SNA US Equity☆

Item 1A: Risk Factors

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

Business Risks

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

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

In addition, the number of electric and hybrid vehicles developed and sold has risen in recent years, and is expected to continue to increase in the future. While we believe that advances in vehicle technologies provide us with opportunities to develop innovative products and solutions for the vehicle repair market, if we are not able to execute on those possibilities, our business and results of operations could suffer.

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

Approximately 43% of our consolidated net revenues in 2022 were generated by the Snap-on Tools Group, which consists of Snap-on’s business operations primarily serving vehicle service and repair technicians through the company’s multi-national mobile tool distribution channel. Snap-on’s success is dependent on its relationships with franchisees, individually and collectively, as they are the primary sales and service link between the company and vehicle service and repair technicians, who are an important class of end users for Snap-on’s products and services.

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

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

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

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

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

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

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

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

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

Approximately 28% of our revenues in 2022 were generated outside of the United States. Future growth rates and success of our business depends in large part on continued growth in our non-U.S. operations, including growth in emerging markets and critical industries. Numerous risks and uncertainties affect our non-U.S. operations. These include political, economic and social instability, such as acts of war, armed conflicts, civil disturbance or acts of terrorism, local labor conditions, trade relations with China, changes in government policies and regulations, including those intended to address climate change, imposition or increases in withholding and other taxes on remittances and other payments by international subsidiaries, as well as exposure to liabilities under anti-bribery and anti-corruption laws in various countries, such as the U.S. Foreign Corrupt Practices Act, currency volatility, transportation delays or interruptions, sovereign debt uncertainties and difficulties in enforcement of contract and intellectual property rights, reputational risks related to, among other factors, different standards and practices among countries, as well as natural disasters, weather events and outbreaks of infectious diseases. Should the economic environment in our non-U.S. markets deteriorate from current levels, our results of operations and financial position could be materially impacted, including as a result of the effects of potential impairment write-downs of goodwill and/or other intangible assets related to these businesses.

The United Kingdom (“U.K.”) has formally left the European Union (“Brexit”). As part of the agreement between the U.K. and the European Union regarding Brexit, there is a new series of customs and regulatory checks, including rules of origin and stringent local content requirements. There are also restrictions on the free movement of people and temporary visas for work-related purposes have been re-introduced. The implications of Brexit, including disruptions to trade and the movement of goods, services and people between the U.K. and the European Union or other countries, may lead to additional cost, delays and volatility in currency exchange rates, as well as create legal and global economic uncertainty. These and other potential implications could adversely affect our business and results of operations.

The February 2022 Russian invasion of Ukraine and the ongoing conflict in the region has led to sanctions and actions taken against Russia and Belarus by the United States, the U.K., the European Union and others.The war in Ukraine has not had a material impact on our business and operations; however, expansion of the conflict beyond its current geographic, political and economic scope could adversely impact our business, results of operations and financial condition.Risks related to this situation include supply chain inefficiencies, price increases and shortages of raw materials and components, exchange rate volatility, energy shortages in Europe, an increase in cybersecurity incidents, and potential impairment of certain assets.

Our foreign operations are also subject to other risks and challenges, such as the need to staff and manage diverse workforces, respond to the needs of multiple national and international marketplaces, and differing business climates and cultures in various countries.

Operational Risks

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

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

Price inflation and shortages of raw materials, components, certain purchased finished goods and energy sources have impacted, and in the future could adversely affect, the ability to obtain, as well as the cost of, needed materials or products and, in turn, our results of operations.

Snap-on’s supply of raw materials and purchased components are generally available from numerous suppliers, and the company continuously works to expand its supplier base to ensure availability. The principal raw material used in the manufacture of our products is steel, which we purchase in competitive, price-sensitive markets. To meet Snap-on’s high quality standards, our steel needs range from specialized alloys, which are available only from a limited group of approved suppliers, to common alloys, which are available from multiple suppliers. Some of these materials have been, and in the future may be, in short supply, particularly in the event of mill shutdowns or production cut backs. In addition, outbreaks of infectious diseases, weather events, armed conflicts or other circumstances beyond our control could also impact the availability of raw materials and components. Physical risks of climate change may also impact the availability and cost of materials, sources and supply of energy and could also increase operating costs. Raw materials, components and certain purchased finished goods can exhibit price and demand cyclicality, including as a result of tariffs, other trade protection measures, inflationary factors, and supply chain inefficiencies. Associated unexpected variability has resulted, and in the future could result, in an increase in product costs and require Snap-on to increase prices to maintain margins.

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

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

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

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

We depend heavily on information technology infrastructure to achieve our business objectives and to protect sensitive data, and we continually invest in improving such systems. In the ordinary course of business, we collect and store sensitive data and information, including personally identifiable information about our employees and the company’s proprietary and regulated business information, as well as that of our customers, suppliers and business partners. Our information systems, like those of other companies, are susceptible to malicious damage, intrusions and outages due to, among other events, viruses, cyber attacks, industrial espionage, phishing attempts, hacking, break-ins and similar events, as well as other breaches of security, natural disasters, power loss or telecommunications failures. Techniques used to breach information technology systems are growing in sophistication and increasingly come from threat actors of all types, including individuals, criminal organizations and state-sponsored operatives. In early March 2022, as previously disclosed, Snap-on detected unusual activity in some areas of its information technology environment, quickly took down its network connections as part of the company’s defense protocols, launched a comprehensive analysis assisted by a leading external forensics firm, and notified law enforcement. The company continued to pursue its commercial activities and restored connections as system interfaces were cleared. The information technology incident did not significantly affect the company’s financial results.

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In response to the evolving cyber threat environment, we continue to invest in data security and address these risks and uncertainties by implementing security technologies, internal controls, network and data center resiliency, and redundancy and recovery processes, as well as by securing insurance. Future problems that impair or compromise the company’s information technology infrastructure, including those due to natural disasters, power outages, major network failures, security breaches or malicious attacks, or those occurring during system upgrades and/or new system implementations could impede our operations. Such impacts could interfere with our ability to record or process orders, manufacture and ship in a timely manner, manage our financial services operations including originating, processing, accounting for and collecting receivables, protect sensitive data of the company, our customers, our suppliers and business partners, or otherwise carry on business in the normal course. The March 2022 incident did not have a significant impact on the results of our operations; however, future cyber events could cause us to lose customers and/or revenue and could require us to incur significant expense to remediate, including as a result of legal or regulatory claims, proceedings, fines or penalties, and could also damage our reputation.

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

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

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

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

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

•Loss of the acquired businesses’ customers;

•Inability to integrate successfully the acquired businesses’ operations;

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

•Unforeseen or contingent liabilities of the acquired businesses;

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

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

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

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

•Incurrence of additional debt and related interest expense; and

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

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

We have taken steps in the past, and may take additional steps in the future, intended to improve customer service and drive further efficiencies as well as reduce costs, some of which could be disruptive to our business. Future efforts to reduce components of expense could result in the recording of charges for inventory and technology-related write-offs, workforce reduction costs or other charges relating to the consolidation or closure of facilities. If we were to incur a substantial charge or are unable to effectively manage our cost reduction and restructuring efforts, our business, financial condition, results of operations and cash flows could be adversely affected in certain periods.

Financial Risks

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

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

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

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

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

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

The reporting currency for Snap-on’s consolidated financial statements is the U.S. dollar. Certain of the company’s assets, liabilities, expenses and revenues are denominated in currencies other than the U.S. dollar. In preparing Snap-on’s Consolidated Financial Statements, those assets, liabilities, expenses and revenues are translated into U.S. dollars at applicable exchange rates. Increases or decreases in exchange rates between the U.S. dollar and other currencies affect the U.S. dollar value of those items, as reflected in the Consolidated Financial Statements. Substantial fluctuations in the value of the U.S. dollar or other transactional currencies have had and, in the future, could have a significant impact on the company’s financial condition and results of operations. We are also affected by changes in inflation and interest rates in non-U.S. jurisdictions. Cash generated in certain non-U.S. jurisdictions may be difficult to repatriate to the United States in a tax-efficient manner.

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

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

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Increasing our financial leverage could affect our operations and profitability.

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

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

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

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

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

•The possible diversion of capital resources from other uses.

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

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

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

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

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

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

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

Significant and unanticipated changes in circumstances, such as declines in profitability and cash flow due to long-term deterioration in macroeconomic, industry and market conditions, the loss of key customers, changes in technology or markets, changes in key personnel or litigation, a sustained decrease in share price and/or other events, could require a provision for impairment in a future period that could substantially impact our reported earnings and reduce our consolidated net worth and shareholders’ equity. Should the economic environment in these markets deteriorate, our results of operations and financial position could be materially impacted, including as a result of the effects of potential impairment write-downs of goodwill and/or other intangible assets related to these businesses.

Legal and Regulatory Risks

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

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

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

In recent years there has been increased public awareness, concern and focus on environmental and sustainability issues, including matters related to global climate change. The current focus on these matters is expected to result in additional and/or more restrictive regulations, requirements and/or industry or third-party standards to reduce or mitigate global warming and other environmental or sustainability risks, though the timing is uncertain.

Increased regulatory requirements or standards may result in increased compliance or input costs, including those related to energy or raw materials, for us and our suppliers. If environmental laws or regulations or industry standards are either changed or adopted, and impose significant operational restrictions and compliance requirements upon the company, the company's business, reputation, results of operations, financial condition and competitive position could be negatively impacted. For example, if significant increases in fuel economy requirements or changes to vehicle emissions requirements for internal combustion engine vehicles were imposed, there could be a decrease in demand for such vehicles and a reduction in miles driven, which could adversely impact the demand for certain of our products and services. Furthermore, an inability to successfully manage climate change or sustainability matters, or to effectively respond to new, or changes in, legal or regulatory requirements concerning sustainability matters, or increased operating or manufacturing costs due to changes in the regulatory environment, could adversely affect our business.

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

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

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

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

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

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

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

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

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

Risk related to COVID-19 and Other Infectious Diseases

The ongoing COVID-19 pandemic continues to pose risks to our business, results of operations, financial condition and cash flows, and other epidemics or outbreaks of infectious diseases may have a similar impact.

We face risks related to outbreaks of infectious diseases, including the ongoing COVID-19 pandemic. In response to COVID-19 and its variants, national and local governments around the world have instituted certain protective measures at various times. While such restrictions have generally eased in many countries where we have operations, existing measures may be extended in certain regions and additional measures may be imposed to combat the COVID-19 pandemic or future outbreaks of infectious diseases.

The effects of COVID-19 or other similar outbreaks on the company could include reduced consumer and investor confidence, instability in the credit and financial markets, volatile corporate profits, supply chain inefficiencies, and reduced business and consumer spending, which could adversely affect our results of operations by reducing our sales, margins and/or net income as a result of rising costs, a slowdown in customer orders or order cancellations. To the extent the ongoing COVID-19 pandemic, or a future outbreak of an infectious disease, adversely affects our business, financial condition, results of operations and cash flows, it may also heighten many of the other risks described in this section.

General Risk Factor

Economic conditions and world events could affect our operating results.

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

Item 1B: Unresolved Staff Comments

None.

Item 2: Properties

Snap-on maintains leased and owned manufacturing, software development, warehouse, distribution, research and development and office facilities throughout the world. Snap-on believes that its facilities currently in use are suitable and have adequate capacity to meet its present and foreseeable future demand. Snap-on’s facilities in the United States occupy approximately 4.1 million square feet, of which 73% is owned, including its corporate and general office facility located in Kenosha, Wisconsin. Snap-on’s facilities outside the United States occupy approximately 4.4 million square feet, of which approximately 73% is owned. Certain Snap-on facilities are leased through operating and finance lease agreements. See Note 17 to the Consolidated Financial Statements for information on the company’s operating and finance leases. Snap-on management continually monitors the company’s capacity needs and makes adjustments as dictated by market and other conditions.

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The following table provides information about our corporate headquarters and financial services operations, and each of Snap-on’s principal active manufacturing locations, distribution centers and software development locations (exceeding 50,000 square feet) as of 2022 year end:

Location Principal Property Use Owned/Leased Segment*

U.S. Locations:

Elkmont, Alabama Manufacturing Owned SOT

Conway, Arkansas Manufacturing and distribution Owned and leased RS&I

City of Industry, California Manufacturing Leased C&I

San Diego, California Software development Owned RS&I

San Jose, California Software development Leased RS&I

Tustin, California Manufacturing and distribution Leased C&I

Columbus, Georgia Distribution Owned C&I

Crystal Lake, Illinois Distribution Owned and leased SOT

Libertyville, Illinois Financial services Leased FS

Algona, Iowa Manufacturing and distribution Owned SOT

Louisville, Kentucky Manufacturing and distribution Leased RS&I

Olive Branch, Mississippi Distribution Owned SOT

Carson City, Nevada Distribution Owned and leased SOT

Murphy, North Carolina Manufacturing and distribution Owned and leased C&I

Richfield, Ohio Software development Owned RS&I

Robesonia, Pennsylvania Distribution Owned SOT

Elizabethton, Tennessee Manufacturing Owned SOT

Kenosha, Wisconsin Distribution and corporate Owned SOT, C&I, RS&I

Milwaukee, Wisconsin Manufacturing Owned SOT

Pleasant Prairie, Wisconsin Distribution Owned SOT, C&I, RS&I

Non-U.S. Locations:

Santo Tome, Argentina Manufacturing Owned C&I

New South Wales, Australia Distribution and financial services Leased SOT, FS

Minsk, Belarus Manufacturing Owned C&I

Santa Bárbara d’Oeste, Brazil Manufacturing and distribution Owned RS&I

Calgary, Canada Distribution Leased SOT

Mississauga, Canada Distribution Leased SOT, RS&I

Beijing, China Manufacturing and distribution Leased C&I

Kunshan, China Manufacturing Owned C&I

Xiaoshan, China Manufacturing Owned C&I

Banbury, England Manufacturing and distribution Owned C&I

Bramley, England Manufacturing Owned C&I

Bauge-en-Anjou, France Manufacturing Owned C&I

Sopron, Hungary Manufacturing Owned RS&I

Correggio, Italy Manufacturing Owned RS&I

Tokyo, Japan Distribution Leased C&I

Helmond, Netherlands Distribution Owned C&I

Vila do Conde, Portugal Manufacturing Owned C&I

Irun, Spain Manufacturing Owned C&I

Placencia, Spain Manufacturing Owned C&I

Vitoria, Spain Manufacturing and distribution Owned C&I

Edsbyn, Sweden Manufacturing Owned C&I

Kungsör, Sweden Manufacturing and distribution Owned RS&I

Lidköping, Sweden Manufacturing Owned C&I

* Segment abbreviations:

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

Item 3: Legal Proceedings

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

Item 4: Mine Safety Disclosures

Not applicable.

PART II

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

Snap-on had 53,002,580 shares of common stock outstanding as of 2022 year end. Snap-on’s stock is listed on the New York Stock Exchange under the ticker symbol “SNA.” At February 3, 2023, there were 4,113 registered holders of Snap-on common stock.

Issuer Purchases of Equity Securities

The following chart discloses information regarding the shares of Snap-on’s common stock repurchased by the company during the fourth quarter of fiscal 2022, all of which were purchased pursuant to the Board’s authorizations that the company has publicly announced. Snap-on has undertaken stock repurchases from time to time to offset dilution related to equity plan issuances and for other corporate purposes, as well as when the company believes market conditions are favorable. The repurchase of Snap-on common stock is at the company’s discretion, subject to prevailing financial and market conditions, and pursuant to the Board’s authorizations that the company has publicly announced.

______________________

N/A: Not applicable

* Subject to further adjustment pursuant to the 1996 Authorization described below, as of December 31, 2022, the approximate value of shares that may yet be purchased pursuant to the outstanding Board authorizations discussed below is $362.4 million.

•In 1996, the Board authorized the company to repurchase shares of the company’s common stock periodically in the open market or in privately negotiated transactions (“the 1996 Authorization”). The 1996 Authorization allows the repurchase of up to the number of shares issued or delivered from treasury under the various plans the company has in place that call for the issuance of the company’s common stock. Because the number of shares that are purchased pursuant to the 1996 Authorization will change as (i) the company issues shares under its various plans; and (ii) shares are repurchased pursuant to this authorization, the number of shares authorized to be repurchased will vary from time to time. The 1996 Authorization will expire when terminated by the Board.

•On November 4, 2021, the Board authorized the repurchase of up to $500 million of the company’s common stock (the “2021 Authorization”). The 2021 Authorization will expire when the aggregate repurchase price limit is met, unless terminated earlier by the Board.

24 SNAP-ON INCORPORATED

Other Purchases or Sales of Equity Securities

The following chart discloses information regarding transactions in shares of Snap-on’s common stock by Citibank, N.A. (“Citibank”) during the fourth quarter of 2022 pursuant to a prepaid equity forward agreement (the “Agreement”) with Citibank that is intended to reduce the impact of market risk associated with the stock-based portion of the company’s deferred compensation plans. The company’s stock-based deferred compensation liabilities, which are impacted by changes in the company’s stock price, increase as the company’s stock price rises and decrease as the company’s stock price declines. Pursuant to the Agreement, Citibank may purchase or sell shares of the company’s common stock (for Citibank’s account) in the market or in privately negotiated transactions. The Agreement has no stated expiration date and does not provide for Snap-on to purchase or repurchase its shares.

Citibank Purchases (Sales) of Snap-on Stock

Period Shares Purchased (Sold) Average Priceper Share

Five-year Stock Performance Graph

The graph below illustrates the cumulative total shareholder return on Snap-on common stock since December 31, 2017, of a $100 investment, assuming that dividends were reinvested quarterly. The graph compares Snap-on’s performance to that of the Standard & Poor’s 500 Industrials Index (“S&P 500 Industrials”) and Standard & Poor’s 500 Stock Index (“S&P 500”).

Fiscal Year Ended (1) Snap-onIncorporated S&P 500Industrials S&P 500

_______________________________

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

Item 6: [Reserved]

26 SNAP-ON INCORPORATED

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

Management Overview

We believe our 2022 operating performance demonstrates the continued momentum of our operations, confirms the resilience of our markets, and reflects the considerable capabilities of our experienced team to overcome the uncertainties of the current environment. Throughout the turbulence, we maintained and further extended our ongoing advantages in our products, brands and people. At the same time, we leveraged existing proficiencies to focus on expanding our professional customer base, not only in automotive repair, but in adjacent markets, additional geographies and other areas, including critical industries, where the cost and penalties for failure can be high. Snap-on’s value proposition of making work easier for serious professionals is an ongoing strength as we move forward along our runways for coherent growth:

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

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

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

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

Our strategic priorities and plans for 2023 involve continuing to build on our Snap-on Value Creation Processes – our suite of strategic principles and processes we employ every day designed to create value, and employed in the areas of safety, quality, customer connection, innovation and rapid continuous improvement (“Rapid Continuous Improvement” or “RCI”). We expect to continue to deploy these processes in our existing operations as well as into our recently acquired businesses.

Snap-on’s RCI initiatives employ a structured set of tools and processes across multiple businesses and geographies intended to eliminate waste and improve operations. Savings from Snap-on’s RCI initiatives reflect benefits from a wide variety of ongoing efficiency, productivity and process improvements, including savings generated from product design cost reductions, improved manufacturing line set-up and change-over practices, lower-cost sourcing initiatives and facility consolidations. Unless individually significant, it is not practicable to disclose each RCI activity that generated savings and/or segregate RCI savings embedded in sales volume increases.

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

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

Recent Acquisitions

On August 1, 2021, Snap-on acquired AutoCrib EMEA GmbH (“AutoCrib Germany”), 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. The acquisition of AutoCrib Germany, a former independent distributor, enhanced and expanded Snap-on’s capabilities in providing solutions for the company’s existing tool control offerings.

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 $20.2 million (or $15.7 million, net of cash acquired), and cash of $1.6 million. Pradines, located in Bauge-en-Anjou, France, designs and manufactures horticultural hand tools for professionals and individuals. Pradines has been the primary supplier of pruning products to Snap‐on and the acquisition allows the company to improve and expand its pruning tool offering.

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 original equipment manufacturer (“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. The acquisition of Dealer-FX complemented and expanded Snap-on’s existing OEM and dealership business that provides electronic parts catalogs, essential tool and diagnostic programs, and custom analytics to OEMs and dealerships.

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

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

Fiscal Year

Snap-on’s fiscal year ends on the Saturday that is on or nearest to December 31. Unless otherwise indicated, references in this document to “fiscal 2022” or “2022” refer to the fiscal year ended December 31, 2022; references to “fiscal 2021” or “2021” refer to the fiscal year ended January 1, 2022; and references to “fiscal 2020” or “2020” refer to the fiscal year ended January 2, 2021. References in this document to 2022, 2021 and 2020 year end refer to December 31, 2022, January 1, 2022, and January 2, 2021, respectively.

Snap-on’s 2022 and 2021 fiscal years each contained 52 weeks of operating results. Snap-on’s 2020 fiscal year contained 53 weeks of operating results with the extra week occurring in the fourth quarter. The impact of the additional week of operations in fiscal 2020 was not material to Snap-on’s full year or fourth quarter total revenues or net earnings.

Fiscal 2021 as Compared to Fiscal 2020

A discussion regarding our financial condition and results of operations for fiscal 2021 compared to fiscal 2020 can be found under “Part II, Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on the Form 10-K for the fiscal year ended January 1, 2022, which was filed with the SEC on February 10, 2022, and is available on the SEC’s website at www.sec.gov as well as in the “Investors” section of our website at www.snapon.com.

28 SNAP-ON INCORPORATED

Non-GAAP Measures

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

Effect of COVID-19

Our markets and our operations possess and, indeed, have demonstrated considerable resilience against the effects of the pandemic. The company sustained the accommodation of its operations to the virus environment, continuing without significant disruption to serve its franchisees and other professional customers as they performed their essential work, while taking what it believes to be appropriate measures to ensure the health and safety of its people. Throughout the pandemic, Snap-on has generally maintained its workforce and manufacturing capacity, as well as its investments in brand building and product development. As the global supply chain inefficiencies and associated cost increases caused by the COVID-19 pandemic have developed, the company has taken steps to ensure access to raw materials, components and purchased finished goods, and to provide for counterbalancing price and efficiency offsets. See also Part I, Item 1A: Risk Factors - Risk related to COVID-19 and Other Infectious Diseases.

Summary of Consolidated Performance

Consolidated net sales of $4,492.8 million in 2022 increased $240.8 million, or 5.7%, from 2021 levels, reflecting a $357.2 million, or 8.7%, organic gain and $8.5 million of acquisition-related sales, partially offset by $124.9 million of unfavorable foreign currency translation.

Operating earnings before financial services of $941.2 million in 2022 increased $89.7 million, or 10.5%, compared to $851.5 million in 2021. As a percentage of net sales, operating earnings before financial services of 20.9% compared to 20.0% last year.

Operating earnings of $1,207.2 million in 2022 increased $83.7 million, or 7.4%, compared to $1,123.5 million last year. As a percentage of revenues (net sales plus financial services revenue), operating earnings of 24.9% compared to 24.4% last year.

Net earnings attributable to Snap-on in 2022 of $911.7 million, or $16.82 per diluted share, increased $91.2 million, or $1.90 per diluted share, from 2021 levels. Net earnings attributable to Snap-on in 2021 were $820.5 million, or $14.92 per diluted share.

Summary of Segment Performance

The Commercial & Industrial Group consists of business operations serving a broad range of industrial and commercial customers worldwide, including customers in the aerospace, natural resources, government and military, power generation, transportation and technical education market segments (collectively, “critical industries”), primarily through direct and distributor channels. Segment net sales of $1,399.2 million in 2022 decreased $7.1 million, or 0.5%, from 2021 levels, reflecting a $60.8 million, or 4.5%, organic sales increase, more than offset by $67.9 million of unfavorable currency translation. The organic growth primarily reflects a double-digit gain in the segment’s specialty tools business, a high single-digit increase in the segment’s Asia Pacific operations, and low single-digit gains in the segment’s European-based hand tools business and in sales to customers in critical industries, despite lower activity with the military. Operating earnings of $197.6 million in 2022, including $8.6 million of unfavorable foreign currency effects, decreased $12.3 million, or 5.9%, compared to $209.9 million in 2021.

The Commercial & Industrial Group intends to continue building on the following strategic priorities in 2023:

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

•Continuing to invest in emerging market growth initiatives;

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

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

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

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

The Snap-on Tools Group consists of business operations primarily serving vehicle service and repair technicians through the company’s multi-national mobile tool distribution channel. Segment net sales of $2,072.0 million in 2022 increased $133.4 million, or 6.9%, from 2021 levels, reflecting a $162.5 million, or 8.5%, organic sales gain, partially offset by $29.1 million of unfavorable foreign currency translation. The organic increase includes a double-digit gain in the U.S. franchise business, while sales in the segment’s international operations were mixed, but overall essentially flat. Operating earnings of $458.7 million in 2022, including $10.1 million of unfavorable foreign currency effects, increased $47.6 million, or 11.6%, compared to $411.1 million in 2021.

In 2023, the Snap-on Tools Group intends to continue its expansion with specific focus on the following initiatives:

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

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

•Increasing investment in new product innovation and development; and

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

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

The Repair Systems &Information Group consists of business operations serving other professional vehicle repair customers worldwide, primarily owners and managers of independent repair shops and OEM dealership service and repair shops (“OEM dealerships”) through direct and distributor channels. Segment net sales of $1,666.9 million in 2022 increased $163.8 million, or 10.9%, from 2021 levels, reflecting a $188.8 million, or 12.8%, organic sales increase and $8.5 million of acquisition-related sales, partially offset by $33.5 million of unfavorable foreign currency translation. The organic gain is comprised of double-digit increases in sales of undercar equipment and in activity with OEM dealerships, and a mid single-digit increase in sales of diagnostic and repair information products to independent repair shop owners and managers. Operating earnings of $393.3 million in 2022, including $4.8 million of favorable foreign currency effects, increased $44.7 million, or 12.8%, from $348.6 million in 2021.

30 SNAP-ON INCORPORATED

The Repair Systems & Information Group intends to focus on the following strategic priorities in 2023:

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

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

•Leveraging integration of software solutions;

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

•Increasing penetration in geographic markets, including emerging markets.

