What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-07-21 compared with 2022-04-21 · 227 added, 104 removed, 340 unchanged (49% of the section changed)

66 unchanged sentences

Risk Factors in Snap-on’s 2021 Form 10-K for an additional discussion of risks related to COVID-19 and Other Infectious Diseases.

Recent Security Incident

In early March 2022, Snap-on detected unusual activity in some areas of its information technology environment and quickly took down its network connections as part of the company’s defense protocols.

The company launched a comprehensive analysis assisted by a leading external forensics firm, identified the event as a security incident, and notified law enforcement of the incursion.

The company continued to pursue its commercial activities and restored connections as system interfaces were cleared.

As of the date of this disclosure, substantially all impacted systems have been restored.

The incident did not significantly affect the company’s financial results during the first quarter of 2022.

SNAP-ON INCORPORATED

2 unchanged sentences

RESULTS OF OPERATIONS

Results of operations for the three months ended April 2, 2022, and April 3, 2021, are as follows:

Results of operations for the three months ended July 2, 2022, and July 3, 2021, are as follows:

Three Months Ended

(Amounts in millions) April 2, 2022 April 3, 2021 Change

(Amounts in millions) July 2, 2022 July 3, 2021 Change

Net sales $ 1,136.6 100.0 % $ 1,081.4 100.0 % $ 55.2 5.1 %

8 unchanged sentences

Interest expense (11.7) (1.0) % (14.3) (1.2) % 2.6 18.2 %

Other income (expense) – net 8.3 0.7 % 4.3 0.4 % 4.0 93.0 %

Other income (expense) – net 9.3 0.8 % 3.4 0.2 % 5.9 NM

Earnings before income taxes and equity earnings 309.5 25.3 % 275.1 23.5 % 34.4 12.5 %

9 unchanged sentences

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 $1,097.8 million in the first quarter of 2022 increased $73.2 million, or 7.1%, from 2021 levels, reflecting an $80.4 million, or 8.0%, organic gain and $8.5 million of acquisition-related sales, partially offset by $15.7 million of unfavorable foreign currency translation.

Gross profit of $534.3 million in the first quarter of 2022 increased $20.7 million, or 4.0%, compared to $513.6 million last year.

Gross margin (gross profit as a percentage of net sales) of 48.7% in the quarter declined 140 basis points (100 basis points (“bps”) equals 1.0 percent) from the first quarter of 2021 primarily due to higher material and other costs, partially offset by higher sales volumes, pricing actions, benefits from the company’s “Rapid Continuous Improvement” or “RCI” initiatives and 30 bps of favorable foreign currency effects.

Net sales of $1,136.6 million in the second quarter of 2022 increased $55.2 million, or 5.1%, from 2021 levels, reflecting an $87.6 million, or 8.4%, organic gain, partially offset by $32.4 million of unfavorable foreign currency translation.

Gross profit of $553.5 million in the second quarter of 2022 increased $10.4 million, or 1.9%, compared to $543.1 million last year.

Gross margin (gross profit as a percentage of net sales) of 48.7% in the quarter declined 150 basis points (100 basis points (“bps”) equals 1.0 percent) from the second quarter of 2021 primarily due to higher material and other costs, partially offset by higher sales volumes and pricing actions, benefits from the company’s “Rapid Continuous Improvement” or “RCI” initiatives, and 30 bps of favorable foreign currency effects.

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.

1 unchanged sentence

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.

Operating expenses of $311.2 million in the first quarter of 2022 compared to $312.7 million last year.

Operating expenses of $306.9 million in the second quarter of 2022 compared to $326.0 million last year.

Operating expenses as a percentage of net sales of 27.0% improved 310 bps from last year primarily due to the higher sales volumes, savings from RCI initiatives, and lower costs associated with stock-based expenses.

these improvements were partially offset by 40 bps of unfavorable acquisition effects.

SNAP-ON INCORPORATED

1 unchanged sentence

OF OPERATIONS

Operating earnings before financial services of $223.1 million in the first quarter of 2022 increased $22.2 million, or 11.1%, compared to $200.9 million in the first quarter of 2021.

Operating earnings before financial services of $246.6 million in the second quarter of 2022 increased $29.5 million, or 13.6%, compared to $217.1 million in the second quarter of 2021.

As a percentage of net sales, operating earnings before financial services of 21.7% compared to 20.1% last year.

Financial services revenue of $87.7 million in the first quarter of 2022 compared to $88.6 million last year.

Financial services revenue of $86.4 million in the second quarter of 2022 compared to $86.9 million last year.

Financial services operating earnings of $65.3 million in the period compared to $68.9 million in 2021.

Operating earnings of $293.5 million in the first quarter of 2022 increased $27.3 million, or 10.3%, compared to $266.2 million last year.

Operating earnings of $311.9 million in the second quarter of 2022 increased $25.9 million, or 9.1%, compared to $286.0 million last year.

As a percentage of revenues (net sales plus financial services revenue), operating earnings of 25.5% in the quarter compared to 24.5% last year.

Interest expense in the first quarter of 2022 decreased $2.7 million compared to last year.

Interest expense in the second quarter of 2022 decreased $2.6 million compared to last year.

See Note 9 to the Condensed Consolidated Financial Statements for information on Snap-on’s debt and credit facilities.

1 unchanged sentence

See Note 17 to the Condensed Consolidated Financial Statements for information on Other income (expense) – net.

Snap-on’s effective income tax rate on earnings attributable to Snap-on was 23.7% in the first quarter of 2022 and 23.5% in the first quarter of 2021.

Snap-on’s effective income tax rate on earnings attributable to Snap-on was 23.8% in the second quarter of 2022 and 23.3% in the second quarter of 2021.

