Securities & Exchange Commission

Washington, D.C. 20549

FORM 10-K/A

AMENDMENT NO. 1

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended January 2, 1999

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

Commission File Number 1-7724

SNAP-ON INCORPORATED
(Exact name of registrant as specified in its charter)

Delaware                                           39-0622040
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

10801 Corporate Drive, Pleasant Prairie, Wisconsin           53158-1603
(Address of principal executive offices)                     (Zip code)

Registrant's telephone number, including area code: (414) 656-5200

Securities registered pursuant to Section 12(b) of the Act:

Title of each class                     Name of exchange on which  registered  
-------------------                     -------------------------------------
Common stock,  $1 par value             New York Stock Exchange  
Preferred stock purchase rights         New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:  None

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,  and (2) has been subject to such filing  requirements
for the past 90 days. Yes [ X] No [ ]

Indicate by check mark if  disclosure of  delinquent  filers  pursuant to Item
405 of Regulation S-K is not contained herein,  and will not be contained,  to
the best of the registrant's  knowledge,  in a definitive proxy or information
statements  incorporated  by  reference  in Part III of this  Form 10-K or any
amendment to this Form 10-K. [X]

Aggregate market value of voting stock held by  non-affiliates of the registrant
at February 23, 1999:
$1,909,184,462

Number of shares outstanding of each of the registrant's classes of common stock
at February 23, 1999:
Common stock, $1 par value, 65,591,328 shares

Documents incorporated by reference
Portions of the Corporation's  Annual Report to Shareholders for the fiscal year
ended January 2, 1999, are  incorporated by reference into Parts I, II and IV of
this report.

Portions of the Corporation's  Proxy Statement,  dated March 12, 1999,  prepared
for the  Annual  Meeting  of  Shareholders  scheduled  for April 23,  1999,  are
incorporated by reference into Part III of this report.

Part IV, Item 14 of the  Corporation's  Annual  Report on Form 10-K for the year
ended January 2, 1999 is amended for purposes of filing a revised Exhibit 13:

Item 14: Exhibits, Financial Statements Schedules and Reports on Form 8-k

Item 14(A):  Document List

1.  List of Financial Statements

The following consolidated financial statements of Snap-on Incorporated, and the
Auditors'  Report  thereon,  each  included  in the 1998  Annual  Report  of the
Corporation  to its  shareholders  for the  year  ended  January  2,  1999,  are
incorporated by reference in Item 8 of this report:

Consolidated Balance Sheets as of January 2, 1999 and January 3, 1998.

Consolidated Statements of Earnings for the years ended January 2, 1999, January
3, 1998 and December 28, 1996.

Consolidated Statements of Shareholders' Equity and Comprehensive Income for the
years ended January 2, 1999, January 3, 1998 and December 28, 1996.

Consolidated  Statements  of Cash  Flows for the years  ended  January  2, 1999,
January 3, 1998 and December 28, 1996.

Notes to Consolidated Financial Statements.

2.  Financial Statement Schedule

The following  consolidated financial statement schedule of Snap-on Incorporated
is included in Item 14(d) as a separate section of this report.

Schedule II Valuation and Qualifying Accounts and Reserves.      Page 14

All other  schedules for which  provision is made in the  applicable  accounting
regulations  of the Securities and Exchange  Commission  are  inapplicable  and,
therefore,  have been omitted,  or are included in the Corporation's 1998 Annual
Report in the Notes to  Consolidated  Financial  Statements  for the years ended
January 2, 1999,  January 3, 1998 and December 28, 1996,  which are incorporated
by reference in Item 8 of this report.

3.  List of Exhibits

The  exhibits  filed with or  incorporated  by reference in this report are as
specified in the exhibit index. Page 16

Item 14(B):  Reports on Form 8-K

During the fourth  quarter of 1998, the  Corporation  reported on Form 8-K dated
October 22, 1998 its third quarter 1998 Analyst Bulletin.

Subsequent to year-end,  the Corporation  reported on Form 8-K dated January 19,
1999 that the  Corporation  and Newcourt  Financial  USA Inc. had  established a
joint  venture  known as Snap-on  Credit LLC,  which will serve as the preferred
provider of financial  services to the Corporation's  global dealer and customer
network.

12

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE

We have audited, in accordance with generally accepted auditing  standards,  the
financial  statements  included in Snap-on  Incorporated's  (the  "Corporation")
Annual Report to Shareholders,  incorporated by reference in this Form 10-K, and
have issued our report  thereon dated  February 2, 1999.  Our audit was made for
the  purpose of forming an  opinion on those  statements  taken as a whole.  The
schedule listed on page 18 is the responsibility of the Corporation's management
and is  presented  for purposes of complying  with the  Securities  and Exchange
Commission's  rules  and is not part of the  basic  financial  statements.  This
schedule has been subjected to the auditing  procedures  applied in the audit of
the  basic  financial  statements  and,  in our  opinion,  fairly  states in all
material  respects  the  financial  data  required  to be set forth  therein  in
relation to the basic financial statements taken as a whole.

/s/ Arthur Andersen LLP

ARTHUR ANDERSEN LLP

Chicago, Illinois
February 2, 1999

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent  public  accountants,  we hereby consent to the  incorporation by
reference in this Form 10-K of our report dated February 2, 1999 included in the
Corporation's   previously  filed  Registration  Statement  File  Nos.  2-53663,
2-53578, 33-7471, 33-22417,  33-37924,  33-39660,  33-57898, 33-55607, 33-58939,
33-58943, 333-14769, 333-21277, 333-21285 and 333-41359. It should be noted that
we have not audited any financial  statements of the  Corporation  subsequent to
January 2, 1999 or performed any audit procedures  subsequent to the date of our
report.

/s/ Arthur Andersen LLP

ARTHUR ANDERSEN LLP

Chicago, Illinois
March 29, 1999

13

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

Balance of
Balance at        Subsidiary                                      Balance at
Beginning         at Time of                     Costs and         End of
Description                of Year         Acquisition        Expenses    Deductions (1)      Year
-----------              -----------       -----------      -----------   --------------      ----

Allowance for 
doubtful accounts
-----------------

Year ended
January 2, 1999          $20,644,676      $  2,072,723      $24,983,781     $18,470,578    $29,230,602

Year ended
January 3, 1998          $16,902,581      $  2,220,474      $21,039,748     $19,518,127    $20,644,676

Year ended
December 28, 1996        $14,650,458      $    296,140      $13,611,414     $11,655,431    $16,902,581

(1) This amount represents write-offs of bad debts.

14

SIGNATURES

Pursuant to the  requirements of Section 13 of 15(d) of the Securities  Exchange
Act of 1934,  the  Corporation  has duly caused this  amendment  to report to be
signed on its behalf by the undersigned, thereunto duly authorized.

SNAP-ON INCORPORATED

By: /s/N.T. Smith                                       Date: September 10, 1999
Principal Accounting Officer and 
Controller

15

EXHIBIT INDEX

(3) (a)     Restated  Certificate  of  Incorporation  of  the  Corporation  as
amended  through  April 25, 1997  (incorporated  by  reference  to
Exhibit (3)(a) to the Corporation's Annual Report on Form 10-K for
the  fiscal  year  ended  January  2,  1998  (Commission  File No.
1-7724))

(b)     Bylaws  of the  Corporation,  effective  as of  January  26,  1996
(incorporated by reference to Exhibit (3)(b) to the  Corporation's
Annual Report on Form 10-K for the fiscal year ended  December 30,
1996 (Commission File No. 1-7724))

(4) (a)     Rights  Agreement  between the Corporation and First Chicago Trust
Company of New York, effective as of August 22, 1997 (incorporated
by reference to the  Corporation's  Form 8-A12B dated  October 17,
1997 (Commission File No. 1-7724))

The Corporation and its subsidiaries have no long-term debt agreement for
which the related  outstanding  debt  exceeds 10% of  consolidated  total
assets as of January 2, 1999.  Copies of debt  instruments  for which the
related  debt is less  than  10% of  consolidated  total  assets  will be
furnished to the Commission upon request.

(10)  Material Contracts

(a)     Amended and Restated  Snap-on  Incorporated  1986 Incentive  Stock
Program  (incorporated  by  reference  to  Exhibit  (10)(a) to the
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 28, 1996 (Commission File No. 1-7724))*

(b)     Form of Restated Senior Officer  Agreement between the Corporation
and each of Robert A. Cornog, Branko M. Beronja, Frederick D. Hay,
Donald  S.  Huml  and  Michael  F.  Montemurro   (incorporated  by
reference to Exhibit (10)(b) to the Corporation's Annual Report on
Form 10-K for the fiscal year ended December 30, 1995  (Commission
File No. 1-7724))*

(c)     Form of Restated  Executive  Agreement between the Corporation and
each of Alan T. Biland, Sharon M. Brady, Richard V. Caskey, Dan G.
Craighead,  Dale  F.  Elliott,  Nicholas  L.  Loffredo,  Denis  J.
Loverine,  Susan F.  Marrinan and Neil T. Smith  (incorporated  by
reference to Exhibit (10)(b) to the Corporation's Annual Report on
Form 10-K for the fiscal year ended December 30, 1995  (Commission
File No. 1-7724))*

(d)     Deferred  Compensation  Waiver  and  Insurance  Benefit  Agreement
between the  Corporation  and Robert A. Cornog  dated  January 30,
1998.*  [X]

(e)     Deferred  Compensation  Waiver  and  Insurance  Benefit  Agreement
between the  Corporation  and Branko M. Beronja dated December 21,
1998*  [X]

(f)     Form of Indemnification Agreement between the Corporation and each
of the  Directors,  Frederick  D. Hay,  Donald S.  Huml,  Susan F.
Marrinan  and  Michael F.  Montemurro  effective  October 24, 1997
(incorporated by reference to Exhibit (3)(a) to the  Corporation's
Annual  Report on Form 10-K for the fiscal  year ended  January 2,
1998 (Commission File No. 1-7724))*

(g)     Amended and Restated Snap-on Incorporated Directors' 1993 Fee Plan
(incorporated by reference to Exhibit (10)(e) to the Corporation's
Annual Report on Form 10-K for the fiscal year ended  December 28,
1996 (Commission File No. 1-7724))*

(h)     Snap-on Incorporated  Deferred  Compensation Plan (incorporated by
reference to Exhibit (10)(f) to the Corporation's Annual Report on
Form 10-K for the fiscal year ended December 28, 1996  (Commission
File No. 1-7724))*

(i)     Snap-on  Incorporated  Supplemental  Retirement  Plan for Officers
(incorporated by reference to Exhibit (10)(b) to the Corporation's
Annual Report on Form 10-K for the fiscal year ended  December 30,
1995 (Commission File No. 1-7724))*

16

EXHIBIT INDEX (continued)

(j)     Benefit Trust  Agreement  between the Corporation and The Northern
Trust  Company,  effective  as of July 2,  1998  (incorporated  by
reference  to the  Corporation's  Form  8-K  dated  July  2,  1998
(Commission File No. 1-7724))

(12)        Computation of Ratio of Earnings to Fixed Charges  [X]

(13)        The  following  portions  of the  Corporation's  Annual  Report to
Shareholders,  which are  incorporated  by  reference in this Form
10-K,  are  filed  as  Exhibit  13:  Management's  Discussion  and
Analysis  of  Operations  and  Financial  Condition,  Consolidated
Statements of Earnings,  Consolidated Balance Sheets, Consolidated
Statement  of  Shareholders'  Equity  and  Comprehensive   Income,
Consolidated  Statement  of  Cash  Flows,  Notes  to  Consolidated
Financial Statements,  Quarterly Financial  Information,  Six-year
Data, Management's  Responsibility for Financial Reporting, Report
of Independent Public Accountants and Investor Information.

(21)        Subsidiaries of the Corporation  [X]

(23)        Consent of Independent Public Accountants  [X]

(27)        Fiscal 1998 Financial Data Schedule   [X]

* Denotes management contract or compensatory plan or arrangement

[X] Previously filed

Management's  Discussion  and Analysis of Results of  Operations  and  Financial
Condition

Results of Operations

All  analyses  for  1998  include  the  effects  of   restructuring   and  other
non-recurring  charges  and  inventory  adjustments  ("1998  charges"),   unless
otherwise indicated.

The  Corporation  manufactures,  markets and  distributes  tools,  equipment and
related  services for  automotive and industrial  service  customers  around the
world using multiple brands sold through multiple  channels of distribution.  In
some instances, it also finances the purchase of those products.

Restructuring  and other charges:  In the third quarter of 1998, the Corporation
recorded  restructuring and other  non-recurring  charges related to its Project
Simplify   initiative,   a   broad   program   of   internal   rationalizations,
consolidations and reorganizations  intended to make the Corporation's  business
operations  simpler  and  more  effective.   Of  an  expected  total  charge  of
approximately  $185  million to be recorded  through the first  quarter of 2000,
$133.1  million in pre-tax  charges were taken in the third  quarter of 1998 and
$16.8 million were taken in the 1998 fourth quarter. Of the total $149.9 million
in pre-tax  charges  recorded in 1998  ($107.6  million or $1.82 per share after
taxes),  $75.6 million is  restructuring  charges and $74.3  million  represents
other non-recurring  charges.  The Corporation expects that approximately 50% of
the total  charges will be  non-cash,  with the  remaining  50%  requiring  cash
outflows.

The $75.6 million of restructuring  charges includes  severance,  non-cancelable
lease agreements on facilities to be closed and other exit costs associated with
the  simplification  initiative in the amount of $23.1 million.  The Corporation
has adjusted  property,  plant and equipment and other assets to net  realizable
value through an additional $6.3 million  restructuring  charge.  As part of the
restructuring  efforts,  the Corporation also has written off impaired  goodwill
and other intangible assets of certain discontinued  business units and incurred
a charge of $36.5  million.  This amount  relates to the write-down of remaining
intangible balances recorded at the time those business units were acquired.  As
part of the  elimination of these  business  units and their product lines,  the
Corporation  has  recorded a reserve  in the  amount of $9.7  million to provide
additional warranty support, at no cost, for products already sold. The warranty
charge has been included in Cost of Goods Sold -  Discontinued  Products,  while
all  other  restructuring  charges  recorded  to  date  have  been  included  in
Restructuring and Other Non-recurring  Charges on the accompanying  Consolidated
Statements of Earnings.

The other  non-recurring  charges  of $74.3  million  include  $50.9  million to
re-value  discontinued  stock  keeping  units  ("SKUs") of  inventory,  costs to
conclude certain  non-recurring legal matters in the amount of $18.7 million and
other transitional costs in the amount of $4.7 million. The reduction of SKUs is
an effort to reduce  transaction  costs and  working  capital  intensity  of the
Corporation's  product offering and refocus on high-volume growth products.  The
non-recurring  charge related to the reduction of SKUs has been included as part
of Cost of Goods Sold -  Discontinued  Products,  while the other  non-recurring
charges  recorded  to  date  have  been  included  in  Restructuring  and  Other
Non-recurring Charges on the accompanying  Consolidated  Statements of Earnings.
The composition of the restructuring reserves is presented in Note 14.

Shown  in the  table  below  is a  breakdown  of  the  restructuring  and  other
non-recurring charges by segment:

(Amounts in thousands)        Restructuring    Non-recurring       Total
North America Transportation    $ 9,661           $13,576         $ 23,237
North America Other              51,810            51,046          102,856
Europe                            7,900             4,789           12,689
International                     2,836             4,841            7,677
Financial Services                3,400                 4            3,404
-------           -------         --------
Total                           $75,607           $74,256         $149,863
=======           =======         ========

The  actions of Project  Simplify  are  expected  to lead to the  closing of six
manufacturing facilities, seven warehouses and 47 small offices in North America
and Europe;  the  elimination of more than 1,100  positions;  the elimination of
nearly 12,000 SKUs; and the  consolidation of certain business units. By the end
of 1998, 509 positions were  eliminated,  including 100 of the 150 field manager
positions identified for elimination. Of those field managers,  approximately 50
are converting to franchised dealers. In addition, eight facilities were closed,
the  SKU-reduction  activities were on schedule and the European  operations had
begun their staff reductions and facilities closures.

The  Corporation  expects to realize  annual cost savings of  approximately  $60
million  from the  initiative.  On an annual  run-rate  basis,  the  Corporation
expects to achieve half of these savings in 1999,  with the full amount achieved
in 2000.

The  decision to  restructure  was based on the  complexity  that had  developed
within  the  organization  during the  decade.  In the early  1990s,  management
determined that the increased  computerization of the systems contained in motor
vehicles  could  result  in broad  changes  in the  approach  to  servicing  and
repairing such vehicles. Over time, the diagnosing of vehicle problems has grown
much more  complicated  and requires a broader array of tools and equipment than
was  necessary in the past.  In addition,  the  continuing  growth in the global
vehicle population  resulted in opportunities for companies to expand worldwide.
Since  1992,  the  Corporation  has  made 21  acquisitions  and has  grown  from
primarily a single-product,  single-channel  company to an organization  serving
multiple customers with multiple  capabilities through multiple channels.  It is
also operating in more regions of the world.

