Jim Lucas – Janney Montgomery Scott Steven Gregory - Mandalay Research David Leiker – Robert W. Baird Gary Prestopino – Barrington Research

Good day ladies and gentlemen, and welcome to the Snap-on Incorporated 2010 Third Quarter Results Conference Call. At this time, all participants are in a listen-only mode. At the conclusion of our remarks, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this call is being recorded. I would now like to introduce your host for today's conference call, Leslie Kratcoski, please go ahead.

Thanks Evelyn and good morning everyone. Thanks for joining us today to review Snap-on's third quarter 2010 results, which are detailed in our press release issued earlier this morning. We have on the call today Nick Pinchuk, Snap-on's Chief Executive Officer and Aldo Pagliari, Snap-on's Chief Financial Officer. Nick will lead off our call this morning with his perspective on our performance. Aldo will then provide a more detailed review of our financial results. After Nick provides some closing thoughts, we'll take your questions. As usual, we have provided slides to supplement our discussion. You can find a copy of these slides on the Investor Relations portion of our website next to the audio icon for this call. These slides will be archived on our website along with the transcript of today's call. Any statements made during this call relative to management’s expectations, estimates or beliefs or otherwise state management’s or the company’s outlook plans or projections are forward-looking statements and actual results may differ materially from those made in such statements. Additional information and the factors that could cause our results to differ materially from those in the forward-looking statements are contained in our SEC filings. With that said, I'll now turn the call over to Nick Pinchuk, Nick.

Thanks Leslie. Good morning everyone. Well, Snap-on had another quarter of improved year-over-year performance and on top of that we saw some favorable market signal, so it’s very encouraging. We believe there is now clear evidence of a building Snap-on strength in the recovering market. Overall, our organic sales were up 13.4%, solid by any measure, and that’s after being up 9.5% in the second quarter and 4% in the first quarter. Needless to say, we like that trend. Operating income rose 72% from last year with financial services contributing profitability as projected improving its performance as it brings the loan portfolio on to Snap-on’s books. The operating company ally without financial services increased by a strong 46%, so again overall we are encouraged by the strength of the quarter, and that result was in the face of an unfavorable swing in LIFO. We would say our runways for growth are clearing and our Snap-on value creation processes around safety, quality, customer connection, innovation, Rapid Continuous Improvement or RCI, they continue to drive progress. So, having said that let me give you a bit of color, and my perspective on the trends we see. Now, the third quarter is seasonally are most challenging. It can be quite variable. So, it’s some times difficult to draw extended conclusions from the results, but having said that Snap-on’s quarter was robust completely overcoming the typical season low. We often talk about big ticket items, higher-price products that either have longer paybacks like diagnostics or under-car equipment, or a more discretionary like tool storage units. Activity here is usually a barometer of our customers’ overall financial health and of their confidence. You recall that during the downturn last year we saw quite a bit of variation from period to period in big ticket purchases,…

Thanks Nick. Our consolidated operating result is summarized on the slide 6. Net sales for the third quarter of $653 million increased 12.3% year-over-year. Excluding currency translation, sales increased 13.4%. As Nick mentioned, the primary drivers behind the $71 million year-over-year sales increase include significantly higher sales to customers in critical industries in emerging markets, as well as double-digit increases in worldwide equipment and sales to franchisees in the United States. Consolidated gross profit of $301 million increased $40.7 year-over-year driven by higher sales, improved manufacturing utilization and savings from ongoing rapid continues improvement or RCI initiatives and restructuring actions. Foreign currency benefited gross profit by $2.7 million while lower year-over-year restructuring cost contributed another $2 million. The overall benefits from improved manufacturing utilization, RCI currency and lower restructuring were partially offset by $4.1 million of higher year-over-year LIFO-related inventory expense. As a result of these factors, consolidated gross margin improved 130 basis points a 46.1% as compared to 44.8% last year. Operating expenses in the quarter increased $15.9 million from 2009 levels, primarily due to higher volume-related and other expenses including higher cost as a result of increased participation at our 2010 Annual Franchisee Conference. Year-over-year operating expenses also included $4.1 million of higher U.S. pension expense largely due to lower the projected asset returns in previous years. These increases were partially offset by lower bad debt expense, favorable currency translation and savings from ongoing RCI and restructuring initiatives. As a percent of sales, operating expenses of 34% in the quarter improved to 150 basis points from 35.5% last year. Operating earnings of $78.8 million before financial services improved $24.8 million, which is a 45.9% year-over-year increase on 12.3% of higher sales. Including financial services, operating earnings increased $35.1 million or 72.1% over 2009 levels. As a percentage of…

Thanks, Aldo. Look, I’ll close by saying again that our performance in the quarter was quite encouraged. We believe that represent strong confirmation that Snap-on is a company with unique strengths, ongoing opportunities for improvement and extended runways for growth. Going into the downturn, we assess the macroeconomic difficulty saying that big ticket long payback items were important. They would help to ease our recovery and they have. We said that we would invest in strategic areas that would be decisive growing forward and those efforts appear to be working well. We’ve maintained our van network; it’s more enthusiastic and more stable than when we entered the difficulties. We said that critical industries would be quarter [ph] growth. We are growing strongly in that arena. The industrial division was up 34% in the quarter. We were convinced that our technology and reputation would enable expansion with repair shop owners. Equipment in RS&I are confirming that belief. Equipment shook off the natural third quarter headwinds and grew strongly in both the US and Europe, and we said emerging markets, presented with the unique opportunity of physically provisioned, would help us grow and we are growing and gaining in those areas. Those regions are growing at deep double-digits, well ahead of even the robust GDPs. No one can predict how the environment will unfold. The economies of the world are still fragile, having said that, however. We now have three quarters of positive Snap-on momentum. The situation seems to be playing out as we expected and our strategic programs are successful. Because of all that, we are more confident than ever before that Snap-on is well positioned to take strong advantage of the future, strong advantage of the future in whatever shape it unfolds. Before taking questions, I want to end by thanking the people responsible for these encouraging results, our associates and franchisees. I know as usual, many of you are listening. These results would not have been possible without your capability and your dedication. I thank you for your support and I congratulate you on your success. Operator, now we’ll take questions.

Thank you. (Operator Instructions) And we’ll first go to Jim Lucas, Janney Montgomery Scott. Jim Lucas – Janney Montgomery Scott: Thanks, good morning all.

Hello, Jim Jim Lucas – Janney Montgomery Scott: I want to start with a couple of housekeeping questions. First, on the restructuring, what is the year-to-date number?

Year-to-date number in restructuring is about – I think it’s like $8 million, $8.4 million or $8.5 million, something like that. Jim Lucas – Janney Montgomery Scott: Okay. I thought you were about half-way to the target which implies. Do you anticipate that full $15 million spend?

I mean, you do the arithmetic, it says six and change in the fourth quarter, but last year, we did seven in change. So, I mean, I don’t think we think that’s an extraordinary amount. Jim Lucas – Janney Montgomery Scott: Okay. And with the early successes you’re having on the emerging market strategy, could you just bring us up-to-date on where you stand today from a geographical footprint, North America versus Europe versus the emerging markets?

You mean the sales? Jim Lucas – Janney Montgomery Scott: The sales, yes.

Yes, it’s roughly this way, I think. You can say, look, North America is 65%, 66% of the business, Europe is 25% of the business, emerging markets. Asia-Pacific is 8 -- between 5% and 10% of the business and the rest is dribs and drabs, Latin America and so on. Jim Lucas – Janney Montgomery Scott: Okay. And on the critical industries, glad to hear that the new vision tool box is out there and that’s a great example on the aerospace side. Can you talk a little bit about, which of the critical industries you’re having the best success in and far and is that geographically spread out or it more end market specific?

Actually, the success in industrial, which I think I said really success in industrial’s been across the board geographically, at least generally almost all the quarters we’ve seen, the critical industries have been pretty strong in United States, Europe and so on. This quarter was showed strong gains from aerospace to mining to natural resources. I think the strongest in this quarter was natural resources for us, but if you look back over some period, we’ve seen growth in each of those areas. But in this quarter, we saw a nice bump out of the natural resource business. Jim Lucas – Janney Montgomery Scott: Okay and I know that it’s probably a little too early to be talking about 2011 at least on public environment, most companies answer this question, but clearly the third quarter was a positive surprise from the season, not having the normal impact and it does signify that those of us that have been waiting to see this sort of long time on the outside as I know it has been the same on the inside, very good to see. But as you start looking ahead, not just to the fourth quarter but 2011, can you talk about -- you talked a lot about what’s going to happen on the reward side, but from headwinds, can you talk about what you’re seeing there?

Well, from a headwind point of view, I can’t predict what’s going to happen in Spain. We’ve got a lot of business there. It seems to be bumping along the bottom, so I don’t know when that’s going to recover. So, in terms of looking at where improvements going to come from, and looking from recovery, I have a question marked myself about Southern Europe. You can talk about commodity prices, a lot is talked about in terms of commodity, we don’t see for us a major headwinds because we do get commodity prices, but as you know Jim, a lot of our products are not so much material as they are labored, so our increases are not very devastating and plus we generally comprise for recognized commodity increases, so that’s not such a problem for us. You could say, you can take a look at critical industries and say okay, well, will the military spend as much as they have in the past, maybe they won’t, that could be a headwind that we have to offset some places. Some people are talking about restocking, but for us we see almost none. So, the 34% we saw in the critical industries in the industrial division in third quarter had almost, and only restocking. I can tell you that we just went through our quarterly reviews here and I don’t think restocking came up at all in a week of discussion. So, we are not seeing that as a factor, so for us the headwinds are mostly around, what’s going to happen in Southern Europe, could there be some variation and some cooling in critical industries, but we don’t expect a lot. We expect that to continue reasonably good because we’ve seen it for many quarters now, and some of the traditional headwinds for some other businesses like commodities or restocking, we’re not seeing in our future. Jim Lucas – Janney Montgomery Scott: As then just, as a reminder with regard to that industrial business, what is the rough percentage mix of direct versus distribution there?

You know, I have to say that about 70-30.

Okay.

Most of its direct. I mean, 70 being direct. So, that’s one of the reasons of course, why you don’t have a lot of people in between you and the end customer, that’s why we don’t see the restocking as much. Jim Lucas – Janney Montgomery Scott: Great, well, congrats on a very good third quarter.

Thanks.

Next one is Gary Prestopino, Barrington Research.

Yeah, this is actually Steven Gregory from Mandalay Research. A couple of things Nick, this is one of the calls I always looking forward to every quarter, you’re very enthusiastic and do a great job to continued success.

Thanks.

Couple of things, about two months ago in the Wall Street journal there was an article written, how 2011 is going to be really – critical for companies to drive more revenue online. Can you provide some color on the call today as, what is your e-commerce vision going forward and how do you plan to drive more revenue through your really good website?

Well, I think, in terms of our van business, we offered the price – in United States in the traditional tool business that you’ve for Snap-on, I don’t think you’re going to see much revenue in that business because our customers in that van business is about 35% of it, see real added from the up closing and personal delivery of the product. So, I don’t see that happening there, now I want you to remember that we are about making work easier for professionals in critical tasks. So the online piece of our business, the online delivery does not provide as much opportunity for us, really, you may see some online delivery with some of our distributor activities and that’s more B-to-B in that situation, but that’s really where we, I’d say we limited to. Our sticks if you will, our value is that, we sell to customers and we convince them, we sell the customers whoa are performing critical path and we convince them that they are going to see real productivity in using our solutions and our product. And that usually requires face-to-face. Now, after you convince them you can see some kind of structural ordering, but it’s not a big factor in our business.

So, driving people aside to buy some of your cars, battery packs and stuff like that is not rally, usually an initiative to kind of a status code really?

It can, but the thing is that we remember when you are talking about a guy, a van driver, he wants to get it right now, he goes out there and his big value is that when he’s talking to the technician and technician say I need it now and we’ve got it right there boom, its off the truck and he has it now. He doesn’t have to wait for delivery.

Hopefully, on your website, whom are you targeting on your website. I guess why you didn’t have it up, wasn’t it or is there specific…?

Well, our websites are targeting people who want the order that way, but it’s most around trying to create brand awareness.

Okay, do you any revenue methods that how much your revenue …?

It’s a very small percentage of our business.

Very small.

I don’t have any metrics.

Are you guys building Mobile Apps for your – any sight at all?

You’ve being a little garbled. I didn't hear that, could you say it again please?

Companies obviously are looking to mobile or social media, are you guys doing anything for mobile or social media to gather more attention in the community, get people more to your site, whether they purchase or not, but to get people more involved with your site? Are you building any Mobile Apps for the iPhone or anything?

I don’t know, I don’t think [Multiple Speaker].

We do use some of those features, but they are oriented towards our franchisees. Our effort is to increase the productivity of the franchisees and not so much for the end user technicians. So, all those you were describing are an excellent tool from an RCI perspective. We also used the web for supplier based activity, but when it comes to end user purchases it’s not the preferred means is to how they conduct the trade.

Okay.

One of these, we talked about in terms of productivity for our van and that’s, we’ve identified that as one of our best opportunities is continuous improvement of their computer systems or their IT systems. And in fact we are rolling out a new system in Canada, as we speak and that will be spread out throughout the United States, okay?

And final question, going forward, for 2011 and beyond. Where would you like to see the company head, if you could picture a perfect world, not like revenue stream or profit? Where would you like to be a couple years from now?

Well, I think we have said in the call, and I said many times, we see substantial runways for growth, particularly around critical industries, around repair shop owners and managers, and in emerging markets. We also see opportunities to grow our van business, but those are two, three places. Critical industries, repair shop owners and emerging market, and I see those businesses being a bigger part of our company. We are going to continue to pursue roll down those runways, because in the third quarter, I think is abundant evidence that those runaways are clearing for us. Now we have said, I think that moving forward, after the recession recovers, after we recover the recession, after recession recovery goes away, we believe we can register between 4% and 6% organic growth consistently and we believe we can drive towards strong mid-teen OI margins. And we believe that we will get that through organic growth and then also in those critical runaways we can find both on acquisition, so I see as pursuing that moving forward.

Thank you. Moving on, we hear from David Leiker, Robert W. Baird. David Leiker – Robert W. Baird: Hi, good morning. How are you all?

David. David Leiker – Robert W. Baird: I just want to follow-up on a couple of things, here. The organic growth number here is 13%. You answered one of my questions, how much you think there's restocking there. But how much do you think is pent up demand is part of that as opposed to the market growing or market share gains?

It’s always a tough question, but look I’ll say this, it’s pretty clear, we’re growing market share with van. It’s pretty clear, it’s clear that we are growing share in industrial with critical industries, 34% is gaining buster’s number. I can’t tell you how much but we are seeing that expansion. And it’s on top of, if you go back previous session, we were growing strong, double-digit in a moderate economy in that areas, so I think this is just extension of that. Of course we are growing share in emerging markets, and I think one of the places where our people on the ground say we are expanding, is in Europe. Europe was up double-digits even though is in fact to ’08 levels, everybody, a lot of people are saying they are up in Europe, but what we see in Europe is the customers aren’t going way, but the smaller player seem to be contracting. So, our people on the ground in Europe say we are gaining share even there. I can’t part between, I can’t tell you which part of that is, is market share –it’s share increase and return, but if you look at things like, if you look at places like equipment and the critical industries, equipments up strong double-digits almost 20%, over 20% critical industries are up 30%. You see Europe up double-digit, I think if you look at the economies there locally you are not going to see anything like that number, you have to conclude we are gaining shares in those areas of the significant amount. David Leiker – Robert W. Baird: On a longer term basis, you said you’ve got organic growth of 4% to 6% and your running 13%. You get to that normalized rate, do you think that's two quarters out, four quarters out, how would you characterize the progression to that number?

Well, I would simple say this, it think if you look at this we are going to keep growing at strong double-digits in Asia-Pacific. We’re going, I think we’re backed the pre-prices levels in the van business, so I don’t know what should expect. We are back the pre-crisis levels. We are starting to get the pre-crisis levels in our critical industries, were by the way we are growing at double-digit and Europe is the wildcard David, because I don’t, I can predict how that’s going to come back, that’s got a long way to come back to 2008. I really can’t say were we’re going to get back the stabilize numbers. David Leiker – Robert W. Baird: And then on the critical industry side, where would you say you are in your game plan in terms of penetrating those end markets of having a presence and a product for those markets? Do you think it's pretty much where you want and now it's like a share opportunity or do you think there's still some market opportunities there?

Can you say that again, I am getting, I’m must have some bad connection, because I didn’t get, did you say about emerging markets? David Leiker – Robert W. Baird: No, in the critical industries, where you think you are in terms of penetrating that in terms of having that right product in the right markets presences versus still having opportunities to broaden your exposure on this?

Yes, okay. Based on where we started, based on the opportunity that I see, based on the, I think, the incidence of people coming to me with both product and customer opportunities, it’s the end game of a 10, I would we’re at 2.5. David Leiker – Robert W Baird: Okay. And the last item on that is who do you think you’re gaining share from in those critical industries?

