Management Overview

Unless otherwise indicated, references in this Management's Discussion and Analysis of Financial Condition and Results of Operations to "fiscal 2012" or "2012" refer to the fiscal year ended December 29, 2012; references to "fiscal 2011" or "2011" refer to the fiscal year ended December 31, 2011; and references to "fiscal 2010" or "2010" refer to the fiscal year ended January 1, 2011. References in this document to 2012, 2011 and 2010 year end refer to December 29, 2012, December 31, 2011, and January 1, 2011, respectively.

We believe our 2012 operating performance evidences significant and continued progress on our strategic priorities and ongoing benefits from our Snap-on Value Creation Processes - a set of strategic principles and processes designed to create value and employed in the areas of (i) safety; (ii) quality;
(iii) customer connection; (iv) innovation; and (v) rapid continuous improvement. Further progress was made in 2012 in strengthening our business model, pursuing geographic and customer diversification and expanding our presence in emerging markets and critical industries. In 2012, we continued to invest in our most important strategic growth initiatives aimed at enhancing the franchisee network, expanding in the vehicle repair garage, extending in critical industries and building in emerging markets. Leveraging capabilities already demonstrated in the automotive repair arena, our "coherent growth" strategy focuses on developing and expanding our professional customer base in both adjacent markets, additional geographies and other areas, including in critical industries, where the cost and penalties for failure can be high.

Our global financial services operations continue to serve a significant strategic role in providing financing options for our franchisees, their customers, and 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.

Net sales of $2,937.9 million in 2012 increased $83.7 million, or 2.9%, from 2011 levels; excluding $46.0 million of unfavorable foreign currency translation, organic (excluding foreign currency translation) sales increased $129.7 million or 4.6%. Operating earnings before financial services of $409.7 million in 2012 were up $25.5 million, or 6.6%, from 2011 levels, reflecting contributions from higher sales and improved operating margins, including as a result of ongoing efficiency and productivity initiatives, as well as benefits from restructuring actions (collectively, "Rapid Continuous Improvement" or "RCI initiatives"). Operating earnings of $516.4 million in 2012 increased $41.3 million, or 8.7%, from operating earnings of $475.1 million last year, which benefited from an $18.0 million arbitration settlement gain from the resolution of a dispute with CIT Group Inc. ("CIT"). In 2012, net earnings attributable to Snap-on Incorporated were $306.1 million, or $5.20 per diluted share. Net earnings attributable to Snap-on Incorporated in 2011 of $276.3 million, or $4.71 per diluted share, included $11.1 million after tax, or $0.19 per diluted share, from the arbitration settlement gain.

In the Commercial & Industrial Group, segment net sales of $1,125.9 million in 2012 increased $0.1 million from 2011 levels. Excluding $23.7 million of unfavorable foreign currency translation, organic sales in 2012 increased $23.8 million, or 2.2%, as higher sales to a wide range of customers in emerging markets and critical industries were partially offset by lower sales in the segment's European-based hand tools business as a result of ongoing market weakness in that region. Operating earnings of $127.3 million in 2012 increased $3.9 million, or 3.2%, from 2011 levels primarily due to the higher organic sales and continued savings from RCI initiatives, as well as contributions from restructuring initiatives in Europe. In 2012 and 2011, the Commercial & Industrial Group incurred $8.9 million and $5.6 million, respectively, of restructuring costs, primarily intended to improve the segment's cost structure in Europe.

The Commercial & Industrial Group intends to build on the following strategic priorities in 2013:

• Continuing to invest in emerging market growth initiatives, including in China, India and Eastern Europe;

• Increasing market share by expanding our business with existing customers and by reaching new customers in critical industries and other market segments;

• Continuing to invest in innovation that delivers an ongoing stream of productivity-enhancing solutions; and

• Continuing to reduce structural and operating costs through RCI and restructuring initiatives.