S ee Note 8 to the Condensed Consolidated Financial Statements for information on income taxes.

Net earnings attributable to Snap-on in the first quarter of 2022 were $217.4 million, or $4.00 per diluted share.

Net earnings attributable to Snap-on in the first quarter of 2021 were $192.6 million, or $3.50 per diluted share.

Net earnings attributable to Snap-on in the second quarter of 2022 were $231.5 million, or $4.27 per diluted share.

Net earnings attributable to Snap-on in the second quarter of 2021 were $208.0 million, or $3.76 per diluted share.

Results of operations for the six months ended July 2, 2022, and July 3, 2021, are as follows:

Six Months Ended

(Amounts in millions) July 2, 2022 July 3, 2021 Change

Net sales $ 2,234.4 100.0 % $ 2,106.0 100.0 % $ 128.4 6.1 %

Cost of goods sold (1,146.6) (51.3) % (1,049.3) (49.8) % (97.3) (9.3) %

Gross profit 1,087.8 48.7 % 1,056.7 50.2 % 31.1 2.9 %

Operating expenses (618.1) (27.7) % (638.7) (30.4) % 20.6 3.2 %

Operating earnings before financial services 469.7 21.0 % 418.0 19.8 % 51.7 12.4 %

Financial services revenue 174.1 100.0 % 175.5 100.0 % (1.4) (0.8) %

Financial services expenses (38.4) (22.1) % (41.3) (23.5) % 2.9 7.0 %

Operating earnings from financial services 135.7 77.9 % 134.2 76.5 % 1.5 1.1 %

Operating earnings 605.4 25.1 % 552.2 24.2 % 53.2 9.6 %

Interest expense (23.3) (0.9) % (28.6) (1.2) % 5.3 18.5 %

Other income (expense) – net 17.6 0.7 % 7.7 0.3 % 9.9 NM

Earnings before income taxes and equity earnings 599.7 24.9 % 531.3 23.3 % 68.4 12.9 %

Income tax expense (139.8) (5.8) % (122.0) (5.4) % (17.8) (14.6) %

Earnings before equity earnings 459.9 19.1 % 409.3 17.9 % 50.6 12.4 %

Equity earnings, net of tax — — 1.5 0.1 % (1.5) NM

Net earnings 459.9 19.1 % 410.8 18.0 % 49.1 12.0 %

Net earnings attributable to noncontrolling interests (11.0) (0.5) % (10.2) (0.4) % (0.8) (7.8) %

Net earnings attributable to Snap-on Inc.

$ 448.9 18.6 % $ 400.6 17.6 % $ 48.3 12.1 %

Not meaningful

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.

SNAP-ON INCORPORATED

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS

OF OPERATIONS

Net sales of $2,234.4 million in the first six months of 2022 increased $128.4 million, or 6.1%, from 2021 levels, reflecting a $168.0 million, or 8.2%, organic gain and $8.5 million of acquisition-related sales, partially offset by $48.1 million of unfavorable foreign currency translation.

Gross profit of $1,087.8 million in the first six months of 2022 increased $31.1 million, or 2.9%, compared to $1,056.7 million last year.

Gross margin of 48.7% in the quarter declined 150 bps from last year primarily due to higher material and other costs, partially offset by higher sales volumes and pricing actions, benefits from the company’s RCI initiatives, and 30 bps of favorable foreign currency effects.

Operating expenses of $618.1 million in the first six months of 2022 compared to $638.7 million last year.

Operating expenses as a percentage of net sales of 27.7% improved 270 bps from last year primarily due to the higher sales volumes, savings from RCI initiatives, and lower costs associated with stock-based expenses;

these improvements were partially offset by 20 bps of unfavorable acquisition effects.

Operating earnings before financial services of $469.7 million in the first six months of 2022 increased $51.7 million, or 12.4%, compared to $418.0 million in 2021.

As a percentage of net sales, operating earnings before financial services of 21.0% compared to 19.8% last year.

Financial services revenue of $174.1 million in the first six months of 2022 compared to $175.5 million last year.

Financial services operating earnings of $135.7 million in the period compared to $134.2 million in 2021.

Operating earnings of $605.4 million in the first six months of 2022 increased $53.2 million, or 9.6%, compared to $552.2 million last year.

As a percentage of revenues, operating earnings of 25.1% in the quarter compared to 24.2% last year.

Interest expense in the first six months of 2022 decreased $5.3 million compared to last year.

See Note 9 to the Condensed Consolidated Financial Statements for information on Snap-on’s debt and credit facilities.

Other income (expense) – net primarily 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 17 to the Condensed Consolidated Financial Statements for information on Other income (expense) – net.

Snap-on’s effective income tax rate on earnings attributable to Snap-on was 23.7% in the first six months of 2022 and 23.4% in 2021.

S ee Note 8 to the Condensed Consolidated Financial Statements for information on income taxes.

Net earnings attributable to Snap-on in the first six months of 2022 were $448.9 million, or $8.27 per diluted share.

Net earnings attributable to Snap-on in the first six months of 2021 were $400.6 million, or $7.26 per diluted share.

Segment Results

19 unchanged sentences

Three Months Ended

(Amounts in millions) April 2, 2022 April 3, 2021 Change

(Amounts in millions) July 2, 2022 July 3, 2021 Change

External net sales $ 276.1 76.9 % $ 274.7 78.4 % $ 1.4 0.5 %

5 unchanged sentences

Segment operating earnings $ 51.7 14.4 % $ 55.5 15.8 % $ (3.8) (6.8) %

Segment net sales of $340.1 million in the first quarter of 2022 decreased $5.6 million, or 1.6%, from 2021 levels, reflecting a $3.6 million, or 1.1%, organic sales increase, which was more than offset by $9.2 million of unfavorable foreign currency translation.

