What changed in this filing

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Item 1A. Risk Factors

2022-02-11 compared with 2021-02-11 · 47 added, 75 removed, 198 unchanged (38% of the section changed)

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.

Each of these risk factors could adversely affect, and in some cases may have already affected, 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.

The ongoing COVID-19 pandemic 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.

Existing measures may be extended in certain regions 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 could include, but are not limited to, reduced consumer and investor confidence, instability in the credit and financial markets, volatile corporate profits, supply chain inefficiencies, and reduced business and consumer spending, which could adversely affect our results of operations by reducing our sales, margins and/or net income as a result of rising costs, a slowdown in customer orders or order cancellations.

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.

The ultimate impact of COVID-19, as well as future outbreaks of infectious diseases, 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

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A decrease in the use of privately-operated vehicles may lead to fewer repairs and less demand for our products.

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In addition, the number of electric and hybrid vehicles developed and sold has risen in recent years, and is expected to continue to increase in the future.

While we believe that advances in vehicle technologies provide us with opportunities to provide innovative products and solutions to the vehicle repair market, if we are not able to execute on those possibilities, our business and results of operations could suffer.

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

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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.

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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.

Product improvements and new product introductions require significant financial and other resources, including significant planning, design, development, sourcing 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.

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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.

SNAP-ON INCORPORATED

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

We face strong competition in all of our market segments.

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Numerous risks and uncertainties affect our non-U.S.

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.

These include political, economic and social instability, such as acts of war, armed conflicts, civil disturbance or acts of terrorism, local labor conditions, trade relations with China, changes in government policies and regulations, including those intended to address climate change, 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.

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.

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.

The United Kingdom (“U.K.”) has formally left the European Union (“Brexit”).

As part of the agreement between the U.K.

and the European Union regarding Brexit, there is a new series of customs and regulatory checks, including rules of origin and stringent local content requirements.

There are also restrictions on the free movement of people and temporary visas for work-related purposes have been re-introduced.

The implications of Brexit, including disruptions to trade and the movement of goods, services and people between the U.K.

and the European Union or other countries, may 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.

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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.

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, climate or weather events, use and storage of hazardous materials, acts of war, sabotage, terrorism, civil unrest or other events), or other reasons, including outbreaks of infectious diseases, such as the ongoing COVID-19 pandemic, could have a material adverse effect on our business, financial condition, results of operations and cash flows.

2021 ANNUAL REPORT 15

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

Snap-on’s supply of raw materials and purchased components are generally available from numerous suppliers, and the company continuously works to expand its supplier base to ensure availability.

The principal raw material used in the manufacture of our products is steel, which we purchase in competitive, price-sensitive markets.

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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.

In addition, outbreaks of infectious diseases, weather events or other circumstances beyond our control could also impact the availability of raw materials and components.

Physical risks of climate change may also impact the availability and cost of materials, sources and supply of energy and could also increase operating costs.

Raw materials, components and certain purchased finished goods can exhibit price and demand cyclicality, including as a result of tariffs, other trade protection measures, inflationary factors, and supply chain inefficiencies.

Associated unexpected variability could result in an increase in product costs and require Snap-on to increase prices 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.

future volatility and changes may be caused by market fluctuations, supply and demand, currency fluctuations, production and transportation disruptions, climate change regulations, 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 in certain areas.

Higher prices also may reduce the level of future customer orders and our profitability.

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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;

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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.

These risks may be heightened when associates work remotely.

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.

SNAP-ON INCORPORATED

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

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• 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;

• 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.

We have taken steps in the past, and may 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.

Future 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 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 in certain periods.

Financial Risks

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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.

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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.

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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.

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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.

At times, world financial markets have been unstable and subject to uncertainty.

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.

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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

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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.

Legislation and regulations relating to our business and the countries where we operate, including those related to sustainability matters, 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:

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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.

2021 ANNUAL REPORT 19

Financial services businesses of all kinds are subject to significant and complex regulations and enforcement.

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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.

In recent years there has been increased public awareness, concern and focus on environmental and sustainability issues, including matters related to global climate change.

The current focus on these matters is expected to result in additional and/or more restrictive regulations, requirements and/or industry or third-party standards to reduce or mitigate global warming and other environmental or sustainability risks, though the timing is uncertain.

Increased regulatory requirements or standards may result in increased compliance or input costs, including those related to energy or raw materials, for us and our suppliers.

If environmental laws or regulations or industry standards are either changed or adopted, and impose significant operational restrictions and compliance requirements upon the company, the company's business, reputation, results of operations, financial condition and competitive position could be negatively impacted.

For example, if significant increases in fuel economy requirements or changes to vehicle emissions requirements for internal combustion engine vehicles were imposed, there could be a decrease in demand for such vehicles and a reduction in miles driven, which could adversely impact the demand for certain of our products and services.

Furthermore, an inability to successfully manage climate change or sustainability matters, or to effectively respond to new, or changes in, legal or regulatory requirements concerning sustainability matters, or increased operating or manufacturing costs due to changes in the regulatory environment, could adversely affect our business.

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.

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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.

SNAP-ON INCORPORATED

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.

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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.

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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.

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, armed conflicts, 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, including regulations related to climate change and other sustainability matters, and changes in financial accounting standards.

These factors may affect the 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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors