Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations

Caution Regarding Forward-Looking Statements:

Statements in this document that are not historical facts, including statements that (i) are in the future tense; (ii) include the words "expects," "plans," "targets," "estimates," "believes," "anticipates," or similar words that reference Snap-on Incorporated ("Snap-on" or "the company") or its management;
(iii) are specifically identified as forward-looking; or (iv) describe Snap-on's or management's future outlook, plans, estimates, objectives or goals, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Snap-on cautions the reader that any forward-looking statements included in this document that are based upon assumptions and estimates were developed by management in good faith and are subject to risks, uncertainties or other factors that could cause (and in some cases have caused) actual results to differ materially from those described in any such statement. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results or regarded as a representation by the company or its management that the projected results will be achieved. For those forward-looking statements, Snap-on cautions the reader that numerous important factors, such as those listed below, as well as those factors discussed in its Annual Report on Form 10-K for the fiscal year ended January 3, 2009, which are incorporated herein by reference, could affect the company's actual results and could cause its actual consolidated results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, Snap-on.

These risks and uncertainties include, without limitation, uncertainties related to estimates, statements, assumptions and projections generally, and the timing and progress with which Snap-on can attain efficiencies and savings from its Rapid Continuous Improvement and other cost reduction (collectively "Rapid Continuous Improvement" or "RCI") initiatives, including its ability to implement reductions in workforce, achieve improvements in the company's manufacturing footprint and greater efficiencies in its supply chain, and enhance machine maintenance, plant productivity and manufacturing line set-up and change-over practices, any or all of which could result in production inefficiencies, higher costs and lost revenues. These risks also include uncertainties related to Snap-on's capability to implement future strategies with respect to its existing businesses, its ability to refine its brand and franchise strategies, retain and attract franchisees, further enhance service and value to franchisees and thereby enhance their sales and profitability, introduce successful new products, successfully integrate acquisitions, as well as its ability to withstand disruption arising from natural disasters, planned facility closures or other labor interruptions, litigation challenges and external negative factors including the current instability in world credit and financial markets, weakness in the global economy, the substantial weakness and uncertainty in the U.S. automotive industry, and significant changes in the current competitive environment, inflation, interest rates and other monetary and market fluctuations, and the impact of legal proceedings, energy and raw material supply and pricing, including steel and gasoline, the amount, rate and growth of Snap-on's general and administrative expenses, including health care and postretirement costs, the impacts of non-strategic business and/or product line rationalizations, and terrorist disruptions on business. Interim results of operations are not necessarily indicative of the results to be expected for the full fiscal year. Snap-on disclaims any responsibility to update any forward-looking statement provided in this document, except as required by law.

In addition, investors should be aware that generally accepted accounting principles in the United States of America ("U.S. GAAP") prescribe when a company should reserve for particular risks, including litigation exposures. Accordingly, results for a given reporting period could be significantly affected if and when a reserve is established for a major contingency. Reported results, therefore, may appear to be volatile in certain accounting periods.

RESULTS OF OPERATIONS



Results of operations for the three month periods ended April 4, 2009, and
March 29, 2008, are as follows:



                                               Three Months Ended
(Amounts in millions)       April 4, 2009        March 29, 2008            Change
Net sales                $  572.6    100.0%    $  721.6    100.0%    $ (149.0 )  -20.6%
Cost of goods sold         (313.9 )  -54.8%      (395.7 )  -54.8%        81.8     20.7%
Gross profit                258.7     45.2%       325.9     45.2%       (67.2 )  -20.6%

Financial services
revenue                      20.0    100.0%        25.4    100.0%        (5.4 )  -21.3%
Financial services
expenses                    (10.0 )  -50.0%       (12.6 )  -49.6%         2.6     20.6%
Operating income from
financial services           10.0     50.0%        12.8     50.4%        (2.8 )  -21.9%

Operating expenses         (204.4 )  -35.7%      (245.5 )  -34.0%        41.1     16.7%
Operating earnings           64.3     10.9%        93.2     12.5%       (28.9 )  -31.0%

