Item 1. Financial Statements

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Item 1. Financial Statements

SNAP-ON INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Amounts in millions, except per share data)

(Unaudited)


	Three Months Ended				Nine Months Ended
	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Net sales	$	1,037.7	$	941.6	$	3,143.7	$	2,518.1
Cost of goods sold	(517.0)		(472.1)		(1,566.3)		(1,285.8)
Gross profit	520.7		469.5		1,577.4		1,232.3
Operating expenses	(319.4)		(283.8)		(958.1)		(816.6)
Operating earnings before financial services	201.3		185.7		619.3		415.7

Financial services revenue	87.3		85.8		262.8		256.3
Financial services expenses	(16.7)		(20.2)		(58.0)		(76.2)
Operating earnings from financial services	70.6		65.6		204.8		180.1

Operating earnings	271.9		251.3		824.1		595.8
Interest expense	(13.2)		(13.8)		(41.8)		(38.6)
Other income (expense) – net	3.7		2.8		11.4		6.3
Earnings before income taxes and equity earnings	262.4		240.3		793.7		563.5
Income tax expense	(60.9)		(55.1)		(182.9)		(130.9)
Earnings before equity earnings	201.5		185.2		610.8		432.6
Equity earnings (loss), net of tax	—		(0.5)		1.5		—
Net earnings	201.5		184.7		612.3		432.6
Net earnings attributable to noncontrolling interests	(5.3)		(5.0)		(15.5)		(14.5)
Net earnings attributable to Snap-on Incorporated	$	196.2	$	179.7	$	596.8	$	418.1

Net earnings per share attributable to Snap-on Incorporated:
Basic	$	3.65	$	3.31	$	11.05	$	7.69
Diluted	3.57		3.28		10.83		7.62

Weighted-average shares outstanding:
Basic	53.8		54.3		54.0		54.4
Effect of dilutive securities	1.1		0.5		1.1		0.5
Diluted	54.9		54.8		55.1		54.9

Dividends declared per common share	$	1.23	$	1.08	$	3.69	$	3.24

See Notes to Condensed Consolidated Financial Statements.

SNAP-ON INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in millions)

(Unaudited)


	Three Months Ended				Nine Months Ended
	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Comprehensive income (loss):
Net earnings	$	201.5	$	184.7	$	612.3	$	432.6
Other comprehensive income (loss):
Foreign currency translation	(38.6)		42.6		(47.4)		22.4
Reclassification of foreign currency translation loss from sale of equity interest to net earnings	—		—		(1.0)		—
Unrealized cash flow hedges, net of tax:
Other comprehensive income before reclassifications	—		—		—		1.4
Reclassification of cash flow hedges to net earnings	(0.4)		(0.4)		(1.2)		(1.2)
Defined benefit pension and postretirement plans:
Amortization of net unrecognized losses included in net periodic benefit cost	9.0		8.7		27.2		25.9
Income tax benefit	(2.1)		(2.1)		(6.6)		(6.2)
Net of tax	6.9		6.6		20.6		19.7
Total comprehensive income	$	169.4	$	233.5	$	583.3	$	474.9

Comprehensive income attributable to noncontrolling interests	(5.3)		(5.0)		(15.5)		(14.5)
Comprehensive income attributable to Snap-on Incorporated	$	164.1	$	228.5	$	567.8	$	460.4

See Notes to Condensed Consolidated Financial Statements.

SNAP-ON INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in millions, except share data)

(Unaudited)


	October 2, 2021		January 2, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	735.5	$	923.4
Trade and other accounts receivable – net	653.2		640.7
Finance receivables – net	544.8		530.2
Contract receivables – net	117.8		112.5
Inventories – net	789.6		746.5
Prepaid expenses and other assets	133.4		129.7
Total current assets	2,974.3		3,083.0

Property and equipment:
Land	34.1		34.0
Buildings and improvements	429.4		432.0
Machinery, equipment and computer software	1,061.6		1,033.4
Property and equipment – gross	1,525.1		1,499.4
Accumulated depreciation and amortization	(1,004.2)		(973.2)
Property and equipment – net	520.9		526.2

Operating lease right-of-use assets	52.9		51.9
Deferred income tax assets	49.1		50.3
Long-term finance receivables – net	1,110.4		1,136.3
Long-term contract receivables – net	380.1		374.7
Goodwill	1,171.0		982.4
Other intangibles – net	249.6		260.8
Other assets	72.6		91.7
Total assets	$	6,580.9	$	6,557.3

See Notes to Condensed Consolidated Financial Statements.

SNAP-ON INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in millions, except share data)

(Unaudited)


	October 2, 2021		January 2, 2021
LIABILITIES AND EQUITY
Current liabilities:
Notes payable and current maturities of long-term debt	$	17.4	$	268.5
Accounts payable	266.9		222.9
Accrued benefits	57.8		59.7
Accrued compensation	101.4		89.9
Franchisee deposits	89.3		78.4
Other accrued liabilities	446.9		445.5
Total current liabilities	979.7		1,164.9

Long-term debt	1,182.7		1,182.1
Deferred income tax liabilities	80.2		70.4
Retiree health care benefits	32.3		34.5
Pension liabilities	103.2		127.1
Operating lease liabilities	35.0		34.0
Other long-term liabilities	98.5		97.7
Total liabilities	2,511.6		2,710.7

Commitments and contingencies (Note 15)

Equity
Shareholders’ equity attributable to Snap-on Incorporated:
Preferred stock (authorized 15,000,000 shares of $1 par value; none outstanding)	—		—
Common stock (authorized 250,000,000 shares of $1 par value; issued 67,438,068 and 67,430,958 shares, respectively)	67.4		67.4
Additional paid-in capital	467.7		391.7
Retained earnings	5,552.8		5,156.9
Accumulated other comprehensive loss	(394.8)		(365.8)
Treasury stock at cost (13,712,717 and 13,328,859 shares, respectively)	(1,645.8)		(1,425.3)
Total shareholders’ equity attributable to Snap-on Incorporated	4,047.3		3,824.9
Noncontrolling interests	22.0		21.7
Total equity	4,069.3		3,846.6
Total liabilities and equity	$	6,580.9	$	6,557.3

See Notes to Condensed Consolidated Financial Statements.

SNAP-ON INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Amounts in millions, except share data)

(Unaudited)

The following summarizes the changes in total equity for the three month period ended October 2, 2021:


	Shareholders’ Equity Attributable to Snap-on Incorporated
	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Noncontrolling Interests		Total Equity
Balance at July 3, 2021	$	67.4	$	461.1	$	5,423.5	$	(362.7)	$	(1,585.9)	$	22.1	$	4,025.5
Net Earnings for the three months ended October 2, 2021	—		—		196.2		—		—		5.3		201.5
Other comprehensive loss	—		—		—		(32.1)		—		—		(32.1)
Cash dividends – $1.23 per share	—		—		(66.3)		—		—		—		(66.3)
Stock compensation plans	—		6.6		—		—		6.6		—		13.2
Share repurchases – 300,000 shares	—		—		—		—		(66.5)		—		(66.5)
Other	—		—		(0.6)		—		—		(5.4)		(6.0)
Balance at October 2, 2021	$	67.4	$	467.7	$	5,552.8	$	(394.8)	$	(1,645.8)	$	22.0	$	4,069.3

The following summarizes the changes in total equity for the nine month period ended October 2, 2021:


	Shareholders’ Equity Attributable to Snap-on Incorporated
	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Noncontrolling Interests		Total Equity
Balance at January 2, 2021	$	67.4	$	391.7	$	5,156.9	$	(365.8)	$	(1,425.3)	$	21.7	$	3,846.6
Net Earnings for the nine months ended October 2, 2021	—		—		596.8		—		—		15.5		612.3
Other comprehensive loss	—		—		—		(29.0)		—		—		(29.0)
Cash dividends – $3.69 per share	—		—		(199.7)		—		—		—		(199.7)
Stock compensation plans	—		76.0		—		—		135.3		—		211.3
Share repurchases – 1,588,900 shares	—		—		—		—		(355.8)		—		(355.8)
Other	—		—		(1.2)		—		—		(15.2)		(16.4)
Balance at October 2, 2021	$	67.4	$	467.7	$	5,552.8	$	(394.8)	$	(1,645.8)	$	22.0	$	4,069.3

See Notes to Condensed Consolidated Financial Statements.

