EDGAR 10-K Filing

Company CIK: 91440
Filing Year: 2021
Filename: 91440_10-K_2021_0000091440-21-000005.json

---

ITEM 1. BUSINESS
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.
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 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. The acquisition of AutoCrib complemented and expanded Snap-on’s existing tool control offering to customers in a variety of industrial applications, including aerospace, automotive, military, natural resources and general industry.
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 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. The acquisition of TMB extended Snap-on’s product line in its core dealer network solutions business.
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.
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
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.
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.
SNAP-ON INCORPORATED
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.
2020 ANNUAL REPORT 11
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
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.
SNAP-ON INCORPORATED
•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.
2020 ANNUAL REPORT 13
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.
SNAP-ON INCORPORATED
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.
2020 ANNUAL REPORT 15
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.
SNAP-ON INCORPORATED
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.
2020 ANNUAL REPORT 17
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.
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.
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
Item 1B: Unresolved Staff Comments
None.

---

ITEM 2. PROPERTIES
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
SNAP-ON INCORPORATED

---

ITEM 3. LEGAL PROCEEDINGS
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 DISCLOSURE
Item 4: Mine Safety Disclosures
Not applicable.
PART II

---

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
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
purchased Average price
per share Shares purchased as
part of publicly
announced plans or
programs Approximate
value of shares
that may yet be
purchased under
publicly
announced plans
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
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
SNAP-ON INCORPORATED
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
Incorporated S&P 500
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
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
SNAP-ON INCORPORATED
Management’s Discussion and Analysis of Financial Condition and Results of Operations

---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
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
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. The acquisition of AutoCrib complemented and expanded Snap-on’s existing tool control offering to customers in a variety of industrial applications, including aerospace, automotive, military, natural resources and general industry.
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.
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.
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 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. The acquisition of TMB extended Snap-on’s product line in its core dealer network solutions business.
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.
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.
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 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. 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.
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.
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 the benefit from the $11.6 million legal settlement. As a percentage of revenues, operating earnings of 22.3%, compared to 23.7% 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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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 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.
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
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.
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.
2020 ANNUAL REPORT 45
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
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.
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
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.
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%.
SNAP-ON INCORPORATED

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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
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
Item 9: Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
SNAP-ON INCORPORATED

---

ITEM 9A. CONTROLS AND PROCEDURES
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
SNAP-ON INCORPORATED

---

ITEM 9B. OTHER INFORMATION
Item 9B: Other Information
None.
PART III

---

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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
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
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
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
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: Exhibits, Financial Statement Schedules
Item 15(a): Documents Filed as Part of This Report:
1. 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.
2. 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.
SNAP-ON INCORPORATED
3. 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 Stock (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 Notes (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 Notes (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 Notes (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))**
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.