Interest expense             (8.6 )   -1.5%        (9.5 )   -1.3%         0.9      9.5%
Other income
(expense) - net              (0.3 )   -0.1%         1.0      0.1%        (1.3 )      NM
Earnings before
income taxes and
equity earnings              55.4      9.3%        84.7     11.3%       (29.3 )  -34.6%
Income tax expense          (18.3 )   -3.0%       (28.3 )   -3.8%        10.0     35.3%
Net earnings before
equity earnings              37.1      6.3%        56.4      7.5%       (19.3 )  -34.2%
Equity earnings, net
of tax                        0.1      -            1.3      0.2%        (1.2 )      NM
Net earnings                 37.2      6.3%        57.7      7.7%       (20.5 )  -35.5%
Net earnings
attributable to
noncontrolling
interests                    (2.4 )   -0.4%        (1.1 )   -0.1%        (1.3 )      NM
Net earnings
attributable to
Snap-on Incorporated     $   34.8      5.9%    $   56.6      7.6%    $  (21.8 )  -38.5%

Percentage Disclosure: Cost of goods sold, Gross profit and Operating expenses percentages are calculated as a percentage of Net sales. Financial services expenses and Operating income from financial services percentages are calculated as a percentage of Financial services revenue. All other income statement line item percentages are calculated as a percentage of the sum of Net sales and Financial services revenue.

Net sales in the first quarter of 2009 of $572.6 million were down $149.0 million, or 20.6%, from 2008 levels, reflecting continued declines in consumer and business spending across all business segments as a result of worsening global economic conditions. The year-over-year sales decline also includes $54.5 million of unfavorable currency translation largely due to the strengthening of the dollar. Snap-on has significant international operations and is subject to certain risks inherent with foreign operations, including currency translation fluctuations. Excluding the $54.5 million of unfavorable currency translation, organic (excluding foreign currency translation effects) sales in the first quarter of 2009 declined 13.1% from 2008 levels.

Sales in the Commercial & Industrial Group of $259.8 million were down $96.9 million, or 27.2%, year over year. Excluding $33.6 million of unfavorable currency translation, organic sales in the Commercial & Industrial Group declined 17.7% year-over-year primarily due to continued lower sales of professional tools in Europe and lower sales of equipment worldwide. Sales in the Snap-on Tools Group of $242.4 million were down $46.9 million, or 16.2%, year over year primarily due to the continued challenging sales environment, particularly for sales of higher-price items. Excluding $15.9 million of unfavorable currency translation, organic sales in the Snap-on Tools Group declined 10.7%

year over year. In the Diagnostics & Information Group, sales of $132.5 million were down $22.5 million, or 14.5%, from 2008 levels as higher sales of diagnostics products in Europe and increased sales of Mitchell1™ information products were more than offset by lower essential tool and facilitation program sales to Original Equipment Manufacturer ("OEM") dealerships, $6.7 million of unfavorable currency translation, and lower sales of diagnostics products in North America. Excluding the $6.7 million of unfavorable currency translation, organic sales in the Diagnostics & Information Group declined 10.2%.

Gross profit in the first quarter of 2009 was $258.7 million as compared to $325.9 million in 2008. The $67.2 million decline in year-over-year gross profit is primarily due to lower sales volumes, including the costs to carry manufacturing capacity in light of production slowdowns, and $26.2 million of unfavorable currency effects. These year-over-year declines in gross profit were partially offset by $7.3 million of savings from efficiency, productivity and cost reduction (collectively "Rapid Continuous Improvement" or "RCI") initiatives, contributions from price increases taken in 2008, and $1.0 million of lower restructuring costs. As a percentage of sales, gross profit was 45.2% in both the first quarters of 2009 and 2008.

Operating expenses in the first quarter of 2009 were $204.4 million, as compared to $245.5 million in 2008. In addition to lower volume-related and other expenses, the $41.1 million reduction in year-over-year operating expenses primarily resulted from $16.0 million of currency translation, $10.9 million of benefits from ongoing RCI initiatives, and lower performance-based and stock-based compensation expense, as well as $1.9 million of lower restructuring costs. As a percentage of net sales, operating expenses were 35.7% in the first quarter of 2009, as compared to 34.0% in 2008.