24 SNAP-ON INCORPORATED

In the Snap-on Tools Group, segment net sales of $1,272.0 million in 2012 increased $118.6 million, or 10.3%, from 2011 levels; excluding $4.1 million of unfavorable foreign currency translation, organic sales in 2012 increased $122.7 million, or 10.7%, reflecting higher sales in both the company's U.S. and international franchise operations. Operating earnings of $176.4 million in 2012 increased $17.9 million, or 11.3%, from 2011 levels, primarily as a result of higher sales, benefits from sales volume leverage and savings from ongoing RCI and restructuring initiatives, including contributions from the 2011 consolidation of the company's North American tool storage operations.

The Snap-on Tools Group made considerable progress in 2012 on its fundamental, strategic initiatives to strengthen the group and enhance franchisee profitability. In 2013, the Snap-on Tools Group intends to continue building on the progress made in 2012, with specific initiatives focused on the following:

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

• Developing new programs and products to expand market coverage and penetration;

• Continuing to invest in new product innovation and development; and

• Increasing operational flexibility 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 our franchisees, will have the opportunity to continue to serve more customers more effectively, more profitably and with improved satisfaction.

In the Repair Systems & Information Group, segment net sales of $917.1 million in 2012 decreased $3.5 million, or 0.4%, from 2011 levels; excluding $18.7 million of unfavorable foreign currency translation, organic sales in 2012 increased $15.2 million or 1.7%. The year-over-year organic sales increase primarily reflects higher sales of diagnostics and repair information products to repair shop owners and managers, partially offset by reduced sales of undercar equipment in Europe. Operating earnings of $205.7 million in 2012 increased $21.0 million, or 11.4%, from 2011 levels, primarily due to savings from ongoing RCI initiatives.

The Repair Systems & Information Group intends to focus on the following strategic priorities in 2013:

• Continuing software and hardware upgrades;

• Expanding product range with new products and services;

• 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 revenue was $161.3 million in 2012 and $124.3 million in 2011; originations of $677.1 million in 2012 increased $71.0 million, or 11.7%, from 2011 levels. Snap-on has steadily grown its on-book finance portfolio and provides financing for the majority of new loans originated by both SOC and the company's international finance subsidiaries. As a result, operating earnings from financial services of $106.7 million in 2012 increased $15.8 million from $90.9 million last year, which included an $18.0 million gain from the 2011 arbitration settlement with CIT.

Financial Services intends to focus on the following strategic priorities in 2013:

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

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

• Maintaining healthy portfolio performance levels.

Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Cash Flows

Net cash provided by operating activities was $329.3 million in 2012 as compared to $128.5 million in 2011. Net cash provided by operating activities of $128.5 million in 2011 included the return of $89.8 million of cash withheld from CIT following the settlement of a dispute. In 2011, Snap-on recorded an $18.0 million pretax arbitration settlement gain and paid $89.8 million of cash to CIT representing $107.8 million of cash previously withheld net of the $18.0 million settlement. See Note 15 to the Consolidated Financial Statements for information on the arbitration settlement.

Net cash used by investing activities of $173.1 million in 2012 included additions to, and collections of, finance receivables of $569.6 million and $445.5 million, respectively, as well as $27.0 million of proceeds from the sale of a non-strategic equity investment at book value (i.e., no gain or loss on sale). Capital expenditures in 2012 of $79.4 million reflects continued investments related to the company's execution of its Value Creation Processes around safety, quality, customer connection, innovation and rapid continuous improvement. Capital expenditures in 2012 also included continued spending to support the company's strategic growth initiatives, including the expansion of manufacturing capabilities in emerging growth markets, as well as in the United States.

Net cash used by financing activities of $127.0 million in 2012 included $81.5 million for dividend payments to shareholders and $78.1 million for the repurchase of 1,180,000 shares of Snap-on's common stock. These uses of cash were partially offset by $46.8 million of proceeds from stock purchase and option plan exercises. Net cash used by financing activities of $293.7 million in 2011 included the August 2011 repayment of $200 million of unsecured notes upon maturity with available cash.