The complexity  created by this growth added costs,  slowed decision making, and
diffused  responsibility  and  accountability.   The  organizational   structure
contained  too  many  individual  business  units  with  overlapping  functional
disciplines. Each had its own product, brand and channel identity.

In  order to  combine  businesses  into  larger,  more  integrated  units,  with
operating  responsibility  assigned by brands and  channels,  and to implement a
shared-function  format in areas such as engineering,  research,  manufacturing,
finance and administration,  a more sophisticated  computer system was required.
The  anticipated  completion  of the  implementation  of the  Corporation's  new
enterprise-wide  computer  system in 1998  enabled the  Corporation  to begin to
execute its plans to simplify its operations.

[17 Snap-on Incorporated 1998 Annual Report]

Management's Discussion and Analysis (continued)

Fourth  Quarter  Results:  Net  earnings in the 1998 fourth  quarter  were $12.6
million,  a  decrease  of 69.9%  from the same  period of 1997,  because  of the
remaining   difficulties   related  to  the  process   issues   connected   with
implementation of the  Corporation's new computer system,  and the 1998 charges.
Reported   earnings  per  share  -  diluted  were  $.21.  On  a  pre-tax  basis,
restructuring  and  transition  costs related to Project  Simplify  totaled $6.8
million ($.09 per share after tax) in the quarter. In addition, a portion of the
charge  taken  in the  third  quarter  for the  reduction  of SKUs  included  an
estimated $10 million  ($.10 per share after tax) LIFO benefit.  The benefit was
not realized and was reversed in the fourth  quarter.  Cost of goods sold in the
quarter  included  a $14.1  million  ($.15 per share  after  tax)  reduction  in
inventory  discussed in the "Cost and Profit Margins"  section.  Earnings in the
fourth  quarter of 1998  included a $3.1  million gain on the sale of a European
facility,  gains  related to the sale of  installment  receivables  and  pension
curtailment benefits related to the Corporation's restructuring initiatives.

Overview:  Net sales in 1998 increased 6.0%. Sales from  acquisitions and growth
in the North America  Transportation  segment were primarily responsible for the
increase.  The  translation  of  foreign-currency-denominated  results into U.S.
dollars  negatively  affected  sales  by  approximately  one  percentage  point.
Excluding  the  results  of  acquisitions  completed  in  1998,  sales  declined
approximately   1%.   The   unanticipated   difficulties   encountered   in  the
implementation of the Corporation's new computer system,  continued  weakness in
the economies in the Asia/Pacific region and difficult comparisons against 1997,
which contained an unusually high level of emissions-testing equipment sales and
was a 53-week  year,  affected  sales.  In 1997,  net  sales  rose  12.6%,  with
increases  recorded  in all  segments.  Sales  excluding  acquisitions  advanced
approximately 7% in 1997.

In 1998,  the  Corporation  reported a net loss of $4.8  million,  following  an
increase in earnings of 14.4% in 1997.  The reported  loss per share in 1998 was
$.08, after 1997's earnings per share grew 14.4% and 14.6% for basic and diluted
earnings,  respectively.  The  loss in 1998  was  related  to  several  factors:
restructuring and other non-recurring charges of $149.9 million ($1.82 per share
after tax) in connection with the  implementation of the  Corporation's  Project
Simplify  initiative;  costs and lost sales  associated  with the  unanticipated
difficulty  of  aligning   internal   processes  with  the   Corporation's   new
enterprise-wide  computer  system;  and  costs  related  to  the  organizational
complexity that developed as the Corporation made numerous acquisitions over the
last six  years.  Excluding  the 1998  charges,  earnings  per share - basic and
earnings per share - diluted were $1.89 and $1.87, respectively. The increase in
net  earnings  and earnings per share in 1997 was the result of higher sales and
improvement in operating expenses as a percent of sales.

(Amounts in thousands,
except per share data)          1998               1997               1996

Sales                           $1,772,637         $1,672,215         $1,485,279
Net earnings (loss)                 (4,779)           150,366            131,451
Earnings (loss) per common 
share - basic                 $     (.08)        $     2.47         $     2.16
Earnings (loss) per common 
share - diluted               $     (.08)        $     2.44         $     2.13

The 1998 and 1996 years contained 52 weeks; 1997 was a 53-week year.

Cost and profit margins:  The gross profit margin was 43.1% in 1998 and 50.5% in
both 1997 and 1996.  The decline in 1998's  gross  margin was due to a change in
business mix resulting from several acquisitions, and a less favorable sales mix
and additional  costs related to the  difficulties in shipping hand tools as the
Corporation resolved process issues in connection with the implementation of its
new  computer  system.  In the fourth  quarter of 1998,  cost of goods sold also
included a $14.1 million reduction in inventory related to the conversion to the
new enterprise- wide computer system.  The new system provides for much improved
visibility at an item level on field inventory.

Total  operating  expenses as a percent of net sales  increased to 39.8% in 1998
after successive  decreases in 1997 and 1996. The 1997 and 1996 percentages were
38.9% and 40.0%, respectively.  The 1998 performance was affected by the process
difficulties  encountered in implementing the Corporation's new computer system.
Costs for additional labor and freight,  and lower  productivity  were primarily
responsible for the results. In 1997 and 1996,  improvements in processes and in
productivity,  and a change in business mix  contributed to the declines in both
years.  Total operating expenses in 1998 were $55.6 million higher than in 1997,
compared  with  increases  of $55.7  million in 1997 and $56.5  million in 1996.
Acquisitions contributed to the increases in all years.

[Three  bar  graphs  follow  this  text.   The  first  is  titled   "Research  &
Development."  It shows the dollars  spent on research  and  development  by the
Corporation (in millions) in each of fiscal years 1994 through 1998, as follows:

94       -       $31
95       -       $34
96       -       $42
97       -       $47
98       -       $49

The second  graph is titled  "Operating  Expenses as a Percent of Net Sales." It
shows the  Corporation's  operating  expenses  as a percent of its net sales for
each of fiscal years 1994 through 1998, as follows:

94       -       42.7%
95       -       41.6%
96       -       40.0%
97       -       38.9%
98       -       39.8%

The third  graph is  titled  "Margin  Analysis."  It  shows,  side-by-side  in a
horizontal  presentation for each fiscal year, the  Corporation's  net sales (in
millions of dollars),  gross profit margin and operating  income margin for each
of fiscal years 1994 through 1998, as follows:

NET SALES      GROSS PROFIT MARGIN     OPERATING INCOME MARGIN
94       -     $ 1,194                51.0%                    13.3%
95       -     $ 1,292                51.3%                    14.6%
96       -     $ 1,485                50.5%                    14.8%
97       -     $ 1,672                50.5%                    15.9%
98       -     $ 1,773                43.1%                     1.9%]

[18 Snap-on Incorporated 1998 Annual Report]

The operating  income margin declined to 1.9% in 1998 because of the lower gross
margin and the higher  operating  expense margin.  In 1997, the operating margin
increased  to 15.9%  from  14.8% in 1996  because of a  reduction  in  operating
expenses as a percent of sales.

Segment Results:  The Corporation has adopted Statement of Financial  Accounting
Standards  ("SFAS") No. 131,  "Disclosures  about  Segments of an Enterprise and
Related  Information."  The following review reflects the new segment  structure
and does not include the allocation by reportable  segment of the  restructuring
and  other  non-recurring  charges.  See  Note  13 for  additional  information,
including a description of the segments.

(Amounts in thousands)              1998               1997               1996
Sales
North America Transportation    $  845,828         $  836,032         $  786,609
North America Other                457,255            468,692            341,194
Europe                             393,460            279,684            271,957
International                       76,094             87,807             85,519
----------         ----------         ----------
Total                           $1,772,637         $1,672,215         $1,485,279
==========         ==========         ==========

Operating income
North America Transportation    $   34,176         $   70,205         $   48,592
North America Other                 70,909             98,143             84,764
Europe                               3,205             16,539             11,800
International                        9,775              8,759             11,101
Financial Services                  65,933             71,891             64,269
Restructuring and other 
non-recurring charges           (149,863)                 -                  -
----------         ----------         ----------
Operating income                $   34,135         $  265,537         $  220,526
==========         ==========         ==========

Net sales in North America  Transportation in 1998 increased 1.2%. New products,
including "soft-grip"  screwdrivers,  battery testers and software upgrades, and
continued  strength in the U.S.  dealer  channel  offset  difficult  comparisons
against 1997,  which  benefited from  above-average  sales of  emissions-testing
equipment through the channel and from an additional week in the reporting year.
The  difficulty in shipping  tools during 1998 because of process issues related
to the Corporation's  computer  conversion  constrained sales growth.  Operating
income  declined 51.3% because of the increased costs incurred to operate during
the computer conversion.  These costs included additional labor and freight, and
lower  productivity.  In 1997,  net sales in North America  Transportation  rose
6.3%.  Several large  emissions  programs,  improved sales  productivity  in the
dealer organization,  the introduction of new products, an additional accounting
week, and price increases all contributed to the 1997 growth.  Operating  income
increased 44.5% because of growth in sales,  and improvements in expense control
and productivity.

Net sales in North  America  Other  declined  2.4% in 1998,  as the  Corporation
experienced  difficult  comparisons  against 1997, when a significant  amount of
emissions-testing  equipment was sold to distributors and national accounts.  In
addition, sales were constrained by difficulties in shipping tools to industrial
customers  because of the computer  conversion.  Acquisitions  and new products,
such as a line of palm  sanders,  additional  cordless  power tools and new shop
management  software,  offset part of the decline.  Operating  income  decreased
27.7% in 1998. Lower total sales and the higher expense  structure and increased
operating  complexity  resulting  from  acquisitions  in this  segment  affected
profitability. In 1997, North America Other net sales increased 37.4%, with high
levels  of  emissions-testing  equipment  sales;  new  products;  growth  in the
Equipment   Solutions   equipment   facilitation  and   distribution   business;
acquisitions;  and an additional accounting week all contributing to the growth.
Operating  income in 1997  increased  15.8% on higher  sales.  Operating  income
growth was lower  than sales  growth  because  of  changes  in the  product  and
business mix. Sales excluding  acquisitions in 1998 were approximately 4% lower,
following an increase of approximately 19% in 1997.

Net sales in Europe rose 40.7% in 1998.  Acquisitions  were  responsible for the
increase.  Higher tool sales were  offset by lower  equipment  sales  because of
significantly  reduced exports to the  Asia/Pacific  and Eastern Europe regions.
The translation of foreign  currencies  into U.S.  dollars  negatively  affected
sales.  Operating  income declined 80.6%, as lower than expected  performance by
several  acquisitions,  changes  in  the  business  and  product  mix,  and  the
short-term  effects of the  Corporation's  restructuring  activities  negatively
affected  results.  In 1997, Europe net sales rose 2.8%. Sales of both tools and
equipment increased,  while currency translation rates and a sluggish economy in
many of the countries in the segment slowed the growth rate.  Acquisitions  also
contributed to sales in 1997.  Operating  income in 1997 increased 40.2% because
of strong  growth  in tools and the  impact  of  expense  reduction  activities.
Excluding  acquisitions and the translation  effects of foreign  currency,  1998
sales rose approximately 1%, while 1997 sales increased approximately 4%.

Net sales in the  International  segment  decreased 13.3% in 1998,  following an
increase  of  2.7% in  1997.  Sales  in 1998  were  negatively  affected  by the
translation of foreign currencies into the U.S. dollar. The continuing  weakness
in the economies of the  Asia/Pacific  region  slowed tools sales growth,  while
equipment  sales  declined.  Operating  income  increased  11.6%  because of the
reduced  allocation  of  shared  service  expenses.  Excluding  the  allocation,
operating  income  was  approximately  even with 1997.  The 1997 sales  advanced
despite  difficulties  presented by many of the  economies  in the  Asia/Pacific
region.  Both  tool and  equipment  sales  in the  segment  rose  for the  year.
Operating  income  decreased  21.1% as a less  favorable  product mix and higher
expenses  in the  region  affected  results.  Excluding  the  effects of foreign
currency  translation  rates,  sales  decreased  approximately  2% in  1998  and
increased approximately 11% in 1997.

The Corporation  uses its financing  programs to facilitate  sales. In 1998, net
finance income (defined as income from the Corporation's  financing programs net
of  administrative  costs,  but without  any  allocation  of  interest  expense)
decreased 8.3% to $65.9 million,  from $71.9 million in 1997. Net finance income
in 1997 increased  11.9% from $64.3 million in 1996. The decrease in net finance
income  in 1998 was  because  of the  increased  securitization  of  installment
receivables,  which is discussed in further  detail in the following  paragraph.
The higher net finance  income in 1997 was the result of  increases  in extended
credit receivables and benefits from programs to control related costs.

[19 Snap-on Incorporated 1998 Annual Report]

Management's Discussion and Analysis (continued)

The Corporation seeks to reduce the asset intensity of its balance sheet,  which
is the result of its financing  activities.  During the second  quarter of 1998,
the Corporation sold $48.5 million in extended credit receivables.  In 1997, the
Corporation  sold $25.0 million in each of the first three  quarters,  and $50.0
million in the fourth quarter, of its extended credit receivables. The effect of
the  asset  securitizations  is a decline  in net  finance  income  offset by an
equivalent  decline in interest expense.  During 1998, the Corporation also sold
an aggregate of $29.4  million of dealer  finance  receivables  in the third and
fourth  quarters.  In the fourth  quarter of 1997,  the  Corporation  sold $73.7
million of net lease  receivables.  In both years, the proceeds were used to pay
down short-term debt and for working capital and general corporate purposes.

Subsequent to the end of 1998, the Corporation  and Newcourt  Financial USA Inc.
("Newcourt") formed a new joint venture entity,  Snap-on Credit LLC ("the LLC"),
on January 3, 1999. The LLC will be the preferred provider of financial services
to the  Corporation's  global  dealer and  customer  network.  It  combines  the
operations and  commitments of the  Corporation's  captive  finance program with
Newcourt's  expertise in providing  tailored,  flexible  financing  solutions to
industry leaders. The operations were established initially in the United States
and will be expanded  globally  later in 1999.  The joint venture has an initial
term of five  years,  with an  option  for the  Corporation  to extend it for an
additional five years.

As part of the transition,  the Corporation  reversed the  securitization of its
previously  securitized  installment  receivables and sold them to Newcourt.  In
addition,  a new $79.2 million of on-balance-sheet  installment  receivables and
the remaining $17.6 million of related  long-term  assets were  eliminated.  The
Corporation  received cash proceeds of $141.1  million from these  transactions,
resulting in a pre-tax gain of approximately $44 million. Newcourt has the right
to put  back to the  Corporation  the  unpaid  portion  of the  extended  credit
customer accounts  receivable  portfolio based on the same pricing formula. As a
result, this gain will be recognized over a two-year period.

Participation  in the LLC will enable the  Corporation  to expand its  financial
services product  offerings,  customer base and geographic  reach. The effect of
the transaction on the Corporation's  financial  statements includes a reduction
in assets on its balance  sheet and lower  reported  finance  income,  offset by
income from growth in financings,  from  recognition of the deferred gain on the
sale of receivables  and from the  application  of the cash  proceeds,  and by a
reduction in credit loss expense. The Corporation expects the transaction,  at a
minimum,  to be neutral to earnings per share in 1999. On an economic basis, the
Corporation  expects its return on net assets and  economic  profit to be higher
under the new structure.

During the year, the Corporation  increased prices by varying degrees in many of
its  product  groups.  Promotional  activities  negated  the effects of the 1998
increases, and reduced the revenue realization in 1997 to approximately 1%.

Other income and expenses: Interest expense for 1998 was $21.3 million, compared
with  $17.7  million  in 1997  and  $12.6  million  in  1996.  The 1998 and 1997
increases were due to higher average levels of debt outstanding.  The decline in
other  expense in 1998 is  attributable  to a $7.5 million gain on the sale of a
European  manufacturing  facility and lower foreign currency transaction losses.
The increase in other expense in 1997 was primarily  because of the deduction of
minority  interest income in connection with the  Corporation's 50% ownership of
Mitchell Repair  Information  Company,  LLC ("MRIC") and an increase in the loss
from foreign currency transactions.

(Amounts in thousands)             1998              1997              1996

Interest expense                $(21,254)         $(17,654)         $(12,649) 
Interest income                    1,169             1,163             2,134
Other expense                     (3,210)          (10,370)           (1,358)
---------         ---------         ---------
Total other expense             $(23,295)         $(26,861)         $(11,873)
=========         =========         =========

Income  taxes:  The  Corporation's   effective  tax  rate  in  1998,   excluding
restructuring and other non-recurring charges, was 36.0%, compared with 37.0% in
1997 and 1996.  The  decrease in the tax rate was due to the  implementation  of
several programs that increased the Corporation's  tax efficiency.  The reported
effective tax rate for 1998 was 144.1%.  For  additional  information  about the
Corporation's tax position and activities, see Note 6.