Operating income from Financial Services was $10.0 million on revenue of $20.0 million in the first quarter of 2009, as compared with $12.8 million of operating income on revenue of $25.4 million in 2008. The year-over-year declines in both revenue and operating income are primarily due to lower levels of originations partially offset by contributions from lower market discount rates.

Consolidated operating earnings in the first quarter of 2009 of $64.3 million were down $28.9 million, or 31.0%, from the $93.2 million achieved in the first quarter of 2008. Unfavorable currency effects contributed $11.0 million of the $28.9 million decrease in year-over-year operating earnings.

Interest expense of $8.6 million in the first quarter of 2009 was down $0.9 million from the prior year primarily due to declining interest rates on the company's floating rate debt, partially offset by higher interest expense as a result of the company's issuance of $300 million of fixed rate, long-term notes on February 24, 2009. See Note 8 to the Condensed Consolidated Financial Statements for information on the company's debt and credit facilities.

Other income (expense) - net was expense of $0.3 million in the first quarter of 2009, as compared to income of $1.0 million in 2008. Other income (expense) - net primarily includes interest income and hedging and currency exchange rate transaction gains and losses. See Note 16 to the Condensed Consolidated Financial Statements for information on other income (expense) - net.

Snap-on's effective income tax rate on earnings before equity earnings was 33.0% in the first quarter of 2009 and 33.4% in the first quarter of 2008; Snap-on anticipates that its full-year effective income tax rate will approximate 33.4% in 2009. See Note 7 to the Condensed Consolidated Financial Statements for information on income taxes.

On March 5, 2008, Snap-on acquired a 60% interest in Zhejiang Wanda Tools Co., Ltd. ("Wanda Snap-on"), a tool manufacturer in China, for a preliminary cash purchase price of $14.7 million (or $13.4 million, net of cash acquired), including $1.1 million of transaction costs. Subsequent to March 5, 2008, Snap-on completed its purchase accounting related to the Wanda Snap-on acquisition for a total purchase price of $15.4 million (or $14.1 million, net of cash acquired), including $1.2 million of transaction costs. The acquisition of Wanda Snap-on is part of the company's ongoing strategic initiatives to further expand its manufacturing presence in emerging growth markets and lower-cost regions. For segment reporting purposes, the results of Wanda Snap-on, which have been included in Snap-on's consolidated financial statements since the date of acquisition, are included in the Commercial & Industrial Group. The net sales and operating earnings impact of the acquisition were not material to Snap-on's first quarter 2008 or 2009 results of operations or financial position.

Net earnings attributable to Snap-on Incorporated in the first quarter of 2009 were $34.8 million, or $0.60 per diluted share, as compared with $56.6 million, or $0.97 per diluted share, in 2008.

Exit and Disposal Activities

Snap-on recorded exit and disposal costs of $2.0 million in the first quarter of 2009 as compared to $4.6 million of such costs in the first quarter of 2008. Snap-on currently anticipates that full-year 2009 exit and disposal costs will be in a range of $14 million to $18 million, as compared to the $14.7 million incurred in full-year 2008. See Note 6 to the Condensed Consolidated Financial Statements for information on Snap-on's exit and disposal activities.

Segment Results

Snap-on's business segments are based on the organization structure used by management for making operating and investment decisions and for assessing performance. Snap-on's reportable business segments include: (i) the Commercial & Industrial Group; (ii) the Snap-on Tools Group; (iii) the Diagnostics & Information Group; and (iv) Financial Services. The Commercial & Industrial Group consists of the business operations providing tools and equipment products and equipment repair services to a broad range of industrial and commercial customers worldwide through direct, distributor and other non-franchise distribution channels. The Snap-on Tools Group consists of the business operations serving the worldwide franchise van channel. The Diagnostics & Information Group consists of the business operations providing diagnostics equipment, vehicle service information, business management systems, electronic parts catalogs, and other solutions for vehicle service to customers in the worldwide vehicle service and repair marketplace. Financial Services consists of the business operations of Snap-on Credit LLC ("SOC"), a consolidated, 50%-owned joint venture between Snap-on and The CIT Group, Inc. ("CIT"), and Snap-on's wholly owned finance subsidiaries in those international markets where Snap-on has franchise operations.