The organic gain primarily reflects a double-digit increase in the segment’s Asia Pacific operations, partially offset by a mid single-digit decline in sales to customers in critical industries, where lower activity with the military more than offset higher sales to general industry and technical education customers.

Segment gross margin in the first quarter of 36.4% declined 230 bps from last year, primarily due to higher material and other costs and 40 bps of unfavorable foreign currency effects, partially offset by benefits from pricing actions and the segment’s RCI initiatives.

Segment operating expenses as a percentage of sales in the first quarter of 23.0% improved 100 bps as compared to 2021 primarily reflecting savings from cost containment actions and 10 basis points of favorable foreign currency effects.

As a result of these factors, segment operating earnings of $45.7 million in the first quarter of 2022, including $2.2 million of unfavorable foreign currency effects, decreased $5.0 million, or 9.9%, compared to $50.7 million in 2021.

Operating margin (segment operating earnings as a percentage of segment net sales) for the Commercial & Industrial Group of 13.4% in the first quarter of 2022 compared to 14.7% in 2021.

Segment net sales of $359.1 million in the second quarter of 2022 increased $8.6 million, or 2.5%, from 2021 levels, reflecting a $25.3 million, or 7.6%, organic sales increase, partially offset by $16.7 million of unfavorable foreign currency translation.

The organic increase primarily reflects double-digit gains in the segment’s European-based hand tools business and Asia Pacific operations, as well as a mid single-digit increase in sales to customers in critical industries.

Segment gross margin in the second quarter of 37.3% declined 220 bps from last year, primarily due to increased material and other costs, partially offset by benefits from the higher sales volumes and pricing actions, as well as from the segment’s RCI initiatives.

Segment operating expenses as a percentage of sales in the second quarter of 22.9% improved 80 bps as compared to 2021 primarily due to the effects of higher sales volumes.

As a result of these factors, segment operating earnings of $51.7 million in the second quarter of 2022, including $2.0 million of unfavorable foreign currency effects, decreased $3.8 million, or 6.8%, compared to $55.5 million in 2021.

Operating margin (segment operating earnings as a percentage of segment net sales) for the Commercial & Industrial Group of 14.4% in the second quarter of 2022 compared to 15.8% in 2021.

Six Months Ended

(Amounts in millions) July 2, 2022 July 3, 2021 Change

External net sales $ 537.3 76.8 % $ 545.8 78.4 % $ (8.5) (1.6) %

Intersegment net sales 161.9 23.2 % 150.4 21.6 % 11.5 7.6 %

Segment net sales 699.2 100.0 % 696.2 100.0 % 3.0 0.4 %

Cost of goods sold (441.7) (63.2) % (423.8) (60.9) % (17.9) (4.2) %

Gross profit 257.5 36.8 % 272.4 39.1 % (14.9) (5.5) %

Operating expenses (160.1) (22.9) % (166.2) (23.8) % 6.1 3.7 %

Segment operating earnings $ 97.4 13.9 % $ 106.2 15.3 % $ (8.8) (8.3) %

Segment net sales of $699.2 million in the first six months of 2022 increased $3.0 million, or 0.4%, from 2021 levels, reflecting a $28.9 million, or 4.3%, organic sales increase, partially offset by $25.9 million of unfavorable foreign currency translation.

The organic gain primarily reflects a double-digit increase in the segment’s Asia Pacific operations and a high single-digit gain in the segment’s European-based hand tools business.

Sales to customers in critical industries were essentially flat, as higher sales to general industry and technical education customers were offset by lower activity with the military.

Segment gross margin in the first six months of 36.8% declined 230 bps from last year, primarily due to increased material and other costs and 20 bps of unfavorable foreign currency effects, partially offset by benefits from the higher sales volumes and pricing actions, as well as from the segment’s RCI initiatives.

Segment operating expenses as a percentage of sales in the first six months of 22.9% improved 90 bps as compared to 2021 primarily due to the effects of higher sales volumes.

SNAP-ON INCORPORATED

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS

OF OPERATIONS

As a result of these factors, segment operating earnings of $97.4 million in the first six months of 2022, including $4.2 million of unfavorable foreign currency effects, decreased $8.8 million, or 8.3%, compared to $106.2 million in 2021.

Operating margin for the Commercial & Industrial Group of 13.9% in the first six months of 2022 compared to 15.3% in 2021.

Snap-on Tools Group

Three Months Ended

(Amounts in millions) April 2, 2022 April 3, 2021 Change

(Amounts in millions) July 2, 2022 July 3, 2021 Change

Segment net sales $ 520.6 100.0 % $ 484.1 100.0 % $ 36.5 7.5 %

3 unchanged sentences

Segment operating earnings $ 124.4 23.9 % $ 103.5 21.4 % $ 20.9 20.2 %

Segment net sales of $512.1 million in the first quarter of 2022 increased $33.8 million, or 7.1%, from 2021 levels, reflecting a $36.8 million, or 7.7%, organic sales gain, partially offset by $3.0 million of unfavorable foreign currency translation.

Segment net sales of $520.6 million in the second quarter of 2022 increased $36.5 million, or 7.5%, from 2021 levels, reflecting a $44.2 million, or 9.3%, organic sales gain, partially offset by $7.7 million of unfavorable foreign currency translation.

The organic increase is due to a double-digit gain in the U.S.

franchise business, partially offset by a low single-digit decline in the segment’s international operations.

Segment gross margin in the first quarter of 45.5% declined 40 bps from last year primarily due to increased material and other costs, which were mostly offset by benefits from the higher sales volumes, pricing actions and 30 bps of favorable foreign currency effects.

Segment operating expenses as a percentage of net sales in the first quarter of 22.8% improved 240 bps from last year primarily due to the impact of higher sales volumes, savings from RCI initiatives, and lower stock-based expenses related to the company’s franchisee stock purchase plan.

franchise business and a low single-digit increase in the segment’s international operations.

Segment gross margin in the second quarter of 46.0% declined 80 bps from last year primarily due to increased material and other costs and 10 bps of unfavorable foreign currency effects, which were partially offset by benefits from the higher sales volumes and pricing actions.

Segment operating expenses as a percentage of net sales in the second quarter of 22.1% improved 330 bps from last year and included the effects of lower expenses related to the company’s franchisee stock purchase plan, benefits from higher sales volumes, and savings associated with RCI initiatives.

As a result of these factors, segment operating earnings of $124.4 million in the second quarter of 2022, including $2.2 million of unfavorable foreign currency effects, increased $20.9 million, or 20.2%, compared to $103.5 million in 2021.

Operating margin for the Snap-on Tools Group of 23.9% in the second quarter of 2022 compared to 21.4% last year.

Six Months Ended

(Amounts in millions) July 2, 2022 July 3, 2021 Change

Segment net sales $ 1,032.7 100.0 % $ 962.4 100.0 % $ 70.3 7.3 %

Cost of goods sold (560.0) (54.2) % (516.2) (53.6) % (43.8) (8.5) %

Gross profit 472.7 45.8 % 446.2 46.4 % 26.5 5.9 %

Operating expenses (232.3) (22.5) % (243.8) (25.4) % 11.5 4.7 %

Segment operating earnings $ 240.4 23.3 % $ 202.4 21.0 % $ 38.0 18.8 %

Segment net sales of $1,032.7 million in the first six months of 2022 increased $70.3 million, or 7.3%, from 2021 levels, reflecting an $81.0 million, or 8.5%, organic sales gain, partially offset by $10.7 million of unfavorable foreign currency translation.

The organic increase included a double-digit gain in the U.S.

franchise business, while sales in the segment’s international operations were essentially flat.

Segment gross margin in the first six months of 45.8% declined 60 bps from last year primarily due to increased material and other costs, which were partially offset by benefits from the higher sales volumes and pricing actions.

Segment operating expenses as a percentage of net sales in the first six months of 22.5% improved 290 bps from last year and included the effects of lower expenses related to the company’s franchisee stock purchase plan, benefits from higher sales volumes, and savings associated with RCI initiatives.

As a result of these factors, segment operating earnings of $240.4 million in the first six months of 2022, including $1.4 million of unfavorable foreign currency effects, increased $38.0 million, or 18.8%, compared to $202.4 million in 2021.

Operating margin for the Snap-on Tools Group of 23.3% in the first six months of 2022 compared to 21.0% last year.

SNAP-ON INCORPORATED

1 unchanged sentence

OF OPERATIONS

As a result of these factors, segment operating earnings of $116.0 million in the first quarter of 2022, including $0.8 million of favorable foreign currency effects, increased $17.1 million, or 17.3%, compared to $98.9 million in 2021.

Operating margin for the Snap-on Tools Group of 22.7% in the first quarter of 2022 compared to 20.7% last year.

Repair Systems & Information Group

Three Months Ended

(Amounts in millions) April 2, 2022 April 3, 2021 Change

(Amounts in millions) July 2, 2022 July 3, 2021 Change

External net sales $ 339.9 81.5 % $ 322.6 80.9 % $ 17.3 5.4 %

5 unchanged sentences

Segment operating earnings $ 95.7 23.0 % $ 86.7 21.8 % $ 9.0 10.4 %

Segment net sales of $398.2 million in the first quarter of 2022 increased $50.6 million, or 14.6%, from 2021 levels, reflecting a $45.7 million, or 13.3%, organic sales increase and $8.5 million of acquisition-related sales, partially offset by $3.6 million of unfavorable foreign currency translation.

The organic gain is comprised of double-digit increases in sales of undercar equipment and in activity with OEM dealerships, as well as a low single-digit gain in sales of diagnostic and repair information products to independent repair shop owners and managers.

Segment gross margin in the first quarter of 44.6% declined 140 bps from last year primarily due to increased sales in lower gross margin businesses and higher material and other costs.

These declines were partially offset by benefits from pricing actions and 50 bps from acquisitions, as well as from 30 bps of favorable foreign currency effects and savings from RCI initiatives.

Segment operating expenses as a percentage of net sales in the first quarter of 21.6%, improved 100 bps from 2021 primarily due to the benefits from sales volume leverage, including higher volumes in lower expense businesses, and savings from RCI initiatives;

Segment net sales of $416.8 million in the second quarter of 2022 increased $18.2 million, or 4.6%, from 2021 levels, reflecting a $27.4 million, or 7.0%, organic sales increase, partially offset by $9.2 million of unfavorable foreign currency translation.

The organic gain included a double-digit increase in sales of undercar equipment and a low single-digit gain in sales of diagnostic and repair information products to independent repair shop owners and managers, while activity with OEM dealerships was essentially flat.

Segment gross margin in the second quarter of 43.2% declined 150 bps from last year primarily due to higher material and other costs, and increased sales in lower gross margin businesses.

These declines were partially offset by benefits from pricing actions and savings from RCI initiatives, as well as 50 bps of favorable foreign currency effects.

Segment operating expenses as a percentage of net sales in the second quarter of 20.2%, improved 270 bps from 2021 primarily due to benefits from sales volume leverage, including higher activity in lower expense businesses, and savings from RCI initiatives.