SNAP-ON INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Amounts in millions, except share data)

(Unaudited)

The following summarizes the changes in total equity for the three month period ended September 26, 2020:


	Shareholders’ Equity Attributable to Snap-on Incorporated
	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Noncontrolling Interests		Total Equity
Balance at June 27, 2020	$	67.4	$	383.1	$	4,894.2	$	(514.4)	$	(1,343.6)	$	21.9	$	3,508.6
Net Earnings for the three months ended September 26, 2020	—		—		179.7		—		—		5.0		184.7
Other comprehensive income	—		—		—		48.8		—		—		48.8
Cash dividends – $1.08 per share	—		—		(58.8)		—		—		—		(58.8)
Stock compensation plans	—		3.2		—		—		4.7		—		7.9
Share repurchases – 300,000 shares	—		—		—		—		(45.1)		—		(45.1)
Other	—		—		(0.2)		—		—		(5.1)		(5.3)
Balance at Balance at September 26, 2020	$	67.4	$	386.3	$	5,014.9	$	(465.6)	$	(1,384.0)	$	21.8	$	3,640.8

The following summarizes the changes in total equity for the nine month period ended September 26, 2020:


	Shareholders’ Equity Attributable to Snap-on Incorporated
	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Noncontrolling Interests		Total Equity
Balance at December 28, 2019	$	67.4	$	379.1	$	4,779.7	$	(507.9)	$	(1,309.2)	$	21.7	$	3,430.8
Impact of adopting the Credit Loss Standard (ASU No. 2016-13)	—		—		(6.1)		—		—		—		(6.1)
Balance at December 29, 2019	67.4		379.1		4,773.6		(507.9)		(1,309.2)		21.7		3,424.7
Net Earnings for the nine months ended September 26, 2020	—		—		418.1		—		—		14.5		432.6
Other comprehensive income	—		—		—		42.3		—		—		42.3
Cash dividends – $3.24 per share	—		—		(176.5)		—		—		—		(176.5)
Stock compensation plans	—		7.2		—		—		20.8		—		28.0
Share repurchases – 649,000 shares	—		—		—		—		(95.6)		—		(95.6)
Other	—		—		(0.3)		—		—		(14.4)		(14.7)
Balance at Balance at September 26, 2020	$	67.4	$	386.3	$	5,014.9	$	(465.6)	$	(1,384.0)	$	21.8	$	3,640.8

See Notes to Condensed Consolidated Financial Statements.

SNAP-ON INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in millions)

(Unaudited)


	Nine Months Ended
	October 2, 2021		September 26, 2020
Operating activities:
Net earnings	$	612.3	$	432.6
Adjustments to reconcile net earnings to net cash provided (used) by operating activities:
Depreciation	56.4		54.3
Amortization of other intangibles	18.7		17.2
Provision for losses on finance receivables	23.7		41.2
Provision for losses on non-finance receivables	12.5		16.3
Stock-based compensation expense	33.3		12.5
Deferred income tax provision (benefit)	3.4		(8.5)
Loss on sales of assets	1.5		0.7
Settlement of treasury lock	—		1.4
Changes in operating assets and liabilities, net of effects of acquisitions:
Trade and other accounts receivable	(23.4)		58.5
Contract receivables	(12.2)		(26.8)
Inventories	(54.6)		(3.6)
Prepaid and other assets	(10.0)		(0.3)
Accounts payable	48.3		10.3
Accruals and other liabilities	34.0		85.2
Net cash provided by operating activities	743.9		691.0
Investing activities:
Additions to finance receivables	(662.6)		(611.5)
Collections of finance receivables	648.4		542.7
Capital expenditures	(53.8)		(39.1)
Acquisitions of businesses, net of cash acquired	(199.7)		(6.1)
Disposals of property and equipment	1.6		1.4
Other	(0.5)		(1.6)
Net cash used by investing activities	(266.6)		(114.2)
Financing activities:
Proceeds from issuance of long-term debt	—		489.9
Repayment of long-term debt	(250.0)		—


Net increase (decrease) in other short-term borrowings	3.0		(187.7)
Cash dividends paid	(199.7)		(176.5)
Purchases of treasury stock	(355.8)		(95.6)
Proceeds from stock purchase and option plans	158.4		16.5
Other	(20.6)		(19.3)
Net cash provided (used) by financing activities	(664.7)		27.3

Effect of exchange rate changes on cash and cash equivalents	(0.5)		(1.1)
Increase (decrease) in cash and cash equivalents	(187.9)		603.0
Cash and cash equivalents at beginning of year	923.4		184.5
Cash and cash equivalents at end of period	$	735.5	$	787.5
Supplemental cash flow disclosures:
Cash paid for interest	$	(47.5)	$	(41.2)
Net cash paid for income taxes	(187.2)		(131.9)

See Notes to Condensed Consolidated Financial Statements.

SNAP-ON INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1: Summary of Accounting Policies

Principles of consolidation and presentation

The Condensed Consolidated Financial Statements include the accounts of Snap-on Incorporated and its wholly owned and majority-owned subsidiaries (collectively, “Snap-on” or the “company”). These financial statements should be read in conjunction with, and have been prepared in conformity with, the accounting principles reflected in the consolidated financial statements and related notes included in Snap-on’s 2020 Annual Report on Form 10-K for the fiscal year ended January 2, 2021 (“2020 year end”).

The company’s 2021 fiscal year, which ends on January 1, 2022, will contain 52 weeks of operating results. The company’s 2020 fiscal year contained 53 weeks of operating results, with the additional week occurring in the fourth quarter. Snap-on’s 2021 fiscal third quarter ended on October 2, 2021; the 2020 fiscal third quarter ended on September 26, 2020. The company’s 2021 and 2020 fiscal third quarters each contained 13 weeks of operating results. Snap-on’s Condensed Consolidated Financial Statements are prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”).

In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for the fair presentation of the Condensed Consolidated Financial Statements for the three and nine month periods ended October 2, 2021, and September 26, 2020, have been made. Interim results of operations are not necessarily indicative of the results to be expected for the full fiscal year.

Use of Estimates

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

Financial Instruments

The fair value of the company’s derivative financial instruments is generally determined using quoted prices in active markets for similar assets and liabilities. The carrying value of the company’s non-derivative financial instruments either approximates fair value, due to their short-term nature, or the amount disclosed for fair value is based upon a discounted cash flow analysis or quoted market values. See Note 10 for further information on financial instruments.

New Accounting Standards

On January 3, 2021, the beginning of Snap-on’s 2021 fiscal year, the company adopted ASU No. 2019-12, Simplifying the Accounting for Income Taxes, which is designed to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The adoption of this ASU did not have a significant impact on the company’s Condensed Consolidated Financial Statements.

Note 2: Revenue Recognition

Snap-on recognizes revenue from the sale of tools, diagnostic and equipment products and related services based on when control of the product passes to the customer or the service is provided and is recognized at an amount that reflects the consideration expected to be received in exchange for such goods or services.

SNAP-ON INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Revenue Disaggregation: The following table shows the consolidated revenues by revenue source:


	Three Months Ended				Nine Months Ended
(Amounts in millions)	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020

Revenue from contracts with customers	$	1,031.6	$	935.8	$	3,125.7	$	2,500.8
Other revenues	6.1		5.8		18.0		17.3
Total net sales	1,037.7		941.6		3,143.7		2,518.1
Financial services revenue	87.3		85.8		262.8		256.3
Total revenues	$	1,125.0	$	1,027.4	$	3,406.5	$	2,774.4

The following tables represent external net sales disaggregated by geography, based on the customers’ billing addresses:


	For the Three Months Ended October 2, 2021
	Commercial		Snap-on		Repair Systems
	& Industrial		Tools		& Information		Financial				Snap-on
(Amounts in millions)	Group		Group		Group		Services		Eliminations		Incorporated
Net sales:
North America*	$	128.3	$	407.4	$	217.5	$	—	$	—	$	753.2
Europe	76.9		40.3		58.7		—		—		175.9
All other	66.5		23.7		18.4		—		—		108.6
External net sales	271.7		471.4		294.6		—		—		1,037.7
Intersegment net sales	79.7		—		69.8		—		(149.5)		—
Total net sales	351.4		471.4		364.4		—		(149.5)		1,037.7
Financial services revenue	—		—		—		87.3		—		87.3
Total revenue	$	351.4	$	471.4	$	364.4	$	87.3	$	(149.5)	$	1,125.0


	For the Nine Months Ended October 2, 2021
	Commercial		Snap-on		Repair Systems
	& Industrial		Tools		& Information		Financial				Snap-on
(Amounts in millions)	Group		Group		Group		Services		Eliminations		Incorporated
Net sales:
North America*	$	372.9	$	1,231.8	$	655.2	$	—	$	—	$	2,259.9
Europe	240.4		128.3		185.8		—		—		554.5
All other	204.2		73.7		51.4		—		—		329.3
External net sales	817.5		1,433.8		892.4		—		—		3,143.7
Intersegment net sales	230.1		—		218.2		—		(448.3)		—
Total net sales	1,047.6		1,433.8		1,110.6		—		(448.3)		3,143.7
Financial services revenue	—		—		—		262.8		—		262.8
Total revenue	$	1,047.6	$	1,433.8	$	1,110.6	$	262.8	$	(448.3)	$	3,406.5


* North America is comprised of the United States, Canada and Mexico.

SNAP-ON INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)


	For the Three Months Ended September 26, 2020
	Commercial		Snap-on		Repair Systems
	& Industrial		Tools		& Information		Financial				Snap-on
(Amounts in millions)	Group		Group		Group		Services		Eliminations		Incorporated
Net sales:
North America*	$	103.9	$	389.2	$	186.0	$	—	$	—	$	679.1
Europe	66.8		38.6		54.9		—		—		160.3
All other	65.0		22.0		15.2		—		—		102.2
External net sales	235.7		449.8		256.1		—		—		941.6
Intersegment net sales	72.7		—		61.4		—		(134.1)		—
Total net sales	308.4		449.8		317.5		—		(134.1)		941.6
Financial services revenue	—		—		—		85.8		—		85.8
Total revenue	$	308.4	$	449.8	$	317.5	$	85.8	$	(134.1)	$	1,027.4


	For the Nine Months Ended September 26, 2020
	Commercial		Snap-on		Repair Systems
	& Industrial		Tools		& Information		Financial				Snap-on
(Amounts in millions)	Group		Group		Group		Services		Eliminations		Incorporated
Net sales:
North America*	$	309.7	$	1,007.6	$	511.8	$	—	$	—	$	1,829.1
Europe	188.8		87.2		148.4		—		—		424.4
All other	168.7		54.2		41.7		—		—		264.6
External net sales	667.2		1,149.0		701.9		—		—		2,518.1
Intersegment net sales	203.0		—		175.2		—		(378.2)		—
Total net sales	870.2		1,149.0		877.1		—		(378.2)		2,518.1
Financial services revenue	—		—		—		256.3		—		256.3
Total revenue	$	870.2	$	1,149.0	$	877.1	$	256.3	$	(378.2)	$	2,774.4

* North America is comprised of the United States, Canada and Mexico.