Foreign  currency:  The Corporation  operates in a number of countries and, as a
result,  is exposed to changes in exchange  rates.  Most of these  exposures are
managed on a  consolidated  basis to take advantage of natural  offsets  through
netting. To the extent that the net exposures are hedged,  forward contracts are
used. Refer to Note 7 for a discussion of the Corporation's  accounting policies
for the use of derivative instruments.

In 1998, the Corporation adopted SFAS No. 130, "Reporting Comprehensive Income";
SFAS  No.  131,  "Disclosures  about  Segments  of  an  Enterprise  and  Related
Information";  and SFAS No. 132, "Employers' Disclosures about Pension and Other
Postretirement Benefits." The adoption of these standards had no material impact
on the consolidated financial statements.  The Corporation intends to adopt SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," in 2000
and is currently evaluating the impact of this statement.

[Two bar  graphs  follow  this text.  The first is titled  "Return on Net Assets
Employed   Before   Interest  and  Taxes."  It  shows  the  percentages  of  the
Corporation's  return on net assets  employed before interest and taxes for each
of fiscal years 1994 through 1998, as follows:

94             -            18.7%
95             -            21.1%
96             -            24.4%
97             -            25.1%
98             -            16.5%*
* Excludes 1998 charges.

The second  graph is titled  "Sales per  Employee."  It shows the  Corporation's
sales per  employee  (in  thousands  of dollars)  for each of fiscal  years 1994
through 1998, as follows:

94             -             $129
95             -             $137
96             -             $142
97             -             $149
98             -             $153]

Financial Condition

Overview: At the end of 1998, the ratio of total debt to total capital increased
to 30.8%  from 16.4% at  year-end  1997.  The higher  debt ratio in 1998 was the
result  of  acquisitions,   share  repurchases  and  increased  working  capital
requirements during the year.

Liquidity:  The Corporation's working capital in 1998 decreased by $47.4 million
following  a  decrease  of  $6.8  million  in  1997.  The  sale  of  installment
receivables  during both 1998 and 1997 more than offset the negative  effects of
several  other  components of working  capital,  primarily  inventories,  and of
acquisitions. The ratio of current assets to current liabilities was 2.4 to 1 at
the end of  1998,  compared  with  2.9 to 1 at the end of  1997.  Cash  and cash
equivalents  were $15.0  million at the end of 1998, a decrease of $10.7 million
from year-end 1997's $25.7 million.

Accounts  receivable  increased  $15.1  million to $554.7  million at the end of
1998.  The  increase  was the  result of  acquisitions  partially  offset by the
installment receivables  securitization program discussed previously and in Note
4.  Exclusive  of  the  asset  securitizations  effected  in  1998,  receivables
increased by $14.2 million  primarily due to  acquisitions.  At the end of 1998,
installment receivables represented approximately 29% of the Corporation's total
accounts  receivable.  The  majority of  accounts  receivable  at year-end  1998
included  those  from  dealers,  industrial  customers  and  governments.  Total
write-offs  for bad debts  represented  2.1% of average  accounts  receivable in
1998,  an  increase  from 2.0% in 1997,  reflecting  a slightly  more  difficult
environment for credit collections.  Trends,  however, did improve in the second
half of 1998. The Corporation's  ratio remains  significantly  below that of the
credit industry.

Inventories  increased  by $2.2  million  to $375.4  million  at the end of 1998
primarily  because of  acquisitions.  Excluding  acquisitions and including 1998
charges,  inventories  were  $19.8  million  lower at the close of 1998 than the
$373.2 million reported at year-end 1997.

(Amounts in thousands)                1998                    1997

Current assets                    $1,079,832              $1,021,709
Current liabilities                  458,053                 352,530
---------------------------------------------------------------------
Working capital                   $  621,779              $  669,179
Current ratio                       2.4 to 1                2.9 to 1
---------------------------------------------------------------------

Short-term debt at the end of 1998 was $93.1 million, an increase over the $24.0
million at the 1997 year end. Current maturities of long-term debt at the end of
1998 and 1997 were $2.2 million and $0.4 million,  respectively. In addition, at
year-end 1998, the Corporation had $100.0 million in short-term commercial notes
payable  outstanding  that  were  classified  as  long-term,  since  it  is  the
Corporation's  intent,  and it has the  ability,  to  refinance  this  debt on a
long-term basis,  supported by its $100.0 million revolving credit facility. The
Corporation  has on file a $300.0  million  shelf  registration  that allows the
Corporation  to  issue  from  time to time up to  $300.0  million  of  unsecured
indebtedness.  Of this amount,  $100.0 million aggregate principal amount of its
notes has been issued to the public.

These sources of borrowing, coupled with cash from operations, are sufficient to
support  working  capital  requirements,   finance  capital  expenditures,  make
acquisitions,  repurchase common stock and pay dividends. The Corporation's high
credit rating over the years has ensured that external  funds are available at a
reasonable cost. At the end of 1998, the Corporation's  long-term debt was rated
Aa3 and AA- by Moody's Investor Service and Standard & Poor's, respectively. The
Corporation  believes the strength of its balance  sheet  provides the financial
flexibility to respond to both internal growth  opportunities and those existing
through acquisition.

[Two bar graphs  follow  this  text.  The first is titled  "Total  Debt to Total
Capital."  It shows the  percentages  of the  Corporation's  total debt to total
capital for each of fiscal years 1994 through 1998, as follows:

94             -            13.5%
95             -            18.5%
96             -            17.3%
97             -            16.4%
98             -            30.8%

The second graph is titled "Capital  Expenditures."  It shows the  Corporation's
capital  expenditures  (in  millions of dollars)  for each of fiscal  years 1994
through 1998, as follows:

94             -             $42
95             -             $32
96             -             $52
97             -             $55
98             -             $47]

Capital  expenditures/Depreciation  and amortization:  Capital  expenditures for
1998 were $46.8  million,  a decrease  of $8.6  million  from the $55.4  million
recorded in 1997.  Investments for the year included the upgrade and integration
of the Corporation's computer systems, and the normal addition,  replacement and
upgrade  of  manufacturing  and  distribution  facilities  and  equipment.   The
Corporation anticipates that capital expenditures in 1999 will total $40 million
to $45 million.

Depreciation  for 1998 was $34.8  million,  up $5.1  million  from 1997's  $29.7
million.  The growth was driven by  increased  capital  spending  in 1997 and by
acquisitions.  Amortization  expense in 1998 was $10.2  million,  an increase of
$1.5 million from 1997's $8.7  million.  Acquisitions  accounted  for the higher
expense.

(Amounts in thousands)                            1998            1997

Capital expenditures                            $46,779         $55,442
Depreciation                                     34,801          29,724 
Amortization                                     10,184           8,653

Dividends:  At its June 1998  meeting,  the board of  directors  declared a 4.8%
increase in the quarterly  dividend on the Corporation's  common stock,  raising
the annual dividend rate to $.88 per share. The Corporation has paid consecutive
quarterly dividends since 1939.

1998                    1997

Cash dividends paid (in thousands)             $50,977                 $49,888
Cash dividends per common share                $   .86                 $   .82
Cash dividends as a % of net income                N/M                    33.2%
N/M = not meaningful.                              

[21 Snap-on Incorporated 1998 Annual Report]

Management's Discussion and Anaylsis (continued)

Stock  repurchase  program:  At its June 1998  meeting,  the board of  directors
authorized the repurchase of up to $100.0  million of the  Corporation's  common
stock;  this action followed the board's  authorization for repurchase of $100.0
million  of common  stock in 1997.  At the end of 1998,  the 1997  authorization
essentially  had  been  exhausted,  and all of the 1998  authorization  remained
available.  In addition, an authorization by the board of directors is currently
in effect to repurchase common shares of the Corporation in an amount equivalent
to the number of shares  issued in  connection  with the  exercise  of  options,
employee and dealer stock purchase programs,  and other similar  issuances.  The
intent of this  authorization is to prevent dilution of shareholders'  interests
arising from such  issuances.  In 1998, the  Corporation  repurchased  2,279,400
shares of its common stock; 986,333 shares were repurchased in 1997. Since 1995,
the Corporation has repurchased 8,077,283 shares.

Subsequent  to the end of the year,  at its January 1999  meeting,  the board of
directors  authorized the repurchase of up to an additional $50.0 million of the
Corporation's common stock.

Other Matters

Acquisitions: During 1998, the Corporation acquired full or partial ownership of
five new business  operations  and an  additional  interest in a business for an
aggregate  cash  purchase  price  of  $79.5  million.  Each of the  acquisitions
provides  the  Corporation  with a  complementary  product  line,  new  customer
relationships,  access to additional  distribution  and/or  extended  geographic
reach.  These  acquisitions  were 100% interests in White Industries  ("White"),
Hein-Werner  Corporation   ("Hein-Werner"),   Nationwide   International  L.L.C.
("Nationwide"),  and  G.S.  S.r.l.  ("G.S.");  a 55%  interest  in  Cartec  GmbH
("Cartec"); and an additional 10% interest in MRIC. Subsequent to the end of the
year,  the  Corporation  announced  that it had  exercised  its call  option  to
purchase from its venture partner, The Thomson  Corporation,  a further stake in
MRIC. The purchase will result in Snap-on's  owning 99% of MRIC. The transaction
is expected to be modestly accretive in 1999.

White manufactures  equipment used to recover,  recycle and recharge refrigerant
in vehicle  air-conditioning  systems.  Hein-Werner is a leading manufacturer of
collision  repair  products  in  North  America  and  Europe.  Nationwide  is  a
franchisor  of vehicle  service and repair  facilities.  G.S. is an  Italy-based
manufacturer  and  distributor  of wheel service  equipment.  Cartec is a German
manufacturer  of test and safety  lane  equipment.  MRIC is a major  provider of
print and electronic versions of vehicle mechanical and electrical system repair
information and of shop management software to repair and service establishments
throughout North America.

Year 2000  Compliance:  The  Corporation is engaged in a  comprehensive  project
involving its products,  information  systems,  embedded systems and third-party
systems.  The objective of this project is to identify,  develop,  implement and
test any  modifications  that are required so that these  systems will achieve a
Year 2000 date  conversion  with no  disruption  to the  Corporation's  business
operations.  A committee has been established and given the  responsibility  for
achieving this objective.

For the  Corporation's  information  systems,  the committee  has  substantially
completed the first two phases of this project,  identification and development,
and is proceeding  with the  implementation  and testing  phases of the required
modifications.  In North America, the implementation of the Baan enterprise-wide
system,  which is Year  2000  compliant,  has been  completed.  In  Europe,  the
Corporation has begun to upgrade or replace all mission critical systems.  These
projects are expected to be completed by the end of the second  quarter of 1999,
and no significant issues have been identified.

For third-party systems, the committee has communicated with suppliers, dealers,
financial  institutions and others with whom the Corporation does business,  and
has received  responses  from more than 90% of those  contacted that they either
are or plan on a timely basis to be Year 2000 compliant.  For the  Corporation's
currently  manufactured  products,  the  committee has worked with most business
units in the  testing of their  products  for  compliance  and in most cases has
found no indication that these products create  date-related issues when used in
customary  applications.  It is  expected  that  any  remaining  issues  will be
compliant  by  December  1999.  The  committee  also has been  working  with its
third-party vendors to test and resolve issues regarding embedded systems. Based
on testing completed to date, no significant issues have been identified.

The Corporation is currently  conducting risk assessments of embedded systems at
its  facilities  and  manufacturing  plants in North  America and  Europe.  This
assessment  is more than 80%  complete in North  America and is 50%  complete in
Europe. These assessments are expected to be completed during the second quarter
of 1999. No significant issues have been identified.

The Corporation has begun,  but not yet completed,  a comprehensive  analysis of
the costs and  operational  problems that may occur if the  Corporation or third
parties fail to achieve Year 2000 compliance on a timely basis.  The Corporation
is also in the process of establishing a contingency  plan in order to deal with
the most reasonably likely worst-case  scenario,  although such scenario has not
yet been identified. The Corporation expects to have the analysis complete and a
contingency plan in place by the end of the third quarter of 1999.

The Corporation expects to be fully Year 2000 compliant by the end of the fourth
quarter of 1999. The Corporation has implemented,  over the last five years, its
enterprise-wide  computer  system in North  America,  which is already Year 2000
compliant.  The  costs  for  the  remaining  compliance  activities,  which  are
primarily outside North America,  approximate  between $5 million and $7 million
through  December 1999.  Through the end of 1998, the Corporation has spent $1.6
million on these Year 2000  issues,  with funding  being  provided by cash flows
from operations. None of the Corporation's other information technology projects
have been delayed as a result of these issues.

Value  at  Risk:  The  Corporation   uses   derivative   instruments  to  manage
well-defined  interest  rate and  foreign  currency  exposures  and to limit the
impact of interest  rate and foreign  currency rate changes on earnings and cash
flows. The Corporation does not use derivative instruments for trading purposes.

[22 Snap-on Incorporated 1998 Annual Report]

The  Corporation  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.   The   Corporation's   computations   are   based   on  the
interrelationships  among  movements in various  currencies  and interest  rates
(variance/co-variance  technique).  These  interrelationships were determined by
observing  interest rate and foreign  currency market changes over the preceding
quarter.

The  Corporation  has  operations in a number of countries and has  intercompany
transactions  among  them and,  as a result,  is  exposed  to changes in foreign
currency  exchange rates.  The Corporation  manages most of these exposures on a
consolidated  basis, which allows netting certain exposures to take advantage of
any  natural  offsets.  To the  extent the net  exposures  are  hedged,  forward
contracts  are  used.  The  Corporation  also  enters  into  interest  rate swap
agreements to manage interest costs and risks associated with changing  interest
rates.

The estimated maximum potential one-day loss in fair value, calculated using the
VAR model, at January 2, 1999, was $833,000 on interest rate sensitive financial
instruments and $626,000 on foreign currency sensitive financial instruments.

The VAR model is a risk tool and does not purport to represent  actual losses in
fair value that will be incurred by the  Corporation,  nor does it consider  the
potential effect of favorable changes in market factors.

Euro  Conversion:  On January 1, 1999,  certain member countries of the European
Union  established  fixed  conversion  rates between their  existing  currencies
("legacy  currencies")  and one common  currency - the euro.  The euro trades on
currency  exchanges  and may be  used in  business  transactions.  Beginning  in
January 2002, the new euro-denominated  bills and coins will be used, and legacy
currencies  will be withdrawn  from  circulation.  The  Corporation's  operating
subsidiaries affected by the euro conversion are developing plans to address the
systems and business  issues  affected by the euro  currency  conversion.  These
issues include,  among others, (i) the need to adapt computer and other business
systems and equipment to accommodate euro-denominated transactions, and (ii) the
competitive impact of cross-border price transparency,  which may affect pricing
strategies.  The Corporation  does not expect this conversion to have a material
impact on its financial condition or results of operations.

Outlook:  Subsequent to the end of 1998, the Corporation stated that it believed
that the lower half of the range of  published  analyst  estimates  for  diluted
earnings  per share for 1999,  which at that date ranged from $2.60 per share to
$2.95 per share, was more  appropriate at that time, as the Corporation  takes a
more  conservative  approach due to the economic  uncertainty in some regions of
the world. The Corporation also said it currently anticipated first quarter 1999
earnings  to  be  approximately  even  with  last  year's  first  quarter.   The
Corporation's  comments  about  earnings  exclude the  effects of the  remaining
anticipated non-recurring charges related to its Project Simplify initiative.

"Safe  Harbor":  Statements  in this  document  that are not  historical  facts,
including   statements  (i)  that  include  the  words  "believes,"   "expects,"
"anticipates,"  or "estimates" or words of similar  importance with reference to
the Corporation or management;  (ii) specifically identified as forward-looking;
or (iii) describing the Corporation's or management's  future plans,  objectives
or goals, are forward-looking statements. The Corporation or its representatives
may also make similar forward-looking  statements from time to time orally or in
writing.  The Corporation  cautions the reader that these statements are subject
to risks,  uncertainties  and other  factors that could cause (and in some cases
have caused) actual  results to differ  materially  from those  described in any
such statement.  Some of those factors are discussed below, as well as elsewhere
in this document,  and in the Corporation's  Securities and Exchange  Commission
filings.  These factors may not  constitute  all factors that could cause actual
results  to  differ  materially  from  those  discussed  in any  forward-looking
statement.  The Corporation's ability to meet its performance  objectives and to
achieve  results  that may be  described  in any  forward-looking  statement  is
dependent upon both macro-environmental factors and factors related specifically
to the  Corporation or the industries in which it  participates.  These include,
but are not limited to, the following:  the  Corporation's  ability to withstand
external  negative  factors,  including  changes in trade,  monetary  and fiscal
policies,  laws and  regulations,  or other  activities of  governments or their
agencies;  significant changes in the current competitive  environment;  general
economic  weakness;  inflation;  currency exchange  fluctuations or the material
worsening of the  economic or political  situation in Asia or other parts of the
world;  the  degree of the  Corporation's  success  in  executing  its  multiple
brands/multiple  channels  strategy  on a global  basis and in  integrating  its
acquisitions;   the  maintenance  of  the  positive   relationship  between  the
Corporation and its franchisees that currently exists;  the timing or speed with
which the  Corporation  can implement the Project  Simplify  initiatives and the
rollout  of  Snap-on  Credit  LLC  without  unanticipated   complications;   the
continuation   of  good  relations  with  the   Corporation's   employees;   the
Corporation's  ability  to  manufacture,  distribute  and/or  record the sale of
products  during  any  computer  systems-related  changes or  upgrades;  and the
ability to grow through successful  identification,  negotiation and integration
of new acquisitions, joint ventures or strategic alliances.

The Corporation operates in a continually changing business environment, and new
factors emerge from time to time. The  Corporation  cannot predict such factors,
nor can it assess the impact,  if any, of such factors on the Corporation or its
results. Accordingly,  forward-looking statements should not be relied upon as a
prediction of actual results.  The Corporation  disclaims any  responsibility to
update any forward-looking statement provided in this document.

[23 Snap-on Incorporated 1998 Annual Report]

Consolidated Statements of Earnings

(Amounts in thousands except share data)                1998            1997            1996
----------------------------------------------------------------------------------------------

Net sales                                           $1,772,637      $1,672,215      $1,485,279
Cost of goods sold                                     948,761         828,387         734,495
Cost of goods sold - discontinued products              60,562               -               -
----------------------------------------------------------------------------------------------
Gross profit                                           763,314         843,828         750,784
Operating expenses                                     705,811         650,182         594,527
----------------------------------------------------------------------------------------------
Operating profit                                        57,503         193,646         156,257
Net finance income                                      65,933          71,891          64,269
Restructuring and other non-recurring charges          (89,301)              -               -
----------------------------------------------------------------------------------------------
Operating income                                        34,135         265,537         220,526
Interest expense                                       (21,254)        (17,654)        (12,649
Other income (expense) - net                            (2,041)         (9,207)            776
----------------------------------------------------------------------------------------------
Earnings before income taxes                            10,840         238,676         208,653
Income taxes                                            15,619          88,310          77,202
----------------------------------------------------------------------------------------------
Net earnings (loss)                                 $   (4,779)     $  150,366      $  131,451
==============================================================================================
Earnings (loss) per weighted average 
common share - basic                              $     (.08)     $     2.47      $     2.16
----------------------------------------------------------------------------------------------
Earnings (loss) per weighted average 
common share - diluted                            $     (.08)     $     2.44      $     2.13
----------------------------------------------------------------------------------------------
Weighted average common shares 
outstanding - basic                               59,219,564      60,845,467      60,967,865
Common stock equivalents                                     -         840,841         624,947
----------------------------------------------------------------------------------------------
Weighted average common shares 
outstanding - diluted                             59,219,564      61,686,308      61,592,812
----------------------------------------------------------------------------------------------

The accompanying Notes are an integral part of these statements.

[24 Snap-on Incorporated 1998 Annual Report]

Consolidated Balance Sheets

(Amounts in thousands except share data)             Jan. 2, 1999   Jan. 3, 1998
--------------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents                            $   15,041      $   25,679
Accounts receivable, less allowance for 
doubtful accounts of $29.2 million in 1998
and $20.6 million in 1997                             554,703         539,589
Inventories                                             375,436         373,155
Prepaid expenses and other assets                       134,652          83,286
--------------------------------------------------------------------------------
Total current assets                                  1,079,832       1,021,709

Property and equipment - net                            272,030         265,765
Deferred income tax benefits                             60,139          55,699
Intangible and other assets                             262,919         298,184
--------------------------------------------------------------------------------
Total assets                                         $1,674,920      $1,641,357
================================================================================
Liabilities and shareholders' equity
Current liabilities
Accounts payable                                     $   89,442      $   91,553
Notes payable and current maturities 
of long-term debt                                      93,117          23,951
Accrued compensation                                     42,105          43,712
Dealer deposits                                          42,421          43,848
Deferred subscription revenue                            34,793          29,265
Accrued restructuring reserves                           26,165               -
Other accrued liabilities                               130,010         120,201
--------------------------------------------------------------------------------
Total current liabilities                               458,053         352,530

Long-term debt                                          246,644         151,016
Deferred income taxes                                     9,587          11,824
Retiree health care benefits                             89,124          86,936
Pension and other long-term liabilities                 109,245         146,914
--------------------------------------------------------------------------------
Total liabilities                                       912,653         749,220

Shareholders' equity
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 66,685,169
and 66,472,127 shares                                  66,685          66,472
Additional paid-in capital                              117,384          82,758
Retained earnings                                       883,207         938,963
Accumulated other comprehensive income (loss)           (30,231)        (30,385)
Grantor stock trust at fair market value - 
6,924,019 and 0 shares                               (241,042)              -
Treasury stock at cost - 1,016,224 and 
5,956,313 shares                                      (33,736)       (165,671)
--------------------------------------------------------------------------------
Total shareholders' equity                              762,267         892,137
--------------------------------------------------------------------------------
Total liabilities and shareholders' equity           $1,674,920      $1,641,357
================================================================================

The accompanying Notes are an integral part of these statements.

[25 Snap-on Incorporated 1998 Annual Report]

Consolidated Statements of Shareholders' Equity and Comprehensive Income

Accumulated                              Total
Additional                        Other     Grantor                 Share-
Common      Paid-in     Retained   Comprehensive       Stock    Treasury     holders'
(Amounts in thousands Except share data)        Stock      Capital     Earnings    Income(Loss)       Trust       Stock     Equity
----------------------------------------------------------------------------------------------------------------------------------

Balance at December 30, 1995                  $43,571      $74,250     $753,356        $(10,758)    $    -    $(109,687)  $750,732

Comprehensive income:                                                                              
Net earnings for 1996                                           131,451                    
Foreign currency translation                                                     (3,172)   
Total comprehensive income                                                                                                128,279
Cash dividends - $.76 per share                                         (46,323)                                          (46,323)
Three-for-two stock split net                                                                      
of fractional shares (common                                                               
21,969,677, treasury 1,523,600)        21,971      (21,971)                                                             -
Issuance of 20,216 shares under                                                                    
dividend reinvestment plan                 20          760                                                            780
Issuance of 410,661 shares under                                                                   
stock purchase and option plans           410       12,436                                                         12,846
Purchase of 615,750 shares for treasury                                                                         (19,184)  (19,184)
Tax benefit from certain                                                                           
stock options and other items                        1,031                                                          1,031
----------------------------------------------------------------------------------------------------------------------------------
Balance at December 28, 1996                   65,972       66,506       838,484        (13,930)         -     (128,871)  828,161

Comprehensive income:                                                                              
Net earnings for 1997                                            150,366                   
Foreign currency translation                                                    (16,455)   
Total comprehensive income                                                                                                133,911
Cash dividends - $.82 per share                                          (49,887)                                         (49,887)
Issuance of 19,764 shares under                                                                    
dividend reinvestment plan                 20          804                                                            824
Issuance of 480,446 shares under stock                                                             
purchase and option plans                 480       10,940                                                         11,420
Purchase of 986,333 shares for treasury                                                                         (42,324)  (42,324)
Reissuance of 216,570 shares from treasury                   2,380                                                5,524     7,904
Tax benefit from certain                                                                           
stock options and other items                        2,128                                                          2,128
---------------------------------------------------------------------------------------------------------------------------------
Balance at January 3, 1998                     66,472       82,758       938,963        (30,385)         -     (165,671)  892,137

Comprehensive income:                                                                              
Net loss for 1998                                                 (4,779)                  
Foreign currency translation                                                      2,694    
Minimum pension liability                                                        (2,540)   
Total comprehensive income (loss)                                                                                         (4,625)
Cash dividends - $.86 per share                                          (50,977)                                        (50,977)
Issuance of 33,620 shares under                                                                    
dividend reinvestment plan                 34          839                                                           873
Issuance of 179,422 shares under stock                                                             
purchase and option plans                 179        6,055                                                         6,234
Issuance of 175,981 shares from                                                                    
grantor stock trust under stock                                                            
purchase and option plans                                                                    3,774                 3,774
Purchase of 2,279,400 shares for treasury                                                                       (90,357) (90,357)
Reissuance of 119,489 shares from treasury                     336                                                3,683    4,019
Establishment of grantor stock trust                                                               
with 7,100,000 shares                               36,547                                (255,156)     218,609        -
Tax benefit from certain stock                                                                     
options and other items                              1,189                                                         1,189
Adjustment of grantor stock trust                                                                  
to fair market value                               (10,340)                                 10,340                     -
---------------------------------------------------------------------------------------------------------------------------------
Balance at January 2, 1999                    $66,685     $117,384      $883,207      $(30,231)  $(241,042)    $(33,736) $762,267
---------------------------------------------------------------------------------------------------------------------------------

The accompanying Notes are an integral part of these statements.                                 

[26 Snap-on Incorporated 1998 Annual Report]

Consolidated Statements of Cash Flows

Amounts in thousands)                                                    1998             1997             1996
Operating activities

Net earnings (loss)                                                 $   (4,779)         $150,366         $131,451
Adjustments to reconcile net earnings (loss) to net cash 
provided by operating activities:
Depreciation                                                         34,801            29,724           26,644
Amortization of intangibles                                         10,184             8,653            5,235
Deferred income tax provision                                       13,125            11,814            8,398
(Gain) loss on sale of assets                                       (7,312)              114             (876)
Charges due to restructuring and other non-recurring charges       107,628                 -                -
Changes in operating assets and liabilities, 
net of effects of acquisitions:
(Increase) decrease in receivables                                   11,789           133,171          (29,591)
(Increase) in inventories                                           (28,937)          (87,502)         (10,543)
(Increase) decrease in prepaid and other assets                      35,775           (21,188)         (59,524)
Increase (decrease) in accounts payable                             (13,400)          (16,562)          12,069
Increase (decrease) in accruals and other liabilities               (83,843)          (13,696)          53,137
------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                               75,031           194,894          136,400

Investing activities
Capital expenditures                                                   (46,779)          (55,442)         (52,333)
Acquisitions of businesses                                             (79,543)          (62,947)         (38,553)
Disposal of property and equipment                                      16,680             2,159            3,317
------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                 (109,642)         (116,230)         (87,569)

Financing activities
Payment of long-term debt                                               (3,543)           (7,802)          (9,902)
Increase in long-term debt                                              48,221                 -            3,205
Increase in short-term borrowings - net                                104,165            10,579            7,888
Purchase of treasury stock - net                                       (86,674)          (36,800)         (19,184)
Proceeds from stock purchase and option plans                           12,405            16,752           14,656
Cash dividends paid                                                    (50,977)          (49,888)         (46,323)
------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities                     23,597           (67,159)         (49,660)

Effect of exchange rate changes on cash                                    376            (1,176)             (32)
Increase (decrease) in cash and cash equivalents                       (10,638)           10,329             (861)
Cash and cash equivalents at beginning of year                          25,679            15,350           16,211
------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                            $   15,041          $ 25,679         $ 15,350
------------------------------------------------------------------------------------------------------------------

The accompanying Notes are an integral part of these statements.

[27 Snap-on Incorporated 1998 Annual Report]

Notes to Consolidated Financial Statements

Note 1 - Summary of Accounting Policies
A summary of significant  accounting  policies applied in the preparation of the
accompanying consolidated financial statements follows:

a.  Nature  of  operations:  The  Corporation  is a  leading  global  developer,
manufacturer and distributor of hand tools,  power tools, tool storage products,
shop equipment, under-hood diagnostics equipment, under-car equipment, emissions
and safety equipment,  collision repair equipment,  vehicle service  information
and  business  management  systems and  services.  The  Corporation's  customers
include professional  automotive  technicians,  shop owners,  franchised service
centers,  national accounts,  original equipment  manufacturers,  and industrial
tool and equipment users worldwide.

b. Use of estimates:  The preparation of financial statements in conformity with
generally accepted  accounting  principles 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.

c. Principles of consolidation:  The consolidated  financial  statements include
the accounts of the  Corporation and its  subsidiaries,  all of which are wholly
owned with the exception of Mitchell Repair Information  Company,  LLC ("MRIC"),
Edge Diagnostic Systems, Texo S.r.l., Cartech GmbH, and Snap-on Tools/PST Africa
(Pty)  Ltd.  Significant   intercompany  accounts  and  transactions  have  been
eliminated.

d. Accounting period:  The Corporation's  accounting period ends on the Saturday
nearest  December  31. The 1998,  1997 and 1996 years  ended on January 2, 1999,
January 3, 1998,  and December 28,  1996.  The 1998 and 1996 years  contained 52
weeks; 1997 was a 53-week year.

e. Cash  equivalents:  The Corporation  considers all highly liquid  investments
with an original maturity of three months or less to be cash  equivalents.  Cash
equivalents are stated at cost, which approximates market value.

f. Inventories: Inventories, consisting of manufactured products and merchandise
for  resale,  are stated at the lower of cost or market.  Manufactured  products
include the costs of materials,  labor and manufacturing  overhead.  Inventories
accounted for using the last-in,  first-out  (LIFO) method  approximated 60% and
65% of total inventory as of year-end 1998 and 1997.  Remaining  inventories are
generally  determined  using the  first-in,  first-out  (FIFO) cost method.  For
detailed inventory information, refer to Note 2.

g.  Property  and  equipment:  Property  and  equipment  is  stated at cost less
accumulated  depreciation  and  amortization.  Depreciation and amortization are
provided on a  straight-line  basis over  estimated  useful  lives.  Accelerated
depreciation  methods  are used for income tax  purposes.  Capitalized  software
included  in  property  and  equipment  reflects  costs  related  to  internally
developed or  purchased  software  for  internal  use that are  capitalized  and
amortized on a straight-line  basis over periods not exceeding seven years.  For
detailed property and equipment information, refer to Note 3.

h. Intangibles:  During 1998, the Corporation acquired full or partial ownership
of five new business  operations and an additional interest in a business for an
aggregate  cash purchase price of $79.5  million.  During 1997, the  Corporation
acquired  full or  partial  ownership  of six new  business  operations  with an
aggregate cash purchase price of $62.9 million.  Pro forma results of operations
are not presented, as the effect of these acquisitions is not material. Goodwill
arising from business acquisitions is included in Intangible and Other Assets in
the accompanying  Consolidated Balance Sheets and is being amortized principally
over 20 years on a straight-line  basis. The Corporation  continually  evaluates
the  existence  of goodwill  impairment  on the basis of whether the goodwill is
fully  recoverable  from projected,  undiscounted  net cash flows of the related
business unit. Should an impairment be identified, the loss would be measured as
the  difference  between  the current  fair value of the asset and the  carrying
value. For information on goodwill impairment during 1998, refer to Note 14.

In the first  quarter of 1997,  the  Corporation  acquired a 50% interest in The
Thomson  Corporation's  Mitchell Repair Information business at a purchase price
of $40.2  million.  In the first quarter of 1998,  the  Corporation  acquired an
additional 10% interest in MRIC at a purchase price of $10.1 million. Subsequent
to year-end 1998, the  Corporation  announced its exercise of its call option to
purchase  an  additional  39%  interest  in  MRIC,  which  will  result  in  the
Corporation's  owning 99% of MRIC. The  Corporation is obligated to purchase the
remainder of MRIC within the next three years.

Goodwill, net of accumulated amortization, was $131.5 million and $121.3 million
at the end of 1998  and  1997.  Goodwill  amortization  was $8.5  million,  $6.9
million and $4.8 million for 1998,  1997 and 1996.  Accumulated  amortization of
goodwill was $27.6 million and $25.0 million at the end of 1998 and 1997.

i.  Research  and  engineering:  Research and  engineering  costs are charged to
expense in the year incurred.  For 1998,  1997 and 1996,  these costs were $48.6
million, $46.5 million and $42.4 million.

j. Income taxes:  Deferred  income taxes are provided for temporary  differences
arising  from  differences  in  bases  of  assets  and  liabilities  for tax and
financial  reporting  purposes.  Deferred income taxes are recorded on temporary
differences  at the  tax  rate  expected  to be in  effect  when  the  temporary
differences reverse. For detailed tax information, refer to Note 6.