26 SNAP-ON INCORPORATED

Results of Operations

2012 vs. 2011

Results of operations for 2012 and 2011 are as follows:

(Amounts in millions)                                                   2012                                    2011                                 Change
Net sales                                                  $    2,937.9            100.0%          $    2,854.2            100.0%          $    83.7              2.9%
Cost of goods sold                                            (1,547.9)            -52.7%             (1,516.3)            -53.1%             (31.6)             -2.1%

Gross profit                                                    1,390.0             47.3%               1,337.9             46.9%               52.1              3.9%
Operating expenses                                              (980.3)            -33.4%               (953.7)            -33.4%             (26.6)             -2.8%

Operating earnings before financial services                      409.7             13.9%                 384.2             13.5%               25.5              6.6%
Financial services revenue                                        161.3            100.0%                 124.3            100.0%               37.0             29.8%
Financial services expenses                                      (54.6)            -33.8%                (51.4)            -41.4%              (3.2)             -6.2%

Operating earnings from financial services
before arbitration settlement                                     106.7             66.2%                  72.9             58.6%               33.8             46.4%
Arbitration settlement                                              -                 -                    18.0             14.5%             (18.0)              NM

Operating earnings from financial services                        106.7             66.2%                  90.9             73.1%               15.8             17.4%

Operating earnings                                                516.4             16.7%                 475.1             16.0%               41.3              8.7%
Interest expense                                                 (55.8)             -1.8%                (61.2)             -2.1%                5.4              8.8%
Other income (expense) - net                                      (0.4)              -                    (1.0)              -                   0.6             60.0%

Earnings before income taxes and equity earnings                  460.2             14.9%                 412.9             13.9%               47.3             11.5%
Income tax expense                                              (148.2)             -4.8%               (133.7)             -4.5%             (14.5)            -10.8%

Earnings before equity earnings                                   312.0             10.1%                 279.2              9.4%               32.8             11.7%
Equity earnings, net of tax                                         2.6              0.1%                   4.6              0.1%              (2.0)            -43.5%

Net earnings                                                      314.6             10.2%                 283.8              9.5%               30.8             10.9%
Net earnings attributable to noncontrolling interests             (8.5)             -0.3%                 (7.5)             -0.2%              (1.0)            -13.3%

Net earnings attributable to Snap-on Inc.                  $      306.1              9.9%          $      276.3              9.3%          $    29.8             10.8%

NM: Not meaningful

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

Net sales of $2,937.9 million in 2012 increased $83.7 million, or 2.9%, from 2011 levels; excluding $46.0 million of unfavorable foreign currency translation, organic sales increased $129.7 million or 4.6%. Snap-on has significant international operations and is subject to risks inherent with foreign operations, including foreign currency translation fluctuations.

Gross profit of $1,390.0 million in 2012 increased $52.1 million as compared to $1,337.9 million last year, and gross margin (gross profit as a percentage of net sales) of 47.3% in 2012 improved 40 basis points (100 basis points equals 1.0 percent) from 46.9% last year. The year-over-year improvement in gross margin primarily reflects savings from ongoing RCI initiatives partially offset by $3.3 million of higher restructuring costs. Gross profit in 2012 reflects $10.9 million of restructuring costs, including $6.8 million for the settlement of a pension plan following the 2011 closure of the company's former Newmarket, Canada, facility; restructuring costs in 2011 totaled $7.6 million.

Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Operating expenses of $980.3 million in 2012 increased $26.6 million as compared to $953.7 million last year. As a result of year-over-year changes in the company's year-end stock price, operating expenses in 2012 included $14.7 million of stock-based ("mark-to-market") expense; operating expenses in 2011 included $1.0 million of mark-to-market expense. Restructuring costs included in operating expenses totaled $5.6 million and $4.6 million in 2012 and 2011, respectively. The operating expense margin (operating expenses as a percentage of sales) of 33.4% in 2012 was unchanged from 2011 as benefits from sales volume leverage and savings from ongoing RCI initiatives were offset by higher mark-to-market and other expenses.

