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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 29, 2019
OR

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to
Commission File Number 1-7724
Snap-on Inc orporated
(Exact name of registrant as specified in its charter)

Delaware |  |  |  | 39-0622040
(State of incorporation) |  |  |  | (I.R.S. Employer Identification No.)
2801 80th Street | Kenosha | Wisconsin |  | 53143
(Address of principal executive offices) | (Zip code)

(262) 656-5200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Title of each class | Trading Symbol(s) | Name of each exchange on which registered
Common Stock, $1.00 par value | SNA | New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer | ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐
Emerging growth company | ☐ |  |  |  |  |  |

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:

Class |  | Outstanding at July 12, 2019
Common Stock, $1.00 par value |  | 55,210,205 shares

Table of Contents
TABLE OF CONTENTS

|  | Page
Part I: Financial Information |
Item 1. | Financial Statements |
| Condensed Consolidated Statements of Earnings (unaudited) – Three and Six Months Ended June 29, 2019, and June 30, 2018 | 3
| Condensed Consolidated Statements of Comprehensive Income (unaudited) – Three and Six Months Ended June 29, 2019, and June 30, 2018 | 4
| Condensed Consolidated Balance Sheets (unaudited) – June 29, 2019, and December 29, 2018 | 5
| Condensed Consolidated Statements of Equity (unaudited) – Three and Six Months Ended June 29, 2019, and June 30, 2018 | 7
| Condensed Consolidated Statements of Cash Flows (unaudited) – Six Months Ended June 29, 2019, and June 30, 2018 | 9
| Notes to Condensed Consolidated Financial Statements (unaudited) | 10
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 38
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 56
Item 4. | Controls and Procedures | 57
Part II: Other Information |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 58
Item 6. | Exhibits | 59
| Signatures | 60

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Table of Contents
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
SNAP-ON INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in millions, except per share data)
(Unaudited)

| Three Months Ended |  | Six Months Ended
| June 29, 2019 |  | June 30, 2018 |  | June 29, 2019 |  | June 30, 2018
Net sales | $ | 951.3 |  |  | $ | 954.6 |  |  | $ | 1,873.0 |  |  | $ | 1,890.1 |
Cost of goods sold | (477.5 | ) |  | (467.5 | ) |  | (927.6 | ) |  | (931.4 | )
Gross profit | 473.8 |  |  | 487.1 |  |  | 945.4 |  |  | 958.7 |
Operating expenses | (283.9 | ) |  | (294.0 | ) |  | (568.1 | ) |  | (587.9 | )
Operating earnings before financial services | 189.9 |  |  | 193.1 |  |  | 377.3 |  |  | 370.8 |
Financial services revenue | 84.1 |  |  | 82.0 |  |  | 169.7 |  |  | 165.0 |
Financial services expenses | (23.5 | ) |  | (24.2 | ) |  | (47.0 | ) |  | (50.3 | )
Operating earnings from financial services | 60.6 |  |  | 57.8 |  |  | 122.7 |  |  | 114.7 |
Operating earnings | 250.5 |  |  | 250.9 |  |  | 500.0 |  |  | 485.5 |
Interest expense | (12.4 | ) |  | (12.0 | ) |  | (24.9 | ) |  | (25.6 | )
Other income (expense) – net | 2.1 |  |  | (0.6 | ) |  | 3.6 |  |  | 2.2 |
Earnings before income taxes and equity earnings | 240.2 |  |  | 238.3 |  |  | 478.7 |  |  | 462.1 |
Income tax expense | (55.6 | ) |  | (55.8 | ) |  | (112.5 | ) |  | (113.4 | )
Earnings before equity earnings | 184.6 |  |  | 182.5 |  |  | 366.2 |  |  | 348.7 |
Equity earnings, net of tax | 0.3 |  |  | 0.2 |  |  | 0.8 |  |  | 0.8 |
Net earnings | 184.9 |  |  | 182.7 |  |  | 367.0 |  |  | 349.5 |
Net earnings attributable to noncontrolling interests | (4.5 | ) |  | (4.0 | ) |  | (8.7 | ) |  | (7.8 | )
Net earnings attributable to Snap-on Incorporated | $ | 180.4 |  |  | $ | 178.7 |  |  | $ | 358.3 |  |  | $ | 341.7 |
Net earnings per share attributable to Snap-on Incorporated: |  |  |  |  |  |  |
Basic | $ | 3.27 |  |  | $ | 3.17 |  |  | $ | 6.47 |  |  | $ | 6.04 |
Diluted | 3.22 |  |  | 3.12 |  |  | 6.38 |  |  | 5.93 |
Weighted-average shares outstanding: |  |  |  |  |  |  |
Basic | 55.2 |  |  | 56.4 |  |  | 55.4 |  |  | 56.6 |
Effect of dilutive securities | 0.8 |  |  | 0.9 |  |  | 0.8 |  |  | 1.0 |
Diluted | 56.0 |  |  | 57.3 |  |  | 56.2 |  |  | 57.6 |
Dividends declared per common share | $ | 0.95 |  |  | $ | 0.82 |  |  | $ | 1.90 |  |  | $ | 1.64 |

See Notes to Condensed Consolidated Financial Statements.
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SNAP-ON INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in millions)
(Unaudited)

| Three Months Ended |  | Six Months Ended
| June 29, 2019 |  | June 30, 2018 |  | June 29, 2019 |  | June 30, 2018
Comprehensive income: |  |  |  |  |  |  |
Net earnings | $ | 184.9 |  |  | $ | 182.7 |  |  | $ | 367.0 |  |  | $ | 349.5 |
Other comprehensive income (loss): |  |  |  |  |  |  |
Foreign currency translation* | (8.4 | ) |  | (97.6 | ) |  | (0.8 | ) |  | (58.5 | )
Unrealized cash flow hedges, net of tax: |  |  |  |  |  |  |
Other comprehensive loss before reclassifications | — |  |  | — |  |  | — |  |  | (0.8 | )
Reclassification of cash flow hedges to net earnings | (0.3 | ) |  | (0.3 | ) |  | (0.7 | ) |  | (0.8 | )
Defined benefit pension and postretirement plans: |  |  |  |  |  |  |
Amortization of net unrecognized losses and prior service credits included in net periodic benefit cost | 5.9 |  |  | 8.0 |  |  | 11.7 |  |  | 15.6 |
Income tax benefit | (1.5 | ) |  | (2.0 | ) |  | (2.8 | ) |  | (3.8 | )
Net of tax | 4.4 |  |  | 6.0 |  |  | 8.9 |  |  | 11.8 |
Total comprehensive income | $ | 180.6 |  |  | $ | 90.8 |  |  | $ | 374.4 |  |  | $ | 301.2 |
Comprehensive income attributable to noncontrolling interests | (4.5 | ) |  | (4.0 | ) |  | (8.7 | ) |  | (7.8 | )
Comprehensive income attributable to Snap-on Incorporated | $ | 176.1 |  |  | $ | 86.8 |  |  | $ | 365.7 |  |  | $ | 293.4 |

* There is no reclassification adjustment as there was no sale or liquidation of any foreign entity during any period presented.
See Notes to Condensed Consolidated Financial Statements.
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SNAP-ON INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in millions, except share data)
(Unaudited)

| June 29, 2019 |  | December 29, 2018
ASSETS |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 164.0 |  |  | $ | 140.9 |
Trade and other accounts receivable – net | 684.1 |  |  | 692.6 |
Finance receivables – net | 529.0 |  |  | 518.5 |
Contract receivables – net | 91.5 |  |  | 98.3 |
Inventories – net | 725.8 |  |  | 673.8 |
Prepaid expenses and other assets | 112.2 |  |  | 92.8 |
Total current assets | 2,306.6 |  |  | 2,216.9 |
Property and equipment: |  |  |
Land | 31.6 |  |  | 31.7 |
Buildings and improvements | 392.5 |  |  | 368.6 |
Machinery, equipment and computer software | 965.6 |  |  | 944.4 |
| 1,389.7 |  |  | 1,344.7 |
Accumulated depreciation and amortization | (883.3 | ) |  | (849.6 | )
Property and equipment – net | 506.4 |  |  | 495.1 |
Operating lease right-of-use assets | 55.4 |  |  | — |
Deferred income tax assets | 53.9 |  |  | 64.7 |
Long-term finance receivables – net | 1,089.0 |  |  | 1,074.4 |
Long-term contract receivables – net | 347.5 |  |  | 344.9 |
Goodwill | 907.0 |  |  | 902.2 |
Other intangibles – net | 227.9 |  |  | 232.9 |
Other assets | 51.7 |  |  | 42.0 |
Total assets | $ | 5,545.4 |  |  | $ | 5,373.1 |

See Notes to Condensed Consolidated Financial Statements.
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SNAP-ON INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in millions, except share data)
(Unaudited)

| June 29, 2019 |  | December 29, 2018
LIABILITIES AND EQUITY |  |  |
Current liabilities: |  |  |
Notes payable | $ | 168.2 |  |  | $ | 186.3 |
Accounts payable | 215.3 |  |  | 201.1 |
Accrued benefits | 42.4 |  |  | 52.0 |
Accrued compensation | 62.2 |  |  | 71.5 |
Franchisee deposits | 69.5 |  |  | 67.5 |
Other accrued liabilities | 373.2 |  |  | 373.6 |
Total current liabilities | 930.8 |  |  | 952.0 |
Long-term debt | 947.9 |  |  | 946.0 |
Deferred income tax liabilities | 45.4 |  |  | 41.4 |
Retiree health care benefits | 30.5 |  |  | 31.8 |
Pension liabilities | 136.6 |  |  | 171.3 |
Operating lease liabilities | 35.7 |  |  | — |
Other long-term liabilities | 109.8 |  |  | 112.0 |
Total liabilities | 2,236.7 |  |  | 2,254.5 |
Commitments and contingencies (Note 14) |  |  |
Equity |  |  |
Shareholders’ equity attributable to Snap-on Incorporated: |  |  |
Preferred stock (authorized 15,000,000 shares of $1 par value; none outstanding) | — |  |  | — |
Common stock (authorized 250,000,000 shares of $1 par value; issued 67,422,949 and 67,415,091 shares, respectively) | 67.4 |  |  | 67.4 |
Additional paid-in capital | 371.7 |  |  | 359.4 |
Retained earnings | 4,556.1 |  |  | 4,257.6 |
Accumulated other comprehensive loss | (500.7 | ) |  | (462.2 | )
Treasury stock at cost (12,213,408 and 11,804,310 shares, respectively) | (1,206.4 | ) |  | (1,123.4 | )
Total shareholders’ equity attributable to Snap-on Incorporated | 3,288.1 |  |  | 3,098.8 |
Noncontrolling interests | 20.6 |  |  | 19.8 |
Total equity | 3,308.7 |  |  | 3,118.6 |
Total liabilities and equity | $ | 5,545.4 |  |  | $ | 5,373.1 |

See Notes to Condensed Consolidated Financial Statements.
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SNAP-ON INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Amounts in millions, except share data)
(Unaudited)
The following summarizes the changes in total equity for the three month period ended June 29, 2019:

|  | Shareholders’ Equity Attributable to Snap-on Incorporated |  |  |  |
|  | Common Stock |  | Additional Paid-in Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Loss |  | Treasury Stock |  | Noncontrolling Interests |  | Total Equity
Balance at March 30, 2019 |  | $ | 67.4 |  |  | $ | 361.3 |  |  | $ | 4,428.4 |  |  | $ | (496.4 | ) |  | $ | (1,163.1 | ) |  | $ | 20.2 |  |  | $ | 3,217.8 |
Net Earnings for the three months ended June 29, 2019 |  | — |  |  | — |  |  | 180.4 |  |  | — |  |  | — |  |  | 4.5 |  |  | 184.9 |
Other comprehensive loss |  | — |  |  | — |  |  | — |  |  | (4.3 | ) |  | — |  |  | — |  |  | (4.3 | )
Cash dividends – $0.95 per share |  | — |  |  | — |  |  | (52.5 | ) |  | — |  |  | — |  |  | — |  |  | (52.5 | )
Stock compensation plans |  | — |  |  | 10.4 |  |  | — |  |  | — |  |  | 16.8 |  |  | — |  |  | 27.2 |
Share repurchases – 365,000 shares |  | — |  |  | — |  |  | — |  |  | — |  |  | (60.1 | ) |  | — |  |  | (60.1 | )
Other |  | — |  |  | — |  |  | (0.2 | ) |  | — |  |  | — |  |  | (4.1 | ) |  | (4.3 | )
Balance at June 29, 2019 |  | $ | 67.4 |  |  | $ | 371.7 |  |  | $ | 4,556.1 |  |  | $ | (500.7 | ) |  | $ | (1,206.4 | ) |  | $ | 20.6 |  |  | $ | 3,308.7 |

The following summarizes the changes in total equity for the six month period ended June 29, 2019:

|  | Shareholders’ Equity Attributable to Snap-on Incorporated |  |  |  |
|  | Common Stock |  | Additional Paid-in Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Income (Loss) |  | Treasury Stock |  | Noncontrolling Interests |  | Total Equity
Balance at December 29, 2018 |  | $ | 67.4 |  |  | $ | 359.4 |  |  | $ | 4,257.6 |  |  | $ | (462.2 | ) |  | $ | (1,123.4 | ) |  | $ | 19.8 |  |  | $ | 3,118.6 |
Impact of the Tax Act on Accumulated Other Comprehensive Income (ASU No. 2018-02) |  | — |  |  | — |  |  | 45.9 |  |  | (45.9 | ) |  | — |  |  | — |  |  | — |
Balance at December 30, 2018 |  | $ | 67.4 |  |  | $ | 359.4 |  |  | $ | 4,303.5 |  |  | $ | (508.1 | ) |  | $ | (1,123.4 | ) |  | $ | 19.8 |  |  | $ | 3,118.6 |
Net Earnings for the six months ended June 29, 2019 |  | — |  |  | — |  |  | 358.3 |  |  | — |  |  | — |  |  | 8.7 |  |  | 367.0 |
Other comprehensive income |  | — |  |  | — |  |  | — |  |  | 7.4 |  |  | — |  |  | — |  |  | 7.4 |
Cash dividends – $1.90 per share |  | — |  |  | — |  |  | (105.3 | ) |  | — |  |  | — |  |  | — |  |  | (105.3 | )
Stock compensation plans |  | — |  |  | 12.3 |  |  | — |  |  | — |  |  | 24.5 |  |  | — |  |  | 36.8 |
Share repurchases – 660,000 shares |  | — |  |  | — |  |  | — |  |  | — |  |  | (107.5 | ) |  | — |  |  | (107.5 | )
Other |  | — |  |  | — |  |  | (0.4 | ) |  | — |  |  | — |  |  | (7.9 | ) |  | (8.3 | )
Balance at June 29, 2019 |  | $ | 67.4 |  |  | $ | 371.7 |  |  | $ | 4,556.1 |  |  | $ | (500.7 | ) |  | $ | (1,206.4 | ) |  | $ | 20.6 |  |  | $ | 3,308.7 |

See Notes to Condensed Consolidated Financial Statements.
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SNAP-ON INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Amounts in millions, except share data)
(Unaudited)
The following summarizes the changes in total equity for the three month period ended June 30, 2018:

|  | Shareholders’ Equity Attributable to Snap-on Incorporated |  |  |  |
|  | Common Stock |  | Additional Paid-in Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Loss |  | Treasury Stock |  | Noncontrolling Interests |  | Total Equity
Balance at March 31, 2018 |  | $ | 67.4 |  |  | $ | 343.9 |  |  | $ | 3,886.7 |  |  | $ | (285.4 | ) |  | $ | (928.7 | ) |  | $ | 18.4 |  |  | $ | 3,102.3 |
Net Earnings for the three months ended June 30, 2018 |  | — |  |  | — |  |  | 178.7 |  |  | — |  |  | — |  |  | 4.0 |  |  | 182.7 |
Other comprehensive loss |  | — |  |  | — |  |  | — |  |  | (91.9 | ) |  | — |  |  | — |  |  | (91.9 | )
Cash dividends – $0.82 per share |  | — |  |  | — |  |  | (46.3 | ) |  | — |  |  | — |  |  | — |  |  | (46.3 | )
Stock compensation plans |  | — |  |  | 8.7 |  |  | — |  |  | — |  |  | 15.5 |  |  | — |  |  | 24.2 |
Share repurchases – 371,000 shares |  | — |  |  | — |  |  | — |  |  | — |  |  | (55.2 | ) |  | — |  |  | (55.2 | )
Other |  | — |  |  | — |  |  | (0.2 | ) |  | — |  |  | — |  |  | (4.0 | ) |  | (4.2 | )
Balance at June 30, 2018 |  | $ | 67.4 |  |  | $ | 352.6 |  |  | $ | 4,018.9 |  |  | $ | (377.3 | ) |  | $ | (968.4 | ) |  | $ | 18.4 |  |  | $ | 3,111.6 |

The following summarizes the changes in total equity for the six month period ended June 30, 2018:

|  | Shareholders’ Equity Attributable to Snap-on Incorporated |  |  |  |
|  | Common Stock |  | Additional Paid-in Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Loss |  | Treasury Stock |  | Noncontrolling Interests |  | Total Equity
Balance at December 30, 2017 |  | $ | 67.4 |  |  | $ | 343.2 |  |  | $ | 3,772.3 |  |  | $ | (329.0 | ) |  | $ | (900.0 | ) |  | $ | 18.4 |  |  | $ | 2,972.3 |
Net Earnings for the six months ended June 30, 2018 |  | — |  |  | — |  |  | 341.7 |  |  | — |  |  | — |  |  | 7.8 |  |  | 349.5 |
Other comprehensive loss |  | — |  |  | — |  |  | — |  |  | (48.3 | ) |  | — |  |  | — |  |  | (48.3 | )
Cash dividends – $1.64 per share |  | — |  |  | — |  |  | (92.8 | ) |  | — |  |  | — |  |  | — |  |  | (92.8 | )
Stock compensation plans |  | — |  |  | 9.4 |  |  | — |  |  | — |  |  | 30.3 |  |  | — |  |  | 39.7 |
Share repurchases – 646,000 shares |  | — |  |  | — |  |  | — |  |  | — |  |  | (98.7 | ) |  | — |  |  | (98.7 | )
Other |  | — |  |  | — |  |  | (2.3 | ) |  | — |  |  | — |  |  | (7.8 | ) |  | (10.1 | )
Balance at June 30, 2018 |  | $ | 67.4 |  |  | $ | 352.6 |  |  | $ | 4,018.9 |  |  | $ | (377.3 | ) |  | $ | (968.4 | ) |  | $ | 18.4 |  |  | $ | 3,111.6 |

See Notes to Condensed Consolidated Financial Statements.
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SNAP-ON INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in millions)
(Unaudited)

| Six Months Ended
| June 29, 2019 |  | June 30, 2018
Operating activities: |  |  |
Net earnings | $ | 367.0 |  |  | $ | 349.5 |
Adjustments to reconcile net earnings to net cash provided (used) by operating activities: |  |  |
Depreciation | 34.8 |  |  | 35.0 |
Amortization of other intangibles | 10.8 |  |  | 13.0 |
Provision for losses on finance receivables | 24.4 |  |  | 29.4 |
Provision for losses on non-finance receivables | 8.7 |  |  | 5.5 |
Stock-based compensation expense | 14.1 |  |  | 14.6 |
Deferred income tax provision (benefit) | 12.4 |  |  | (4.1 | )
Loss on sales of assets | 0.6 |  |  | 0.1 |
Loss on early extinguishment of debt | — |  |  | 7.8 |
Changes in operating assets and liabilities, net of effects of acquisitions: |  |  |
(Increase) decrease in trade and other accounts receivable | 3.9 |  |  | (9.1 | )
(Increase) decrease in contract receivables | 3.0 |  |  | (4.5 | )
Increase in inventories | (52.8 | ) |  | (24.5 | )
(Increase) decrease in prepaid and other assets | (27.0 | ) |  | 6.4 |
Increase in accounts payable | 16.6 |  |  | 25.4 |
Decrease in accruals and other liabilities | (69.7 | ) |  | (25.7 | )
Net cash provided by operating activities | 346.8 |  |  | 418.8 |
Investing activities: |  |  |
Additions to finance receivables | (431.1 | ) |  | (436.7 | )
Collections of finance receivables | 383.5 |  |  | 379.9 |
Capital expenditures | (48.2 | ) |  | (38.6 | )
Acquisitions of businesses, net of cash acquired | (9.3 | ) |  | (3.0 | )
Disposals of property and equipment | 0.4 |  |  | 0.5 |
Other | 0.8 |  |  | (2.9 | )
Net cash used by investing activities | (103.9 | ) |  | (100.8 | )
Financing activities: |  |  |
Proceeds from issuance of long-term debt | — |  |  | 395.4 |
Repayments of long-term debt | — |  |  | (457.8 | )
Repayment of notes payable | — |  |  | (16.8 | )
Net decrease in other short-term borrowings | (18.2 | ) |  | (37.2 | )
Cash dividends paid | (105.3 | ) |  | (92.8 | )
Purchases of treasury stock | (107.5 | ) |  | (98.7 | )
Proceeds from stock purchase and option plans | 24.6 |  |  | 28.3 |
Other | (14.3 | ) |  | (16.2 | )
Net cash used by financing activities | (220.7 | ) |  | (295.8 | )
Effect of exchange rate changes on cash and cash equivalents | 0.9 |  |  | (1.9 | )
Increase in cash and cash equivalents | 23.1 |  |  | 20.3 |
Cash and cash equivalents at beginning of year | 140.9 |  |  | 92.0 |
Cash and cash equivalents at end of period | $ | 164.0 |  |  | $ | 112.3 |
Supplemental cash flow disclosures: |  |  |
Cash paid for interest | $ | (23.4 | ) |  | $ | (27.8 | )
Net cash paid for income taxes | (92.2 | ) |  | (97.4 | )

See Notes to Condensed Consolidated Financial Statements.
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SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Summary of Accounting Policies
Principles of consolidation and presentation
The Condensed Consolidated Financial Statements include the accounts of Snap-on Incorporated and its wholly-owned and majority-owned subsidiaries (collectively, “Snap-on” or the “company”). These financial statements should be read in conjunction with, and have been prepared in conformity with, the accounting principles reflected in the consolidated financial statements and related notes included in Snap-on’s 2018 Annual Report on Form 10-K for the fiscal year ended December 29, 2018 (“2018 year end”). The company’s 2019 fiscal second quarter ended on June 29, 2019; the 2018 fiscal second quarter ended on June 30, 2018. Each of the company’s 2019 and 2018 fiscal first and second quarters contained 13 weeks of operating results. Snap-on’s Condensed Consolidated Financial Statements are prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”).
In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for the fair presentation of the Condensed Consolidated Financial Statements for the three and six month periods ended June 29, 2019, and June 30, 2018, have been made. Interim results of operations are not necessarily indicative of the results to be expected for the full fiscal year.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Financial Instruments
The fair value of the company’s derivative financial instruments is generally determined using quoted prices in active markets for similar assets and liabilities. The carrying value of the company’s non-derivative financial instruments either approximates fair value, due to their short-term nature, or the amount disclosed for fair value is based upon a discounted cash flow analysis or quoted market values. See Note 9 for further information on financial instruments.
New Accounting Standards
The following new accounting pronouncements were adopted in fiscal year 2019:
On December 30, 2018, the beginning of Snap-on’s 2019 fiscal year, Snap-on adopted ASU No. 2017-12, Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging Activities, which improves the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The amendments in this update also make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. The adoption of this ASU did not have a significant impact on the company’s Condensed Consolidated Financial Statements.
On December 30, 2018, the beginning of Snap-on’s 2019 fiscal year, Snap-on adopted ASU No. 2018-02, Income Statement - Reporting Comprehensive Income - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (Topic 220), which allows for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act (the “Tax Act”). The adoption of this ASU resulted in an increase of $45.9 million to Retained Earnings on the company’s Condensed Consolidated Statements of Equity with an offsetting decrease in Accumulated Other Comprehensive Income (Loss).
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SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
On December 30, 2018, the beginning of Snap-on’s 2019 fiscal year, Snap-on adopted ASU No. 2016-02, Leases (Topic 842), which increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Topic 842 is intended to represent an improvement over previous GAAP, which did not require lease assets and lease liabilities to be recognized for most leases. Topic 842, which supersedes most current lease guidance, affects any entity that enters into a lease with some specified scope exemptions. Snap-on adopted Topic 842 using the modified retrospective approach, using a date of initial application of December 30, 2018. Snap-on elected the package of practical expedients permitted under the standard, which also allowed the company to carry forward historical lease classifications. The company also elected the practical expedient related to treating lease and non-lease components as a single lease component for all equipment leases as well as electing a policy exclusion permitting leases with an original lease term of less than one year to be excluded from the Right-of-Use (“ROU”) assets and lease liabilities. The adoption of this ASU did not have a significant impact on the company’s Condensed Consolidated Financial Statements. See note 15 for further information on leases.
The following new accounting pronouncements, and related impacts on adoption, are being evaluated by the company:
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which is designed to improve the effectiveness of disclosures by removing, modifying and adding disclosures related to fair value measurements. ASU No. 2018-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years; the ASU allows for early adoption of certain disclosures in any interim period after issuance of the update. The adoption of this ASU is not expected to have a significant impact on the company’s consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General Subtopic 715-20 - Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans, which is designed to improve the effectiveness of disclosures by removing and adding disclosures related to defined benefit plans. ASU No. 2018-14 is effective for fiscal years ending after December 15, 2020; the ASU allows for early adoption in any year end after issuance of the update. The adoption of this ASU is not expected to have a significant impact on the company’s consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), to require the measurement of expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable forecasts. The main objective of this ASU, along with subsequent ASU’s issued to clarify certain provisions of ASU 2016-13, is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.
Snap-on commenced its assessment of Topic 326 during the second half of 2018 and developed a comprehensive project plan that included representatives from the company’s business segments. The project plan includes analyzing the standard’s potential change on the company’s allowance for doubtful accounts reserves, identifying reporting requirements of the new standard, and identifying changes to the company’s business processes, systems and controls to support the accounting and disclosures under Topic 326. The company is currently assessing the impact this ASU will have on its consolidated financial statements.
Note 2: Revenue Recognition
Snap-on recognizes revenue from the sale of tools, diagnostic and equipment products and related services based on when control of the product passes to the customer or the service is provided and is recognized at an amount that reflects the consideration expected to be received in exchange for such goods or services.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Revenue Disaggregation
The following table shows the consolidated revenues by revenue source:

|  | Three Months Ended |  | Six Months Ended
(Amounts in millions) |  | June 29, 2019 |  | June 30, 2018 |  | June 29, 2019 |  | June 30, 2018
Revenue from contracts with customers |  | $ | 945.8 |  |  | $ | 949.2 |  |  | $ | 1,862.2 |  |  | $ | 1,879.6 |
Other revenues |  | 5.5 |  |  | 5.4 |  |  | 10.8 |  |  | 10.5 |
Total net sales |  | 951.3 |  |  | 954.6 |  |  | 1,873.0 |  |  | 1,890.1 |
Financial services revenue |  | 84.1 |  |  | 82.0 |  |  | 169.7 |  |  | 165.0 |
Total revenues |  | $ | 1,035.4 |  |  | $ | 1,036.6 |  |  | $ | 2,042.7 |  |  | $ | 2,055.1 |

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 both intersegment sales and transfers based primarily on standard costs with reasonable mark-ups established between the segments. Intersegment amounts are eliminated to arrive at Snap-on’s consolidated financial results.
The following table represents external net sales disaggregated by geography, based on the customers’ billing addresses:

|  | For the Three Months Ended June 29, 2019
|  | Commercial |  | Snap-on |  | Repair Systems |  |  |  |  |  |
|  | & Industrial |  | Tools |  | & Information |  | Financial |  |  |  | Snap-on
(Amounts in millions) |  | Group |  | Group |  | Group |  | Services |  | Eliminations |  | Incorporated
Net sales by geographic region: |  |  |  |  |  |  |  |  |  |  |  |
North America* |  | $ | 121.6 |  |  | $ | 350.1 |  |  | $ | 202.3 |  |  | $ | — |  |  | $ | — |  |  | $ | 674.0 |
Europe |  | 72.3 |  |  | 36.5 |  |  | 62.3 |  |  | — |  |  | — |  |  | 171.1 |
All other |  | 69.1 |  |  | 19.2 |  |  | 17.9 |  |  | — |  |  | — |  |  | 106.2 |
External net sales |  | 263.0 |  |  | 405.8 |  |  | 282.5 |  |  | — |  |  | — |  |  | 951.3 |
Intersegment net sales |  | 72.0 |  |  | — |  |  | 66.4 |  |  | — |  |  | (138.4 | ) |  | — |
Total net sales |  | 335.0 |  |  | 405.8 |  |  | 348.9 |  |  | — |  |  | (138.4 | ) |  | 951.3 |
Financial services revenue |  | — |  |  | — |  |  | — |  |  | 84.1 |  |  | — |  |  | 84.1 |
Total revenue |  | $ | 335.0 |  |  | $ | 405.8 |  |  | $ | 348.9 |  |  | $ | 84.1 |  |  | $ | (138.4 | ) |  | $ | 1,035.4 |

|  | For the Six Months Ended June 29, 2019
|  | Commercial |  | Snap-on |  | Repair Systems |  |  |  |  |  |
|  | & Industrial |  | Tools |  | & Information |  | Financial |  |  |  | Snap-on
(Amounts in millions) |  | Group |  | Group |  | Group |  | Services |  | Eliminations |  | Incorporated
Net sales by geographic region: |  |  |  |  |  |  |  |  |  |  |  |
North America* |  | $ | 230.5 |  |  | $ | 701.7 |  |  | $ | 387.4 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,319.6 |
Europe |  | 149.7 |  |  | 73.4 |  |  | 121.8 |  |  | — |  |  | — |  |  | 344.9 |
All other |  | 132.3 |  |  | 40.9 |  |  | 35.3 |  |  | — |  |  | — |  |  | 208.5 |
External net sales |  | 512.5 |  |  | 816.0 |  |  | 544.5 |  |  | — |  |  | — |  |  | 1,873.0 |
Intersegment net sales |  | 145.0 |  |  | — |  |  | 132.3 |  |  | — |  |  | (277.3 | ) |  | — |
Total net sales |  | 657.5 |  |  | 816.0 |  |  | 676.8 |  |  | — |  |  | (277.3 | ) |  | 1,873.0 |
Financial services revenue |  | — |  |  | — |  |  | — |  |  | 169.7 |  |  | — |  |  | 169.7 |
Total revenue |  | $ | 657.5 |  |  | $ | 816.0 |  |  | $ | 676.8 |  |  | $ | 169.7 |  |  | $ | (277.3 | ) |  | $ | 2,042.7 |

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

|  | For the Three Months Ended June 30, 2018
|  | Commercial |  | Snap-on |  | Repair Systems |  |  |  |  |  |
|  | & Industrial |  | Tools |  | & Information |  | Financial |  |  |  | Snap-on
(Amounts in millions) |  | Group |  | Group |  | Group |  | Services |  | Eliminations |  | Incorporated
Net sales by geographic region: |  |  |  |  |  |  |  |  |  |  |  |
North America* |  | $ | 118.3 |  |  | $ | 346.2 |  |  | $ | 189.4 |  |  | $ | — |  |  | $ | — |  |  | $ | 653.9 |
Europe |  | 76.6 |  |  | 43.7 |  |  | 68.2 |  |  | — |  |  | — |  |  | 188.5 |
All other |  | 72.2 |  |  | 22.0 |  |  | 18.0 |  |  | — |  |  | — |  |  | 112.2 |
External net sales |  | 267.1 |  |  | 411.9 |  |  | 275.6 |  |  | — |  |  | — |  |  | 954.6 |
Intersegment net sales |  | 70.7 |  |  | — |  |  | 67.5 |  |  | — |  |  | (138.2 | ) |  | — |
Total net sales |  | 337.8 |  |  | 411.9 |  |  | 343.1 |  |  | — |  |  | (138.2 | ) |  | 954.6 |
Financial services revenue |  | — |  |  | — |  |  | — |  |  | 82.0 |  |  | — |  |  | 82.0 |
Total revenue |  | $ | 337.8 |  |  | $ | 411.9 |  |  | $ | 343.1 |  |  | $ | 82.0 |  |  | $ | (138.2 | ) |  | $ | 1,036.6 |

|  | For the Six Months Ended June 30, 2018
|  | Commercial |  | Snap-on |  | Repair Systems |  |  |  |  |  |
|  | & Industrial |  | Tools |  | & Information |  | Financial |  |  |  | Snap-on
(Amounts in millions) |  | Group |  | Group |  | Group |  | Services |  | Eliminations |  | Incorporated
Net sales by geographic region: |  |  |  |  |  |  |  |  |  |  |  |
North America* |  | $ | 225.8 |  |  | $ | 685.1 |  |  | $ | 374.7 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,285.6 |
Europe |  | 159.5 |  |  | 85.2 |  |  | 135.2 |  |  | — |  |  | — |  |  | 379.9 |
All other |  | 140.6 |  |  | 46.3 |  |  | 37.7 |  |  | — |  |  | — |  |  | 224.6 |
External net sales |  | 525.9 |  |  | 816.6 |  |  | 547.6 |  |  | — |  |  | — |  |  | 1,890.1 |
Intersegment net sales |  | 143.5 |  |  | — |  |  | 132.5 |  |  | — |  |  | (276.0 | ) |  | — |
Total net sales |  | 669.4 |  |  | 816.6 |  |  | 680.1 |  |  | — |  |  | (276.0 | ) |  | 1,890.1 |
Financial services revenue |  | — |  |  | — |  |  | — |  |  | 165.0 |  |  | — |  |  | 165.0 |
Total revenue |  | $ | 669.4 |  |  | $ | 816.6 |  |  | $ | 680.1 |  |  | $ | 165.0 |  |  | $ | (276.0 | ) |  | $ | 2,055.1 |

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The following table represents external net sales disaggregated by customer type:

|  | For the Three Months Ended June 29, 2019
|  | Commercial |  | Snap-on |  | Repair Systems |  |  |  |  |  |
|  | & Industrial |  | Tools |  | & Information |  | Financial |  |  |  | Snap-on
(Amounts in millions) |  | Group |  | Group |  | Group |  | Services |  | Eliminations |  | Incorporated
Net sales: |  |  |  |  |  |  |  |  |  |  |  |
Vehicle service professionals |  | $ | 24.0 |  |  | $ | 405.8 |  |  | $ | 282.5 |  |  | $ | — |  |  | $ | — |  |  | $ | 712.3 |
All other professionals |  | 239.0 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 239.0 |
External net sales |  | 263.0 |  |  | 405.8 |  |  | 282.5 |  |  | — |  |  | — |  |  | 951.3 |
Intersegment net sales |  | 72.0 |  |  | — |  |  | 66.4 |  |  | — |  |  | (138.4 | ) |  | — |
Total net sales |  | 335.0 |  |  | 405.8 |  |  | 348.9 |  |  | — |  |  | (138.4 | ) |  | 951.3 |
Financial services revenue |  | — |  |  | — |  |  | — |  |  | 84.1 |  |  | — |  |  | 84.1 |
Total revenue |  | $ | 335.0 |  |  | $ | 405.8 |  |  | $ | 348.9 |  |  | $ | 84.1 |  |  | $ | (138.4 | ) |  | $ | 1,035.4 |

|  | For the Six Months Ended June 29, 2019
|  | Commercial |  | Snap-on |  | Repair Systems |  |  |  |  |  |
|  | & Industrial |  | Tools |  | & Information |  | Financial |  |  |  | Snap-on
(Amounts in millions) |  | Group |  | Group |  | Group |  | Services |  | Eliminations |  | Incorporated
Net sales: |  |  |  |  |  |  |  |  |  |  |  |
Vehicle service professionals |  | $ | 44.0 |  |  | $ | 816.0 |  |  | $ | 544.5 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,404.5 |
All other professionals |  | 468.5 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 468.5 |
External net sales |  | 512.5 |  |  | 816.0 |  |  | 544.5 |  |  | — |  |  | — |  |  | 1,873.0 |
Intersegment net sales |  | 145.0 |  |  | — |  |  | 132.3 |  |  | — |  |  | (277.3 | ) |  | — |
Total net sales |  | 657.5 |  |  | 816.0 |  |  | 676.8 |  |  | — |  |  | (277.3 | ) |  | 1,873.0 |
Financial services revenue |  | — |  |  | — |  |  | — |  |  | 169.7 |  |  | — |  |  | 169.7 |
Total revenue |  | $ | 657.5 |  |  | $ | 816.0 |  |  | $ | 676.8 |  |  | $ | 169.7 |  |  | $ | (277.3 | ) |  | $ | 2,042.7 |

|  | For the Three Months Ended June 30, 2018
|  | Commercial |  | Snap-on |  | Repair Systems |  |  |  |  |  |
|  | & Industrial |  | Tools |  | & Information |  | Financial |  |  |  | Snap-on
(Amounts in millions) |  | Group |  | Group |  | Group |  | Services |  | Eliminations |  | Incorporated
Net sales: |  |  |  |  |  |  |  |  |  |  |  |
Vehicle service professionals |  | $ | 25.6 |  |  | $ | 411.9 |  |  | $ | 275.6 |  |  | $ | — |  |  | $ | — |  |  | $ | 713.1 |
All other professionals |  | 241.5 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 241.5 |
External net sales |  | 267.1 |  |  | 411.9 |  |  | 275.6 |  |  | — |  |  | — |  |  | 954.6 |
Intersegment net sales |  | 70.7 |  |  | — |  |  | 67.5 |  |  | — |  |  | (138.2 | ) |  | — |
Total net sales |  | 337.8 |  |  | 411.9 |  |  | 343.1 |  |  | — |  |  | (138.2 | ) |  | 954.6 |
Financial services revenue |  | — |  |  | — |  |  | — |  |  | 82.0 |  |  | — |  |  | 82.0 |
Total revenue |  | $ | 337.8 |  |  | $ | 411.9 |  |  | $ | 343.1 |  |  | $ | 82.0 |  |  | $ | (138.2 | ) |  | $ | 1,036.6 |

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

|  | For the Six Months Ended June 30, 2018
|  | Commercial |  | Snap-on |  | Repair Systems |  |  |  |  |  |
|  | & Industrial |  | Tools |  | & Information |  | Financial |  |  |  | Snap-on
(Amounts in millions) |  | Group |  | Group |  | Group |  | Services |  | Eliminations |  | Incorporated
Net sales: |  |  |  |  |  |  |  |  |  |  |  |
Vehicle service professionals |  | $ | 48.1 |  |  | $ | 816.6 |  |  | $ | 547.6 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,412.3 |
All other professionals |  | 477.8 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 477.8 |
External net sales |  | 525.9 |  |  | 816.6 |  |  | 547.6 |  |  | — |  |  | — |  |  | 1,890.1 |
Intersegment net sales |  | 143.5 |  |  | — |  |  | 132.5 |  |  | — |  |  | (276.0 | ) |  | — |
Total net sales |  | 669.4 |  |  | 816.6 |  |  | 680.1 |  |  | — |  |  | (276.0 | ) |  | 1,890.1 |
Financial services revenue |  | — |  |  | — |  |  | — |  |  | 165.0 |  |  | — |  |  | 165.0 |
Total revenue |  | $ | 669.4 |  |  | $ | 816.6 |  |  | $ | 680.1 |  |  | $ | 165.0 |  |  | $ | (276.0 | ) |  | $ | 2,055.1 |

Nature of Goods and Services
Snap-on derives net sales from a broad line of products and complementary services that are grouped into three categories: (i) tools; (ii) diagnostics, information and management systems; and (iii) equipment. The tools product category includes Snap-on’s hand tools, power tools, tool storage products and other similar products. The diagnostics, information and management systems product category includes handheld and PC-based diagnostic products, service and repair information products, diagnostic software solutions, electronic parts catalogs, business management systems and services, point-of-sale systems, integrated systems for vehicle service shops, original equipment manufacturer (“OEM”) purchasing facilitation services, and warranty management systems and analytics to help OEM dealerships manage and track performance. The equipment product category includes solutions for the service of vehicles and industrial equipment. Snap-on supports the sale of its diagnostics and vehicle service shop equipment by offering training programs as well as after-sales support to its customers. Through its financial services businesses, Snap-on also derives revenue from various financing programs designed to facilitate the sales of its products and support its franchise business.
Approximately 90% of Snap-on’s net sales are products sold at a point in time through ship-and-bill performance obligations that also includes service repair services. The remaining sales revenue is earned over time primarily on a subscription basis including software, extended warranty and other subscription service agreements.
Snap-on enters into contracts related to the selling of tools, diagnostic and repair information and equipment products and related services. At contract inception, an assessment of the goods and services promised in the contracts with customers is performed and a performance obligation is identified for each distinct promise to transfer to the customer a good or service (or bundle of goods or services). To identify the performance obligations, Snap-on considers all of the goods or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. Contracts with customers are comprised of customer purchase orders, invoices and written contracts.
For certain performance obligations related to software subscriptions, extended warranty and other subscription agreements that are settled over time, Snap-on has elected not to disclose the value of unsatisfied performance obligations for: (i) contracts that have an original expected length of one year or less; (ii) contracts where revenue is recognized as invoiced; and (iii) contracts with variable consideration related to unsatisfied performance obligations. The remaining duration of these unsatisfied performance obligations range from one month up to 60 months. Snap-on had approximately $236.0 million of long-term contracts that have fixed consideration that extends beyond one year as of June 29, 2019. Snap-on expects to recognize approximately 60% of these contracts as revenue by the end of fiscal 2020, an additional 30% by the end of fiscal 2022 and the balance thereafter.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Contract Liabilities (Deferred Revenues)
Contract liabilities are recorded when cash payments are received in advance of Snap-on’s performance. The timing of payment is typically on a monthly, quarterly or annual basis. The balance of total contract liabilities at June 29, 2019 was $68.8 million and $63.8 million at December 29, 2018. The current portion of contract liabilities and the non-current portion are included in “Other accrued liabilities” and “Other long-term liabilities”, respectively, on the accompanying Condensed Consolidated Balance Sheets. During the three and six months ended June 29, 2019, Snap-on recognized revenue of $8.2 million and $35.2 million, respectively, that was included in the $63.8 million contract liability balance at December 29, 2018, which was primarily from the amortization of software subscriptions, extended warranties and other subscription agreements.
Note 3: Acquisitions
On April 2, 2019, Snap-on acquired Power Hawk Technologies, Inc. (“Power Hawk”) for a preliminary cash purchase price of $8.0 million. The preliminary purchase price is subject to change based upon the finalization of a working capital adjustment that is expected to be completed in the third quarter of 2019. Power Hawk, based in Rockaway, New Jersey, designs, manufactures and distributes rescue tools and related equipment for a variety of military, governmental and fire, rescue and emergency operations.
As of June 29, 2019, and subject to the finalization of the working capital adjustment mentioned above, the company recorded, on a preliminary basis, the $6.9 million excess of the purchase price over the fair value of the net assets acquired in “Goodwill” on the accompanying Condensed Consolidated Balance Sheets. The company anticipates completing the purchase accounting, for the acquired net assets of Power Hawk, including the potential identification and quantification of other intangible assets, in the second half of 2019.
On January 25, 2019, Snap-on acquired substantially all of the assets of TMB GeoMarketing Limited (“TMB”) for a cash purchase price of $1.3 million. TMB, based in Dorking, United Kingdom, designs planning software used by OEMs to optimize dealer locations and manage the performance of dealer outlets. The company completed the purchase accounting valuations for the acquired net assets of TMB during the first quarter of 2019. Substantially all of the purchase price over the fair value of the net assets acquired was recorded in “Goodwill” on the accompanying Condensed Consolidated Balance Sheets.
On January 31, 2018, Snap-on acquired substantially all of the assets of George A. Sturdevant, Inc. (d/b/a Fastorq) for a cash purchase price of $3.0 million. Fastorq, based in New Caney, Texas, designs, assembles and distributes hydraulic torque and hydraulic tensioning products for use in critical industries. As of the second quarter of 2018, the company completed the purchase accounting valuations for the acquired net assets of Fastorq. The $2.6 million excess of the purchase price over the fair value of the net assets acquired was recorded in “Goodwill” on the accompanying Condensed Consolidated Balance Sheets.
For segment reporting purposes, the results of operations and assets of TMB have been included in the Repair Systems and Information Group since the acquisition date, and the results of operations and assets of Power Hawk and Fastorq have been included in the Commercial & Industrial Group since the acquisition date.
Pro forma financial information has not been presented for these acquisitions as the net effects were neither significant nor material to Snap-on’s results of operations or financial position. See Note 6 for further information on goodwill and other intangible assets.
Note 4: Receivables
Trade and Other Accounts Receivable
Snap-on’s trade and other accounts receivable primarily arise from the sale of tools and diagnostic and equipment products to a broad range of industrial and commercial customers and to Snap-on’s independent franchise van channel on a non-extended-term basis with payment terms generally ranging from 30 to 120 days.
The components of Snap-on’s trade and other accounts receivable as of June 29, 2019, and December 29, 2018, are as follows:

(Amounts in millions) | June 29, 2019 |  | December 29, 2018
Trade and other accounts receivable | $ | 703.2 |  |  | $ | 710.1 |
Allowances for doubtful accounts | (19.1 | ) |  | (17.5 | )
Total trade and other accounts receivable – net | $ | 684.1 |  |  | $ | 692.6 |

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Finance and Contract Receivables
Snap-on Credit LLC (“SOC”), the company’s financial services operation in the United States, originates extended-term finance and contract receivables on sales of Snap-on’s products sold through the U.S. franchisee and customer network and to certain other customers of Snap-on; Snap-on’s foreign finance subsidiaries provide similar financing internationally. Interest income on finance and contract receivables is included in “Financial services revenue” on the accompanying Condensed Consolidated Statements of Earnings.
Snap-on’s finance receivables are comprised of extended-term installment payment contracts to both technicians and independent shop owners (i.e., franchisees’ customers) to enable them to purchase tools and diagnostic and equipment products on an extended-term payment plan, generally with average payment terms of approximately four years. Finance receivables are generally secured by the underlying tools and/or diagnostic or equipment products financed.
Snap-on’s contract receivables, with payment terms of up to 10 years, are comprised of extended-term installment payment contracts to a broad base of customers worldwide, including shop owners, both independents and national chains, for their purchase of tools and diagnostic and equipment products. Contract receivables also include extended-term installment loans to franchisees to meet a number of financing needs, including working capital loans, loans to enable new franchisees to fund the purchase of the franchise and van leases, or the expansion of an existing franchise. Contract receivables are generally secured by the underlying tools and/or diagnostic or equipment products financed and, for installment loans to franchisees, other franchisee assets.
The components of Snap-on’s current finance and contract receivables as of June 29, 2019, and December 29, 2018, are as follows:

(Amounts in millions) | June 29, 2019 |  | December 29, 2018
Finance receivables | $ | 548.5 |  |  | $ | 538.1 |
Contract receivables | 92.8 |  |  | 99.5 |
Total | 641.3 |  |  | 637.6 |
Allowances for doubtful accounts: |  |  |
Finance receivables | (19.5 | ) |  | (19.6 | )
Contract receivables | (1.3 | ) |  | (1.2 | )
Total | (20.8 | ) |  | (20.8 | )
Total current finance and contract receivables – net | $ | 620.5 |  |  | $ | 616.8 |
Finance receivables – net | $ | 529.0 |  |  | $ | 518.5 |
Contract receivables – net | 91.5 |  |  | 98.3 |
Total current finance and contract receivables – net | $ | 620.5 |  |  | $ | 616.8 |

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The components of Snap-on’s finance and contract receivables with payment terms beyond one year as of June 29, 2019, and December 29, 2018, are as follows:

(Amounts in millions) | June 29, 2019 |  | December 29, 2018
Finance receivables | $ | 1,130.4 |  |  | $ | 1,116.2 |
Contract receivables | 351.2 |  |  | 348.0 |
Total | 1,481.6 |  |  | 1,464.2 |
Allowances for doubtful accounts: |  |  |
Finance receivables | (41.4 | ) |  | (41.8 | )
Contract receivables | (3.7 | ) |  | (3.1 | )
Total | (45.1 | ) |  | (44.9 | )
Total long-term finance and contract receivables – net | $ | 1,436.5 |  |  | $ | 1,419.3 |
Finance receivables – net | $ | 1,089.0 |  |  | $ | 1,074.4 |
Contract receivables – net | 347.5 |  |  | 344.9 |
Total long-term finance and contract receivables – net | $ | 1,436.5 |  |  | $ | 1,419.3 |

Delinquency is the primary indicator of credit quality for finance and contract receivables. The entire receivable balance of a contract is considered delinquent when contractual payments become 30 days past due. Depending on the contract, payments for finance and contract receivables are due on a monthly or weekly basis. Weekly payments are converted into a monthly equivalent for purposes of calculating delinquency. Delinquencies are assessed at the end of each month following the monthly equivalent due date. Removal from delinquent status occurs when the cumulative number of monthly payments due has been received by the company.
Finance receivables are generally placed on nonaccrual status (nonaccrual of interest and other fees): (i) when a customer is placed on repossession status; (ii) upon receipt of notification of bankruptcy; (iii) upon notification of the death of a customer; or (iv) in other instances in which management concludes collectability is not reasonably assured. Finance receivables that are considered nonperforming include receivables that are on nonaccrual status and receivables that are generally more than 90 days past due.
Contract receivables are generally placed on nonaccrual status: (i) when a receivable is more than 90 days past due or at the point a customer’s account is placed on terminated status regardless of its delinquency status; (ii) upon notification of the death of a customer; or (iii) in other instances in which management concludes collectability is not reasonably assured. Contract receivables that are considered nonperforming include receivables that are on nonaccrual status and receivables that are generally more than 90 days past due.
The accrual of interest and other fees is resumed when the finance or contract receivable becomes contractually current and collection of all remaining contractual amounts due is reasonably assured. Finance and contract receivables are evaluated for impairment on a collective basis. A receivable is impaired when it is probable that all amounts related to the receivable will not be collected according to the contractual terms of the applicable agreement. Impaired finance and contract receivables are covered by the company’s respective allowances for doubtful accounts and are charged-off against the allowances when appropriate. As of June 29, 2019, and December 29, 2018, there were $24.7 million and $27.9 million, respectively, of impaired finance receivables, and there were $3.3 million and $6.0 million, respectively, of impaired contract receivables.
It is the general practice of Snap-on’s financial services business to not engage in contract or loan modifications. In limited instances, Snap-on’s financial services business may modify certain impaired receivables in troubled debt restructurings. The amount and number of restructured finance and contract receivables as of June 29, 2019, and December 29, 2018, were immaterial to both the financial services portfolio and the company’s results of operations and financial position.
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SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The aging of finance and contract receivables as of June 29, 2019, and December 29, 2018, is as follows:

(Amounts in millions) | 30-59 Days Past Due |  | 60-90 Days Past Due |  | Greater Than 90 Days Past Due |  | Total Past Due |  | Total Not Past Due |  | Total |  | Greater Than 90 Days Past Due and Accruing
June 29, 2019: |  |  |  |  |  |  |  |  |  |  |  |  |
Finance receivables | $ | 16.0 |  |  | $ | 10.2 |  |  | $ | 16.3 |  |  | $ | 42.5 |  |  | $ | 1,636.4 |  |  | $ | 1,678.9 |  |  | $ | 12.6 |
Contract receivables | 1.3 |  |  | 1.0 |  |  | 1.4 |  |  | 3.7 |  |  | 440.3 |  |  | 444.0 |  |  | 0.3 |
December 29, 2018: |  |  |  |  |  |  |  |  |  |  |  |  |
Finance receivables | $ | 19.4 |  |  | $ | 12.1 |  |  | $ | 20.3 |  |  | $ | 51.8 |  |  | $ | 1,602.5 |  |  | $ | 1,654.3 |  |  | $ | 15.9 |
Contract receivables | 1.7 |  |  | 1.2 |  |  | 5.2 |  |  | 8.1 |  |  | 439.4 |  |  | 447.5 |  |  | 0.2 |

The amount of performing and nonperforming finance and contract receivables based on payment activity as of June 29, 2019, and December 29, 2018, is as follows:

| June 29, 2019 |  | December 29, 2018
(Amounts in millions) | Finance Receivables |  | Contract Receivables |  | Finance Receivables |  | Contract Receivables
Performing | $ | 1,654.2 |  |  | $ | 440.7 |  |  | $ | 1,626.4 |  |  | $ | 441.5 |
Nonperforming | 24.7 |  |  | 3.3 |  |  | 27.9 |  |  | 6.0 |
Total | $ | 1,678.9 |  |  | $ | 444.0 |  |  | $ | 1,654.3 |  |  | $ | 447.5 |

The amount of finance and contract receivables on nonaccrual status as of June 29, 2019, and December 29, 2018, is as follows:

(Amounts in millions) | June 29, 2019 |  | December 29, 2018
Finance receivables | $ | 12.1 |  |  | $ | 12.0 |
Contract receivables | 3.0 |  |  | 5.8 |

The following is a rollforward of the allowances for doubtful accounts for finance and contract receivables for the three and six months ended June 29, 2019, and June 30, 2018:

| Three Months Ended June 29, 2019 |  | Six Months Ended June 29, 2019
(Amounts in millions) | Finance Receivables |  | Contract Receivables |  | Finance Receivables |  | Contract Receivables
Allowances for doubtful accounts: |  |  |  |  |  |  |
Beginning of period | $ | 61.0 |  |  | $ | 4.7 |  |  | $ | 61.4 |  |  | $ | 4.3 |
Provision | 11.9 |  |  | 1.2 |  |  | 24.4 |  |  | 2.1 |
Charge-offs | (13.9 | ) |  | (1.0 | ) |  | (28.9 | ) |  | (1.7 | )
Recoveries | 2.0 |  |  | 0.2 |  |  | 4.0 |  |  | 0.3 |
Currency translation | (0.1 | ) |  | (0.1 | ) |  | — |  |  | — |
End of period | $ | 60.9 |  |  | $ | 5.0 |  |  | $ | 60.9 |  |  | $ | 5.0 |

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SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

| Three Months Ended June 30, 2018 |  | Six Months Ended June 30, 2018
(Amounts in millions) | Finance Receivables |  | Contract Receivables |  | Finance Receivables |  | Contract Receivables
Allowances for doubtful accounts: |  |  |  |  |  |  |
Beginning of period | $ | 58.3 |  |  | $ | 4.6 |  |  | $ | 56.5 |  |  | $ | 4.6 |
Provision | 13.6 |  |  | 0.6 |  |  | 29.4 |  |  | 1.1 |
Charge-offs | (14.6 | ) |  | (0.5 | ) |  | (30.4 | ) |  | (1.1 | )
Recoveries | 1.7 |  |  | 0.1 |  |  | 3.6 |  |  | 0.2 |
Currency translation | — |  |  | — |  |  | (0.1 | ) |  | — |
End of period | $ | 59.0 |  |  | $ | 4.8 |  |  | $ | 59.0 |  |  | $ | 4.8 |

Note 5: Inventories
Inventories by major classification are as follows:

(Amounts in millions) | June 29, 2019 |  | December 29, 2018
Finished goods | $ | 622.9 |  |  | $ | 577.0 |
Work in progress | 54.4 |  |  | 51.7 |
Raw materials | 129.9 |  |  | 123.5 |
Total FIFO value | 807.2 |  |  | 752.2 |
Excess of current cost over LIFO cost | (81.4 | ) |  | (78.4 | )
Total inventories – net | $ | 725.8 |  |  | $ | 673.8 |

Inventories accounted for using the first-in, first-out (“FIFO”) method approximated 60% and 61% of total inventories as of June 29, 2019, and December 29, 2018, respectively. The company accounts for its non-U.S. inventory on the FIFO method. As of June 29, 2019, approximately 34% of the company’s U.S. inventory was accounted for using the FIFO method and 66% was accounted for using the last-in, first-out (“LIFO”) method. There were no LIFO inventory liquidations in the three and six months ended June 29, 2019 or June 30, 2018.
Note 6: Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill by segment for the six months ended June 29, 2019, are as follows:

(Amounts in millions) | Commercial & Industrial Group |  | Snap-on Tools Group |  | Repair Systems & Information Group |  | Total
Balance as of December 29, 2018 | $ | 286.2 |  |  | $ | 12.5 |  |  | $ | 603.5 |  |  | $ | 902.2 |
Currency translation | (2.0 | ) |  | — |  |  | (1.4 | ) |  | (3.4 | )
Acquisitions and related adjustments | 6.9 |  |  | — |  |  | 1.3 |  |  | 8.2 |
Balance as of June 29, 2019 | $ | 291.1 |  |  | $ | 12.5 |  |  | $ | 603.4 |  |  | $ | 907.0 |

Goodwill of $907.0 million as of June 29, 2019, includes $6.9 million, on a preliminary basis, from the acquisition of Power Hawk and $1.3 million from the acquisition of TMB. The goodwill from Power Hawk is included in the Commercial & Industrial Group and the goodwill from TMB is included in the Repair Systems and Information Group. The company anticipates completing the purchase accounting for the Power Hawk acquisition, including the potential identification and quantification of other intangible assets, in the second half of 2019. See Note 3 for additional information on acquisitions.
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SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Additional disclosures related to other intangible assets are as follows:

| June 29, 2019 |  | December 29, 2018
(Amounts in millions) | Gross Carrying Value |  | Accumulated Amortization |  | Gross Carrying Value |  | Accumulated Amortization
Amortized other intangible assets: |  |  |  |  |  |  |
Customer relationships | $ | 171.8 |  |  | $ | (112.4 | ) |  | $ | 172.2 |  |  | $ | (107.6 | )
Developed technology | 18.5 |  |  | (18.4 | ) |  | 18.5 |  |  | (18.3 | )
Internally developed software | 161.2 |  |  | (120.3 | ) |  | 156.6 |  |  | (116.6 | )
Patents | 36.5 |  |  | (23.4 | ) |  | 35.7 |  |  | (22.9 | )
Trademarks | 3.3 |  |  | (2.0 | ) |  | 3.2 |  |  | (2.0 | )
Other | 7.4 |  |  | (3.1 | ) |  | 7.3 |  |  | (2.9 | )
Total | 398.7 |  |  | (279.6 | ) |  | 393.5 |  |  | (270.3 | )
Non-amortized trademarks | 108.8 |  |  | — |  |  | 109.7 |  |  | — |
Total other intangible assets | $ | 507.5 |  |  | $ | (279.6 | ) |  | $ | 503.2 |  |  | $ | (270.3 | )

Snap-on completed its annual impairment testing of goodwill and other indefinite-lived intangible assets in the second quarter of 2019, the results of which did not result in any impairment. Significant and unanticipated changes in circumstances, such as declines in profitability and cash flow due to significant and long-term deterioration in macroeconomic, industry and market conditions, the loss of key customers, changes in technology or markets, significant changes in key personnel or litigation, a significant and sustained decrease in share price and/or other events, including effects from the sale or disposal of a reporting unit, could require a provision for impairment of goodwill and/or other intangible assets in a future period. As of June 29, 2019, the company had no accumulated impairment losses.
The weighted-average amortization periods related to other intangible assets are as follows:

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

Snap-on is amortizing its customer relationships on both an accelerated and straight-line basis over a 15-year weighted-average life; the remaining intangibles are amortized on a straight-line basis. The weighted-average amortization period for all amortizable intangibles on a combined basis is 12 years.
The company’s customer relationships generally have contractual terms of three to five years and are typically renewed without significant cost to the company. The weighted-average 15-year life for customer relationships is based on the company’s historical renewal experience. Intangible asset renewal costs are expensed as incurred.
The aggregate amortization expense was $5.4 million and $10.8 million for the respective three and six months ended June 29, 2019, and $6.4 million and $13.0 million for the respective three and six months ended June 30, 2018. Based on current levels of amortizable intangible assets and estimated weighted-average useful lives, estimated annual amortization expense is expected to be $21.2 million in 2019, $18.3 million in 2020, $16.1 million in 2021, $13.3 million in 2022, $12.2 million in 2023, and $10.0 million in 2024.
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SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 7: Income Taxes
Snap-on’s effective income tax rate on earnings attributable to Snap-on was 23.9% and 25.0% in the first six months of 2019 and 2018, respectively. During the first six months of 2018, the Internal Revenue Service issued new guidance affecting the computation of the company’s 2017 federal income tax liability. As a result of this new guidance and additional analysis of the impacts of the Tax Act, the company revised its prior estimates and recorded $2.1 million of additional tax expense during the 2018 period. The additional $2.1 million tax provision during the first six months of 2018 increased the company’s effective tax rate for the period by 50 basis points. The ultimate impact of the Tax Act may differ from the current estimates, possibly materially, due to changes in interpretations and assumptions the company has made, future guidance that may be issued and actions the company may take as a result of the law.
Snap-on and its subsidiaries file income tax returns in the United States and in various state, local and foreign jurisdictions. It is reasonably possible that certain unrecognized tax benefits may either be settled with taxing authorities or the statutes of limitations for such items may lapse within the next 12 months, causing Snap-on’s gross unrecognized tax benefits to decrease by a range of zero to $2.5 million. Over the next 12 months, Snap-on anticipates taking certain tax positions on various tax returns for which the related tax benefit does not meet the recognition threshold. Accordingly, Snap-on’s gross unrecognized tax benefits may increase by a range of zero to $1.0 million over the next 12 months for uncertain tax positions expected to be taken in future tax filings.
Note 8: Short-term and Long-term Debt
Short-term and long-term debt as of June 29, 2019, and December 29, 2018, consisted of the following:

(Amounts in millions) | June 29, 2019 |  | December 29, 2018
6.125% unsecured notes due 2021 | $ | 250.0 |  |  | $ | 250.0 |
3.25% unsecured notes due 2027 | 300.0 |  |  | 300.0 |
4.10% unsecured notes due 2048 | 400.0 |  |  | 400.0 |
Other debt* | 166.1 |  |  | 182.3 |
| 1,116.1 |  |  | 1,132.3 |
Less: notes payable |  |  |
Commercial paper borrowings | (154.6 | ) |  | (177.1 | )
Other notes | (13.6 | ) |  | (9.2 | )
| (168.2 | ) |  | (186.3 | )
Total long-term debt | $ | 947.9 |  |  | $ | 946.0 |

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

Notes payable of $168.2 million as of June 29, 2019, included $154.6 million of commercial paper borrowings and $13.6 million of other notes. As of 2018 year end, notes payable of $186.3 million included $177.1 million of commercial paper borrowings and $9.2 million of other notes.
On February 20, 2018, Snap-on commenced a tender offer to repurchase $200 million in principal amount of its unsecured 6.70% notes that were scheduled to mature on March 1, 2019 (the “2019 Notes”), with $26.1 million of the 2019 Notes tendered and repaid on February 27, 2018. On February 20, 2018, Snap-on also issued a notice of redemption for any remaining outstanding 2019 Notes not tendered, with the redemption completed on March 22, 2018. The total cash cost for this tender and redemption was $209.1 million, including accrued interest of $1.5 million. Snap-on recorded $7.8 million for the loss on the early extinguishment of debt related to the 2019 Notes, which included the redemption premium and other issuance costs associated with this debt in “Other income (expense) - net” on the accompanying Condensed Consolidated Statement of Earnings. See Note 16 for additional information on Other income (expense) - net.
On February 20, 2018, Snap-on sold, at a discount, $400 million of unsecured 4.10% long-term notes that mature on March 1, 2048 (the “2048 Notes”). Interest on the 2048 Notes accrues at a rate of 4.10% per year and is paid semi-annually. Snap-on used a portion of the $395.4 million of net proceeds from the sale of the 2048 Notes, reflecting $3.5 million of transaction costs, to repay the 2019 Notes. The remaining net proceeds were used to repay a portion of its then-outstanding commercial paper borrowings and for general corporate purposes.
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SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Snap-on has a five-year, $700 million multi-currency revolving credit facility that terminates on December 15, 2020 (the “Credit Facility”); no amounts were outstanding under the Credit Facility as of June 29, 2019. Borrowings under the Credit Facility bear interest at varying rates based on Snap-on’s then-current, long-term debt ratings. 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 (consolidated debt net of certain cash adjustments) to the sum of such consolidated net debt plus total equity and less accumulated other comprehensive income or loss (the “Debt Ratio”); or (ii) a ratio not greater than 3.50 to 1.00 of such consolidated net debt to earnings before interest, taxes, depreciation, amortization and certain other adjustments for the preceding four fiscal quarters then ended (the “Debt to EBITDA Ratio”). Snap-on may, up to two times during any five-year period during the term of the Credit Facility (including any extensions thereof), increase the maximum Debt Ratio to 0.65 to 1.00 and/or increase the maximum Debt to EBITDA Ratio to 3.75 to 1.00 for four consecutive fiscal quarters in connection with certain material acquisitions (as defined in the related credit agreement). As of June 29, 2019, the company’s actual ratios of 0.21 and 0.95 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.
Note 9: Financial Instruments
Derivatives: All derivative instruments are reported in the Condensed Consolidated Financial Statements at fair value. Changes in the fair value of derivatives are recorded each period in earnings or on the accompanying Condensed Consolidated Balance Sheets, depending on whether the derivative is designated as part of a hedged transaction. Gains or losses on derivative instruments recorded in earnings are presented in the same Condensed Consolidated Statement of Earnings line that is used to present the earnings effect of the hedged item. Gains or losses on derivative instruments in accumulated other comprehensive income (loss) (“Accumulated OCI”) are reclassified to earnings in the period in which earnings are affected by the underlying hedged item.
The criteria used to determine if hedge accounting treatment is appropriate are: (i) the designation of the hedge to an underlying exposure; (ii) whether or not overall risk is being reduced; and (iii) if there is a correlation between the value of the derivative instrument and the underlying hedged item. Once a derivative contract is entered into, Snap-on has until the end of the quarter to designate the derivative as a fair value hedge, a cash flow hedge, a hedge of a net investment in a foreign operation, or a natural hedging instrument whose change in fair value is recognized as an economic hedge against changes in the value of the hedged item. Snap-on does not use derivative instruments for speculative or trading purposes.
The company is exposed to global market risks, including the effects of changes in foreign currency exchange rates, interest rates, and the company’s stock price, and therefore uses derivatives to manage financial exposures that occur in the normal course of business. The primary risks managed by using derivative instruments are foreign currency risk, interest rate risk and stock-based deferred compensation risk.
Foreign Currency Risk Management: Snap-on has significant international operations and is subject to certain risks inherent with foreign operations that include currency fluctuations. Foreign currency exchange risk exists to the extent that Snap-on has payment obligations or receipts denominated in currencies other than the functional currency, including intercompany loans denominated in foreign currencies. To manage these exposures, Snap-on identifies naturally offsetting positions and then purchases hedging instruments to protect the residual net exposures. Snap-on manages most of these exposures on a consolidated basis, which allows for netting of certain exposures to take advantage of natural offsets. Foreign currency forward contracts (“foreign currency forwards”) are used to hedge the net exposures. Gains or losses on net foreign currency hedges are intended to offset losses or gains on the underlying net exposures in an effort to reduce the earnings volatility resulting from fluctuating foreign currency exchange rates. Snap-on’s foreign currency forwards are typically not designated as hedges. The fair value changes of these contracts are reported in earnings as foreign exchange gain or loss, which is included in “Other income (expense) – net” on the accompanying Condensed Consolidated Statements of Earnings.
Interest Rate Risk Management: Snap-on aims to control funding costs by managing the exposure created by the differing maturities and interest rate structures of Snap-on’s borrowings through the use of interest rate swap agreements (“interest rate swaps”) and treasury lock agreements (“treasury locks”).
Interest Rate Swaps: Snap-on enters into interest rate swaps to manage risks associated with changing interest rates related to the company’s fixed rate borrowings. Interest rate swaps are accounted for as fair value hedges. The differentials paid or received on interest rate swaps are recognized as adjustments to “Interest expense” on the accompanying Condensed Consolidated Statements of Earnings. The change in fair value of the designated and qualifying derivative is recorded in “Long-term debt” on the accompanying Condensed Consolidated Balance Sheets. The notional amount of interest rate swaps outstanding and designated as fair value hedges was $100 million as of both June 29, 2019 and December 29, 2018.
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SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Treasury locks: Snap-on uses treasury locks to manage the potential change in interest rates in anticipation of the issuance of fixed rate debt. Treasury locks are accounted for as cash flow hedges. The differentials to be paid or received on treasury locks related to the anticipated issuance of fixed rate debt are initially recorded in Accumulated OCI for derivative instruments that are designated and qualify as cash flow hedges. Upon the issuance of debt, the related amount in Accumulated OCI is released over the term of the debt and recognized as an adjustment to interest expense on the Condensed Consolidated Statements of Earnings.
Snap-on entered into a $300 million treasury lock in the fourth quarter of 2017 to manage changes in interest rates in anticipation of the issuance of fixed rate debt in the first quarter of 2018.
In the first quarter of 2018, Snap-on settled the outstanding $300 million treasury lock after it was deemed to be an ineffective hedge related to the 2048 Notes, which were issued in February 2018. The $13.3 million gain on the settlement of the treasury lock was recorded in “Other income (expense) - net” on the accompanying Condensed Consolidated Statements of Earnings. There were no treasury locks outstanding as of both June 29, 2019 and December 29, 2018. See Note 16 for additional information on Other income (expense) - net.
Stock-based Deferred Compensation Risk Management: Snap-on aims to manage market risk associated with the stock-based portion of its deferred compensation plans through the use of prepaid equity forward agreements (“equity forwards”). Equity forwards are used to aid in offsetting the potential mark-to-market effect on stock-based deferred compensation from changes in Snap-on’s stock price. Since stock-based deferred compensation liabilities increase as the company’s stock price rises and decrease as the company’s stock price declines, the equity forwards are intended to mitigate the potential impact on deferred compensation expense that may result from such mark-to-market changes. As of June 29, 2019, Snap-on had equity forwards in place intended to manage market risk with respect to 92,200 shares of Snap-on common stock associated with its deferred compensation plans.
Counterparty Risk: Snap-on is exposed to credit losses in the event of non-performance by the counterparties to its various financial agreements, including its foreign currency forward contracts, interest rate swap agreements, treasury lock agreements and prepaid equity forward agreements. Snap-on does not obtain collateral or other security to support financial instruments subject to credit risk, but monitors the credit standing of the counterparties and generally enters into agreements with financial institution counterparties with a credit rating of A- or better. Snap-on does not anticipate non-performance by its counterparties, but cannot provide assurances.
Fair Value of Financial Instruments: The fair values of financial instruments that do not approximate the carrying values in the financial statements are as follows:

| June 29, 2019 |  | December 29, 2018
(Amounts in millions) | Carrying Value |  | Fair Value |  | Carrying Value |  | Fair Value
Finance receivables – net | $ | 1,618.0 |  |  | $ | 1,903.1 |  |  | $ | 1,592.9 |  |  | $ | 1,845.4 |
Contract receivables – net | 439.0 |  |  | 484.3 |  |  | 443.2 |  |  | 481.2 |
Long-term debt and notes payable | 1,116.1 |  |  | 1,181.2 |  |  | 1,132.3 |  |  | 1,136.0 |

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

• | Finance and contract receivables include both short-term and long-term receivables. The fair value estimates of finance and contract receivables are derived utilizing discounted cash flow analyses performed on groupings of receivables that are similar in terms of loan type and characteristics. The cash flow analyses consider recent prepayment trends where applicable. The cash flows are discounted over the average life of the receivables using a current market discount rate of a similar term adjusted for credit quality. Significant inputs to the fair value measurements of the receivables are unobservable and, as such, are classified as Level 3.

• | Fair value of long-term debt was estimated, using Level 2 fair value measurements, based on quoted market values of Snap-on’s publicly traded senior debt. The carrying value of long-term debt includes adjustments related to fair value hedges. The fair value of notes payable approximates such instruments’ carrying value due to their short-term nature.

• | The fair value of all other financial instruments, including trade and other accounts receivable, accounts payable and other financial instruments, approximates such instruments’ carrying value due to their short-term nature.

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SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 10: Pension Plans
Snap-on’s net periodic pension cost included the following components:

| Three Months Ended |  | Six Months Ended
(Amounts in millions) | June 29, 2019 |  | June 30, 2018 |  | June 29, 2019 |  | June 30, 2018
Service cost | $ | 5.8 |  |  | $ | 6.1 |  |  | $ | 11.8 |  |  | $ | 12.6 |
Interest cost | 14.1 |  |  | 13.2 |  |  | 28.2 |  |  | 26.4 |
Expected return on plan assets | (23.1 | ) |  | (22.2 | ) |  | (45.5 | ) |  | (43.9 | )
Amortization of unrecognized loss | 6.3 |  |  | 8.4 |  |  | 12.5 |  |  | 16.4 |
Amortization of prior service credit | (0.2 | ) |  | (0.3 | ) |  | (0.4 | ) |  | (0.6 | )
Net periodic pension cost | $ | 2.9 |  |  | $ | 5.2 |  |  | $ | 6.6 |  |  | $ | 10.9 |

The components of net periodic pension cost, other than the service cost component, are included in “Other income (expense) - net” on the accompanying Condensed Consolidated Statements of Earnings. See Note 16 for additional information on other income (expense) - net.
Snap-on intends to make contributions of $9.4 million to its foreign pension plans and $2.0 million to its domestic pension plans in 2019, as required by law. In the first six months of 2019, Snap-on made $25.8 million of cash contributions to its domestic pension plans consisting of (i) $25.0 million of discretionary contributions and (ii) $0.8 million of required contributions. Depending on market and other conditions, Snap-on may make additional discretionary cash contributions to its pension plans in 2019.
Note 11: Postretirement Health Care Plans
Snap-on’s net periodic postretirement health care cost included the following components:

| Three Months Ended |  | Six Months Ended
(Amounts in millions) | June 29, 2019 |  | June 30, 2018 |  | June 29, 2019 |  | June 30, 2018
Interest cost | $ | 0.5 |  |  | $ | 0.4 |  |  | $ | 1.0 |  |  | $ | 0.9 |
Expected return on plan assets | (0.2 | ) |  | (0.2 | ) |  | (0.4 | ) |  | (0.4 | )
Amortization of unrecognized gain | (0.2 | ) |  | (0.1 | ) |  | (0.4 | ) |  | (0.2 | )
Net periodic postretirement health care cost | $ | 0.1 |  |  | $ | 0.1 |  |  | $ | 0.2 |  |  | $ | 0.3 |

The components of net periodic postretirement health care cost, other than the service cost component, are included in “Other income (expense) - net” on the accompanying Condensed Consolidated Statements of Earnings. See Note 16 for additional information on other income (expense) - net.
Note 12: Stock-based Compensation and Other Stock Plans
The 2011 Incentive Stock and Awards Plan (the “2011 Plan”) provides for the grant of stock options, performance awards, stock appreciation rights (“SARs”) and restricted stock awards (which may be designated as “restricted stock units” or “RSUs”). No further grants are being made under its predecessor, the 2001 Incentive Stock and Awards Plan (the “2001 Plan”), although outstanding awards under the 2001 Plan will continue in accordance with their terms. As of June 29, 2019, the 2011 Plan had 2,006,598 shares available for future grants. The company uses treasury stock to deliver shares under both the 2001 and 2011 Plans.
Net stock-based compensation expense was $6.8 million and $14.1 million for the respective three and six months ended June 29, 2019, and $7.9 million and $14.6 million for the respective three and six months ended June 30, 2018. Cash received from stock purchase and option plan exercises during the respective three and six months ended June 29, 2019, totaled $19.8 million and $24.6 million. Cash received from stock purchase and option plan exercises during the respective three and six months ended June 30, 2018, totaled $16.8 million and $28.3 million. The tax benefit realized from both the exercise and vesting of share-based payment arrangements was $1.9 million and $4.6 million for the respective three and six months ended June 29, 2019, and $2.5 million and $7.6 million for the respective three and six months ended June 30, 2018.
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Stock Options
Stock options are granted with an exercise price equal to the market value of a share of Snap-on’s common stock on the date of grant and have a contractual term of ten years. Stock option grants vest ratably on the first, second and third anniversaries of the date of grant.
The fair value of each stock option award is estimated on the date of grant using the Black-Scholes valuation model. The company uses historical data regarding stock option exercise and forfeiture behaviors for different participating groups to estimate the period of time that options granted are expected to be outstanding. Expected volatility is based on the historical volatility of the company’s stock for the length of time corresponding to the expected term of the option. The expected dividend yield is based on the company’s historical dividend payments. The risk-free interest rate is based on the U.S. treasury yield curve on the grant date for the expected term of the option.
The following weighted-average assumptions were used in calculating the fair value of stock options granted during the six months ended June 29, 2019, and June 30, 2018, using the Black-Scholes valuation model:

| Six Months Ended
| June 29, 2019 |  | June 30, 2018
Expected term of option (in years) | 5.53 |  | 5.35
Expected volatility factor | 21.30% |  | 20.08%
Expected dividend yield | 1.79% |  | 1.68%
Risk-free interest rate | 2.54% |  | 2.71%

A summary of stock option activity as of and for the six months ended June 29, 2019, is presented below:

| Shares (in thousands) |  | Exercise Price Per Share* |  | Remaining Contractual Term* (in years) |  | Aggregate Intrinsic Value (in millions)
Outstanding at December 29, 2018 | 3,130 |  |  | $ | 127.57 |  |  |  |  |
Granted | 462 |  |  | 155.93 |  |  |  |  |
Exercised | (156 | ) |  | 84.98 |  |  |  |  |
Forfeited or expired | (49 | ) |  | 161.24 |  |  |  |  |
Outstanding at June 29, 2019 | 3,387 |  |  | 132.91 |  |  | 6.4 |  | $ | 112.6 |
Exercisable at June 29, 2019 | 2,440 |  |  | 122.36 |  |  | 5.4 |  | 106.8 |

* | Weighted-average

The weighted-average grant date fair value of options granted during the six months ended June 29, 2019, and June 30, 2018, was $29.98 and $30.21, respectively. The intrinsic value of options exercised was $7.4 million and $12.3 million during the respective three and six months ended June 29, 2019, and $10.2 million and $21.2 million during the respective three and six months ended June 30, 2018. The fair value of stock options vested was $15.7 million and $16.0 million during the respective six months ended June 29, 2019, and June 30, 2018.
As of June 29, 2019, there was $23.1 million of unrecognized compensation cost related to non-vested stock options that is expected to be recognized as a charge to earnings over a weighted-average period of 1.9 years.
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Performance Awards
Performance awards, which are granted as performance share units (“PSUs”) and performance-based RSUs, are earned and expensed using the fair value of the award over a contractual term of three years based on the company’s performance. Vesting of the performance awards is dependent upon performance relative to pre-defined goals for revenue growth and return on net assets for the applicable performance period. For performance achieved above specified levels, the recipient may earn additional shares of stock, not to exceed 100% of the number of performance awards initially granted.
The PSUs have a three-year performance period based on the results of the consolidated financial metrics of the company. The performance-based RSUs have a one-year performance period based on the results of the consolidated financial metrics of the company followed by a two-year cliff vesting schedule, assuming continued employment.
The fair value of performance awards is calculated using the market value of a share of Snap-on’s common stock on the date of grant and assumed forfeitures based on recent historical experience; in recent years, forfeitures have not been significant. The weighted-average grant date fair value of performance awards granted during the six months ended June 29, 2019, and June 30, 2018, was $155.92 and $160.25, respectively. PSUs related to 32,114 shares and 50,182 shares were paid out during the respective six months ended June 29, 2019, and June 30, 2018. Earned PSUs are generally paid out following the conclusion of the applicable performance period upon approval by the Organization and Executive Compensation Committee of the company’s Board of Directors (the “Board”).
Based on the company’s 2018 performance, 33,170 RSUs granted in 2018 were earned; assuming continued employment, these RSUs will vest at the end of fiscal 2020. Based on the company’s 2017 performance, 13,648 RSUs granted in 2017 were earned; assuming continued employment, these RSUs will vest at the end of fiscal 2019. Based on the company’s 2016 performance, 45,502 RSUs granted in 2016 were earned; these RSUs vested as of fiscal 2018 year end and were paid out shortly thereafter.
Changes to the company’s non-vested performance awards during the six months ended June 29, 2019, are as follows:

| Shares (in thousands) |  | Fair Value Price per Share*
Non-vested performance awards at December 29, 2018 | 120 |  |  | $ | 164.00 |
Granted | 84 |  |  | 155.92 |
Vested | — |  |  | — |
Cancellations and other | (17 | ) |  | 160.39 |
Non-vested performance awards at June 29, 2019 | 187 |  |  | 160.69 |

* | Weighted-average

As of June 29, 2019, there was $16.7 million of unrecognized compensation cost related to non-vested performance awards that is expected to be recognized as a charge to earnings over a weighted-average period of 2.0 years.
Stock Appreciation Rights (“SARs”)
The company also issues stock-settled and cash-settled SARs to certain key non-U.S. employees. SARs have a contractual term of ten years and vest ratably on the first, second and third anniversaries of the date of grant. SARs are granted with an exercise price equal to the market value of a share of Snap-on’s common stock on the date of grant.
Stock-settled SARs are accounted for as equity instruments and provide for the issuance of Snap-on common stock equal to the amount by which the company’s stock has appreciated over the exercise price. Stock-settled SARs have an effect on dilutive shares and shares outstanding as any appreciation of Snap-on’s common stock value over the exercise price will be settled in shares of common stock. Cash-settled SARs provide for the cash payment of the excess of the fair market value of Snap-on’s common stock price on the date of exercise over the grant price. Cash-settled SARs have no effect on dilutive shares or shares outstanding as any appreciation of Snap-on’s common stock over the grant price is paid in cash and not in common stock.
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The fair value of stock-settled SARs is estimated on the date of grant using the Black-Scholes valuation model. The fair value of cash-settled SARs is revalued (mark-to-market) each reporting period using the Black-Scholes valuation model based on Snap‑on’s period-end stock price. The company uses historical data regarding SARs exercise and forfeiture behaviors for different participating groups to estimate the expected term of the SARs granted based on the period of time that similar instruments granted are expected to be outstanding. Expected volatility is based on the historical volatility of the company’s stock for the length of time corresponding to the expected term of the SARs. The expected dividend yield is based on the company’s historical dividend payments. The risk-free interest rate is based on the U.S. treasury yield curve in effect as of the grant date (for stock-settled SARs) or reporting date (for cash-settled SARs) for the length of time corresponding to the expected term of the SARs.
The following weighted-average assumptions were used in calculating the fair value of stock-settled SARs granted during the six months ended June 29, 2019, and June 30, 2018, using the Black-Scholes valuation model:

| Six Months Ended
| June 29, 2019 |  | June 30, 2018
Expected term of stock-settled SARs (in years) | 3.65 |  | 3.58
Expected volatility factor | 22.60% |  | 20.08%
Expected dividend yield | 1.81% |  | 1.63%
Risk-free interest rate | 2.48% |  | 2.40%

Changes to the company’s stock-settled SARs during the six months ended June 29, 2019, are as follows:

| Stock-settled SARs (in thousands) |  | Exercise Price Per Share* |  | Remaining Contractual Term* (in years) |  | Aggregate Intrinsic Value (in millions)
Outstanding at December 29, 2018 | 372 |  |  | $ | 147.41 |  |  |  |  |
Granted | 92 |  |  | 155.95 |  |  |  |  |
Exercised | — |  |  | — |  |  |  |  |
Forfeited or expired | (5 | ) |  | 152.08 |  |  |  |  |
Outstanding at June 29, 2019 | 459 |  |  | 149.13 |  |  | 7.4 |  | $ | 7.9 |
Exercisable at June 29, 2019 | 278 |  |  | 142.23 |  |  | 6.4 |  | 6.7 |

* | Weighted-average

The weighted-average grant date fair value of stock-settled SARs granted during the six months ended June 29, 2019, and June 30, 2018, was $26.45 and $24.71, respectively. The intrinsic value of stock-settled SARs exercised was zero during both the three and six months ended June 29, 2019, and zero and $0.6 million during the respective three and six months ended June 30, 2018. The fair value of stock-settled SARs vested was $2.1 million and $2.2 million during the respective three and six months ended June 29, 2019, and June 30, 2018.
As of June 29, 2019, there was $3.8 million of unrecognized compensation cost related to non-vested stock-settled SARs that is expected to be recognized as a charge to earnings over a weighted-average period of 2.0 years.
The following weighted-average assumptions were used in calculating the fair value of cash-settled SARs granted during the six months ended June 29, 2019, and June 30, 2018, using the Black-Scholes valuation model:

| Six Months Ended
| June 29, 2019 |  | June 30, 2018
Expected term of cash-settled SARs (in years) | 3.34 |  | 3.26
Expected volatility factor | 22.52% |  | 20.54%
Expected dividend yield | 1.87% |  | 1.67%
Risk-free interest rate | 1.71% |  | 2.63%

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(Unaudited)
The intrinsic value of cash-settled SARs exercised was $0.2 million and $0.5 million during the respective three and six months ended June 29, 2019, and $0.1 million and $2.1 million during the respective three and six months ended June 30, 2018. The fair value of cash-settled SARs vested was $0.1 million during both the six months ended June 29, 2019, and June 30, 2018.
Changes to the company’s non-vested cash-settled SARs during the six months ended June 29, 2019, are as follows:

| Cash-settled SARs (in thousands) |  | Fair Value Price per Share*
Non-vested cash-settled SARs at December 29, 2018 | 3 |  |  | $ | 14.89 |
Granted | 1 |  |  | 29.08 |
Vested | (2 | ) |  | 28.64 |
Non-vested cash-settled SARs at June 29, 2019 | 2 |  |  | 25.72 |

* | Weighted-average

As of June 29, 2019, there was $0.1 million of unrecognized compensation cost related to non-vested cash-settled SARs that is expected to be recognized as a charge to earnings over a weighted-average period of 2.0 years.
Restricted Stock Awards – Non-employee Directors
The company awarded 7,605 shares and 6,975 shares of restricted stock to non-employee directors for the respective six months ended June 29, 2019 and June 30, 2018. The fair value of the restricted stock awards is expensed over a one-year vesting period based on the fair value on the date of grant. All restrictions generally lapse upon the earlier of the first anniversary of the grant date, the recipient’s death or disability or in the event of a change in control, as defined in the 2011 Plan. If termination of the recipient’s service occurs prior to the first anniversary of the grant date for any reason other than death or disability, the shares of restricted stock would be forfeited, unless otherwise determined by the Board.
Note 13: Earnings Per Share
The shares used in the computation of the company’s basic and diluted earnings per common share are as follows:

| Three Months Ended |  | Six Months Ended
| June 29, 2019 |  | June 30, 2018 |  | June 29, 2019 |  | June 30, 2018
Weighted-average common shares outstanding | 55,253,253 |  |  | 56,429,715 |  |  | 55,383,887 |  |  | 56,540,611 |
Effect of dilutive securities | 787,231 |  |  | 912,347 |  |  | 788,934 |  |  | 1,013,034 |
Weighted-average common shares outstanding, assuming dilution | 56,040,484 |  |  | 57,342,062 |  |  | 56,172,821 |  |  | 57,553,645 |

The dilutive effect of the potential exercise of outstanding options and stock-settled SARs to purchase common shares is calculated using the treasury stock method. As of June 29, 2019, there were 1,223,467 awards outstanding that were anti-dilutive; as of June 30, 2018, there were 1,295,441 awards outstanding that were anti-dilutive. Performance-based equity awards are included in the diluted earnings per share calculation based on the attainment of the applicable performance metrics to date.
Note 14: Commitments and Contingencies
Snap-on provides product warranties for specific product lines and accrues for estimated future warranty cost in the period in which the sale is recorded. Snap-on calculates its accrual requirements based on historic warranty loss experience that is periodically adjusted for recent actual experience, including the timing of claims during the warranty period and actual costs incurred.
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(Unaudited)
Snap-on’s product warranty accrual activity for the three and six months ended June 29, 2019, and June 30, 2018, is as follows:

| Three Months Ended |  | Six Months Ended
(Amounts in millions) | June 29, 2019 |  | June 30, 2018 |  | June 29, 2019 |  | June 30, 2018
Warranty reserve: |  |  |  |  |  |  |
Beginning of period | $ | 17.3 |  |  | $ | 17.5 |  |  | $ | 17.1 |  |  | $ | 17.2 |
Additions | 4.7 |  |  | 4.1 |  |  | 8.7 |  |  | 7.9 |
Usage | (4.2 | ) |  | (4.1 | ) |  | (8.0 | ) |  | (7.6 | )
End of period | $ | 17.8 |  |  | $ | 17.5 |  |  | $ | 17.8 |  |  | $ | 17.5 |

The Condensed Consolidated Balance Sheet as of December 29, 2018 included an accrual of $30.9 million related to a judgment, in the fourth quarter of 2017, for a patent-related litigation matter that was being appealed. During the first six months of 2019, that matter was settled and the company recognized an $11.6 million benefit in “Operating expenses” on the Condensed Consolidated Statements of Earnings for the six months ended June 29, 2019, as a result of the settlement.
Snap-on is involved in various legal matters that are being litigated and/or settled in the ordinary course of business. Although it is not possible to predict the outcome of these legal matters, management believes that the results of all legal matters will not have a material impact on Snap-on’s consolidated financial position, results of operations or cash flows.
Note 15: Leases
At the beginning of fiscal 2019, Snap-on adopted ASU No. 2016-02, Leases (Topic 842). The adoption of Topic 842 did not have a significant impact on the company’s consolidated financial statements. Finance leases and lessor accounting remained substantially unchanged. The adoption of Topic 842 impacted the company’s previously reported results as follows:

(Amounts in millions) |  | Classification |  | Balance at December 29, 2018 |  | Topic 842 Adjustments |  | Opening Balance at December 30, 2018
Assets |  |  |  |  |  |  |  |
Finance lease assets |  | Property and equipment - net |  | $ | 7.8 |  |  | $ | — |  |  | $ | 7.8 |
Operating lease assets |  | Operating lease right-of-use assets |  | — |  |  | 60.5 |  |  | 60.5 |
Liabilities |  |  |  |  |  |  |  |
Current: |  |  |  |  |  |  |  |
Finance lease liabilities |  | Other accrued liabilities |  | $ | 1.2 |  |  | $ | — |  |  | $ | 1.2 |
Operating lease liabilities |  | Other accrued liabilities |  | — |  |  | 20.2 |  |  | 20.2 |
Non-current: |  |  |  |  |  |  |  |
Finance lease liabilities |  | Other long-term liabilities |  | $ | 6.6 |  |  | $ | — |  |  | $ | 6.6 |
Operating lease liabilities |  | Operating lease liabilities |  | — |  |  | 40.4 |  |  | 40.4 |

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Lessee Accounting
Snap-on determines if an arrangement is a lease at inception. Snap-on has operating and finance leases for manufacturing plants, distribution centers, software development facilities, financial services offices, data centers, company store vans and certain equipment. Snap-on’s leases have lease terms of one year to 20 years and some include options to extend and/or terminate the lease. The exercise of lease renewal options is at the company’s sole discretion. Certain leases also include options to purchase the leased property. When deemed reasonably certain of exercise, the renewal and purchase options are included in the determination of the lease term and lease payment obligation, respectively. The depreciable life of assets and leasehold improvements are limited to the expected term, unless there is a transfer of title or purchase option reasonably certain of exercise. The company’s lease agreements do not contain any material variable lease payments, material residual value guarantees or any material restrictive covenants.
ROU assets represent Snap-on’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date of the lease based on the present value of lease payments over the lease term. When readily determinable, Snap-on uses the implicit rate in determining the present value of lease payments. When leases do not provide an implicit rate, Snap-on uses its country specific incremental borrowing rate based on the information available at the lease commencement date, including the lease term. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Snap-on has lease agreements with lease and non-lease components, which are generally accounted for separately. For all equipment leases, including vehicles, Snap-on accounts for the lease and non-lease components as a single lease component.
Total lease costs consist of the following:

|  | Three Months Ended |  | Six Months Ended
(Amounts in millions) |  | June 29, 2019 |  | June 29, 2019
Finance lease costs: |  |  |  |
Amortization of ROU assets |  | $ | 0.4 |  |  | $ | 0.7 |
Interest on lease liabilities |  | — |  |  | 0.1 |
Operating lease costs* |  | 6.3 |  |  | 12.5 |
Total lease costs |  | $ | 6.7 |  |  | $ | 13.3 |

* | Includes short-term leases, variable lease costs and sublease income, which are immaterial.

Supplemental cash flow information related to leases is as follows:

|  | Six Months Ended
(Amounts in millions) |  | June 29, 2019
Cash paid for amounts included in the measurement of lease liabilities: |  |
Financing cash flows from finance leases |  | $ | 0.7 |
Operating cash flows from finance leases |  | 0.1 |
Operating cash flows from operating leases |  | 11.7 |
|  | June 29, 2019
ROU assets obtained in exchange for new lease obligations: |  |
Finance lease liabilities |  | $ | 1.1 |
Operating lease liabilities |  | 6.2 |

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Supplemental balance sheet information related to leases as of June 29, 2019, is as follows:

(Amounts in millions) |  | June 29, 2019
Finance leases: |  |
Property and equipment - gross |  | $ | 9.1 |
Accumulated depreciation and amortization |  | (0.7 | )
Property and equipment - net |  | $ | 8.4 |
Other accrued liabilities |  | $ | 1.5 |
Other long-term liabilities |  | 7.1 |
Total finance lease liabilities |  | $ | 8.6 |
Operating leases: |  |
Operating lease right-of-use assets |  | $ | 55.4 |
Other accrued liabilities |  | $ | 20.8 |
Operating lease liabilities |  | 35.7 |
Total operating lease liabilities |  | $ | 56.5 |

Weighted-average lease terms and discount rates as of June 29, 2019, are as follows:

|  | June 29, 2019
Weighted-average remaining lease terms: |  |
Finance leases |  | 5.5 years
Operating leases |  | 3.6 years
Weighted-average discount rates: |  |
Finance leases |  | 3.1%
Operating leases |  | 3.0%

Maturities of lease liabilities as of June 29, 2019, are as follows:

(Amounts in millions) |  | Operating Leases |  | Finance Leases
Year: |  |  |  |
2019 (excluding the six months ended June 29, 2019) |  | $ | 11.2 |  |  | $ | 0.8 |
2020 |  | 18.4 |  |  | 1.7 |
2021 |  | 13.4 |  |  | 1.7 |
2022 |  | 8.8 |  |  | 1.7 |
2023 |  | 4.1 |  |  | 1.7 |
2024 and thereafter |  | 3.7 |  |  | 1.7 |
Total lease payments |  | 59.6 |  |  | 9.3 |
Less: amount representing interest |  | (3.1 | ) |  | (0.7 | )
Total lease liabilities |  | $ | 56.5 |  |  | $ | 8.6 |

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(Unaudited)
As of June 29, 2019, Snap-on does not have any significant additional operating or finance leases that have not yet commenced.
Snap-on’s future minimum lease commitments, net of sub-lease rental income, as of December 29, 2018, under Accounting Standard Codification Topic 840, the predecessor to Topic 842, are as follows:

(Amounts in millions) |  | Operating Leases |  | Capital Leases
Year: |  |  |  |
2019 |  | $ | 25.6 |  |  | $ | 3.3 |
2020 |  | 18.4 |  |  | 3.2 |
2021 |  | 13.9 |  |  | 2.9 |
2022 |  | 9.8 |  |  | 2.5 |
2023 |  | 4.9 |  |  | 2.2 |
2024 and thereafter |  | 4.4 |  |  | 1.9 |
Total minimum lease payments |  | $ | 77.0 |  |  | 16.0 |
Less: amount representing interest |  |  |  | (0.9 | )
Total present value of minimum capital lease payments |  |  |  | $ | 15.1 |

Amounts included in the accompanying Condensed Consolidated Balance Sheets for the present value of minimum capital lease payments as of 2018 year end are as follows:

(Amounts in millions) |  | 2018
Other accrued liabilities |  | $ | 3.0 |
Other long-term liabilities |  | 12.1 |
Total present value of minimum capital lease payments |  | $ | 15.1 |

Rent expense for worldwide facilities, office equipment and vehicles, net of sub-lease rental income, was $33.0 million in 2018.
Lessor Accounting
Snap-on’s Financial Services business offers its customers lease financing for the lease of tools, diagnostics and equipment products and to franchisees who require financing for vehicle leases. Snap-on accounts for its financial services leases as sales-type leases. In certain circumstances, the lessee has the option to terminate the lease. In the event of the lessee’s deteriorated financial condition or default, Snap-on has the right to terminate the lease. The leases contain an end-of-term purchase option that is generally insignificant and is reasonably certain to be exercised by the lessee.
The company recognizes the net investment in the lease as the sum of the lease receivable and the unguaranteed residual value, both of which are measured at the present value using the interest rate implicit in the lease. The difference between the undiscounted lease payments received over the lease term and the related net investment in the lease is reported as unearned finance charges. Unearned finance charges are amortized to income over the life of the contract and are included as a component of “Financial services revenue” on the accompanying Condensed Consolidated Statements of Earnings.
Sales-type leases included in both “Finance receivables - net” and “Long-term finance receivables - net” on the accompanying Condensed Consolidated Balance Sheets as of June 29, 2019, have future minimum lease payments, including unguaranteed residual value, of $93.8 million and unearned finance charges of $18.3 million, with lease terms of up to five years.
Sales-type leases included in both “Contract receivables - net” and “Long-term contract receivables - net” on the accompanying Condensed Consolidated Balance Sheets as of June 29, 2019, have future minimum lease payments, including unguaranteed residual value, of $255.9 million and unearned finance charges of $46.0 million, with lease terms of up to seven years.
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(Unaudited)
Future minimum lease payments as of June 29, 2019, consisted of the following:

(Amounts in millions) |  | Lease Receivables
Year: |  |
2019 (excluding the six months ended June 29, 2019) |  | $ | 60.1 |
2020 |  | 102.8 |
2021 |  | 74.1 |
2022 |  | 50.1 |
2023 |  | 33.8 |
2024 and thereafter |  | 28.8 |
Total lease payments |  | 349.7 |
Less: unearned finance charges |  | (64.3 | )
Net investment in leases |  | $ | 285.4 |

See Note 4 for further information on finance and contract receivables.
Note 16: Other Income (Expense) – Net
“Other income (expense) – net” on the accompanying Condensed Consolidated Statements of Earnings consists of the following:

| Three Months Ended |  | Six Months Ended
(Amounts in millions) | June 29, 2019 |  | June 30, 2018 |  | June 29, 2019 |  | June 30, 2018
Interest income | $ | 0.3 |  |  | $ | 0.2 |  |  | $ | 0.7 |  |  | $ | 0.3 |
Net foreign exchange loss | (1.0 | ) |  | (0.3 | ) |  | (2.5 | ) |  | (2.4 | )
Net periodic pension and postretirement benefits – non-service | 2.8 |  |  | 0.8 |  |  | 5.0 |  |  | 1.4 |
Settlement of treasury lock | — |  |  | — |  |  | — |  |  | 13.3 |
Loss on early extinguishment of debt | — |  |  | — |  |  | — |  |  | (7.8 | )
Other | — |  |  | (1.3 | ) |  | 0.4 |  |  | (2.6 | )
Total other income (expense) – net | $ | 2.1 |  |  | $ | (0.6 | ) |  | $ | 3.6 |  |  | $ | 2.2 |

Note 17: Accumulated Other Comprehensive Income (Loss)
The following is a summary of net changes in Accumulated OCI by component and net of tax for the three months ended June 29, 2019:

(Amounts in millions) | Foreign Currency Translation |  | Cash Flow Hedges |  | Defined Benefit Pension and Postretirement Plans |  | Total
Balance at March 30, 2019 | $ | (170.3 | ) |  | $ | 11.8 |  |  | $ | (337.9 | ) |  | $ | (496.4 | )
Other comprehensive loss before reclassifications | (8.4 | ) |  | — |  |  | — |  |  | (8.4 | )
Amounts reclassified from Accumulated OCI | — |  |  | (0.3 | ) |  | 4.4 |  |  | 4.1 |
Net other comprehensive income (loss) | (8.4 | ) |  | (0.3 | ) |  | 4.4 |  |  | (4.3 | )
Balance as of June 29, 2019 | $ | (178.7 | ) |  | $ | 11.5 |  |  | $ | (333.5 | ) |  | $ | (500.7 | )

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SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The following is a summary of net changes in Accumulated OCI by component and net of tax for the six months ended June 29, 2019:

(Amounts in millions) | Foreign Currency Translation |  | Cash Flow Hedges |  | Defined Benefit Pension and Postretirement Plans |  | Total
Balance as of December 29, 2018 | $ | (177.9 | ) |  | $ | 12.2 |  |  | $ | (296.5 | ) |  | $ | (462.2 | )
Impact of the Tax Act on Accumulated Other Comprehensive Income (ASU No. 2018-02) | — |  |  | — |  |  | (45.9 | ) |  | (45.9 | )
Balance at December 30, 2018 | (177.9 | ) |  | 12.2 |  |  | (342.4 | ) |  | (508.1 | )
Other comprehensive loss before reclassifications | (0.8 | ) |  | — |  |  | — |  |  | (0.8 | )
Amounts reclassified from Accumulated OCI | — |  |  | (0.7 | ) |  | 8.9 |  |  | 8.2 |
Net other comprehensive income (loss) | (0.8 | ) |  | (0.7 | ) |  | 8.9 |  |  | 7.4 |
Balance as of June 29, 2019 | $ | (178.7 | ) |  | $ | 11.5 |  |  | $ | (333.5 | ) |  | $ | (500.7 | )

The following is a summary of net changes in Accumulated OCI by component and net of tax for the three months ended June 30, 2018:

(Amounts in millions) | Foreign Currency Translation |  | Cash Flow Hedges |  | Defined Benefit Pension and Postretirement Plans |  | Total
Balance at March 31, 2018 | $ | (43.4 | ) |  | $ | 13.2 |  |  | $ | (255.2 | ) |  | $ | (285.4 | )
Other comprehensive loss before reclassifications | (97.6 | ) |  | — |  |  | — |  |  | (97.6 | )
Amounts reclassified from Accumulated OCI | — |  |  | (0.3 | ) |  | 6.0 |  |  | 5.7 |
Net other comprehensive income (loss) | (97.6 | ) |  | (0.3 | ) |  | 6.0 |  |  | (91.9 | )
Balance as of June 30, 2018 | $ | (141.0 | ) |  | $ | 12.9 |  |  | $ | (249.2 | ) |  | $ | (377.3 | )

The following is a summary of net changes in Accumulated OCI by component and net of tax for the six months ended June 30, 2018:

(Amounts in millions) | Foreign Currency Translation |  | Cash Flow Hedges |  | Defined Benefit Pension and Postretirement Plans |  | Total
Balance as of December 30, 2017 | $ | (82.5 | ) |  | $ | 14.5 |  |  | $ | (261.0 | ) |  | $ | (329.0 | )
Other comprehensive loss before reclassifications | (58.5 | ) |  | (0.8 | ) |  | — |  |  | (59.3 | )
Amounts reclassified from Accumulated OCI | — |  |  | (0.8 | ) |  | 11.8 |  |  | 11.0 |
Net other comprehensive income (loss) | (58.5 | ) |  | (1.6 | ) |  | 11.8 |  |  | (48.3 | )
Balance as of June 30, 2018 | $ | (141.0 | ) |  | $ | 12.9 |  |  | $ | (249.2 | ) |  | $ | (377.3 | )

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SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The reclassifications out of Accumulated OCI for the three and six month periods ended June 29, 2019, and June 30, 2018, are as follows:

|  | Amount Reclassified from Accumulated OCI |
|  | Three Months Ended |  | Six Months Ended |  |
|  | June 29, 2019 |  | June 30, 2018 |  | June 29, 2019 |  | June 30, 2018 |  | Statement of Earnings Presentation
(Amounts in millions) |  |  |  |  |  |  |  |  |  |
Gains on cash flow hedges: |  |  |  |  |  |  |  |  |  |
Treasury locks |  | $ | 0.3 |  |  | $ | 0.3 |  |  | $ | 0.7 |  |  | $ | 0.8 |  |  | Interest expense
Income tax expense |  | — |  |  | — |  |  | — |  |  | — |  |  | Income tax expense
Net of tax |  | 0.3 |  |  | 0.3 |  |  | 0.7 |  |  | 0.8 |  |  |
Amortization of net unrecognized losses and prior service credits |  | (5.9 | ) |  | (8.0 | ) |  | (11.7 | ) |  | (15.6 | ) |  | See footnote below*
Income tax benefit |  | 1.5 |  |  | 2.0 |  |  | 2.8 |  |  | 3.8 |  |  | Income tax expense
Net of tax |  | (4.4 | ) |  | (6.0 | ) |  | (8.9 | ) |  | (11.8 | ) |  |
Total reclassifications for the period, net of tax |  | $ | (4.1 | ) |  | $ | (5.7 | ) |  | $ | (8.2 | ) |  | $ | (11.0 | ) |  |

* | These Accumulated OCI components are included in the computation of net periodic pension and postretirement health care costs; see Note 10 and Note 11 for further information.