Snap-on evaluates the performance of its operating segments based on segment revenues and operating earnings. For the Commercial & Industrial, Snap-on Tools, and Diagnostics & Information Groups, segment net sales include both external and intersegment net sales. 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, deferred income taxes, pension assets and certain other assets. Intersegment amounts are eliminated to arrive at consolidated financial results.

Commercial & Industrial Group



                                                Three Months Ended
(Amounts in millions)          April 4, 2009      March 29, 2008          Change
External net sales           $ 229.0    88.1%    $ 316.1    88.6%    $ (87.1 ) -27.6%
Intersegment net sales          30.8    11.9%       40.6    11.4%       (9.8 ) -24.1%
Segment net sales              259.8   100.0%      356.7   100.0%      (96.9 ) -27.2%

Segment net sales of $259.8 million were down $96.9 million, or 27.2%, year over year. Excluding $33.6 million of unfavorable currency translation, sales declined 17.7% year over year primarily due to continued lower sales of professional tools in Europe and lower sales of equipment worldwide; sales in the company's worldwide industrial businesses declined 6.0%.

Segment gross profit of $92.1 million in the first quarter of 2009 was down $40.8 million, or 180 basis points (100 basis points equals 1.0 percent) from 2008 levels. The $40.8 million decline in year-over-year gross profit is primarily due to the lower sales volumes, including the costs to carry manufacturing capacity in light of production slowdowns, $13.4 million of unfavorable currency impacts, and $2.8 million of higher production and material costs. These declines in year-over-year gross profit were partially offset by benefits from price increases taken in 2008 and $3.7 million of savings from ongoing RCI initiatives. Operating expenses of $74.1 million in the quarter were down $20.6 million from 2008 levels primarily due to $9.5 million of currency translation, lower volume-related and other expenses, and $2.9 million of savings from ongoing RCI initiatives. Restructuring costs in the first quarter of 2009 totaled $1.3 million as compared to $1.4 million in the first quarter of 2008. As a result of these factors, segment operating earnings in the first quarter of 2009 declined $20.2 million from 2008 levels and, as a percentage of net sales, declined from 10.7% in 2008 to 6.9% in 2009. The $20.2 million decrease in year-over-year operating earnings includes $2.4 million of unfavorable currency impacts.

Snap-on Tools Group

Segment net sales in the first quarter of 2009 of $242.4 million were down $46.9 million, or 16.2%, year over year, primarily due to the continued challenging sales environment, particularly for sales of higher-price items. Excluding $15.9 million of unfavorable currency translation, organic sales declined 10.7% year over year. Sales to U.S. franchisees declined 16.9% year over year, while organic sales in the company's international franchise operations increased 6.3% primarily due to higher sales in the United Kingdom and Australia. As of April 4, 2009, van levels in the United States were essentially flat with both year-end 2008 and prior-year levels.

Segment gross profit of $102.7 million in the first quarter of 2009 declined $22.6 million from $125.3 million in the first quarter of 2008 primarily due to the lower sales volumes, including the costs to carry manufacturing capacity in light of production slowdowns, and unfavorable currency impacts. Unfavorable currency translation reduced year-over-year gross profit by $6.3 million and the stronger U.S. dollar decreased international margins on U.S. sourced product by $5.3 million. These declines in year-over-year gross profit were partially offset by lower warranty expense as a result of continued favorable trend rates and $1.5 million of savings from ongoing RCI initiatives. Operating expenses of $81.6 million in the quarter declined $9.3 million from prior-year levels primarily due to $5.0 million of savings from RCI initiatives, $3.9 million of currency translation and lower volume-related expenses. Restructuring costs in 2009 were down $1.3 million from prior-year levels. As a result of these factors, segment operating earnings in the first quarter of 2009 decreased $13.3 million from 2008 levels and, as a percentage of net sales, declined from 11.9% in 2008 to 8.7% in 2009. The $13.3 million decrease in year-over-year operating earnings includes $7.7 million of unfavorable currency impacts.