SNAP-ON INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The following tables represent external net sales disaggregated by customer type:


	For the Three Months Ended October 2, 2021
	Commercial		Snap-on		Repair Systems
	& Industrial		Tools		& Information		Financial				Snap-on
(Amounts in millions)	Group		Group		Group		Services		Eliminations		Incorporated
Net sales:
Vehicle service professionals	$	24.3	$	471.4	$	294.6	$	—	$	—	$	790.3
All other professionals	247.4		—		—		—		—		247.4
External net sales	271.7		471.4		294.6		—		—		1,037.7
Intersegment net sales	79.7		—		69.8		—		(149.5)		—
Total net sales	351.4		471.4		364.4		—		(149.5)		1,037.7
Financial services revenue	—		—		—		87.3		—		87.3
Total revenue	$	351.4	$	471.4	$	364.4	$	87.3	$	(149.5)	$	1,125.0


	For the Nine Months Ended October 2, 2021
	Commercial		Snap-on		Repair Systems
	& Industrial		Tools		& Information		Financial				Snap-on
(Amounts in millions)	Group		Group		Group		Services		Eliminations		Incorporated
Net sales:
Vehicle service professionals	$	74.1	$	1,433.8	$	892.4	$	—	$	—	$	2,400.3
All other professionals	743.4		—		—		—		—		743.4
External net sales	817.5		1,433.8		892.4		—		—		3,143.7
Intersegment net sales	230.1		—		218.2		—		(448.3)		—
Total net sales	1,047.6		1,433.8		1,110.6		—		(448.3)		3,143.7
Financial services revenue	—		—		—		262.8		—		262.8
Total revenue	$	1,047.6	$	1,433.8	$	1,110.6	$	262.8	$	(448.3)	$	3,406.5


	For the Three Months Ended September 26, 2020
	Commercial		Snap-on		Repair Systems
	& Industrial		Tools		& Information		Financial				Snap-on
(Amounts in millions)	Group		Group		Group		Services		Eliminations		Incorporated
Net sales:
Vehicle service professionals	$	22.3	$	449.8	$	256.1	$	—	$	—	$	728.2
All other professionals	213.4		—		—		—		—		213.4
External net sales	235.7		449.8		256.1		—		—		941.6
Intersegment net sales	72.7		—		61.4		—		(134.1)		—
Total net sales	308.4		449.8		317.5		—		(134.1)		941.6
Financial services revenue	—		—		—		85.8		—		85.8
Total revenue	$	308.4	$	449.8	$	317.5	$	85.8	$	(134.1)	$	1,027.4

SNAP-ON INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)


	For the Nine Months Ended September 26, 2020
	Commercial		Snap-on		Repair Systems
	& Industrial		Tools		& Information		Financial				Snap-on
(Amounts in millions)	Group		Group		Group		Services		Eliminations		Incorporated
Net sales:
Vehicle service professionals	$	61.7	$	1,149.0	$	701.9	$	—	$	—	$	1,912.6
All other professionals	605.5		—		—		—		—		605.5
External net sales	667.2		1,149.0		701.9		—		—		2,518.1
Intersegment net sales	203.0		—		175.2		—		(378.2)		—
Total net sales	870.2		1,149.0		877.1		—		(378.2)		2,518.1
Financial services revenue	—		—		—		256.3		—		256.3
Total revenue	$	870.2	$	1,149.0	$	877.1	$	256.3	$	(378.2)	$	2,774.4

Nature of Goods and Services: Snap-on derives net sales from a broad line of products and complementary services that are grouped into three categories: (i) tools; (ii) diagnostics, information and management systems; and (iii) equipment. The tools product category includes hand tools, power tools, tool storage products and other similar products. The diagnostics, information and management systems product category includes handheld and PC-based diagnostic products, service and repair information products, diagnostic software solutions, electronic parts catalogs, business management systems and services, point-of-sale systems, integrated systems for vehicle service shops, original equipment manufacturer (“OEM”) purchasing facilitation services, and warranty management systems and analytics to help OEM dealership service and repair shops (“OEM dealerships”) manage and track performance. The equipment product category includes solutions for the service of vehicles and industrial equipment. Snap-on supports the sale of its diagnostics and vehicle service shop equipment by offering training programs as well as after-sales support to its customers. Through its financial services businesses, Snap-on derives revenue from various financing programs designed to facilitate the sales of its products and support its franchise business.

Approximately 90% of Snap-on’s net sales are products sold at a point in time through ship-and-bill performance obligations that also include repair services. The remaining sales revenue is earned over time primarily on a subscription basis including software, extended warranty and other subscription service agreements.

Snap-on enters into contracts related to the selling of tools, diagnostic and repair information and equipment products and related services. At contract inception, an assessment of the goods and services promised in the contracts with customers is performed and a performance obligation is identified for each distinct promise to transfer to the customer a good or service (or bundle of goods or services). To identify the performance obligations, Snap-on considers all of the goods or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. Contracts with customers are comprised of customer purchase orders, invoices and written contracts.

For certain performance obligations related to software subscriptions, extended warranty and other subscription agreements that are settled over time, Snap-on has elected not to disclose the value of unsatisfied performance obligations for: (i) contracts that have an original expected length of one year or less; (ii) contracts where revenue is recognized as invoiced; and (iii) contracts with variable consideration related to unsatisfied performance obligations. The remaining duration of these unsatisfied performance obligations range from one month up to 60 months. Snap-on had approximately $198.0 million of long-term contracts that have fixed consideration that extends beyond one year as of October 2, 2021. Snap-on expects to recognize approximately 50% of these contracts as revenue by the end of fiscal 2022, an additional 40% by the end of fiscal 2024 and the balance thereafter.

SNAP-ON INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Contract Liabilities (Deferred Revenues): Contract liabilities are recorded when cash payments are received in advance of Snap-on’s performance. The timing of payment is typically on a monthly, quarterly or annual basis. The balance of total contract liabilities was $67.6 million and $61.0 million at October 2, 2021, and January 2, 2021, respectively. The current portion of contract liabilities is included in “Other accrued liabilities” and the non-current portion of such liabilities is included in “Other long-term liabilities” on the accompanying Condensed Consolidated Balance Sheets. During the three and nine months ended October 2, 2021, Snap-on recognized revenue of $7.1 million and $48.7 million, respectively, that was included in the $61.0 million contract liability balance at January 2, 2021, which was primarily from the amortization of software subscriptions, extended warranties and other subscription agreements.

Note 3: Acquisitions

On August 1, 2021, Snap-on acquired AutoCrib EMEA GmbH (“AutoCrib Germany”), a former independent distributor, for a cash purchase price of $4.4 million (or $4.2 million, net of cash acquired). AutoCrib Germany, based in Hamburg, Germany, distributes asset and tool control solutions for a variety of aerospace, automotive, military, natural resources and general industry operations. In the third quarter of 2021, the company recorded, on a preliminary basis, the $3.3 million excess of the purchase price over the fair value of the net assets acquired in “Goodwill” on the accompanying Condensed Consolidated Balance Sheets. The company anticipates completing the purchase accounting for the acquired net assets of AutoCrib Germany in the first half of 2022.

On July 1, 2021, Snap-on exchanged its 35% equity interest in Deville S.A., valued at $21.8 million, for 100% ownership of Secateurs Pradines (“Pradines”), a wholly owned subsidiary of Deville S.A. with a fair value of $20.7 million (or $16.2 million, net of cash acquired), and cash of $1.1 million, which reflects a $0.7 million working capital adjustment finalized in the third quarter of 2021. Pradines, located in Bauge-en-Anjou, France, designs and manufactures horticultural hand tools for professionals and individuals. In 2021, the company recorded, on a preliminary basis, the $10.7 million excess of the purchase price over the fair value of net assets acquired in “Goodwill” in the accompanying Condensed Consolidated Balance Sheets. The company anticipates completing the purchase accounting for the acquired net assets of Pradines in the first half of 2022.

On February 26, 2021, Snap-on acquired Dealer-FX Group, Inc. (“Dealer-FX”) for a cash purchase price of $200.1 million (or $200.0 million, net of cash acquired). Dealer-FX, based in Markham, Ontario, is a leading developer, marketer and provider of service operations software solutions for automotive OEM customers and their dealers. Dealer-FX specializes in software as a service (SaaS) management systems, communications platforms, extensive data integrations, and offers a digitalized solution that increases productivity and enhances the vehicle owners’ experience. In the first quarter of 2021, the company recorded, on a preliminary basis, the $195.2 million excess of the purchase price over the fair value of the net assets acquired in “Goodwill” on the accompanying Condensed Consolidated Balance Sheets. The company anticipates completing the purchase accounting for the acquired net assets of Dealer-FX in 2021.