Note 18: Segments
Snap-on’s business segments are based on the organization structure used by management for making operating and investment decisions and for assessing performance. Snap-on’s reportable business segments are: (i) the Commercial & Industrial Group; (ii) the Snap-on Tools Group; (iii) the Repair Systems & Information Group; and (iv) Financial Services. The Commercial & Industrial Group consists of business operations serving a broad range of industrial and commercial customers worldwide, including customers in the aerospace, natural resources, government, power generation, transportation and technical education market segments (collectively, “critical industries”), primarily through direct and distributor channels. The Snap-on Tools Group consists of business operations primarily serving vehicle service and repair technicians through the company’s worldwide mobile tool distribution channel. The Repair Systems & Information Group consists of business operations serving other professional vehicle repair customers worldwide, primarily owners and managers of independent repair shops and OEM dealership service and repair shops (“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.
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SNAP-ON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Financial Data by Segment:

| Three Months Ended |  | Six Months Ended
(Amounts in millions) | June 29, 2019 |  | June 30, 2018 |  | June 29, 2019 |  | June 30, 2018
Net sales: |  |  |  |  |  |  |
Commercial & Industrial Group | $ | 335.0 |  |  | $ | 337.8 |  |  | $ | 657.5 |  |  | $ | 669.4 |
Snap-on Tools Group | 405.8 |  |  | 411.9 |  |  | 816.0 |  |  | 816.6 |
Repair Systems & Information Group | 348.9 |  |  | 343.1 |  |  | 676.8 |  |  | 680.1 |
Segment net sales | 1,089.7 |  |  | 1,092.8 |  |  | 2,150.3 |  |  | 2,166.1 |
Intersegment eliminations | (138.4 | ) |  | (138.2 | ) |  | (277.3 | ) |  | (276.0 | )
Total net sales | $ | 951.3 |  |  | $ | 954.6 |  |  | $ | 1,873.0 |  |  | $ | 1,890.1 |
Financial Services revenue | 84.1 |  |  | 82.0 |  |  | 169.7 |  |  | 165.0 |
Total revenues | $ | 1,035.4 |  |  | $ | 1,036.6 |  |  | $ | 2,042.7 |  |  | $ | 2,055.1 |
Operating earnings: |  |  |  |  |  |  |
Commercial & Industrial Group | $ | 48.9 |  |  | $ | 49.0 |  |  | $ | 95.4 |  |  | $ | 95.5 |
Snap-on Tools Group | 71.3 |  |  | 79.0 |  |  | 138.5 |  |  | 147.9 |
Repair Systems & Information Group | 88.6 |  |  | 88.7 |  |  | 172.2 |  |  | 174.5 |
Financial Services | 60.6 |  |  | 57.8 |  |  | 122.7 |  |  | 114.7 |
Segment operating earnings | 269.4 |  |  | 274.5 |  |  | 528.8 |  |  | 532.6 |
Corporate | (18.9 | ) |  | (23.6 | ) |  | (28.8 | ) |  | (47.1 | )
Operating earnings | $ | 250.5 |  |  | $ | 250.9 |  |  | $ | 500.0 |  |  | $ | 485.5 |
Interest expense | (12.4 | ) |  | (12.0 | ) |  | (24.9 | ) |  | (25.6 | )
Other income (expense) – net | 2.1 |  |  | (0.6 | ) |  | 3.6 |  |  | 2.2 |
Earnings before income taxes and equity earnings | $ | 240.2 |  |  | $ | 238.3 |  |  | $ | 478.7 |  |  | $ | 462.1 |

(Amounts in millions) | June 29, 2019 |  | December 29, 2018
Assets: |  |  |
Commercial & Industrial Group | $ | 1,136.4 |  |  | $ | 1,087.9 |
Snap-on Tools Group | 794.3 |  |  | 752.7 |
Repair Systems & Information Group | 1,349.6 |  |  | 1,306.3 |
Financial Services | 2,067.4 |  |  | 2,039.6 |
Total assets from reportable segments | $ | 5,347.7 |  |  | $ | 5,186.5 |
Corporate | 262.4 |  |  | 249.2 |
Elimination of intersegment receivables | (64.7 | ) |  | (62.6 | )
Total assets | $ | 5,545.4 |  |  | $ | 5,373.1 |

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SNAP-ON INCORPORATED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
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 December 29, 2018, 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 value through its Snap-on Value Creation Processes, including its ability to realize efficiencies and savings from its rapid continuous improvement and other cost reduction initiatives, improve workforce productivity, 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/or 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 help improve their sales and profitability, introduce successful new products, successfully pursue, complete and integrate acquisitions, as well as its ability to withstand disruption arising from natural disasters, planned facility closures or other labor interruptions, the effects of external negative factors, including adverse developments in world financial markets, developments related to tariffs and other trade issues or disputes, weakness in certain areas of the global economy (including as a result of the United Kingdom’s pending exit from the European Union), and significant changes in the current competitive environment, inflation, interest rates and other monetary and market fluctuations, changes in tax rates, laws and regulations, and the impact of energy and raw material supply and pricing, including steel (as a result of recently-imposed U.S. tariffs on certain steel imports or otherwise) and gasoline, the amount, rate and growth of Snap-on’s general and administrative expenses, including health care and postretirement costs (resulting from, among other matters, U.S. health care legislation and its ongoing implementation or reform), continuing and potentially increasing required contributions to pension and postretirement plans, the impacts of non-strategic business and/or product line rationalizations, and the effects on business as a result of new legislation, regulations or government-related developments or issues, risks associated with data security and technological systems and protections, potential reputational damages and costs related to litigation as well as an inability to assure that costs will be reduced or eliminated on appeal, and other world or local events outside Snap-on’s control, including terrorist disruptions. 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 (“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.
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SNAP-ON INCORPORATED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Non-GAAP Measures
References in this report to “organic sales” refer to sales from continuing operations calculated in accordance with GAAP, excluding 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, customer base and geographic expansion, new product development and/or pricing, and excludes sales contributions from acquired operations the company did not own as of the comparable prior-year reporting period. The company’s organic sales disclosures 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 our businesses and facilitates comparisons of our sales performance with prior periods.
Recent Acquisitions
On April 2, 2019, Snap-on acquired Power Hawk Technologies, Inc. (“Power Hawk”) for a preliminary cash purchase price of $8.0 million. The preliminary purchase price is subject to change based upon the finalization of a working capital adjustment that is expected to be completed in the third quarter of 2019. Power Hawk, based in Rockaway, New Jersey, designs, manufactures and distributes rescue tools and related equipment for a variety of military, governmental, and fire, rescue and emergency operations. The acquisition of the Power Hawk product line complemented and increased Snap-on’s existing product offering and broadened its established capabilities in serving critical industries.
On January 25, 2019, Snap-on acquired substantially all of the assets of TMB GeoMarketing Limited (“TMB”) for a cash purchase price of $1.3 million. TMB, based in Dorking, United Kingdom, designs planning software used by Original Equipment Manufacturers (“OEM”) to optimize dealer locations and manage the performance of dealer outlets. The acquisition of TMB extended Snap-on’s product line in its core dealer network solutions business.
On January 31, 2018, Snap-on acquired substantially all of the assets of George A. Sturdevant, Inc. (d/b/a Fastorq) for a cash purchase price of $3.0 million. Fastorq designs, assembles and distributes hydraulic torque and hydraulic tensioning products for use in critical industries. The acquisition of the Fastorq product line complemented and increased Snap-on’s existing torque product offering and broadened its established capabilities in serving critical industries.
For segment reporting purposes, the results of operations and assets of TMB have been included in the Repair Systems and Information Group since the acquisition date and the results of operations and assets of Power Hawk and Fastorq have been included in the Commercial & Industrial Group since the acquisition date.
Pro forma financial information has not been presented for these acquisitions as the net effects were neither significant nor material to Snap-on’s results of operations or financial position. See Note 6 for further information on goodwill and other intangible assets.
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SNAP-ON INCORPORATED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
RESULTS OF OPERATIONS
Results of operations for the three months ended June 29, 2019, and June 30, 2018, are as follows:

|  | Three Months Ended
(Amounts in millions) |  | June 29, 2019 |  | June 30, 2018 |  | Change
Net sales |  | $ | 951.3 |  |  | 100.0 | % |  | $ | 954.6 |  |  | 100.0 | % |  | $ | (3.3 | ) |  | (0.3 | )%
Cost of goods sold |  | (477.5 | ) |  | (50.2 | )% |  | (467.5 | ) |  | (49.0 | )% |  | (10.0 | ) |  | (2.1 | )%
Gross profit |  | 473.8 |  |  | 49.8 | % |  | 487.1 |  |  | 51.0 | % |  | (13.3 | ) |  | (2.7 | )%
Operating expenses |  | (283.9 | ) |  | (29.8 | )% |  | (294.0 | ) |  | (30.8 | )% |  | 10.1 |  |  | 3.4 | %
Operating earnings before financial services |  | 189.9 |  |  | 20.0 | % |  | 193.1 |  |  | 20.2 | % |  | (3.2 | ) |  | (1.7 | )%
Financial services revenue |  | 84.1 |  |  | 100.0 | % |  | 82.0 |  |  | 100.0 | % |  | 2.1 |  |  | 2.6 | %
Financial services expenses |  | (23.5 | ) |  | (27.9 | )% |  | (24.2 | ) |  | (29.5 | )% |  | 0.7 |  |  | 2.9 | %
Operating earnings from financial services |  | 60.6 |  |  | 72.1 | % |  | 57.8 |  |  | 70.5 | % |  | 2.8 |  |  | 4.8 | %
Operating earnings |  | 250.5 |  |  | 24.2 | % |  | 250.9 |  |  | 24.2 | % |  | (0.4 | ) |  | (0.2 | )%
Interest expense |  | (12.4 | ) |  | (1.2 | )% |  | (12.0 | ) |  | (1.1 | )% |  | (0.4 | ) |  | (3.3 | )%
Other income (expense) – net |  | 2.1 |  |  | 0.2 | % |  | (0.6 | ) |  | (0.1 | )% |  | 2.7 |  |  | NM |
Earnings before income taxes and equity earnings |  | 240.2 |  |  | 23.2 | % |  | 238.3 |  |  | 23.0 | % |  | 1.9 |  |  | 0.8 | %
Income tax expense |  | (55.6 | ) |  | (5.4 | )% |  | (55.8 | ) |  | (5.4 | )% |  | 0.2 |  |  | 0.4 | %
Earnings before equity earnings |  | 184.6 |  |  | 17.8 | % |  | 182.5 |  |  | 17.6 | % |  | 2.1 |  |  | 1.2 | %
Equity earnings, net of tax |  | 0.3 |  |  | 0.1 | % |  | 0.2 |  |  | — | % |  | 0.1 |  |  | NM |
Net earnings |  | 184.9 |  |  | 17.9 | % |  | 182.7 |  |  | 17.6 | % |  | 2.2 |  |  | 1.2 | %
Net earnings attributable to noncontrolling interests |  | (4.5 | ) |  | (0.5 | )% |  | (4.0 | ) |  | (0.4 | )% |  | (0.5 | ) |  | (12.5 | )%
Net earnings attributable to Snap-on Inc. |  | $ | 180.4 |  |  | 17.4 | % |  | $ | 178.7 |  |  | 17.2 | % |  | $ | 1.7 |  |  | 1.0 | %

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 in the second quarter of 2019 decreased $3.3 million, or 0.3%, from 2018 levels, reflecting a $15.1 million, or 1.6%, increase in organic sales and $1.1 million of acquisition-related sales, more than offset by $19.5 million of unfavorable foreign currency translation. Snap-on has significant international operations and is subject to risks inherent with foreign operations, including foreign currency translation fluctuations.
Gross profit in the second quarter of 2019 decreased $13.3 million, or 2.7%, from 2018, including $11.3 million of unfavorable foreign currency effects. Gross margin (gross profit as a percentage of net sales) of 49.8% in the quarter declined 120 basis points (100 basis points (“bps”) equals 1.0 percent) from 51.0% last year primarily due to increased sales in lower gross margin businesses, 20 bps of unfavorable foreign currency effects, and higher material and other costs. These decreases in gross margin were partially offset by benefits from the company’s “Rapid Continuous Improvement” or “RCI” initiatives.
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 optimization. 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.
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SNAP-ON INCORPORATED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Operating expenses in the second quarter of 2019, decreased $10.1 million, or 3.4%, compared to last year. The operating expense margin (operating expenses as a percentage of net sales) of 29.8% improved 100 bps from 30.8% last year primarily due to benefits from organic sales volume leverage, including higher volumes in lower expense businesses, lower performance-based compensation costs and savings from RCI initiatives.
Operating earnings before financial services, including $5.9 million of unfavorable foreign currency effects, decreased $3.2 million, or 1.7%, as compared to last year. As a percentage of net sales, operating earnings before financial services of 20.0% compared to 20.2% last year.
Financial services revenue in the second quarter of 2019 increased $2.1 million, or 2.6%, compared to last year. Financial services operating earnings in the period, including $0.4 million of unfavorable foreign currency effects, increased $2.8 million, or 4.8%, as compared to last year. The year-over-year increase in revenue primarily reflects the growth of the company’s financial services portfolio.
Operating earnings in the second quarter of 2019, including $6.3 million of unfavorable foreign currency effects, decreased $0.4 million, or 0.2%, from last year. As a percentage of revenues (net sales plus financial services revenue), operating earnings of 24.2% in the quarter was unchanged from last year.
Interest expense in the second quarter of 2019 increased $0.4 million, or 3.3%, compared to last year. See Note 8 to the Condensed 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 16 to the Condensed Consolidated Financial Statements for information on Other income (expense) – net.
Snap-on’s 2019 second quarter effective income tax rate on earnings attributable to Snap-on was 23.6%. The 2018 effective income tax rate was 23.8%, which included a 20 bps benefit associated with the implementation of U.S. tax legislation (“tax benefit”). See Note 7 to the Condensed Consolidated Financial Statements for information on income taxes.
Net earnings attributable to Snap-on of $180.4 million, or $3.22 per diluted share, in the second quarter of 2019, increased $1.7 million, or $0.10 per diluted share, from 2018 levels. Net earnings attributable to Snap-on in the second quarter of 2018 were $178.7 million, or $3.12 per diluted share, which included $0.5 million, or $0.01 per diluted share, for the tax benefit.
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SNAP-ON INCORPORATED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Results of operations for the six months ended June 29, 2019, and June 30, 2018, are as follows:

|  | Six Months Ended
(Amounts in millions) |  | June 29, 2019 |  | June 30, 2018 |  | Change
Net sales |  | $ | 1,873.0 |  |  | 100.0 | % |  | $ | 1,890.1 |  |  | 100.0 | % |  | $ | (17.1 | ) |  | (0.9 | )%
Cost of goods sold |  | (927.6 | ) |  | (49.5 | )% |  | (931.4 | ) |  | (49.3 | )% |  | 3.8 |  |  | 0.4 | %
Gross profit |  | 945.4 |  |  | 50.5 | % |  | 958.7 |  |  | 50.7 | % |  | (13.3 | ) |  | (1.4 | )%
Operating expenses |  | (568.1 | ) |  | (30.4 | )% |  | (587.9 | ) |  | (31.1 | )% |  | 19.8 |  |  | 3.4 | %
Operating earnings before financial services |  | 377.3 |  |  | 20.1 | % |  | 370.8 |  |  | 19.6 | % |  | 6.5 |  |  | 1.8 | %
Financial services revenue |  | 169.7 |  |  | 100.0 | % |  | 165.0 |  |  | 100.0 | % |  | 4.7 |  |  | 2.8 | %
Financial services expenses |  | (47.0 | ) |  | (27.7 | )% |  | (50.3 | ) |  | (30.5 | )% |  | 3.3 |  |  | 6.6 | %
Operating earnings from financial services |  | 122.7 |  |  | 72.3 | % |  | 114.7 |  |  | 69.5 | % |  | 8.0 |  |  | 7.0 | %
Operating earnings |  | 500.0 |  |  | 24.5 | % |  | 485.5 |  |  | 23.6 | % |  | 14.5 |  |  | 3.0 | %
Interest expense |  | (24.9 | ) |  | (1.2 | )% |  | (25.6 | ) |  | (1.2 | )% |  | 0.7 |  |  | 2.7 | %
Other income (expense) – net |  | 3.6 |  |  | 0.1 | % |  | 2.2 |  |  | 0.1 | % |  | 1.4 |  |  | NM |
Earnings before income taxes and equity earnings |  | 478.7 |  |  | 23.4 | % |  | 462.1 |  |  | 22.5 | % |  | 16.6 |  |  | 3.6 | %
Income tax expense |  | (112.5 | ) |  | (5.5 | )% |  | (113.4 | ) |  | (5.5 | )% |  | 0.9 |  |  | 0.8 | %
Earnings before equity earnings |  | 366.2 |  |  | 17.9 | % |  | 348.7 |  |  | 17.0 | % |  | 17.5 |  |  | 5.0 | %
Equity earnings, net of tax |  | 0.8 |  |  | 0.1 | % |  | 0.8 |  |  | — | % |  | — |  |  | NM |
Net earnings |  | 367.0 |  |  | 18.0 | % |  | 349.5 |  |  | 17.0 | % |  | 17.5 |  |  | 5.0 | %
Net earnings attributable to noncontrolling interests |  | (8.7 | ) |  | (0.5 | )% |  | (7.8 | ) |  | (0.4 | )% |  | (0.9 | ) |  | (11.5 | )%
Net earnings attributable to Snap-on Inc. |  | $ | 358.3 |  |  | 17.5 | % |  | $ | 341.7 |  |  | 16.6 | % |  | $ | 16.6 |  |  | 4.9 | %

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 in the first six months of 2019 decreased $17.1 million, or 0.9%, from 2018 levels, reflecting a $27.4 million, or 1.5%, increase in organic sales and $1.1 million of acquisition-related sales, more than offset by $45.6 million of unfavorable foreign currency translation.
Gross profit for the period decreased $13.3 million, or 1.4%, from 2018. Gross margin of 50.5% in the first six months declined 20 basis points from 50.7% last year primarily due to 10 bps of unfavorable foreign currency effects, and higher material and other costs, partially offset by benefits from the company’s RCI initiatives.
Operating expenses in the first six months of 2019, including an $11.6 million first quarter benefit from the settlement of a patent-related litigation matter that was being appealed (the “legal settlement”), improved $19.8 million, or 3.4%, from last year. The operating expense margin of 30.4% improved 70 bps from 31.1% last year primarily due to a 60 bps benefit from the legal settlement.
Operating earnings before financial services in the first six months of 2019, including the benefit from the legal settlement and $11.6 million of unfavorable foreign currency effects, increased $6.5 million, or 1.8%, as compared to last year. As a percentage of net sales, operating earnings before financial services of 20.1%, including 60 bps of benefit from the legal settlement, partially offset by 20 bps of unfavorable foreign currency effects, compared to 19.6% last year.
Financial services revenue in the first six months of 2019 increased $4.7 million, or 2.8%, compared to last year. Financial services operating earnings for the period, including $0.9 million of unfavorable foreign currency effects, increased $8.0 million, or 7.0%, as compared to last year. The year-over-year increase in revenue primarily reflects the growth of the company’s financial services portfolio.
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Operating earnings in the first six months of 2019, including the benefit from the legal settlement and $12.5 million of unfavorable foreign currency effects, increased $14.5 million, or 3.0%, from last year. As a percentage of revenues, operating earnings of 24.5% for the first six months of 2019 compared to 23.6% last year.
Interest expense in the first six months of 2019 decreased $0.7 million, or 2.7%, compared to last year. See Note 8 to the Condensed 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. Other income (expense) – net in 2018 included a net gain of $5.5 million associated with a treasury lock settlement gain of $13.3 million related to the issuance of debt, partially offset by $7.8 million of expense related to the early extinguishment of debt (collectively, the “net debt items”). See Note 16 to the Condensed Consolidated Financial Statements for information on Other income (expense) – net.
In the first six months of 2019, Snap-on’s effective income tax rate on earnings attributable to Snap-on was 23.9%. The 2018 effective income tax rate was 25.0%, which included a 50 bps charge associated with the implementation of U.S. tax legislation (“tax charge”). See Note 7 to the Condensed Consolidated Financial Statements for information on income taxes.
Net earnings attributable to Snap-on of $358.3 million, or $6.38 per diluted share, in the first six months of 2019, including an $8.7 million, or $0.15 per diluted share, benefit from the after-tax legal settlement, increased $16.6 million, or $0.45 per diluted share, from 2018 levels. Net earnings attributable to Snap-on in the first six months of 2018 were $341.7 million, or $5.93 per diluted share, including a $4.1 million, or $0.07 per diluted share, benefit from the after-tax net debt items, and $2.1 million, or $0.04 per diluted share, for the tax charge.
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, power generation, transportation and technical education market segments (collectively, “critical industries”), primarily through direct and distributor channels. The Snap-on Tools Group consists of business operations primarily serving vehicle service and repair technicians through the company’s worldwide mobile tool distribution channel. The Repair Systems & Information Group consists of business operations serving other professional vehicle repair customers worldwide, primarily owners and managers of independent repair shops and OEM dealership service and repair shops (“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. Intersegment amounts are eliminated to arrive at Snap-on’s consolidated financial results.
Commercial & Industrial Group

|  | Three Months Ended
(Amounts in millions) |  | June 29, 2019 |  | June 30, 2018 |  | Change
External net sales |  | $ | 263.0 |  |  | 78.5 | % |  | $ | 267.1 |  |  | 79.1 | % |  | $ | (4.1 | ) |  | (1.5 | )%
Intersegment net sales |  | 72.0 |  |  | 21.5 | % |  | 70.7 |  |  | 20.9 | % |  | 1.3 |  |  | 1.8 | %
Segment net sales |  | 335.0 |  |  | 100.0 | % |  | 337.8 |  |  | 100.0 | % |  | (2.8 | ) |  | (0.8 | )%
Cost of goods sold |  | (205.8 | ) |  | (61.4 | )% |  | (204.8 | ) |  | (60.6 | )% |  | (1.0 | ) |  | (0.5 | )%
Gross profit |  | 129.2 |  |  | 38.6 | % |  | 133.0 |  |  | 39.4 | % |  | (3.8 | ) |  | (2.9 | )%
Operating expenses |  | (80.3 | ) |  | (24.0 | )% |  | (84.0 | ) |  | (24.9 | )% |  | 3.7 |  |  | 4.4 | %
Segment operating earnings |  | $ | 48.9 |  |  | 14.6 | % |  | $ | 49.0 |  |  | 14.5 | % |  | $ | (0.1 | ) |  | (0.2 | )%