[28 Snap-on Incorporated 1998 Annual Report]

k. Foreign currency  translation:  The financial statements of the Corporation's
foreign  subsidiaries  are  translated  into U.S.  dollars  in  accordance  with
Statement of Financial  Accounting  Standards ("SFAS") No. 52, "Foreign Currency
Translation."  Net assets of certain  foreign  subsidiaries  are  translated  at
current rates of exchange,  and income and expense  items are  translated at the
average  exchange rate for the year. The resulting  translation  adjustments are
recorded  directly into a separate  component of shareholders'  equity.  Certain
other  translation  adjustments and transaction gains and losses are reported in
net income and were not material in any year.

l. Revenue  recognition:  The Corporation  recognizes  revenues at the time that
products are shipped or the time that  services  are  performed.  Franchise  fee
revenue is recognized as the fees are earned.  Revenue from  franchise  fees was
not material in any year.  Subscription  revenue is recognized  over the life of
the subscription.  The total amount of subscription  revenue was not material in
any year.

m. Net finance  income:  Net finance  income  consists of  installment  contract
income, dealer start-up loan receivable income, gains on the sale of receivables
and lease income, net of related administrative expenses.

n.  Advertising  and  promotion  expense:   Production  costs  of  future  media
advertising are deferred until the advertising occurs. All other advertising and
promotion costs are generally expensed when incurred.

o. Warranty  expense policy:  The Corporation  provides  product  warranties for
specific  product lines and accrues for estimated  future  warranty costs in the
period in which the sale was recorded.

p.  Accounting  standards:  In 1998,  the  Corporation  adopted  SFAS  No.  130,
"Reporting  Comprehensive  Income"; SFAS No. 131, "Disclosures about Segments of
an  Enterprise  and  Related   Information";   and  SFAS  No.  132,  "Employers'
Disclosures  about Pension and Other  Postretirement  Benefits." The adoption of
these standards had no material impact on the consolidated financial statements.
In  1998,  the  Financial  Accounting  Standards  Board  issued  SFAS  No.  133,
"Accounting  for  Derivative  Instruments  and  Hedging  Activities,"  which the
Corporation is required to adopt no later than January 1, 2000. The  Corporation
is currently evaluating the impact of this statement.

q.  Reclassified  prior-year  amounts:  Certain  prior-year  amounts  have  been
reclassified to conform with current-year presentation.

r. Per share  data:  Basic  earnings  per share  calculations  were  computed by
dividing net earnings by the  corresponding  weighted  average  number of common
shares outstanding for the period. The dilutive effect of the potential exercise
of  outstanding  options  to  purchase  common  shares is  calculated  using the
treasury stock method.  Diluted  earnings per share is the same as presented for
basic earnings per share in periods where the effect is  antidilutive  (that is,
the calculation  results in increased earnings per share or reduces net loss per
share).  The dilutive effect of stock options as of January 2, 1999, was 576,000
shares. These shares,  however, are not included in the 1998 calculations due to
their  antidilutive  nature. In June of 1996, the board of directors  approved a
three-for-two split of the Corporation's  common stock, which was distributed on
September 10, 1996, to shareholders of record on August 20, 1996. All prior-year
per  share  and  weighted  average  share  information  has  been  retroactively
restated.

Note 2 - Inventories
The components of the Corporation's inventory were as follows:

(Amounts in thousands)                   1998                1997
Finished stock                        $ 359,358            $366,324
Work in process                          38,357              42,384
Raw materials                            74,192              66,008
Excess of current cost over LIFO cost   (96,471)           (101,561)
--------------------------------------------------------------------
Total inventory                       $ 375,436            $373,155
====================================================================

Note 3 - Property and Equipment 
The Corporation's property and equipment values, which are carried at cost, were
as follows:

(Amounts in thousands)                    1998                1997
Land                                  $  19,572           $ 23,980
Buildings and improvements              175,385             163,596
Machinery and equipment                 388,862             341,875
--------------------------------------------------------------------
583,819             529,451
Less: accumulated depreciation         (311,789)           (263,686)
--------------------------------------------------------------------
Property and equipment - net          $ 272,030           $ 265,765
====================================================================

The  estimated  service  lives of property  and  equipment  are  principally  as
follows:

Buildings and improvements                      3 to 50 years
Machinery and equipment                         2 to 15 years
Computer software                                2 to 7 years
Transportation vehicles                          2 to 6 years

Note 4 - Receivables
Accounts receivable include  installment  receivable amounts that are due beyond
one year from  balance  sheet dates.  These  amounts  were  approximately  $16.5
million  and  $15.6  million  at the end of 1998  and  1997.  Gross  installment
receivables amounted to $176.9 million and $174.0 million at the end of 1998 and
1997. Of these  amounts,  $16.8 million and $14.6 million  represented  unearned
finance charges at the end of 1998 and 1997.

[29 Snap-on Incorporated 1998 Annual Report]

In  1997,  the  Corporation  created  CreditCorp  SPC,  LLC  ("CreditCorp"),   a
bankruptcy-remote,  special-purpose entity, the sole purpose of which is to sell
to various  financial  institutions  dealer loan  receivables,  extended  credit
customer accounts receivable and equipment lease receivables.  These receivables
are secured by the underlying inventory, tools or equipment financed. CreditCorp
is a separate  corporate  entity with its own  separate  creditors  that will be
entitled to be  satisfied  out of its assets  prior to the  distribution  of any
value to its shareholders.

CreditCorp has an agreement with a third-party financial institution to sell, on
an ongoing basis and with full recourse to the Corporation,  up to $70.0 million
of secured  dealer  loan  receivables  in the United  States and up to  Cdn$10.0
million of secured dealer loan  receivables  in Canada.  These  receivables  are
created through the financing of franchised dealer operations.

During 1998 and 1997, the Corporation sold the U.S.  equivalent of $29.4 million
and $31.5 million of these receivables to the third-party financial institution.
During  December 1998, the U.S. dealer finance loan  receivables  outstanding of
$68.3 million were repurchased from the third-party  financial  institution and,
along with other dealer finance receivables, were sold to Newcourt Financial USA
Inc. ("Newcourt").

CreditCorp  has also entered into a facility  that  provides for the sale,  with
limited recourse,  of an undivided interest in a pool of secured extended credit
customer accounts receivable to a third-party financial institution.  At the end
of 1998  and  1997,  $337.0  million  and  $300.0  million  of  interest-bearing
installment  receivables were sold under this facility on a revolving basis. The
agreement for revolving purchases terminates in January 1999.

In December  1997,  CreditCorp  sold,  with limited  recourse,  $73.7 million of
equipment lease receivables to a third-party financial  institution.  At the end
of 1998, $35.8 million of equipment lease receivables remained outstanding.

Generally, the recourse provisions for the above securitizations as they existed
at year end require the Corporation to provide for the deficiency,  if any, that
results from the  repossession  and  subsequent  sale of collateral in a default
situation.  The Corporation maintains credit reserves pursuant to these recourse
provisions that are based on the Corporation's best estimates of probable losses
under such provisions. The reserves were not material as of January 2, 1999, and
January 3, 1998. The Corporation  does not receive  collateral from any party to
the securitizations, nor does it have any risk of counterparty non-performance.

In December 1996, the Corporation made the determination to sell equipment lease
receivable  originations  to a third-party  financial  institution on an ongoing
basis.  During 1998 and 1997,  the  Corporation  sold,  with no recourse,  $54.1
million and $50.9 million of these lease receivables.  The Corporation also sold
lease  receivables  with limited  recourse of $27.6 million and $13.0 million in
1998 and 1997.

All  transactions  are  reflected  as  sales  of  accounts   receivable  in  the
accompanying  Consolidated  Balance  Sheets and as increases  to operating  cash
flows in the  accompanying  Consolidated  Statements of Cash Flows. The gains on
these sales are included in net finance income on the accompanying  Consolidated
Statements of Earnings.

Subsequent  to year end,  CreditCorp  repurchased  and then sold to Newcourt the
entire pool of $337.0 million of  interest-bearing  installment  receivables and
the  outstanding  $35.8  million of equipment  lease  receivables.  In addition,
subsequent to year end,  CreditCorp  sold to Newcourt  certain  equipment  lease
receivables  and dealer loan  receivables  that were held by the  Corporation at
year end. For more information, see Note 15.

Note 5 - Short-term and Long-term Debt
Notes  payable to banks  under bank lines of credit  totaled  $34.9  million and
$23.6 million at the end of 1998 and 1997.

Commercial  notes payable totaled $156.0 million and $51.0 million at the end of
1998 and 1997.  The first $100.0  million of  commercial  paper  outstanding  is
classified as long-term debt,  since it is the  Corporation's  intent and it has
the ability (supported by a $100.0 million long-term  revolving credit facility)
to refinance the debt on a long-term  basis.  Commercial  paper  outstanding  in
excess of $100.0 million is considered  short-term debt, as it is supported by a
$75.0 million short-term revolving credit facility.

For  both  the  long-term  and  short-term  revolving  credit  facilities,   the
Corporation  must maintain a specific level of  consolidated  tangible net worth
and meet  certain  leverage and  subsidiary  indebtedness  ratios.  In addition,
certain capital transactions are restricted. At the end of 1998, the Corporation
was in  compliance  with  all  covenants  of  both  commitments.  The  long-term
commitment  terminates  on  September  5, 2002,  and the  short-term  commitment
terminates  on March  22,  1999.  At the end of 1998  and  1997,  there  were no
borrowings under either revolving credit commitment.

Maximum  short-term debt  outstanding at the end of any month was $237.5 million
in 1998 and $177.4 million in 1997. The average  short-term debt outstanding was
$165.2 million in 1998 and $117.6 million in 1997. The weighted average interest
rates on  short-term  debt  were  5.6% in 1998 and  5.5% in 1997.  The  weighted
average  interest rates on long-term and short-term debt  outstanding at January
2, 1999, and January 3, 1998, were 6.4% and 6.3%.

The Corporation's long-term debt consisted of the following:

(Amounts in thousands)                    1998            1997
Senior unsecured indebtedness           $100,000        $100,000
Borrowings supported by a
revolving credit commitment     100,000           51,000
Canadian long-term debt                  39,210                -
Other long-term debt                      9,679              368
----------------------------------------------------------------
248,889          151,368
Less: current maturities                 (2,245)            (352)
----------------------------------------------------------------
Total long-term debt                   $246,644         $151,016
================================================================

[30 Snap-on Incorporated 1998 Annual Report]

The annual maturities of the  Corporation's  long-term debt due in the next five
years are $2.2  million in 1999,  $2.2  million in 2000,  $1.5  million in 2001,
$102.1 million in 2002, and $39.5 million in 2003.

In September  1994,  the  Corporation  filed a  registration  statement with the
Securities  and Exchange  Commission  that allows the  Corporation to issue from
time to time up to $300.0  million of unsecured  indebtedness.  In October 1995,
the  Corporation  issued  $100.0  million of its notes to the public.  The notes
require payment of interest on a semiannual basis at a rate of 6.625% and mature
in their entirety on October 1, 2005. The proceeds of this issuance were used to
repay a  portion  of the  Corporation's  outstanding  commercial  paper  and for
working capital and general corporate purposes.

At the end of 1998, the Corporation has a Cdn$60.0  million  (equivalent of U.S.
$39.2  million)  five-year  floating  rate loan  outstanding.  The loan requires
payment of interest quarterly based on the Canadian Bankers Acceptance Rate plus
17.5 basis points. The loan matures in its entirety on June 5, 2003.

Interest payments on debt and on other interest-bearing obligations approximated
$20.9 million, $17.5 million and $13.2 million for 1998, 1997 and 1996.

Note 6 - Income Taxes
Earnings before income taxes consisted of the following:

(Amounts in thousands)         1998            1997            1996
---------------------------------------------------------------------
U.S.                        $(12,128)       $210,966        $172,553
Foreign                       22,968          27,710          36,100
---------------------------------------------------------------------
Total                       $ 10,840        $238,676        $208,653 
=====================================================================

The provision for income taxes consisted of the following:

(Amounts in thousands)                    1998            1997            1996
--------------------------------------------------------------------------------
Current:                              
Federal                                $31,516         $60,551         $55,949
Foreign                                  8,078           7,555          13,803
State                                    3,701           8,390           8,997
--------------------------------------------------------------------------------
Total current                            43,295          76,496          78,749

Deferred:                             
Federal                                (25,067)          8,493            (615)
Foreign                                    769           1,865            (428)
State                                   (3,378)          1,456            (504)
--------------------------------------------------------------------------------
Total deferred                          (27,676)         11,814          (1,547)
--------------------------------------------------------------------------------
Total income tax provision              $15,619         $88,310         $77,202
================================================================================

A reconciliation of the Corporation's effective income tax rate to the statutory
federal tax rate follows:

1998            1997            1996
--------------------------------------------------------------------------------
Statutory federal income tax rate         35.0%           35.0%           35.0%
Increase (decrease) in tax rate
resulting from:
State income taxes, net of 
federal benefit                        3.0             2.8             2.4
Foreign sales corporation tax benefit  (1.7)           (1.2)           (1.5)
Restructuring and other 
non-recurring charges               108.1               -               -
Other                                  (0.3)            0.4             1.1
--------------------------------------------------------------------------------
Effective tax rate                       144.1%           37.0%           37.0%
================================================================================

Temporary  differences  that give rise to the net  deferred  tax  benefit are as
follows:

(Amounts in thousands)                    1998            1997            1996
--------------------------------------------------------------------------------
Current deferred income tax benefits:
Inventories                            $21,309         $18,294         $14,599
Accruals and reserves not 
currently deductible                   24,702          26,820          36,372
Restructuring and other 
non-recurring accruals                 23,379               -               - 
Other                                   (2,551)           (491)             56
--------------------------------------------------------------------------------
Total current (included in 
prepaid expenses)                66,839          44,623          51,027

Long-term deferred income tax benefits:
Employee benefits                       61,870          61,017          57,299
Net operating losses                    38,300          23,277          23,585
Depreciation                           (21,721)        (22,363)        (13,409)
Restructuring and other 
non-recurring accruals                 2,638               -               -
Other                                   (1,163)         (3,398)         (6,528)

Valuation allowance                    (29,372)        (14,658)        (12,561)
--------------------------------------------------------------------------------
Total long-term                          50,552          43,875          48,386
--------------------------------------------------------------------------------
Net deferred income 
tax benefit                           $117,391        $ 88,498        $ 99,413
================================================================================

At January 2, 1999, the  Corporation  had tax net operating  loss  carryforwards
("NOLs") totaling $103.6 million as follows:

(Amounts in millions)                      U.S.          Foreign           Total
Year of expiration:
1999 - 2002                             $    -          $  8.7         $   8.7
2003 - 2006                               33.2             5.3            38.5
2007 - 2011                                4.9             1.8             6.7
Indefinite                                   -            49.7            49.7
--------------------------------------------------------------------------------
$ 38.1          $ 65.5         $ 103.6
================================================================================

[31 Snap-on Incorporated 1998 Annual Report]

In accordance with current accounting standards,  a valuation allowance totaling
$29.4 million,  $14.7 million and $12.6 million in 1998,  1997 and 1996 has been
established for deferred income tax benefits related to certain  subsidiary loss
carryforwards that may not be realized.  Included in this valuation allowance is
$6.7 million that relates to the deferred tax assets recorded from acquisitions.
Any tax benefits  subsequently  recognized for these deferred tax assets will be
allocated to goodwill.

Realization of the net deferred tax assets is dependent on generating sufficient
taxable income prior to their expiration.  Although  realization is not assured,
management  believes it is more likely than not that the net  deferred tax asset
will  be  realized.  The  amount  of  the  net  deferred  tax  asset  considered
realizable,  however,  could be reduced in the near term if  estimates of future
taxable income during the carryforward period are reduced.

The  undistributed  earnings of all  subsidiaries  were $121.7  million,  $117.0
million and $120.3 million at the end of 1998,  1997 and 1996.  The  Corporation
does not  expect  that  additional  income  taxes  will be  incurred  on  future
distributions of such earnings and,  accordingly,  no deferred income taxes have
been provided for the distribution of these earnings to the parent company.

The  Corporation  made income tax payments of $66.2  million,  $76.0 million and
$69.7 million in 1998, 1997 and 1996.

Note 7 - Financial Instruments

The Corporation uses derivative instruments to manage well-defined interest rate
and  foreign  currency  exposures.  The  Corporation  does  not  use  derivative
instruments  for trading  purposes.  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 obligation.

Foreign  Currency  Derivative  Instruments:  The Corporation has operations in a
number of countries  and has  intercompany  transactions  among them,  and, as a
result,   is  exposed  to  changes  in  foreign  currency  exchange  rates.  The
Corporation  manages most of these  exposures  on a  consolidated  basis,  which
allows netting certain  exposures to take advantage of any natural  offsets.  To
the extent the net  exposures  are hedged,  forward  contracts  are used.  Gains
and/or  losses on these  foreign  currency  hedges are included in income in the
period in which the exchange  rates  change.  Gains and/or  losses have not been
material to the consolidated financial statements.

At January 2, 1999, the  Corporation had outstanding  foreign  exchange  forward
contracts  in  Australian  dollars,  British  pounds,  Canadian  dollars,  Dutch
guilders,  French francs,  German marks,  Irish punts,  Italian lira,  Singapore
dollars and Spanish pesetas  totaling  $113.9  million.  At January 3, 1998, the
Corporation had outstanding  foreign exchange forward  contracts  totaling $79.8
million.

Interest Rate Swap  Agreements:  The Corporation  enters into interest rate swap
agreements to manage interest costs and risks associated with changing  interest
rates.  The  differentials  paid or  received on interest  rate  agreements  are
accrued and  recognized as  adjustments  to interest  expense.  Gains and losses
realized  upon  settlement  of these  agreements  are deferred and  amortized to
interest  expense  over a period  relevant to the  agreement  if the  underlying
hedged instrument remains  outstanding,  or immediately if the underlying hedged
instrument is settled.

The Corporation has interest rate swap agreements in place to pay fixed interest
rates in exchange for floating  interest rate payments.  At January 2, 1999, and
January 3, 1998, the notional  principal amount  outstanding of these agreements
was $167.0 million and $32.1 million.

Credit Concentrations:  The Corporation is exposed to credit losses in the event
of  non-performance  by the counterparties to its interest rate swap and foreign
exchange contracts.  The Corporation does not anticipate  non-performance by the
counterparties.  The Corporation does not obtain collateral or other security to
support  financial  instruments  subject to credit risk but  monitors the credit
standing of the  counterparties  and enters into  agreements only with financial
institution counterparties with a credit rating of A- or better.

While the  Corporation  sells  primarily to  professional  technicians  and shop
owners,  the  Corporation's  accounts  receivable do not  represent  significant
concentrations of credit risk because of the diversified portfolio of individual
customers and geographic areas.

Fair Value of Financial Instruments: Statement of Financial Accounting Standards
No. 107,  "Disclosure about Fair Value of Financial  Instruments,"  requires the
Corporation to disclose the fair value of financial instruments for both on- and
off-balance sheet assets and liabilities for which it is practicable to estimate
that value.  The following  methods and assumptions  were used in estimating the
fair value for financial instruments:

Installment  contracts:  A discounted  cash flow analysis was performed over
the average life of a contract using a discount rate currently  available to
the Corporation adjusted for credit quality,  cost and profit factors. As of
January 2, 1999,  and  January  3,  1998,  the fair value was  approximately
$168.9  million and $168.2 million versus a book value of $159.6 million and
$159.4 million.

Interest rate swap agreements: The fair value of the agreements was based on
a quote from the financial  institution with which the Corporation  executed
the  transactions.  As of January 2, 1999,  and January 3, 1998, the cost to
terminate the agreements was $6.1 million and $1.0 million.

All other financial instruments: The carrying amounts approximate fair value
based on quoted  market  prices or  discounted  cash flow  analysis for cash
equivalents,   debt,   forward   exchange   contracts  and  other  financial
instruments.

[32 Snap-on Incorporated 1998 Annual Report]

Note 8 - Pension Plans

The  Corporation  has  several  non-contributory  pension  plans  covering  most
employees,  including  certain  employees  in  foreign  countries,  as well as a
contributory  plan covering  certain  salaried  employees in Canada.  Retirement
benefits are generally provided based on employees' years of service and average
earnings or stated  amounts for years of service.  Normal  retirement age is 65,
with provisions for earlier retirement.  The Corporation  recognizes  retirement
plan expenses in accordance with Statement of Financial Accounting Standards No.
87, "Employers'  Accounting for Pensions," and contributes amounts to the plans,
with most using the  actuarially  computed  entry age normal cost method,  which
includes,  in certain  defined  retirement  benefit plans,  amortization of past
service cost over a maximum of 30 years.

The status of the Corporation's North American pension plans was as follows:

(Amounts in thousands)                             1998            1997
--------------------------------------------------------------------------
Change in projected benefit obligation      
Benefit obligation at beginning of year         $ 405,666       $364,353
Service cost                                       15,865         14,630
Interest cost                                      29,653         28,047
Plan amendments                                     1,159            216
Benefits paid                                     (19,264)       (16,570)
Plan participant contributions                        461            437
Curtailment gain                                   (2,731)             -
Actuarial loss                                     61,267         14,553
--------------------------------------------------------------------------
Benefit obligation at end of year                 492,076        405,666
--------------------------------------------------------------------------
Change in plan assets                       
Fair value of plan assets at beginning of year    467,835        395,997
Actual return on plan assets                       48,212         84,155
Contributions by employer                           6,718          3,816
Contributions by plan participants                    461            437
Benefits paid                                     (19,264)       (16,570)
--------------------------------------------------------------------------
Fair value of plan assets at end of year          503,962        467,835
--------------------------------------------------------------------------
Funded status                                      11,886         62,169
Unrecognized net assets at year-end                (4,757)        (6,697)
Unrecognized net gain from 
experience different than assumed                (76,530)      (123,881)
Unrecognized prior service cost                     9,272          9,173
--------------------------------------------------------------------------
Net amount recognized                            $(60,129)      $(59,236)
==========================================================================

(Amounts in thousands)                             1998            1997
--------------------------------------------------------------------------
Amounts recognized in the statement 
of financial position consist of:
Prepaid benefit cost                         $  16,383       $ 10,491
Accrued benefit liability                      (79,532)       (70,280)
Intangible asset                                   480            553
Additional minimum liability                     2,540              -
--------------------------------------------------------------------------
Net amount recognized                           $ (60,129)      $(59,236)
==========================================================================

The Corporation's net pension expense included the following components:

(Amounts in thousands)                  1998            1997           1996
-----------------------------------------------------------------------------
Service cost - benefits 
earned during year                    $15,865        $14,630        $13,191 
Interest cost on projected benefits     29,653         28,047         25,657  
Less: actual return on plan assets     (39,551)       (76,768)       (40,788)
Curtailment gain                        (2,731)             -              - 
Net amortization and deferral:
Actual return on plan assets in 
excess of projected return            5,532         46,641         14,226 
Amortization of net 
assets at transition                 (1,268)        (1,193)        (1,084) 
Other                                   1,096          1,170            865 
-----------------------------------------------------------------------------
Net pension expense                    $ 8,596        $12,527        $12,067 
=============================================================================

Related  to  the  Corporation's  restructuring  initiatives,  the  Corporation's
actuaries have estimated future pension curtailment gains to be $10 million. The
Corporation will recognize these gains as the initiatives are completed.

The  assumptions  used in  determining  pension costs and the projected  benefit
obligation were:

1998                  1997
-------------------------------------------
U.S.    Canada        U.S.    Canada
----------------------------------------------------------------------------
Discount rate                       7.0%     8.5%         7.5%     8.5%
Expected long-term rate 
of return on plan assets    9.0%     8.5%         9.0%     8.5%
Expected rate of
increase in future
compensation levels         5.0%     7.0%         5.0%     7.0%
----------------------------------------------------------------------------

Plan  assets  are stated at market  value and  primarily  consist  of  corporate
equities and various debt securities.

The pension  liability for 1998 consists of a current  liability of $4.5 million
and a long-term liability of $55.6 million.  The long-term liability  represents
pension  obligations  that are not  expected  to be  funded  during  the next 12
months.

The  Corporation  has pension  plans in which the projected  benefit  obligation
exceeds the fair value of plan assets.  At the end of 1998, the  Corporation had
three such plans with an aggregate projected benefit obligation of $49.4 million
and an aggregate fair value of plan assets of $32.0 million. At the end of 1997,
the  Corporation  had  two  such  plans  with  an  aggregate  projected  benefit
obligation of $13.6 million and no plan assets.

Note 9 - Retiree Health Care
The  Corporation  provides  certain  health care  benefits for most retired U.S.
employees.  The majority of the Corporation's U.S. employees become eligible for
those  benefits  if they  reach  early  retirement  age  while  working  for the
Corporation; however, the age and service requirements for eligibility under the
plans have been  increased for certain  employees  hired on and after  specified
dates since 1992. Generally, most plans pay stated percentages of

[33 Snap-on Incorporated 1998 Annual Report]

Notes to Consolidated Financial Statements (continued)

covered expenses after a deductible is met. There are several plan designs, with
more recent retirees being covered under a comprehensive  major medical plan. In
determining benefits, the plans take into consideration payments by Medicare and
other coverages.

For  employees   retiring   under  the   comprehensive   major  medical   plans,
contributions  are  required,  and these plans contain  provisions  allowing for
benefit and coverage  changes.  The plans require retirees to contribute  either
the full cost of the  coverage  or  amounts  estimated  to  exceed a capped  per
retiree annual cost  commitment by the  Corporation.  Most employees hired since
1994  are  required  to pay the full  cost.  The  Corporation  does not fund the
retiree health care plans.

The Corporation recognizes postretirement health care expense in accordance with
Statement of Financial Accounting Standards No. 106, "Employers'  Accounting for
Postretirement Benefits Other than Pensions."

The  components  of the expense for  postretirement  health care benefits are as
follows:

(Amounts in thousands)                         1998       1997       1996
---------------------------------------------------------------------------
Net periodic cost 
Service cost - benefits attributed 
to service during the period         $ 1,966    $ 1,945    $ 2,012
Interest cost on accumulated
postretirement benefit obligation      5,494      5,467      5,273
Curtailment gain                                (403)         -          -  
Amortization of unrecognized 
net gain                                (572)      (527)      (487)
---------------------------------------------------------------------------
Net postretirement health 
care expense                         $ 6,485    $ 6,885    $ 6,798
===========================================================================

The status of the Corporation's U.S. postretirement plans was 
as follows:

(Amounts in thousands)                             1998          1997
-----------------------------------------------------------------------
Change in benefit obligation                
Benefit obligation at beginning of year         $ 77,780      $ 73,015
Service cost                                       1,966         1,945
Interest cost                                      5,494         5,467
Plan participants' contributions                     656           543
Benefits paid                                     (4,378)       (4,690)
Curtailment gain                                    (403)            -
Actuarial loss                                     2,436         1,500
-----------------------------------------------------------------------
Benefit obligation at end of year                 83,551        77,780
-----------------------------------------------------------------------
Change in plan assets                    
Fair value of plan assets at beginning of year         -             -
Plan participants' contributions                     656           543
Contributions by employer                          3,722         4,147
Benefits paid                                     (4,378)      ( 4,690)
-----------------------------------------------------------------------
Fair value of plan assets at end of year                -            -
-----------------------------------------------------------------------
Funded status                                    (83,551)      (77,780)
Unrecognized actuarial gain                      (10,032)      (13,040)
-----------------------------------------------------------------------
Postretirement liability                       $ (93,583)    $ (90,820)
=======================================================================

The accumulated postretirement benefit obligation at the end of 1998 consists of
a current liability of $4.5 million and a long-term  liability of $89.1 million.
The  weighted   average  discount  rate  used  in  determining  the  accumulated
postretirement  benefit  obligation  was 7.0% at the end of 1998 and 7.5% at the
end of 1997.

The actuarial  calculation  assumes a health care trend rate of 7.5% in 1998 for
benefits paid on pre-Medicare retirees, decreasing gradually to 4.0% in the year
2007 and thereafter.  For benefits paid on Medicare-eligible  retirees, a health
care trend rate of 7.3% was assumed in 1998, decreasing to 4.0% in the year 2007
and thereafter.

As of January 2, 1999, a one percentage point increase or decrease in the health
care  cost  trend  rate  for  future  years  would  not  materially  affect  the
accumulated  postretirement  benefit obligation or the service cost and interest
cost components.

Related  to  the  Corporation's  restructuring  initiatives,  the  Corporation's
actuaries  have  estimated  future  postretirement  curtailment  gains  to be $2
million.  The  Corporation  will recognize  these gains as the  initiatives  are
completed.

Note 10 - Stock Option and Purchase Plans

On June 28, 1996, the board of directors approved a three-for-two stock split of
the  Corporation's  common stock.  Distribution of shares in connection with the
stock split was made on September 10, 1996. All  share-related  amounts in these
financial statements reflect that split.

The  Corporation  has a  stock  option  plan  for  directors,  officers  and key
employees,  with expiration  dates on the options ranging from 1999 to 2008. The
plan provides  that options be granted at exercise  prices equal to market value
on the date the option is granted.

The  Corporation  offers   shareholders  a  convenient  way  to  increase  their
investment in the Corporation through a no-commission  dividend reinvestment and
stock purchase plan.  Participating  shareholders  may invest the cash dividends
from all or a  portion  of their  common  stock to buy  additional  shares.  The
program also permits new investors and current  shareholders  to invest cash for
additional  shares that are  purchased for them each month.  For 1998,  1997 and
1996,  shares  issued under the dividend  reinvestment  and stock  purchase plan
totaled 33,620,  19,764 and 24,283.  At January 2, 1999,  1,945,470  shares were
available for purchase under this plan.

Employees of the  Corporation  are eligible to  participate in an employee stock
ownership plan. The purchase price of the common stock is the lesser of the mean
of the high and low price of the stock on the beginning  date (May 15) or ending
date (May 14) of each plan year.  The board of directors may terminate this plan
at any time.  For 1998,  1997 and 1996,  shares issued under the employee  stock
ownership plan totaled 81,114,  120,978 and 131,432.  At January 2, 1999, shares
totaling  709,491 were reserved for issuance to employees  under this plan,  and
the  Corporation  held  contributions  of  approximately  $1.5  million  for the
purchase of common stock.

[34 Snap-on Incorporated 1998 Annual Report]

Franchised dealers are eligible to participate in a dealer stock ownership plan.
The purchase price of the common stock is the lesser of the mean of the high and
low price of the stock on the beginning date (May 15) or ending date (May 14) of
each plan year.  The board of directors may terminate this plan at any time. For
1998, 1997 and 1996, shares issued under the dealer stock ownership plan totaled
117,825,  133,679 and 117,902.  At January 2, 1999, 513,159 shares were reserved
for issuance to franchised  dealers under this plan,  and the  Corporation  held
contributions of approximately $1.9 million for the purchase of common stock.

Non-employee  directors  receive  a  mandatory  minimum  of 50% and an  elective
maximum of up to 100% of their fees and retainer in shares of the  Corporation's
stock.  Directors may elect to defer receipt of all or part of these shares. For
1998, 1997 and 1996,  shares issued under the Directors' Fee Plan totaled 5,060,
3,008 and  3,140.  Additionally,  receipt of 3,951,  3,226 and 6,327  shares was
deferred  in 1998,  1997 and 1996.  At  January  2, 1999,  259,085  shares  were
reserved for issuance to directors under this plan.

The Corporation adopted Statement of Financial Accounting Standards ("SFAS") No.
123,  "Accounting  for  Stock-Based  Compensation,"  effective  January 1996. As
permitted,  the  Corporation  continued  its current  method of  accounting  for
stock-based  compensation  plans in accordance with Accounting  Principles Board
Opinion No. 25.

In  accordance  with  SFAS No.  123,  the fair  value of each  option  grant was
estimated as of the date of grant using an option pricing model. The Corporation
used the following weighted average assumptions,  under the Black-Scholes option
pricing  model,  for  options  granted  in 1998,  1997 and  1996,  respectively:
expected volatility of 21.2%, 17.9% and 21.6%; risk-free interest rates of 5.5%,
6.4% and 5.7%;  dividend yield of 2.5%, 2.8% and 3.1%; and expected option lives
of 5.8  years,  5.8 years and 6.9  years.  If the  Corporation  had  elected  to
recognize  compensation  cost for stock-based  compensation  consistent with the
methodology  prescribed by SFAS No. 123, net earnings and net earnings per share
for 1998, 1997 and 1996, would have changed to the following pro forma amounts:

(Amounts in thousands except per share data)    1998       1997        1996
-----------------------------------------------------------------------------
Net earnings (loss):
As reported                          $(4,779)    $150,366   $131,451
Pro forma                             (7,896)     148,354    130,595
Earnings (loss) per share - diluted:
As reported                          $  (.08)    $   2.44   $   2.13
Pro forma                               (.13)        2.41       2.12
-----------------------------------------------------------------------------

Stock option activity was as follows:

1998                      1997                         1996 
---------------------------------------------------------------------------------------------
Weighted                      Weighted                        Weighted  
Average                       Average                          Average 
Options     Exercise Price     Options     Exercise Price      Options     Exercise Price 
-----------------------------------------------------------------------------------------------------------------------------------

Outstanding at beginning of period     2,114,228        $25.37        2,007,423        $21.90         2,498,742        $21.54
Granted                                  585,950         39.77          480,125         37.13            72,000         30.52
Exercised                               (280,020)        21.84         (364,802)        21.64          (370,146)        20.78
Canceled                                 (22,022)        34.74           (8,518)        31.24          (193,173)        22.56
-----------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of period           2,398,136        $29.21        2,114,228        $25.37         2,007,423        $21.90
===================================================================================================================================
Exercisable at end of period           1,641,296        $24.71        1,663,253        $22.18         1,792,859        $21.88
Available for grant at end of period   2,507,818                      3,071,746                       3,543,353       
-----------------------------------------------------------------------------------------------------------------------------------

As calculated using the Black-Scholes option pricing model, the weighted average
fair value of options granted during the years ended January 2, 1999, January 3,
1998, and December 28, 1996,  were $8.92,  $7.86 and $6.99.  The following table
summarizes information about stock options outstanding as of January 2, 1999:

1998 Options Outstanding                              1998 Options Exercisable
----------------------------------------------------------------------------------------------------------------------------
Weighted                        
Average              Weighted                             Weighted
Number      Remaining               Average            Number            Average
Range of Exercise Prices        Outstanding     Contractual Life  Exercise Price       Exercisable     Exercise Price 
----------------------------------------------------------------------------------------------------------------------------

$19 to $25                       1,274,222            4.1           $ 21.48             1,274,222       $ 21.48
$25 to $31                          60,789            6.5             29.47                60,789         29.47
$31 to $38                         495,675            8.0             36.79               282,285         36.65
$38 to $46                         567,450            9.0             39.94                24,000         43.69
----------------------------------------------------------------------------------------------------------------------------
Totals                           2,398,136            6.2           $ 29.21             1,641,296       $ 24.71
============================================================================================================================

[35 Snap-on Incorporated 1998 Annual Report]

Notes to Consolidated Financial Statements (continued)

Note 11 - Capital Stock

In 1996, the Corporation's board of directors approved an ongoing  authorization
to  repurchase  stock in an  amount  equivalent  to that  necessary  to  prevent
dilution  created by shares issued for stock options,  employee and dealer stock
purchase  plans,   and  other  corporate   purposes.   On  June  27,  1997,  the
Corporation's board of directors  authorized the repurchase of $100.0 million of
the  Corporation's  common stock over a two-year  period.  On June 26, 1998, the
Corporation's  board of directors  authorized  an  additional  share  repurchase
program  aggregating $100.0 million of the Corporation's  common stock. In 1998,
the Corporation  repurchased  2,279,400 shares of its common stock at an average
price of $39.64.  In 1997,  the  Corporation  repurchased  986,333 shares of its
common stock at an average  price of $42.91.  Subsequent to year-end  1998,  the
Corporation's  board of directors  authorized  an  additional  share  repurchase
program of $50.0 million.