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

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 company completed the purchase accounting valuations for the acquired net assets of Sigmavision, including intangible assets, in the second quarter of 2020. The $5.6 million excess of the purchase price over the fair value of the net assets acquired was recorded in “Goodwill” on the accompanying Condensed Consolidated Balance Sheets.

For segment reporting purposes, the results of operations and assets of Dealer-FX and Sigmavision have been included in the Repair Systems & Information Group since the respective acquisition dates, and the results of operations and assets of AutoCrib Germany, Pradines and AutoCrib have been included in the Commercial & Industrial Group since the respective acquisition dates.

Pro forma financial information has not been presented for these acquisitions as the net effects were neither significant nor material to Snap-on’s results of operations or financial position. See Note 6 for further information on goodwill and other intangible assets.

SNAP-ON INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Note 4: Receivables

Trade and Other Accounts Receivable: Snap-on’s trade and other accounts receivable primarily arise from the sale of tools and diagnostic and equipment products to a broad range of industrial and commercial customers and to Snap-on’s independent franchise van channel with payment terms generally ranging from 30 to 120 days.

The components of Snap-on’s trade and other accounts receivable as of October 2, 2021, and January 2, 2021, are as follows:


(Amounts in millions)	October 2, 2021		January 2, 2021
Trade and other accounts receivable	$	684.7	$	667.0
Allowances for credit losses	(31.5)		(26.3)
Total trade and other accounts receivable – net	$	653.2	$	640.7

The following is a rollforward of the allowances for credit losses related to trade and other accounts receivable for the three and nine months ended October 2, 2021, and September 26, 2020:


	Three months ended				Nine Months Ended
(Amounts in millions)	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Allowances for credit losses:
Beginning of period	$	29.5	$	23.6	$	26.3	$	20.9
Provision for credit losses	4.4		4.1		11.7		13.2
Charge-offs	(1.7)		(4.5)		(5.9)		(10.0)
Recoveries	—		—		—		—
Currency translation	(0.7)		0.3		(0.6)		(0.6)
End of period	$	31.5	$	23.5	$	31.5	$	23.5

Finance and Contract Receivables: Snap-on Credit LLC (“SOC”), the company’s financial services operation in the United States, originates extended-term finance and contract receivables on sales of Snap-on’s products sold through the U.S. franchisee network and to certain other customers of Snap-on; Snap-on’s foreign finance subsidiaries provide similar financing internationally. Interest income on finance and contract receivables is included in “Financial services revenue” on the accompanying Condensed Consolidated Statements of Earnings.

Snap-on’s finance receivables are comprised of extended-term installment payment contracts to both technicians and independent shop owners (i.e., franchisees’ customers) to enable them to purchase tools and diagnostic and equipment products on an extended-term payment plan, generally with payment terms of approximately four years.

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

SNAP-ON INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The components of Snap-on’s current finance and contract receivables as of October 2, 2021, and January 2, 2021, are as follows:


(Amounts in millions)	October 2, 2021		January 2, 2021
Finance installment receivables	$	558.8	$	533.9
Finance lease receivables, net of unearned finance charges of $1.7 million and $4.4 million, respectively	8.6		20.2
Total finance receivables	567.4		554.1

Contract installment receivables	64.5		59.1
Contract lease receivables, net of unearned finance charges of $18.5 million and $18.2 million, respectively	55.6		55.7
Total contract receivables	120.1		114.8
Total	687.5		668.9

Allowances for credit losses:
Finance installment receivables	(22.5)		(23.6)
Finance lease receivables	(0.1)		(0.3)
Total finance allowance for credit losses	(22.6)		(23.9)

Contract installment receivables	(1.0)		(1.4)
Contract lease receivables	(1.3)		(0.9)
Total contract allowance for credit losses	(2.3)		(2.3)
Total allowance for credit losses	(24.9)		(26.2)
Total current finance and contract receivables – net	$	662.6	$	642.7

Finance receivables – net	$	544.8	$	530.2
Contract receivables – net	117.8		112.5
Total current finance and contract receivables – net	$	662.6	$	642.7

SNAP-ON INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The components of Snap-on’s finance and contract receivables with payment terms beyond one year as of October 2, 2021, and January 2, 2021, are as follows:


(Amounts in millions)	October 2, 2021		January 2, 2021
Finance installment receivables	$	1,151.6	$	1,173.1
Finance lease receivables, net of unearned finance charges of $0.8 million and $2.5 million, respectively	5.8		15.6
Total finance receivables	1,157.4		1,188.7

Contract installment receivables	199.5		199.7
Contract lease receivables, net of unearned finance charges of $30.5 million and $30.2 million, respectively	187.0		181.7
Total contract receivables	386.5		381.4
Total	1,543.9		1,570.1

Allowances for credit losses:
Finance installment receivables	(46.9)		(52.1)
Finance lease receivables	(0.1)		(0.3)
Total finance allowance for credit losses	(47.0)		(52.4)

Contract installment receivables	(3.0)		(3.1)
Contract lease receivables	(3.4)		(3.6)
Total contract allowance for credit losses	(6.4)		(6.7)
Total allowance for credit losses	(53.4)		(59.1)
Total long-term finance and contract receivables – net	$	1,490.5	$	1,511.0

Finance receivables – net	$	1,110.4	$	1,136.3
Contract receivables – net	380.1		374.7
Total long-term finance and contract receivables – net	$	1,490.5	$	1,511.0

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

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

SNAP-ON INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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

The amortized cost basis of finance and contract receivables by origination year as of October 2, 2021, are as follows:


(Amounts in millions)	2021		2020		2019		2018		2017		Prior		Total
Finance Receivables:
Delinquent	$	7.0	$	16.9	$	9.2	$	5.1	$	2.3	$	0.9	$	41.4
Non-delinquent	900.2		505.3		181.5		70.5		21.8		4.1		1,683.4
Total Finance receivables	$	907.2	$	522.2	$	190.7	$	75.6	$	24.1	$	5.0	$	1,724.8

Contract receivables:
Delinquent	$	0.1	$	0.3	$	0.7	$	0.6	$	0.3	$	0.1	$	2.1
Non-delinquent	145.0		133.9		96.8		63.9		35.6		29.3		504.5
Total Contract receivables	$	145.1	$	134.2	$	97.5	$	64.5	$	35.9	$	29.4	$	506.6

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

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

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

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

SNAP-ON INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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

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

The following is a rollforward of the allowances for credit losses for finance and contract receivables for the three and nine months ended October 2, 2021, and September 26, 2020:


	Three Months Ended October 2, 2021				Nine Months Ended October 2, 2021
(Amounts in millions)	Finance Receivables		Contract Receivables		Finance Receivables		Contract Receivables
Allowances for credit losses:
Beginning of period	$	72.3	$	9.0	$	76.3	$	9.0

Provision for credit losses	5.8		—		23.7		0.8
Charge-offs	(10.8)		(0.4)		(38.1)		(1.4)
Recoveries	2.3		0.1		7.7		0.3
Currency translation	—		—		—		—
End of period	$	69.6	$	8.7	$	69.6	$	8.7


	Three Months Ended September 26, 2020				Nine Months Ended September 26, 2020
(Amounts in millions)	Finance Receivables		Contract Receivables		Finance Receivables		Contract Receivables
Allowances for credit losses:
Beginning of period	$	72.5	$	9.1	$	61.9	$	5.6
Impact of adopting ASU No. 2016-13	—		—		5.2		2.9
Provision for credit losses	9.8		0.5		41.2		3.1
Charge-offs	(9.5)		(0.7)		(39.6)		(2.9)
Recoveries	2.1		0.1		6.3		0.3
Currency translation	0.1		—		—		—
End of period	$	75.0	$	9.0	$	75.0	$	9.0

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

It is the general practice of Snap-on’s financial services business not to engage in contract or loan modifications. In limited instances, Snap-on’s financial services business may modify certain receivables in troubled debt restructurings. The amount and number of restructured finance and contract receivables as of October 2, 2021, and January 2, 2021, were immaterial to both the financial services portfolio and the company’s results of operations and financial position.

SNAP-ON INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The aging of finance and contract receivables as of October 2, 2021, and January 2, 2021, is as follows:


(Amounts in millions)	30-59 Days Past Due		60-90 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Total Not Past Due		Total		Greater Than 90 Days Past Due and Accruing
October 2, 2021:
Finance receivables	$	15.0	$	9.9	$	16.5	$	41.4	$	1,683.4	$	1,724.8	$	14.0
Contract receivables	0.6		0.6		0.9		2.1		504.5		506.6		0.1

January 2, 2021:
Finance receivables	$	18.4	$	12.2	$	21.1	$	51.7	$	1,691.1	$	1,742.8	$	18.2
Contract receivables	1.3		0.6		1.5		3.4		492.8		496.2		0.2

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

Finance receivables are generally placed on nonaccrual status (nonaccrual of interest and other fees): (i) when a customer is placed on repossession status; (ii) upon receipt of notification of bankruptcy; (iii) upon notification of the death of a customer; or (iv) in other instances in which management concludes collectability is not reasonably assured.