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Segment net sales in the second quarter of 2019 decreased $2.8 million, or 0.8%, from 2018 levels, reflecting a $6.2 million, or 1.9%, organic sales gain and $1.1 million of acquisition-related sales, more than offset by $10.1 million of unfavorable foreign currency translation. The organic sales increase primarily includes a high single-digit gain in the specialty tools business, and low single-digit gains in both the segment’s European-based hand tools business and to customers in critical industries.
Segment gross margin in the quarter of 38.6% in 2019 declined 80 bps from 39.4% in 2018, primarily due to increased sales in lower gross margin businesses and higher material and other costs, partially offset by savings from the company’s RCI initiatives.
Segment operating expense margin in the quarter of 24.0% in 2019 improved 90 bps from 24.9% in 2018, primarily due to the benefits from organic sales volume leverage, including higher volumes in lower expense businesses, and savings from RCI initiatives.
Segment operating earnings in the second quarter of 2019, including $0.9 million of unfavorable foreign currency effects, decreased $0.1 million from 2018. Operating margin (segment operating earnings as a percentage of segment net sales) for the Commercial & Industrial Group of 14.6% in 2019 compared to 14.5% in 2018.

|  | Six Months Ended
(Amounts in millions) |  | June 29, 2019 |  | June 30, 2018 |  | Change
External net sales |  | $ | 512.5 |  |  | 77.9 | % |  | $ | 525.9 |  |  | 78.6 | % |  | $ | (13.4 | ) |  | (2.5 | )%
Intersegment net sales |  | 145.0 |  |  | 22.1 | % |  | 143.5 |  |  | 21.4 | % |  | 1.5 |  |  | 1.0 | %
Segment net sales |  | 657.5 |  |  | 100.0 | % |  | 669.4 |  |  | 100.0 | % |  | (11.9 | ) |  | (1.8 | )%
Cost of goods sold |  | (398.0 | ) |  | (60.5 | )% |  | (407.1 | ) |  | (60.8 | )% |  | 9.1 |  |  | 2.2 | %
Gross profit |  | 259.5 |  |  | 39.5 | % |  | 262.3 |  |  | 39.2 | % |  | (2.8 | ) |  | (1.1 | )%
Operating expenses |  | (164.1 | ) |  | (25.0 | )% |  | (166.8 | ) |  | (24.9 | )% |  | 2.7 |  |  | 1.6 | %
Segment operating earnings |  | $ | 95.4 |  |  | 14.5 | % |  | $ | 95.5 |  |  | 14.3 | % |  | $ | (0.1 | ) |  | (0.1 | )%

Segment net sales in the first six months of 2019 decreased $11.9 million, or 1.8%, from 2018 levels, reflecting a $10.9 million, or 1.7%, organic sales gain and $1.1 million of acquisition-related sales, more than offset by $23.9 million of unfavorable foreign currency translation. The organic sales increase primarily includes a high single-digit gain in the specialty tools business, and low single-digit gains in sales to both customers in critical industries and in the segment’s European-based hand tools business.
Segment gross margin of 39.5% for the first six months of 2019 improved 30 bps from 39.2% in 2018, primarily due to 20 bps of favorable foreign currency effects, and benefits from the company’s RCI initiatives, partially offset by higher material and other costs.
Segment operating expense margin for the first six months of 25.0% in 2019 increased 10 bps from 24.9% in 2018.
Segment operating earnings in the first six months of 2019, including $2.0 million of unfavorable foreign currency effects, decreased $0.1 million from 2018 levels. Operating margin for the Commercial & Industrial Group of 14.5% in 2019 improved 20 bps from 14.3% in 2018.
Snap-on Tools Group

|  | Three Months Ended
(Amounts in millions) |  | June 29, 2019 |  | June 30, 2018 |  | Change
Segment net sales |  | $ | 405.8 |  |  | 100.0 | % |  | $ | 411.9 |  |  | 100.0 | % |  | $ | (6.1 | ) |  | (1.5 | )%
Cost of goods sold |  | (222.9 | ) |  | (54.9 | )% |  | (222.7 | ) |  | (54.1 | )% |  | (0.2 | ) |  | (0.1 | )%
Gross profit |  | 182.9 |  |  | 45.1 | % |  | 189.2 |  |  | 45.9 | % |  | (6.3 | ) |  | (3.3 | )%
Operating expenses |  | (111.6 | ) |  | (27.5 | )% |  | (110.2 | ) |  | (26.7 | )% |  | (1.4 | ) |  | (1.3 | )%
Segment operating earnings |  | $ | 71.3 |  |  | 17.6 | % |  | $ | 79.0 |  |  | 19.2 | % |  | $ | (7.7 | ) |  | (9.7 | )%

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Segment net sales in the second quarter of 2019 decreased $6.1 million, or 1.5%, from 2018 levels, reflecting a $1.0 million, or 0.2%, organic sales decline and $5.1 million of unfavorable foreign currency translation. The organic sales decrease includes a mid single-digit decline in the segment’s international franchise operations, partially offset by a low single-digit gain in the segment’s U.S. operations.
Segment gross margin in the quarter of 45.1% declined 80 bps from 45.9% last year primarily due to 60 bps of unfavorable foreign currency effects.
Segment operating expense margin in the quarter of 27.5% increased 80 bps from 26.7% last year primarily due to higher field support investments and 10 bps of unfavorable foreign currency effects.
Segment operating earnings in the second quarter of 2019, including $3.8 million of unfavorable foreign currency effects, decreased $7.7 million from 2018 levels. Operating margin for the Snap-on Tools Group of 17.6% in the second quarter of 2019 compared to 19.2% last year.

|  | Six Months Ended
(Amounts in millions) |  | June 29, 2019 |  | June 30, 2018 |  | Change
Segment net sales |  | $ | 816.0 |  |  | 100.0 | % |  | $ | 816.6 |  |  | 100.0 | % |  | $ | (0.6 | ) |  | (0.1 | )%
Cost of goods sold |  | (450.0 | ) |  | (55.1 | )% |  | (447.1 | ) |  | (54.8 | )% |  | (2.9 | ) |  | (0.6 | )%
Gross profit |  | 366.0 |  |  | 44.9 | % |  | 369.5 |  |  | 45.2 | % |  | (3.5 | ) |  | (0.9 | )%
Operating expenses |  | (227.5 | ) |  | (27.9 | )% |  | (221.6 | ) |  | (27.1 | )% |  | (5.9 | ) |  | (2.7 | )%
Segment operating earnings |  | $ | 138.5 |  |  | 17.0 | % |  | $ | 147.9 |  |  | 18.1 | % |  | $ | (9.4 | ) |  | (6.4 | )%

Segment net sales in the first six months of 2019 decreased $0.6 million, or 0.1%, from 2018 levels, reflecting a $10.7 million, or 1.3%, organic sales increase, which was more than offset by $11.3 million of unfavorable foreign currency translation. The organic sales increase includes a low single-digit gain in the company’s U.S. franchise operations, partially offset by a low single-digit decline in the segment’s international operations.
Segment gross margin in the first six months of 2019 of 44.9% declined 30 bps from 45.2% last year primarily due to 50 bps of unfavorable foreign currency effects.
The segment’s operating expense margin in the first six months of 2019 of 27.9% increased 80 bps from 27.1% last year primarily due to higher field support investments.
Segment operating earnings in the first six months of 2019, including $6.9 million of unfavorable foreign currency effects, decreased $9.4 million from 2018 levels. Operating margin for the Snap-on Tools Group of 17.0% in the first six months of 2019 compared to 18.1% last year.
Repair Systems & Information Group

|  | Three Months Ended
(Amounts in millions) |  | June 29, 2019 |  | June 30, 2018 |  | Change
External net sales |  | $ | 282.5 |  |  | 81.0 | % |  | $ | 275.6 |  |  | 80.3 | % |  | $ | 6.9 |  |  | 2.5 | %
Intersegment net sales |  | 66.4 |  |  | 19.0 | % |  | 67.5 |  |  | 19.7 | % |  | (1.1 | ) |  | (1.6 | )%
Segment net sales |  | 348.9 |  |  | 100.0 | % |  | 343.1 |  |  | 100.0 | % |  | 5.8 |  |  | 1.7 | %
Cost of goods sold |  | (187.2 | ) |  | (53.7 | )% |  | (178.2 | ) |  | (51.9 | )% |  | (9.0 | ) |  | (5.1 | )%
Gross profit |  | 161.7 |  |  | 46.3 | % |  | 164.9 |  |  | 48.1 | % |  | (3.2 | ) |  | (1.9 | )%
Operating expenses |  | (73.1 | ) |  | (20.9 | )% |  | (76.2 | ) |  | (22.2 | )% |  | 3.1 |  |  | 4.1 | %
Segment operating earnings |  | $ | 88.6 |  |  | 25.4 | % |  | $ | 88.7 |  |  | 25.9 | % |  | $ | (0.1 | ) |  | (0.1 | )%

Segment net sales in the second quarter of 2019 increased $5.8 million, or 1.7%, from 2018 levels, reflecting an $11.7 million, or 3.5%, organic sales gain, partially offset by $5.9 million of unfavorable foreign currency translation. The organic sales increase includes a double-digit increase in sales to OEM dealerships.
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Segment gross margin in the quarter of 46.3% declined 180 bps from 48.1% last year primarily due to increased sales in lower gross margin businesses and higher material and other costs, partially offset by savings from the company’s RCI initiatives.
Segment operating expense margin in the quarter of 20.9% improved 130 bps from 22.2% last year primarily due to the benefits from sales volume leverage, including higher volumes in lower expense businesses, and savings from RCI initiatives.
Segment operating earnings in the second quarter of 2019, including $1.2 million of unfavorable foreign currency effects, decreased $0.1 million from 2018. Operating margin for the Repair Systems & Information Group of 25.4% in the second quarter of 2019 compared to 25.9% last year.

|  | Six Months Ended
(Amounts in millions) |  | June 29, 2019 |  | June 30, 2018 |  | Change
External net sales |  | $ | 544.5 |  |  | 80.5 | % |  | $ | 547.6 |  |  | 80.5 | % |  | $ | (3.1 | ) |  | (0.6 | )%
Intersegment net sales |  | 132.3 |  |  | 19.5 | % |  | 132.5 |  |  | 19.5 | % |  | (0.2 | ) |  | (0.2 | )%
Segment net sales |  | 676.8 |  |  | 100.0 | % |  | 680.1 |  |  | 100.0 | % |  | (3.3 | ) |  | (0.5 | )%
Cost of goods sold |  | (356.9 | ) |  | (52.7 | )% |  | (353.2 | ) |  | (51.9 | )% |  | (3.7 | ) |  | (1.0 | )%
Gross profit |  | 319.9 |  |  | 47.3 | % |  | 326.9 |  |  | 48.1 | % |  | (7.0 | ) |  | (2.1 | )%
Operating expenses |  | (147.7 | ) |  | (21.9 | )% |  | (152.4 | ) |  | (22.4 | )% |  | 4.7 |  |  | 3.1 | %
Segment operating earnings |  | $ | 172.2 |  |  | 25.4 | % |  | $ | 174.5 |  |  | 25.7 | % |  | $ | (2.3 | ) |  | (1.3 | )%

Segment net sales in the first six months of 2019 decreased $3.3 million, or 0.5%, from 2018 levels, reflecting a $10.2 million, or 1.5%, organic sales increase, more than offset by $13.5 million of unfavorable foreign currency translation. The organic sales increase includes a mid single-digit gain in sales to OEM dealerships, partially offset by a low single-digit decline in sales of undercar equipment.
Segment gross margin in the first six months of 47.3% declined 80 bps from 48.1% last year. The decrease is primarily due to increased sales in lower gross margin businesses and higher material and other costs, partially offset by savings from RCI initiatives.
The segment’s operating expense margin in the first six months of 21.9% improved 50 bps from 22.4% last year primarily due to sales volume leverage, including higher volumes in lower expense businesses.
Segment operating earnings in the first six months of 2019, including $2.7 million of unfavorable foreign currency effects, decreased $2.3 million from 2018. The operating margin for the Repair Systems & Information Group of 25.4% in the first six months of 2019 compared to 25.7% last year.
Financial Services

|  | Three Months Ended
(Amounts in millions) |  | June 29, 2019 |  | June 30, 2018 |  | Change
Financial services revenue |  | $ | 84.1 |  |  | 100.0 | % |  | $ | 82.0 |  |  | 100.0 | % |  | $ | 2.1 |  |  | 2.6 | %
Financial services expenses |  | (23.5 | ) |  | (27.9 | )% |  | (24.2 | ) |  | (29.5 | )% |  | 0.7 |  |  | 2.9 | %
Segment operating earnings |  | $ | 60.6 |  |  | 72.1 | % |  | $ | 57.8 |  |  | 70.5 | % |  | $ | 2.8 |  |  | 4.8 | %

Financial services revenue in the second quarter of 2019 increased $2.1 million, or 2.6%, from last year, primarily due to $2.7 million of higher revenue as a result of growth of the company’s financial services portfolio, partially offset by $0.6 million of decreased revenue from lower average yields on finance receivables. In the second quarters of 2019 and 2018, the average yield on finance receivables was 17.6% and 17.7%, respectively. The average yield on contract receivables was 9.1% for both periods. Originations of $263.4 million in the second quarter of 2019 decreased $12.7 million, or 4.6%, from 2018 levels.
Financial services expenses primarily include personnel-related and other general and administrative costs, as well as provisions for credit losses. These expenses are generally more dependent on changes in the size of the financial services portfolio than they are on the revenue of the segment. Financial services expenses in the second quarter of 2019 decreased $0.7 million from last year primarily due to lower provisions for credit losses, partially offset by the impact of growth in the size of the portfolio. As a percentage of the average financial services portfolio, financial services expenses were 1.1% in the second quarter of 2019 and 1.2% in the second quarter of 2018.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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(continued)
Financial services operating earnings in the second quarter of 2019, including $0.4 million of unfavorable foreign currency effects, increased $2.8 million, or 4.8%, from 2018 levels.

|  | Six Months Ended
(Amounts in millions) |  | June 29, 2019 |  | June 30, 2018 |  | Change
Financial services revenue |  | $ | 169.7 |  |  | 100.0 | % |  | $ | 165.0 |  |  | 100.0 | % |  | $ | 4.7 |  |  | 2.8 | %
Financial services expenses |  | (47.0 | ) |  | (27.7 | )% |  | (50.3 | ) |  | (30.5 | )% |  | 3.3 |  |  | 6.6 | %
Segment operating earnings |  | $ | 122.7 |  |  | 72.3 | % |  | $ | 114.7 |  |  | 69.5 | % |  | $ | 8.0 |  |  | 7.0 | %

Financial services revenue in the first six months of 2019 increased $4.7 million, or 2.8%, from last year, primarily due to $5.7 million of higher revenue as a result of growth of the company’s financial services portfolio, partially offset by $1.0 million of decreased revenue from lower average yields on finance and contract receivables. In the first six months of 2019 and 2018, the average yield on finance receivables was 17.7% and 17.8%, respectively. The average yield on contract receivables for 2019 and 2018 was 9.1% and 9.2%, respectively. Originations of $515.9 million in the first six months of 2019 decreased $7.5 million, or 1.4%, from 2018 levels.
Financial services expenses in the first six months of 2019 decreased $3.3 million from last year primarily due to lower provisions for credit losses, partially offset by the impact of growth in the size of the portfolio. As a percentage of the average financial services portfolio, financial services expenses were 2.2% in the first six months of 2019 and 2.5% in the first six months of 2018.
Financial services operating earnings in the first six months of 2019, including $0.9 million of unfavorable foreign currency effects, increased $8.0 million, or 7.0%, from 2018 levels.
See Note 4 to the Condensed Consolidated Financial Statements for further information on financial services.
Corporate
Snap-on’s second quarter 2019 general corporate expenses of $18.9 million decreased $4.7 million from $23.6 million last year. The year-over-year decrease in general corporate expenses primarily reflects lower performance-based compensation and other costs.
Snap-on’s general corporate expenses in the first six months of 2019 of $28.8 million decreased $18.3 million from $47.1 million last year. The year-over-year decrease in general corporate expenses primarily reflects the $11.6 million benefit in 2019 from the legal settlement and lower performance-based compensation and other costs.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
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 Incorporated’s (“Snap-on”) 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, diagnostic and equipment products, software and other non-financial services operations with Financial Services 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 Condensed Consolidated Financial Statements.
Non-GAAP Supplemental Consolidating Data – Supplemental Condensed Statements of Earnings information for the three months ended June 29, 2019, and June 30, 2018, is as follows:

| Operations* |  | Financial Services
(Amounts in millions) | June 29, 2019 |  | June 30, 2018 |  | June 29, 2019 |  | June 30, 2018
Net sales | $ | 951.3 |  |  | $ | 954.6 |  |  | $ | — |  |  | $ | — |
Cost of goods sold | (477.5 | ) |  | (467.5 | ) |  | — |  |  | — |
Gross profit | 473.8 |  |  | 487.1 |  |  | — |  |  | — |
Operating expenses | (283.9 | ) |  | (294.0 | ) |  | — |  |  | — |
Operating earnings before financial services | 189.9 |  |  | 193.1 |  |  | — |  |  | — |
Financial services revenue | — |  |  | — |  |  | 84.1 |  |  | 82.0 |
Financial services expenses | — |  |  | — |  |  | (23.5 | ) |  | (24.2 | )
Operating earnings from financial services | — |  |  | — |  |  | 60.6 |  |  | 57.8 |
Operating earnings | 189.9 |  |  | 193.1 |  |  | 60.6 |  |  | 57.8 |
Interest expense | (12.3 | ) |  | (11.9 | ) |  | (0.1 | ) |  | (0.1 | )
Intersegment interest income (expense) – net | 17.8 |  |  | 17.2 |  |  | (17.8 | ) |  | (17.2 | )
Other income (expense) – net | 2.1 |  |  | (0.7 | ) |  | — |  |  | 0.1 |
Earnings before income taxes and equity earnings | 197.5 |  |  | 197.7 |  |  | 42.7 |  |  | 40.6 |
Income tax expense | (44.5 | ) |  | (45.2 | ) |  | (11.1 | ) |  | (10.6 | )
Earnings before equity earnings | 153.0 |  |  | 152.5 |  |  | 31.6 |  |  | 30.0 |
Financial services – net earnings attributable to Snap-on | 31.6 |  |  | 30.0 |  |  | — |  |  | — |
Equity earnings, net of tax | 0.3 |  |  | 0.2 |  |  | — |  |  | — |
Net earnings | 184.9 |  |  | 182.7 |  |  | 31.6 |  |  | 30.0 |
Net earnings attributable to noncontrolling interests | (4.5 | ) |  | (4.0 | ) |  | — |  |  | — |
Net earnings attributable to Snap-on | $ | 180.4 |  |  | $ | 178.7 |  |  | $ | 31.6 |  |  | $ | 30.0 |