As a result of these factors, segment operating earnings of $95.7 million in the second quarter of 2022, including $1.2 million of favorable foreign currency effects, increased $9.0 million, or 10.4%, from $86.7 million in 2021.

Operating margin for the Repair Systems & Information Group of 23.0% in the second quarter of 2022 compared to 21.8% last year.

Six Months Ended

(Amounts in millions) July 2, 2022 July 3, 2021 Change

External net sales $ 664.4 81.5 % $ 597.8 80.1 % $ 66.6 11.1 %

Intersegment net sales 150.6 18.5 % 148.4 19.9 % 2.2 1.5 %

Segment net sales 815.0 100.0 % 746.2 100.0 % 68.8 9.2 %

Cost of goods sold (457.4) (56.1) % (408.1) (54.7) % (49.3) (12.1) %

Gross profit 357.6 43.9 % 338.1 45.3 % 19.5 5.8 %

Operating expenses (170.3) (20.9) % (170.0) (22.8) % (0.3) (0.2) %

Segment operating earnings $ 187.3 23.0 % $ 168.1 22.5 % $ 19.2 11.4 %

Segment net sales of $815.0 million in the first six months of 2022 increased $68.8 million, or 9.2%, from 2021 levels, reflecting a $73.1 million, or 10.0%, organic sales increase and $8.5 million of acquisition-related sales, partially offset by $12.8 million of unfavorable foreign currency translation.

The organic gain is comprised of a double-digit increase in sales of undercar equipment, a high single-digit gain in activity with OEM dealerships, and a low single-digit increase in sales of diagnostic and repair information products to independent repair shop owners and managers.

Segment gross margin in the first six months of 43.9% declined 140 bps from last year primarily due to higher material and other costs, and increased sales in lower gross margin businesses.

These declines were partially offset by benefits from pricing actions and savings from RCI initiatives, as well as 40 bps of favorable foreign currency effects and 20 bps from acquisitions.

SNAP-ON INCORPORATED

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS

OF OPERATIONS

Segment operating expenses as a percentage of net sales in the first six months of 20.9%, improved 190 bps from 2021 primarily due to benefits from sales volume leverage, including higher activity in lower expense businesses, and savings from RCI initiatives.

These improvements were partially offset by 50 bps of unfavorable acquisition effects in 2022.

As a result of these factors, segment operating earnings of $91.6 million in the first quarter of 2022, including $0.9 million of favorable foreign currency effects, increased $10.2 million, or 12.5%, from $81.4 million in 2021.

Operating margin for the Repair Systems & Information Group of 23.0% in the first quarter of 2022 compared to 23.4% last year.

As a result of these factors, segment operating earnings of $187.3 million in the first six months of 2022, including $2.1 million of favorable foreign currency effects, increased $19.2 million, or 11.4%, from $168.1 million in 2021.

Operating margin for the Repair Systems & Information Group of 23.0% in the first six months of 2022 compared to 22.5% last year.

Financial Services

Three Months Ended

(Amounts in millions) April 2, 2022 April 3, 2021 Change

(Amounts in millions) July 2, 2022 July 3, 2021 Change

Financial services revenue $ 86.4 100.0 % $ 86.9 100.0 % $ (0.5) (0.6) %

1 unchanged sentence

Segment operating earnings $ 65.3 75.6 % $ 68.9 79.3 % $ (3.6) (5.2) %

Financial services revenue is generally dependent on the size of the average financial services portfolio during the period, as well as on the average yield on receivables in the period.

Financial services revenue in the first quarter of 2022 decreased $0.9 million, or 1.0%, from 2021, primarily due to a decline in the size of the average financial services portfolio during the quarter as compared to last year.

In both the first quarters of 2022 and 2021, the average yield on finance receivables was 17.6%.

In the first quarters of 2022 and 2021, the respective average yields on contract receivables were 8.5% and 8.4%.

Originations of $245.6 million in the first quarter of 2022 decreased $16.2 million, or 6.2%, from 2021 levels.

Financial services revenue is generally dependent on the size of the average financial services portfolio during the period, as well as on the average yield on receivables.

Financial services revenue in the second quarter of 2022 decreased $0.5 million, or 0.6%, from 2021.

In both the second quarters of 2022 and 2021, the average yields on finance receivables and contract receivables were 17.5% and 8.5%, respectively.

Originations of $307.6 million in the second quarter of 2022 increased $21.8 million, or 7.6%, from 2021 levels.

Financial services expenses primarily include personnel-related and other general and administrative costs, as well as provisions for credit losses.

These expenses are generally more dependent on changes in the size of the financial services portfolio than they are on the revenue of the segment.

Financial services expenses in the second quarter of 2022 increased primarily due to higher provisions for credit losses as compared to those recorded in the second quarter of 2021.

As a percentage of the average financial services portfolio, expenses were 1.0% in the second quarter of 2022 and 0.8% in 2021.

Segment operating earnings in the second quarter of 2022, including $0.6 million of unfavorable foreign currency effects, decreased $3.6 million, or 5.2%, from 2021 levels.

Six Months Ended

(Amounts in millions) July 2, 2022 July 3, 2021 Change

Financial services revenue $ 174.1 100.0 % $ 175.5 100.0 % $ (1.4) (0.8) %

Financial services expenses (38.4) (22.1) % (41.3) (23.5) % 2.9 7.0 %

Segment operating earnings $ 135.7 77.9 % $ 134.2 76.5 % $ 1.5 1.1 %

Financial services revenue in the first six months of 2022 decreased $1.4 million, or 0.8%, from 2021.

