	100%	100%
Fair value of plan assets (Amounts in millions)		$1,401.0	$1,260.5

The fair value measurement hierarchy prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority (Level 1) to unadjusted quoted prices in active markets for identical assets and liabilities and the lowest priority (Level 3) to unobservable inputs. Fair value measurements primarily based on observable market information are given a Level 2 priority.

Certain equity and debt securities are valued at quoted per share or unit market prices for which an official close or last trade pricing on an active exchange is available and are categorized as Level 1 in the fair value hierarchy. If quoted market prices are not readily available for specific securities, values are estimated using quoted prices of securities with similar characteristics and are categorized as Level 2 in the fair value hierarchy. Insurance contracts are valued at the present value of the estimated future cash flows promised under the terms of the insurance contracts and are categorized as Level 2 in the fair value hierarchy.

Commingled equity securities and commingled multi-strategy funds are valued at the Net Asset Value (“NAV”) per share or unit multiplied by the number of shares or units held as of the measurement date, as reported by the fund managers. The share or unit price is quoted on a private market and is based on the value of the underlying investments, which are primarily based on observable inputs; such investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

| 2020 ANNUAL REPORT | 99 | | --- | --- || Notes to Consolidated Financial Statements (continued) | | --- |

Private equity partnership funds, hedge funds, and real estate and other real assets are valued at the NAV as reported by the fund managers. Private equity partnership funds, certain hedge funds, and certain real estate and other real assets are valued based on the proportionate interest or share of net assets held by the pension plan, which is based on the estimated fair market value of the underlying investments. Certain other hedge funds and real estate and other real assets are valued at the NAV per share or unit multiplied by the number of shares or units held as of the measurement date, based on the estimated value of the underlying investments as reported by the fund managers. These investments are measured at fair value using the NAV per share (or its equivalent) practical expedient and have not been classified in the fair value hierarchy.

The company regularly reviews fund performance directly with its investment advisor and the fund managers, and performs qualitative analysis to corroborate the reasonableness of the reported NAVs. For funds for which the company did not receive a year-end NAV, the company recorded an estimate of the change in fair value for the latest period based on return estimates and other fund activity obtained from the fund managers.

The columns labeled “Investments Measured at NAV” in the following tables reflect certain investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented in these tables are intended to permit a reconciliation of the fair value hierarchy to the pension plan assets.

The following is a summary, by asset category, of the fair value and the level within the fair value hierarchy of Snap-on’s domestic pension plans’ assets as of 2020 year end:

(Amounts in millions)	Quoted<br>Prices for<br>Identical<br>Assets (Level 1)		Significant<br>Other<br>Observable<br>Inputs<br>(Level 2)		Investments<br>Measured at<br>NAV		Total
Asset category:
Cash and cash equivalents	$	30.3	$	—	$	—	$	30.3
Equity securities:
Domestic	111.8		—		—		111.8
Foreign	62.4		—		—		62.4
Commingled funds – domestic	—		—		312.9		312.9
Commingled funds – foreign	—		—		248.5		248.5
Private equity partnerships	—		—		14.7		14.7
Debt securities:
Government	161.7		2.9		—		164.6
Corporate bonds	—		377.9		—		377.9
Real estate and other real assets	—		—		4.3		4.3
Hedge funds	—		—		73.6		73.6
Total	$	366.2	$	380.8	$	654.0	$	1,401.0	100	SNAP-ON INCORPORATED
---	---

The following is a summary, by asset category, of the fair value and the level within the fair value hierarchy of Snap-on’s domestic pension plans’ assets as of 2019 year end:

(Amounts in millions)	Quoted<br>Prices for<br>Identical<br>Assets<br>(Level 1)		Significant<br>Other<br>Observable<br>Inputs<br>(Level 2)		Investments<br>Measured at<br>NAV		Total
Asset category:
Cash and cash equivalents	$	25.6	$	—	$	—	$	25.6
Equity securities:
Domestic	95.1		—		—		95.1
Foreign	58.4		—		—		58.4
Commingled funds – domestic	—		—		263.6		263.6
Commingled funds – foreign	—		—		209.4		209.4
Private equity partnerships	—		—		17.4		17.4
Debt securities:
Government	144.0		2.7		—		146.7
Corporate bonds	—		327.7		—		327.7
Real estate and other real assets	—		—		8.8		8.8
Hedge funds	—		—		107.8		107.8
Total	$	323.1	$	330.4	$	607.0	$	1,260.5

Snap-on’s primary investment objective for its foreign pension plans’ assets is to meet the projected obligations to the beneficiaries over a long period of time, and to do so in a manner that is consistent with the company’s risk tolerance. The foreign asset allocation policies consider the company’s financial strength and long-term asset class risk/return expectations, since the obligations are long term in nature. The company believes the foreign pension plans’ assets, which are managed locally by professional investment firms, are well diversified.

The expected long-term rates of return on foreign plans’ assets, which range from 1.0% to 5.4% as of 2020 year end, reflect management’s expectations of long-term average rates of return on funds invested to provide benefits included in the plans’ projected benefit obligation. The expected returns are based on outlooks for inflation, fixed income returns and equity returns, asset allocations and investment strategies. Differences between actual and expected returns on foreign pension plans’ assets are recorded as an actuarial gain or loss and amortized accordingly.

Snap-on’s foreign pension plans’ target allocation and actual weighted-average asset allocation by asset category and fair value of plan assets as of 2020 and 2019 year end are as follows:

	Target	2020	2019
Asset category:
Equity securities*	46%	46%	46%
Debt securities* and cash and cash equivalents	40%	40%	40%
Insurance contracts and hedge funds	14%	14%	14%
Total	100%	100%	100%
Fair value of plan assets (Amounts in millions)		$231.4	$195.0
* Includes commingled funds - multi-strategy
---		2020 ANNUAL REPORT	101
---	---		Notes to Consolidated Financial Statements (continued)
---

The following is a summary, by asset category, of the fair value and the level within the fair value hierarchy of Snap-on’s foreign pension plans’ assets as of 2020 year end:

(Amounts in millions)	Quoted<br>Prices for<br>Identical<br>Assets<br>(Level 1)		Significant<br>Other<br>Observable<br>Inputs<br>(Level 2)		Investments<br>Measured at<br>NAV		Total
Asset category:
Cash and cash equivalents	$	1.0	$	—	$	—	$	1.0
Commingled funds – multi-strategy	—		—		162.4		162.4
Debt securities:
Government	12.0		—		—		12.0
Corporate bonds	—		23.8		—		23.8
Insurance contracts	—		32.2		—		32.2
Total	$	13.0	$	56.0	$	162.4	$	231.4

The following is a summary, by asset category, of the fair value and the level within the fair value hierarchy of Snap-on’s foreign pension plans’ assets as of 2019 year end:

(Amounts in millions)	Quoted<br>Prices for<br>Identical<br>Assets<br>(Level 1)		Significant<br>Other<br>Observable<br>Inputs<br>(Level 2)		Investments<br>Measured at<br>NAV		Total
Asset category:
Cash and cash equivalents	$	0.9	$	—	$	—	$	0.9
Commingled funds – multi-strategy	—		—		135.5		135.5
Debt securities:
Government	10.1		—		—		10.1
Corporate bonds	—		21.4		—		21.4
Insurance contracts	—		27.1		—		27.1
Total	$	11.0	$	48.5	$	135.5	$	195.0

Snap-on has several 401(k) plans covering certain U.S. employees. Snap-on’s employer match to the 401(k) plans is made with cash contributions. For 2020, 2019 and 2018, Snap-on recognized $10.3 million, $9.8 million and $9.4 million, respectively, of expense related to its 401(k) plans.

Note 13: Postretirement Plans

Snap-on provides health care benefits for certain retired U.S. employees. For comprehensive major medical plans since 1989, benefits are paid based on deductibles and percentages of covered expenses. Plan provisions allow for benefit and coverage changes. Most retirees are required to pay the entire cost of the coverage, but Snap-on may elect to subsidize the cost of coverage under certain circumstances. Additionally, certain eligible retirees have been provided with an account for the reimbursement of qualifying medical expenses during retirement. Upon achieving specific age and service requirements, certain active associates are eligible for this account upon retirement from the company.

Employees retiring prior to 1989 were eligible for retiree medical coverage upon reaching early retirement age, with no retiree contributions required. Benefits are paid based on deductibles and percentages of covered expenses and take into consideration payments made by Medicare and other insurance coverage.

102	SNAP-ON INCORPORATED

Snap-on has a Voluntary Employees Beneficiary Association (“VEBA”) trust for the funding of existing postretirement health care benefits for certain union retirees in the United States; all other retiree health care plans are unfunded.

The status of Snap-on’s U.S. postretirement health care plans as of 2020 and 2019 year end is as follows:

(Amounts in millions)	2020		2019
Change in accumulated postretirement benefit obligation:
Benefit obligation at beginning of year	$	49.2	$	46.8
Interest cost	1.5		1.9
Plan participant contributions	0.2		0.3
Benefits paid	(3.6)		(4.2)
Actuarial loss	3.3		4.4
Benefit obligation at end of year	$	50.6	$	49.2
Change in plan assets:
---	---	---	---	---
Fair value of plan assets at beginning of year	$	12.8	$	12.1
Actual return on plan assets	1.4		1.5
Employer contributions	2.5		3.1
Plan participant contributions	0.2		0.3
Benefits paid	(3.6)		(4.2)
Fair value of plan assets at end of year	$	13.3	$	12.8
Unfunded status at end of year	$	(37.3)	$	(36.4)

Amounts recognized in the Consolidated Balance Sheets as of 2020 and 2019 year end are as follows:

(Amounts in millions)	2020		2019
Accrued benefits	$	(2.8)	$	(2.8)
Retiree health care benefits	(34.5)		(33.6)
Net liability	$	(37.3)	$	(36.4)

Amounts included in Accumulated OCI on the accompanying Consolidated Balance Sheets as of 2020 and 2019 year end are as follows:

(Amounts in millions)	2020		2019
Net gain, net of tax of $0.5 million and $1.1 million, respectively	$	1.3	$	3.2
2020 ANNUAL REPORT	103
---	---		Notes to Consolidated Financial Statements (continued)
---

The components of net periodic benefit cost and changes recognized in OCI are as follows:

(Amounts in millions)	2020		2019		2018
Net periodic benefit cost:
Interest cost	$	1.5	$	1.9	$	1.8
Expected return on plan assets	(0.6)		(0.7)		(0.8)
Amortization of unrecognized gain	—		(0.8)		(0.4)
Net periodic benefit cost	$	0.9	$	0.4	$	0.6
Changes in benefit obligations recognized in OCI, net of tax:
Net (gain) loss	$	1.9	$	2.4	$	(1.4)

The components of net periodic postretirement health care cost, other than the service cost component, are included in “Other income (expense) - net” on the accompanying Consolidated Statements of Earnings. See Note 18 for additional information on Other income (expense) - net.

The weighted-average discount rate used to determine Snap-on’s postretirement health care expense is as follows:

	2020	2019	2018
Discount rate	3.1%	4.2%	3.6%

The weighted-average discount rate used to determine Snap-on’s accumulated benefit obligation is as follows:

	2020	2019
Discount rate	2.3%	3.1%

The methodology for selecting the year-end 2020 and 2019 weighted-average discount rate for the company’s domestic postretirement plans was to match the plans’ yearly projected cash flows for benefits and service costs to those of hypothetical bond portfolios using high-quality, AA rated or better, corporate bonds from either Moody’s Investors Service or Standard & Poor’s credit rating agencies available at the measurement date. As a practical expedient, Snap-on uses the calendar year end as the measurement date for its plans.

For 2021, the actuarial calculations assume a pre-65 health care cost trend rate of 5.5% and a post-65 health care cost trend rate of 6.0%, both decreasing gradually to 4.5% in 2038 and thereafter.

The following benefit payments, which reflect expected future service, are expected to be paid as follows:

(Amounts in millions)	Amount
Year:
2021	$	3.6
2022	3.7
2023	3.7
2024	3.8
2025	3.8
2025-2029	19.0

The objective of the VEBA trust is to achieve net of expense returns that meet or exceed the 4.8% long-term return on plan assets assumption used for reporting purposes. Investments are diversified to attempt to minimize the risk of large losses. Since asset allocation is a key determinant of expected investment returns, assets are periodically rebalanced to the targeted allocation to correct significant deviations from the asset allocation policy that are caused by market fluctuations and cash flow.

104	SNAP-ON INCORPORATED

The basis for determining the overall expected long-term return on plan assets assumption is a nominal returns forecasting method. For each asset class, future returns are estimated by identifying the premium of riskier asset classes over lower risk alternatives. The methodology constructs expected returns using a “building block” approach to the individual components of total return. These forecasts are stated in both nominal and real (after inflation) terms. This process first considers the long-term historical return premium based on the longest set of data available for each asset class. These premiums, which are calculated using the geometric mean, are then adjusted based on current relative valuation levels and macro-economic conditions. The asset return assumption is also adjusted by an implicit expense load for estimated administrative and investment-related expenses.

Snap-on’s VEBA plan target allocation and actual weighted-average asset allocation by asset category and fair value of plan assets as of 2020 and 2019 year end are as follows:

	Target	2020	2019
Asset category:
Debt securities and cash and cash equivalents	46%	46%	51%
Equity securities	29%	35%	31%
Hedge funds	25%	19%	18%
Total	100%	100%	100%
Fair value of plan assets (Amounts in millions)		$13.3	$12.8

Debt securities are valued at quoted per share or unit market prices for which an official close or last trade pricing on an active exchange is available and are categorized as Level 1 in the fair value hierarchy.

Equity securities are valued at the NAV per share or unit multiplied by the number of shares or units held as of the measurement date, as reported by the fund managers. The share or unit price is quoted on a private market and is based on the value of the underlying investments, which are primarily based on observable inputs; such investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

Hedge funds are stated at the NAV per share or unit (based on the estimated fair market value of the underlying investments) multiplied by the number of shares or units held as of the measurement date, as reported by the fund managers. These investments are measured at fair value using the NAV per share (or its equivalent) practical expedient and have not been classified in the fair value hierarchy.

The columns labeled “Investments Measured at NAV” in the following tables are measured at fair value using the NAV per share (or its equivalent) practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented in these tables are intended to permit a reconciliation of the fair value hierarchy to the VEBA plan assets.

| 2020 ANNUAL REPORT | 105 | | --- | --- || Notes to Consolidated Financial Statements (continued) | | --- |

The following is a summary, by asset category, of the fair value and the level within the fair value hierarchy of the VEBA plan assets as of 2020 year end:

(Amounts in millions)	Quoted<br>Prices for<br>Identical<br>Assets<br>(Level 1)		Investments Measured at <br>NAV		Total
Asset category:
Cash and cash equivalents	$	0.3	$	—	$	0.3
Debt securities	5.9		—		5.9
Equity securities	—		4.6		4.6
Hedge fund	—		2.5		2.5
Total	$	6.2	$	7.1	$	13.3

The following is a summary, by asset category, of the fair value and the level within the fair value hierarchy of the VEBA plan assets as of 2019 year end:

(Amounts in millions)	Quoted<br>Prices for<br>Identical<br>Assets<br>(Level 1)		Investments Measured at <br>NAV		Total
Asset category:
Cash and cash equivalents	$	0.5	$	—	$	0.5
Debt securities	6.0		—		6.0
Equity securities	—		4.0		4.0
Hedge fund	—		2.3		2.3
Total	$	6.5	$	6.3	$	12.8

Note 14: 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, 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 continue in accordance with their terms. As of 2020 year end, the 2011 Plan had 1,457,415 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 $19.5 million in 2020, $23.8 million in 2019 and $27.2 million in 2018. Cash received from stock purchase and option plan exercises was $55.8 million in 2020, $51.4 million in 2019 and $55.5 million in 2018. The tax benefit realized from both the exercise and vesting of share-based payment arrangements was $8.2 million in 2020, $9.6 million in 2019 and $14.8 million in 2018.

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.

106	SNAP-ON INCORPORATED

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 2020, 2019 and 2018, using the Black-Scholes valuation model:

	2020	2019	2018
Expected term of option (in years)	5.53	5.53	5.35
Expected volatility factor	21.67%	21.30%	20.08%
Expected dividend yield	2.78%	1.79%	1.68%
Risk-free interest rate	1.50%	2.54%	2.71%

A summary of stock option activity during 2020 is presented below:

	Shares (in thousands)	Exercise<br> Price per <br>Share*		Remaining Contractual<br><br>Term*<br><br>(in years)	Aggregate<br><br>Intrinsic<br><br>Value<br><br>(in millions)
Outstanding at beginning of year	3,114	$	135.60
Granted	459	155.34
Exercised	(434)	106.04
Forfeited or expired	(19)	159.78
Outstanding at end of year	3,120	142.47		5.9	$	89.5
Exercisable at end of year	2,217	136.76		4.9	76.2
* Weighted-average
---

The weighted-average grant date fair value of options granted was $22.95 in 2020, $29.98 in 2019 and $30.21 in 2018. The intrinsic value of options exercised was $26.0 million in 2020, $29.9 million in 2019 and $43.8 million in 2018. The fair value of stock options vested was $14.6 million in 2020, $15.7 million in 2019 and $16.0 million in 2018.

As of 2020 year end, there was $13.0 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 1.5 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.

| 2020 ANNUAL REPORT | 107 | | --- | --- || Notes to Consolidated Financial Statements (continued) | | --- |

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 2020, 2019 and 2018 was $155.34, $155.92 and $161.18, respectively. There were no earned PSUs as of the 2020 year end. Earned PSUs totaled 21,183 shares as of 2019 year end and 32,154 shares as of 2018 year end. Any 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”). PSUs related to 21,183 shares, 32,114 shares and 50,182 shares were paid out in 2020, 2019 and 2018, respectively.

Based on the company’s 2020 performance, none of the RSUs granted in 2020 were earned. 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; these RSUs vested as of fiscal 2020 year end and were paid out shortly thereafter.

Changes to the company’s non-vested performance awards in 2020 are as follows:

	Shares<br><br>(in thousands)	Fair Value<br>Price per<br>Share*
Non-vested performance awards at beginning of year	98	$	158.94
Granted	82	155.34
Vested	(30)	161.18
Cancellations and other	(74)	157.49
Non-vested performance awards at end of year	76	155.61
* Weighted-average
---

As of 2020 year end, there was $6.1 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 1.7 years.