Well, I think there’s a number of people, I mean, there’s a number of people. Certainly we have our big competitors like Armstrong and Proto in the United States. In Europe, you have Gador, you have Sanville you have Usag and those are the broad tool manufactures and then you have some specific people that do like pliers and other things, of smaller products like Nepex in Europe. So I’d say we’re gaining from a collective group. We can’t offer a wider range of products than anybody else David. So, when we sell a kit to an aerospace company or we sell a kit to the military, we’re usually displacing a number of different competitors. When we sell to Shanghai Airlines, we maybe replacing a German competitor or Japanese competitor and a Chinese competitor at the same time. So it’s a mix. David Leiker – Robert W Baird: Okay. Thank you very much, and have a great quarter.

Sure. Thank you.

(Operator Instructions) We’ll now move to David Manger, Morningstar.

Hello.

We go to the next person in the queue please.

Thank you. We’ll next move to Gary Prestopino, Barrington Research .

Hi, good morning.

Hi, Gary. Gary Prestopino – Barrington Research: Can you hear me?

Yes. Gary Prestopino – Barrington Research: Hey Aldo, I try to ask a question before I got cut-off. What did you say was the goal with the portfolio by the end of Q4? Did you give a number there?

I did actually. I mean, we said, consistently we expected from the beginning of this year to add about $300 million for the overall portfolio. So, if you do the mathematics, we should end up at about $565 million to $570 million by year end is our projection for the Snap-on Credit portfolio. Gary Prestopino – Barrington Research: That’s US, right?

That’s correct. Gary Prestopino – Barrington Research: Okay. Alright, and then the ultimate goal with the overall portfolio to get it, or maybe I’m wrong, is the US ultimate goal to get to about 700?

I think more closely Gary to about $750 million or so. Historically if you look at the combined portfolio they exceed over $800 million in the half or sometime. As I’ve said before in our investor meeting, is that we probably do a little bit less van leasing going forward, there are other sources of funding for our credit strategies on that dimension on a very competitive, we have no problem with them using those. But we look at our extended credit portfolio and our leasing of equipment portfolio with that in there, I think we see of about 750ish and again internationally, again we expect at least $130 million and we look to the future to see if this opportunity to grow that, but I’d like to at a combined portfolio of about $900 million, $880, $900 million right now in the terms of a future state. Gary Prestopino – Barrington Research: Okay. And then in terms of some of these growth markets like critical industries and the emerging markets, could you maybe size each of these markets on a worldwide basis as you see it? And then maybe give us some idea of what the revenues are in each of these markets currently?

Well. Sure, I think I’ve said, it’s very difficult to size the market state for critical industries because it’s so vertical and there are so many different aspects of it and what products do you include in it. But I would say for example that, we’ve said that, that business has the clear potential to be as big as our tools group, that business alone and today that business is somewhere between lets say $350 million to $400 million. But, we think that’s relative to where we are now that’s quite unbounded. And emerging markets its anybody guess, but Gary they are going to sell more cars in China this year than United States and I think that place out in terms of airframe and then full other things in power plants and so on. And so when you see our opportunities there and realizing that the repair market hasn’t started yet, because there is 300 million vehicles on the road and there are 45% over 10 years old now and in China even though they’re pound in a lot of vehicles into the park right now. There is still only 15 million on the road and they are all new, you can see the China market alone being as big as in the US market and therefore being kind of the size of the van business again. Again there are various difficult - - Gary Prestopino – Barrington Research: Emerging markets, I mean you kind of gave a range of 5% to 10% of revenues?

Yes. Gary Prestopino – Barrington Research: That we are ..

Yes. That’s were we are today, yep. Gary Prestopino – Barrington Research: So if you dial back a year or two years ago where were you was as a percentage of revenues?

I don’t know that number, but it’s been growing dramatically, on a small base. So I really don’t have that, it was quite a bit small, I have just said that, I think you and I have spoken about this is that, if you go back to 2004 let’s say are those kind of years we hardly sold anything in Asia, we got ten people in two offices, so it’s really - - Gary Prestopino – Barrington Research: So is your main competition and say place like China is that like a domestic manufacture - -

It depends on the industry if you tend to, it depends on the particular product in the industry, but let’s say for example, it can be some times there can be imported product for or some times for lets say Shanghai Airlines, your competition will be imported, but for let say the Volkswagen OVM dealership, it will be primarily local. And it’s a galaxy of competitors, the thing about China and India and all emerging markets, they’re generally fragmented, that’s why we like the opportunity actually. Gary Prestopino – Barrington Research: Thank you.

Sure

And at this time there are no further questions. I’d like to turn the conference back to Leslie Kratcoski for any additional or closing remarks.

I’d just like to say, we appreciate you interest in Snap-on. A reply of the call will be available on snapon.com and we thank you for joining us today.

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