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 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, the need to provide financing for the contracts and loans originated by Snap-on Credit LLC due to the termination of Snap-on's joint venture with The CIT Group, Inc., 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, terrorist disruptions and epidemics 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.

Snap-on Credit

On July 16, 2009, Snap-on terminated its 50/50 joint venture agreement with The CIT Group, Inc. ("CIT") relating to the parties' Snap-on Credit LLC ("SOC") financial services joint venture. Snap-on subsequently purchased CIT's ownership interest in SOC for $8.1 million pursuant to Snap-on's rights under the agreement. Since 2004, Snap-on has included the accounts of SOC in its consolidated financial statements as Snap-on concluded that it was the primary beneficiary of the joint venture arrangement.

The operations of SOC are expected to be uninterrupted by this event and all activities surrounding the financing of extended credit contracts to
(i) franchisees; (ii) franchisees' customers' and (iii) Snap-on's industrial and other customers for the purchase of tools, equipment and diagnostics products will continue without change. SOC will continue to service the remaining portfolio of contracts, estimated at approximately $722 million as of October 3, 2009, that were previously sold to and remain owned by CIT; Snap-on has no obligation to purchase the portfolio of contracts owned by CIT.

Since July 16, 2009, Snap-on is providing financing for new contracts originated by SOC. New contracts originated by SOC are reflected as contract and finance receivables on the company's balance sheet and the company is recording the interest yield on these receivables over the life of the contract as financial services revenue. Previously, the company recorded gains on contracts sold to CIT as financial services revenue. Snap-on believes that it has sufficient available cash, cash flow from operating activities, and available credit facilities, including access to public debt markets, to fund the financing needs of SOC.

RESULTS OF OPERATIONS

Results of operations for the three month periods ended October 3, 2009, and
September 27, 2008, are as follows:



                                                                  Three Months Ended
(Amounts in millions)                       October 3, 2009         September 27, 2008            Change
Net sales                               $     581.8      100.0%   $    697.8      100.0%   $ (116.0 )    -16.6%
Cost of goods sold                           (321.3 )    -55.2%       (385.6 )    -55.3%       64.3       16.7%

Gross profit                                  260.5       44.8%        312.2       44.7%      (51.7 )    -16.6%
Operating expenses                           (206.5 )    -35.5%       (230.6 )    -33.0%       24.1       10.5%

Operating earnings before financial
services                                       54.0        9.3%         81.6       11.7%      (27.6 )    -33.8%

Financial services revenue                      6.0      100.0%         18.0      100.0%      (12.0 )    -66.7%
Financial services expenses                   (11.3 )    188.3%        (13.2 )    -73.3%        1.9       14.4%

Operating earnings (loss) from
financial services                             (5.3 )    -88.3%          4.8       26.7%      (10.1 )        NM


Operating earnings                             48.7        8.3%         86.4       12.1%      (37.7 )    -43.6%
Interest expense                              (12.8 )     -2.2%         (6.8 )     -0.9%       (6.0 )    -88.2%
Other income (expense) - net                    0.2          -           1.0        0.1%       (0.8 )    -80.0%

Earnings before income taxes and
equity earnings                                36.1        6.1%         80.6       11.3%      (44.5 )    -55.2%
Income tax expense                            (10.3 )     -1.7%        (26.8 )     -3.8%       16.5       61.6%

Earnings before equity earnings                25.8        4.4%         53.8        7.5%      (28.0 )    -52.0%
Equity earnings, net of tax                     0.6        0.1%          1.2        0.2%       (0.6 )    -50.0%

Net earnings                                   26.4        4.5%         55.0        7.7%      (28.6 )    -52.0%
Net earnings attributable to
noncontrolling interests                       (1.0 )     -0.2%         (0.4 )     -0.1%       (0.6 )        NM

Net earnings attributable to Snap-on
Incorporated                            $      25.4        4.3%   $     54.6        7.6%   $  (29.2 )    -53.5%

NM: Not meaningful

Percentage Disclosure: All income statement line item percentages below "Operating earnings (loss) from financial services" are calculated as a percentage of the sum of Net sales and Financial services revenue.

Net sales in the third quarter of 2009 of $581.8 million were down $116.0 million, or 16.6%, from 2008 levels, reflecting the continuing impact of the ongoing global recession. The year-over-year sales decline also included $21.0 million of unfavorable currency translation. Snap-on has significant international operations and is subject to certain risks inherent with foreign operations, including currency translation fluctuations. Excluding the $21.0 million of unfavorable currency translation, organic (excluding foreign currency translation effects) sales in the third quarter of 2009 declined 13.6% from 2008 levels.

Sales in the Commercial & Industrial Group of $265.4 million were down $72.7 million, or 21.5%, year over year. Excluding $14.4 million of unfavorable currency translation, organic sales in the Commercial & Industrial Group declined 17.2% year over year primarily due to the continued economic downturn, particularly as it has affected European sales. Sales in the Snap-on Tools Group of $246.6 million declined $22.9 million, or 8.5%, year over year. Excluding $3.9 million of unfavorable currency translation, organic sales in the Snap-on Tools Group declined 7.1% year over year. In the Diagnostics & Information Group, sales of $132.0 million were down $23.1 million, or 14.9%, from 2008 levels primarily due to lower essential tool and facilitation program sales to Original Equipment Manufacturer ("OEM") dealerships. Excluding $3.6 million of unfavorable currency translation, organic sales in the Diagnostics & Information Group declined 12.6%.

Gross profit in the third quarter of 2009 was $260.5 million as compared to $312.2 million in 2008. The $51.7 million decline in year-over-year gross profit is primarily due to the lower sales volumes, costs to carry manufacturing capacity in light of lower demand and inventory reduction efforts, $11.6 million of unfavorable currency effects and $4.0 million of higher restructuring costs. These declines in gross profit were partially offset by $17.0 million of savings from ongoing efficiency and productivity (collectively "Rapid Continuous Improvement" or "RCI") initiatives and other cost reduction activities, including benefits from restructuring and material cost reduction. Gross profit in the third quarter of 2009 included $3.5 million of LIFO-related inventory benefits as a result of lower inventory levels; gross profit in the third quarter of 2008 included $2.9 million of LIFO-related inventory expense. As a percentage of sales, gross profit margin of 44.8% in the third quarter of 2009 improved 10 basis points (100 basis points equals 1.0 percent) from 44.7% in the third quarter of 2008.

Operating expenses in the third quarter of 2009 were $206.5 million as compared to $230.6 million in 2008. In addition to lower volume-related expenses, the $24.1 million reduction in year-over-year operating expenses primarily resulted from $18.7 million of benefits from ongoing RCI, restructuring and other cost reduction initiatives, $6.1 million of currency translation, and $0.7 million of lower restructuring costs. These declines in operating expenses were partially offset by $3.0 million of higher pension expense primarily as a result of declines in pension asset values. As a percentage of net sales, operating expenses were 35.5% in the third quarter of 2009 as compared to 33.0% in 2008.

Operating loss from Financial Services was $5.3 million on revenue of $6.0 million in the third quarter of 2009 as compared with operating earnings of $4.8 million on revenue of $18.0 million in 2008. In the third quarter of 2009, loan originations of $127.0 million increased 2.2% from comparable 2008 levels. On July 16, 2009, Snap-on terminated the company's financial services joint venture agreement with CIT. Since July 16, 2009, Snap-on is providing financing for new contracts originated by SOC and SOC is recording the interest yield on the new on-balance-sheet finance portfolio over the life of the contracts as financial services revenue; previously, SOC sold new contract originations to CIT and recorded gains on the sale of the contracts as financial services revenue. The change from recognizing gains on contract sales to CIT to recognizing the interest yield on the on-balance-sheet finance portfolio primarily resulted in the year-over-year declines in both revenues and operating earnings. See Note 2 and Note 3 to the Condensed Consolidated Financial Statements for further information.

Consolidated operating earnings in the third quarter of 2009 of $48.7 million declined $37.7 million, or 43.6%, from the $86.4 million achieved in the third quarter of 2008. Unfavorable currency effects and higher restructuring costs contributed $5.8 million and $3.3 million, respectively, of the $37.7 million decrease in year-over-year operating earnings.

Interest expense of $12.8 million in the third quarter of 2009 was up $6.0 million from the prior year primarily due to higher debt levels as a result of the company's issuance of $300 million of fixed rate, long-term notes on February 24, 2009, and $250 million of fixed rate, long-term notes on August 14, 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 income of $0.2 million in the third quarter of 2009 as compared to income of $1.0 million in 2008. Other income (expense) - net primarily included interest income as well as hedging and currency exchange rate transaction gains and losses. See Note 16 to the Condensed Consolidated Financial Statements for further information.