In both the first six months of 2022 and 2021, the average yield on finance receivables was 17.5%.

In the first six months of 2022 and 2021, the respective average yields on contract receivables were 8.5% and 8.4%.

Originations of $553.2 million in the first six months of 2022 increased $5.6 million, or 1.0%, from 2021 levels.

Financial services expenses in the first six months of 2022 decreased primarily due to lower provisions for credit losses as compared to those recorded in the first six months of 2021.

As a percentage of the average financial services portfolio, expenses were 1.7% in the first six months of 2022 and 1.9% in 2021.

Segment operating earnings in the first six months of 2022, including $0.8 million of unfavorable foreign currency effects, increased $1.5 million, or 1.1%, from 2021 levels.

SNAP-ON INCORPORATED

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OF OPERATIONS

Financial services expenses primarily include personnel-related and other general and administrative costs, as well as provisions for credit losses.

These expenses are generally more dependent on changes in the size of the financial services portfolio than they are on the revenue of the segment.

Financial services expenses in the first quarter of 2022 decreased primarily due to lower provisions for credit losses as compared to those recorded in the first quarter of 2021.

As a percentage of the average financial services portfolio, financial services expenses were 0.8% in the first quarter of 2022 and 1.1% in 2021.

Financial services operating earnings in the first quarter of 2022, including $0.2 million of unfavorable foreign currency effects, increased $5.1 million, or 7.8%, from 2021 levels.

Snap-on’s first quarter 2022 general corporate expenses of $30.2 million compared to $30.1 million last year.

Lower stock-based compensation, including costs associated with the company’s employee stock purchase plan, was offset by other cost increases.

Snap-on’s second quarter 2022 general corporate expenses of $25.2 million decreased $3.4 million from $28.6 million last year, primarily due to lower stock-based compensation, including costs associated with the company’s employee stock purchase plan.

Snap-on’s general corporate expenses in the first six months 2022 of $55.4 million decreased $3.3 million from $58.7 million last year, as lower stock-based compensation was partially offset by other cost increases.

Non-GAAP Supplemental Data

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Transactions between the Operations and Financial Services businesses are eliminated to arrive at the Condensed Consolidated Financial Statements.

Non-GAAP Supplemental Consolidating Data – Supplemental Condensed Statements of Earnings information for the three months ended July 2, 2022, and July 3, 2021, are as follows:

Operations* Financial Services

(Amounts in millions) July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021

Net sales $ 1,136.6 $ 1,081.4 $ — $ —

Cost of goods sold (583.1) (538.3) — —

Gross profit 553.5 543.1 — —

Operating expenses (306.9) (326.0) — —

Operating earnings before financial services 246.6 217.1 — —

Financial services revenue — — 86.4 86.9

Financial services expenses — — (21.1) (18.0)

Operating earnings from financial services — — 65.3 68.9

Operating earnings 246.6 217.1 65.3 68.9

Interest expense (11.7) (14.2) — (0.1)

Intersegment interest income (expense) – net 14.9 14.8 (14.9) (14.8)

Other income (expense) – net 9.2 3.3 0.1 0.1

Earnings before income taxes and equity earnings 259.0 221.0 50.5 54.1

Income tax expense (59.3) (49.2) (13.0) (13.7)

Earnings before equity earnings 199.7 171.8 37.5 40.4

Financial services – net earnings attributable to Snap-on 37.5 40.4 — —

Equity earnings, net of tax — 1.0 — —

Net earnings 237.2 213.2 37.5 40.4

Net earnings attributable to noncontrolling interests (5.7) (5.2) — —

Net earnings attributable to Snap-on $ 231.5 $ 208.0 $ 37.5 $ 40.4

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

SNAP-ON INCORPORATED

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OF OPERATIONS

Non-GAAP Supplemental Consolidating Data – Supplemental Condensed Statements of Earnings information for the three months ended April 2, 2022, and April 3, 2021, are as follows:

Non-GAAP Supplemental Consolidating Data – Supplemental Condensed Statements of Earnings information for the six months ended July 2, 2022, and July 3, 2021, are as follows:

Operations* Financial Services

(Amounts in millions) April 2, 2022 April 3, 2021 April 2, 2022 April 3, 2021

(Amounts in millions) July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021

Net sales $ 2,234.4 $ 2,106.0 $ — $ —

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

Non-GAAP Supplemental Consolidating Data – Supplemental Condensed Balance Sheet information as of July 2, 2022, and January 1, 2022, is as follows:

SNAP-ON INCORPORATED

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OF OPERATIONS

Non-GAAP Supplemental Consolidating Data – Supplemental Condensed Balance Sheet information as of April 2, 2022, and January 1, 2022, is as follows:

Operations* Financial Services

(Amounts in millions) April 2,

2022 January 1, 2022 April 2

2022 January 1, 2022

(Amounts in millions) July 2, 2022 January 1, 2022 July 2, 2022 January 1, 2022

Current assets:

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Operations* Financial Services

(Amounts in millions) April 2,

2022 January 1, 2022 April 2,

2022 January 1, 2022

(Amounts in millions) July 2, 2022 January 1, 2022 July 2, 2022 January 1, 2022

LIABILITIES AND EQUITY

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Due to Snap-on’s credit rating over the years, external funds have been available at an acceptable cost.

As of April 15, 2022, Snap-on’s long-term debt and commercial paper were rated, respectively, A2 and P-1 by Moody’s Investors Service;

As of July 15, 2022, 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;

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

As of April 2, 2022, working capital (current assets less current liabilities) of $2,211.9 million increased $140.7 million from $2,071.2 million as of January 1, 2022 (fiscal 2021 year end), primarily as a result of the net changes discussed below.

The following represents the company’s working capital position as of April 2, 2022, and January 1, 2022:

(Amounts in millions) April 2, 2022 January 1, 2022

As of July 2, 2022, working capital (current assets less current liabilities) of $2,244.6 million increased $173.4 million from $2,071.2 million as of January 1, 2022 (fiscal 2021 year end), primarily as a result of the net changes discussed below.

The following represents the company’s working capital position as of July 2, 2022, and January 1, 2022:

(Amounts in millions) July 2, 2022 January 1, 2022

Cash and cash equivalents $ 812.9 $ 780.0

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Working capital $ 2,244.6 $ 2,071.2

Cash and cash equivalents of $861.1 million as of April 2, 2022, increased $81.1 million from 2021 year-end levels primarily due to:

Cash and cash equivalents of $812.9 million as of July 2, 2022, increased $32.9 million from 2021 year-end levels primarily due to:

(i) $426.2 million of cash from collections of finance receivables;

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and (iv) the funding of $41.5 million of capital expenditures.

Of the $861.1 million of cash and cash equivalents as of April 2, 2022, $286.2 million was held outside of the United States.

Of the $812.9 million of cash and cash equivalents as of July 2, 2022, $264.0 million was held outside of the United States.

Snap-on maintains non-U.S.

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OF OPERATIONS

Trade and other accounts receivable – net of $731.3 million as of April 2, 2022, increased $49.0 million from 2021 year-end levels, primarily due to higher sales and $0.1 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 61 days at April 2, 2022, and 58 days at January 1, 2022.

The current portions of net finance and contract receivables of $644.8 million as of April 2, 2022, compared to $652.7 million at 2021 year end.

The long-term portions of net finance and contract receivables of $1,476.8 million as of April 2, 2022, compared to $1,492.2 million at 2021 year end.

The combined $23.3 million decrease in net current and long-term finance and contract receivables over 2021 year-end levels is primarily due to an increase in net collections, partially offset by $2.9 million of foreign currency translation.

Inventories – net of $864.1 million as of April 2, 2022, increased $60.3 million from 2021 year-end levels primarily to support higher customer demand and new product innovation, partially offset by $0.2 million of foreign currency translation.

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 2.8 turns as of both April 2, 2022, and January 1, 2022.

Inventories accounted for using the first-in, first-out (“FIFO”) method approximated 61% and 60% of total inventories as of April 2, 2022, and January 1, 2022, respectively.

Trade and other accounts receivable – net of $729.1 million as of July 2, 2022, increased $46.8 million from 2021 year-end levels primarily due to higher sales, partially offset by $16.8 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 60 days at July 2, 2022, and 58 days at January 1, 2022.

The current portions of net finance and contract receivables of $645.3 million as of July 2, 2022, compared to $652.7 million at 2021 year end.

The long-term portions of net finance and contract receivables of $1,502.4 million as of July 2, 2022, compared to $1,492.2 million at 2021 year end.

The combined $2.8 million increase in net current and long-term finance and contract receivables over 2021 year-end levels is primarily due to an increase in net receivable originations, partially offset by $14.6 million of foreign currency translation.

Inventories – net of $893.3 million as of July 2, 2022, increased $89.5 million from 2021 year-end levels primarily to support higher customer demand and new product innovation, partially offset by $27.3 million of foreign currency translation.

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 2.7 turns and 2.8 turns as of July 2, 2022, and January 1, 2022, respectively.

Inventories accounted for using the first-in, first-out (“FIFO”) method approximated 61% and 60% of total inventories as of July 2, 2022, and January 1, 2022, respectively.

All other inventories are accounted for using the last-in, first-out (“LIFO”) method.

The company’s LIFO reserve was $88.7 million and $87.2 million as of April 2, 2022, and January 1, 2022, respectively.

Notes payable of $19.6 million as of April 2, 2022, compared to $17.4 million as of 2021 year end.

Accounts payable of $297.3 million as of April 2, 2022, increased $19.7 million from 2021 year-end levels primarily due to the timing of payments, partially offset by $0.5 million of foreign currency translation.

Other accrued liabilities of $484.5 million as of April 2, 2022, increased $60.2 million from 2021 year-end levels primarily due to higher tax accruals, partially offset by $0.7 million of foreign currency translation.

Long-term debt of $1,183.2 million as of April 2, 2022, consisted of:

The company’s LIFO reserve was $90.7 million and $87.2 million as of July 2, 2022, and January 1, 2022, respectively.

Notes payable of $18.8 million as of July 2, 2022, compared to $17.4 million as of 2021 year end.

Accounts payable of $308.5 million as of July 2, 2022, increased $30.9 million from 2021 year-end levels primarily due to the timing of payments, partially offset by $7.1 million of foreign currency translation.

Other accrued liabilities of $440.5 million as of July 2, 2022, increased $16.2 million from 2021 year-end levels primarily due to higher tax accruals, partially offset by $10.8 million of foreign currency translation.

Long-term debt of $1,183.4 million as of July 2, 2022, consisted of:

(i) $300 million of unsecured 3.25% notes that mature on March 1, 2027 (the “2027 Notes”);

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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 April 2, 2022.

no amounts were outstanding under the Credit Facility as of July 2, 2022.

Borrowings under the Credit Facility bear interest at varying rates based on either:

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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 April 2, 2022, the company’s actual ratios of 0.08 and 0.30 respectively, were both within the permitted ranges set forth in this financial covenant.

As of July 2, 2022, the company’s actual ratios of 0.09 and 0.34 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.

As of April 2, 2022, there were no commercial paper issuances outstanding.