Financial Services generates revenue from various financing programs and is a strategic partner of the company’s mobile franchise van channel. Financial services revenue was $349.7 million in both 2022 and 2021. Originations of $1,153.1 million in 2022 increased $79.9 million, or 7.4%, from 2021 levels. Operating earnings from financial services in 2022 of $266.0 million, including $2.5 million of unfavorable foreign currency effects, decreased $6.0 million, or 2.2%, compared to $272.0 million last year.

Financial Services intends to focus on the following strategic priorities in 2023:

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

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

•Maintaining healthy portfolio performance levels.

Cash Flows

Net cash provided by operating activities of $675.2 million in 2022 decreased $291.4 million from $966.6 million in 2021. The $291.4 million decrease is primarily due to a $354.5 million change in net operating assets and liabilities, partially offset by a $92.5 million increase in net earnings.

Net cash used by investing activities of $206.2 million in 2022 included additions to finance receivables of $955.8 million, partially offset by collections of $826.9 million, as well as $0.5 million of cash provided by acquisitions. Net cash used by investing activities of $290.4 million in 2021 included additions to finance receivables of $878.1 million, partially offset by collections of $854.2 million, as well as $199.7 million for the acquisitions of Dealer-FX, AutoCrib Germany and Pradines. Capital expenditures in 2022 and 2021 totaled $84.2 million and $70.1 million, respectively. Capital expenditures in both years included continued investments related to the company’s execution of its strategic growth initiatives and Value Creation Processes around safety, quality, customer connection, innovation and RCI.

Net cash used by financing activities of $485.0 million in 2022 included $313.1 million for dividend payments to shareholders and $198.1 million for the repurchase of 899,000 shares of Snap-on’s common stock. These amounts were partially offset by $55.0 million of proceeds from stock purchase and option plan exercises and net proceeds from other short-term borrowings of $1.6 million. Net cash used by financing activities of $818.8 million in 2021 included $431.3 million for the repurchase of 1,943,900 shares of Snap-on’s common stock, $275.8 million for dividend payments to shareholders and the September 2021 repayment of $250.0 million of 6.125% unsecured notes upon maturity (the “2021 Notes”). These amounts were partially offset by $162.4 million of proceeds from stock purchase and option plan exercises and net proceeds from other short-term borrowings of $3.3 million.

Results of Operations

2022 vs. 2021

Results of operations for 2022 and 2021 are as follows:

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

NM: Not meaningful

Net sales of $4,492.8 million in 2022 increased $240.8 million, or 5.7%, from 2021 levels, reflecting a $357.2 million, or 8.7%, organic gain and $8.5 million of acquisition-related sales, partially offset by $124.9 million of unfavorable foreign currency translation.

Gross profit of $2,181.1 million in 2022 increased $70.3 million, or 3.3%, compared to $2,110.8 million last year. Gross margin (gross profit as a percentage of net sales) of 48.5% in 2022 declined 110 basis points (100 basis points (“bps”) equals 1.0 percent) from last year primarily due to higher material and other costs, partially offset by higher sales volumes and pricing actions, benefits from the company’s RCI initiatives, and 20 bps of favorable foreign currency effects.

Operating expenses of $1,239.9 million in 2022 compared to $1,259.3 million in 2021. Operating expenses as a percentage of net sales of 27.6% in 2022 improved 200 bps from last year primarily due to higher sales volumes, savings from RCI initiatives, and lower costs associated with stock-based expenses.

Operating earnings before financial services of $941.2 million in 2022 increased $89.7 million, or 10.5%, compared to $851.5 million in 2021. As a percentage of net sales, operating earnings before financial services of 20.9% compared to 20.0% last year.

32 SNAP-ON INCORPORATED

Financial services revenue of $349.7 million in 2022 was unchanged from 2021. Financial services operating earnings of $266.0 million in 2022 compared to $272.0 million last year.

Operating earnings of $1,207.2 million in 2022 increased $83.7 million, or 7.4%, compared to $1,123.5 million last year. As a percentage of revenues, operating earnings of 24.9% compared to 24.4% last year.

Interest expense decreased $6.0 million in 2022 compared to last year. See Note 10 to the Consolidated Financial Statements for information on Snap-on’s debt and credit facilities.

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

The effective income tax rate on earnings attributable to Snap-on was 22.8% in 2022 and 23.2% in 2021. See Note 9 to the Consolidated Financial Statements for information on income taxes.

Net earnings attributable to Snap-on in 2022 of $911.7 million, or $16.82 per diluted share, increased $91.2 million, or $1.90 per diluted share, from $820.5 million, or $14.92 per diluted share, in 2021.

Segment Results

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

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

Commercial & Industrial Group

Segment net sales of $1,399.2 million in 2022 decreased $7.1 million, or 0.5%, from 2021 levels, reflecting a $60.8 million, or 4.5%, organic sales gain, more than offset by $67.9 million of unfavorable currency translation. The organic growth primarily reflects a double-digit gain in the segment’s specialty tools business, a high single-digit increase in the segment’s Asia Pacific operations, and low single-digit gains in the segment’s European-based hand tools business and in sales to customers in critical industries, despite lower activity with the military.

Segment gross margin in 2022 of 37.1% declined 110 bps from last year, primarily due to increased material and other costs, partially offset by benefits from the higher sales volumes and pricing actions, as well as from the segment’s RCI initiatives.

Segment operating expenses as a percentage of net sales in 2022 of 23.0% improved 30 bps as compared to 2021 primarily due to the effects of higher sales volumes.

As a result of these factors, segment operating earnings of $197.6 million in 2022, including $8.6 million of unfavorable foreign currency effects, decreased $12.3 million, or 5.9%, compared to $209.9 million in 2021. Operating margin (segment operating earnings as a percentage of segment net sales) for the Commercial & Industrial Group of 14.1% in 2022 compared to 14.9% last year.

Snap-on Tools Group

Segment net sales of $2,072.0 million in 2022 increased $133.4 million, or 6.9%, from 2021 levels, reflecting a $162.5 million, or 8.5%, organic sales gain, partially offset by $29.1 million of unfavorable foreign currency translation. The organic increase includes a double-digit gain in the U.S. franchise business, while sales in the segment’s international operations were mixed, but overall essentially flat.

Segment gross margin in 2022 of 44.9% declined 70 bps from last year primarily due to increased material and other costs, and 20 bps of unfavorable foreign currency effects. These declines were partially offset by benefits from the higher sales volumes and pricing actions.

Segment operating expenses as a percentage of net sales in 2022 of 22.8% improved 160 bps from last year and includes benefits from higher sales volumes, the effects of lower expenses related to the company’s franchisee stock purchase plan, and savings associated with RCI initiatives.

As a result of these factors, segment operating earnings of $458.7 million in 2022, including $10.1 million of unfavorable foreign currency effects, increased $47.6 million, or 11.6%, compared to $411.1 million in 2021. Operating margin for the Snap‐on Tools Group of 22.1% in 2022 compared to 21.2% last year.

Repair Systems & Information Group

Segment net sales of $1,666.9 million in 2022 increased $163.8 million, or 10.9%, from 2021 levels, reflecting a $188.8 million, or 12.8%, organic sales increase and $8.5 million of acquisition-related sales, partially offset by $33.5 million of unfavorable foreign currency translation. The organic gain is comprised of double-digit increases in sales of undercar equipment and in activity with OEM dealerships, and a mid single-digit increase in sales of diagnostic and repair information products to independent repair shop owners and managers.

34 SNAP-ON INCORPORATED

Segment gross margin in 2022 of 43.9% declined 200 bps from last year primarily due to higher material and other costs, and increased sales in lower gross margin businesses. These declines were partially offset by benefits from pricing actions and savings from RCI initiatives, as well as 50 bps of favorable foreign currency effects.

Segment operating expenses as a percentage of net sales in 2022 of 20.3% improved 240 bps from last year primarily due to benefits from sales volume leverage, higher activity in lower-expense businesses, and savings from RCI initiatives.

As a result of these factors, segment operating earnings of $393.3 million in 2022, including $4.8 million of favorable foreign currency effects, increased $44.7 million, or 12.8%, from $348.6 million in 2021. Operating margin for the Repair Systems & Information Group of 23.6% in 2022 compared to 23.2% last year.

Financial Services

Financial services revenue is generally dependent on the size of the average financial services portfolio during the period, as well as on the average yield on receivables. Financial services revenue of $349.7 million in 2022 was unchanged from 2021, as the benefits from the slightly larger average financial services portfolio were offset by the slightly lower average yield in 2022 as compared to last year. In 2022 and 2021, the respective average yields on finance receivables were 17.6% and 17.7%. In both 2022 and 2021, the average yield on contract receivables was 8.5%. Originations of $1,153.1 million in 2022 increased $79.9 million, or 7.4%, from 2021 levels.