Snap-on's effective income tax rate on earnings attributable to Snap-on was 29.3% in the third quarter of 2009 and 33.4% in the third quarter of 2008. The lower third quarter 2009 effective income tax rate is primarily due to the favorable resolution of certain tax matters, the impact of increased earnings attributable to noncontrolling interests that are not taxable to Snap-on, and a more favorable mix of foreign earnings. 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. 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. Pro forma financial information has not been presented as the net effects of the acquisition were not material to Snap-on's results of operations or financial position.

Net earnings attributable to Snap-on in the third quarter of 2009 were $25.4 million, or $0.44 per diluted share. Net earnings attributable to Snap-on in the third quarter of 2008 were $54.6 million, or $0.94 per diluted share.

Results of operations for the nine month periods ended October 3, 2009, and September 27, 2008, are as follows:

                                                                   Nine Months Ended
(Amounts in millions)                    October 3, 2009           September 27, 2008              Change
Net sales                            $  1,744.4        100.0%   $  2,185.5        100.0%   $  (441.1 )      -20.2%
Cost of goods sold                       (971.2 )      -55.7%     (1,200.9 )      -54.9%       229.7         19.1%

Gross profit                              773.2         44.3%        984.6         45.1%      (211.4 )      -21.5%
Operating expenses                       (611.2 )      -35.0%       (721.7 )      -33.0%       110.5         15.3%

Operating earnings before
financial services                        162.0          9.3%        262.9         12.1%      (100.9 )      -38.4%

Financial services revenue                 51.6        100.0%         61.7        100.0%       (10.1 )      -16.4%
Financial services expenses               (30.3 )      -58.7%        (33.3 )      -54.0%         3.0          9.0%

Operating earnings from financial
services                                   21.3         41.3%         28.4         46.0%        (7.1 )      -25.0%


Operating earnings                        183.3         10.2%        291.3         13.0%      (108.0 )      -37.1%
Interest expense                          (33.0 )       -1.8%        (25.1 )       -1.1%        (7.9 )      -31.5%
Other income (expense) - net                1.0          0.1%          3.3          0.1%        (2.3 )      -69.7%

Earnings before income taxes and
equity earnings                           151.3          8.5%        269.5         12.0%      (118.2 )      -43.9%
Income tax expense                        (46.2 )       -2.6%        (89.6 )       -4.0%        43.4         48.4%

Earnings before equity earnings           105.1          5.9%        179.9          8.0%       (74.8 )      -41.6%
Equity earnings, net of tax                 0.5             -          3.2          0.1%        (2.7 )      -84.4%

Net earnings                              105.6          5.9%        183.1          8.1%       (77.5 )      -42.3%
Net earnings attributable to
noncontrolling interests                   (8.0 )       -0.5%         (5.0 )       -0.2%        (3.0 )      -60.0%

Net earnings attributable to
Snap-on Incorporated                 $     97.6          5.4%   $    178.1          7.9%   $   (80.5 )      -45.2%

Percentage Disclosure: All income statement line item percentages below "Operating earnings from financial services" are calculated as a percentage of the sum of Net sales and Financial services revenue.

Net sales in the first nine months of 2009 of $1,744.4 million were down $441.1 million, or 20.2%, from 2008 levels reflecting the adverse effects of the ongoing global recession. The year-over-year sales decline also included $125.7 million of unfavorable currency translation. Snap-on has significant international operations and is subject to certain risks inherent with foreign operations, including currency translation fluctuations. Excluding the $125.7 million of unfavorable currency translation, organic sales in the first nine months of 2009 declined 14.4% from 2008 levels.

Sales in the Commercial & Industrial Group of $781.6 million declined $300.9 million, or 27.8%, year over year. Excluding $81.2 million of unfavorable currency translation, organic sales in the Commercial & Industrial Group declined 20.3% year over year. Sales in the Snap-on Tools Group of $747.3 million were down $104.3 million, or 12.2%, year over year. Excluding $32.2 million of unfavorable currency translation, organic sales in the Snap-on Tools Group declined 8.5% year over year. In the Diagnostics & Information Group, sales of $401.5 million were down $73.4 million, or 15.5%, from 2008 levels primarily due to lower essential tool and facilitation program sales to OEM dealerships. Excluding $17.5 million of unfavorable currency translation, organic sales in the Diagnostics & Information Group declined 11.8%.