Contract receivables are generally placed on nonaccrual status: (i) when a receivable is more than 90 days past due or at the point a customer’s account is placed on terminated status regardless of its delinquency status; (ii) upon notification of the death of a customer; or (iii) in other instances in which management concludes collectability is not reasonably assured.

The accrual of interest and other fees is resumed when the finance or contract receivable becomes contractually current and collection of all remaining contractual amounts due is reasonably assured. A receivable generally has credit losses when it is expected that all amounts related to the receivable will not be collected according to the contractual terms of the applicable agreement. Such finance and contract receivables are covered by the company’s respective allowances for credit losses and are written-off against the allowances when appropriate.

The amount of finance and contract receivables on nonaccrual status as of October 2, 2021, and January 2, 2021, is as follows:


(Amounts in millions)	October 2, 2021		January 2, 2021
Finance receivables	$	8.4	$	9.6
Contract receivables	1.9		2.4

Note 5: Inventories

Inventories by major classification are as follows:


(Amounts in millions)	October 2, 2021		January 2, 2021
Finished goods	$	674.2	$	643.4
Work in progress	63.7		61.6
Raw materials	137.6		125.5
Total FIFO value	875.5		830.5
Excess of current cost over LIFO cost	(85.9)		(84.0)
Total inventories – net	$	789.6	$	746.5

SNAP-ON INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Inventories accounted for using the first-in, first-out (“FIFO”) method approximated 59% and 57% of total inventories as of October 2, 2021 and January 2, 2021, respectively. The company accounts for its non-U.S. inventory on the FIFO method. As of October 2, 2021, approximately 32% of the company’s U.S. inventory was accounted for using the FIFO method and 68% was accounted for using the last-in, first-out (“LIFO”) method. There were no LIFO inventory liquidations in the three and nine months ended October 2, 2021, or September 26, 2020.

Note 6: Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill by segment for the nine months ended October 2, 2021, are as follows:


(Amounts in millions)	Commercial & Industrial Group		Snap-on Tools Group		Repair Systems & Information Group		Total
Balance as of January 2, 2021	$	331.2	$	12.4	$	638.8	$	982.4
Currency translation	(12.6)		—		(8.0)		(20.6)
Acquisitions and related adjustments	14.0		—		195.2		209.2

Balance as of October 2, 2021	$	332.6	$	12.4	$	826.0	$	1,171.0

Goodwill of $1,171.0 million as of October 2, 2021, included $195.2 million, on a preliminary basis, from the acquisition of Dealer-FX, $10.7 million, on a preliminary basis, from the acquisition of Pradines and $3.3 million, on a preliminary basis, from the acquisition of AutoCrib Germany. The goodwill from Dealer-FX is included in the Repair Systems & Information Group and the goodwill from Pradines and AutoCrib Germany is included in the Commercial & Industrial Group. See Note 3 for additional information on acquisitions.

Additional disclosures related to other intangible assets are as follows:


	October 2, 2021				January 2, 2021
(Amounts in millions)	Gross Carrying Value		Accumulated Amortization		Gross Carrying Value		Accumulated Amortization
Amortized other intangible assets:
Customer relationships	$	190.0	$	(137.8)	$	191.5	$	(130.1)
Developed technology	21.8		(20.6)		21.8		(19.9)
Internally developed software	180.7		(136.2)		172.2		(128.0)
Patents	44.4		(25.0)		43.2		(25.3)
Trademarks	4.0		(2.4)		3.9		(2.4)
Other	8.2		(4.0)		8.2		(3.9)
Total	449.1		(326.0)		440.8		(309.6)
Non-amortized trademarks	126.5		—		129.6		—
Total other intangible assets	$	575.6	$	(326.0)	$	570.4	$	(309.6)

Snap-on completed its annual impairment testing of goodwill and other indefinite-lived intangible assets in the second quarter of 2021, and the testing did not result in any impairment. Provision for impairment of goodwill and/or other intangible assets in a future period could arise due to significant and unanticipated changes in circumstances, such as declines in profitability and cash flow due to significant and long-term deterioration in macroeconomic, industry and market conditions, the loss of key customers, changes in technology or markets, significant changes in key personnel or litigation, a significant and sustained decrease in share price and/or other events, including effects from the sale or disposal of a reporting unit. As of October 2, 2021, the company had no accumulated impairment losses.

SNAP-ON INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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


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

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

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

The aggregate amortization expense was $6.4 million and $18.7 million for the respective three and nine month periods ended October 2, 2021, and $5.8 million and $17.2 million for the respective three and nine month periods ended September 26, 2020. Based on current levels of amortizable intangible assets and estimated weighted-average useful lives, estimated annual amortization expense is expected to be $24.8 million in 2021, $22.7 million in 2022, $19.1 million in 2023, $13.5 million in 2024, $8.8 million in 2025, and $8.1 million in 2026.

Note 7: Exit and Disposal Activities

Snap-on did not record any exit and disposal activities for both the three and nine month periods ended October 2, 2021, or in the three month period ended September 26, 2020. In the nine months ended September 26, 2020, Snap-on recorded costs of $11.5 million for exit and disposal activities. The costs associated with exit and disposal activities by operating segment are as follows:


	Nine Months Ended
(Amounts in millions)		October 2, 2021		September 26, 2020
Exit and disposal costs
Cost of goods sold:
Commercial & Industrial Group		$	—	$	6.4
Repair System & Information Group		—		0.7
Total cost of goods sold		$	—	$	7.1

Operating Expenses:
Snap-on Tools Group		$	—	$	0.6
Repair System & Information Group		—		3.8
Total operating expenses		$	—	$	4.4

Total exit and disposal costs:
Commercial & Industrial Group		$	—	$	6.4
Snap-on Tools Group		—		0.6
Repair System & Information Group		—		4.5
Total exit and disposal costs		$	—	$	11.5

SNAP-ON INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Costs associated with exit and disposal activities in the first nine months of 2020 primarily related to headcount reductions from the ongoing optimization of the company’s cost structure in Europe and various other management and realignment actions.

Snap-on’s exit and disposal accrual activity for the first nine months of 2021 is as follows:


	Balance at		First Six Months				Balance at		Third Quarter				Balance at
(Amounts in millions)	January 2, 2021		Provision		Usage		July 3, 2021		Provision		Usage		October 2, 2021
Severance costs:
Commercial & Industrial Group	$	5.8	$	—	$	(0.8)	$	5.0	$	—	$	(0.3)	$	4.7
Snap-on Tools Group	0.4		—		—		0.4		—		(0.1)		0.3
Repair System & Information Group	3.8		—		(0.7)		3.1		—		(0.5)		2.6
Total	$	10.0	$	—	$	(1.5)	$	8.5	$	—	$	(0.9)	$	7.6

As of October 2, 2021, the company expects that of the $7.6 million exit and disposal accrual, approximately $2.0 million will be utilized in the balance of 2021, and the remainder thereafter, primarily for longer-term severance payments.

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

Note 8: Income Taxes

Snap-on’s effective income tax rate on earnings attributable to Snap-on was 23.5% and 23.8% in the respective first nine month periods of 2021 and 2020.

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

SNAP-ON INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Note 9: Short-term and Long-term Debt

Short-term and long-term debt as of October 2, 2021, and January 2, 2021, consisted of the following:


(Amounts in millions)	October 2, 2021		January 2, 2021
6.125% unsecured notes due 2021	$	—	$	250.0
3.25% unsecured notes due 2027	300.0		300.0
4.10% unsecured notes due 2048	400.0		400.0
3.10% unsecured notes due 2050	500.0		500.0
Other*	0.1		0.6
	1,200.1		1,450.6
Less: notes payable and current maturities of long-term debt
Current maturities of long-term debt	—		(250.0)

Other notes*	(17.4)		(18.5)
	(17.4)		(268.5)
Total long-term debt	$	1,182.7	$	1,182.1



*			Includes the net effects of debt amortization costs and fair value adjustments of interest rate swaps.

As of October 2, 2021, notes payable and current maturities of long-term debt consisted of $17.4 million of other notes. As of 2020 year end, notes payable and current maturities of long-term debt of $268.5 million included $250.0 million of unsecured 6.125% notes that were repaid in September 2021 upon maturity, $14.9 million of other notes and $3.6 million from the net effects of debt amortization costs and fair value adjustments of interest rate swaps.

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 October 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 October 2, 2021, the company’s actual ratios of 0.10 and 0.41, 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 October 2, 2021, there were no commercial paper issuances outstanding.

Note 10: Financial Instruments

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

SNAP-ON INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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

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

Foreign Currency Risk Management: Snap-on has significant international operations and is subject to certain risks inherent with foreign operations that include currency fluctuations. Foreign currency exchange risk exists to the extent that Snap-on has payment obligations or receipts denominated in currencies other than the functional currency, including intercompany loans denominated in foreign currencies. To manage these exposures, Snap-on identifies naturally offsetting positions and then purchases hedging instruments to protect the residual net exposures. Snap-on manages most of these exposures on a consolidated basis, which allows for netting of certain exposures to take advantage of natural offsets. Foreign currency forward contracts (“foreign currency forwards”) are used to hedge the net exposures. Gains or losses on net foreign currency hedges are intended to offset losses or gains on the underlying net exposures in an effort to reduce the earnings volatility resulting from fluctuating foreign currency exchange rates. Snap-on’s foreign currency forwards are typically not designated as hedges. The fair value changes of these contracts are reported in earnings as foreign exchange gain or loss, which is included in “Other income (expense) - net” on the accompanying Condensed Consolidated Statements of Earnings. See Note 17 for additional information on Other income (expense) - net.