Operating earnings before financial services of $409.7 million in 2012 increased $25.5 million from 2011 levels despite $13.7 million of higher mark-to-market expense. As a percentage of sales, operating earnings before financial services of 13.9% in 2012, which includes an adverse 50 basis point impact from the higher mark-to-market expense, improved 40 basis points from 13.5% last year.

In May 2011, Snap-on and CIT reached an amicable settlement of their respective claims relating to payments during the course of their SOC financial services joint venture and, in the second quarter of 2011, Snap-on recorded an $18.0 million pretax ($11.1 million after tax, or $0.19 per diluted share) arbitration settlement gain. The $18.0 million arbitration settlement gain is included in "Operating earnings from financial services" on the accompanying Consolidated Statement of Earnings for 2011.

Financial services operating earnings of $106.7 million on revenue of $161.3 million in 2012 compares with operating earnings (before arbitration settlement) of $72.9 million on revenue of $124.3 million last year. The year-over-year increases in both revenue and operating earnings primarily reflect the growth in the company's on-book finance portfolio. In 2011, operating earnings from financial services, including the $18.0 million arbitration settlement gain, was $90.9 million.

Operating earnings - The following non-GAAP financial data is being provided as management believes that the non-GAAP measures, which exclude last year's $18.0 million arbitration settlement gain, provide a more meaningful comparison of the company's year-over-year operating performance.

(Amounts in millions)                      2012                             2011                           Change
Operating earnings:
As reported                      $  516.4           16.7%         $  475.1           16.0%         $  41.3            8.7%
Less: Arbitration settlement
gain                                  -              -              (18.0)           -0.7%            18.0            NM

Excluding arbitration
settlement gain                  $  516.4           16.7%         $  457.1           15.3%         $  59.3           13.0%

NM: Not meaningful

Percentage Disclosure: Calculated as a percentage of the sum of Net sales and Financial services revenue.

Operating earnings of $516.4 million in 2012 increased $59.3 million, or 13.0%, as compared with operating earnings of $457.1 million, excluding last year's $18.0 million arbitration settlement gain. As a percentage of revenues (net sales plus financial services revenue), operating earnings of 16.7% in 2012 improved 140 basis points from 15.3% (excluding the arbitration settlement gain) last year. Operating earnings in 2011, including the $18.0 million arbitration settlement gain, were $475.1 million.

Interest expense of $55.8 million in 2012 decreased $5.4 million from $61.2 million last year primarily due to lower average debt levels. See Note 9 to the Consolidated Financial Statements for information on Snap-on's debt and credit facilities.

Other income (expense) - net was expense of $0.4 million in 2012 and $1.0 million in 2011. Other income (expense) - net primarily includes interest income and hedging and currency exchange rate transaction gains and losses. See Note 16 to the Consolidated Financial Statements for information on other income (expense) - net.

Snap-on's effective income tax rate on earnings attributable to Snap-on was 32.8% in 2012 and 33.0% in 2011. See Note 8 to the Consolidated Financial Statements for further information on income taxes.

28 SNAP-ON INCORPORATED

Net earnings attributable to Snap-on in 2012 were $306.1 million or $5.20 per diluted share. Net earnings attributable to Snap-on in 2011 of $276.3 million, or $4.71 per diluted share, included an $11.1 million after-tax gain, or $0.19 per diluted share, from the arbitration settlement with CIT.

Exit and Disposal Activities

Snap-on recorded costs of $16.5 million for exit and disposal activities in 2012 as compared to $12.2 million of such costs in 2011. See Note 7 to the 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 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, primarily through direct and distributor channels. The Snap-on Tools Group consists of business operations primarily serving automotive service technicians through the company's worldwide mobile tool distribution channel. The Repair Systems & Information Group consists of business operations serving other professional vehicle repair customers worldwide, primarily owners and managers of independent repair shops and original equipment manufacturer ("OEM") dealership service and repair shops, 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, pension assets and certain other assets. All significant intersegment amounts are eliminated to arrive at Snap-on's consolidated financial results.

Commercial & Industrial Group



(Amounts in millions)                        2012                                 2011                               Change
External net sales               $    940.6             83.5%          $   955.9             84.9%          $  (15.3)          -1.6%
Intersegment net sales                185.3             16.5%              169.9             15.1%               15.4           9.1%

Segment net sales                   1,125.9            100.0%            1,125.8            100.0%                0.1           NM
Cost of goods sold                  (710.9)            -63.1%            (710.6)            -63.1%              (0.3)           NM

Gross profit                          415.0             36.9%              415.2             36.9%              (0.2)           NM
Operating expenses                  (287.7)            -25.6%            (291.8)            -25.9%                4.1           1.4%

Segment operating earnings       $    127.3             11.3%          $   123.4             11.0%          $     3.9           3.2%

NM: Not meaningful

Segment net sales of $1,125.9 million in 2012 increased $0.1 million from 2011 levels; excluding $23.7 million of unfavorable foreign currency translation, organic sales increased $23.8 million or 2.2%. The higher year-over-year organic sales primarily reflects a mid single-digit sales increase to customers in critical industries and a double-digit sales gain in the emerging markets of Asia. These increases were partially offset by a mid single-digit sales decline in the segment's European-based hand tools business as a result of continued market weakness in that region.

Segment gross profit of $415.0 million in 2012 compared with $415.2 million last year, and gross margin of 36.9% in 2012 was unchanged from 2011. Gross profit in 2012 and 2011 reflects restructuring costs of $3.6 million and $2.9 million, respectively, primarily to improve the segment's cost structure in Europe.

Segment operating expenses of $287.7 million in 2012 decreased $4.1 million from 2011 levels. The operating expense margin of 25.6% in 2012 improved 30 basis points from 25.9% last year primarily due to benefits from organic sales volume leverage and savings from ongoing RCI initiatives, partially offset by higher restructuring costs in Europe. Restructuring costs included in operating expenses were $5.3 million and $2.7 million in 2012 and 2011, respectively.

Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

As a result of these factors, segment operating earnings of $127.3 million in 2012, including $3.3 million of higher year-over-year restructuring costs, increased $3.9 million, or 3.2%, from 2011 levels; favorable foreign currency effects in 2012 contributed $3.9 million. Operating margin (segment operating earnings as a percentage of segment net sales) for the Commercial & Industrial Group of 11.3% in 2012 increased 30 basis points from 11.0% last year.

Snap-on Tools Group



(Amounts in millions)                      2012                                2011                              Change
Segment net sales               $  1,272.0           100.0%         $  1,153.4           100.0%         $  118.6            10.3%
Cost of goods sold                 (728.9)           -57.3%            (647.0)           -56.1%           (81.9)           -12.7%

Gross profit                         543.1            42.7%              506.4            43.9%             36.7             7.2%
Operating expenses                 (366.7)           -28.8%            (347.9)           -30.2%           (18.8)            -5.4%

Segment operating earnings      $    176.4            13.9%         $    158.5            13.7%         $   17.9            11.3%

Segment net sales of $1,272.0 million in 2012 increased $118.6 million, or 10.3%, from 2011 levels. Excluding $4.1 million of unfavorable foreign currency translation, organic sales increased $122.7 million, or 10.7%, reflecting a double-digit sales increase in the company's U.S. franchise operations and a mid single-digit sales increase in the company's international franchise operations.

Segment gross profit of $543.1 million in 2012 increased $36.7 million from 2011 levels. Gross margin of 42.7% in 2012 decreased 120 basis points from 43.9% last year primarily due to increased promotional programs associated with sales gains, and higher restructuring costs. Gross profit in 2012 reflects $7.1 . . .