Financial services expenses primarily include personnel-related and other general and administrative costs, as well as expenses for credit losses. These expenses are generally more dependent on changes in the financial services portfolio than they are on the revenue of the segment. Financial services expenses in 2022 increased $6.0 million from last year primarily due to higher provisions for credit losses as compared to those recorded in 2021. As a percentage of the average financial services portfolio, financial services expenses were 3.7% and 3.5% in 2022 and 2021, respectively.

As a result of these factors, segment operating earnings of $266.0 million in 2022, including $2.5 million of unfavorable foreign currency effects, decreased $6.0 million, or 2.2%, from 2021 levels.

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

Corporate

Snap-on’s general corporate expenses in 2022 of $108.4 million decreased $9.7 million from $118.1 million last year. The year-over-year decrease primarily reflects lower costs associated with the company’s employee stock purchase plan.

Quarterly Data

FirstQuarter SecondQuarter ThirdQuarter FourthQuarter Total

36 SNAP-ON INCORPORATED

Fourth Quarter

Results of operations for the fourth quarters of 2022 and 2021 are as follows:

Fourth Quarter

Other income (expense) – net 11.8 1.0 % 5.1 0.3 % 6.7 NM

NM: Not meaningful

Net sales of $1,155.9 million in the fourth quarter of 2022 increased $47.6 million, or 4.3%, from 2021 levels, reflecting an $85.3 million, or 8.0%, organic gain, partially offset by $37.7 million of unfavorable foreign currency translation.

Gross profit of $560.7 million in the fourth quarter of 2022 increased $27.3 million, or 5.1%, compared to $533.4 million last year. Gross margin of 48.5% in the quarter improved 40 bps from the fourth quarter of 2021 primarily due to increased sales volumes and pricing actions, 40 bps of favorable foreign currency effects, and benefits from the company’s RCI initiatives. These improvements were partially offset by higher material and other costs.

Operating expenses of $312.7 million in the fourth quarter of 2022 compared to $301.2 million last year. Operating expenses as a percentage of net sales of 27.0% in the quarter improved 10 bps from last year.

Operating earnings before financial services of $248.0 million in the fourth quarter of 2022 increased $15.8 million, or 6.8%, compared to $232.2 million in the fourth quarter of 2021. As a percentage of net sales, operating earnings before financial services of 21.5% compared to 21.0% last year.

Financial services revenue of $88.3 million in the fourth quarter of 2022 compared to $86.9 million last year. Financial services operating earnings of $63.9 million in the period compared to $67.2 million in 2021.

Operating earnings of $311.9 million in the fourth quarter of 2022, increased $12.5 million, or 4.2%, compared to $299.4 million last year. As a percentage of revenues, operating earnings of 25.1% in the quarter was unchanged from last year.

Interest expense in the fourth quarter of 2022 increased $0.7 million compared to last year. See Note 10 to the Consolidated Financial Statements for information on Snap-on’s debt and credit facilities.

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

The effective income tax rate on earnings attributable to Snap-on was 22.0% in the fourth quarter of 2022 and 22.3% in the fourth quarter of 2021. See Note 9 to the Consolidated Financial Statements for information on income taxes.

Net earnings attributable to Snap-on in the fourth quarter of 2022 of $238.9 million, or $4.42 per diluted share, increased $15.2 million, or $0.32 per diluted share, as compared to $223.7 million, or $4.10 per diluted share, in the fourth quarter of 2021.

Segment Results

Commercial & Industrial Group

Fourth Quarter

Segment net sales of $343.2 million in the fourth quarter of 2022 decreased $15.5 million, or 4.3%, from 2021 levels, reflecting a $5.7 million, or 1.7%, organic sales increase, more than offset by $21.2 million of unfavorable foreign currency translation. The organic increase primarily reflects a double-digit gain in the segment’s specialty tools business, as well as a low single-digit increase in sales to customers in critical industries, despite lower activity with the military. These gains were partially offset by a mid single-digit decline in the segment’s European-based hand tools business.

Segment gross margin in the fourth quarter of 37.7% improved 120 bps from last year primarily due to increased sales volumes and pricing actions, benefits from the segment’s RCI initiatives, and 20 bps of favorable foreign currency effects, partially offset by higher material and other costs.

Segment operating expenses as a percentage of net sales of 23.7% in the fourth quarter increased 120 bps from last year primarily due to reduced sales in lower-expense businesses.

As a result of these factors, segment operating earnings of $47.9 million in the fourth quarter of 2022, including $2.3 million of unfavorable foreign currency effects, decreased $2.2 million from 2021 levels. Operating margin for the Commercial & Industrial Group of 14.0% in the quarter was unchanged from last year.

Snap-on Tools Group

Fourth Quarter

Segment net sales of $542.7 million in the fourth quarter of 2022 increased $37.9 million, or 7.5%, from 2021 levels, reflecting a $47.4 million, or 9.6%, organic sales gain, partially offset by $9.5 million of unfavorable foreign currency translation. The organic increase is due to a double-digit gain in the U.S. franchise business and a low single-digit increase in the segment’s international operations.

Segment gross margin in the fourth quarter of 43.2% declined 70 bps from last year primarily due to 40 bps of unfavorable foreign currency effects, increased sales of lower gross margin products, and higher material and other costs. These declines were partially offset by benefits from the higher sales volumes and pricing actions.

Segment operating expenses as a percentage of net sales of 21.8% in the fourth quarter improved 20 bps from last year.

38 SNAP-ON INCORPORATED

As a result of these factors, segment operating earnings of $116.1 million in the fourth quarter of 2022, including $4.5 million of unfavorable foreign currency effects, increased $5.6 million, or 5.1%, from 2021 levels. Operating margin for the Snap‐on Tools Group of 21.4% in the quarter compared to 21.9% last year.

Repair Systems & Information Group

Fourth Quarter

Segment net sales of $437.9 million in the fourth quarter of 2022 increased $45.4 million, or 11.6%, from 2021 levels, reflecting a $54.9 million, or 14.3%, organic sales increase, partially offset by $9.5 million of unfavorable foreign currency translation. The organic gain is comprised of double-digit increases in sales of undercar equipment, in activity with OEM dealerships, and in sales of diagnostic and repair information products to independent repair shop owners and managers.

Segment gross margin in the fourth quarter of 45.0% declined 110 bps from last year primarily due to higher material and other costs and increased sales in lower gross margin businesses. These declines were partially offset by benefits from pricing actions and savings from RCI initiatives, as well as 80 bps of favorable foreign currency effects.

Segment operating expenses as a percentage of net sales in the fourth quarter of 19.7% improved 160 bps from last year primarily due to benefits from sales volume leverage, higher activity in lower-expense businesses, and savings from RCI initiatives.

As a result of these factors, segment operating earnings of $110.6 million in the fourth quarter of 2022, including $2.1 million of favorable foreign currency effects, increased $13.4 million, or 13.8%, from $97.2 million in 2021. Operating margin for the Repair Systems & Information Group of 25.3% in the quarter compared to 24.8% last year.

Financial Services

Fourth Quarter

Financial services revenue of $88.3 million in the fourth quarter of 2022 increased $1.4 million, or 1.6%, from $86.9 million last year. In the fourth quarters of 2022 and 2021, the respective average yields on finance receivables were 17.6% and 17.7%. In the fourth quarters of 2022 and 2021, the average yields on contract receivables were 8.6% and 8.5%, respectively. Originations of $299.7 million in the fourth quarter of 2022 increased $43.4 million, or 16.9%, from 2021 levels.

Financial services expenses in the fourth quarter of 2022 increased $4.7 million from last year primarily due to higher provisions for credit losses as compared to those recorded in the fourth quarter of 2021. As a percentage of the average financial services portfolio, financial services expenses were 1.1% and 0.9% for the fourth quarters of 2022 and 2021, respectively.

As a result of these factors, segment operating earnings of $63.9 million in the fourth quarter of 2022, including $0.9 million of unfavorable foreign currency effects, decreased $3.3 million, or 4.9%, from 2021 levels.

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

Corporate

Snap-on’s fourth quarter 2022 general corporate expenses of $26.6 million compared to $25.6 million last year.

Non-GAAP Supplemental Data

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

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

Non-GAAP Supplemental Consolidating Data – Supplemental Statements of Earnings information for 2022, 2021 and 2020 is as follows:

Operations* Financial Services

Operating earnings before financial services 941.2 851.5 631.9 — — —

Financial services expenses — — — (83.7) (77.7) (101.1)

Operating earnings from financial services — — — 266.0 272.0 248.6

Equity earnings, net of tax — 1.5 0.3 — — —

Net earnings attributable to noncontrolling interests (22.2) (20.9) (19.4) — — —

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

40 SNAP-ON INCORPORATED

Non-GAAP Supplemental Consolidating Data – Supplemental Balance Sheet Information as of 2022 and 2021 year end is as follows:

Operations* Financial Services

ASSETS

Current assets:

Intersegment receivables 13.4 12.5 — —

Trade and other accounts receivable – net 761.1 681.7 0.6 0.6

Finance receivables – net — — 562.2 542.3

Operating lease right-of-use assets 60.1 50.0 1.4 1.9

Investment in Financial Services 363.9 350.6 — —

Intersegment long-term notes receivable 635.9 570.1 — —

Long-term finance receivables – net — — 1,170.8 1,114.0

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

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

Operations* Financial Services

LIABILITIES AND EQUITY

Current liabilities:

Notes payable $ 17.2 $ 17.4 $ — $ —

Intersegment payables — — 13.4 12.5

Franchisee deposits 73.8 80.7 — —

Long-term debt and intersegment long-term debt — — 1,819.7 1,753.0

Deferred income tax liabilities 82.1 122.7 — —

Retiree health care benefits 23.4 31.1 — —

Noncontrolling interests 22.2 21.9 — —

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

42 SNAP-ON INCORPORATED

Liquidity and Capital Resources

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

Due to Snap-on’s credit rating over the years, external funds have been available at an acceptable cost. As of February 3, 2023, Snap-on’s long-term debt and commercial paper were rated, respectively, A2 and P-1 by Moody’s Investors Service; A- and A-2 by Standard & Poor’s; and A and F1 by Fitch Ratings. Snap-on believes that its current credit arrangements are sound and that the strength of its balance sheet affords the company the financial flexibility, including through access to financial markets for potential new financing, to respond to both internal growth opportunities and those available through acquisitions. However, Snap-on cannot provide any assurance that financing will be available in the future on acceptable terms, or that its debt ratings will not decrease.

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

As of 2022 year end, working capital (current assets less current liabilities) of $2,397.3 million increased $326.1 million from $2,071.2 million as of 2021 year end primarily as a result of other net changes in working capital discussed below.

The following represents the company’s working capital position as of 2022 and 2021 year end:

Cash and cash equivalents $ 757.2 $ 780.0

Trade and other accounts receivable – net 761.7 682.3

Prepaid expenses and other assets 144.8 134.6

Other current liabilities (667.4) (687.2)

Total current liabilities (971.6) (982.2)

Cash and cash equivalents of $757.2 million as of 2022 year end decreased $22.8 million from 2021 year-end levels primarily due to: (i) the funding of $955.8 million of new finance receivables; (ii) dividend payments to shareholders of $313.1 million; (iii) the repurchase of 899,000 shares of the company’s common stock for $198.1 million; and (iv) the funding of $84.2 million for capital expenditures. These decreases in cash and cash equivalents were partially offset by: (i) $826.9 million of cash from collections of finance receivables; (ii) $675.2 million of cash generated from operations; (iii) $55.0 million of cash proceeds from stock purchase and option plan exercises; and (iv) $1.6 million of net proceeds from other short-term borrowings.

Of the $757.2 million of cash and cash equivalents as of 2022 year end, $244.1 million was held outside of the United States. Snap-on maintains non-U.S. funds in its foreign operations to: (i) provide adequate working capital; (ii) satisfy various regulatory requirements; and/or (iii) take advantage of business expansion opportunities as they arise. Although the Tax Cuts and Jobs Act (“Tax Act”) generally eliminated U.S. federal taxation of dividends from foreign subsidiaries, such dividends may still be subject to state income taxation and foreign withholding taxes. Snap-on periodically evaluates its cash held outside the United States and may pursue opportunities to repatriate certain foreign cash amounts to the extent that it can be accomplished in a tax efficient manner.

Trade and other accounts receivable – net of $761.7 million as of 2022 year end increased $79.4 million from 2021 year-end levels primarily due to higher sales, partially offset by $18.2 million of foreign currency translation. Days sales outstanding (trade and other accounts receivable – net as of the respective period end, divided by the respective trailing 12 months sales, times 360 days) was 61 days and 58 days at the respective 2022 and 2021 year ends.

The current portions of net finance and contract receivables of $672.1 million as of 2022 year end compared to $652.7 million at 2021 year end. The long-term portions of net finance and contract receivables of $1,554.6 million as of 2022 year end compared to $1,492.2 million at 2021 year end. The combined $81.8 million increase in net current and long-term finance and contract receivables compared to 2021 year-end levels is primarily due to an increase in net receivable originations, partially offset by $20.5 million of foreign currency translation.

Inventories – net of $1,033.1 million as of 2022 year end increased $229.3 million from 2021 year-end levels primarily due to higher demand, increased costs and from efforts to manage the current supply chain situation, partially offset by $29.3 million of foreign currency translation. As of 2022 and 2021 year end, inventory turns (trailing 12 months of cost of goods sold, divided by the average of the beginning and ending inventory balance for the trailing 12 months) were 2.5 turns and 2.8 turns, respectively. Inventories accounted for using the first-in, first-out (“FIFO”) method as of 2022 and 2021 year end approximated 61% and 60% of total inventories, respectively. All other inventories are accounted for using the last-in, first-out (“LIFO”) method. The company’s LIFO reserve was $108.6 million and $87.2 million at 2022 and 2021 year end, respectively.

Notes payable of $17.2 million as of 2022 year end compared to $17.4 million as of 2021 year end.

Average notes payable outstanding were $18.6 million and $16.7 million in 2022 and 2021, respectively. The 2022 weighted-average interest rate on such borrowings of 9.93% compared with 8.39% in 2021. At 2022 year end, the weighted-average rate on outstanding notes payable of 10.89% compared with 8.39% in 2021. The 2022 year-end rate increased primarily due to higher rates on local borrowings in emerging markets.

Accounts payable of $287.0 million as of 2022 year end increased $9.4 million from 2021 year-end levels, primarily due to the timing of payments, partially offset by $7.4 million of foreign currency translation.

Other accrued liabilities of $436.4 million as of 2022 year end increased $12.1 million from 2021 year-end levels, primarily due to higher income tax accruals, partially offset by $11.7 million of foreign currency translation.

Long-term debt of $1,183.8 million as of 2022 year end consisted of: (i) $300.0 million of unsecured 3.25% notes that mature on March 1, 2027 (the “2027 Notes”); (ii) $400.0 million of unsecured 4.10% notes that mature on March 1, 2048 (“the 2048 Notes”); and (iii) $500.0 million of 3.10% notes that mature on May 1, 2050 (the “2050 Notes”), partially offset by $16.2 million of unamortized debt issuance costs.

Snap-on has an $800 million multi-currency revolving credit facility that terminates on September 16, 2024 (the “Credit Facility”); no amounts were borrowed or outstanding under the Credit Facility during the year ended and as of December 31, 2022 or January 1, 2022. 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 December 31, 2022, the company’s actual ratios of 0.09 and 0.37 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. There was no commercial paper issued or outstanding during the year ended and as of December 31, 2022 or January 1, 2022.

Snap-on’s Credit Facility and other debt agreements also contain certain usual and customary borrowing, affirmative, negative and maintenance covenants. As of 2022 year end, Snap-on was in compliance with all covenants of its Credit Facility and other debt agreements.

44 SNAP-ON INCORPORATED

Snap-on believes it has sufficient available cash and access to both committed and uncommitted credit facilities to cover its expected funding needs on both a short-term and long-term basis. Snap-on manages its aggregate short-term borrowings so as not to exceed its availability under the Credit Facility. Snap-on believes that it can access short-term debt markets, predominantly through commercial paper issuances and existing lines of credit, to fund its short-term requirements and to ensure near-term liquidity. Snap-on regularly monitors the credit and financial markets and, if it believes conditions are favorable, it may take advantage of such conditions to issue long-term debt to further improve its liquidity and capital resources. Near-term liquidity requirements for Snap-on include payments of interest and dividends, funding to support new receivables originated by our financial services businesses, capital expenditures, working capital, the funding of pension plans, and funding for share repurchases and acquisitions, if and as they arise. Snap-on intends to make contributions of $6.9 million to its foreign pension plans and $2.4 million to its domestic pension plans in 2023, as required by law. Depending on market and other conditions, Snap-on may make discretionary cash contributions to its pension plans in 2023.

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

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

Operating Activities

Net cash provided by operating activities of $675.2 million in 2022 decreased $291.4 million from $966.6 million in 2021. The $291.4 million decrease is primarily due to a $354.5 million change in net operating assets and liabilities, partially offset by a $92.5 million increase in net earnings.

Depreciation expense was $71.5 million in 2022 and $75.6 million in 2021. Amortization expense was $28.7 million in 2022 and $29.2 million in 2021. See Note 6 and Note 7 to the Consolidated Financial Statements for information on property and equipment, goodwill and other intangible assets.

Investing Activities

Net cash used by investing activities of $206.2 million in 2022 included additions to finance receivables of $955.8 million, partially offset by collections of $826.9 million. Net cash used by investing activities of $290.4 million in 2021 included additions to finance receivables of $878.1 million, partially offset by collections of $854.2 million. Finance receivables are comprised of extended-term installment payment contracts to both technicians and independent shop owners (i.e., franchisees’ customers) to enable them to purchase tools, diagnostics, and equipment products on an extended-term payment plan, with average payment terms of approximately four years.