The board of directors  declared on August 22, 1997, a dividend  distribution of
one  preferred  stock  purchase  right  for  each  share  of  the  Corporation's
outstanding  common stock.  The rights are exercisable only if a person or group
acquires 15% or more of the Corporation's  common stock ("Acquiring  Person") or
publicly announces a tender offer to become an Acquiring Person.  Each right may
then be exercised to purchase one one-hundred-and- fiftieth of a share of Series
A Junior Preferred Stock for $190, but if a person or group becomes an Acquiring
Person,  then each right entitles the holder (other than an Acquiring Person) to
acquire common stock of the Corporation  having a market value equivalent to two
times the current  purchase price. If the Corporation is acquired in a merger or
other  business  combination  not approved by the board of directors,  then each
holder of a right will be  entitled to purchase  common  stock of the  surviving
company  having a market  value  equivalent  to two times the  current  purchase
price.  The effect of the rights is to cause  ownership  dilution to a person or
group   attempting  to  acquire  the   Corporation   without   approval  of  the
Corporation's board of directors. The rights expire on November 3, 2007, and may
be  redeemed  by the  Corporation  at a price of $.01 per  right  under  certain
circumstances.

At the end of the second  quarter  of 1998,  the  Corporation  created a Grantor
Stock  Trust  ("GST").  In  conjunction  with  the  formation  of the  GST,  the
Corporation  sold 7.1 million  shares of treasury  stock to the GST. The sale of
these shares had no net impact on shareholders'  equity or on the  Corporation's
Consolidated  Statements of Earnings. The GST is a funding mechanism for certain
benefit  programs and compensation  arrangements,  including the incentive stock
program and employee and franchised  dealer stock purchase  plans.  The Northern
Trust Company, as trustee of the GST, will vote the common stock held by the GST
based on the  directions of  non-director  employees  holding vested options and
certain employees and dealer  participants in those stock purchase plans, as set
forth in the GST  agreement.  The GST is recorded as Grantor Stock Trust at Fair
Market Value on the accompanying  Consolidated  Balance Sheets.  Shares owned by
the GST are accounted for as a reduction to  shareholders'  equity until used in
connection with employee benefits.  Each period, the shares owned by the GST are
valued at the  closing  market  price,  with  corresponding  changes  in the GST
balance reflected in additional paid-in capital.

Note 12 - Commitments and Contingencies

The  Corporation  has  entered  into  certain   operating  lease  agreements  on
facilities and computer equipment, which extend for varying amounts of time.

The Corporation's lease commitments require future payments as follows:

Year Ending             (Amounts in thousands)
-----------------------------------------------
1999                            $24,331
2000                             17,304
2001                             10,425
2002                              5,316
2003                              4,252
2004 and thereafter               2,875
-----------------------------------------------

Rent  expenses  for  worldwide  facilities  and  computer  equipment  were $22.7
million, $18.6 million and $18.0 million in 1998, 1997 and 1996.

Tejas Testing  Technology One, L.C. and Tejas Testing  Technology Two, L.C. (the
"Tejas Companies"),  former subsidiaries of the Corporation,  previously entered
into  contracts  with  the  Texas  Natural  Resources  Conservation   Commission
("TNRCC"),  an agency of the State of Texas,  to  perform  automotive  emissions
testing  services.  The Corporation  guaranteed  payment (the "Guaranty") of the
Tejas Companies' obligations under a seven-year lease agreement in the amount of
approximately $98.8 million plus an interest factor, pursuant to which the Tejas
Companies leased the facilities necessary to perform the contracts. The Guaranty
was assigned to the lessor's  lenders.  The Tejas Companies  agreed to indemnify
the Corporation for any payments it must make under the Guaranty.

The State of Texas  subsequently  terminated the emissions  program described in
the contracts. The Tejas Companies filed for bankruptcy and commenced litigation
in state  and  federal  court  against  the  TNRCC  and  related  entities.  The
Corporation  has  recorded  as assets the net amounts  paid under the  Guaranty,
which  are  expected  to be  received  from the  State of  Texas  pursuant  to a
settlement   agreement  approved  by  the  U.S.  Bankruptcy  Court.  Under  this
settlement agreement, the obligation under the Guaranty previously recorded as a
contingent  liability in the amount of $38.5 million was  satisfied,  leaving an
expected  receivable of $55.2 million.  In 1998, the Corporation  received $18.2
million,  leaving a net  receivable  balance  of $37.0  million as of January 2,
1999. This amount is included in Intangible

[36 Snap-on Incorporated 1998 Annual Report]

and  Other  Assets  on  the  accompanying   Consolidated   Balance  Sheets.  The
Corporation  expects to receive  further  payments  in an amount  sufficient  to
satisfy the balance of the net receivable by August 31, 2001, which payments are
subject to legislative  appropriation.  The  Corporation  believes that ultimate
recovery of the net receivable is probable.

In April  1996,  the  Corporation  filed a  complaint  against  SPX  Corporation
alleging infringement of the Corporation's patents and asserting claims relating
to  SPX's  hiring  of  the  former  president  of  Sun  Electric.  SPX  filed  a
counterclaim,   alleging  infringe-  ment  of  certain  SPX  patents.  Upon  the
Corporation's  request for  reexamination,  the U.S. Patent and Trademark Office
initially  rejected  SPX's patents as invalid,  but recently  reconfirmed  them.
Document and deposition discovery is proceeding.  The Court has set a trial date
of April 5, 1999, for the non-patent  claims. No trial date has yet been set for
the patent claims. The Corporation believes it has numerous meritorious defenses
to SPX's claims,  including defenses of patent invalidity and  non-infringement,
and  intends to  vigorously  prosecute  the claims it has  raised.  Neither  the
complaint  nor  the  counterclaim  contains  specific  allegations  of  damages;
however,  the parties' claims could involve multiple millions of dollars.  It is
not possible at this time to assess the outcome of any of the claims.

The  Corporation is involved in various legal matters,  which are being defended
and handled in the ordinary  course of business.  Although it is not possible to
predict the outcome of these matters,  management believes that the results will
not have a material impact on the Corporation's financial statements.

Note 13 - Segments

In 1998, the Corporation adopted Statement of Financial Accounting Standards No.
131,  "Disclosures  about  Segments of an Enterprise  and Related  Information,"
which changes the way the Corporation  reports  information  about its operating
segments.  The  information  for 1997 and 1996 has been  restated from the prior
years' presentation in order to conform to the 1998 presentation.

The Corporation's  segments are based on the organization structure that is used
by management for making  operating and  investment  decisions and for assessing
performance.  Based  on this  management  approach,  the  Corporation  has  five
reportable segments: North America Transportation,  North America Other, Europe,
International and Financial Services.  The North America  Transportation segment
consists of the Corporation's  business operations serving the franchised dealer
channel in the  United  States  and  Canada.  The North  America  Other  segment
consists of the Corporation's  business  operations serving the direct sales and
distributor   channels  in  the  United  States  and  Canada,  as  well  as  the
Corporation's exports from the United States. The Europe segment consists of the
Corporation's  operations  in  Europe  and  Africa.  The  International  segment
consists of the  Corporation's  operations in the Asia/Pacific  region and Latin
America.  These four segments derive  revenues  primarily from the sale of tools
and equipment.  The Financial Services segment provides financing to technicians
and shop owners, as well as to dealers.

The  accounting  policies  of the  reportable  segments  are the  same as  those
described in Note 1. The Corporation  evaluates the performance of its operating
segments based on operating  income.  The Corporation  accounts for intersegment
sales and  transfers  based on  established  sales prices  between the segments,
which represent cost plus an  intercompany  markup.  The  Corporation  allocates
shared  service  expenses to those  segments that utilize the services  based on
their percentages of revenues from external sources. The Corporation has charged
license fees to its North America segments based on their percentages of certain
North America  sales.  Corporate  expenses  related to  restructuring  and other
non-recurring charges are not allocated to the reportable segments.

Neither the Corporation nor any of its segments  depends on any single customer,
small group of customers or government for more than 10% of its sales.

Financial data by segment is as follows:

(Amounts in thousands)                  1998           1997           1996
-----------------------------------------------------------------------------
Revenues from external customers                                
North America Transportation        $  845,828    $  836,032      $  786,609
North America Other                    457,255       468,692         341,194
Europe                                 393,460       279,684         271,957
International                           76,094        87,807          85,519
-----------------------------------------------------------------------------
Total from reportable segments      $1,772,637    $1,672,215      $1,485,279
=============================================================================

(Amounts in thousands)                  1998           1997           1996
-----------------------------------------------------------------------------
Intersegment revenues 
North America Transportation        $       11    $       71      $       6
North America Other                    285,157       317,962        221,625 
Europe                                   8,932         3,539            764
International                           37,280        27,937         25,812
-----------------------------------------------------------------------------
Total from reportable segments         331,380       349,509        248,207
Elimination of 
intersegment revenue                 (331,380)     (349,509)      (248,207)
-----------------------------------------------------------------------------
Total consolidated 
intersegment revenue              $         -    $        -      $       -
=============================================================================

[37 Snap-on Incorporated 1998 Annual Report]

(Amounts in thousands)                   1998          1997           1996
-----------------------------------------------------------------------------
Operating income
North America Transportation        $   34,176    $   70,205     $   48,592
North America Other                     70,909        98,143         84,764
Europe                                   3,205        16,539         11,800
International                            9,775         8,759         11,101
Financial Services                      65,933        71,891         64,269 
-----------------------------------------------------------------------------
Total from reportable segments         183,998       265,537        220,526
Corporate restructuring and
other non-recurring charge    (149,863)            -              -
-----------------------------------------------------------------------------
Consolidated operating income           34,135       265,537        220,526
Interest expense                       (21,254)      (17,654)       (12,649)
Other income (expense) - net            (2,041)       (9,207)           776
-----------------------------------------------------------------------------
Total consolidated earnings
before taxes                $   10,840    $  238,676     $  208,653
=============================================================================

(Amounts in thousands)                   1998          1997           1996
-----------------------------------------------------------------------------
Total assets 
North America Transportation        $  517,334    $  523,342     $  436,101
North America Other                    565,174       618,813        395,742
Europe                                 406,257       288,899        213,912
International                           37,012        39,012         39,293
Financial Services                     231,092       254,903        420,931
-----------------------------------------------------------------------------
Total from reportable segments       1,756,869     1,724,969      1,505,979
Elimination of
intersegment receivables             (145,065)     (168,910)      (121,112)
Unallocated corporate assets            63,116        85,298        135,921
-----------------------------------------------------------------------------
Total consolidated net assets       $1,674,920    $1,641,357     $1,520,788
=============================================================================

(Amounts in thousands)                   1998          1997           1996
-----------------------------------------------------------------------------
Depreciation and amortization 
North America Transportation        $   16,530    $   11,824     $   12,864
North America Other                     18,161        18,884         11,781
Europe                                   8,453         5,391          5,609
International                            1,314         1,973          1,434
Financial Services                         527           305            191
-----------------------------------------------------------------------------
Total from reportable segments      $   44,985    $   38,377     $   31,879
=============================================================================

(Amounts in thousands)                   1998          1997           1996
-----------------------------------------------------------------------------
Capital expenditures 
North America Transportation        $    7,155    $    6,643     $    5,704  
North America Other                     14,193        25,202          3,361   
Europe                                   6,398         9,058         11,741
International                            1,841         1,929            831
Financial Services                       1,229         2,113              3
-----------------------------------------------------------------------------
Total from reportable segments          30,816        44,945         21,640
Unallocated corporate 
capital expenditures                   15,963        10,497         30,693
-----------------------------------------------------------------------------
Total consolidated 
capital expenditures               $   46,779    $   55,442     $   52,333
=============================================================================

(Amounts in thousands)                   1998          1997           1996
-----------------------------------------------------------------------------
Geographic information 
Revenues*
United States                     $1,239,970    $1,221,790     $1,051,587
All other countries                  532,667       450,425        433,692
-----------------------------------------------------------------------------
Total revenues                    $1,772,637    $1,672,215     $1,485,279
=============================================================================

Long-lived assets       
United States                     $  445,987    $  491,514     $  384,375
All other countries                   88,962        72,435         63,676
-----------------------------------------------------------------------------
Total long-lived assets           $534,949      $  563,949     $  448,051
=============================================================================

*Revenues are attributed to countries based on the origin of the sale.

Products and  services:  The  Corporation  derives  revenue from a broad line of
products and complementary  services that can be divided into two groups:  tools
and equipment. The following table shows the consolidated sales of these product
groups in the last three years:

1998          1997           1996
---------------------------------------------------------------------------
Tools                               $  918,492    $  918,238     $  857,083
Equipment                              854,145       753,977        628,196
---------------------------------------------------------------------------
Total                               $1,772,637    $1,672,215     $1,485,279
===========================================================================

Note 14 - Restructuring

In  1998,  the  Corporation  announced  a  simplification  initiative  ("Project
Simplify"),   which   is  a  broad   program   of   internal   rationalizations,
consolidations  and  reorganizations.  The  goal  is to make  the  Corporation's
business operations simpler and more effective.  Project Simplify will result in
the  closing of six  manufacturing  facilities,  seven  warehouses  and 47 small
offices in North America and Europe;  the  elimination of 1,100  positions;  the
discontinuance  of 12,000 stock  keeping units  ("SKUs") of  inventory;  and the
consolidation of certain business units.  Total charges for Project Simplify are
composed  of  restructuring  charges,  other  non-recurring  charges and related
transitional costs.

During 1998, the Corporation  recorded  pre-tax charges of $149.9 million.  This
amount consists of $75.6 million of  restructuring  charges and $74.3 million of
other non-recurring charges.

[38 Snap-on Incorporated 1998 Annual Report]

The composition of the Corporation's $75.6 million  restructuring  charges is as
follows:

Original                      Write-down                           Restructuring
Restructuring     Additions         of Assets                          Reserves as of
(Amounts in thousands)                         Reserves   to Reserves     to Fair Value       Cash Payments     January 2, 1999
----------------------------------------------------------------------------------------------------------------------------------
Expenditures for      

severance and other exit costs             $   21,105         $1,969       $        -       $      (6,569)       $   16,505 
Loss on the write-down 
of intangibles and goodwill                    36,240            298          (36,538)                  -                 - 
Charges for warranty provisions                   9,660              -                -                   -             9,660 
Loss on the write-down of assets                  5,978            357           (6,335)                  -                 - 
----------------------------------------------------------------------------------------------------------------------------------
Total restructuring reserves                 $  72,983          $2,624       $  (42,873)      $      (6,569)       $   26,165
==================================================================================================================================

The  Corporation  has  recorded  restructuring  charges  of  $15.5  million  for
severance and of $7.6 million for non-cancelable  lease agreements on facilities
to be closed and other exit costs  associated with Project  Simplify.  Severance
costs provided for worldwide  salaried and hourly  employees  relate to facility
closures,  duplicate position  eliminations and streamlining  operations.  As of
January  2,  1999,  509  employees  have  separated  from the  Corporation,  and
severance  payments of $4.4 million have been made. The Corporation has adjusted
property,  plant and equipment and other assets to net realizable  value through
an additional $6.3 million restructuring charge.

As part of the  restructuring  efforts,  the  Corporation  has also written down
impaired goodwill and other intangible assets of certain  discontinued  business
units by $36.5  million.  The  majority of this  write-down  relates to Computer
Aided Services,  Inc. and Edge Diagnostic  Systems.  No net realizable value was
assessed for these intangible  assets due to the closure of these operations and
the  discontinuance  of their product lines. As part of the elimination of these
business units and their product lines, the Corporation has recorded a charge in
the amount of $9.7 million to provide additional warranty support, at no cost to
the customer,  for products already sold. The warranty reserve has been included
in Cost of Goods Sold - Discontinued Products, while all remaining restructuring
charges have been included in Restructuring and Other  Non-recurring  Charges on
the accompanying Consolidated Statements of Earnings.

As part of Project  Simplify,  the Corporation has recorded other  non-recurring
charges in the amount of $74.3 million.  These charges  include $50.9 million to
re-value discontinued SKUs of inventory,  costs to resolve certain legal matters
in the amount of $18.7  million  and other  transitional  costs in the amount of
$4.7 million. The reduction of SKUs is an effort to reduce the transaction costs
and working capital intensity of the Corporation's product offering, and refocus
on high-volume  growth  products.  The charge for certain legal matters includes
legal costs to conclude these issues.  The  non-recurring  charge related to the
reduction of SKUs has been included as part of Cost of Goods Sold - Discontinued
Products,  while the  remaining  non-recurring  charges  have been  included  in
Restructuring and Other Non-recurring  Charges on the accompanying  Consolidated
Statements of Earnings.

Shown below is a breakdown  of charges by segment;  these  charges have not been
allocated to reportable segments:

(Amounts in thousands)         Restructuring        Non-recurring      Total
-------------------------------------------------------------------------------
North America Transportation     $ 9,661              $13,576        $ 23,237
North America Other               51,810               51,046         102,856 
Europe                             7,900                4,789          12,689
International                      2,836                4,841           7,677
Financial Services                 3,400                    4           3,404  
-------------------------------------------------------------------------------
Total                            $75,607              $74,256        $149,863
================================================================================

Note 15 - Subsequent Events

On January 3, 1999,  the  Corporation  established a joint venture with Newcourt
Financial  USA  Inc.   ("Newcourt")  to  provide   financial   services  to  the
Corporation's  global dealer and customer  network  through a limited  liability
company known as Snap-on Credit LLC ("the LLC"). The entity is 50% owned by each
company. As a result of the establishment of the joint venture,  the Corporation
effectively  outsourced  to the LLC its  captive  credit  function.  The captive
credit  function  was  previously  managed  by the  Corporation's  wholly  owned
subsidiary Snap-on Credit Corporation.

The  LLC  will  be  the  preferred   provider  of  financial   services  to  the
Corporation's  global dealer and customer network.  The Corporation will receive
income  from fees paid by the LLC.  The fees  will be based  primarily  upon the
volume of installment  receivables  originated by the LLC. Newcourt will provide
services and exper-tise to the LLC with a view to increasing originations by the
LLC.  Newcourt will be paid a fee by the LLC for such  services.  The management
fee paid to Newcourt also will be based  primarily on the volume of  installment
receivables  originated  by the  LLC.  Newcourt  will  receive  warehousing  and
securitization fees from the LLC in connection with the purchased receivables.

On January  4, 1999,  in a separate  transaction,  CreditCorp  SPC,  LLC sold to
Newcourt its entire portfolio of U.S. installment accounts receivable, including
existing   extended  credit  customer  accounts   receivable,   equipment  lease
receivables and dealer loan  receivables,  for an aggregate sale price of $141.1
million,  resulting in a pre-tax gain of approximately $44 million. Newcourt has
the right to put back to the  Corporation  the unpaid  portion  of the  extended
credit customer accounts receivable portfolio based on the same pricing formula.
As a result, this gain will be recognized over a two-year period.

[39 Snap-on Incorporated 1998 Annual Report]

Quarterly Financial Information

Unaudited

(Amounts in thousands except per share data)    1998         1997         1996
--------------------------------------------------------------------------------
Net sales
First quarter                               $  426,429   $  375,299   $  344,364
Second quarter                                 442,176      409,231      384,554
Third quarter                                  427,272      391,162      347,202
Fourth quarter                                 476,760      496,523      409,159
--------------------------------------------------------------------------------
$1,772,637   $1,672,215   $1,485,279
================================================================================

Gross profit
First quarter                               $  211,545   $  192,967   $  173,829
Second quarter                                 204,690      207,667      194,129
Third quarter                                  151,526      199,294      176,478
Fourth quarter                                 195,553      243,900      206,348
--------------------------------------------------------------------------------
$  763,314   $  843,828   $  750,784
================================================================================

Net earnings (loss)
First quarter                               $   33,926   $   33,854   $   29,650
Second quarter                                  22,661       38,971       34,528
Third quarter                                  (73,997)**    35,514       30,765
Fourth quarter                                  12,631***    42,027       36,508
--------------------------------------------------------------------------------
$(4,779)    $150,366     $131,451
================================================================================

Earnings (loss) per weighted 
average common share - basic*              
First quarter                               $      .57   $      .56   $      .49
Second quarter                                     .38          .64          .56
Third quarter                                    (1.24)**       .58          .51
Fourth quarter                                     .21***       .69          .60
--------------------------------------------------------------------------------
$     (.08)  $     2.47   $     2.16
================================================================================

Earnings (loss) per weighted 
average common share - diluted*            
First quarter                               $      .56   $      .55   $      .48
Second quarter                                     .38          .63          .56
Third quarter                                    (1.24)**       .58          .50
Fourth quarter                                     .21***       .68          .59
--------------------------------------------------------------------------------
$     (.08)  $     2.44   $     2.13
================================================================================

* Adjusted  for the  three-for-two  stock split in 1996.  Earnings per share are
calculated  on a  quarterly  basis  and,  as such,  the  amounts  may not  total
calculated full-year earnings (loss) per share.
** Third quarter 1998 results  include $133.1  million of pre-tax  restructuring
and other  non-recurring  charges  ($96.5  million after  taxes).  The aggregate
earnings per share impact of these items was $1.62 after taxes.
*** Fourth quarter 1998 results  include $16.8 million of pre-tax  restructuring
and other non-recurring  charges ($11.2 million after taxes) and a $14.1 million
reduction in inventory  ($9.0 million after taxes).  The aggregate  earnings per
share impact of these items was $.34 per diluted share and $.35 per basic share.

[Two bar graphs follow this text. The first is titled  "Shareholders' Equity per
Share." It shows the shareholders'  equity per share of the Corporation's common
stock (in dollars) for each of fiscal years 1994 through 1998, as follows:

94              -            $11.91
95              -            $12.35
96              -            $13.62
97              -            $14.74
98              -            $12.98

The second graph is titled  "Common Stock Price Range." It shows the price range
of the  Corporation's  common  stock (in  dollars) for each of fiscal years 1994
through 1998, as follows:

94              -        $29.58 - 19.33
95              -        $31.50 - 20.67
96              -        $38.25 - 27.33
97              -        $46.31 - 34.25
98              -        $46.44 - 25.50

The  information  in  both of the  preceding  two  graphs  is  adjusted  for the
two-for-one stock split in 1996.]

Six-year Data

Amounts in thousands except share data)      1998          1997          1996           1995           1994         1993
------------------------------------------------------------------------------------------------------------------------
Summary of operations

Net sales                              $1,772,637    $1,672,215    $1,485,279     $1,292,125     $1,194,296   $1,132,010
Gross profit                              763,314       843,828       750,784        663,491        608,837      595,728 
Operating expenses                        705,811       650,182       594,527        538,021        510,361      509,910 
Net finance income                         65,933        71,891        64,269         63,174         60,458       61,115  
Operating income                           34,135       265,537       220,526        188,644        158,934      146,933
Interest expense                           21,254        17,654        12,649         13,327         10,806       11,198  
Other income (expense) - net               (2,041)       (9,207)          776          4,572          5,541          756 
Pre-tax earnings                           10,840       238,676       208,653        179,889        153,669      136,491 
Income taxes                               15,619        88,310        77,202         66,559         55,355       50,679  
Net earnings (loss)                        (4,779)      150,366       131,451        113,330         98,314       85,812
------------------------------------------------------------------------------------------------------------------------
Financial position
Current assets                         $1,079,832    $1,021,709    $1,017,324     $  946,689     $  873,020    $ 854,598
Current liabilities                       458,053       352,530       341,371        336,075        237,869      308,037
Working capital                           621,779       669,179       675,953        610,614        635,151      546,561 
Accounts receivable                       554,703       539,589       651,739        610,064        568,378      539,949
Inventories                               375,436       373,155       269,750        250,434        229,037      249,102 
Property and equipment - net              272,030       265,765       245,294        220,067        209,142      224,810 
Total assets                            1,674,920     1,641,357     1,520,788      1,360,973      1,234,905    1,218,933 
Long-term debt                            246,644       151,016       149,804        143,763        108,980       99,683 
Shareholders' equity                      762,267       892,137       828,161        750,732        766,398      701,663 
------------------------------------------------------------------------------------------------------------------------
Common share summary*
Net earnings (loss) per share - basic  $     (.08)   $     2.47    $     2.16     $     1.84     $     1.53    $    1.34       
Cash dividends paid per share                 .86           .82           .76            .72            .72          .72     
Shareholders' equity per share              12.98         14.74         13.62          12.35          11.91        10.99 
Weighted average 
shares outstanding - basic     59,219,564    60,845,467    60,967,865     61,510,500     64,187,874    63,856,175      
------------------------------------------------------------------------------------------------------------------------
Other financial statistics
Cash dividends paid                    $   50,977    $   49,888    $   46,323     $   44,113     $   46,197    $  45,942       
Dividends paid as a percent 
of net earnings                       N/M          33.2%         35.2%          38.9%          47.0%        53.5%
Capital expenditures                 46,779        55,442        52,333         31,581         41,788       33,248  
Depreciation and amortization              44,985        38,377        31,879         31,534         29,632       32,131  
Current ratio                                 2.4           2.9           3.0            2.8            3.7          2.8     
Percent of total debt to total capital       30.8%         16.4%         17.3%          18.5%          13.5%        19.3%   
Effective tax rate                          144.1%         37.0%         37.0%          37.0%          36.0%        37.1%    
Operating income as a percent
of net sales                          1.9%         15.9%         14.8%          14.6%          13.3%        13.0%   
Net earnings (loss) as a percent
of net sales                                (0.3)%         9.0%          8.9%           8.8%           8.2%         7.6%     
Return on average 
shareholders' equity                        (0.6)%        17.5%         16.7%          14.9%          13.4%        12.6%   
Shareholders of record                     11,514        10,738        10,556          9,657          9,292        9,047   
Common stock price range*             46.44-25.50   46.31-34.25   38.25-27.33    31.50-20.67    29.58-19.33  29.67-20.33     
------------------------------------------------------------------------------------------------------------------------
*Adjusted for the three-for-two stock split in 1996.
1998  results  include  $149.9  million  of  pre-tax   restructuring  and  other
non-recurring charges ($107.6 million after taxes) and a $14.1 million reduction
in inventory ($9.0 million after taxes). The aggregate earnings per share impact
of these items was $1.95 after taxes.
N/M = not meaningful.

[41 Snap-on Incorporated 1998 Annual Report]

Management's Responsibility for Financial Reporting

The management of Snap-on  Incorporated  is responsible  for the preparation and
integrity of all financial  statements and other  information  contained in this
Annual  Report.  The  consolidated  financial  statements  have been prepared in
conformity with generally accepted accounting principles and necessarily include
amounts based on judgments and estimates by management  giving due consideration
to materiality.  The Corporation  maintains internal control systems designed to
provide  reasonable  assurance that the Corporation's  financial records reflect
the  transactions of the Corporation and that its assets are protected from loss
or  unauthorized  use. A staff of internal  auditors  conducts  operational  and
financial  audits to evaluate the adequacy of internal  controls and  accounting
practices.

The Corporation's  consolidated financial statements have been audited by Arthur
Andersen LLP,  independent  public  accountants,  whose report  thereon  appears
below.  As part of  their  audit  of the  Corporation's  consolidated  financial
statements,  Arthur Andersen LLP considered the Corporation's system of internal
control to the extent they deemed necessary to determine the nature,  timing and
extent of their audit tests.  Management has made  available to Arthur  Andersen
LLP the Corporation's financial records and related data.

The audit  committee of the board of directors is responsible  for reviewing and
evaluating the overall performance of the Corporation's  financial reporting and
accounting  practices.  The committee meets  periodically and independently with
management,  internal auditors and the independent public accountants to discuss
the Corporation's internal accounting controls, auditing and financial reporting
matters.   The  internal  auditors  and  independent   public  accountants  have
unrestricted access to the audit committee.

[Robert A. Cornog's Signature]      [Donald S. Huml's Signature]
Robert A. Cornog                    Donald S. Huml
Chairman, President and             Senior Vice President -
Chief Executive Officer             Finance and Chief Financial Officer

Report of Independent Public Accountants

To the Board of Directors and
Shareholders of Snap-on Incorporated:

We  have  audited  the  accompanying  consolidated  balance  sheets  of  Snap-on
Incorporated (a Delaware  Corporation)  and  subsidiaries as of January 2, 1999,
and  January 3, 1998,  and the  related  consolidated  statements  of  earnings,
shareholders'  equity and comprehensive  income,  and cash flows for each of the
three years in the period ended January 2, 1999.  These  consolidated  financial
statements  are  the  responsibility  of  the  Corporation's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance about whether the  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Snap-on
Incorporated  and  subsidiaries  as of January 2, 1999, and January 3, 1998, and
the consolidated  results of its operations and cash flows for each of the three
years in the period ended January 2, 1999, in conformity with generally accepted
accounting principles.

[Arthur Andersen's Signature]
Arthur Andersen LLP

Chicago, Illinois
February 2, 1999

[42 Snap-on Incorporated 1998 Annual Report]

Investor Information

Common Stock High/Low Prices

Quarter             1998                 1997
---------------------------------------------------
First          $46.22-$37.19        $42.38-$34.25
Second          46.44- 34.38         41.00- 35.25
Third           37.50- 25.50         44.88- 39.19
Fourth          36.00- 28.88         46.31- 41.50
---------------------------------------------------

Dividends Paid per Common Share

Quarter             1998                 1997
---------------------------------------------------
First               $.21                $.20
Second               .21                 .20
Third                .22                 .21
Fourth               .22                 .21
---------------------------------------------------
Total               $.86                $.82
===================================================

Exchange Listing
Snap-on  Incorporated's  common  stock is listed on the New York Stock  Exchange
under the ticker symbol SNA.

Transfer Agent and Registrar
First Chicago Trust Company of New York
P. O. Box 2500
Jersey City, New Jersey 07303-2500
or
525 Washington Boulevard
Jersey City, New Jersey 07310

Shareholder Inquiries
Shareholders  with  questions may call the Transfer  Agent,  First Chicago Trust
Company of New York, toll-free at 1-800-446-2617 or e-mail at fctc@em.fcnbd.com.
The deaf and hearing-impaired may call 201-222-4955.

Dividend Record and Pay Dates for 1999
Quarter         Record Date             Pay Date
-----------------------------------------------------
First           February 17             March 10
Second          May 20                  June 10
Third           August 20               September 10
Fourth          November 19             December 10
-----------------------------------------------------

Dividend Reinvestment 
and Direct Stock Purchase Plan
Investors  may  purchase  stock  directly  from the company and  increase  their
investment  through a  no-commission  dividend  reinvestment  and  direct  stock
purchase plan. For information write to:

First Chicago Trust Company of New York
Snap-on Dividend Reinvestment and Direct Stock Purchase Plan
P. O. Box 2598
Jersey City, New Jersey 07303-2598
Or call: 1-800-446-2617

Form 10-K and Other Financial Publications
These  publications are available  without charge.  Contact the public relations
department at P. O. Box 1430, Kenosha,  Wisconsin 53141-1430,  call 414-656-4808
(recorded message), e-mail financials@snapon.com, or visit our web site.

Web Site
Snap-on's  web site  contains  the most  recent  10-Qs,  10-Ks,  news  releases,
quarterly  reports,  annual report  financials,  and information about Snap-on's
dividend   reinvestment   and  direct  stock   purchase  plan.  Our  address  is
www.snapon.com.

Analyst Contact
Securities   analysts  and  other  investors   seeking   information  about  the
corporation should contact the investor relations department at 414-656-6488.

Independent Auditors
Arthur Andersen LLP
33 West Monroe Street
Chicago, Illinois 60603
312-580-0033

Annual Meeting
The  Annual  Meeting  of  Shareholders  will  be held  at the  Radisson  Hotel &
Conference Center Kenosha, 11800 - 108th Street, Pleasant Prairie, Wisconsin, at
10 a.m. on Friday, April 23, 1999.