Diagnostics & Information Group



                                                Three Months Ended
(Amounts in millions)          April 4, 2009      March 29, 2008          Change
External net sales           $ 101.2    76.4%    $ 116.2    75.0%    $ (15.0 ) -12.9%
Intersegment net sales          31.3    23.6%       38.8    25.0%       (7.5 ) -19.3%
Segment net sales              132.5   100.0%      155.0   100.0%      (22.5 ) -14.5%

Segment net sales of $132.5 million were down $22.5 million, or 14.5%, from prior-year levels. Excluding $6.7 million of unfavorable currency translation, year-over-year organic sales declined 10.2% as higher sales of diagnostics products in Europe and increased sales of Mitchell1™ information products were more than offset by lower essential tool and facilitation program sales to OEM dealerships and lower sales of diagnostics products in North America.

Segment gross profit of $63.9 million in the first quarter of 2009 decreased $3.8 million from 2008 levels as the impacts of the lower sales volumes, $1.9 million of higher software development costs and $2.7 million of unfavorable currency impacts were partially offset by $2.1 million of savings from RCI initiatives. Operating expenses of $38.2 million in the quarter were down $9.1 million from 2008 levels primarily due to $3.0 million of savings from RCI initiatives, $2.6 million of currency translation, and lower volume-related and other expenses. Restructuring costs in the first quarter of 2008 totaled $1.8 million; no restructuring costs were incurred in the first quarter of 2009. As a result of these factors, segment operating earnings in the first quarter of 2009 improved as a percentage of net sales from 13.2% in 2008 to 19.4% in 2009. The $5.3 million year-over-year increase in operating earnings includes $0.1 million of unfavorable currency impacts.

Financial Services

Operating income was $10.0 million on revenue of $20.0 million in the first quarter of 2009, as compared with $12.8 million of operating income on revenue of $25.4 million in 2008. The $2.8 million decline in year-over-year segment operating income is primarily due to lower levels of originations partially offset by contributions from lower market discount rates. Originations of $115.8 million in the quarter declined 21.1% from 2008 levels primarily due to lower sales of higher-price items.

Corporate

Snap-on's general corporate expenses of $10.5 million in the first quarter of 2009 declined $2.1 million from $12.6 million in the first quarter of 2008. The $2.1 million decrease in year-over-year corporate expenses primarily reflects lower levels of performance-based and stock-based incentive compensation expense, partially offset by $3.0 million of expected higher pension expense as a result of declines in pension asset values.

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, coupled with its sources of borrowings and available cash on hand, are sufficient to fund its anticipated requirements for working capital, capital expenditures, restructuring activities, acquisitions, common stock repurchases and dividend payments. Due to Snap-on's credit rating over the years, external funds have been available at a reasonable cost. As of the close of business on April 30, 2009, Snap-on's long-term debt and commercial paper was rated A3 and P-2 by Moody's Investors Service and A- and A-2 by Standard & Poor's. Snap-on believes that the strength of its balance sheet affords the company the financial flexibility to respond to both internal growth opportunities and those available through acquisitions.

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

As of April 4, 2009, working capital (defined as current assets less current liabilities) was $752.5 million, as compared to $593.2 million as of January 3, 2009. The following represents the company's working capital position as of April 4, 2009, and January 3, 2009:

                                                          April 4,     January 3,
(Amounts in millions)                                       2009          2009
Cash and cash equivalents                                 $ 400.7      $    115.8
Accounts receivable - net of allowances                     478.3           522.1
Inventories - net                                           340.7           359.2
Other current assets                                        136.7           143.6
Total current assets                                      1,356.4         1,140.7

Accounts payable                                           (119.0 )        (126.0 )
. . .