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

Interest Rate Swaps: Snap-on enters into interest rate swaps to manage risks associated with changing interest rates related to the company’s fixed rate borrowings. Interest rate swaps are accounted for as fair value hedges. The differentials paid or received on interest rate swaps are recognized as adjustments to “Interest expense” on the accompanying Condensed Consolidated Statements of Earnings. The change in the fair value of the derivative is recorded in “Notes payable and current maturities of long-term debt” on the accompanying Condensed Consolidated Balance Sheets. As of January 2, 2021, the notional amount of interest rate swaps outstanding and designated as fair value hedges was $100.0 million. The interest rate swaps matured in the third quarter and there were no outstanding interest rate swaps as of October 2, 2021.

Treasury locks: Snap-on uses treasury locks to manage the potential change in interest rates in anticipation of the issuance of fixed rate debt. Treasury locks are accounted for as cash flow hedges. The differentials to be paid or received on treasury locks related to the anticipated issuance of fixed rate debt are initially recorded in Accumulated OCI for derivative instruments that are designated and qualify as cash flow hedges. Upon the issuance of debt, the related amount in Accumulated OCI is released over the term of the debt and recognized as an adjustment to interest expense on the Condensed Consolidated Statements of Earnings. There were no treasury locks outstanding as of both October 2, 2021, and January 2, 2021.

Stock-based Deferred Compensation Risk Management: Snap-on aims to manage market risk associated with the stock-based portion of its deferred compensation plans through the use of prepaid equity forward agreements (“equity forwards”). Equity forwards are used to aid in offsetting the potential mark-to-market effect on stock-based deferred compensation from changes in Snap-on’s stock price. Since stock-based deferred compensation liabilities increase as the company’s stock price rises and decrease as the company’s stock price declines, the equity forwards are intended to mitigate the potential impact on deferred compensation expense that may result from such mark-to-market changes. As of October 2, 2021, Snap-on had equity forwards in place intended to manage market risk with respect to 81,000 shares of Snap-on common stock associated with its deferred compensation plans.

SNAP-ON INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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.

Fair Value of Financial Instruments: The fair values of financial instruments that do not approximate the carrying values in the financial statements are as follows:


	October 2, 2021				January 2, 2021
(Amounts in millions)	Carrying Value		Fair Value		Carrying Value		Fair Value
Finance receivables – net	$	1,655.2	$	2,002.0	$	1,666.5	$	2,024.4
Contract receivables – net	497.9		555.9		487.2		545.4
Long-term debt and notes payable and current maturities of long-term debt	1,200.1		1,350.7		1,450.6		1,678.2

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

Finance and contract receivables include both short-term and long-term receivables. The fair value estimates of finance and contract receivables are derived utilizing discounted cash flow analyses performed on groupings of receivables that are similar in terms of loan type and characteristics. The cash flow analyses consider recent prepayment trends where applicable. The cash flows are discounted over the average life of the receivables using a current market discount rate of a similar term adjusted for credit quality. Significant inputs to the fair value measurements of the receivables are unobservable and, as such, are classified as Level 3.
Fair value of long-term debt and current maturities of long-term debt were estimated, using Level 2 fair value measurements, based on quoted market values of Snap-on’s publicly traded senior debt. The carrying value of long-term debt and current maturities of long-term debt includes adjustments related to fair value hedges. The fair value of notes payable approximates such instruments’ carrying value due to their short-term nature.
The fair value of all other financial instruments, including trade and other accounts receivable, accounts payable and other financial instruments, approximates such instruments’ carrying value due to their short-term nature.

Note 11: Pension Plans

Snap-on’s net periodic pension cost included the following components:


	Three Months Ended				Nine Months Ended
(Amounts in millions)	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Service cost	$	7.3	$	6.7	$	21.7	$	20.2
Interest cost	10.6		12.2		31.7		36.6
Expected return on plan assets	(23.6)		(23.7)		(70.7)		(71.1)
Amortization of unrecognized loss	9.0		8.7		27.2		25.9

Net periodic pension cost	$	3.3	$	3.9	$	9.9	$	11.6

The components of net periodic pension cost, other than the service cost component, are included in “Other income (expense) - net” on the accompanying Condensed Consolidated Statements of Earnings. See Note 17 for additional information on other income (expense) - net.

Snap-on intends to make contributions of $9.2 million to its foreign pension plans and $2.2 million to its domestic pension plans in 2021, as required by law. Depending on market and other conditions, Snap-on may make discretionary cash contributions to its pension plans in 2021.

SNAP-ON INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Note 12: Postretirement Health Care Plans

Snap-on’s net periodic postretirement health care cost included the following components:


	Three Months Ended				Nine Months Ended
(Amounts in millions)	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Interest cost	$	0.3	$	0.4	$	0.9	$	1.1
Expected return on plan assets	(0.1)		(0.2)		(0.5)		(0.5)

Net periodic postretirement health care cost	$	0.2	$	0.2	$	0.4	$	0.6

The components of net periodic postretirement health care cost are included in “Other income (expense) - net” on the accompanying Condensed Consolidated Statements of Earnings. See Note 17 for additional information on other income (expense) - net.

Note 13: Stock-based Compensation and Other Stock Plans

The 2011 Incentive Stock and Awards Plan (the “2011 Plan”) provides for the grant of stock options, performance awards, stock appreciation rights (“SARs”) and restricted stock awards (which may be designated as “restricted stock units” or “RSUs”). No further grants are being made under its predecessor, the 2001 Incentive Stock and Awards Plan (the “2001 Plan”), although outstanding awards under the 2001 Plan continue in accordance with their terms. As of October 2, 2021, the 2011 Plan had 3,640,311 shares available for future grants. The company uses treasury stock to deliver shares under both the 2001 and 2011 Plans.

Net stock-based compensation expense was $9.5 million and $33.3 million for the respective three and nine month periods ended October 2, 2021, and $5.6 million and $12.5 million for the respective three and nine month periods ended September 26, 2020. Cash received from stock purchase and option plan exercises during the respective three and nine month periods ended October 2, 2021, totaled $3.6 million and $158.4 million. Cash received from stock purchase and option plan exercises during the respective three and nine month periods ended September 26, 2020 totaled $2.7 million and $16.5 million. The tax benefit realized from both the exercise and vesting of share-based payment arrangements was $2.2 million and $16.1 million for the respective three and nine month periods ended October 2, 2021, and $1.0 million and $3.3 million for the respective three and nine month periods ended September 26, 2020.

Stock Options: Stock options are granted with an exercise price equal to the market value of a share of Snap-on’s common stock on the date of grant and have a contractual term of 10 years. Stock option grants vest ratably on the first, second and third anniversaries of the date of grant.

The fair value of each stock option award is estimated on the date of grant using the Black-Scholes valuation model. The company uses historical data regarding stock option exercise and forfeiture behaviors for different participating groups to estimate the period of time that options granted are expected to be outstanding. Expected volatility is based on the historical volatility of the company’s stock for the length of time corresponding to the expected term of the option. The expected dividend yield is based on the expected annual dividend as a percentage of the market value of our common stock as of the date of grant. The risk-free interest rate is based on the U.S. treasury yield curve on the grant date for the expected term of the option.

The following weighted-average assumptions were used in calculating the fair value of stock options granted during the nine months ended October 2, 2021, and September 26, 2020, using the Black-Scholes valuation model:


	Nine Months Ended
	October 2, 2021	September 26, 2020
Expected term of option (in years)	5.33	5.53
Expected volatility factor	21.80%	21.67%
Expected dividend yield	2.59%	2.78%
Risk-free interest rate	0.67%	1.50%

SNAP-ON INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

A summary of stock option activity as of and for the nine months ended October 2, 2021, is presented below:


	Shares (in thousands)	Exercise Price Per Share*		Remaining Contractual Term* (in years)	Aggregate Intrinsic Value (in millions)
Outstanding at January 2, 2021	3,120	$	142.47
Granted	333	189.91
Exercised	(932)	140.13
Forfeited or expired	(27)	169.32
Outstanding at October 2, 2021	2,494	149.39		5.9	$	149.7
Exercisable at October 2, 2021	1,735	140.32		4.6	119.9



*			Weighted-average

The weighted-average grant date fair value of options granted during the nine months ended October 2, 2021, and September 26, 2020, was $26.19 and $22.95, respectively. The intrinsic value of options exercised was $8.6 million and $67.5 million during the respective three and nine month periods ended October 2, 2021, and $4.0 million and $8.7 million for the respective three and nine month periods ended September 26, 2020. The fair value of stock options vested was $12.5 million and $14.6 million during the respective nine month periods ended October 2, 2021, and September 26, 2020.

As of October 2, 2021, there was $12.8 million of unrecognized compensation cost related to non-vested stock options that is expected to be recognized as a charge to earnings over a weighted-average period of 1.6 years.

Performance Share Unit and Restricted Stock Unit Awards: Performance share units (“PSUs”) are earned and expensed using the fair value of the award over a contractual term of three years based on the company’s performance. Vesting of the PSUs is dependent upon performance relative to pre-defined goals for revenue growth and return on net assets for the applicable performance period. For performance achieved above specified levels, the recipient may earn additional shares of stock, not to exceed 100% of the number of performance awards initially granted. The PSUs have a three-year performance period based on the results of the consolidated financial metrics of the company.