Stock appreciation rights: 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.

108	SNAP-ON INCORPORATED

The following weighted-average assumptions were used in calculating the fair value of stock-settled SARs granted during 2020, 2019 and 2018, using the Black-Scholes valuation model:

	2020	2019	2018
Expected term of stock-settled SARs (in years)	3.75	3.65	3.58
Expected volatility factor	22.50%	22.60%	20.08%
Expected dividend yield	2.78%	1.81%	1.63%
Risk-free interest rate	1.42%	2.48%	2.40%

Changes to the company’s stock-settled SARs in 2020 are as follows:

	Stock-settled<br><br>SARs (in thousands)	Exercise<br> Price per <br>Share*		Remaining Contractual<br><br>Term*<br><br>(in years)	Aggregate<br><br>Intrinsic<br><br>Value<br><br>(in millions)
Outstanding at beginning of year	450	$	149.18
Granted	92	155.34
Exercised	(7)	112.50
Forfeited or expired	(33)	138.12
Outstanding at end of year	502	151.59		6.6	$	9.8
Exercisable at end of year	325	148.93		5.6	7.2
* Weighted-average
---

The weighted-average grant date fair value of stock-settled SARs granted was $21.31 in 2020, $26.45 in 2019 and $24.71 in 2018. The intrinsic value of stock-settled SARs exercised was $0.4 million in 2020, $0.1 million in 2019 and $1.8 million in 2018. The fair value of stock-settled SARs vested was $2.3 million in 2020, $2.1 million in 2019 and $2.2 million in 2018.

As of 2020 year end there was $2.3 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 1.5 years.

The following weighted-average assumptions were used in calculating the fair value of cash-settled SARs granted during 2020, 2019 and 2018, using the Black-Scholes valuation model:

	2020	2019	2018
Expected term of cash-settled SARs (in years)	3.00	2.87	2.76
Expected volatility factor	34.58%	23.33%	21.96%
Expected dividend yield	2.87%	2.02%	1.75%
Risk-free interest rate	0.17%	1.60%	2.50%

The intrinsic value of cash-settled SARs exercised was $1.0 million in 2020, $1.2 million in 2019 and $3.4 million in 2018. The fair value of cash-settled SARs vested during 2020 was zero and $0.1 million in both 2019 and 2018.

| 2020 ANNUAL REPORT | 109 | | --- | --- || Notes to Consolidated Financial Statements (continued) | | --- |

Changes to the company’s non-vested cash-settled SARs in 2020 are as follows:

	Cash-settled<br><br>SARs<br><br>(in thousands)	Fair Value<br> Price per <br>Share*
Non-vested cash-settled SARs at beginning of year	2	$	25.96
Granted	1	37.99
Vested	(1)	34.02
Non-vested cash-settled SARs at end of year	2	36.99
* Weighted-average
---

As of 2020 year end 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 1.4 years.

Restricted stock awards – non-employee directors: The company awarded 7,380 shares, 7,605 shares and 6,975 shares of restricted stock to non-employee directors in 2020, 2019 and 2018, respectively. 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 for the restricted stock 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.

Directors’ fee plan: Under the Directors’ 1993 Fee Plan, as amended, non-employee directors may elect to receive up to 100% of their fees and retainer in shares of Snap-on’s common stock. Directors may elect to defer receipt of all or part of these shares. For 2020, 2019 and 2018, issuances under the Directors’ Fee Plan totaled 1,836 shares, 1,784 shares and 1,727 shares, respectively, of which 1,364 shares, 1,374 shares and 1,315 shares, respectively, were deferred. As of 2020 year end, shares reserved for issuance to directors under this plan totaled 186,641 shares.

Employee stock purchase plan: Substantially all Snap-on employees in the United States and Canada are eligible to participate in an employee stock purchase plan. The purchase price of the company’s common stock to participants is the lesser of the mean of the high and low price of the stock on the beginning date (May 15) or ending date (the following May 14) of each plan year. For 2020, 2019 and 2018, issuances under this plan totaled 25,425 shares, 25,820 shares and 22,794 shares, respectively. As of 2020 year end, shares reserved for issuance under this plan totaled 679,561 shares and Snap-on held participant contributions of approximately $3.3 million. Participants are able to withdraw from the plan at any time prior to the ending date and receive back all contributions made during the plan year. Compensation expense for plan participants was $1.1 million in 2020, $0.1 million in 2019 and $0.3 million in 2018.

Franchisee stock purchase plan: All franchisees in the United States and Canada are eligible to participate in a franchisee stock purchase plan. The purchase price of the company’s common stock to participants is the lesser of the mean of the high and low price of the stock on the beginning date (May 15) or ending date (the following May 14) of each plan year. For 2020, 2019 and 2018, issuances under this plan totaled 55,980 shares, 49,921 shares and 46,704 shares, respectively. As of 2020 year end, shares reserved for issuance under this plan totaled 413,550 shares and Snap-on held participant contributions of approximately $5.5 million. Participants are able to withdraw from the plan at any time prior to the ending date and receive back all contributions made during the plan year. The company recognized mark-to-market expense of $1.9 million in 2020, $0.8 million in 2019, and $0.6 million in 2018.

110	SNAP-ON INCORPORATED

Note 15: Capital Stock

Snap-on has undertaken repurchases of Snap-on common stock from time to time to offset dilution created by shares issued for employee and franchisee stock purchase plans, stock awards and other corporate purposes. Snap-on repurchased 1,109,000 shares, 1,495,000 shares and 1,769,000 shares in 2020, 2019 and 2018, respectively. As of 2020 year end, Snap-on has remaining availability to repurchase up to an additional $275.7 million in common stock pursuant to Board authorizations. The purchase of Snap-on common stock is at the company’s discretion, subject to prevailing financial and market conditions.

Cash dividends paid in 2020, 2019 and 2018 totaled $243.3 million, $216.6 million and $192.0 million, respectively. Cash dividends per share in 2020, 2019 and 2018 were $4.47, $3.93 and $3.41, respectively. On February 11, 2021, the company’s Board declared a quarterly dividend of $1.23 per share, payable on March 10, 2021, to shareholders of record on February 23, 2021.

Note 16: Commitments and Contingencies

Snap-on provides product warranties for specific product lines and accrues for estimated future warranty cost in the period in which the sale is recorded. 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’s product warranty accrual activity for 2020, 2019 and 2018 is as follows:

(Amounts in millions)	2020		2019		2018
Warranty accrual:
Beginning of year	$	17.3	$	17.1	$	17.2
Additions	13.9		16.0		14.9
Usage	(13.6)		(15.8)		(15.0)
End of year	$	17.6	$	17.3	$	17.1

Approximately 2,600 employees, or 21% of Snap-on’s worldwide workforce, are represented by unions and/or covered under collective bargaining agreements. The number of covered union employees whose contracts expire over the next five years approximates 1,325 employees in 2021, 475 employees in 2022, and 800 employees in 2023; there are no contracts currently scheduled to expire in 2024 or 2025. In recent years, Snap-on has not experienced any significant work slowdowns, stoppages or other labor disruptions.

Snap-on is involved in various legal matters that are being litigated and/or settled in the ordinary course of business. Although it is not possible to predict the outcome of legal matters, management believes that the results of all legal matters will not have a material impact on Snap-on’s consolidated financial position, results of operations or cash flows.

The Consolidated Balance Sheet as of December 29, 2018, included an accrual of $30.9 million related to a judgment from the fourth quarter of 2017 for a patent-related litigation matter that was being appealed, which was subsequently settled in 2019. The company recognized an $11.6 million benefit in “Operating expenses” on the Consolidated Statements of Earnings in fiscal 2019 as a result of the settlement.

| 2020 ANNUAL REPORT | 111 | | --- | --- || Notes to Consolidated Financial Statements (continued) | | --- |

Note 17: Leases

Lessee accounting: Snap-on determines if an arrangement is a lease at inception. Snap-on has operating and finance leases for manufacturing plants, distribution centers, software development facilities, financial services offices, data centers, company store vans and certain equipment. Snap-on’s leases have lease terms of one year to 20 years and some include options to extend and/or terminate the lease. The exercise of lease renewal options is at the company’s sole discretion. Certain leases also include options to purchase the leased property. When deemed reasonably certain of exercise, the renewal and purchase options are included in the determination of the lease term and lease payment obligation, respectively. The depreciable life of assets and leasehold improvements are limited to the expected term, unless there is a transfer of title or purchase option reasonably certain of exercise. The company’s lease agreements do not contain any material variable lease payments, material residual value guarantees or any material restrictive covenants.

Right-of-use (“ROU”) assets represent Snap-on’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date of the lease based on the present value of lease payments over the lease term. When readily determinable, Snap-on uses the implicit rate in determining the present value of lease payments. When leases do not provide an implicit rate, Snap-on uses its country specific incremental borrowing rate based on the information available at the lease commencement date, including the lease term. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Snap-on has lease agreements with lease and non-lease components, which are generally accounted for separately. For all equipment leases, including vehicles, Snap-on accounts for the lease and non-lease components as a single lease component.

Total lease costs for 2020 and 2019 consist of the following:

(Amounts in millions)	2020		2019
Finance lease costs:
Amortization of ROU assets	$	1.7	$	1.5
Interest on lease liabilities	0.4		0.5
Operating lease costs*	24.6		25.1
Total lease costs	$	26.7	$	27.1
*	Includes short-term leases, variable lease costs and sublease income, which are immaterial.
---	---

Supplemental cash flow information related to leases in 2020 and 2019 is as follows:

(Amounts in millions)	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Financing cash flows from finance leases	$	3.4	$	2.8
Operating cash flows from finance leases	0.4		0.5
Operating cash flows from operating leases	23.1		23.5
ROU assets obtained in exchange for new lease obligations:
Finance lease liabilities	$	0.4	$	1.4
Operating lease liabilities	15.2		12.5
112	SNAP-ON INCORPORATED
---	---

Supplemental balance sheet information related to leases in 2020 and 2019 is as follows:

(Amounts in millions)	2020		2019
Finance leases:
Property and equipment - gross	$	24.3	$	9.2
Accumulated depreciation and amortization	(17.5)		(1.5)
Property and equipment - net	$	6.8	$	7.7
Other accrued liabilities	$	2.7	$	2.8
Other long-term liabilities	7.4		10.0
Total finance lease liabilities	$	10.1	$	12.8
Operating leases:
Operating lease right-of-use assets	$	51.9	$	55.6
Other accrued liabilities	$	19.3	$	19.5
Operating lease liabilities	34.0		37.5
Total operating lease liabilities	$	53.3	$	57.0

Weighted-average lease terms and discount rates in 2020 and 2019 are as follows:

	2020	2019
Weighted-average remaining lease terms:
Finance leases	3.7 years	4.5 years
Operating leases	3.3 years	3.7 years
Weighted-average discount rates:
Finance leases	3.4%	3.4%
Operating leases	2.6%	2.8%

Maturities of lease liabilities as of January 2, 2021 are as follows:

(Amounts in millions)	Operating Leases		Finance Leases
Year:
2021	$	20.3	$	3.0
2022	15.6		2.8
2023	9.7		2.6
2024	5.8		2.1
2025	3.1		0.3
2026 and thereafter	1.2		—
Total lease payments	55.7		10.8
Less: amount representing interest	(2.4)		(0.7)
Total lease liabilities	$	53.3	$	10.1

In 2020, Snap-on did not have any significant additional operating or finance leases that have not yet commenced. Rent expense for worldwide facilities, office equipment and vehicles, net of sub-lease rental income, was $33.0 million in 2018.

| 2020 ANNUAL REPORT | 113 | | --- | --- || Notes to Consolidated Financial Statements (continued) | | --- |

Lessor accounting: Snap-on’s Financial Services business offers its customers lease financing for the lease of tools, diagnostics and equipment products and to franchisees who require financing for vehicle leases. Snap-on accounts for its financial services leases as sales-type leases. In certain circumstances, the lessee has the option to terminate the lease. In the event of the lessee’s deteriorated financial condition or default, Snap-on has the right to terminate the lease. The leases contain an end-of-term purchase option that is generally insignificant and is reasonably certain to be exercised by the lessee.

The company recognizes the net investment in the lease as the present value of the lease payments not yet received plus the present value of the unguaranteed residual value, using the interest rate implicit in the lease. The difference between the undiscounted lease payments received over the lease term and the related net investment in the lease is reported as unearned finance charges. Unearned finance charges are amortized to income over the life of the contract and are included as a component of “Financial services revenue” on the accompanying Consolidated Statements of Earnings.

Sales-type leases are included in both “Finance receivables - net” and “Long-term finance receivables - net” on the accompanying Consolidated Balance Sheets, with lease terms of up to five years. In 2020 and 2019, finance receivables have future minimum lease payments, including unguaranteed residual value, of $42.7 million and $97.5 million, respectively, and unearned finance charges of $6.9 million and $19.9 million, respectively.

Sales-type leases are included in both “Contract receivables - net” and “Long-term contract receivables - net” on the accompanying Consolidated Balance Sheets, with lease terms of up to seven years. In 2020 and 2019, contract receivables have future minimum lease payments, including unguaranteed residual value, of $285.8 million and $267.7 million, respectively, and unearned finance charges of $48.4 million and $47.6 million, respectively.

Future minimum lease payments as of January 2, 2021 are as follows:

(Amounts in millions)	Lease Receivables
Year:
2021	$	98.5
2022	77.3
2023	59.5
2024	44.2
2025	28.4
2026 and thereafter	20.6
Total lease payments	328.5
Less: unearned finance charges	(55.3)
Net investment in leases	$	273.2

See Note 4 for further information on finance and contract receivables.

Note 18: Other Income (Expense) – Net

“Other income (expense) – net” on the accompanying Consolidated Statements of Earnings consists of the following:

(Amounts in millions)	2020		2019		2018
Interest income	$	1.7	$	1.5	$	0.6
Net foreign exchange loss	(3.9)		(3.6)		(3.9)
Net periodic pension and postretirement benefits - non-service	10.6		10.4		3.7
Settlement of treasury lock	—		—		13.3
Loss on early extinguishment of debt	—		—		(7.8)
Other	0.3		0.5		(1.7)
Total other income (expense) – net	$	8.7	$	8.8	$	4.2
114	SNAP-ON INCORPORATED
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Note 19: Accumulated Other Comprehensive Income (Loss)

The following is a summary of net changes in Accumulated OCI by component and net of tax for 2020 and 2019:

(Amounts in millions)	Foreign<br>Currency<br>Translation		Cash Flow Hedges		Defined<br>Benefit<br>Pension and<br>Postretirement<br>Plans		Total
Balance as of 2018 year end	$	(177.9)	$	12.2	$	(296.5)	$	(462.2)
Impact of the Tax Act on Accumulated Other Comprehensive Income (ASU No. 2018-02)	—		—		(45.9)		(45.9)
Balance at beginning of 2019	(177.9)		12.2		(342.4)		(508.1)
Other comprehensive loss before reclassifications	(9.5)		—		(6.5)		(16.0)
Amounts reclassified from Accumulated OCI	—		(1.5)		17.7		16.2
Net other comprehensive income (loss)	(9.5)		(1.5)		11.2		0.2
Balance as of 2019 year end	$	(187.4)	$	10.7	$	(331.2)	$	(507.9)
Other comprehensive income before reclassifications	112.7		1.4		3.5		117.6
Amounts reclassified from Accumulated OCI	—		(1.6)		26.1		24.5
Net other comprehensive income (loss)	112.7		(0.2)		29.6		142.1
Balance as of 2020 year end	$	(74.7)	$	10.5	$	(301.6)	$	(365.8)

The reclassifications out of Accumulated OCI in 2020 and 2019 are as follows:

	Amounts Reclassified from<br>Accumulated OCI				Statement of Earnings<br>Presentation
(Amounts in millions)	2020		2019
Gains on cash flow hedges:
Treasury locks	$	1.6	$	1.5	Interest expense
Income tax expense	—		—		Income tax expense
Net of tax	1.6		1.5
Amortization of net unrecognized losses and prior service credits	(34.5)		(23.5)		See footnote below*
Income tax benefit	8.4		5.8		Income tax expense
Net of tax	(26.1)		(17.7)
Total reclassifications for the period, net of tax	$	(24.5)	$	(16.2)
*	These Accumulated OCI components are included in the computation of net periodic pension and postretirement health care costs; see Note 12 and Note 13 for further information.
---	---
2020 ANNUAL REPORT	115
---	---		Notes to Consolidated Financial Statements (continued)
---

Note 20: Segments

Snap-on does not have any single customer or government that represents 10% or more of its revenues in any of the indicated periods.

Financial Data by Segment:

(Amounts in millions)	2020		2019		2018
Net sales:
Commercial & Industrial Group	$	1,234.6	$	1,345.7	$	1,343.3
Snap-on Tools Group	1,643.9		1,612.9		1,613.8
Repair Systems & Information Group	1,238.2		1,334.5		1,334.4
Segment net sales	4,116.7		4,293.1		4,291.5
Intersegment eliminations	(524.2)		(563.1)		(550.8)
Total net sales	3,592.5		3,730.0		3,740.7
Financial Services revenue	349.7		337.7		329.7
Total revenues	$	3,942.2	$	4,067.7	$	4,070.4
Operating earnings:
Commercial & Industrial Group	$	153.7	$	188.7	$	199.3
Snap-on Tools Group	267.7		245.8		264.2
Repair Systems & Information Group	298.0		342.7		342.6
Financial Services	248.6		245.9		230.1
Segment operating earnings	968.0		1,023.1		1,036.2
Corporate	(87.5)		(60.8)		(80.1)
Operating earnings	880.5		962.3		956.1
Interest expense	(54.0)		(49.0)		(50.4)
Other income (expense) – net	8.7		8.8		4.2
Earnings before income taxes and equity earnings	$	835.2	$	922.1	$	909.9
116	SNAP-ON INCORPORATED
---	---

Financial Data by Segment (continued):

(Amounts in millions)	2020		2019
Assets:
Commercial & Industrial Group	$	1,210.4	$	1,138.8
Snap-on Tools Group	775.3		827.4
Repair Systems & Information Group	1,399.7		1,381.9
Financial Services	2,170.3		2,104.0
Total assets from reportable segments	5,555.7		5,452.1
Corporate	1,063.2		303.1
Elimination of intersegment receivables	(61.6)		(61.7)
Total assets	$	6,557.3	$	5,693.5
(Amounts in millions)	2020		2019		2018
---	---	---	---	---	---	---
Capital expenditures:
Commercial & Industrial Group	$	20.3	$	30.1	$	21.5
Snap-on Tools Group	24.2		42.7		46.0
Repair Systems & Information Group	14.7		22.7		19.7
Financial Services	0.8		0.8		0.5
Total from reportable segments	60.0		96.3		87.7
Corporate	5.6		3.1		3.2
Total capital expenditures	$	65.6	$	99.4	$	90.9
Depreciation and amortization:
Commercial & Industrial Group	$	25.1	$	23.5	$	23.6
Snap-on Tools Group	32.7		31.7		29.9
Repair Systems & Information Group	34.6		33.0		36.7
Financial Services	0.7		0.7		0.8
Total from reportable segments	93.1		88.9		91.0
Corporate	3.6		3.5		3.1
Total depreciation and amortization	$	96.7	$	92.4	$	94.1
2020 ANNUAL REPORT	117
---	---		Notes to Consolidated Financial Statements (continued)
---

Financial Data by Segment (continued):

(Amounts in millions)	2020		2019		2018
Revenues by geographic region:*
United States	$	2,772.3	$	2,794.0	$	2,727.9
Europe	677.5		730.3		784.7
All other	492.4		543.4		557.8
Total revenues	$	3,942.2	$	4,067.7	$	4,070.4
(Amounts in millions)			2020		2019
Long-lived assets:**
United States			$	1,150.2	$	1,112.3
Sweden			248.4		218.7
All other			370.8		348.2
Total long-lived assets			$	1,769.4	$	1,679.2
*	Revenues are attributed to countries based on origin of the sale.
---	---
**	Long-lived assets consist of Property and equipment - net, Goodwill, and Other intangibles - net.