Gross profit in the first nine months of 2009 was $773.2 million as compared to $984.6 million in 2008. The $211.4 million decline in year-over-year gross profit is primarily due to the lower sales volumes, costs to carry manufacturing capacity in light of lower demand and inventory reduction efforts, $61.0 million of unfavorable currency effects and $8.7 million of higher restructuring costs. These declines in gross profit were partially offset by $37.1 million of savings from ongoing RCI, restructuring and other cost reduction initiatives. As a result of these factors, gross profit margin of 44.3% in 2009 declined 80 basis points from 45.1% in 2008.

Operating expenses in the first nine months of 2009 were $611.2 million as compared to $721.7 million in 2008. In addition to lower volume-related and other expenses, the $110.5 million reduction in year-over-year operating expenses primarily resulted from $46.8 million of benefits from ongoing RCI, restructuring and other cost reduction initiatives, $35.6 million of currency translation, and lower performance-based and stock-based compensation expense. These declines in operating expenses were partially offset by $9.0 million of higher pension expense primarily as a result of declines in pension asset values. As a percentage of net sales, operating expenses were 35.0% in the first nine months of 2009 as compared to 33.0% in 2008.

Operating earnings from Financial Services was $21.3 million on revenue of $51.6 million in the first nine months of 2009, as compared with $28.4 million of operating earnings on revenue of $61.7 million in 2008. For the first nine months of 2009, loan originations of $366.9 million were down 5.3% from comparable 2008 levels. On July 16, 2009, Snap-on terminated the company's financial services joint venture agreement with CIT. Since July 16, 2009, Snap-on is providing financing for new contracts originated by SOC and SOC is recording the interest yield on the new on-balance-sheet finance portfolio over the life of the contracts as financial services revenue; previously, SOC sold new contract originations to CIT and recorded gains on the sale of the contracts as financial services revenue. The year-over-year decrease in Financial Services' revenues and operating earnings is primarily due to the third-quarter 2009 change from recognizing gains on contract sales to CIT to recognizing the interest yield on the on-balance-sheet finance portfolio, as well as the impact of lower levels of originations; these decreases were partially offset by the impact of higher customer yields as a result of lower market discount rates. See Note 2 and Note 3 to the Condensed Consolidated Financial Statements for further information.

Consolidated operating earnings in the first nine months of 2009 of $183.3 million were down $108.0 million, or 37.1%, from the $291.3 million achieved in the first nine months of 2008. Unfavorable currency effects and higher restructuring costs contributed $27.1 million and $7.3 million, respectively, of the $108.0 million decrease in year-over-year operating earnings.

Interest expense of $33.0 million in the first nine months of 2009 was up $7.9 million from the prior year primarily due to higher debt levels as a result of the company's issuance of $300 million of fixed rate, long-term notes on February 24, 2009, and $250 million of fixed rate, long-term notes on August 14, 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 income of $1.0 million in the first nine months of 2009 as compared to income of $3.3 million in 2008. Other income (expense) - net primarily included interest income and hedging and currency exchange rate transaction gains and losses. See Note 16 to the Condensed Consolidated Financial Statements for further information.

Snap-on's effective income tax rate on earnings attributable to Snap-on was 32.2% in the first nine months of 2009 and 33.9% in the first nine months of 2008. The lower effective tax rate in 2009 is primarily due to the favorable resolution of certain tax matters and the impact of increased earnings attributable to noncontrolling interests that are not taxable to Snap-on. See Note 7 to the Condensed Consolidated Financial Statements for information on income taxes.

Net earnings attributable to Snap-on in the first nine months of 2009 were $97.6 million, or $1.69 per diluted share, as compared with $178.1 million, or $3.06 per diluted share, in 2008.

Exit and Disposal Activities

Snap-on recorded costs of $4.7 million and $15.3 million for exit and disposal activities in the three and nine month periods of 2009, respectively, as compared to $1.4 million and $8.0 million of such costs in the three and nine month periods of 2008, respectively. Snap-on currently anticipates that full-year 2009 exit and disposal costs will be in a range of $20 million to $22 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.

. . .