Time-based RSUs are earned and expensed using the fair value of the award over the contractual term of three years. Vesting of the time-based RSUs is dependent upon continued employment over the 3-year cliff vesting period.

The fair value of PSUs and RSUs is calculated using the market value of a share of Snap-on’s common stock on the date of grant and assumed forfeitures based on recent historical experience; in recent years, forfeitures have not been significant. The weighted-average grant date fair value of awards granted during the nine months ended October 2, 2021, and September 26, 2020, was $184.69 and $155.34, respectively. There were no PSUs paid out during the nine months ended October 2, 2021. PSUs related to 21,184 shares were paid out during the nine months ended September 26, 2020. Earned PSUs vest and are generally paid out following the conclusion of the applicable performance period upon approval by the Organization and Executive Compensation Committee of the company’s Board of Directors (the “Board”).

Changes to the company’s non-vested PSUs and RSUs during the nine months ended October 2, 2021, are as follows:


	Shares (in thousands)	Fair Value Price per Share*
Non-vested performance awards at January 2, 2021	76	$	155.61
Granted	175	184.69
Vested	—	—
Cancellations and other	(3)	181.51
Non-vested performance awards at October 2, 2021	248	175.79



*			Weighted-average

SNAP-ON INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

As of October 2, 2021, there was $25.2 million of unrecognized compensation cost related to non-vested PSUs and RSUs that are expected to be recognized as a charge to earnings over a weighted-average period of 1.7 years.

Stock Appreciation Rights (“SARs”): The company also issues stock-settled and cash-settled SARs to certain key non-U.S. employees. SARs have a contractual term of ten years and vest ratably on the first, second and third anniversaries of the date of grant. SARs are granted with an exercise price equal to the market value of a share of Snap-on’s common stock on the date of grant.

Stock-settled SARs are accounted for as equity instruments and provide for the issuance of Snap-on common stock equal to the amount by which the company’s stock has appreciated over the exercise price. Stock-settled SARs have an effect on dilutive shares and shares outstanding as any appreciation of Snap-on’s common stock value over the exercise price will be settled in shares of common stock. Cash-settled SARs provide for the cash payment of the excess of the fair market value of Snap-on’s common stock price on the date of exercise over the grant price. Cash-settled SARs have no effect on dilutive shares or shares outstanding as any appreciation of Snap-on’s common stock over the grant price is paid in cash and not in common stock.

The fair value of stock-settled SARs is estimated on the date of grant using the Black-Scholes valuation model. The fair value of cash-settled SARs is revalued (mark-to-market) each reporting period using the Black-Scholes valuation model based on Snap-on’s period-end stock price. The company uses historical data regarding SARs exercise and forfeiture behaviors for different participating groups to estimate the expected term of the SARs granted based on the period of time that similar instruments granted are expected to be outstanding. Expected volatility is based on the historical volatility of the company’s stock for the length of time corresponding to the expected term of the SARs. The expected dividend yield is based on the expected annual dividend as a percentage of the market value of our common stock as of the date of grant (for stock-settled SARs) or reporting date (for cash-settled SARs). The risk-free interest rate is based on the U.S. treasury yield curve in effect as of the grant date (for stock-settled SARs) or reporting date (for cash-settled SARs) for the length of time corresponding to the expected term of the SARs.

The following weighted-average assumptions were used in calculating the fair value of stock-settled SARs granted during the nine months ended October 2, 2021, and September 26, 2020, using the Black-Scholes valuation model:


	Nine Months Ended
	October 2, 2021	September 26, 2020
Expected term of stock-settled SARs (in years)	3.94	3.75
Expected volatility factor	22.50%	22.50%
Expected dividend yield	2.59%	2.78%
Risk-free interest rate	0.19%	1.42%

Changes to the company’s stock-settled SARs during the nine months ended October 2, 2021, are as follows:


	Stock-settled SARs (in thousands)	Exercise Price Per Share*		Remaining Contractual Term* (in years)	Aggregate Intrinsic Value (in millions)
Outstanding at January 2, 2021	502	$	151.59
Granted	83	189.89
Exercised	(48)	144.68
Forfeited or expired	(139)	152.63
Outstanding at October 2, 2021	398	159.99		6.9	$	19.7
Exercisable at October 2, 2021	228	151.04		5.6	13.3



*			Weighted-average

The weighted-average grant date fair value of stock-settled SARs granted during the nine months ended October 2, 2021, and September 26, 2020, was $24.05 and $21.31, respectively. The intrinsic value of stock-settled SARs exercised was $0.1 million and $3.1 million during the respective three and nine month periods ended October 2, 2021, and zero for both the three and nine months ended September 26, 2020. The fair value of stock-settled SARs vested was $2.1 million and $2.3 million during the respective nine month periods ended October 2, 2021, and September 26, 2020.

SNAP-ON INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

As of October 2, 2021, there was $2.7 million of unrecognized compensation cost related to non-vested stock-settled SARs that is expected to be recognized as a charge to earnings over a weighted-average period of 1.7 years.

The following weighted-average assumptions were used in calculating the fair value of cash-settled SARs granted during the nine months ended October 2, 2021, and September 26, 2020, using the Black-Scholes valuation model:


	Nine Months Ended
	October 2, 2021	September 26, 2020
Expected term of cash-settled SARs (in years)	3.34	3.19
Expected volatility factor	22.49%	33.08%
Expected dividend yield	2.35%	3.04%
Risk-free interest rate	0.49%	0.15%

The intrinsic value of cash-settled SARs exercised was zero and $0.6 million during the respective three and nine month periods ended October 2, 2021, and zero and $0.2 million for the respective three and nine month periods ended September 26, 2020. The fair value of cash-settled SARs vested was $0.1 million and zero during the respective nine month periods ended October 2, 2021, and September 26, 2020.

Changes to the company’s non-vested cash-settled SARs during the nine months ended October 2, 2021, are as follows:


	Cash-settled SARs (in thousands)	Fair Value Price per Share*
Non-vested cash-settled SARs at January 2, 2021	2	$	36.99
Granted	1	34.54
Vested	(1)	49.85
Non-vested cash-settled SARs at October 2, 2021	2	43.11



*			Weighted-average

As of October 2, 2021, there was $0.1 million of unrecognized compensation cost related to non-vested cash-settled SARs that is expected to be recognized as a charge to earnings over a weighted-average period of 1.7 years.

Restricted Stock Awards – Non-employee Directors: The company awarded 6,858 shares and 7,380 shares of restricted stock to non-employee directors for the respective nine month periods ended October 2, 2021, and September 26, 2020. The fair value of the restricted stock awards is expensed over a one-year vesting period based on the fair value on the date of grant. All restrictions generally lapse upon the earlier of the first anniversary of the grant date, the recipient’s death or disability or in the event of a change in control, as defined in the 2011 Plan. If termination of the recipient’s service occurs prior to the first anniversary of the grant date for any reason other than death or disability, the shares of restricted stock would be forfeited, unless otherwise determined by the Board.

Employee stock purchase plan: Substantially all Snap-on employees in the United States and Canada are eligible to participate in an employee stock purchase plan. The purchase price of the company’s common stock to participants is the lesser of the mean of the high and low price of the stock on the beginning date (May 15) or ending date (the following May 14) of each plan year. For the nine months ended October 2, 2021, and September 26, 2020, issuances under this plan totaled 82,286 shares and 25,425 shares, respectively. As of October 2, 2021, shares reserved for issuance under this plan totaled 597,275 shares and Snap-on held participant contributions of approximately $1.8 million. Participants are able to withdraw from the plan at any time prior to the ending date and receive back all contributions made during the plan year. Compensation expense for plan participants was zero and $9.6 million for the respective three and nine month periods ended October 2, 2021, and $0.2 million and $0.1 million for the respective three and nine month periods ended September 26, 2020.

SNAP-ON INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Franchisee stock purchase plan: All franchisees in the United States and Canada are eligible to participate in a franchisee stock purchase plan. The purchase price of the company’s common stock to participants is the lesser of the mean of the high and low price of the stock on the beginning date (May 15) or ending date (the following May 14) of each plan year. For the nine months ended October 2, 2021, and September 26, 2020, issuances under this plan totaled 143,388 shares and 55,980 shares, respectively. As of October 2, 2021, shares reserved for issuance under this plan totaled 270,162 shares and Snap-on held participant contributions of approximately $4.2 million. Participants are able to withdraw from the plan at any time prior to the ending date and receive back all contributions made during the plan year. The company recognized mark-to-market expense of zero and $16.7 million for the respective three and nine month periods ended October 2, 2021, and $0.5 million and $0.3 million for the respective three and nine month periods ended September 26, 2020.

Note 14: Earnings Per Share

The shares used in the computation of the company’s basic and diluted earnings per common share are as follows:


	Three Months Ended		Nine Months Ended
	October 2, 2021	September 26, 2020	October 2, 2021	September 26, 2020
Weighted-average common shares outstanding	53,815,091	54,325,711	54,016,988	54,421,129
Effect of dilutive securities	1,061,678	441,636	1,083,808	448,292
Weighted-average common shares outstanding, assuming dilution	54,876,769	54,767,347	55,100,796	54,869,421

The dilutive effect of the potential exercise of outstanding options and stock-settled SARs to purchase common shares is calculated using the treasury stock method. As of October 2, 2021, there were no awards outstanding that were anti-dilutive; as of September 26, 2020, there were 2,750,149 awards outstanding that were anti-dilutive. Performance-based equity awards are included in the diluted earnings per share calculation based on the attainment of the applicable performance metrics to date.