* Snap-on with Financial Services on the equity method.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Non-GAAP Supplemental Consolidating Data – Supplemental Condensed Statements of Earnings information for the six months ended June 29, 2019, and June 30, 2018, is as follows:

| Operations* |  | Financial Services
(Amounts in millions) | June 29, 2019 |  | June 30, 2018 |  | June 29, 2019 |  | June 30, 2018
Net sales | $ | 1,873.0 |  |  | $ | 1,890.1 |  |  | $ | — |  |  | $ | — |
Cost of goods sold | (927.6 | ) |  | (931.4 | ) |  | — |  |  | — |
Gross profit | 945.4 |  |  | 958.7 |  |  | — |  |  | — |
Operating expenses | (568.1 | ) |  | (587.9 | ) |  | — |  |  | — |
Operating earnings before financial services | 377.3 |  |  | 370.8 |  |  | — |  |  | — |
Financial services revenue | — |  |  | — |  |  | 169.7 |  |  | 165.0 |
Financial services expenses | — |  |  | — |  |  | (47.0 | ) |  | (50.3 | )
Operating earnings from financial services | — |  |  | — |  |  | 122.7 |  |  | 114.7 |
Operating earnings | 377.3 |  |  | 370.8 |  |  | 122.7 |  |  | 114.7 |
Interest expense | (24.8 | ) |  | (25.4 | ) |  | (0.1 | ) |  | (0.2 | )
Intersegment interest income (expense) – net | 35.5 |  |  | 36.1 |  |  | (35.5 | ) |  | (36.1 | )
Other income (expense) – net | 3.6 |  |  | 2.1 |  |  | — |  |  | 0.1 |
Earnings before income taxes and equity earnings | 391.6 |  |  | 383.6 |  |  | 87.1 |  |  | 78.5 |
Income tax expense | (89.9 | ) |  | (93.0 | ) |  | (22.6 | ) |  | (20.4 | )
Earnings before equity earnings | 301.7 |  |  | 290.6 |  |  | 64.5 |  |  | 58.1 |
Financial services – net earnings attributable to Snap-on | 64.5 |  |  | 58.1 |  |  | — |  |  | — |
Equity earnings, net of tax | 0.8 |  |  | 0.8 |  |  | — |  |  | — |
Net earnings | 367.0 |  |  | 349.5 |  |  | 64.5 |  |  | 58.1 |
Net earnings attributable to noncontrolling interests | (8.7 | ) |  | (7.8 | ) |  | — |  |  | — |
Net earnings attributable to Snap-on | $ | 358.3 |  |  | $ | 341.7 |  |  | $ | 64.5 |  |  | $ | 58.1 |

* Snap-on with Financial Services on the equity method.
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SNAP-ON INCORPORATED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Non-GAAP Supplemental Consolidating Data – Supplemental Condensed Balance Sheet information as of June 29, 2019, and December 29, 2018, is as follows:

| Operations* |  | Financial Services
(Amounts in millions) | June 29, 2019 |  | December 29, 2018 |  | June 29, 2019 |  | December 29, 2018
ASSETS |  |  |  |  |  |  |
Current assets: |  |  |  |  |  |  |
Cash and cash equivalents | $ | 163.9 |  |  | $ | 140.5 |  |  | $ | 0.1 |  |  | $ | 0.4 |
Intersegment receivables | 13.4 |  |  | 15.1 |  |  | — |  |  | — |
Trade and other accounts receivable – net | 683.4 |  |  | 692.1 |  |  | 0.7 |  |  | 0.5 |
Finance receivables – net | — |  |  | — |  |  | 529.0 |  |  | 518.5 |
Contract receivables – net | 6.6 |  |  | 6.6 |  |  | 84.9 |  |  | 91.7 |
Inventories – net | 725.8 |  |  | 673.8 |  |  | — |  |  | — |
Prepaid expenses and other assets | 112.8 |  |  | 100.2 |  |  | 7.5 |  |  | 0.5 |
Total current assets | 1,705.9 |  |  | 1,628.3 |  |  | 622.2 |  |  | 611.6 |
Property and equipment – net | 504.8 |  |  | 493.5 |  |  | 1.6 |  |  | 1.6 |
Operating lease right-of-use asset | 53.7 |  |  | — |  |  | 1.7 |  |  | — |
Investment in Financial Services | 334.2 |  |  | 329.5 |  |  | — |  |  | — |
Deferred income tax assets | 34.9 |  |  | 45.8 |  |  | 19.0 |  |  | 18.9 |
Intersegment long-term notes receivable | 723.0 |  |  | 701.3 |  |  | — |  |  | — |
Long-term finance receivables – net | — |  |  | — |  |  | 1,089.0 |  |  | 1,074.4 |
Long-term contract receivables – net | 13.7 |  |  | 11.9 |  |  | 333.8 |  |  | 333.0 |
Goodwill | 907.0 |  |  | 902.2 |  |  | — |  |  | — |
Other intangibles – net | 227.9 |  |  | 232.9 |  |  | — |  |  | — |
Other assets | 61.9 |  |  | 51.9 |  |  | 0.1 |  |  | 0.1 |
Total assets | $ | 4,567.0 |  |  | $ | 4,397.3 |  |  | $ | 2,067.4 |  |  | $ | 2,039.6 |

* Snap-on with Financial Services on the equity method.
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SNAP-ON INCORPORATED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Non-GAAP Supplemental Consolidating Data – Condensed Balance Sheets Information (continued):

| Operations* |  | Financial Services
(Amounts in millions) | June 29, 2019 |  | December 29, 2018 |  | June 29, 2019 |  | December 29, 2018
LIABILITIES AND EQUITY |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |
Notes payable | $ | 168.2 |  |  | $ | 186.3 |  |  | $ | — |  |  | $ | — |
Accounts payable | 214.1 |  |  | 199.6 |  |  | 1.2 |  |  | 1.5 |
Intersegment payables | — |  |  | — |  |  | 13.4 |  |  | 15.1 |
Accrued benefits | 42.4 |  |  | 52.0 |  |  | — |  |  | — |
Accrued compensation | 59.5 |  |  | 66.8 |  |  | 2.7 |  |  | 4.7 |
Franchisee deposits | 69.5 |  |  | 67.5 |  |  | — |  |  | — |
Other accrued liabilities | 352.9 |  |  | 355.4 |  |  | 28.4 |  |  | 26.1 |
Total current liabilities | 906.6 |  |  | 927.6 |  |  | 45.7 |  |  | 47.4 |
Long-term debt and intersegment long-term debt | — |  |  | — |  |  | 1,670.9 |  |  | 1,647.3 |
Deferred income tax liabilities | 45.4 |  |  | 41.4 |  |  | — |  |  | — |
Retiree health care benefits | 30.5 |  |  | 31.8 |  |  | — |  |  | — |
Pension liabilities | 136.6 |  |  | 171.3 |  |  | — |  |  | — |
Operating lease liabilities | 34.3 |  |  | — |  |  | 1.4 |  |  | — |
Other long-term liabilities | 104.9 |  |  | 106.6 |  |  | 15.2 |  |  | 15.4 |
Total liabilities | 1,258.3 |  |  | 1,278.7 |  |  | 1,733.2 |  |  | 1,710.1 |
Total shareholders’ equity attributable to Snap-on Inc. | 3,288.1 |  |  | 3,098.8 |  |  | 334.2 |  |  | 329.5 |
Noncontrolling interests | 20.6 |  |  | 19.8 |  |  | — |  |  | — |
Total equity | 3,308.7 |  |  | 3,118.6 |  |  | 334.2 |  |  | 329.5 |
Total liabilities and equity | $ | 4,567.0 |  |  | $ | 4,397.3 |  |  | $ | 2,067.4 |  |  | $ | 2,039.6 |

* Snap-on with Financial Services on the equity method.
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SNAP-ON INCORPORATED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
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 the close of business on July 12, 2019, 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 assurances of the availability of future financing or the terms on which it might be available, or that its debt ratings may not decrease.
The following discussion focuses on information included in the accompanying Condensed Consolidated Balance Sheets.
As of June 29, 2019, working capital (current assets less current liabilities) of $1,375.8 million increased $110.9 million from $1,264.9 million as of December 29, 2018 (fiscal 2018 year end) primarily as a result of the net changes discussed below.
The following represents the company’s working capital position as of June 29, 2019, and December 29, 2018:

(Amounts in millions) | June 29, 2019 |  | December 29, 2018
Cash and cash equivalents | $ | 164.0 |  |  | $ | 140.9 |
Trade and other accounts receivable – net | 684.1 |  |  | 692.6 |
Finance receivables – net | 529.0 |  |  | 518.5 |
Contract receivables – net | 91.5 |  |  | 98.3 |
Inventories – net | 725.8 |  |  | 673.8 |
Prepaid expenses and other assets | 112.2 |  |  | 92.8 |
Total current assets | 2,306.6 |  |  | 2,216.9 |
Notes payable | (168.2 | ) |  | (186.3 | )
Accounts payable | (215.3 | ) |  | (201.1 | )
Other current liabilities | (547.3 | ) |  | (564.6 | )
Total current liabilities | (930.8 | ) |  | (952.0 | )
Total working capital | $ | 1,375.8 |  |  | $ | 1,264.9 |

Cash and cash equivalents of $164.0 million as of June 29, 2019, increased $23.1 million from 2018 year-end levels primarily due to: (i) $383.5 million of cash from collections of finance receivables; (ii) $346.8 million of cash generated from operations; and (iii) $24.6 million of cash proceeds from stock purchase and option plan exercises. These increases in cash and cash equivalents were partially offset by: (i) the funding of $431.1 million of new finance receivables; (ii) the repurchase of 660,000 shares of the company’s common stock for $107.5 million; (iii) dividend payments to shareholders of $105.3 million; (iv) the funding of $48.2 million of capital expenditures; (v) $18.2 million of repayments of notes payable and other short-term borrowings; and (vi) the funding of $9.3 million for acquisitions.
Of the $164.0 million of cash and cash equivalents as of June 29, 2019, $144.9 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 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 does not incur unfavorable net tax consequences.
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SNAP-ON INCORPORATED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
Trade and other accounts receivable – net of $684.1 million as of June 29, 2019, decreased $8.5 million from 2018 year-end levels primarily due to improved collections, partially offset by $1.9 million of foreign currency translation and $0.7 million of receivables related to the Power Hawk acquisition. 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 66 days at June 29, 2019, and 67 days at December 29, 2018.
The current portions of net finance and contract receivables of $620.5 million as of June 29, 2019, compared to $616.8 million at 2018 year end. The long-term portions of net finance and contract receivables of $1,436.5 million as of June 29, 2019, compared to $1,419.3 million at 2018 year end. The combined $20.9 million increase in net current and long-term finance and contract receivables over 2018 year-end levels is primarily due to continued growth of the company’s financial services portfolio and $2.8 million of foreign currency translation.
Inventories – net of $725.8 million as of June 29, 2019, increased $52.0 million from 2018 year-end levels primarily due to continued support for higher customer demand and new product introductions, as well as $0.6 million of inventories related to the Power Hawk acquisition and $0.3 million of foreign currency translation. 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 2.7 turns and 2.9 turns as of June 29, 2019, and December 29, 2018, respectively. Inventories accounted for using the first-in, first-out (“FIFO”) method approximated 60% and 61% of total inventories as of June 29, 2019, and December 29, 2018, respectively. All other inventories are accounted for using the last-in, first-out (“LIFO”) method. The company’s LIFO reserve was $81.4 million and $78.4 million as of June 29, 2019, and December 29, 2018, respectively.
Notes payable of $168.2 million as of June 29, 2019, included $154.6 million of commercial paper borrowings and $13.6 million of other notes. As of 2018 year end, notes payable of $186.3 million included $177.1 million of commercial paper borrowings and $9.2 million of other notes.
Accounts payable of $215.3 million as of June 29, 2019, increased $14.2 million from 2018 year-end levels primarily due to the timing of payments.
Long-term debt of $947.9 million as of June 29, 2019, consisted of: (i) $250 million of unsecured 6.125% notes that mature in 2021 (the “2021 Notes”); (ii) $300 million of unsecured 3.25% notes that mature in 2027 (the”2027 Notes”); and (iii) $400 million of unsecured 4.10% notes that mature in 2048 (the “2048 Notes”), partially offset by $2.1 million from the net effects of debt amortization costs and fair value adjustments of interest rate swaps. Long-term debt of $946.0 million as of 2018 year end consisted of: (i) $250 million of the 2021 Notes; (ii) $300 million of the 2027 Notes; and (iii) $400 million of the 2048 Notes, partially offset by $4.0 million from the net effects of debt amortization costs and fair value adjustments of interest rate swaps.
Snap-on has a five-year, $700 million multi-currency revolving credit facility that terminates on December 15, 2020 (the “Credit Facility”); no amounts were outstanding under the Credit Facility as of June 29, 2019. Borrowings under the Credit Facility bear interest at varying rates based on Snap-on’s then-current, long-term debt ratings. 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 (consolidated debt net of certain cash adjustments) to the sum of such consolidated net debt plus total equity and less accumulated other comprehensive income or loss (the “Debt Ratio”); or (ii) a ratio not greater than 3.50 to 1.00 of such consolidated net debt to earnings before interest, taxes, depreciation, amortization and certain other adjustments for the preceding four fiscal quarters then ended (the “Debt to EBITDA Ratio”). Snap-on may, up to two times during any five-year period during the term of the Credit Facility (including any extensions thereof), increase the maximum Debt Ratio to 0.65 to 1.00 and/or increase the maximum Debt to EBITDA Ratio to 3.75 to 1.00 for four consecutive fiscal quarters in connection with certain material acquisitions (as defined in the related credit agreement). As of June 29, 2019, the company’s actual ratios of 0.21 and 0.95, 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.
Snap-on’s Credit Facility and other debt agreements also contain certain usual and customary borrowing, affirmative, negative and maintenance covenants. As of June 29, 2019, Snap-on was in compliance with all covenants of its Credit Facility and other debt agreements.
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SNAP-ON INCORPORATED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
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 revolving 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 may take advantage of what it believes are favorable market conditions to issue long-term debt to further improve its liquidity and capital resources. Near-term liquidity requirements for Snap-on include scheduled debt payments, 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 $9.4 million to its foreign pension plans and $2.0 million to its domestic pension plans in 2019, as required by law. In the first six months of 2019, Snap-on made $25.0 million of discretionary cash contributions to its domestic pension plans; depending on market and other conditions, Snap‑on may make additional discretionary cash contributions to its pension plans in the balance of 2019.
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 Condensed Consolidated Statements of Cash Flows.
Operating Activities
Net cash provided by operating activities was $346.8 million and $418.8 million in the first six months of 2019 and 2018, respectively. The $72.0 million year-over-year decrease in net cash provided by operating activities primarily reflects a decrease of $94.0 million from net changes in operating assets and liabilities, partially offset by $17.5 million of higher net earnings.
Investing Activities
Net cash used by investing activities of $103.9 million in the first six months of 2019 included additions to finance receivables of $431.1 million, partially offset by collections of $383.5 million. Net cash used by investing activities of $100.8 million in the first six months of 2018 included additions to finance receivables of $436.7 million, partially offset by collections of $379.9 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 and diagnostic and equipment products on an extended-term payment plan, generally with average payment terms of approximately four years.
Net cash used by investing activities in the respective first six months of 2019 and 2018 also included $9.3 million and $3.0 million for acquisitions. See Note 3 to the Consolidated Financial Statements for information about acquisitions.
Capital expenditures were $48.2 million and $38.6 million in the first six months of 2019 and 2018, respectively. Capital expenditures in both years included continued investments related to the company’s execution of its strategic Value Creation Processes around safety, quality, customer connection, innovation and RCI.
Financing Activities
Net cash used by financing activities of $220.7 million in the first six months of 2019 included repayments of notes payable and other short-term borrowings of $18.2 million. Net cash used by financing activities of $295.8 million in the first six months of 2018 included repayments of long-term debt and notes payable and other short-term borrowings, offset by the proceeds from the issuance of the 2048 Notes.
Proceeds from stock purchase and option plan exercises totaled $24.6 million and $28.3 million in the respective first six months of 2019 and 2018. Snap-on has undertaken stock repurchases from time to time to offset dilution created by shares issued for employee and franchisee stock purchase plans, stock options and other corporate purposes. In the first six months of 2019, Snap‑on repurchased 660,000 shares of its common stock for $107.5 million under its previously announced share repurchase programs, including the up to $500 million share repurchase program approved by the Board of Directors (the “Board”) on February 14, 2019. The 2019 share repurchase program replaced the company’s 2017 share repurchase program, under which $206 million of authorization remained at the time of its replacement. In the first six months of 2018, Snap-on repurchased 646,000 shares of its common stock for $98.7 million under its previously announced share repurchase programs. As of June 29, 2019, Snap-on had remaining availability to repurchase up to an additional $445.3 million in common stock pursuant to its Board’s authorizations.
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SNAP-ON INCORPORATED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(continued)
The purchase of Snap-on common stock 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, in the balance of 2019.
Snap-on has paid consecutive quarterly cash dividends, without interruption or reduction, since 1939. Cash dividends totaled $105.3 million and $92.8 million in the first six months of 2019 and 2018, respectively. On November 8, 2018, the Board increased the quarterly cash dividend by 15.9% to $0.95 per share ($3.80 per share annualized). 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 the balance of 2019.
Off-Balance Sheet Arrangements
The company had no off-balance sheet arrangements as of June 29, 2019.
Critical Accounting Policies and Estimates
Snap-on’s disclosures of its critical accounting policies, which are contained in its Annual Report on Form 10-K for the fiscal year ended December 29, 2018, have not materially changed since that report was filed.
Outlook
Snap-on expects to make continued progress in 2019 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, Snap-on expects that capital expenditures in 2019 will be in a range of $90 million to $100 million, of which $48.2 million was expended in the first six months of the year. Snap-on also anticipates that its full year 2019 effective income tax rate will be comparable to its full year 2018 rate of 24.0%.
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Item 3: 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 9 to the Condensed Consolidated Financial Statements for information on foreign currency risk management.
Interest Rate Risk Management
Snap-on aims to control funding costs by managing the exposure created by the differing maturities and interest rate structures of Snap-on’s borrowings through the use of interest rate swap agreements. Treasury lock agreements are used from time to time to manage the potential change in interest rates in anticipation of the possible issuance of fixed rate debt. See Note 9 to the Condensed 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 one-day loss in fair value, calculated using the VAR model, as of June 29, 2019, was $9.3 million on interest rate-sensitive financial instruments and $0.1 million 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 aims to manage 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 9 to the Condensed 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, debt-servicing ability, 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. Financial 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.
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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 potential effects of the United Kingdom’s pending exit from the European Union, although it is too soon to know what effects this might have on the world economy or the company. Inflation has not had a significant impact on 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.
Item 4: 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 June 29, 2019. 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 June 29, 2019, 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 June 29, 2019, 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)).
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PART II. OTHER INFORMATION
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
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 second quarter of fiscal 2019, 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 created by shares issued for employee and franchisee stock purchase plans and equity plans, 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.

Period |  | Shares purchased |  | Average price per share |  | Shares purchased as part of publicly announced plans or programs |  | Approximate value of shares that may yet be purchased under publicly announced plans or programs*
03/31/19 to 04/27/19 |  | 100,000 |  | $169.30 |  | 100,000 |  | $469.0 million
04/28/19 to 05/25/19 |  | 230,073 |  | $164.19 |  | 230,073 |  | $444.7 million
05/26/19 to 06/29/19 |  | 34,927 |  | $156.31 |  | 34,927 |  | $445.3 million
Total/Average |  | 365,000 |  | $164.83 |  | 365,000 |  | N/A

N/A: Not applicable |

* Subject to further adjustment pursuant to the 1996 Authorization described below, as of June 29, 2019, the approximate value of shares that may yet be
purchased pursuant to the outstanding Board authorizations discussed below is $445.3 million.

• | In 1996, the Board authorized the company to repurchase shares of the company’s common stock from time to time 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 from time to time 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 from time to time 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. When calculating the approximate value of shares that the company may yet purchase under the 1996 Authorization, the company assumed a price of $169.77, $158.30 and $165.64 per share of common stock as of the end of the respective fiscal 2019 months ended April 27, 2019, May 25, 2019, and June 29, 2019.

• | On February 14, 2019, the Board authorized the repurchase of an aggregate of up to $500 million of the company’s common stock (the “2019 Authorization”). The 2019 Authorization will expire when the aggregate repurchase price limit is met, unless terminated earlier by the Board.

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 second quarter of 2019 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 of Snap-on Stock |  |  |
Period |  | Shares purchased |  | Average price per share
03/31/19 to 04/27/19 |  | — |  | —
04/28/19 to 05/25/19 |  | — |  | —
05/26/19 to 06/29/19 |  | 800 |  | $163.92
Total/Average |  | 800 |  | $163.92

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Item 6: Exhibits |  |
Exhibit 31.1 |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2 |  | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1 |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2 |  | Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 101.INS |  | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
Exhibit 101.SCH |  | XBRL Taxonomy Extension Schema Document
Exhibit 101.CAL |  | XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit 101.DEF |  | XBRL Taxonomy Extension Definition Linkbase Document
Exhibit 101.LAB |  | XBRL Taxonomy Extension Label Linkbase Document
Exhibit 101.PRE |  | XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Snap-on Incorporated has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

| SNAP-ON INCORPORATED
Date: July 18, 2019 | /s/ Aldo J. Pagliari
| Aldo J. Pagliari, Principal Financial Officer,
| Senior Vice President – Finance and
| Chief Financial Officer

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