Net cash used by investing activities in 2022 also included $0.5 million of cash provided by acquisitions. Net cash used by investing activities in 2021 included $199.7 million for the acquisitions of Dealer-FX, AutoCrib Germany and Pradines. See Note 3 to the Consolidated Financial Statements for information about acquisitions.

Capital expenditures in 2022 and 2021 totaled $84.2 million and $70.1 million, respectively. Capital expenditures in both years included continued investments related to the company’s execution of its strategic Value Creation Processes. The company also invested in: (i) new product, efficiency, safety and cost reduction initiatives that are intended to expand and improve its manufacturing and distribution capabilities worldwide; (ii) new production and machine tooling to enhance manufacturing operations, as well as ongoing replacements of manufacturing and distribution equipment, particularly in the United States; and (iii) the ongoing enhancement of the company’s global enterprise resource planning (ERP) management information systems. Snap-on believes that its cash generated from operations, as well as its available cash on hand and funds available from its credit facilities will be sufficient to fund the company’s capital expenditure requirements in 2023.

Financing Activities

Net cash used by financing activities of $485.0 million in 2022 included net proceeds from other short-term borrowings of $1.6 million. Net cash used by financing activities of $818.8 million in 2021 included the $250.0 million repayment of the 2021 Notes at maturity and net proceeds from other short-term borrowings of $3.3 million.

Proceeds from stock purchase and option plan exercises totaled $55.0 million in 2022 and $162.4 million in 2021. In 2022, Snap-on repurchased 899,000 shares of its common stock for $198.1 million under its previously announced share repurchase programs. As of 2022 year end, Snap-on had remaining availability to repurchase up to an additional $362.4 million in common stock pursuant to its Board’s authorizations. Snap-on repurchased 1,943,900 shares of its common stock for $431.3 million in 2021. The repurchase of Snap-on common stock to offset dilution related to equity plan issuances or for other corporate purposes is at the company’s discretion, subject to prevailing financial and market conditions. Snap-on believes that its cash generated from operations, available cash on hand, and funds available from its credit facilities, will be sufficient to fund the company’s additional share repurchases, if any.

Snap-on has paid consecutive quarterly cash dividends, without interruption or reduction, since 1939. Cash dividends paid in 2022 and 2021 totaled $313.1 million and $275.8 million, respectively. On November 4, 2022, the company announced that its Board increased the quarterly cash dividend by 14.1% to $1.62 per share ($6.48 per share annualized). Quarterly dividends in 2022 were $1.62 per share in the fourth quarter and $1.42 per share in the first three quarters ($5.88 per share for the year). Quarterly dividends in 2021 were $1.42 per share in the fourth quarter and $1.23 per share in the first three quarters ($5.11 per share for the year).

Cash dividends paid per common share $ 5.88 $ 5.11

Cash dividends paid as a percentage of prior-year retained earnings 5.5 % 5.3 %

Snap-on believes that its cash generated from operations, available cash on hand, and funds available from its credit facilities, will be sufficient to pay dividends in 2023.

Contractual Obligations and Commitments

Snap-on’s contractual obligations for long-term debt and operating and finance leases are reflected in the Consolidated Balance Sheets; see Note 10 and Note 17 to the Consolidated Financial Statements for information on the company’s long-term debt and leases. Snap-on also enters into contracts for future purchases in the normal course of business. As of year-end 2022, the company had $165.2 million in purchase commitments to be paid in 2023 and $10.9 million to be paid thereafter.

Snap-on intends to make contributions of $6.9 million to its foreign pension plans and $2.4 million to its domestic pension plans in 2023, as required by law. Depending on market and other conditions, Snap-on may make additional discretionary cash contributions to its pension plans in 2023; see Note 12 and Note 13 to the Consolidated Financial Statements for information on the company’s benefit plans and payments.

Due to the uncertainty of the timing of settlements with taxing authorities, Snap-on is unable to make reasonably reliable estimates of the period of cash settlement of unrecognized tax benefits totaling $5.6 million for its remaining uncertain tax liabilities. See Note 9 to the Consolidated Financial Statements for information on income taxes.

46 SNAP-ON INCORPORATED

Environmental Matters

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

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

In recent years there has been increased public awareness, concern and focus on environmental and sustainability issues, including matters related to global climate change.The current focus on these matters is expected to result in additional and/or more restrictive regulations, requirements and/or industry or third-party standards to reduce or mitigate global warming and other environmental or sustainability risks, though the timing is uncertain.Snap-on continues to monitor developments in this area.

New Accounting Standards

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

Critical Accounting Policies and Estimates

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

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

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

Management utilizes established policies and procedures in an effort to ensure the estimates and assumptions are well controlled, reviewed and consistently applied. As of December 31, 2022, the ratio of the allowance for credit losses to finance receivables was 3.39%. As of January 1, 2022, the allowance ratio was 3.90%. While management believes it exercises prudent judgment and applies reasonable assumptions in establishing its estimates for allowances for finance receivables, there can be no assurance that changes in economic conditions or other factors would not adversely impact the financial health of our customers and result in changes to the estimates used in the allowance calculation. For reference, a 100 bps increase in the allowance ratios for finance receivables as of December 31, 2022, would have increased Snap-on’s 2022 provision for credit losses and related allowance for credit losses by approximately $17.9 million.

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

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

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

Snap-on evaluates the recoverability of goodwill by utilizing an income approach that estimates the fair value of the future discounted cash flows of the reporting units to which the goodwill relates. The future projections, which are based on both past performance and the projections and assumptions used in the company’s operating plans, are subject to change as a result of changing economic and competitive conditions. This approach reflects management’s internal outlook at the reporting units, which management believes provides the best determination of value due to management’s insight and experience with the reporting units. Significant estimates used by management in the discounted cash flows methodology include estimates of future cash flows based on expected growth rates, price increases, working capital levels, expected benefits from RCI initiatives, and a weighted-average cost of capital that reflects the specific risk profile of the reporting unit being tested. The company’s methodologies for valuing goodwill are applied consistently on a year-over-year basis; the assumptions used in performing the second quarter 2022 impairment calculations were evaluated in light of then-current market and business conditions. Snap-on continues to believe that the future discounted cash flow valuation model provides the most reasonable and meaningful fair value estimate based upon the reporting units’ projections of future operating results and cash flows and replicates how market participants would value the company’s reporting units in an orderly transaction.

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

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

48 SNAP-ON INCORPORATED

Snap-on completed its annual impairment testing of goodwill in the second quarter of 2022, which did not result in any impairment. As of 2022 year end, the company has no accumulated impairment losses. Although the company consistently uses the same methods in developing the assumptions and estimates underlying the fair value calculations, such estimates are uncertain by nature and can vary from actual results. In performing its annual impairment testing the company performed a sensitivity analysis on the material assumptions used in the discounted cash flow valuation models for each of its 11 reporting units. Based on the company’s second quarter 2022 impairment testing, and assuming a hypothetical 10% decrease in the estimated fair values of each of its 11 reporting units, the hypothetical fair value of each of the company’s 11 reporting units would have been greater than its carrying value. See Note 7 to the Consolidated Financial Statements for further information about goodwill.

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

Snap-on’s domestic pension plans have a long-term investment horizon and a total return strategy that emphasizes a capital growth objective. In 2022, the long-term investment performance objective for Snap-on’s domestic plans’ assets was to achieve net of expense returns that met or exceeded the 6.5% domestic expected return on plan assets assumption. Snap-on uses a three-year, market-related value asset method of amortizing the difference between actual and expected returns on its domestic plans’ assets. As of 2022 year end, Snap-on’s domestic pension plans’ assets comprised approximately 87% of the company’s worldwide pension plan assets.

Based on forward-looking capital market expectations, Snap-on selected an expected return on plan assets assumption for its U.S. pension plans of 7.5%, an increase of 100 bps from 2022, to be used in determining pension expense for 2023. In estimating the domestic expected return on plan assets, Snap-on utilizes a nominal returns forecasting method. For each asset class, future returns are estimated by identifying the premium of riskier asset classes over lower risk alternatives. The methodology constructs expected returns using a “building block” approach to the individual components of total return. These forecasts are stated in both nominal and real (after inflation) terms. This process first considers the long-term historical return premium based on the longest set of data available for each asset class. These premiums, calculated using the geometric mean, are then adjusted based on current relative valuation levels, macro-economic conditions, and the expected alpha related to active investment management. The asset return assumption is also adjusted by an implicit expense load for estimated administrative and investment-related expenses. Since asset allocation is a key determinant of expected investment returns, the current and expected mix of plan assets are also considered when setting the assumption.

Pension expense increases as the expected rate of return on plan assets decreases. Lowering the expected rate of return assumption for Snap-on’s domestic pension plans’ assets by 50 bps would have increased Snap-on’s 2022 domestic pension expense by approximately $6.8 million.