Products 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, OEM purchasing facilitation services, and warranty management systems and analytics to help 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 service 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. Further product line information is not presented as it is not practicable to do so.

The following table shows the consolidated net sales and revenues of these product groups in the last three years:

(Amounts in millions)	2020		2019		2018
Net sales:
Tools	$	1,984.7	$	2,017.5	$	2,021.2
Diagnostics, information and management systems	783.8		827.5		797.9
Equipment	824.0		885.0		921.6
Total net sales	3,592.5		3,730.0		3,740.7
Financial services revenue	349.7		337.7		329.7
Total revenues	$	3,942.2	$	4,067.7	$	4,070.4
118	SNAP-ON INCORPORATED
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Note 21: Quarterly Data (unaudited)

(Amounts in millions, except per share data)	First<br>Quarter		Second<br>Quarter		Third Quarter		Fourth<br>Quarter		Total
2020
Net sales	$	852.2	$	724.3	$	941.6	$	1,074.4	$	3,592.5
Gross profit	421.6		341.2		469.5		516.2		1,748.5
Financial services revenue	85.9		84.6		85.8		93.4		349.7
Financial services expenses	(29.0)		(27.0)		(20.2)		(24.9)		(101.1)
Net earnings	142.0		105.9		184.7		213.8		646.4
Net earnings attributable to Snap-on Incorporated	137.2		101.2		179.7		208.9		627.0
Earnings per share – basic	2.52		1.86		3.31		3.85		11.55
Earnings per share – diluted	2.49		1.85		3.28		3.82		11.44
Cash dividends paid per share	1.08		1.08		1.08		1.23		4.47
	First<br>Quarter		Second<br>Quarter		Third Quarter		Fourth<br>Quarter		Total
2019
Net sales	$	921.7	$	951.3	$	901.8	$	955.2	$	3,730.0
Gross profit	471.6		473.8		448.1		450.5		1,844.0
Financial services revenue	85.6		84.1		84.1		83.9		337.7
Financial services expenses	(23.5)		(23.5)		(23.1)		(21.7)		(91.8)
Net earnings	182.1		184.9		169.2		175.0		711.2
Net earnings attributable to Snap-on Incorporated	177.9		180.4		164.6		170.6		693.5
Earnings per share – basic	3.21		3.27		2.99		3.12		12.59
Earnings per share – diluted	3.16		3.22		2.96		3.08		12.41
Cash dividends paid per share	0.95		0.95		0.95		1.08		3.93
2020 ANNUAL REPORT	119
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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Snap-on has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SNAP-ON INCORPORATED
By:	/s/ Nicholas T. Pinchuk	Date:	February 11, 2021
	Nicholas T. Pinchuk, Chairman, President<br>and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Snap-on and in the capacities and on the date indicated.

/s/ Nicholas T. Pinchuk	Date:	February 11, 2021
Nicholas T. Pinchuk, Chairman, President<br>and Chief Executive Officer
/s/ Aldo J. Pagliari	Date:	February 11, 2021
Aldo J. Pagliari, Principal Financial Officer, Senior<br>Vice President – Finance and Chief Financial Officer
/s/ Richard K. Strege	Date:	February 11, 2021
Richard K. Strege, Principal Accounting Officer,<br>Vice President and Controller
120	SNAP-ON INCORPORATED
---	---

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Snap-on and in the capacities and on the date indicated.

By:	/s/ David C. Adams	Date:	February 11, 2021
	David C. Adams, Director
By:	/s/ Karen L. Daniel	Date:	February 11, 2021
	Karen L. Daniel, Director
By:	/s/ Ruth Ann M. Gillis	Date:	February 11, 2021
	Ruth Ann M. Gillis, Director
By:	/s/ James P. Holden	Date:	February 11, 2021
	James P. Holden, Director
By:	/s/ Nathan J. Jones	Date:	February 11, 2021
	Nathan J. Jones, Director
By:	/s/ Henry W. Knueppel	Date:	February 11, 2021
	Henry W. Knueppel, Director
By:	/s/ W. Dudley Lehman	Date:	February 11, 2021
	W. Dudley Lehman, Director
By:	/s/ Nicholas T. Pinchuk	Date:	February 11, 2021
	Nicholas T. Pinchuk, Director
By:	/s/ Gregg M. Sherrill	Date:	February 11, 2021
	Gregg M. Sherrill, Director
By:	/s/ Donald J. Stebbins	Date:	February 11, 2021
	Donald J. Stebbins, Director
2020 ANNUAL REPORT	121
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Document

Exhibit 4(f)(5)

Snap-on Incorporated

Description of 3.100% Notes due 2050

The following summary highlights selected information about the senior unsecured 3.100% Notes, due May 1, 2050 (the “notes”) of Snap-on Incorporated (“Snap-on,” the “company,” “we,” “us” or “our”). This summary does not purport to be exhaustive and is qualified in its entirety by reference to applicable prospectus supplement and related prospectus, which were previously filed with the Securities and Exchange Commission (the “SEC”).

Overview

Issuer	Snap-on Incorporated
Notes	$500,000,000 aggregate principal amount of 3.100% notes due 2050
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Maturity	The notes will mature on May 1, 2050.
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Interest	The notes bear interest at 3.100% per annum, payable semi-annually in arrears.
---	---
Interest Payment Dates	May 1 and November 1 of each year.
Ranking	The notes are our senior unsecured obligations and rank equally with all of our other existing and future unsecured and unsubordinated indebtedness. See “Description of the Notes—General.”
---	---
Optional Redemption	We may redeem the notes, in whole or in part, at any time at the redemption price described under “Description of the Notes—Optional Redemption.”
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Change of Control	Upon the occurrence of a change of control repurchase event (as defined under “Description of the Notes—Change of Control Repurchase Event”), unless we have exercised our right to redeem the notes, each holder of the notes will have the right to require us to purchase all or a portion of such holder’s notes at a repurchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase, subject to the rights of holders of the notes on the relevant record date to receive interest due on the relevant interest payment date.
Covenants	The indenture under which the notes were issued contains limitations on, among other things, our ability to:
•	incur debt secured by certain liens;
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•	engage in certain sale and lease-back transactions;
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•	transfer principal properties to specified subsidiaries; and
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•	consolidate or merge with or into, or sell substantially all of our assets to, another person.
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	These covenants are, however, subject to important exceptions. See “Description of the Notes—Certain Restrictive Covenants and Events of Default” and “Description of the Indenture—Covenants Applicable to Senior Debt Securities.”
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Minimum Denominations		The notes were issued and may be transferred only in minimum denominations of $2,000 and integral multiples of $1,000 in excess thereof.
Form	The notes were issued in fully registered form and are represented by one or more global notes deposited with The Depository Trust Company (“DTC”) or its nominee and registered in book-entry form in the name of Cede & Co., DTC’s nominee. Beneficial interests in the global notes are shown on, and transfers will only be made through, the records maintained by DTC and its participants.
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Further Issues	We may from time to time, without notice to or the consent of the holders of the notes, create and issue additional debt securities under the indenture ranking equally and ratably with the notes in all respects. A separate CUSIP and ISIN will be issued for any additional debt securities unless the additional debt securities are fungible for U.S. federal income tax purposes.
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Other Notes Issued under the Indenture	On August 11, 2009, we issued $250,000,000 in aggregate principal amount of unsecured 6.125% notes due September 1, 2021 (the “2021 Notes”). Interest on the 2021 Notes is paid semiannually on March 1 and September 1 of each year. As of February 1, 2021, $250,000,000 in aggregate principal amount of the 2021 Notes was outstanding.<br><br><br><br>On February 5, 2017, we issued $300,000,000 in aggregate principal amount of unsecured 3.250% notes due March 2, 2027 (the “2027 Notes”). Interest on the 2027 Notes is paid semiannually on March 1 and September 1 of each year. As of February 1, 2021, $300,000,000 in aggregate principal amount of the 2027 Notes was outstanding.<br><br><br><br>On February 20, 2018, we issued $400,000,000 in aggregate principal amount of unsecured 4.100% notes due March 1, 2048 (the “2048 Notes”). Interest on the 2048 Notes is paid semiannually on March 1 and September 1 of each year. As of February 1, 2021, $400,000,000 in aggregate principal amount of the 2048 Notes was outstanding.
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Governing Law	State of New York.
Trustee	U.S. Bank National Association.
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DESCRIPTION OF THE NOTES

This summary of the material terms and conditions of the notes supplements the description of the general terms and conditions of the debt securities under the caption “Description of the Indenture” and, to the extent that this summary is inconsistent with such description, replaces such description. This summary of provisions of the indenture does not purport to be complete and is subject to all of the provisions of the indenture and the notes. Copies of the indenture and the notes are available from us upon request.

Capitalized terms used and not defined in this section have the meanings specified in the indenture. References to “Snap-on,” “us,” “we,” “our,” “ours” or the “company” in this section are to Snap-on Incorporated (parent company only) and not its consolidated subsidiaries.

General

We issued the notes as a separate series of debt securities under the indenture dated as of January 8, 2007, between us and U.S. Bank National Association, as trustee. The indenture is further described below. As discussed in “Overview” above, we also issued the 2021 Notes, the 2027 Notes and the 2048 Notes under the indenture.

We initially offered the notes in the aggregate principal amount of $500,000,000. As of February 1, 2021, $500,000,000 in aggregate principal amount of the notes was outstanding. We may, without the consent of the holders of the notes, create and issue additional notes of this series ranking equally with and otherwise similar in all respects to the notes of this series (except for the issue date and, in some cases, the public offering price and the first interest payment date) so that those additional notes will be consolidated and form a single series with the other outstanding notes of this series; provided, however, that a separate CUSIP and ISIN will be issued for any additional notes unless the additional notes and the notes offered are fungible for U.S. federal income tax purposes. The notes bear interest at a rate of 3.100% per annum. The notes mature on May 1, 2050, unless redeemed prior to that date. See “—Interest” below.

We may redeem the notes at any time at our option as described under “—Optional Redemption.”

The notes are our senior unsecured obligations and rank equally with all of our other existing and future unsecured and unsubordinated indebtedness. The notes effectively rank junior to any secured indebtedness that exists or that we may incur in the future to the extent of the value of the assets securing such indebtedness.

A significant amount of our consolidated assets is held by our subsidiaries. Any right we may have to receive assets of any of our subsidiaries upon their liquidation or reorganization (and the consequent right of the holders of the notes to participate in those assets) will be effectively subordinated to the claims of such subsidiaries’ creditors, including trade creditors.

We issued the notes only in fully registered form, without coupons, in denominations of $2,000 and integral multiples of $1,000 in excess thereof.

The notes do not have the benefit of any sinking fund.

We may, subject to compliance with applicable law, at any time, purchase notes in the open market or otherwise.

Interest

The notes mature on May 1, 2050, unless redeemed or repurchased prior to that date. The notes bear interest at a rate of 3.100% per annum. Interest will accrue on the notes from the most recent interest payment date to or for which interest has been paid or duly provided (or if no interest has been paid or duly provided for, from the issue date of the notes), payable semi-annually in arrears on May 1 and November 1 of each year, beginning on November 1, 2020. Interest will be paid to the person in whose name the notes are registered at the close of business on the April 15 and October 15 (whether or not that date is a business day), as the case may be, immediately preceding such interest payment date. We compute interest on the basis of a 360-day year consisting of twelve 30-day months. We make payments on the notes at the offices of the trustee by wire transfer for notes held in book-entry form or by check mailed to the address of the person entitled to the payment as it appears in the notes register.

If any interest payment date or maturity, redemption or repurchase date falls on a day that is not a business day, then the payment will be made on the next business day without additional interest and with the same effect as if it were made on the originally scheduled date.

Optional Redemption

Prior to November 1, 2049, we may, at our option, redeem the notes, in whole or from time to time in part, at a redemption price equal to the greater of:

•	100% of the principal amount of the notes being redeemed; and
•	the sum of the present values of the remaining scheduled payments of principal and interest on the notes being redeemed (not including any portion of such payments of interest accrued to the redemption date), discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate (as defined below), plus 30 basis points,
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plus, in either case, accrued and unpaid interest on the notes being redeemed to the redemption date.

In addition, at any time on or after November 1, 2049, we may, at our option, redeem the notes, in whole or from time to time in part, at a redemption price equal to 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest on the notes being redeemed to, but not including, the redemption date.

Notwithstanding the foregoing, installments of interest payable on the notes being redeemed that are due and payable on interest payment dates falling on a redemption date will be payable on the interest payment date to the registered holders as of the close of business on the relevant record date according to the notes and the indenture. The redemption price will be calculated on the basis of a 360-day year consisting of twelve 30-day months.

We will give written notice of any redemption at least 15 days but not more than 60 days prior to the redemption date to each holder of the notes at its address shown in the debt security register for the notes (or, as to notes represented by a global debt security, electronically in accordance with the depository’s procedures). The notice of redemption will specify, among other items, the aggregate principal amount of the notes to be redeemed, the redemption date and the redemption price. Once notice of redemption is given, the notes will become due and payable on the redemption date and at the applicable redemption price, plus accrued and unpaid interest, if any, to, but not including, the redemption date. Notwithstanding anything to the contrary in the foregoing, notice of any redemption to the holders of the notes may, in our discretion, be subject to one or more conditions precedent, including completion of a corporate transaction. In such event, the related notice of redemption will describe each such condition and, if applicable, will state that, in our discretion, the date of redemption may be delayed until such time as any or all such conditions shall be satisfied or waived, or such redemption may not occur and such notice may be rescinded in the event that any or all such conditions shall not have been satisfied or waived by the date of redemption, or by the date of redemption as so delayed.

“Comparable Treasury Issue” means the U.S. Treasury security selected by the Independent Investment Banker as having a maturity comparable to the remaining term of the notes to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such notes.

“Comparable Treasury Price” means, with respect to any redemption date, (1) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or (2) if the Independent Investment Banker obtains fewer than three such Reference Treasury Dealer Quotations, the average of all such Reference Treasury Dealer Quotations, or (3) if only one Reference Treasury Dealer Quotation is received, such Reference Treasury Dealer Quotation.

“Independent Investment Banker” means one of the Reference Treasury Dealers appointed by us.

“Reference Treasury Dealer” means (1) each of Citigroup Global Markets Inc., J.P. Morgan Securities LLC and a primary U.S. Government securities dealer in the United States (a “Primary Treasury Dealer”) selected by U.S. Bancorp Investments, Inc. (or their respective affiliates that are Primary Treasury Dealers) and their respective successors; and (2) two

other Primary Treasury Dealers selected by us; provided, however, that if any of the foregoing shall cease to be a Primary Treasury Dealer, we will substitute therefor another Primary Treasury Dealer.

“Reference Treasury Dealer Quotation” means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Independent Investment Banker, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Independent Investment Banker by such Reference Treasury Dealer at 5:00 p.m. (New York City time) on the third business day preceding such redemption date.

“Treasury Rate” means, with respect to any redemption date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date. The Treasury Rate will be calculated on the third business day preceding the redemption date.

Change of Control Repurchase Event

If a change of control repurchase event occurs, unless we have exercised our right to redeem all of the notes as described above by giving irrevocable notice of redemption in accordance with the indenture on or prior to the 30th day after the date on which such change of control repurchase event occurs, each holder of the notes will have the right to require us to purchase all or a portion of such holder’s notes pursuant to the offer described below, at a repurchase price equal to 101% of the aggregate principal amount of notes repurchased plus any accrued and unpaid interest on the notes repurchased to, but not including, the date of repurchase, subject to the rights of holders of notes on the relevant record date to receive interest due and owing on the relevant interest payment date.

Within 30 days following any change of control repurchase event or, at our option, prior to any change of control, but after the public announcement of the transaction that constitutes or may constitute the change of control, we will give written notice to each holder at its address shown in the security register for the notes (or, as to notes represented by a global debt security, electronically in accordance with the depository’s procedures), with a copy to the trustee, describing the transaction or transactions that constitute or may constitute the change of control repurchase event and offering to repurchase the notes on the payment date specified in the notice, which date will be no earlier than 30 days and no later than 60 days from the date on which such notice is given or, if the notice is given prior to the change of control, at least 30 days, but no more than 60 days, from the date on which the change of control repurchase event occurs, other than as may be required by law. The notice, if given prior to the date of consummation of the change of control, will state that the offer to repurchase is conditioned on the change of control repurchase event occurring on or prior to the payment date specified in the notice.

We must comply with the requirements of Rule 14e-1 under the Exchange Act (as defined below) and any other securities laws and regulations under the Exchange Act to the extent those laws and regulations are applicable in connection with the repurchase of the notes as a result of a change of control repurchase event. To the extent that the provisions of any securities laws or regulations conflict with the change of control repurchase event provisions of the notes, we will comply with the applicable securities laws and regulations and will not be deemed to have breached our obligations under the change of control repurchase event provisions of the notes by virtue of such compliance.

On the change of control repurchase event payment date, we will, to the extent lawful:

(1)	accept or cause a third party to accept for payment all notes or portions of notes properly tendered pursuant to our offer;
(2)	deposit or cause a third party to deposit with the paying agent an amount equal to the aggregate purchase price in respect of all notes or portions of notes properly tendered; and
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(3)	deliver or cause to be delivered to the trustee the notes properly accepted, together with an officers’ certificate stating the aggregate principal amount of notes being repurchased.
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We will not be required to make an offer to repurchase the notes upon a change of control repurchase event if a third party makes such an offer in the manner, at the times and otherwise in compliance with the requirements for an offer made by us and such third party repurchases all of the notes properly tendered and not withdrawn under the third party’s offer.

“below investment grade rating event” means the notes cease to be rated investment grade (as defined below) by at least two of the three rating agencies (as defined below) on any date within the 60-day period after the earlier of the occurrence of a change of control and the first public announcement by us of our intention to effect a change of control (which 60-day period shall be extended for so long as any of the rating agencies has publicly announced that it is considering a possible downgrade of the rating of the notes); provided that a below investment grade rating event otherwise arising by virtue of a particular reduction in rating shall not be deemed to have occurred in respect of a particular change of control (and thus shall not be deemed a below investment grade rating event for purposes of the definition of change of control repurchase event) if the rating agencies making the reduction in rating to which this definition would otherwise apply do not announce or publicly confirm or inform the trustee in writing at our request that the reduction was the result, in whole or in part, of any event or circumstance comprised of or arising as a result of, or in respect of, the applicable change of control (whether or not the applicable change of control shall have occurred at the time of the below investment grade rating event).

“change of control” means the occurrence of any of the following: (1) the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation or as a pledge for security purposes only), in one or a series of related transactions, of all or substantially all of our properties and assets and those of our subsidiaries, taken as a whole, to any person, other than us and/or one or more of our subsidiaries, other than any such transaction or series of related transactions where holders of our voting stock outstanding immediately prior thereto hold voting stock of the transferee person representing a majority of the voting power of the transferee person’s voting stock immediately after giving effect thereto; (2) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any person becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of our then outstanding voting stock (as defined below) or other voting stock into which our voting stock is reclassified, consolidated, exchanged or changed, measured by voting power rather than number of shares; or (3) the approval by the holders of our common stock of any plan or proposal for our liquidation or dissolution. Notwithstanding the foregoing, a transaction will not be deemed to involve a change of control if (1) we become a direct or indirect wholly-owned subsidiary of a holding company and (2)(a) the direct or indirect holders of the voting stock of such holding company immediately following that transaction are substantially the same as the holders of our voting stock immediately prior to that transaction or (b) immediately following that transaction, no person (other than a holding company satisfying the requirements of this sentence) is the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of the voting stock of such holding company. The term “person,” as used in this definition, has the meaning given thereto in Section 13(d)(3) of the Exchange Act.

“change of control repurchase event” means the occurrence of both a change of control and a below investment grade rating event. Notwithstanding anything to the contrary, no change of control repurchase event will be deemed to have occurred in connection with any particular change of control unless and until such change of control has actually been consummated.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Fitch” means Fitch Ratings Inc. and its successors.

“investment grade” means a rating of Baa3 or better by Moody’s (or its equivalent under any successor rating category of Moody’s); a rating of BBB- or better by S&P (or its equivalent under any successor rating category of S&P); a rating of BBB- or better by Fitch (or its equivalent under any successor rating category of Fitch); and the equivalent investment grade credit rating from any replacement rating agency or rating agencies selected by us.

“Moody’s” means Moody’s Investors Service, Inc., a subsidiary of Moody’s Corporation, and its successors.

“rating agency” means (1) each of Moody’s, S&P and Fitch; and (2) if any of Moody’s, S&P or Fitch (or, in each case, any replacement thereof appointed pursuant to this definition) ceases to rate the notes or fails to make a rating of the notes publicly available for reasons outside of our control, a “nationally recognized statistical rating organization” as defined under Section 3(a)(62) of the Exchange Act, selected by us as a replacement agency for Moody’s, S&P and/or Fitch, as the case may be; provided that we shall give notice of any such replacement to the trustee.

“S&P” means S&P Global Ratings, a division of S&P Global Inc., and its successors.

“voting stock” means, with respect to any specified “person” (as that term is used in Section 13(d)(3) of the Exchange Act) as of any date, the capital stock of such person that is at the time entitled to vote generally in the election of the board of directors of such person.

The definition of change of control includes a phrase relating to the direct or indirect sale, lease, transfer, conveyance or other disposition of “all or substantially all” of our properties and assets and those of our subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase “substantially all,” there is no precise, established definition of the phrase under applicable law. Accordingly, the applicability of the requirement that we offer to repurchase the notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of our properties and assets and those of our subsidiaries taken as a whole to another “person” (as such term is used in Section 13(d)(3) of the Exchange Act) may be uncertain.

Certain Restrictive Covenants and Events of Default

We have summarized certain of the terms and conditions of the notes below. This summary supplements the description of the general terms and conditions of the notes under the captions “Covenants Applicable to Senior Debt Securities,” “Covenants Applicable to Senior Debt Securities—Certain Definitions,” “Events of Default,” “Defeasance, Satisfaction and Discharge to Maturity or Redemption—Defeasance of any Series” and “Defeasance, Satisfaction and Discharge to Maturity or Redemption—Satisfaction and Discharge of any Series” below and, to the extent this summary is inconsistent with such description, replaces and supersedes such description. This summary of certain provisions applicable to the notes does not purport to be complete and is subject to all of the provisions of the indenture and the notes, which are available from us upon request.

Limitations on Secured Debt

We may not, and may not permit our restricted subsidiaries to, create, assume, or guarantee any indebtedness for borrowed money that is secured by a security interest in any of our principal properties or any shares of capital stock or indebtedness of any of our restricted subsidiaries that owns any principal property without making effective provision for securing the notes equally and ratably with the secured debt. As of February 1, 2021, neither we nor any of our subsidiaries has any property that we have determined to be a principal property under the indenture. Notwithstanding this limitation on secured debt, we and our restricted subsidiaries may have debt secured by:

•	(a) any security interest on any property hereafter acquired or constructed by us or a restricted subsidiary to secure or provide for the payment of all or any part of the purchase price or construction cost of such property, including, but not limited to, any indebtedness incurred by us or a restricted subsidiary prior to, at the time of, or within 180 days after the later of the acquisition, the completion of construction (including any improvements on an existing property) or the commencement of commercial operation of such property, which indebtedness is incurred for the purpose of financing all or any part of the purchase price thereof or construction or improvements thereon; or (b) the acquisition of property subject to any security interest upon such property existing at the time of acquisition thereof, whether or not assumed by us or such restricted subsidiary; or (c) any security interest existing on the property or on the outstanding shares of capital stock or indebtedness of a person at the time such person shall become a restricted subsidiary; or (d) a security interest on property or shares of capital stock or indebtedness of a person existing at the time such person is merged into or consolidated with us or a restricted subsidiary or at the time of a sale, lease or other disposition of the properties of a person or firm as an entirety or substantially as an entirety to us or a restricted subsidiary, provided, however, that no such security interest shall extend to any other principal property of ours or such restricted subsidiary prior to such acquisition or to the other principal property thereafter acquired other than additions to such acquired property;
•	security interests in property of ours or a restricted subsidiary in favor of the United States of America or any State thereof, or any department, agency or instrumentality or political subdivision of the United States of America or any State thereof, or in favor of any other country, or any department, agency or instrumentality or political subdivision thereof (including, without limitation, security interests to secure indebtedness of the pollution control or industrial revenue bond type), to permit us or a restricted subsidiary to perform any contract or subcontract made by it with or at the request of any of the foregoing, or to secure partial, progress, advance or other payments pursuant to any contract or statute or to secure any indebtedness incurred for the purpose of financing all or any part of the purchase price or the cost of constructing or improving the property subject to such security interests;
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•	any security interest on any property or assets of any restricted subsidiary to secure indebtedness owing by it to us or to a restricted subsidiary;
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•	any security interest on any property or assets of ours to secure indebtedness owing by us to any restricted subsidiary;
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•	mechanics’, materialmen’s, carriers’ or other like liens arising in the ordinary course of business (including construction of facilities) in respect of obligations which are not due or which are being contested in good faith;
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•	any security interest arising by reason of deposits with, or the giving of any form of security to, any governmental agency or any body created or approved by law or governmental regulations, which is required by law or governmental regulation as a condition to the transaction of any business, or the exercise of any privilege, franchise or license, and any security interest to secure public or statutory obligations;
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•	security interests for taxes, assessments or governmental charges or levies not yet delinquent, or the security interests for taxes, assessments or government charges or levies already delinquent but the validity of which is being contested in good faith;
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•	security interests (including judgment liens) arising in connection with legal proceedings so long as such proceedings are being contested in good faith and, in the case of judgment liens, execution thereon is stayed;
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•	landlords’ liens on fixtures located on premises leased by us or a restricted subsidiary in the ordinary course of business;
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•	security interests in connection with certain permitted receivables financings;
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•	any extension, renewal or replacement (or successive extensions, renewals or replacements) in whole or in part of any security interest permitted by the indenture; or
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•	any security interest on assets and/or equity interests of a foreign subsidiary that only secures obligations of one or more foreign subsidiaries.
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In addition to these exceptions, we or a restricted subsidiary may issue, assume or guarantee other secured debt without securing the notes if the total amount of secured debt outstanding (excluding indebtedness secured by the types of security interests listed above) and the value of sale and leaseback transactions (other than sale and leaseback transactions in connection with which indebtedness has been, or will be, retired in accordance with the sale and leaseback covenant in the indenture) calculated in accordance with the indenture at the time does not exceed 10% of our consolidated total assets, determined as of a date not more than 90 days prior thereto.

Reports

We agree to file with the trustee and the SEC, and transmit to holders of the notes, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act of 1939 at the times and in the manner provided pursuant to such Act; provided that any such information, documents or reports required to be filed with the SEC’s pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the trustee within 15 days after the same are filed with the SEC. We shall be deemed to have so filed and transmitted such information, documentation, reports and summaries upon the filing thereof via the SEC’s Electronic Data Gathering, Analysis and Retrieval System (or any successor system). Delivery of such reports, information and documents to the trustee is for informational purposes only and the trustee’s receipt thereof shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including our compliance with any of our covenants applicable to the notes (as to which the trustee is entitled to rely exclusively on officers’ certificates).

Certain Definitions

“foreign subsidiary” means any subsidiary of ours that is not organized under the laws of the United States of America, any state thereof or the District of Columbia.

“secured debt” means indebtedness for money borrowed secured by a security interest in (a) any principal property or (b) any shares of capital stock or indebtedness of any restricted subsidiary that owns a principal property.

“security interest” means any mortgage, pledge, lien, encumbrance, conditional sale agreement, title retention agreement or other security interest which secures payment or performance of an obligation, excluding the interest of a lessor under an operating lease (with the determination of whether a lease constitutes an operating lease to be based upon generally accepted accounting principles in effect as of the issue date of the notes, without giving effect to any subsequent phase-in of the effectiveness of any amendments to generally accepted accounting principles that have been adopted as of the issue date of the notes).

“unrestricted subsidiary” means (a) any subsidiary of ours that at the time of determination shall be designated an unrestricted subsidiary by the board of directors (provided, however, that any subsidiary of ours having, as of the end of our most recently completed fiscal year, (i) assets (after elimination of intercompany assets) with a value in excess of 5% of the total value of the assets of us and our subsidiaries taken as a whole, or (ii) gross revenue (after elimination of intercompany revenues) in excess of 5% of our total (gross) revenue and of our subsidiaries taken as a whole, may not be designated as an unrestricted subsidiary under the indenture); and (b) any subsidiary of an unrestricted subsidiary.

Events of Default

The following are events of default with respect to the notes:

•	default for 30 days in payment of any interest on the notes;
•	failure to pay principal or premium, if any, with respect to the notes when due;
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•	failure to observe or perform any other covenant, warranty or agreement in the indenture or the notes, other than a covenant, warranty or agreement a default in whose performance or whose breach is specifically dealt with above, if the failure continues for 60 days after written notice to us by the trustee or the holders of at least 25% in aggregate principal amount of the notes then outstanding;
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•	uncured or unwaived failure to pay principal of or interest on any of our other obligations for borrowed money, including default under any other series of debt securities, beyond any period of grace with respect thereto if (a) the aggregate principal amount of the obligation is in excess of the greater of $150,000,000 or 5% of our consolidated total debt; and (b) the default in payment is not being contested by us in good faith and by appropriate proceedings; and
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•	specified events of bankruptcy, insolvency, receivership or reorganization.
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Legal Defeasance and Covenant Defeasance

We may, at our option and at any time, elect to have all of our obligations released, terminated and discharged with respect to the notes (“Legal Defeasance”), except for:

(1)	the rights of holders of outstanding notes to receive payments in respect of the principal of, or interest or premium, if any, on, such notes when such payments are due from the trust referred to below;
(2)	our obligations with respect to the notes concerning temporary notes, registration of notes, mutilated, destroyed, lost or stolen notes, the maintenance of an office or agency for payment and money for security payments held in trust;
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(3)	the rights, powers, trusts, duties and immunities of the trustee, and our obligations in connection therewith; and
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(4)	the Legal Defeasance and Covenant Defeasance (as defined below) provisions.
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In addition, we may, at our option and at any time, elect to have our obligations released, terminated and discharged with respect to certain provisions of the indenture and the notes (“Covenant Defeasance”), and thereafter any failure to comply with such obligations or provisions will not constitute a default or event of default. In addition, in the event Covenant Defeasance occurs, any defeasible event of default will no longer constitute an event of default.

To exercise either Legal Defeasance or Covenant Defeasance:

(1)	we must irrevocably deposit with the trustee, in trust, for the benefit of the holders of the notes, cash in U.S. dollars, non-callable government securities, or a combination of cash in U.S. dollars and non-callable U.S. government securities, in amounts as will be sufficient, in the opinion of a nationally recognized investment bank, appraisal firm or firm of independent public accountants, to pay the principal of, and interest and premium, if any, on, the outstanding notes on the stated date for payment thereof or on the applicable redemption date, as the case may be, and we must specify whether the notes are being defeased to such stated date for payment or to a particular redemption date;
(2)	in the case of Legal Defeasance, we must deliver to the trustee an opinion of counsel reasonably acceptable to the trustee confirming that (a) we have received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the issue date of the notes, there has been a change in the applicable U.S. federal income tax law, in either case to the effect that, and based thereon such opinion of counsel will confirm that, the beneficial owners of the outstanding notes will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such Legal Defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same time as would have been the case if such Legal Defeasance had not occurred;
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(3)	in the case of Covenant Defeasance, we must deliver to the trustee an opinion of counsel reasonably acceptable to the trustee confirming that the beneficial owners of the outstanding notes will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such Covenant Defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;
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(4)	no default or event of default shall have occurred and be continuing on the date of such deposit (other than a default or event of default resulting from the borrowing of funds to be applied to such deposit and/or the grant of any security interest to secure such borrowing);
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(5)	the deposit must not result in a breach or violation of, or constitute a default under, any other material instrument to which we are a party or by which we are bound;
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(6)	such Legal Defeasance or Covenant Defeasance must not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than the indenture) to which we are, or any of our subsidiaries is, a party or by which we are, or any of our subsidiaries is, bound;
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(7)	we must deliver to the trustee an officers’ certificate stating that the deposit was not made by us with the intent of preferring the holders of notes over our other creditors with the intent of defeating, hindering, delaying or defrauding our creditors or the creditors of others;
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(8)	we must deliver to the trustee an officers’ certificate stating that all conditions precedent set forth in clauses (1) through (6) of this paragraph have been complied with; and
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(9)	we must deliver to the trustee an opinion of counsel (which opinion of counsel may be subject to customary assumptions, qualifications, and exclusions) stating that all conditions precedent set forth in clauses (2), (3) and (6) of this paragraph have been complied with.
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Satisfaction and Discharge

The notes, and the indenture as it relates to the notes, will be discharged and will cease to be of further effect (except as to surviving rights of registration of transfer or exchange of notes and certain rights of the trustee, as expressly provided for in the indenture), when:

(1)	either (a) all of the notes theretofore authenticated and delivered under the indenture (except lost, stolen or destroyed notes that have been replaced or paid and notes for the payment of which money has theretofore been deposited in trust or segregated and held in trust by us and thereafter repaid to us or discharged from such trust) have been delivered to the trustee for cancellation or (b) all notes not theretofore delivered to the trustee for cancellation have become due and payable, will become due and payable at their stated maturity within one year, or are to be called for redemption within one year under arrangements satisfactory to the trustee for the giving of notice of redemption by the trustee in the name, and at the expense, of us, and we have irrevocably deposited or caused to be deposited with the trustee funds, in an amount sufficient to pay and discharge the entire indebtedness on the notes not theretofore delivered to the trustee for cancellation, for principal of and premium, if any, and interest on the notes to the date of deposit (in the case of notes that have become due and payable) or to the stated maturity or redemption date, as the case may be, together with instructions from us irrevocably directing the trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be;
(2)	we have paid all other sums then due and payable with respect to the notes under the indenture by us; and
(3)	we have delivered to the trustee an officers’ certificate and an opinion of counsel, which, taken together, state that all conditions precedent under the indenture relating to the satisfaction and discharge of the indenture as it relates to the notes have been complied with.
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Book-Entry Issuance

The notes trade in book-entry only form through the facilities of The Depository Trust Company. They are represented by one or more global certificates and registered in the name of Cede & Co., DTC’s nominee. As long as the depositary is the depositary for the notes, interests in the notes may be held through participants in the depositary, including Clearstream Banking, S.A. (“Clearstream”) and Euroclear Bank S.A./N.V., as operator of the Euroclear System (“Euroclear”). Euroclear and Clearstream will hold interests, in each case, on behalf of their participants through customers’ securities accounts in the names of Euroclear and Clearstream on the books of their respective depositaries, which in turn will hold such interests in customers’ securities accounts in the depositaries’ names on the depositary’s books.

Payments, deliveries, transfers, exchanges, notices and other matters relating to the notes made through Euroclear or Clearstream must comply with the rules and procedures of those systems. Those systems could change their rules and procedures at any time. We have no control over those systems or their participants and we take no responsibility for their activities. Transactions between participants in Euroclear or Clearstream, on the one hand, and other participants in the depositary, on the other hand, would also be subject to the rules and procedures of the depositary.

Investors will be able to make and receive through Euroclear and Clearstream payments, deliveries, transfers, exchanges, notices and other transactions involving any securities held through those systems only on days when those systems are open for business. Those systems may not be open for business on days when banks, brokers and other institutions are open for business in the United States.

In addition, because of time-zone differences, U.S. investors who hold their interests in the notes through these systems and wish to transfer their interests, or to receive or make a payment or delivery or exercise any other right with respect to their interests, on a particular day may find that the transaction will not be effected until the next business day in Luxembourg or Brussels, as applicable. Thus, investors who wish to exercise rights that expire on a particular day may need to act before the expiration date. In addition, investors who hold their interests through both the depositary and Euroclear or Clearstream may need to make special arrangements to finance any purchases or sales of their interests between the U.S. and European clearing systems, and those transactions may settle later than transactions within one clearing system.

The laws of some jurisdictions require that certain purchasers of securities take physical delivery of securities in definitive form. Such laws may impair the ability to transfer beneficial interests in the notes as represented by a global certificate.

For additional information relating to DTC and the book-entry issuance system, see “Description of the Indenture—Book-Entry, Delivery and Form” below.

DESCRIPTION OF THE INDENTURE

Senior debt securities, such as the notes, are and will be issued under the indenture, dated January 8, 2007, between Snap-on and U.S. Bank National Association, as trustee. The indenture relating to the senior debt securities, as amended or otherwise supplemented by any supplemental indentures, is referred to as the “indenture.”

The following summarizes the material provisions of the indenture and the debt securities that may be issued thereunder. The summary does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all of the provisions of the indenture, including the definitions of specified terms used in the indenture, and the debt securities. Wherever particular articles, sections or defined terms of an indenture are referred to, it is intended that those articles, sections or defined terms will be incorporated herein by reference, and the statement in connection with which reference is made is qualified in its entirety by the article, section or defined term in the indenture.

General

The indenture does not limit the amount of debt, either secured or unsecured, that we may issue under the indenture or otherwise. The debt securities may be issued in one or more series with the same or various maturities and may be sold at par, at a premium or at an original issue discount. Some of the debt securities may be issued under the indenture as original issue discount securities to be sold at a substantial discount below their principal amount. Federal income tax and other considerations applicable to any original issue discount securities will be described in the related prospectus supplement. We have the right to “reopen” a previous issue of a series of debt by issuing additional debt securities of such series.

Snap-on conducts a material amount of its operations through subsidiaries and it expects that it will continue to do so. As a result, the right of Snap-on to participate as a shareholder in any distribution of assets of any subsidiary upon its liquidation or reorganization or otherwise and the ability of holders of the notes to benefit as creditors of Snap-on from any distribution are subject to prior claims of creditors of the subsidiary. The notes will also effectively rank junior in right of payment to any secured debt of Snap-on.

The prospectus supplement relating to the particular debt securities offered thereby will describe the following terms of the offered debt securities:

•	the title of the offered debt securities;
•	any limit upon the aggregate principal amount of the offered debt securities;
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•	the date or dates (or the manner of calculation thereof) on which the principal of the offered debt securities is payable;
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•	the rate or rates (or the manner of calculation thereof) at which the offered debt securities shall bear interest, if any, the date or dates from which such interest shall accrue, the interest payment dates on which such interest shall be payable and the regular record date for the interest payable on any interest payment date;
•	the place or places where the principal of and premium, if any, and interest, if any, on the offered debt securities will be payable and each office or agency where the offered debt securities may be presented for transfer or exchange;
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•	the period or periods within which, the price or prices at which, the currency or currency units in which, and the terms and conditions upon which the offered debt securities may be redeemed, in whole or in part, at our option;
•	our obligation, if any, to redeem or purchase the offered debt securities pursuant to any sinking fund or analogous provisions or at the option of a holder thereof and the period or periods within which, the price or prices in the currency at which, the currency or currency units in which, and the terms and conditions upon which the offered debt securities shall be redeemed or purchased, in whole or in part, pursuant to such obligation;
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•	the denominations in which the offered debt securities shall be issuable if other than denominations of $1,000 and any integral multiple thereof;
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•	the application, if any, of certain provisions of the indenture relating to discharge and defeasance described herein with respect to the offered debt securities;
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•	if other than the currency of the United States of America, the currencies in which payments of interest or principal of (and premium, if any, with respect to) the offered debt securities are to be made;
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•	if the interest on or principal of (or premium, if any, with respect to) the offered debt securities are to be payable, at our election or at the election of a holder thereof or otherwise, in a currency other than that in which such offered debt securities are payable, the period or periods within which, and the other terms and conditions upon which, such election may be made, and the time and manner of determining the exchange rate between the currency in such offered debt securities are denominated or stated to be payable and the currency in which such offered debt securities or any of them are to be so payable;
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•	whether the amount of payments of interest on or principal of (or premium, if any, with respect to) the offered debt securities of such series may be determined with reference to an index, formula or other method (which index, formula or method may be based, without limitation, on one or more currencies, commodities, equity indices or other indices), and, if so, the terms and conditions upon which and the manner in which such amounts shall be determined and paid or payable;
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•	the extent to which any offered debt securities will be issuable in permanent global form, the manner in which any payments on a permanent global debt security will be made, and the appointment of any depository relating thereto;
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•	any deletions from, modifications of or additions to the events of default or covenants with respect to the offered debt securities of such series, whether or not such events of default or covenants are consistent with the events of default or covenants set forth herein;
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•	whether any of the offered debt securities are to be issuable upon the exercise of warrants, and, if so, the time, manner and place for such offered debt securities to be authenticated and delivered; and
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•	any other terms of the series (which terms shall not be inconsistent with the provisions of the indenture).
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Unless otherwise indicated in any prospectus supplement, principal of and premium, if any, and interest, if any, on the offered debt securities will be payable, and transfers of the offered debt securities will be registerable, at the corporate trust office of the trustee. Alternatively, at our option, payment of interest may be made by check mailed to the address of the person entitled thereto as it appears in the debt security register.

Floating Rate Notes

Floating rate notes issued under the indenture will bear interest at a floating interest rate. Interest payable on any interest payment date or on the date of maturity will be the amount of interest accrued from and including the date of original issuance or from and including the most recent interest payment date on which interest has been paid or duly made available for payment to but excluding the interest payment date or the date of maturity, as the case may be.

The interest rate for the initial interest period will be the three-month London Interbank Offered Rate (“LIBOR”), determined as described below as of the applicable determination date, plus a number of basis points to be described in the related prospectus supplement. The interest rate on floating rate notes for each subsequent interest period will be reset quarterly on each interest payment date. Floating rate notes will bear interest at an annual rate (computed on the basis of the actual number of days elapsed over a 360-day year) equal to LIBOR plus a number of basis points to be described in the related prospectus supplement.

The interest rate in effect for floating rate notes on each day will be (a) if that day is an interest reset date, the interest rate determined as of the determination date (as defined below) immediately preceding such interest reset date, or (b) if that day is not an interest reset date, the interest rate determined as of the determination date immediately preceding the most recent interest reset date. The determination date will be the second London Business Day immediately preceding the applicable interest reset date.

The calculation agent will be the trustee initially. LIBOR will be determined by the calculation agent as of the applicable determination date in accordance with the following provisions:

•

LIBOR will be determined on the basis of the offered rates for deposits in U.S. dollars of not less than U.S. $1,000,000 having a three-month maturity, beginning on the second London Business Day immediately following that determination date, which appears on Reuters Page LIBOR01 (as defined below) as of approximately 11:00 a.m., London time, on that determination date. “Reuters Page LIBOR01” means the display designated on page “LIBOR01” on Reuters (or such other page as may replace the page on that service, any successor service or such other service or services as may be nominated by the British Bankers’ Association for the purpose of displaying London interbank offered rates for U.S. dollar deposits). If no rate appears on Reuters Page LIBOR01, LIBOR for such determination date will be determined in accordance with the provisions of the next paragraph.

•

With respect to a determination date on which no rate appears on Reuters Page LIBOR01 as of approximately 11:00 a.m., London time, on that determination date, the calculation agent will request the principal London office of each of four major reference banks (which may include an affiliate of one or more underwriters) in the London interbank market selected by the calculation agent (after consultation with us) to provide the calculation agent with a quotation of the rate at which deposits of U.S. dollars having a three-month maturity, beginning on the second London Business Day immediately following that determination date, are offered by it to prime banks in the London interbank market as of approximately 11:00 a.m., London time, on that determination date in a principal amount equal to an amount of not less than U.S. $1,000,000 that is representative for a single transaction in that market at that time. If at least two quotations are provided, LIBOR for that determination date will be the arithmetic mean of the quotations as calculated by the calculation agent. If fewer than two quotations are provided, LIBOR for that determination date will be the arithmetic mean of the rates quoted as of approximately 11:00 a.m., New York City time, on that determination date by three major banks selected by the calculation agent (after consultation with us) for loans in U.S. dollars to leading European banks having a three-month maturity beginning on the second London Business Day immediately following that determination date and in a principal amount equal to an amount of not less than U.S. $1,000,000 that is representative for a single transaction in that market at that time; provided, however, if the banks selected by the calculation agent are not quoting the rates described in this sentence, LIBOR for that determination date will be LIBOR determined with respect to the immediately preceding determination date, or in the case of the first determination date, LIBOR for the initial interest period.

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If the date of maturity of any floating rate notes falls on a day that is not a LIBOR Business Day, the related payment of principal and interest will be made on the next LIBOR Business Day as if it were made on the date such payment was due, and no interest will accrue on the amounts so payable for the period from and after such date to the next LIBOR Business Day. If any interest reset date or interest payment date (other than at the date of maturity) would otherwise be a day that is not a LIBOR Business Day, that interest reset date and interest payment date will be postponed to the next date that is a LIBOR Business Day, except that if such LIBOR Business Day is in the next calendar month, such interest reset date and interest payment date (other than at the date of maturity) shall be the immediately preceding LIBOR Business Day.

“LIBOR Business Day” means any day other than Saturday or Sunday or a day on which banking institutions or trust companies in the City of New York are required or authorized to close and that is also a London Business Day.

“London Business Day” means any day on which dealings in deposits in U.S. dollars are transacted in the London interbank market.

Fixed Rate Notes

Fixed rate notes will bear interest at a fixed interest rate as set forth in the applicable supplemental indenture, prospectus supplement or other document or agreement that may be executed from time to time. Unless set forth in such other agreement, the interest payable on any interest payment date or on the date of maturity will be the amount of interest accrued from and including the date of original issuance or from and including the most recent interest payment date on which interest has been paid or duly made available for payment to but excluding the interest payment date or the date of maturity, as the case may be.

Optional Redemption

Floating Rate Notes

All or a portion of floating rate notes may be redeemed at our option at any time or from time to time, after a set date to be identified in the applicable prospectus supplement. The redemption price of floating rate notes will be 100% of the principal amount thereof plus accrued and unpaid interest thereon to the redemption date.

Notwithstanding the foregoing, installments of interest on any floating rate notes that are due and payable on interest payment dates falling on or prior to a redemption date will be payable on the interest payment date to the registered holders as of the close of business on the relevant record date according to such floating rate notes and the indenture. The redemption price will be calculated on the basis of a 360-day year consisting of twelve 30-day months.

We will mail notice of any redemption at least 30 days but not more than 60 days before the redemption date to each registered holder of floating rate notes. Once notice of redemption is mailed, floating rate notes will become due and payable on the redemption date and at the applicable redemption price, plus accrued and unpaid interest to the redemption date.

On and after the redemption date, interest will cease to accrue on floating rate notes or any portion of floating rate notes called for redemption (unless we default in the payment of the redemption price and accrued interest). On or before the redemption date, we will deposit with a paying agent (or the trustee) money sufficient to pay the redemption price of and accrued interest on any floating rate notes to be redeemed on that date. If less than all of any floating rate notes are to be redeemed, any floating rate notes to be redeemed shall be selected by lot by The Depository Trust Company (“DTC”), in the case of floating rate notes represented by a global security, or by the trustee by a method the trustee deems to be fair and appropriate, in the case of floating rate notes that are not represented by a global security.

Fixed Rate Notes

All or a portion of fixed rate notes may be redeemed at our option at any time or from time to time. The redemption price for any fixed rate notes to be redeemed on any redemption date will be equal to the greater of the following amounts (plus, in each case, accrued and unpaid interest on such fixed rate notes to the redemption date):

•

100% of the principal amount of the fixed rate notes being redeemed on the redemption date; and

•

the sum of the present values of the remaining scheduled payments of principal and interest on the fixed rate notes being redeemed on that redemption date (not including any portion of any payments of interest accrued to the redemption date), discounted to the redemption date on a semiannual basis at the Treasury Rate (as defined below), plus a set number of basis points to be identified in the applicable prospectus supplement, as determined by the Reference Treasury Dealer (as defined below).

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Notwithstanding the foregoing, installments of interest on fixed rate notes that are due and payable on interest payment dates falling on or prior to a redemption date will be payable on the interest payment date to the registered holders as of the close of business on the relevant record date according to the fixed rate notes and the indenture. The redemption price will be calculated on the basis of a 360-day year consisting of twelve 30-day months.

We will mail notice of any redemption at least 30 days but not more than 60 days before the redemption date to each registered holder of such fixed rate notes. Once notice of redemption is mailed, fixed rate notes will become due and payable on the redemption date and at the applicable redemption price, plus accrued and unpaid interest to the redemption date.

“Comparable Treasury Issue” means the United States Treasury security selected by the Reference Treasury Dealer as having a maturity comparable to the remaining term of fixed rate notes, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of fixed rate notes.

“Comparable Treasury Price” means, with respect to any redemption date, (a) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or (b) if the trustee obtains fewer than three such Reference Treasury Dealer Quotations, the average of all such Quotations, or (c) if only one Reference Treasury Dealer Quotation is received, such Quotation.

“Reference Treasury Dealer” means any primary U.S. Government securities dealer in New York City (a “Primary Treasury Dealer”) that is selected by us.

“Reference Treasury Dealer Quotation” means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the trustee by such Reference Treasury Dealer at 5:00 p.m. (New York City time) on the third business day preceding such redemption date.

On and after the redemption date, interest will cease to accrue on fixed rate notes or any portion of such fixed rate notes called for redemption (unless we default in the payment of the redemption price and accrued interest). On or before the redemption date, we will deposit with a paying agent (or the trustee) money sufficient to pay the redemption price of and accrued interest on fixed rate notes to be redeemed on that date. If less than all of any fixed rate notes are to be redeemed, any fixed rate notes to be redeemed shall be selected by lot by DTC, in the case of fixed rate notes represented by a global security, or by the trustee by a method the trustee deems to be fair and appropriate, in the case of fixed rate notes that are not represented by a global security.

Denominations, Registration and Transfer

Unless otherwise indicated in any prospectus supplement, the offered debt securities will be issued only in fully registered form without coupons in denominations of $1,000 or any integral multiple of $1,000, or the equivalent in foreign currency. No service charge will be made for any registration of transfer or exchange of offered debt securities, but we may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection with any transfer or exchange.

If the purchase price of any of the offered debt securities is denominated in a foreign currency or currencies or foreign currency unit or units or if the principal of, premium, if any, or interest, if any, on any series of offered debt securities is payable in a foreign currency or currencies or foreign currency unit or units, the restrictions, elections, tax consequences, specific terms and other information with respect to the issue of offered debt securities and the foreign currency or currencies or foreign currency unit or units will be described in the related prospectus supplement.

We will not be required to issue, register the transfer of, or exchange debt securities of any series during the period from 15 days prior to the mailing of a notice of redemption of debt securities of that series to the date the notice is mailed. We will also not be required to register the transfer of or exchange any debt security so selected for redemption, except the unredeemed portion of any debt security being redeemed in part.

Conversion and Exchange

The terms, if any, on which debt securities of any series are convertible into or exchangeable for common stock or preferred stock, property or cash, or a combination of any of the foregoing, will be set forth in the related prospectus supplement. Terms may include provisions for conversion or exchange that is either mandatory, at the option of the holder, or at

our option. The number of shares of common stock or preferred stock to be received by the holders of the debt securities will be calculated in the manner, according to the factors and at the time as described in the related prospectus supplement.

Covenants Applicable to Senior Debt Securities

Limitations on Secured Debt

We may not, and may not permit our restricted subsidiaries to, create, assume, or guarantee any indebtedness secured by mortgages, pledges, liens, encumbrances, conditional sale or title retention agreements (excluding operating leases) or other security interests, which we refer to collectively as security interests, on any of our principal properties or any shares of capital stock or indebtedness of any of our restricted subsidiaries without making effective provision for securing the senior debt securities offered under any prospectus and/or prospectus supplement equally and ratably with the secured debt. Notwithstanding this limitation on secured debt, we and our restricted subsidiaries may have debt secured by:

•	(a) any security interest on any property hereafter acquired or constructed by us or a restricted subsidiary to secure or provide for the payment of all or any part of the purchase price or construction cost of such property, including, but not limited to, any indebtedness incurred by us or a restricted subsidiary prior to, at the time of, or within 180 days after the later of the acquisition, the completion of construction (including any improvements on an existing property) or the commencement of commercial operation of such property, which indebtedness is incurred for the purpose of financing all or any part of the purchase price thereof or construction or improvements thereon; or (b) the acquisition of property subject to any security interest upon such property existing at the time of acquisition thereof, whether or not assumed by us or such restricted subsidiary; or (c) any security interest existing on the property or on the outstanding shares of capital stock or indebtedness of a person at the time such person shall become a restricted subsidiary; or (d) a security interest on property or shares of capital stock or indebtedness of a person existing at the time such person is merged into or consolidated with us or a restricted subsidiary or at the time of a sale, lease or other disposition of the properties of a person or firm as an entirety or substantially as an entirety to us or a restricted subsidiary, provided , however , that no such security interest shall extend to any other principal property of ours or such restricted subsidiary prior to such acquisition or to the other principal property thereafter acquired other than additions to such acquired property;
•	security interests in property of ours or a restricted subsidiary in favor of the United States of America or any State thereof, or any department, agency or instrumentality or political subdivision of the United States of America or any State thereof, or in favor of any other country, or any department, agency or instrumentality or political subdivision thereof (including, without limitation, security interests to secure indebtedness of the pollution control or industrial revenue bond type), in order to permit us or a restricted subsidiary to perform any contract or subcontract made by it with or at the request of any of the foregoing, or to secure partial, progress, advance or other payments pursuant to any contract or statute or to secure any indebtedness incurred for the purpose of financing all or any part of the purchase price or the cost of constructing or improving the property subject to such security interests;
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•	any security interest on any property or assets of any restricted subsidiary to secure indebtedness owing by it to us or to a restricted subsidiary;
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•	any security interest on any property or assets of ours to secure indebtedness owing by us to any restricted subsidiary;
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•	mechanics’, materialmen’s, carriers’ or other like liens arising in the ordinary course of business (including construction of facilities) in respect of obligations which are not due or which are being contested in good faith;
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•	any security interest arising by reason of deposits with, or the giving of any form of security to, any governmental agency or any body created or approved by law or governmental regulations, which is required by law or governmental regulation as a condition to the transaction of any business, or the exercise of any privilege, franchise or license and any security interest to secure public or statutory obligations;
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•	security interests for taxes, assessments or governmental charges or levies not yet delinquent, or the security interests for taxes, assessments or government charges or levies already delinquent but the validity of which is being contested in good faith;
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•	security interests (including judgment liens) arising in connection with legal proceedings so long as such proceedings are being contested in good faith and, in the case of judgment liens, execution thereon is stayed;
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•	landlords’ liens on fixtures located on premises leased by us or a restricted subsidiary in the ordinary course of business;
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•	security interests in connection with certain permitted receivables financings; or
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•	any extension, renewal or replacement (or successive extensions, renewals or replacements) in whole or in part of any security interest permitted by the indenture.
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Limitation on Sale and Leaseback Transactions

We and our restricted subsidiaries may not engage in sale and leaseback transactions (excluding such transactions between us and our restricted subsidiaries or between our restricted subsidiaries) whereby a principal property that is owned by us or one of our restricted subsidiaries and that has been in full operation for more than 180 days is sold or transferred with the intention of taking back a lease of such property (except a lease for a term of no more than three years entered into with the intent that the use by us or such restricted subsidiary of such property will be discontinued on or before the expiration of such term).

The sale and leaseback of a principal property is not prohibited, however, if we and the applicable restricted subsidiary would be permitted under the indenture to incur secured debt equal in amount to the amount realized or to be realized upon the sale or transfer secured by a lien on the principal property to be leased without equally and ratably securing the senior debt securities. We and our restricted subsidiaries may also engage in an otherwise prohibited sale and leaseback transaction if an amount equal to the value of the principal property so leased is applied, subject to credits for delivery by us to the trustee of senior debt securities we have previously purchased or otherwise acquired and specified voluntary redemptions of the senior debt securities, to the retirement (other than mandatory retirement), within 120 days of the effective date of the arrangement, of specified indebtedness for borrowed money incurred or assumed by us or a restricted subsidiary, as shown on our most recent consolidated balance sheet and, in the case of our indebtedness, the indebtedness is not subordinate and junior in right of payment to the prior payment of the senior debt securities.

Permitted Secured Debt

Notwithstanding the limitations on secured debt and sale and leaseback transactions described herein, we and our restricted subsidiaries may, without securing the senior debt securities, issue, assume or guarantee secured debt which would otherwise be subject to the foregoing restrictions, provided that after giving effect to any secured debt permitted by this exception, the aggregate amount of our secured debt and that of our restricted subsidiaries then outstanding (excluding indebtedness secured by the types of security interests listed above under the heading “Limitations on Secured Debt”) and the aggregate value of sale and leaseback transactions, other than sale and leaseback transactions in connection with which indebtedness has been, or will be, retired in accordance with the preceding paragraph, at such time does not exceed 10% of our consolidated stockholders’ equity.

For purposes of determining the amount of secured debt permitted by the exception described in the paragraph above, “consolidated stockholders’ equity” means, at any date, our stockholders’ equity and that of our consolidated subsidiaries determined on a consolidated basis as of such date in accordance with generally accepted accounting principles; provided that,

our consolidated stockholders’ equity and that of our consolidated subsidiaries is to be calculated without giving effect to (i) the application of Accounting Standards Codification Topic 715 relating to postretirement benefits and pension plans, or (ii) the cumulative foreign currency translation adjustment. The term “consolidated subsidiary” means, as to any person, each subsidiary of such person (whether now existing or hereafter created or acquired) the financial statements of which shall be (or should have been) consolidated with the financial statements of such person in accordance with generally accepted accounting principles.

Restrictions on Transfer of Principal Properties to Specified Subsidiaries

The indenture provides that, so long as the senior debt securities of any series are outstanding, we will not, and will not cause or permit any restricted subsidiary to, transfer any principal property to any unrestricted subsidiary, unless such subsidiary shall apply within one year after the effective date of the transaction, or shall have committed within one year of the effective date to apply, an amount equal to the fair value of the principal property at the time of transfer:

•	to the acquisition, construction, development or improvement of properties or facilities which are, or upon the acquisition, construction, development or improvement will be, a principal property or properties or a part thereof;
•	to the redemption of senior debt securities;
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•	to the repayment of indebtedness of us or any of our restricted subsidiaries for money borrowed having a maturity of more than 12 months from the date of our most recent consolidated balance sheet, other than any indebtedness owed to any restricted subsidiary; or
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•	in part, to an acquisition, construction, development or improvement, and in part, to redemption and/or repayment, in each case as described above.
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The fair value of any principal property for purposes of this paragraph will be as determined by our board of directors. In lieu of applying all or any part of any amount to the redemption of senior debt securities, we may, within one year of the transfer, deliver to the trustee under the indenture senior debt securities of any series (other than senior debt securities made the basis of a reduction in a mandatory sinking fund payment) for cancellation and thereby reduce the amount to be applied to the redemption of senior debt securities by an amount equivalent to the aggregate principal amount of the senior debt securities so delivered.

Certain Definitions

The following are the meanings of terms that are important in understanding the covenants previously described:

•	“principal property” means any manufacturing plant, office building or similar facility (including associated fixtures but excluding leases and other contract rights that might otherwise be deemed real property) owned by us or any restricted subsidiary, whether owned on the date hereof or thereafter, provided each such plant, office building or similar facility has a gross book value (without deduction for any depreciation reserves) at the date as of which the determination is being made of in excess of five percent of the consolidated net tangible assets of us and the restricted subsidiaries and is located in the United States of America, Canada or the Commonwealth of Puerto Rico, other than any such plant, office building or similar facility or portion thereof which, in the opinion of the board of directors (evidenced by a certified board resolution thereof delivered to the Trustee), is not of material importance to the business conducted by us and our restricted subsidiaries taken as a whole;
•	“restricted subsidiary” means any subsidiary of the Company that is not an unrestricted subsidiary;
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•	“secured debt” means indebtedness for money borrowed and any debt which is secured by a security interest in (a) any principal property or (b) any shares of capital stock or indebtedness of any restricted subsidiary;
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•	“subsidiary” means any person of which we, or we and one or more of our subsidiaries, or any one or more subsidiaries, directly or indirectly own more than 50% of the voting stock of such person; and
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•	“unrestricted subsidiary” means (a) any subsidiary of ours that at the time of determination shall be designated an unrestricted subsidiary by the board of directors ( provided , however , that any subsidiary of ours having, as of the end of our most recently completed fiscal year, (i) assets with a value in excess of 5% of the total value of the assets of us and our subsidiaries taken as a whole, or (ii) gross revenue in excess of 5% of our total (gross) revenue and of our subsidiaries taken as a whole, may not be designated as an unrestricted subsidiary under the indenture); and (b) any subsidiary of an unrestricted subsidiary.
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Merger

The indenture provides that we may, without the consent of the holders of debt securities, consolidate with, or sell, lease or convey all or substantially all of our assets to, or merge into any other person, provided that:

•	the successor person is a person organized and existing under the laws of the United States or a state thereof;
•	the successor person expressly assumes the due and punctual payment of the principal of and premium, if any, and interest on all debt securities, according to their tenor, and the due and punctual performance and observance of all the covenants and conditions of the indenture to be performed by us by supplemental indenture satisfactory to the trustee, executed and delivered to the trustee by the successor corporation; and
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•	immediately after giving effect to the transaction, no default under the indenture has occurred and is continuing.
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In addition, we must provide to the trustee an opinion of legal counsel that any such transaction and any assumption by a successor person complies with the applicable provisions of the indenture and that we have complied with all conditions precedent provided in the indenture relating to such transaction.

Other than the covenants described above, or as set forth in any accompanying prospectus supplement, the indenture contains no covenants or other provisions designed to afford holders of the debt securities protection in the event of a takeover, recapitalization or a highly leveraged transaction involving us.

Modification of the Indenture

With the consent of the holders of more than 50% in aggregate principal amount of any series of debt securities then outstanding under the indenture, waivers, modifications and alterations of the terms of either indenture may be made which affect the rights of the holders of the series of debt securities. However, no modification or alteration may be made which will:

•	extend the fixed maturity of any debt security, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof or any premium thereon, or make the principal thereof or interest or premium thereon payable in any coin or currency other than that provided in the debt securities, without the consent of the holder of each outstanding debt security affected thereby; or
•	without the consent of all of the holders of any series of debt securities then outstanding affected thereby, reduce the percentage of debt securities of that series, the holders of which are required to consent to:
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•	any supplemental indenture;
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•	rescind and annul a declaration that the debt securities of any series are due and payable as a result of the occurrence of an event of default;
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•	waive any past event of default under the indenture and its consequences; and
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•	waive compliance with other specified provisions of the indenture.
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In addition, as described in the description of “Events of Default” set forth below, holders of more than 50% in aggregate principal amount of the debt securities of any series then outstanding may waive past events of default in specified circumstances and may direct the trustee in enforcement of remedies.

We and the trustee may, without the consent of any holders, modify and supplement the indenture:

•	to evidence the succession of another person to us under the indenture, or successive successions, and the assumption by the successor person of the covenants, agreements and obligations of us pursuant to specified provisions of the indenture;
•	to add to the covenants of us such further covenants, restrictions, conditions or provisions as our board of directors and the trustee shall consider to be for the protection of the holders of debt securities of any or all series, and to make the occurrence, or the occurrence and continuance, of a default in any of such additional covenants, restrictions, conditions or provisions a default or event of default with respect to such series permitting the enforcement of all or any of the several remedies provided in the indenture; provided, however, that in respect of any such additional covenant, restriction or condition, such supplemental indenture may provide for a particular period of grace after default (which period may be shorter or longer than that allowed in the case of other defaults) or may provide for an immediate enforcement upon such default or may limit the remedies available to the trustee upon such default;
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•	to modify the indenture to permit the qualification of any supplemental indenture under the Trust Indenture Act of 1939;
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•	to cure any ambiguity or to correct or supplement any provision contained in the indenture or in any supplemental indenture which may be defective or inconsistent with any other provision contained in the indenture or in any supplemental indenture; to convey, transfer, assign, mortgage or pledge any property to or with the trustee; or to make such other provisions in regard to matters or questions arising under the indenture as shall not adversely affect the interests of the holders;
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•	to secure the debt securities of all series in accordance with the indenture;
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•	to evidence and provide for the acceptance of appointment by another corporation as a successor trustee under the indenture with respect to one or more series of debt securities and to add to or change any of the provisions of the indenture as shall be necessary to provide for or facilitate the administration of the trusts under the indenture by more than one trustee;
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•	to provide for the issuance under the indenture of debt securities in coupon form (including debt securities registrable as to principal only) and to provide for exchangeability of such debt securities with debt securities of the same series issued hereunder in fully registered form and to make all appropriate changes for such purpose;
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•	to change or eliminate any of the provisions of the indenture, provided, however, that any such change or elimination shall become effective only when there is no debt security outstanding of any series created prior to the execution of such supplemental indenture which is entitled to the benefit of such provision; and
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•	to establish any additional form of debt security, as permitted by the indenture, and to provide for the issuance of any additional series of debt securities, as permitted by the indenture.
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Defeasance, Satisfaction and Discharge to Maturity or Redemption

Defeasance of any Series

If we deposit with the trustee, in trust, at or before maturity or redemption, (a) lawful money in an amount, (b) direct obligations of the United States, or of any other government which issued the currency in which the debt securities of a series are denominated, or obligations which are guaranteed by the United States or the other government (which direct or guaranteed obligations are full faith and credit obligations of such government, are denominated in the currency in which the debt securities of such are denominated and which are not callable or redeemable at the option of the issuer there) in an amount and with a maturity so that the proceeds therefrom will provide funds, or (c) a combination thereof in an amount, sufficient, in the opinion of a nationally-recognized firm of independent public accountants, to pay when due the principal, premium, if any, and interest to maturity or to the redemption date, as the case may be, with respect to any series of debt securities then outstanding, and any mandatory sinking fund payments or similar payments or payment pursuant to any call for redemption applicable to such debt securities of such series on the day on which such payments are due and payable in accordance with the terms of the indenture and such debt securities, then the provisions of the indenture would no longer be effective as to the debt securities to which such deposit relates, including the restrictive covenants described herein and events of default relating to the payment of other indebtedness and the performance of covenants that are not specifically described as events of default in the indenture, except as to:

•	our obligation to duly and punctually pay the principal of and premium, if any, and interest on the series of debt securities if the debt securities are not paid from the money or securities held by the trustee;
•	certain of the events of default described under “Events of Default” below; and
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•	other specified provisions of the indenture including, among others, those relating to registration, transfer and exchange, lost or stolen securities, maintenance of place of payment and, to the extent applicable to the series, the redemption and sinking fund provisions of the indenture.
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Defeasance of debt securities of any series is subject to the satisfaction of specified conditions, including, among others, the absence of an event of default at the date of the deposit and the perfection of the holders’ security interest in the deposit.

Satisfaction and Discharge of any Series

Upon the deposit of money or securities contemplated above and the satisfaction of specified conditions, the provisions of the indenture (excluding the exceptions discussed above under the heading “Defeasance of any Series”) would no longer be effective as to the related debt securities, we may cease to comply with our obligation to pay duly and punctually the principal of and premium, if any, and interest on a particular series of debt securities, the events of default in the indenture no longer would be effective as to such debt securities and thereafter the holders of the series of debt securities will be entitled only to payment out of the money or securities deposited with the trustee.

The specified conditions include, among others, except in limited circumstances involving a deposit made within one year of maturity or redemption:

•	the absence of an event of default at the date of deposit or on the 91st day thereafter;
•	our delivery to the trustee of an opinion of nationally-recognized tax counsel, or our receipt or publication of a ruling by the Internal Revenue Service, to the effect that holders of the debt securities of the series will not recognize income, gain or loss for federal income tax purposes as a result of the deposit and discharge, and the holders will be subject to federal income tax on the same amounts and in the same manner and at the same times as would have been the case if the deposit and discharge had not occurred; and
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•	that we receive an opinion of counsel to the effect that the satisfaction and discharge will not result in the delisting of the debt securities of that series from any nationally-recognized exchange on which they are listed.
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Events of Default

As to any series of debt securities, an event of default is defined in the indenture as being:

•	default for 30 days in payment of any interest on the debt securities of that series;
•	failure to pay principal or premium, if any, with respect to the debt securities of that series when due;
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•	failure to pay or satisfy any sinking fund payment or similar obligation with respect to any series of debt securities when due;
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•	failure to observe or perform any other covenant, warranty or agreement in the indenture or debt securities of any series, other than a covenant, warranty or agreement, a default in whose performance or whose breach is specifically dealt with in the section of the indenture governing events of default, if the failure continues for 60 days after written notice by the trustee or the holders of at least 25% in aggregate principal amount of the debt securities of the series then outstanding;
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•	uncured or unwaived failure to pay principal of or interest on any of our other obligations for borrowed money, including default under any other series of debt securities, beyond any period of grace with respect thereto if (a) the aggregate principal amount of the obligation is in excess of the greater of $50,000,000 or 5% of our consolidated total debt; and (b) the default in payment is not being contested by us in good faith and by appropriate proceedings;
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•	specified events of bankruptcy, insolvency, receivership or reorganization; or
•	any other event of default provided with respect to debt securities of that series.
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Notice and Declaration of Defaults

So long as the debt securities of any series remain outstanding, we will be required to furnish annually to the trustee a certificate of one of our corporate officers stating whether, to the best of their knowledge, we are in default under any of the provisions of the indenture, and specifying all defaults, and the nature thereof, of which they have knowledge. We will also be required to furnish to the trustee copies of specified reports filed by us with the SEC.

The indenture provides that the trustee will, within 90 days after the occurrence of a default with respect to any series for which there are debt securities outstanding which is continuing, give to the holders of those debt securities notice of all uncured defaults known to it, including events specified above without grace periods. Except in the case of default in the payment of principal, premium, if any, or interest on any of the debt securities of any series or the payment of any sinking fund installment on the debt securities of any series, the trustee may withhold notice to the holders if the trustee in good faith determines that withholding notice is in the interest of the holders of the debt securities.

The trustee or the holders of 25% in aggregate principal amount of the outstanding debt securities of any series may declare the debt securities of that series immediately due and payable upon the occurrence of any event of default after expiration of any applicable grace period. In some cases, the holders of a majority in principal amount of the debt securities of any series then outstanding may waive any past default and its consequences, except a default in the payment of principal, premium, if any, or interest, including sinking fund payments.

If a specified event of bankruptcy, insolvency, receivership, or reorganization occurs and is continuing, then the principal amount of (or, if the debt securities of that series are original issue discount debt securities, such portion of the principal amount as may be specified in their terms as due and payable upon acceleration) and any accrued and unpaid interest on that series will immediately become due and payable without any declaration or other act on the part of the trustee or any holder.

Actions upon Default

Subject to the provisions of the indenture relating to the duties of the trustee in case an event of default with respect to any series of debt securities occurs and is continuing, the indenture provides that the trustee will be under no obligation to exercise any of its rights or powers under the indenture at the request, order or direction of any of the holders of debt securities outstanding of any series unless the holders have offered to the trustee reasonable indemnity. The right of a holder to institute a proceeding with respect to the indenture is subject to conditions precedent including notice and indemnity to the trustee, but the holder has a right to receipt of principal, premium, if any, and interest on their due dates or to institute suit for the enforcement thereof, subject to specified limitations with respect to defaulted interest.

The holders of a majority in principal amount of the debt securities outstanding of the series in default will have the right to direct the time, method and place for conducting any proceeding for any remedy available to the trustee, or exercising any power or trust conferred on the trustee. Any direction by the holders will be in accordance with law and the provisions of the indenture, provided that the trustee may decline to follow any such direction if the trustee determines on the advice of counsel that the proceeding may not be lawfully taken or would be materially or unjustly prejudicial to holders not joining in the direction. The trustee will be under no obligation to act in accordance with the direction unless the holders offer the trustee reasonable security or indemnity against costs, expenses and liabilities which may be incurred thereby.

Governing Law

The indenture and the debt securities will be governed by, and construed in accordance with, the laws of the State of New York.

Concerning the Trustee

We and our affiliates utilize a full range of treasury services, including investment management and currency and derivative trading, from the trustee and its affiliates in the ordinary course of business to meet our funding and investment needs.

Under the indenture, the trustee is required to transmit annual reports to all holders regarding its eligibility and qualifications as trustee under the indenture and specified related matters.

Book-Entry, Delivery and Form

Except as set forth below, debt securities will be represented by one or more permanent, global note in registered form without interest coupons (the “Global Notes”).

The Global Notes will be deposited upon issuance with the trustee as custodian for DTC, in New York, New York, and registered in the name of DTC’s nominee, Cede & Co., in each case for credit to an account of a direct or indirect participant in DTC as described below. Beneficial interests in the Global Notes may be held through the Euroclear System (“Euroclear”) and Clearstream Banking, S.A. (“Clearstream”) (as indirect participants in DTC).

Except as set forth below, the Global Notes may be transferred, in whole but not in part, only to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in the Global Notes may not be exchanged for Certificated Notes (as defined below) except in the limited circumstances described below. See “—Exchange of Global Notes for Certificated Notes.” Except in the limited circumstances described below, owners of beneficial interests in the Global Notes will not be entitled to receive physical delivery of Certificated Notes.

Transfers of beneficial interests in the Global Notes will be subject to the applicable rules and procedures of DTC and its direct or indirect participants (including, if applicable, those of Euroclear and Clearstream), which may change from time to time.

Depository Procedures

The following description of the operations and procedures of DTC, Euroclear and Clearstream are provided solely as a matter of convenience. These operations and procedures are solely within the control of the respective settlement systems and are subject to changes by them. We take no responsibility for these operations and procedures and urge investors to contact the system or their participants directly to discuss these matters.

DTC has advised us that DTC is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the “Participants”) and to facilitate the clearance and settlement of transactions in those securities between Participants through electronic book-entry changes in accounts of its Participants. The Participants include securities brokers and dealers (including the initial purchasers), banks, trust companies, clearing corporations and certain other organizations. Access to DTC’s system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (collectively, the “Indirect Participants”). Persons who are not Participants may beneficially own securities held by or on behalf of DTC only through the Participants or the Indirect Participants. The ownership interests in, and transfers of ownership interests in, each security held by or on behalf of DTC are recorded on the records of the Participants and Indirect Participants.

DTC has also advised us that, pursuant to procedures established by it:

•	upon deposit of the Global Notes, DTC will credit the accounts of Participants designated by the initial purchasers with portions of the principal amount of the Global Notes; and
•	ownership of these interests in the Global Notes will be shown on, and the transfer of ownership of these interests will be effected only through, records maintained by DTC (with respect to the Participants) or by the Participants and the Indirect Participants (with respect to other owners of beneficial interests in the Global Notes).
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Investors in the Global Notes who are Participants in DTC’s system may hold their interests therein directly through DTC. Investors in the Global Notes who are not Participants may hold their interests therein indirectly through organizations (including Euroclear and Clearstream) which are Participants in such system. Euroclear and Clearstream may hold interests in the Global Notes on behalf of their participants through customers’ securities accounts in their respective names on the books of their respective depositories, which are Euroclear Bank S.A./N.V., as operator of Euroclear, and Citibank, N.A., as operator of Clearstream. All interests in a Global Note, including those held through Euroclear or Clearstream, may be subject to the procedures and requirements of DTC. Those interests held through Euroclear or Clearstream may also be subject to the procedures and requirements of such systems.

The laws of some states require that certain Persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer beneficial interests in a Global Note to such Persons will be limited to that extent. Because DTC can act only on behalf of Participants, which in turn act on behalf of Indirect Participants, the ability of a Person having beneficial interests in a Global Note to pledge such interests to Persons that do not participate in the DTC system, or otherwise take actions in respect of such interests, may be affected by the lack of a physical certificate evidencing such interests.

Except as described below, owners of an interest in the Global Notes will not have notes registered in their names, will not receive physical delivery of Certificated Notes and will not be considered the registered owners or “Holders” thereof under the indenture for any purpose.

Payments in respect of the principal of, and interest and premium, if any, on a Global Note registered in the name of DTC or its nominee will be payable to DTC in its capacity as the registered Holder under the indenture. Under the terms of the indenture, we and the trustee will treat the Persons in whose names the notes, including the Global Notes, are registered as the owners of the notes for the purpose of receiving payments and for all other purposes. Consequently, neither we, the trustee nor any of our agents or agents of the trustee has or will have any responsibility or liability for:

•	any aspect of DTC’s records or any Participant’s or Indirect Participant’s records relating to or payments made on account of beneficial ownership interests in the Global Notes or for maintaining, supervising or reviewing any of DTC’s records or any Participant’s or Indirect Participant’s records relating to the beneficial ownership interests in the Global Notes; or
•	any other matter relating to the actions and practices of DTC or any of its Participants or Indirect Participants.
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DTC has advised us that its current practice, at the due date of any payment in respect of securities such as the notes, is to credit the accounts of the relevant Participants with the payment on the payment date unless DTC has reason to believe it will not receive payment on such payment date. Each relevant Participant is credited with an amount proportionate to its beneficial ownership of an interest in the principal amount of the notes as shown on the records of DTC. Payments by the Participants and the Indirect Participants to the beneficial owners of notes will be governed by standing instructions and customary practices and

will be the responsibility of the Participants or the Indirect Participants and will not be the responsibility of DTC, the trustee or us. Neither we nor the trustee will be liable for any delay by DTC or any of its Participants in identifying the beneficial owners of the notes, and we and the trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee for all purposes.

Transfers between Participants in DTC will be effected in accordance with DTC’s procedures, and will be settled in same-day funds, and transfers between participants in Euroclear and Clearstream will be effected in accordance with their respective rules and operating procedures.

Cross-market transfers between the Participants in DTC, on the one hand, and Euroclear or Clearstream participants, on the other hand, will be effected through DTC in accordance with DTC’s rules on behalf of Euroclear or Clearstream, as the case may be, by its depositary; however, such cross-market transactions will require delivery of instructions to Euroclear or Clearstream, as the case may be, by the counterparty in such system in accordance with the rules and procedures and within the established deadlines (Brussels time) of such system. Euroclear or Clearstream, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depositary to take action to effect final settlement on its behalf by delivering or receiving interests in the relevant Global Note in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Euroclear participants and Clearstream participants may not deliver instructions directly to the depositories for Euroclear or Clearstream.

DTC has advised us that it will take any action permitted to be taken by a Holder of notes only at the direction of one or more Participants to whose account DTC has credited the interests in the Global Notes and only in respect of such portion of the aggregate principal amount of the notes as to which such Participant or Participants has or have given such direction. However, if there is an Event of Default under the notes, DTC reserves the right to exchange the Global Notes for definitive notes in registered certificated form (“Certificated Notes”), and to distribute such notes to its Participants.

Although DTC, Euroclear and Clearstream have agreed to the foregoing procedures to facilitate transfers of interests in the Global Notes among participants in DTC, Euroclear and Clearstream, they are under no obligation to perform or to continue to perform such procedures, and may discontinue such procedures at any time. None of the Company, the trustee or any of their respective agents will have any responsibility for the performance by DTC, Euroclear or Clearstream or their respective participants or indirect participants of their respective obligations under the rules and procedures governing their operations.

Exchange of Global Notes for Certificated Notes

A Global Note is exchangeable for Certificated Notes in minimum denominations of $1,000 and in integral multiples of $1,000, if:

•	DTC (a) notifies us that it is unwilling or unable to continue as depositary for the Global Notes or (b) has ceased to be a clearing agency registered under the Exchange Act and in either event we fail to appoint a successor depositary within 90 days; or
•	there has occurred and is continuing an Event of Default and DTC notifies the trustee of its decision to exchange the Global Note for Certificated Notes.
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Beneficial interests in a Global Note also may be exchanged for Certificated Notes in the limited other circumstances permitted by the indenture. In all cases, Certificated Notes delivered in exchange for any Global Note or beneficial interests in Global Notes will be registered in the names, and issued in any approved denominations, requested by or on behalf of the depositary (in accordance with its customary procedures).

Same Day Settlement and Payment

We will make payments in respect of the notes represented by the Global Notes (including principal, premium, if any, and interest) by wire transfer of immediately available funds to the accounts specified by the Global Note Holder. We will make all payments of principal, interest and premium, if any, with respect to Certificated Notes by wire transfer of immediately available funds to the accounts specified by the Holders of the Certificated Notes or, if no such account is specified, by mailing a check to each such Holder’s registered address. The notes represented by the Global Notes are expected to be eligible to trade in DTC’s Same-Day Funds Settlement System, and any permitted secondary market trading activity in such notes will, therefore, be required by DTC to be settled in immediately available funds. We expect that secondary trading in any Certificated Notes will also be settled in immediately available funds.

Because of time zone differences, the securities account of a Euroclear or Clearstream participant purchasing an interest in a Global Note from a Participant in DTC will be credited, and any such crediting will be reported to the relevant Euroclear or Clearstream participant, during the securities settlement processing day (which must be a business day for Euroclear and Clearstream) immediately following the settlement date of DTC. DTC has advised us that cash received in Euroclear or Clearstream as a result of sales of interests in a Global Note by or through a Euroclear or Clearstream participant to a Participant in DTC will be received with value on the settlement date of DTC but will be available in the relevant Euroclear or Clearstream cash account only as of the business day for Euroclear or Clearstream following DTC’s settlement date.

Document

Exhibit 10(o)

SNAP-ON INCORPORATED

RESTRICTED STOCK UNIT AGREEMENT

THIS RESTRICTED STOCK UNIT AGREEMENT (the “Agreement”) is granted by SNAP-ON INCORPORATED (the “Company”) to each individual receiving the offer contained in the Restricted Stock Unit Award Offer Letter (each such person being known as a “Key Employee”) pursuant to the Company’s 2011 Incentive Stock and Awards Plan (the “Plan”).

WHEREAS, the Company believes it to be in the best interests of the Company, its subsidiaries and its stockholders for its officers and other key employees to have an incentive tied to the price of Common Stock of the Company in order that they will have a greater incentive to work for and manage the Company’s affairs in such a way that its shares may become more valuable; and

WHEREAS, the Company has determined to grant Key Employees Restricted Stock Units pursuant to the terms of the Plan and this Agreement;

NOW, THEREFORE, in consideration of the premises and of the services to be performed by the Key Employee, the Company and the Key Employee hereby agree as follows:

1.Restricted Stock Units

The Company hereby awards to the Key Employee the number of restricted stock units (the “Restricted Stock Units”) set forth in the Restricted Stock Unit Award Offer Letter (the "Offer") under the column titled "Quantity Granted" (hereinafter the “Grant Number.”) The Restricted Stock Units granted under this Agreement are units that will be reflected in a book account maintained by the Company until they become vested or have been forfeited. This award is subject to the terms and conditions of this Agreement and the Plan. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in the Plan.

2.Restricted Period

(a)The Restricted Stock Units are subject to vesting over a _____-year period, which is referred to as the “Restricted Period.” The Restricted Stock Units will become vested and earned if the Key Employee continues in employment for the entire Restricted Period or terminates employment as described in Section 3(b) or 3(c). If the Key Employee terminates employment during the Restricted Period for any other reason, then Key Employee's right to the Restricted Stock Units will be forfeited on the date of such termination of employment.

(b)During the Restricted Period, the Key Employee will not have any right to vote the Restricted Stock Units. The Key Employee will not be deemed a stockholder of the Company with respect to any of the Restricted Stock Units. The Restricted Stock Units may not be sold, assigned, transferred, pledged, encumbered or otherwise disposed of prior to vesting.

(c)After the Restricted Period in (d), (e) or (f) below, the Key Employee shall receive a cash payment from the Company equal to any cash dividends paid with respect to the number of shares of Common Stock relating to the Restricted Stock Units that become vested hereunder.

(d)Within forty-five days after the end of the Restricted Period, the Company shall issue the Key Employee one share of Common Stock for each Restricted Stock Unit which becomes vested.

(e)Notwithstanding the foregoing, in the event of the Key Employee's death or Disability, in accordance Section 3(b), the Key Employee's death or Disability shall be deemed the end of the Restricted Period and the Company shall issue the Key Employee within forty-five days of such death or Disability one share of Common Stock for each Restricted Stock Unit which becomes vested.

(f)Notwithstanding the foregoing, in the event of the Key Employee's Retirement in accordance Section 3(c), the Key Employee's Retirement shall be deemed the end of the Restricted Period and the Company shall issue the Key Employee as soon as possible following six months of such Retirement one share of Common Stock for each Restricted Stock Unit which becomes vested.

3.Employment Conditions for the Restricted Stock Units

Subject to the terms and conditions set forth herein,

(a)Except as provided in (b) or (c) below and in addition to any rights of the Company under Section 4, the Key Employee will immediately forfeit the right to receive Restricted Stock Units if the Key Employee terminates employment with the Company and its subsidiaries prior to the end of the Restricted Period. Absence of the Key Employee on leave approved by a duly elected officer of the Company, other than the Key Employee, shall not be considered a termination of employment during the period of such leave.

(b)In the case of termination of employment during the Restricted Period as a result of death or Disability, the Key Employee (or Beneficiary) will become vested in the Grant Number of Restricted Stock Units multiplied by a fraction representing the portion of the Restricted Period that elapsed before the termination of the Key Employee’s employment.

(c)The Key Employee shall forfeit all rights to receive any Restricted Stock Units if the Key Employee terminates employment as a result of Retirement during the first year of the Restricted Period. In the case of termination of employment in the ____ or _____ year of the Restricted Period as a result of Retirement, the Key Employee (or Beneficiary) will become vested in the Grant Number of Restricted Stock Units multiplied by a fraction representing the portion of the Restricted Period that elapsed before the termination of the Key Employee’s employment.

(d)Subject to any rights of the Company under Section 4, the Key Employee will become vested in the Restricted Stock Units if the Key Employee continues in employment with the Company or its subsidiaries through the end of the Restricted Period. Absence of the Key Employee on leave approved by a duly elected officer of the Company, other than the Key Employee, shall not be considered a termination of employment during the period of such leave.

(e)Whether or not a divestiture of a subsidiary, division or other business unit (including through the formation of a joint venture) results in termination of employment with the Company and its subsidiaries will be at the discretion of the Committee, which discretion the Committee may exercise on a case by case basis.

4.Detrimental Activity

(a)Activity During Employment. If, prior to termination of the Key Employee’s employment with the Company or during the one-year period following termination of the Key Employee’s employment with the Company, the Company becomes aware that, prior to termination, the Key Employee had engaged in Detrimental Activity, then the Committee in its sole discretion, for purposes of this Agreement, may characterize or recharacterize termination of the Key Employee’s employment as a termination to which this Section 4 applies and may determine or redetermine the date of such termination, and the Key Employee’s rights with respect to the Grant shall be determined in accordance with the Committee’s determination.

(b)Activity Following Termination. If, within the six-month period following the Key Employee’s termination of employment with the Company, the Company becomes aware that the Key Employee has engaged in Detrimental Activity subsequent to termination, then the Key Employee’s rights with respect to the Grant shall be determined in accordance with any determination by the Committee under this Section 4.

(c)Remedies. If the Key Employee has engaged in Detrimental Activity as described in subsections (a) and/or (b), then the Committee may, in its discretion, declare that the Key Employee has forfeited the Grant in whole or in part and cause the Company to assume possession of any or all property held in escrow in respect of the Grant in its own right and/or cause the Key Employee to return any cash or property actually realized by the Key Employee (directly or indirectly) in respect of the Grant, in each case whether or not the Key Employee engaged in the Detrimental Activity before or after the date of termination.

(d)Allegations of Activity. If an allegation of Detrimental Activity by the Key Employee is made to the Committee, then the Committee may suspend the Key Employee’s rights in respect of the Grant to permit the investigation of such allegation.

(e)Definition of “Detrimental Activity.” For purposes of this Agreement, “detrimental activity” means activity that is determined by the Committee in its sole discretion to be detrimental to the interests of the Company or any of its subsidiaries, including but not limited to situations where the Key Employee (i) divulges trade secrets of the Company, proprietary data or other confidential information relating to the Company or to the business of the Company or any subsidiaries, (ii) enters into employment with a competitor under circumstances suggesting that the Key Employee will be using confidential information of the Company to compete with the Company, (iii) uses the Company’s confidential or proprietary information obtained during the course of his or her prior employment with the Company for his or her own purposes, such as for the solicitation of business and competition with the Company, (iv) is determined to have engaged (whether or not prior to termination of employment) in either gross misconduct or criminal activity harmful to the Company, (v) takes any action that materially harms the business interests, reputation or goodwill of the Company and/or its subsidiaries or (vi) fails to comply with lawful instruction of the board and in any such case the act or failure to act shall have been determined by the board to be materially harmful to the company, financially or otherwise.

5.Change in Control

In the event of a Key Employee’s Termination of Employment following a Change of Control, the Company shall issue the Key Employee a number of shares of Common Stock equal to the Grant Number of Restricted Stock Units.

6.Tax Withholding; Repurchase

(a)It shall be a condition of the obligation of the Company to issue Restricted Stock Units to the Key Employee or the Beneficiary, and the Key Employee agrees, that the Key Employee shall pay to the Company, upon its demand, such amount as may be requested by the Company for the purpose of satisfying its liability to withhold federal, state, or local income or other taxes incurred by reason of the award or as a result of the vesting hereunder or shall provide evidence satisfactory to the Company that the Company has no liability to withhold.

(b)At each time the Company is obligated to issue Common Stock to the Key Employee or the Beneficiary, the Key Employee or the Beneficiary, as the case may be, may elect to pay all or a portion of the federal, state and local tax withholding obligations arising in connection with the Restricted Stock Units by having the Company repurchase shares of the Common Stock to be so issued or released at a price equal to the Fair Market Value (as defined below) on the Tax Date (as defined below), subject to Section 12 of the Plan and such rules as the Committee may adopt. The election must be delivered to the Company thirty days prior to the end of the Restricted Period or such other date established by the Company in writing. If the number of shares so determined shall include a fractional share, then the Company shall not be obligated to repurchase such fractional share. All elections shall be made in a form acceptable to the Company. As used herein, (i) “Tax Date” means the date on which the Key Employee must include in his or her gross income for tax purposes the fair market value of the Common Stock and (ii) “Fair Market Value” means the per share closing price on the date in question in the principal market in which the Common Stock is then traded or, if no sales of Common Stock have taken place on such date, the closing price on the most recent date on which selling prices were quoted.

7.Beneficiary

The person who the Key Employee designates in writing to the Committee as his or her beneficiary shall be referred to as the “Beneficiary” and shall be entitled to receive the Restricted Stock Units that vest following the death of the Key Employee. The Key Employee may from time to time revoke or change his or her Beneficiary without the consent of any prior Beneficiary by filing a new designation with the Committee. The last such designation that the Committee receives shall be controlling; provided, however, that no designation, or change or revocation thereof, shall be effective unless received by the Committee prior to the Key Employee’s death, and in no event shall any designation be effective as of a date prior to such receipt. If no such Beneficiary designation is in effect at the time of the Key Employee’s death, or if no designated Beneficiary survives the Key Employee or if such designation conflicts with law, then the Key Employee’s estate shall be entitled to receive

the Restricted Stock Units that vest following the death of the Key Employee. If the Committee is in doubt as to the right of any person to receive such Restricted Stock Units, then the Company may retain such Restricted Stock Units, without liability for any interest thereon, until the Committee determines the person entitled thereto, or the Company may deliver such Restricted Stock Units to any court of appropriate jurisdiction, and such delivery shall be a complete discharge of the liability of the Company therefor.

8.Adjustments in Event of Change in Capitalization

In the event of any Change in Capitalization, the Committee shall make such adjustments in the Grant Number of Restricted Stock Units under this Agreement, or in the terms, conditions or restrictions of this Agreement, as the Committee deems equitable; provided that in the absence of express action by the Committee, adjustments that apply generally to Restricted Stock Units granted under the Plan shall apply automatically to the Restricted Stock Units under this Agreement.

9.Powers of the Company Not Affected

The existence of the Grant shall not affect in any way the right or power of the Company or its stockholders to make or authorize any Change in Capitalization or any change in its business, or any issue of bonds, debentures or stock having rights or preferences equal, superior or affecting the Common Stock or the rights thereof, or dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. Nothing in this Agreement shall confer upon the Key Employee any right to continue in the employment of the Company or interfere with or limit in any way the right of the Company to terminate the Key Employee’s employment at any time.

10.Interpretation by Committee

The Key Employee agrees that any dispute or disagreement that may arise in connection with this Agreement shall be resolved by the Committee, in its sole discretion, and that any interpretation by the Committee of the terms of this Agreement or the Plan and any determination made by the Committee under this Agreement or such plan may be made in the sole discretion of the Committee and shall be final, binding, and conclusive.

11.Miscellaneous

(a)This Agreement shall be governed and construed in accordance with the laws of the State of Wisconsin applicable to contracts made and to be performed therein between residents thereof.

(b)The Company may amend or modify this Agreement at any time; provided that the Key Employee must consent to such amendment or modification if the Committee determines that such change would materially reduce the Key Employee's benefits.

(c)The captions of this Agreement are inserted for convenience of reference only and shall not be taken into account in construing this Agreement.

(d)Any notice, filing or delivery hereunder or with respect to the Grant shall be given to the Key Employee at either his or her usual work location or work email address or his or her home address as indicated in the records of the Company, and shall be given to the Committee or the Company at 2801 80th Street, Kenosha, Wisconsin 53143, Attention: Vice President - Human Resources. All such notices shall be given by first class mail, postage pre-paid, or by personal delivery or by email to the Key Employee at his or her Company email address.

(e)This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns and shall be binding upon and inure to the benefit of the Key Employee, the Beneficiary and the personal representative(s) and heirs of the Key Employee, except that the Key Employee may not transfer any interest in any Restricted Stock Units prior to the release of the restrictions imposed by Section 2.

(f)This Agreement is intended to comply with Code Section 409A and shall be interpreted accordingly. To the extent the Key Employee is a “specified employee” under Section 409A, no distribution or benefit under this Agreement that constitutes a distribution of deferred compensation upon separation from service that would otherwise be payable during the six-month period after separation from service will be made during such six-

month period and any such distribution or benefit will instead be paid on the first business day after such six-month period.

(g)This Agreement is subject to the terms of this Company’s clawback policy as it may be in effect from time to time and any clawback requirements under law, regulation or exchange rules.

Document

EXHIBIT 21

SUBSIDIARIES OF THE CORPORATION

As of January 2, 2021

(Does not include inactive subsidiaries)

Name	State or other jurisdiction of organization
Bahco Bisov Svenska AB	Sweden
Blackhawk S.A.S.	France
Bonita IP LLC	Delaware
BTC Global Limited	United Kingdom
BTC Solutions Limited	United Kingdom
Car-O-Liner APAC Distribution Center Co., Ltd.	Thailand
Car-O-Liner (Beijing) Co., Ltd.	China
Car-O-Liner B.V.	Netherlands
Car-O-Liner Commercial AB	Sweden
Car-O-Liner Deutschland GmbH	Germany
Car-O-Liner Group AB	Sweden
Car-O-Liner Holding AB	Sweden
Car-O-Liner Holding (Thailand) Co., Ltd.	Thailand
Car-O-Liner India Private Limited	India
Car-O-Liner KB	Sweden
Car-O-Liner MEA (FZE)	United Arab Emirates
Car-O-Liner Norge AS	Norway
Car-O-Liner SAS	France
Car-O-Liner (Thailand) Co., Ltd.	Thailand
Car-O-Liner (UK) Limited	United Kingdom
Challenger Lifts, Inc.	Kentucky
Creditcorp SPC, LLC	Wisconsin
Cognitran Inc.	Michigan
Cognitran Limited	United Kingdom
Cognitran Sp z o.o.	Poland
Deville SA	France
IDSC Holdings LLC (Snap-on Industrial)	Wisconsin
JCSC SNA Europe Industries Bisov	Belarus
Josam Richttecknik GmbH	Germany
Kapman AB	Sweden
Mitchell Repair Information Company, LLC	Delaware
New Creditcorp SPC, LLC	Delaware
Norbar Torque Tools (Australia) Pty Ltd	Australia
Norbar Torque Tools (China) Limited	United Kingdom
Norbar Torque Tools (NZ) Limited	New Zealand
Norbar Torque Tools (Shanghai) Ltd	China
Norbar Torque Tools Holdings Limited	United Kingdom
Norbar Torque Tools India Private Limited	India
Norbar Torque Tools Limited	United Kingdom
Norbar Torque Tools Private Limited	Singapore
Norbar Torque Tools, Inc.	Ohio
P-Alignment 2012 AB	Sweden
Power Hawk Technologies, Inc.	Delaware	122	SNAP-ON INCORPORATED
---	---	Name	State or other jurisdiction of organization
---	---
Pro-Cut International, LLC	Delaware
Property Holdings, LLC	Wisconsin
Ryeson Corporation (d/b/a Sturtevant Richmont)	Illinois
SN SecureCorp Insurance Malta Limited	Malta
SN SecureCorp Sales Limited	United Kingdom
SNA-E (Argentina) S.R.L.	Argentina
SNA-E Chile Ltda.	Chile
SNA E Endustriyel Mamuller Ticaret Limited Sirketi	Turkey
SNA Europe	France
SNA Europe (Benelux) B.V.	Netherlands
SNA Europe [Czech Republic] s.r.o.	Czech Republic
SNA Europe (Denmark) A/S	Denmark
SNA Europe (Finland) Oy	Finland
SNA Europe (France)	France
SNA Europe Holdings AB	Sweden
SNA Europe Holdings B.V.	Netherlands
SNA Europe [Industries], Lda.	Portugal
SNA Europe (Industries) AB	Sweden
SNA Europe [Italia] SpA	Italy
SNA Europe (Norway) AS	Norway
SNA Europe - Poland Sp. z o.o.	Poland
SNA Europe [RUS] LLC	Russia
SNA Europe [Slovakia], s.r.o.	Slovakia
SNA Europe (Sweden) AB	Sweden
SNA Europe Iberia Holdings, S.L.	Spain
SNA Europe Industries Iberia, S.A.	Spain
SNA Germany GmbH	Germany
SNA Investment Holding UK Limited Partnership	United Kingdom
SNA Solutions UK Limited	United Kingdom
SNA Tools Belgium BVBA	Belgium
Snap-on (Thailand) Company Limited	Thailand
Snap-on Africa (Proprietary) Limited	South Africa
Snap-on Asia Manufacturing (Kunshan) Co. Ltd.	China
Snap-on Asia Manufacturing (Zhejiang) Co., Ltd.	China
Snap-on Asia Pacific Holding Pte. Ltd.	Singapore
Snap-on Business Solutions Inc.	Delaware
Snap-on Business Solutions India Private Limited	India
Snap-on Business Solutions Limited	United Kingdom
Snap-on Business Solutions Japan Company	Japan
Snap-on Business Solutions GmbH	Germany
Snap-on Business Solutions SRL	Italy
Snap-on Business Solutions SARL	France
Snap-on Business Solutions SL	Spain
Snap-on Business Solutions (Syncata) Inc.	California
Snap-on Capital Corp.	Delaware
Snap-on Climate Solutions S.r.l.	Italy
Snap-on Credit Canada Ltd.	Ontario
Snap-on Credit LLC	Delaware	2020 ANNUAL REPORT	123
---	---	Name	State or other jurisdiction of organization
---	---
Snap-on do Brasil Comercio e Industria Ltda.	Brazil
Snap-on Equipment Austria GmbH	Austria
Snap-on Equipment Europe Limited	Ireland
Snap-on Equipment France	France
Snap-on Equipment GmbH	Germany
Snap-on Equipment Holdings B.V.	Netherlands
Snap-on Equipment Hungary Kft.	Hungary
Snap-on Equipment Inc.	Delaware
Snap-on Equipment Ltd.	United Kingdom
Snap-on Equipment S.r.l.	Italy
Snap-on Europe Holding B.V.	Netherlands
Snap-on Finance B.V.	Netherlands
Snap-on Finance UK Limited	United Kingdom
Snap-on Global Holdings, Inc.	Delaware
Snap-on Holdings AB	Sweden
Snap-on Illinois Holdings LLC	Illinois
Snap-on Illinois Services LLC	Illinois
Snap-on International Middle East FZE	United Arab Emirates
Snap-on Investment Limited	United Kingdom
Snap-on Lendco LLC	Wisconsin
Snap-on Lendco Singapore Pte. Ltd.	Singapore
Snap-on Logistics Company	Wisconsin
Snap-on Malta Limited	Malta
Snap-on Power Tools Inc.	Iowa
Snap-on SecureCorp Insurance Company Ltd.	Bermuda
Snap-on SecureCorp, Inc.	Wisconsin
Snap-on Service GmbH	Germany
Snap-on Tools (Australia) Pty. Ltd.	Australia
Snap-on Tools (New Zealand) Limited	New Zealand
Snap-on Tools B.V.	Netherlands
Snap-on Tools China Trading (Shanghai) Co. Ltd.	China
Snap-on Tools Company LLC	Delaware
Snap-on Tools Hong Kong Limited	Hong Kong
Snap-on Tools International LLC	Delaware
Snap-on Tools Italia S.r.l.	Italy
Snap-on Tools Japan K.K.	Japan
Snap-on Tools Korea Ltd.	Korea
Snap-on Tools of Canada Co.	Canada
Snap-on Tools Private Limited	India
Snap-on Tools Singapore Pte Ltd	Singapore
Snap-on Trading (Shanghai) Co., Ltd.	China
Snap-on U.K. Holdings Limited	United Kingdom
Snap-on/Sun de Mexico, S.A. de C.V.	Mexico
124	SNAP-ON INCORPORATED
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Document

EXHIBIT 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 33-37924, 333-21285, and 333-228730 on Form S-3 and Registration Statement Nos. 33-57898, 33-58939, 333-21277, 333-62098, 333-142412, 333-91712, 333-177794, 333-177795 and 333-208479 on Form S-8 of our reports dated February 11, 2021, relating to the consolidated financial statements of Snap-on Incorporated, and the effectiveness of Snap-on Incorporated’s internal control over financial reporting, appearing in this Annual Report on Form 10-K of Snap-on Incorporated for the year ended January 2, 2021.

/s/ DELOITTE & TOUCHE LLP

Milwaukee, Wisconsin

February 11, 2021

2020 ANNUAL REPORT	125

Document

EXHIBIT 31.1

Certification of the Chief Executive Officer pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Nicholas T. Pinchuk, certify that:

I have reviewed this annual report on Form 10-K of Snap-on Incorporated;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 11, 2021

/s/ Nicholas T. Pinchuk
Nicholas T. Pinchuk
Chief Executive Officer
126	SNAP-ON INCORPORATED
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Document

EXHIBIT 31.2

Certification of the Principal Financial Officer pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Aldo J. Pagliari, certify that:

I have reviewed this annual report on Form 10-K of Snap-on Incorporated;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 11, 2021

/s/ Aldo J. Pagliari
Aldo J. Pagliari
Principal Financial Officer
2020 ANNUAL REPORT	127
---	---

Document

EXHIBIT 32.1

Certification of Chief Executive Officer

Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Snap-on Incorporated (the “Company”) on Form 10-K for the period ended January 2, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Nicholas T. Pinchuk as Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge, that:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Nicholas T. Pinchuk
Nicholas T. Pinchuk
Chief Executive Officer
February 11, 2021
128	SNAP-ON INCORPORATED
---	---

Document

EXHIBIT 32.2

Certification of Principal Financial Officer

Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Snap-on Incorporated (the “Company”) on Form 10-K for the period ended January 2, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Aldo J. Pagliari as Principal Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge, that:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Aldo J. Pagliari
Aldo J. Pagliari
Principal Financial Officer
February 11, 2021
2020 ANNUAL REPORT	129
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10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended January 2, 2021, or

Commission File Number 1-7724

Snap-on Incorporated

(262) 656-5200

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

DOCUMENTS INCORPORATED BY REFERENCE

TABLE OF CONTENTS

Recent Acquisitions

Tools; Diagnostics, Information and Management Systems; and Equipment

Financial Services

Sales and Distribution

Vehicle Service and Repair Sector

Industrial Sector

Distribution Channels

Mobile Van Channel

Company Direct Sales

Distributors

E-commerce

Competition

Raw Materials and Purchased Product

Patents, Trademarks and Other Intellectual Property

The COVID-19 pandemic has adversely affected, and is expected to continue to pose risks to our business, results of operations, financial condition and cash flows, and other epidemics or outbreaks of infectious diseases may have a similar impact.

The sales of many of our products are dependent on the health of the vehicle repair market and the changing requirements of vehicle repair.

The performance of Snap-on’s mobile tool distribution business depends on the success of its franchisees.

The inability to continue to introduce new products that respond to customer needs and achieve market acceptance could result in lower revenues and reduced profitability.

Failure to adequately protect intellectual property, or claims of infringement, could adversely affect our business, reputation, financial condition, results of operations and cash flows.

The global tool, equipment, and diagnostics and repair information industries are competitive.

Foreign operations are subject to political, economic and other risks that could adversely affect our business, financial condition, results of operations and cash flows.

Risks associated with the disruption of manufacturing operations could adversely affect our profitability or competitive position.

Price fluctuations and shortages of raw materials, components, certain finished goods inventory and energy sources could adversely affect the ability to obtain needed materials or products and could adversely affect our results of operations.

Failure to maintain effective distribution of products and services could adversely impact revenue, gross margin and profitability.

Data security and information technology infrastructure and security are critical to supporting business objectives; failure of our systems to operate effectively could adversely affect our business and reputation.

Failure to attract, retain and effectively manage qualified personnel could lead to a loss of revenue and/or profitability.

We may not successfully integrate businesses we acquire, which could have an adverse impact on our business, financial condition, results of operations and cash flows.

The steps taken to restructure operations, rationalize operating footprint, lower operating expenses and achieve greater efficiencies in the supply chain could disrupt business.

Our inability to provide acceptable financing alternatives to franchisees and other end-user customers could adversely impact our operating results.

Exposure to credit risks of customers and resellers may make it difficult to collect receivables, and our allowances for credit losses for receivables may prove inadequate, which could adversely affect operating results and financial condition.

Foreign operations are subject to currency exchange, inflation, interest and other risks that could adversely affect our business, financial condition, results of operations and cash flows.

Adverse developments in the credit and financial markets could negatively impact the availability of credit that we and our customers need to operate our businesses.

Increasing our financial leverage could affect our operations and profitability.

Failure to achieve expected investment returns on pension plan assets, as well as changes in interest rates or plan demographics, could adversely impact our results of operations, financial condition and cash flows.

The recognition of impairment charges on goodwill or other intangible assets would adversely impact our future financial condition and results of operations.

Product liability claims and litigation could affect our business, reputation, financial condition, results of operations and cash flows.

Legal disputes could adversely affect our business, reputation, financial condition, results of operations and cash flows.

Our operations expose us to the risk of environmental liabilities, costs, litigation and violations that could adversely affect our financial condition, results of operations and reputation.

The inability to successfully defend claims from taxing authorities could adversely affect our financial condition, results of operations and cash flows.

Economic conditions and world events could affect our operating results.

PART II

Recent Acquisitions

Summary of Consolidated Performance

Summary of Segment Performance

Operating Activities

Investing Activities

Financing Activities

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

PART III

PART IV

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Finance Receivables - Net - Refer to Notes 1 and 4 to the financial statements

Critical Audit Matter Description

How the Critical Audit Matter Was Addressed in the Audit

See Notes to Consolidated Financial Statements.

See Notes to Consolidated Financial Statements.

See Notes to Consolidated Financial Statements.

See Notes to Consolidated Financial Statements.

See Notes to Consolidated Financial Statements.

SIGNATURES

SIGNATURES