As of July 2, 2022, there were no commercial paper issuances outstanding.

SNAP-ON INCORPORATED

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Operating Activities

Net cash provided by operating activities was $193.9 million and $319.3 million in the first three months of 2022 and 2021, respectively.

Net cash provided by operating activities was $334.7 million and $557.5 million in the first six months of 2022 and 2021, respectively.

The $222.8 million year-over-year decrease in net cash provided by operating activities primarily reflects a $247.2 million decrease from net changes in operating assets and liabilities, partially offset by a $49.1 million increase in net earnings.

Investing Activities

Net cash used by investing activities of $6.6 million in the first three months of 2022 included additions to finance receivables of $205.5 million, offset by collections of $215.6 million.

Net cash used by investing activities of $207.2 million in the first three months of 2021 included additions to finance receivables of $216.5 million, offset by collections of $228.6 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, diagnostics, and equipment products on an extended-term payment plan, generally with payment terms of approximately four years.

Net cash used by investing activities in the first three months of 2021 also included a net $200.0 million for acquisitions.

Net cash used by investing activities of $80.4 million in the first six months of 2022 included additions to finance receivables of $469.6 million, offset by collections of $426.2 million.

Net cash used by investing activities of $236.9 million in the first six months of 2021 included additions to finance receivables of $454.5 million, offset by collections of $447.9 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, diagnostics, and equipment products on an extended-term payment plan, with average payment terms of approximately four years.

Net cash used by investing activities in the respective first six months of 2022 and 2021 also included $0.5 million of cash provided by and $195.8 million of cash used for acquisitions.

See Note 3 to the Condensed Consolidated Financial Statements for information about acquisitions.

Capital expenditures were $20.2 million and $19.3 million in the first three months of 2022 and 2021, respectively.

Capital expenditures were $41.5 million and $37.6 million in the first six months of 2022 and 2021, respectively.

Capital expenditures in both years included continued investments related to the company’s execution of its strategic Value Creation Processes around safety, quality, customer connection, innovation and RCI.

Financing Activities

Net cash used by financing activities of $106.3 million in the first three months of 2022 included net proceeds from other short-term borrowings of $2.3 million.

Net cash used by financing activities of $131.0 million in the first three months of 2021 included net proceeds from other short-term borrowings of $2.4 million.

Proceeds from stock purchase and option plan exercises totaled $5.8 million and $93.0 million in the first three months of 2022 and 2021, respectively.

Snap-on has undertaken stock repurchases from time to time to offset dilution created by shares issued for employee and franchisee stock purchase plans, as well as stock options, and for other corporate purposes.

In the first three months of 2022, Snap-on repurchased 136,000 shares of its common stock for $28.8 million under its previously announced share repurchase programs.

In the first three months of 2021, Snap-on repurchased 722,000 shares of its common stock for $151.9 million under its previously announced share repurchase programs.

As of April 2, 2022, Snap-on had remaining availability to repurchase up to an additional $442.2 million in common stock pursuant to its Board’s authorizations.

The purchase of Snap-on common stock is at the company’s discretion, subject to prevailing financial and market conditions.

Net cash used by financing activities of $218.5 million in the first six months of 2022 included net proceeds from other short-term borrowings of $2.8 million.

Net cash used by financing activities of $278.9 million in the first six months of 2021 included net proceeds from other short-term borrowings of $2.9 million.

Proceeds from stock purchase and option plan exercises totaled $29.2 million and $154.8 million in the first six months of 2022 and 2021, respectively.

In the first six months of 2022, Snap-on repurchased 387,000 shares of its common stock for $82.6 million under its previously announced share repurchase programs.

In the first six months of 2021, Snap-on repurchased 1,288,900 shares of its common stock for $289.3 million under its previously announced share repurchase programs.

As of July 2, 2022, Snap-on had remaining availability to repurchase up to an additional $420.8 million in common stock pursuant to its Board’s authorizations.

The repurchase of Snap-on common stock to offset dilution related to equity plan issuances or for other corporate purposes is at the company’s discretion, subject to prevailing financial and market conditions.

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 additional share repurchases, if any.

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Snap-on has paid consecutive quarterly cash dividends, without interruption or reduction, since 1939.

Cash dividends totaled $75.7 million and $66.7 million in the first three months of 2022 and 2021, respectively.

Cash dividends totaled $151.4 million and $133.4 million in the first six months of 2022 and 2021, respectively.

On November 4, 2021, the Board increased the quarterly cash dividend by 15.4% to $1.42 per share ($5.68 per share annualized).

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Snap-on’s discussion of its critical accounting policies and estimates, contained in its Annual Report on Form 10-K for the fiscal year ended January 1, 2022, have not materially changed since the report was filed.

COVID-19, its subsequent variants, as well as related supply chain inefficiencies, continue to impact economic activity worldwide in 2022.

COVID-19 and its subsequent variants, as well as supply chain inefficiencies, continue to impact economic activity worldwide in 2022.

The company believes that our markets and our operations possess and, indeed, have demonstrated considerable resilience against the impact of the virus and that there will be ongoing advancement even in the midst of the turbulence.

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Snap-on expects to make continued progress in 2022 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, the company anticipates that capital expenditures in 2022 will be in a range of $90 million to $100 million, of which $20.2 million was incurred in the first three months of the year.

In pursuit of these initiatives, the company anticipates that capital expenditures in 2022 will be in a range of $90 million to $100 million, of which $41.5 million was incurred in the first six months of the year.

Snap-on continues to respond to the global macroeconomic challenges through its RCI process and other cost reduction initiatives.

1 unchanged sentence

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-Q

Item 2. Management’s Discussion and Analysis