Note 15: Commitments and Contingencies

Snap-on provides product warranties for specific product lines and accrues for estimated future warranty cost in the period in which the sale is recorded. Snap-on calculates its accrual requirements based on historic warranty loss experience that is periodically adjusted for recent actual experience, including the timing of claims during the warranty period and actual costs incurred.

Snap-on’s product warranty accrual activity for the three and nine months ended October 2, 2021, and September 26, 2020, is as follows:


	Three Months Ended				Nine Months Ended
(Amounts in millions)	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Warranty reserve:
Beginning of period	$	18.5	$	17.2	$	17.6	$	17.3
Additions	3.1		4.6		11.0		10.6
Usage	(3.7)		(4.5)		(10.7)		(10.6)
End of period	$	17.9	$	17.3	$	17.9	$	17.3

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 all legal matters will not have a material impact on Snap-on’s consolidated financial position, results of operations or cash flows.

SNAP-ON INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Note 16: Leases

Lessee Accounting: Supplemental balance sheet information related to leases as of October 2, 2021, and January 2, 2021 is as follows:


(Amounts in millions)	October 2, 2021		January 2, 2021
Finance leases:
Property and equipment - gross	$	22.8	$	24.3
Accumulated depreciation and amortization	(17.4)		(17.5)
Property and equipment - net	$	5.4	$	6.8

Other accrued liabilities	$	2.4	$	2.7
Other long-term liabilities	5.2		7.4
Total finance lease liabilities	$	7.6	$	10.1

Operating leases:
Operating lease right-of-use assets	$	52.9	$	51.9

Other accrued liabilities	$	19.6	$	19.3
Operating lease liabilities	35.0		34.0
Total operating lease liabilities	$	54.6	$	53.3

Lessor Accounting: Snap-on’s Financial Services business offers its customers lease financing for the lease of tools, diagnostics and equipment products and it offers financing to franchisees for vehicle leases. Sales-type leases are included in both “Finance receivables - net” and “Long-term finance receivables - net” and also in both “Contract receivables - net” and “Long-term contract receivables - net” on the accompanying Condensed Consolidated Balance Sheets.

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

Note 17: Other Income (Expense) – Net

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


	Three Months Ended				Nine Months Ended
(Amounts in millions)	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Interest income	$	0.4	$	0.5	$	1.2	$	1.2
Net foreign exchange loss	(0.5)		(0.4)		(0.5)		(3.0)
Net periodic pension and postretirement benefits – non-service	3.8		2.6		11.4		8.0

Foreign currency translation loss from sale of equity interest	—		—		(1.0)		—
Other	—		0.1		0.3		0.1
Total other income (expense) – net	$	3.7	$	2.8	$	11.4	$	6.3

SNAP-ON INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Note 18: Accumulated Other Comprehensive Income (Loss)

The following is a summary of net changes in Accumulated OCI by component and net of tax for the three months ended October 2, 2021:


(Amounts in millions)	Foreign Currency Translation		Cash Flow Hedges		Defined Benefit Pension and Postretirement Plans		Total
Balance as of July 3, 2021	$	(84.5)	$	9.7	$	(287.9)	$	(362.7)
Other comprehensive loss before reclassifications	(38.6)		—		—		(38.6)
Amounts reclassified from Accumulated OCI	—		(0.4)		6.9		6.5
Net other comprehensive income (loss)	(38.6)		(0.4)		6.9		(32.1)
Balance as of October 2, 2021	$	(123.1)	$	9.3	$	(281.0)	$	(394.8)

The following is a summary of net changes in Accumulated OCI by component and net of tax for the nine months ended October 2, 2021:


(Amounts in millions)	Foreign Currency Translation		Cash Flow Hedges		Defined Benefit Pension and Postretirement Plans		Total
Balance as of January 2, 2021	$	(74.7)	$	10.5	$	(301.6)	$	(365.8)
Other comprehensive loss before reclassifications	(47.4)		—		—		(47.4)
Amounts reclassified from Accumulated OCI	(1.0)		(1.2)		20.6		18.4
Net other comprehensive income (loss)	(48.4)		(1.2)		20.6		(29.0)
Balance as of October 2, 2021	$	(123.1)	$	9.3	$	(281.0)	$	(394.8)

The following is a summary of net changes in Accumulated OCI by component and net of tax for the three months ended September 26, 2020:


(Amounts in millions)	Foreign Currency Translation		Cash Flow Hedges		Defined Benefit Pension and Postretirement Plans		Total
Balance as of June 27, 2020	$	(207.6)	$	11.3	$	(318.1)	$	(514.4)
Other comprehensive income before reclassifications	42.6		—		—		42.6
Amounts reclassified from Accumulated OCI	—		(0.4)		6.6		6.2
Net other comprehensive income (loss)	42.6		(0.4)		6.6		48.8
Balance as of September 26, 2020	$	(165.0)	$	10.9	$	(311.5)	$	(465.6)

SNAP-ON INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The following is a summary of net changes in Accumulated OCI by component and net of tax for the nine months ended September 26, 2020:


(Amounts in millions)	Foreign Currency Translation		Cash Flow Hedges		Defined Benefit Pension and Postretirement Plans		Total
Balance as of December 28, 2019	$	(187.4)	$	10.7	$	(331.2)	$	(507.9)


Other comprehensive income before reclassifications	22.4		1.4		—		23.8
Amounts reclassified from Accumulated OCI	—		(1.2)		19.7		18.5
Net other comprehensive income	22.4		0.2		19.7		42.3
Balance as of September 26, 2020	$	(165.0)	$	10.9	$	(311.5)	$	(465.6)

The reclassifications out of Accumulated OCI for the three and nine month periods ended October 2, 2021, and September 26, 2020, are as follows:


	Amount Reclassified from Accumulated OCI
	Three Months Ended				Nine Months Ended
	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020		Statement of Earnings Presentation
(Amounts in millions)
Foreign currency loss from sale of equity interest:
Foreign currency	$	—	$	—	$	1.0	$	—	Other income (expense) - net
Income tax expense	—		—		—		—		Income tax expense
Net of tax	—		—		1.0		—

Gains on cash flow hedges:
Treasury locks	$	0.4	$	0.4	$	1.2	$	1.2	Interest expense
Income tax expense	—		—		—		—		Income tax expense
Net of tax	0.4		0.4		1.2		1.2

Amortization of net unrecognized losses	$	(9.0)	$	(8.7)	$	(27.2)	$	(25.9)	See footnote below*
Income tax benefit	2.1		2.1		6.6		6.2		Income tax expense
Net of tax	(6.9)		(6.6)		(20.6)		(19.7)
Total reclassifications for the period, net of tax	$	(6.5)	$	(6.2)	$	(18.4)	$	(18.5)



*			These Accumulated OCI components are included in the computation of net periodic pension and postretirement health care costs; see Note 11 and Note 12 for further information.

SNAP-ON INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Note 19: Segments

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’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 intersegment amounts are eliminated to arrive at Snap-on’s consolidated financial results.

Financial Data by Segment:


	Three Months Ended				Nine Months Ended
(Amounts in millions)	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Net sales:
Commercial & Industrial Group	$	351.4	$	308.4	$	1,047.6	$	870.2
Snap-on Tools Group	471.4		449.8		1,433.8		1,149.0
Repair Systems & Information Group	364.4		317.5		1,110.6		877.1
Segment net sales	1,187.2		1,075.7		3,592.0		2,896.3
Intersegment eliminations	(149.5)		(134.1)		(448.3)		(378.2)
Total net sales	1,037.7		941.6		3,143.7		2,518.1
Financial Services revenue	87.3		85.8		262.8		256.3
Total revenues	$	1,125.0	$	1,027.4	$	3,406.5	$	2,774.4
Operating earnings:
Commercial & Industrial Group	$	53.6	$	43.1	$	159.8	$	97.5
Snap-on Tools Group	98.2		87.1		300.6		174.1
Repair Systems & Information Group	83.3		80.1		251.4		208.0
Financial Services	70.6		65.6		204.8		180.1
Segment operating earnings	305.7		275.9		916.6		659.7
Corporate	(33.8)		(24.6)		(92.5)		(63.9)
Operating earnings	271.9		251.3		824.1		595.8
Interest expense	(13.2)		(13.8)		(41.8)		(38.6)
Other income (expense) – net	3.7		2.8		11.4		6.3
Earnings before income taxes and equity earnings	$	262.4	$	240.3	$	793.7	$	563.5

SNAP-ON INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)


(Amounts in millions)	October 2, 2021		January 2, 2021
Assets:
Commercial & Industrial Group	$	1,213.0	$	1,210.4
Snap-on Tools Group	763.9		775.3
Repair Systems & Information Group	1,608.7		1,399.7
Financial Services	2,173.3		2,170.3
Total assets from reportable segments	5,758.9		5,555.7
Corporate	886.5		1,063.2
Elimination of intersegment receivables	(64.5)		(61.6)
Total assets	$	6,580.9	$	6,557.3

Table of Contents

SNAP-ON INCORPORATED

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS

OF OPERATIONS

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