The objective of Snap-on’s discount rate assumption is to reflect the rate at which the pension benefits could be effectively settled. In making this determination, the company takes into account the timing and amount of benefits that would be available under the plans. The domestic discount rate as of 2022 and 2021 year end was selected based on a cash flow matching methodology developed by the company’s outside actuaries that incorporates a review of current economic conditions. This methodology matches the plans’ yearly projected cash flows for benefits and service costs to those of hypothetical bond portfolios using high-quality, AA rated or better, corporate bonds from either Moody’s Investors Service or Standard & Poor’s credit rating agencies available at the measurement date. This technique calculates bond portfolios that produce adequate cash flows to pay the plans’ projected yearly benefits and then selects the portfolio with the highest yield and uses that yield as the recommended discount rate.

The selection of the 5.5% weighted-average discount rate for Snap-on’s domestic pension plans as of 2022 year end (compared to 2.9% as of 2021 year end) represents the single rate that produces the same present value of cash flows as the estimated benefit plan payments. Lowering Snap-on’s domestic discount rate assumption by 50 bps would have increased Snap-on’s 2022 domestic pension expense and projected benefit obligation by approximately $4.5 million and $48.6 million, respectively. As of 2022 year end, Snap-on’s domestic projected benefit obligation comprised approximately 85% of Snap-on’s worldwide projected benefit obligation. The weighted-average discount rate for Snap-on’s foreign pension plans of 4.8% (compared to 2.0% as of 2021 year end) represents the single rate that produces the same present value of cash flows as the estimated benefit plan payments. Lowering Snap-on’s foreign discount rate assumption by 50 bps would have increased Snap-on’s 2022 foreign pension expense and projected benefit obligation by approximately $1.4 million and $12.3 million, respectively.

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

To determine the 2023 net periodic benefit cost, Snap-on is using weighted-average discount rates for its domestic and foreign pension plans of 5.5% and 4.8%, respectively, and an expected return on plan assets for its domestic pension plans of 7.5%. The expected returns on plan assets for foreign pension plans ranged from 2.2% to 6.9% as of 2022 year end. Due to the net change in these two key assumptions, in addition to the overall benefit plan status, Snap-on expects to have pension income in 2023. Other factors, such as changes in plan demographics and discretionary contributions, may further increase or decrease pension income in 2023. See Note 12 to the Consolidated Financial Statements for further information on pension plans.

Outlook

We believe that our markets and our operations possess and have demonstrated considerable resilience against the varying turbulence evident in the current environment. In 2023, despite the uncertainties, Snap-on expects to make continued progress along its defined runways for coherent growth, leveraging capabilities already demonstrated in the automotive repair arena and developing and expanding its professional customer base, not only in automotive repair, but in adjacent markets, additional geographies and other areas, including extending in critical industries, where the cost and penalties for failure can be high. In pursuit of these initiatives, it is projected that capital expenditures in 2023 will be in a range of $90 million to $100 million. Snap-on continues to respond to global macroeconomic challenges through its RCI process and other cost reduction initiatives.

Snap-on currently anticipates that its full year 2023 effective income tax rate will be in the range of 23% to 24%.

50 SNAP-ON INCORPORATED

Item 7A: Quantitative and Qualitative Disclosures About Market Risk

Market, Credit and Economic Risks

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

Foreign Currency Risk Management

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

Interest Rate Risk Management

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

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

The estimated maximum potential net one-day loss in fair value, calculated using the VAR model, as of 2022 and 2021 year end was $18.0 million and $20.6 million, respectively, on interest rate-sensitive financial instruments, and $0.2 million and $0.3 million, respectively, on foreign currency-sensitive financial instruments. The VAR model is a risk management tool and does not purport to represent actual losses in fair value that will be incurred by Snap-on, nor does it consider the potential effect of favorable changes in market factors.

Stock-based Deferred Compensation Risk Management

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

Credit Risk

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

Counterparty Risk

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

Economic Risk

Economic risk is the possibility of loss resulting from economic instability in certain areas of the world. Snap-on continually monitors its exposure in these markets. For example, the company is monitoring the impact of and developments related to Russia’s invasion of Ukraine and the ongoing COVID-19 pandemic, which continue to have an impact on the global economy. While inflation has become more prevalent in the world economy, Snap-on has taken steps to control and offset associated cost increases through its supply chain management, pricing actions, and deployment of Rapid Continuous Improvement (“RCI”). In addition, the company continues to monitor developments resulting from the United Kingdom’s exit from the European Union, and the effects this may have on the world economy and the company.

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

Commodity Risk

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

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

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

52 SNAP-ON INCORPORATED

Item 8: Financial Statements and Supplementary Data

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

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

None.

Item 9A: Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), the company’s management evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of the company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2022. Based upon their evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of December 31, 2022, to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission rules and forms, and to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control

There has not been any change in the company’s internal control over financial reporting during the quarter ended December 31, 2022, that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting (as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)).

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our internal control over financial reporting based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013). Based on this assessment, the company’s management believes that, as of December 31, 2022, our internal control over financial reporting was effective at a reasonable assurance level. The company’s internal control over financial reporting as of December 31, 2022, has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in its attestation report, which is included herein.

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Snap-on Incorporated and subsidiaries (the “Company”) as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2022, of the Company and our report dated February 9, 2023, expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company’s adoption of Accounting Standard Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326).

Basis for Opinion

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

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

Definition and Limitations of Internal Control over Financial Reporting

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

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

/s/ DELOITTE & TOUCHE LLP

Milwaukee, Wisconsin

54 SNAP-ON INCORPORATED

Item 9B: Other Information

None.

Item 9C: Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

PART III

Item 10: Directors, Executive Officers and Corporate Governance

Incorporated by reference to the sections entitled “Item 1: Election of Directors,” “Corporate Governance Practices and Board Information” and “Other Information” in Snap-on’s 2023 Annual Meeting Proxy Statement, which is expected to be mailed to shareholders on or about March 10, 2023 (the “2023 Proxy Statement”).

The Section 16(a) filing compliance disclosure pursuant to Item 405 of Regulation S-K is contained in Snap-on’s 2023 Proxy Statement in the section entitled “Other Information – Delinquent Section 16(a) Reports,” and is incorporated herein by reference.

Information about our Executive Officers

Information regarding Snap-on’s executive officers, including their ages, business experience (for at least the last five years) and titles as of December 31, 2022, is presented below:

Nicholas T. Pinchuk (76) – Chairman of the Board of Directors since 2009, President and Chief Executive Officer since December 2007, and President and Chief Operating Officer during 2007. Senior Vice President and President – Worldwide Commercial & Industrial Group from 2002 to 2007. Prior to joining Snap-on, Mr. Pinchuk held various positions, including President of Global Refrigeration Operations and President of Asia Pacific Operations, at Carrier Corporation, a producer of air conditioning, heating and refrigeration systems, and a subsidiary of United Technologies Corporation. Mr. Pinchuk served as an officer of the U.S. Army in Vietnam.

Aldo J. Pagliari (68) – Senior Vice President – Finance and Chief Financial Officer since 2010.

Jesus M. Arregui (57) – Senior Vice President and President – Commercial Group since 2019. President of SNA Europe from 2015 to 2019.

Anup R. Banerjee (72) – Senior Vice President – Human Resources and Chief Development Officer since 2015.

Iain Boyd (60) – Vice President – Operations Development since 2015.

Timothy L. Chambers (58) – Senior Vice President and President – Snap-on Tools Group since 2019. President of Commercial Group from 2015 to 2019.

June C. Lemerand (60) – Vice President and Chief Information Officer since 2017.

Richard T. Miller (52) – Vice President, General Counsel and Secretary since 2018. Associate General Counsel from 2012 to 2018.

Marty V. Ozolins (51) – Vice President and Controller since 2021. Vice President, and formerly Director, of Internal Audit from 2016 to 2021.

Thomas J. Ward (70) – Senior Vice President and President – Repair Systems & Information Group since 2010.

Snap-on’s executive officers include a woman, a veteran of the U.S. Army, and two executives who are ethnically diverse.

Additionally, there is no family relationship among the executive officers and there has been no involvement in legal proceedings during the past 10 years that would be material to the evaluation of the ability or integrity of any of the executive officers. Executive officers may either be elected by the Board or may be appointed by the Chief Executive Officer at the regular meeting of the Board that follows the Annual Shareholders’ Meeting, which is ordinarily held in April each year, or at such other times as new positions are created or vacancies must be filled.

Code of Ethics and Website Disclosure

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

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

Item 11: Executive Compensation

The information required by Item 11 is contained in Snap-on’s 2023 Proxy Statement in the sections entitled “Executive Compensation,” “Board Compensation,” “Compensation Committee Report,” and “Other Information” and is incorporated herein by reference.

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

The following table sets forth information about Snap-on’s equity compensation plans at 2022 year end: