StanleyBlack&Decker Bank Of America Global Industrials Conference 2021 Don Allan | President & CFO March 16, 2021 Cautionary Statements \\ This presentation contains "forward-looking statements," that is, statements that address future, not past events. In this context, forward-looking statements often address our expected future business and financial performance and financial condition, and often contain words such as: "expect," "anticipate," "intend," "plan," "believe," "seek," or "will." Forward-looking ...

PART I [ITEM 1. BUSINESS](index=3&type=section&id=ITEM%201.%20BUSINESS) The company is a diversified global provider of tools, industrial products, and security solutions, driven by a strategy of growth, acquisition, and operational excellence - Stanley Black & Decker, Inc was founded in 1843 and merged with The Black & Decker Corporation in March 2010[13](index=13&type=chunk) - The Company is a diversified global provider of hand tools, power tools, engineered fastening systems, and commercial electronic security solutions[14](index=14&type=chunk) 2020 Consolidated Annual Revenues and Geographic Distribution | Metric | Value | | :--- | :--- | | 2020 Consolidated Annual Revenues | $14.5 billion | | **Revenue Distribution:** | | | United States | 61% | | Europe | 19% | | Emerging Markets | 11% | | Canada | 5% | - The Company's strategy involves growth through acquisitions, diversification, and leveraging its SBD Operating Model for organic growth and margin expansion[15](index=15&type=chunk) - Since 2002, the Company has completed approximately **$11.5 billion in acquisitions**, including notable purchases like CAM, Newell Tools, and the Craftsman® brand[16](index=16&type=chunk) - In January 2019, the Company acquired a **20% interest in MTD Holdings Inc for $234 million**, with an option to acquire the remaining 80% starting July 1, 2021[17](index=17&type=chunk) - The Company has divested several businesses, including mechanical locks and security businesses, to align with its long-term growth strategy[18](index=18&type=chunk)[19](index=19&type=chunk) - The Company's 2030 Corporate Social Responsibility strategy includes targets for workforce upskilling, product innovation, and environmental preservation[21](index=21&type=chunk) - The Company's operations are classified into three reportable business segments: Tools & Storage, Industrial, and Security[22](index=22&type=chunk) 2020 Segment Revenues | Segment | 2020 Revenues | % of Total Revenues | | :--- | :--- | :--- | | Tools & Storage | $10.3 billion | 71% | | Industrial | $2.3 billion | 16% | | Security | $1.9 billion | 13% | - The Tools & Storage segment includes Power Tools, Equipment, Hand Tools, Accessories & Storage, selling through various channels[25](index=25&type=chunk)[26](index=26&type=chunk)[27](index=27&type=chunk) - The Industrial segment comprises Engineered Fastening and Infrastructure, serving automotive, manufacturing, aerospace, and other sectors[29](index=29&type=chunk)[30](index=30&type=chunk) - The Security segment includes Convergent Security Solutions and Mechanical Access Solutions, primarily sold directly[32](index=32&type=chunk) - Competition is active across all segments, based on product quality, brands, innovation, and value[33](index=33&type=chunk)[34](index=34&type=chunk) Major Customer Sales Contribution to Consolidated Net Sales | Customer | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Lowe's | 15% | 15% | 12% | | The Home Depot | 12% | 10% | <10% | - The Company focuses on Operations Excellence principles to reduce working capital and generate free cash flow[36](index=36&type=chunk) Working Capital Turns | Year | Working Capital Turns | | :--- | :--- | | 2020 | 10.4 | | 2019 | 9.8 | | Long-term Goal | 10+ | - Raw materials are procured globally from multiple sources, with a supplier risk mitigation strategy in place[38](index=38&type=chunk) - The Company owns numerous significant patents and trademarks, including STANLEY®, BLACK+DECKER®, DEWALT®, and CRAFTSMAN®[39](index=39&type=chunk)[40](index=40&type=chunk) - Operations are subject to various laws and regulations, including environmental, international trade, data privacy, and consumer protection[41](index=41&type=chunk) Environmental Remediation Reserves | Metric | January 2, 2021 | December 28, 2019 | | :--- | :--- | :--- | | Total Reserves | $174.2 million | $213.8 million | | Current Portion | $46.7 million | N/A | | Long-term Portion | $127.5 million | N/A | | Net Cash Obligation (2021) | $158.3 million | N/A | | Reasonably Possible Range (2021) | $102.9M - $245.3M | N/A | - As of January 2, 2021, the Company had approximately **53,100 employees** in over 60 countries[46](index=46&type=chunk) - The Company's human capital strategy focuses on culture, leadership, performance management, and Diversity, Equity & Inclusion (DE&I)[47](index=47&type=chunk)[48](index=48&type=chunk) - The Company promotes lifelong learning through internal and external partnerships, focusing on reskilling and upskilling employees[51](index=51&type=chunk) - The Company is committed to employee wellness, health, and safety, demonstrated by its agile response to the COVID-19 pandemic[53](index=53&type=chunk) Safety Performance (Through December 2020) | Metric | Value | | :--- | :--- | | Total Recordable Incident Rate (TRIR) | 0.48 | | Lost Time Incident Rate (LTIR) | 0.17 | | Work-related Fatalities | 0 | Research and Development Costs | Fiscal Year | R&D Costs (Millions USD) | | :--- | :--- | | 2020 | $211.0 | | 2019 | $255.2 | | 2018 | $275.8 | - R&D spending decreased in 2020 due to temporary cost actions in response to COVID-19 but is planned to return to 2019 levels in 2021[57](index=57&type=chunk) [ITEM 1A. RISK FACTORS](index=9&type=section&id=ITEM%201A.%20RISK%20FACTORS) The company faces risks from the COVID-19 pandemic, market competition, international operations, supply chain disruptions, and various financial and regulatory challenges - The COVID-19 pandemic has adversely affected the Company's workforce, operations, customers, and suppliers[60](index=60&type=chunk) - The pandemic caused cost reduction measures, including headcount reductions and supply chain adjustments, which may impact future operational ramp-ups[62](index=62&type=chunk) - Significant reductions or volatility in demand for products could negatively impact results[65](index=65&type=chunk) - Changes in customer preferences and relationships with large customers like Lowe's and Home Depot could adversely affect the business[66](index=66&type=chunk) - Active global competition and pricing pressures require maintaining a competitive cost structure and continuous innovation[69](index=69&type=chunk)[70](index=70&type=chunk) - Failure to effectively apply Operations Excellence principles or execute restructuring could adversely affect competitiveness[71](index=71&type=chunk)[72](index=72&type=chunk) - Low demand for new products or inability to develop them at favorable margins poses significant competitive risks[74](index=74&type=chunk)[75](index=75&type=chunk) - **Significant international operations (39% of revenue outside U.S.)** expose the Company to political, economic, and regulatory risks[78](index=78&type=chunk) - Sourcing and manufacturing overseas are subject to customs requirements, tariffs, and foreign currency variations[79](index=79&type=chunk)[80](index=80&type=chunk) - The Company's success depends on improving productivity and streamlining operations to control costs[84](index=84&type=chunk) - Business disruptions from catastrophic losses or IT system issues could negatively impact operations and reputation[85](index=85&type=chunk)[87](index=87&type=chunk) - Inflationary or deflationary conditions could impact the cost of raw materials, components, freight, and labor[89](index=89&type=chunk)[90](index=90&type=chunk) - Financial instability in economies outside the U.S, including Brexit, could decrease demand and impact receivables[93](index=93&type=chunk)[94](index=94&type=chunk)[95](index=95&type=chunk) - Exposure to market risk from changes in foreign currency exchange rates could negatively impact profitability[96](index=96&type=chunk)[97](index=97&type=chunk) - Significant indebtedness and potential future equity issuances may limit growth and dilute earnings[99](index=99&type=chunk)[100](index=100&type=chunk) - Tight capital markets or failure to maintain credit ratings could limit access to liquidity[102](index=102&type=chunk)[104](index=104&type=chunk)[105](index=105&type=chunk) - Discontinuation or reform of LIBOR could unpredictably impact contractual mechanics and increase borrowing costs[106](index=106&type=chunk) - Credit risk on accounts receivable could lead to losses if customers fail to meet obligations[107](index=107&type=chunk) - Potential write-downs of **goodwill ($10.0B)**, **indefinite-lived trade names ($2.2B)**, or other intangible assets could materially adversely affect net income[108](index=108&type=chunk) - Underperformance of employee benefit plan investments may require additional contributions, reducing available cash[109](index=109&type=chunk)[110](index=110&type=chunk) - The successful execution of business strategy depends on the ability to recruit, retain, and develop employees[111](index=111&type=chunk)[112](index=112&type=chunk)[113](index=113&type=chunk) - Acquisitions and reorganizations involve risks such as integration difficulties, unexpected costs, and failure to realize anticipated benefits[114](index=114&type=chunk)[115](index=115&type=chunk) - Expansion into emerging markets carries risks due to differences in business practices and cultures[116](index=116&type=chunk) - Violation of trademark rights or inability to protect intellectual property could negatively impact revenues and brand reputation[117](index=117&type=chunk)[119](index=119&type=chunk)[120](index=120&type=chunk) - Reliance on digital technology exposes the Company to cybersecurity risks, including data breaches and system disruptions[121](index=121&type=chunk)[122](index=122&type=chunk)[123](index=123&type=chunk)[124](index=124&type=chunk) - Compliance with evolving data privacy laws (e.g., GDPR, CCPA) imposes significant costs and risks[125](index=125&type=chunk)[126](index=126&type=chunk)[127](index=127&type=chunk) - Future tax law changes or audit results may materially increase tax expense[128](index=128&type=chunk) - Exposure to various litigation matters and regulatory actions could negatively impact results or cash flows[129](index=129&type=chunk)[130](index=130&type=chunk)[131](index=131&type=chunk)[132](index=132&type=chunk)[133](index=133&type=chunk) - Product recalls could increase costs and adversely impact the Company's reputation[134](index=134&type=chunk)[135](index=135&type=chunk) - Sales to government customers expose the Company to business volatility and procurement regulations[136](index=136&type=chunk)[137](index=137&type=chunk)[139](index=139&type=chunk) - The Company's results of operations may not meet guidance, leading to potential declines in stock price[140](index=140&type=chunk) [ITEM 1B. UNRESOLVED STAFF COMMENTS](index=25&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) There are no unresolved staff comments to report for the fiscal year - No unresolved staff comments[141](index=141&type=chunk) [ITEM 2. PROPERTIES](index=25&type=section&id=ITEM%202.%20PROPERTIES) The company owns or leases 92 significant facilities totaling approximately 25 million square feet across 20 states and 18 countries - As of January 2, 2021, the Company owned or leased significant facilities in 20 states and 18 countries[142](index=142&type=chunk) Significant Facilities (over 100,000 sq ft) by Segment (January 2, 2021) | Segment | Owned | Leased | Total | | :--- | :--- | :--- | :--- | | Tools & Storage | 43 | 22 | 65 | | Industrial | 15 | 6 | 21 | | Security | 1 | 2 | 3 | | Corporate | 2 | 1 | 3 | | **Total** | **61** | **31** | **92** | - The combined size of these facilities is approximately **25 million square feet**, and they are in good condition and generally fully utilized[142](index=142&type=chunk) [ITEM 3. LEGAL PROCEEDINGS](index=25&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) The company is involved in routine legal proceedings not expected to materially impact its financial position or operations - The Company is involved in various lawsuits and claims, including product liability, environmental, and distributor claims[143](index=143&type=chunk) - Management does not expect the resolution of these matters to have a materially adverse effect on the Company's financial position or liquidity[143](index=143&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=25&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the Company's operations - Not applicable[144](index=144&type=chunk) PART II [ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES](index=26&type=section&id=ITEM%205.%20MARKET%20FOR%20THE%20REGISTRANT'S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) The company's common stock (NYSE: SWK) performance, dividend history, and share repurchase activities are detailed - The Company's common stock is listed on the NYSE under the ticker symbol 'SWK' and is a component of the S&P 500 Index[145](index=145&type=chunk) Quarterly Stock Prices and Dividends (2019-2020) | Quarter | 2020 High | 2020 Low | 2020 Dividend Per Common Share | 2019 High | 2019 Low | 2019 Dividend Per Common Share | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | First | $172.53 | $72.03 | $0.69 | $138.92 | $115.69 | $0.66 | | Second | $148.23 | $92.13 | $0.69 | $153.08 | $127.22 | $0.66 | | Third | $166.25 | $135.61 | $0.70 | $152.51 | $128.85 | $0.69 | | Fourth | $190.94 | $161.48 | $0.70 | $167.76 | $135.09 | $0.69 | | **Total** | | | **$2.78** | | | **$2.70** | - As of February 15, 2021, the registrant had **160,893,004 shares of common stock outstanding**[6](index=6&type=chunk) Issuer Purchases of Equity Securities (Q4 2020) | Period | Total Number Of Shares Purchased | Average Price Paid Per Share | Total Number Of Shares Purchased As Part Of A Publicly Announced Plan Or Program | Maximum Number Of Shares That May Yet Be Purchased Under The Program | | :--- | :--- | :--- | :--- | :--- | | Sep 27 - Oct 31 | 3,494 | $175.67 | — | 11,450,000 | | Nov 1 - Nov 28 | 11 | $164.57 | — | 11,450,000 | | Nov 29 - Jan 2 | 79,591 | $176.76 | — | 11,450,000 | | **Total** | **83,096** | **$176.71** | **—** | **11,450,000** | - Shares purchased were deemed surrendered by benefit plan participants to satisfy taxes related to vesting of restricted share units[146](index=146&type=chunk) - A repurchase program for up to 15.0 million shares was approved in July 2017, with approximately **11.5 million shares remaining available** as of January 2, 2021[146](index=146&type=chunk) Cumulative Total Shareholder Return (2015-2020, $100 invested on Jan 2, 2016) | Year | Stanley Black & Decker | S&P 500 | S&P 500 Industrials | | :--- | :--- | :--- | :--- | | 2015 | $100.00 | $100.00 | $100.00 | | 2016 | $109.65 | $111.95 | $110.16 | | 2017 | $165.01 | $136.38 | $135.19 | | 2018 | $117.68 | $129.28 | $130.05 | | 2019 | $167.54 | $171.90 | $174.00 | | 2020 | $183.69 | $202.96 | $213.76 | [ITEM 6. SELECTED FINANCIAL DATA](index=28&type=section&id=ITEM%206.%20SELECTED%20FINANCIAL%20DATA) This section provides a five-year summary of key consolidated financial data, reflecting the impact of acquisitions and divestitures Selected Financial Data (2016-2020) | Metric (Millions of Dollars, Except Per Share Amounts) | 2020 | 2019 | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | :--- | :--- | | Net sales | $14,535 | $14,442 | $13,982 | $12,967 | $11,594 | | Net Earnings Attributable to Common Shareowners | $1,210 | $956 | $605 | $1,227 | $968 | | Earnings per share of common stock: Diluted | $7.77 | $6.35 | $3.99 | $8.05 | $6.53 | | Total assets | $23,566 | $20,597 | $19,408 | $19,098 | $15,655 | | Long-term debt, including current maturities | $4,245 | $3,180 | $3,822 | $3,806 | $3,806 | | Stanley Black & Decker, Inc.'s shareowners' equity | $11,060 | $9,136 | $7,836 | $8,302 | $6,374 | | Total debt to total capital | 27.7 % | 27.8 % | 34.9 % | 31.5 % | 37.4 % | | Income tax rate | 3.3 % | 14.2 % | 40.7 % | 19.7 % | 21.3 % | | Dividends per share | $2.78 | $2.70 | $2.58 | $2.42 | $2.26 | - 2020 results include **$400 million of pre-tax charges** and a **$211 million tax benefit**, resulting in a $199 million decrease in Net earnings[150](index=150&type=chunk) - 2019 results include **$363 million of pre-tax charges** and a **$78 million tax benefit**, resulting in a $309 million decrease in Net earnings[150](index=150&type=chunk)[152](index=152&type=chunk) - 2018 results include **$450 million of pre-tax charges** and a **$181 million net tax charge**, resulting in a $631 million decrease in Net earnings[152](index=152&type=chunk) - 2017 results include **$156 million of pre-tax acquisition-related charges** and a **$264 million pre-tax gain on sales of businesses**[152](index=152&type=chunk) [ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=31&type=section&id=ITEM%207.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section analyzes the company's financial performance, strategic direction, operational results, liquidity, and market risks - The Company's strategic framework aims to deliver top-quartile financial performance through its SBD Operating Model[156](index=156&type=chunk) Long-Term Financial Objectives | Objective | Target | | :--- | :--- | | Organic Revenue Growth | 4-6% | | Total Revenue Growth | 10-12% | | Total EPS Growth (excluding acquisition-related charges) | 10-12% (7-9% organically) | | Free Cash Flow | Equal to, or exceeding, net income | | Working Capital Turns | Sustain 10+ | | Cash Flow Return On Investment (CFROI) | 12-15% | - Capital allocation strategy commits to returning approximately **50% of free cash flow to shareholders** and deploying 50% for acquisitions[158](index=158&type=chunk) - In response to COVID-19, the Company implemented a cost reduction program that delivered **$500 million in savings in 2020**[159](index=159&type=chunk) - The cost reduction program included headcount reductions, furloughs, a voluntary retirement program, and footprint rationalizations[159](index=159&type=chunk)[160](index=160&type=chunk) - The Company repurchased **1,399,732 shares for $200 million** in April 2018 and **2,086,792 shares for $300 million** in July 2018[162](index=162&type=chunk) - Key acquisitions include **CAM (2020, $1.46B)**, **IES Attachments (2019, $653.5M)**, and **Nelson Fastener Systems (2018, $424.2M)**[163](index=163&type=chunk)[164](index=164&type=chunk)[165](index=165&type=chunk)[167](index=167&type=chunk)[168](index=168&type=chunk)[169](index=169&type=chunk)[170](index=170&type=chunk) - Divestitures include Sargent and Greenleaf mechanical locks (2019) and the majority of mechanical security businesses (2017)[172](index=172&type=chunk)[173](index=173&type=chunk) - In 2020, the Company reported **$400 million in pre-tax charges**, including items reducing Gross Profit, SG&A, and a loss on debt extinguishment[175](index=175&type=chunk)[176](index=176&type=chunk) - The 2020 charges resulted in net after-tax charges of **$199 million, or $1.27 per diluted share**, including a one-time tax benefit[177](index=177&type=chunk) - The Company's core franchises (Tools & Storage, Engineered Fastening, Security) are characterized by world-class brands and scalability[180](index=180&type=chunk)[183](index=183&type=chunk) - The Company invests heavily in brand building and commercial support, leveraging sponsorships and digital marketing[185](index=185&type=chunk)[186](index=186&type=chunk)[187](index=187&type=chunk)[188](index=188&type=chunk)[189](index=189&type=chunk) - The SBD Operating Model emphasizes people and technology, focusing on Performance Resiliency, Extreme Innovation, and Operations Excellence[190](index=190&type=chunk)[191](index=191&type=chunk)[192](index=192&type=chunk)[193](index=193&type=chunk)[194](index=194&type=chunk)[195](index=195&type=chunk)[196](index=196&type=chunk)[197](index=197&type=chunk) - The SBD Operating Model aims for **4-6% organic growth** and expanded operating margins over the next 3-5 years[199](index=199&type=chunk) - For 2021, the Company expects diluted EPS of **$9.15 to $9.85** and free cash flow conversion of approximately 100%[202](index=202&type=chunk) Consolidated Net Sales (2018-2020) | Year | Net Sales (Billions USD) | YoY Change | | :--- | :--- | :--- | | 2020 | $14.535 | +1% | | 2019 | $14.442 | +3% | | 2018 | $13.982 | N/A | - 2020 net sales increased 1% due to acquisitions and price increases, partially offset by pandemic-related volume decreases[206](index=206&type=chunk) - 2019 net sales increased 3% driven by organic growth and acquisitions, partially offset by foreign currency impact[207](index=207&type=chunk) Gross Profit and Margin (2018-2020) | Year | Gross Profit (Billions USD) | Gross Margin | Gross Margin (Excl. Charges) | | :--- | :--- | :--- | :--- | | 2020 | $4.968 | 34.2% | 34.7% | | 2019 | $4.806 | 33.3% | 33.5% | | 2018 | $4.851 | 34.7% | 35.2% | - 2020 gross margin (excl. charges) **increased to 34.7%** from 33.5% in 2019, driven by productivity and price realization[208](index=208&type=chunk) - 2019 gross margin (excl. charges) decreased to 33.5% from 35.2% in 2018, due to tariffs, inflation, and foreign exchange[209](index=209&type=chunk) SG&A Expense (2018-2020) | Year | SG&A (Billions USD) | % of Net Sales | % of Net Sales (Excl. Charges) | | :--- | :--- | :--- | :--- | | 2020 | $3.090 | 21.3% | 20.0% | | 2019 | $3.041 | 21.1% | 20.1% | | 2018 | $3.172 | 22.7% | 21.6% | - 2020 SG&A (excl. charges) was **20.0% of net sales**, reflecting cost management benefits[210](index=210&type=chunk) - Distribution center costs, classified in SG&A, amounted to **$347.8 million in 2020**[212](index=212&type=chunk) Corporate Overhead (2018-2020) | Year | Corporate Overhead (Millions USD) | % of Net Sales (Excl. Charges) | | :--- | :--- | :--- | | 2020 | $297.7 | 1.6% | | 2019 | $229.5 | 1.4% | | 2018 | $202.8 | 1.4% | - Corporate overhead (excl. charges) increased in 2020 to 1.6% of net sales, primarily due to higher employee-related costs[214](index=214&type=chunk) Other, net (2018-2020) | Year | Other, net (Millions USD) | Other, net (Excl. Charges) | | :--- | :--- | :--- | | 2020 | $262.8 | $253.8 | | 2019 | $249.1 | $218.9 | | 2018 | $287.0 | $178.9 | - The year-over-year increase in Other, net in 2020 was driven by higher intangible asset amortization and negative foreign currency impacts[215](index=215&type=chunk) Loss (Gain) on Sales of Businesses (2018-2020) | Year | Loss (Gain) on Sales of Businesses (Millions USD) | | :--- | :--- | | 2020 | $13.5 (net loss) | | 2019 | $(17.0) (gain) | | 2018 | $0.8 (loss) | Loss on Debt Extinguishments (2019-2020) | Year | Loss on Debt Extinguishments (Millions USD) | | :--- | :--- | | 2020 | $46.9 | | 2019 | $17.9 | Interest, net (2018-2020) | Year | Interest, net (Millions USD) | | :--- | :--- | | 2020 | $205.1 | | 2019 | $230.4 | | 2018 | $209.2 | - Net interest expense decreased in 2020 due to lower U.S. interest rates and commercial paper borrowings[218](index=218&type=chunk) Effective Tax Rate (2018-2020) | Year | Effective Tax Rate | Effective Tax Rate (Excl. One-time/Acquisition Charges) | | :--- | :--- | :--- | | 2020 | 3.3% | 15.1% | | 2019 | 14.2% | 16.0% | | 2018 | 40.7% | 16.0% | - The 2020 effective tax rate included a **$118.8 million one-time tax benefit** from a supply chain reorganization[220](index=220&type=chunk) - The 2018 effective tax rate included net charges associated with the Tax Cuts and Jobs Act[222](index=222&type=chunk) Tools & Storage Segment Performance (2018-2020) | Metric (Millions USD) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net sales | $10,330 | $10,062 | $9,814 | | Segment profit | $1,842 | $1,533 | $1,393 | | % of Net sales | 17.8% | 15.2% | 14.2% | - Tools & Storage net sales **increased 3% in 2020**, with 4% organic growth driven by strong H2 performance[226](index=226&type=chunk) - Tools & Storage segment profit (excl. charges) **increased to 18.3% of net sales in 2020** from 15.7% in 2019[227](index=227&type=chunk) Industrial Segment Performance (2018-2020) | Metric (Millions USD) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net sales | $2,353 | $2,435 | $2,188 | | Segment profit | $226 | $334 | $320 | | % of Net sales | 9.6% | 13.7% | 14.6% | - Industrial net sales **decreased 3% in 2020** due to 15% pandemic-related volume declines, partially offset by acquisition growth[231](index=231&type=chunk) - Industrial segment profit (excl. charges) **decreased to 12.4% of net sales in 2020** from 14.8% in 2019[232](index=232&type=chunk) Security Segment Performance (2018-2020) | Metric (Millions USD) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net sales | $1,852 | $1,945 | $1,981 | | Segment profit | $109 | $127 | $169 | | % of Net sales | 5.9% | 6.5% | 8.5% | - Security net sales **decreased 5% in 2020** due to pandemic-related volume declines and divestitures[236](index=236&type=chunk) - Security segment profit (excl. charges) **decreased to 9.8% of net sales in 2020** from 10.9% in 2019[237](index=237&type=chunk) Restructuring Reserve Activity (2019-2021) | (Millions of Dollars) | December 28, 2019 | Net Additions | Usage | Currency | January 2, 2021 | | :--- | :--- | :--- | :--- | :--- | :--- | | Severance and related costs | $140.3 | $63.9 | $(111.0) | $(5.7) | $87.5 | | Facility closures and asset impairments | $7.5 | $19.1 | $(23.9) | — | $2.7 | | **Total** | **$147.8** | **$83.0** | **$(134.9)** | **$(5.7)** | **$90.2** | - In 2020, net restructuring charges of **$83.0 million** were primarily for severance related to a cost reduction program[240](index=240&type=chunk)[243](index=243&type=chunk) - The 2020 restructuring actions are expected to achieve annual net cost savings of approximately **$175 million** by the end of 2021[244](index=244&type=chunk) Cash Flows Provided by Operations (2018-2020) | Year | Cash Flows from Operations (Billions USD) | | :--- | :--- | | 2020 | $2.022 | | 2019 | $1.506 | | 2018 | $1.261 | - Operating cash flows increased in 2020 due to higher earnings and strong cost control[245](index=245&type=chunk) Free Cash Flow (2018-2020) | Metric (Millions USD) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $2,022 | $1,506 | $1,261 | | Less: capital and software expenditures | $(348) | $(425) | $(492) | | **Free cash flow** | **$1,674** | **$1,081** | **$769** | - Free cash flow improved in 2020 due to higher operating cash flows and lower capital expenditures[247](index=247&type=chunk) - The Company maintains strong investment grade credit ratings and has significant liquidity with **$1.4 billion cash on hand** and **$3.0 billion revolving credit facilities**[248](index=248&type=chunk)[256](index=256&type=chunk) Cash and Cash Equivalents (2019-2021) | Metric | January 2, 2021 | December 28, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $1.381 billion | $298 million | | U.S. | $1.119 billion | $57 million | | Foreign | $262 million | $241 million | - The Company has a **$3.0 billion commercial paper program** and committed credit facilities as liquidity back-stops[259](index=259&type=chunk)[260](index=260&type=chunk)[261](index=261&type=chunk) - In April 2020, the 5-Year Credit Agreement was amended to provide greater financial flexibility due to COVID-19 impacts[265](index=265&type=chunk) Contractual Obligations (January 2, 2021) | (Millions of Dollars) | Total | 2021 | 2022-2023 | 2024-2025 | Thereafter | | :--- | :--- | :--- | :--- | :--- | :--- | | Long-term debt | $4,300 | $— | $— | $— | $4,300 | | Interest payments on long-term debt | $3,363 | $161 | $324 | $324 | $2,554 | | Lease obligations | $599 | $141 | $192 | $118 | $148 | | Inventory purchase commitments | $545 | $545 | $— | $— | $— | | **Total contractual cash obligations** | **$9,847** | **$1,166** | **$1,012** | **$640** | **$7,029** | Other Significant Commercial Commitments (January 2, 2021) | (Millions of Dollars) | Total | 2021 | 2022-2023 | 2024-2025 | Thereafter | | :--- | :--- | :--- | :--- | :--- | :--- | | U.S. lines of credit | $3,000 | $1,000 | $2,000 | $— | $— | - The Company is exposed to market risk from changes in foreign currency exchange rates, interest rates, and commodity prices[281](index=281&type=chunk) - Foreign currency risk is managed through derivative financial instruments, with a hypothetical 10% adverse movement estimated at a **$157 million pre-tax impact**[282](index=282&type=chunk)[283](index=283&type=chunk) - Interest rate risk is managed through fixed and floating rate debt and interest rate swaps[284](index=284&type=chunk)[285](index=285&type=chunk) - Commodity price exposures are managed through customer pricing, procurement cost reductions, and productivity improvements[286](index=286&type=chunk) - Fluctuations in common stock fair value affect domestic retirement plan expense and defined benefit plan assets[287](index=287&type=chunk)[288](index=288&type=chunk) - The Company's strong financial position and operating cash flows provide flexibility for dividends, investments, and acquisitions[290](index=290&type=chunk) - ESOP expense was **$6.3 million in 2020**, affected by the market value of the Company's stock[291](index=291&type=chunk) - Critical accounting estimates include allowance for credit losses, inventory valuation, goodwill impairment, and income taxes[292](index=292&type=chunk)[293](index=293&type=chunk)[295](index=295&type=chunk)[297](index=297&type=chunk)[304](index=304&type=chunk)[306](index=306&type=chunk)[308](index=308&type=chunk)[313](index=313&type=chunk)[314](index=314&type=chunk) - The Company had no off-balance sheet arrangements as of January 2, 2021[315](index=315&type=chunk) [ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=57&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section incorporates by reference the detailed discussion of market risks from Item 7 and Note I - The Company incorporates by reference the material captioned 'Market Risk' in Item 7 and in Note I of the Notes to Consolidated Financial Statements[321](index=321&type=chunk) [ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA](index=57&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This item refers to the index of Financial Statements and Financial Statement Schedule provided in Item 15 - See Item 15 for an index to Financial Statements and Financial Statement Schedule, which are incorporated herein by reference[322](index=322&type=chunk) [ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE](index=57&type=section&id=ITEM%209.%20CHANGES%20IN%20AND%20DISAGREEMENTS%20WITH%20ACCOUNTANTS%20ON%20ACCOUNTING%20AND%20FINANCIAL%20DISCLOSURE) There are no changes in or disagreements with accountants on accounting and financial disclosure to report - None[323](index=323&type=chunk) [ITEM 9A. CONTROLS AND PROCEDURES](index=58&type=section&id=ITEM%209A.%20CONTROLS%20AND%20PROCEDURES) Management concluded that the company's internal control over financial reporting and disclosure controls were effective as of January 2, 2021 - Management is responsible for establishing and maintaining adequate internal control over financial reporting[325](index=325&type=chunk) - The Company excluded Consolidated Aerospace Manufacturing, LLC (CAM) from its assessment of internal control over financial reporting as of January 2, 2021[326](index=326&type=chunk) CAM's Contribution to Financials (as of Jan 2, 2021) | Metric | Value | | :--- | :--- | | % of Total Assets | 6% | | % of Net Sales | 2% | - Management concluded that the Company's internal control over financial reporting was **effective** as of January 2, 2021[327](index=327&type=chunk) - The Company's disclosure controls and procedures were evaluated and concluded to be **effective** as of January 2, 2021[328](index=328&type=chunk) - No material changes in internal control over financial reporting occurred during the fiscal year, aside from the CAM acquisition integration[328](index=328&type=chunk) [ITEM 9B. OTHER INFORMATION](index=58&type=section&id=ITEM%209B.%20OTHER%20INFORMATION) There is no other information to report under this item - None[329](index=329&type=chunk) PART III [ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE OF THE REGISTRANT](index=59&type=section&id=ITEM%2010.%20DIRECTORS%2C%20EXECUTIVE%20OFFICERS%20AND%20CORPORATE%20GOVERNANCE%20OF%20THE%20REGISTRANT) This section provides information on the company's directors, executive officers, and corporate governance practices - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2021 Proxy Statement[331](index=331&type=chunk) - The Company maintains a Code of Business Ethics for all directors, officers, and employees[332](index=332&type=chunk) Executive Officers as of February 18, 2021 | Name | Age | Office | Date Elected to Office | | :--- | :--- | :--- | :--- | | James M. Loree | 62 | President & Chief Executive Officer | 7/19/1999 | | Donald Allan, Jr. | 56 | Executive Vice President & Chief Financial Officer | 10/24/2006 | | Jeffery D. Ansell | 53 | Executive Vice President, Stanley Black & Decker | 2/22/2006 | | Janet M. Link | 51 | Senior Vice President, General Counsel and Secretary | 7/19/2017 | | Jaime A. Ramirez | 53 | Executive Vice President & President, Global Tools & Storage | 3/12/2010 | | John H. Wyatt | 62 | Senior Vice President & President, Stanley Outdoor | 3/12/2010 | | Robert H. Raff | 54 | President, Stanley Security | 4/19/2018 | | Robert Blackburn | 52 | Senior Vice President of Global Operations | 5/6/2019 | | Graham N. Robinson | 52 | Senior Vice President & President, Stanley Industrial | 4/17/2020 | | Stephen Subasic | 52 | Senior Vice President, Chief Human Resources Officer | 2/18/2021 | [ITEM 11. EXECUTIVE COMPENSATION](index=61&type=section&id=ITEM%2011.%20EXECUTIVE%20COMPENSATION) This item incorporates by reference the detailed information on executive compensation from the company's definitive proxy statement - Information on executive compensation is incorporated by reference from the Company's definitive proxy statement[335](index=335&type=chunk) [ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS](index=61&type=section&id=ITEM%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS) This section provides information on security ownership and details on the company's equity compensation plans - Information on security ownership is incorporated by reference from the Company's definitive proxy statement[336](index=336&type=chunk) Equity Compensation Plan Information (January 2, 2021) | Plan Category | Number of securities to be issued upon exercise of outstanding options and stock awards (A) | Weighted-average exercise price of outstanding options (B) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (A)) (C) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 8,004,647 | $138.84 | 9,594,743 | | Equity compensation plans not approved by security holders | — | — | — | | **Total** | **8,004,647** | **$138.84** | **9,594,743** | - Column (A) includes **5,875,246 shares underlying outstanding stock options** and **2,033,157 shares underlying non-vested restricted stock units**[338](index=338&type=chunk) - Column (C) includes **1,480,962 shares available for purchase under the ESPP** and **8,113,781 securities available for future grants**[338](index=338&type=chunk) [ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE](index=63&type=section&id=ITEM%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS%2C%20AND%20DIRECTOR%20INDEPENDENCE) This item incorporates by reference information regarding related party transactions and director independence from the proxy statement - Information on certain relationships, related transactions, and director independence is incorporated by reference from the Company's definitive proxy statement[340](index=340&type=chunk) [ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES](index=63&type=section&id=ITEM%2014.%20PRINCIPAL%20ACCOUNTANT%20FEES%20AND%20SERVICES) This item incorporates by reference the information on principal accountant fees and services from the proxy statement - Information on principal accountant fees and services is incorporated by reference from the Company's definitive proxy statement[341](index=341&type=chunk) PART IV [ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE](index=63&type=section&id=ITEM%2015.%20EXHIBITS%20AND%20FINANCIAL%20STATEMENT%20SCHEDULE) This section provides an index to the financial statements, schedules, and exhibits filed as part of this report - This item provides an index to financial statements and financial statement schedule[342](index=342&type=chunk)[343](index=343&type=chunk)[345](index=345&type=chunk) - Includes Management's Report on Internal Control Over Financial Reporting and Reports of Independent Registered Public Accounting Firm[345](index=345&type=chunk) - The consolidated financial statements for the fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018, are incorporated by reference[346](index=346&type=chunk)[347](index=347&type=chunk) [ITEM 16. FORM 10-K SUMMARY](index=65&type=section&id=ITEM%2016.%20FORM%2010-K%20SUMMARY) This item indicates that a Form 10-K summary is not applicable - Not applicable[349](index=349&type=chunk) [SIGNATURES](index=66&type=section&id=SIGNATURES) This section contains the required signatures for the Annual Report on Form 10-K, affirming the report's accuracy - The report is signed by James M. Loree (President and CEO), Donald Allan, Jr. (EVP and CFO), and other Directors[352](index=352&type=chunk)[353](index=353&type=chunk) FINANCIAL STATEMENTS AND NOTES [Schedule II — Valuation and Qualifying Accounts](index=67&type=section&id=Schedule%20II%20%E2%80%94%20Valuation%20and%20Qualifying%20Accounts) This schedule details changes in the allowance for credit losses and tax valuation allowance for fiscal years 2018-2020 Allowance for Credit Losses Activity (2018-2020) | (Millions of Dollars) | Beginning Balance | Charged To Costs And Expenses | Charged To Other Accounts | Deductions | Ending Balance | | :--- | :--- | :--- | :--- | :--- | :--- | | Year Ended 2020 | $112.4 | $41.1 | $23.7 | $(36.1) | $141.1 | | Year Ended 2019 | $102.0 | $33.0 | $5.9 | $(28.5) | $112.4 | | Year Ended 2018 | $80.4 | $28.0 | $12.5 | $(18.9) | $102.0 | Tax Valuation Allowance Activity (2018-2020) | (Millions of Dollars) | Beginning Balance | Charged To Costs And Expenses | Charged To Other Accounts | Deductions | Ending Balance | | :--- | :--- | :--- | :--- | :--- | :--- | | Year Ended 2020 | $1,065.0 | $312.0 | $(8.6) | $(309.5) | $1,058.9 | | Year Ended 2019 | $626.7 | $461.5 | $(0.5) | $(22.7) | $1,065.0 | | Year Ended 2018 | $516.7 | $146.2 | $(6.4) | $(29.8) | $626.7 | [MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING](index=68&type=section&id=MANAGEMENT'S%20REPORT%20ON%20INTERNAL%20CONTROL%20OVER%20FINANCIAL%20REPORTING) Management affirms its responsibility for internal control over financial reporting and concluded its effectiveness as of January 2, 2021 - Management is responsible for establishing and maintaining adequate internal control over financial reporting[356](index=356&type=chunk) - The assessment of internal control over financial reporting as of January 2, 2021, excluded the recently acquired Consolidated Aerospace Manufacturing, LLC (CAM)[357](index=357&type=chunk) - Management concluded that the Company's internal control over financial reporting was **effective** as of January 2, 2021, based on the COSO criteria[358](index=358&type=chunk) [Report of Independent Registered Public Accounting Firm](index=69&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Ernst & Young LLP issued an unqualified opinion on the financial statements and internal controls, highlighting critical audit matters - Ernst & Young LLP issued an **unqualified opinion** on the Company's consolidated financial statements as of January 2, 2021[362](index=362&type=chunk) - An **unqualified opinion** was also expressed on the effectiveness of the Company's internal control over financial reporting as of January 2, 2021[363](index=363&type=chunk) - Critical audit matters include accounting for the **CAM acquisition**, the **goodwill impairment test for the Infrastructure reporting unit**, and **uncertain tax positions**[366](index=366&type=chunk)[367](index=367&type=chunk)[369](index=369&type=chunk) - Auditing the CAM acquisition involved subjective judgment due to significant estimation in determining the fair value of customer relationships[368](index=368&type=chunk) - The goodwill impairment test for the Infrastructure reporting unit was challenging due to significant estimation, particularly the revenue growth assumption[369](index=369&type=chunk) - Auditing uncertain tax positions was challenging and subjective due to global operations and interpretations of tax law[369](index=369&type=chunk) [Consolidated Statements of Operations](index=73&type=section&id=Consolidated%20Statements%20of%20Operations) This statement presents the company's financial performance for fiscal years 2018-2020, detailing revenues, expenses, and earnings per share Consolidated Statements of Operations (2018-2020) | (Millions of Dollars, Except Per Share Amounts) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net Sales | $14,534.6 | $14,442.2 | $13,982.4 | | Cost of sales | $9,566.7 | $9,636.7 | $9,131.3 | | Selling, general and administrative | $3,048.5 | $3,008.0 | $3,143.7 | | Earnings before income taxes and equity interest | $1,267.0 | $1,130.0 | $1,022.1 | | Net earnings | $1,234.7 | $958.0 | $605.8 | | Net Earnings Attributable to Common Shareowners | $1,210.4 | $955.8 | $605.2 | | Earnings per share of common stock: Diluted | $7.77 | $6.35 | $3.99 | [Consolidated Statements of Comprehensive Income](index=74&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) This statement presents the company's net earnings and other comprehensive income components for fiscal years 2018-2020 Consolidated Statements of Comprehensive Income (2018-2020) | (Millions of Dollars) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net Earnings Attributable to Common Shareowners | $1,210.4 | $955.8 | $605.2 | | Other comprehensive income (loss) | $170.9 | $(70.3) | $(225.2) | | Comprehensive income attributable to common shareowners | $1,381.3 | $885.5 | $380.0 | [Consolidated Balance Sheets](index=75&type=section&id=Consolidated%20Balance%20Sheets) This statement provides a snapshot of the company's financial position as of January 2, 2021, and December 28, 2019 Consolidated Balance Sheets (2019-2020) | (Millions of Dollars) | 2020 | 2019 | | :--- | :--- | :--- | | **ASSETS** | | | | **Total Current Assets** | **$6,036.0** | **$4,456.6** | | Property, Plant and Equipment, net | $2,053.8 | $1,959.5 | | Goodwill | $10,038.1 | $9,237.5 | | **Total Assets** | **$23,566.3** | **$20,596.6** | | **LIABILITIES AND SHAREOWNERS' EQUITY** | | | | **Total Current Liabilities** | **$4,558.3** | **$4,405.7** | | Long-Term Debt | $4,245.4 | $3,176.4 | | **Total Shareowners' Equity** | **$11,066.4** | **$9,142.2** | | **Total Liabilities and Shareowners' Equity** | **$23,566.3** | **$20,596.6** | [Consolidated Statements of Cash Flows](index=76&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This statement details the company's cash inflows and outflows from operating, investing, and financing activities for fiscal years 2018-2020 Consolidated Statements of Cash Flows (2018-2020) | (Millions of Dollars) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | **Net cash provided by operating activities** | **$2,022.1** | **$1,505.7** | **$1,260.9** | | **Net cash used in investing activities** | **$(1,577.1)** | **$(1,208.6)** | **$(989.1)** | | **Net cash provided by (used in) financing activities** | **$615.9** | **$(292.5)** | **$(561.6)** | | Change in cash, cash equivalents and restricted cash | $1,083.7 | $3.2 | $(343.7) | | **Cash, cash equivalents and restricted cash, end of year** | **$1,398.3** | **$314.6** | **$311.4** | Reconciliation of Cash, Cash Equivalents and Restricted Cash (2019-2021) | | January 2, 2021 | December 28, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $1,381.0 | $297.7 | | Restricted cash included in Other current assets | $17.3 | $16.9 | | **Cash, cash equivalents and restricted cash** | **$1,398.3** | **$314.6** | [Consolidated Statements of Changes in Shareowners' Equity](index=78&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareowners'%20Equity) This statement provides an overview of the movements in all components of shareowners' equity for fiscal years 2018-2020 Consolidated Statements of Changes in Shareowners' Equity (2018-2020) | (Millions of Dollars) | Preferred Stock | Common Stock | Additional Paid In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | ESOP | Treasury Stock | Non-Controlling Interests | Shareowners' Equity | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Balance December 29, 2018** | **$750.0** | **$442.3** | **$4,621.0** | **$6,219.0** | **$(1,814.3)** | **$(10.5)** | **$(2,371.3)** | **$3.7** | **$7,839.9** | | Net earnings | | | | $955.8 | | | | $2.2 | $958.0 | | Other comprehensive loss | | | | | $(70.3) | | | | $(70.3) | | **Balance December 28, 2019** | **$1,500.0** | **$442.3** | **$4,492.9** | **$6,772.8** | **$(1,884.6)** | **$(2.3)** | **$(2,184.8)** | **$5.9** | **$9,142.2** | | Net earnings | | | | $1,233.8 | | | | $0.9 | $1,234.7 | | Other comprehensive income | | | | | $170.9 | | | | $170.9 | | **Balance January 2, 2021** | **$1,500.0** | **$442.3** | **$4,832.7** | **$7,547.6** | **$(1,713.7)** | **$—** | **$(1,549.3)** | **$6.8** | **$11,066.4** | [A. SIGNIFICANT ACCOUNTING POLICIES](index=79&type=section&id=A.%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines the significant accounting policies used in preparing the Consolidated Financial Statements - The Consolidated Financial Statements include Stanley Black & Decker, Inc and its majority-owned subsidiaries[396](index=396&type=chunk) - Acquisitions in 2020 (CAM), 2019 (IES Attachments), and 2018 (Nelson) were accounted for as business combinations[397](index=397&type=chunk) - A **20% interest in MTD Holdings Inc** was acquired in January 2019, accounted for using the equity method[398](index=398&type=chunk) - Divestitures in 2020 and 2019 are reported in the Consolidated Financial Statements through their sale dates[400](index=400&type=chunk)[401](index=401&type=chunk) - Foreign operations' assets and liabilities are translated at current exchange rates, with adjustments reported in shareowners' equity[404](index=404&type=chunk) - The allowance for credit losses is determined using specific reserves and a percentage-based reserve based on historical data[409](index=409&type=chunk) - U.S. inventories are primarily valued at LIFO cost, while non-U.S. inventories use FIFO cost[410](index=410&type=chunk) - Property, plant and equipment are valued at historical cost less accumulated depreciation[411](index=411&type=chunk) - Goodwill and indefinite-lived intangible assets are not amortized but are tested for impairment annually[414](index=414&type=chunk)[415](index=415&type=chunk)[416](index=416&type=chunk)[417](index=417&type=chunk) - Derivative financial instruments are used to manage foreign currency, interest rate, and commodity price risks[418](index=418&type=chunk)[419](index=419&type=chunk)[420](index=420&type=chunk)[421](index=421&type=chunk) - Revenue is recognized based on a five-step model (ASC 606), primarily at a point in time for tangible products[422](index=422&type=chunk)[425](index=425&type=chunk) - For contracts with multiple performance obligations, transaction price is allocated based on standalone selling price[426](index=426&type=chunk)[427](index=427&type=chunk) - Revenue for security systems and construction projects is recognized over time using the input method[429](index=429&type=chunk)[430](index=430&type=chunk) - Cost of sales includes manufacturing, service delivery, freight, and overhead; SG&A includes selling, distribution, and administrative expenses[434](index=434&type=chunk)[435](index=435&type=chunk) - Advertising costs are expensed when incurred or when the advertisement first airs[436](index=436&type=chunk) - Stock-based compensation is recognized on a straight-line basis over the vesting period[439](index=439&type=chunk) - Income taxes are accounted for under the asset and liability method (ASC 740)[441](index=441&type=chunk)[442](index=442&type=chunk)[443](index=443&type=chunk)[444](index=444&type=chunk) - Recently adopted accounting standards include those for cloud computing costs, fair value disclosures, and credit losses[446](index=446&type=chunk)[447](index=447&type=chunk)[448](index=448&type=chunk)[449](index=449&type=chunk)[450](index=450&type=chunk) - ASU 2016-13 (Credit Losses) adoption in Q1 2020 resulted in a **$3.8 million cumulative-effect adjustment** to opening retained earnings[450](index=450&type=chunk) - Newly issued accounting standards not yet adopted relate to convertible debt, reference rate reform, and income taxes[451](index=451&type=chunk)[452](index=452&type=chunk)[454](index=454&type=chunk)[455](index=455&type=chunk)[456](index=456&type=chunk) [B. ACCOUNTS AND NOTES RECEIVABLE](index=87&type=section&id=B.%20ACCOUNTS%20AND%20NOTES%20RECEIVABLE) This note details the composition of accounts and notes receivable, net of an allowance for credit losses Accounts and Notes Receivable, Net (2019-2020) | (Millions of Dollars) | 2020 | 2019 | | :--- | :--- | :--- | | Gross accounts and notes receivable | $1,653.3 | $1,567.0 | | Allowance for credit losses | $(141.1) | $(112.4) | | **Accounts and notes receivable, net** | **$1,512.2** | **$1,454.6** | | Long-term receivable, net | $139.9 | $146.1 | - Trade receivables are diversified across retailers, distributors, and industrial accounts globally[457](index=457&type=chunk) Changes in Allowance for Credit Losses (2019-2021) | (Millions of Dollars) | Balance December 28, 2019 | Cumulative Effect Adjustment (a) | Charged To Costs and Expenses | Charged To Other Accounts (b) | Deductions (c) | Balance January 2, 2021 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Total** | **$112.4** | **$3.8** | **$41.1** | **$19.9** | **$(36.1)** | **$141.1** | - Financing receivables primarily relate to security equipment sales-type leases[457](index=457&type=chunk)[460](index=460&type=chunk) Expected Timing of Lease Receivable Payments (January 2, 2021) | (Millions of Dollars) | Total | Within 1 Year | 2 Years | 3 Years | 4 Years | 5 Years | Thereafter | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Finance receivables | $209.5 | $80.3 | $56.5 | $38.9 | $21.4 | $8.1 | $4.3 | | Operating leases | $39.7 | $38.5 | $0.9 | $0.3 | $— | $— | $— | Lease Revenue and Sales-Type Lease Profit (2019-2020) | (Millions of Dollars) | 2020 | 2019 | | :--- | :--- | :--- | | **Total lease revenue** | **$257.8** | **$250.5** | | Sales-type lease profit | $45.0 | $35.3 | - The Company sells certain trade accounts receivables to a special purpose subsidiary for liquidity[462](index=462&type=chunk) Accounts Receivable Sale Program (2019-2020) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net receivables derecognized | $86.8 million | $100.0 million | | Proceeds from transfers | $259.6 million | $495.4 million | | Pre-tax loss | $1.7 million | $3.6 million | - As of January 2, 2021, deferred revenue totaled **$207.6 million**, with **$1.107 billion** of unearned revenue from long-term contracts[464](index=464&type=chunk)[465](index=465&type=chunk) [C. INVENTORIES](index=89&type=section&id=C.%20INVENTORIES) This note provides a breakdown of inventory by category and details the LIFO and FIFO valuation methods used Inventories, Net (2019-2020) | (Millions of Dollars) | 2020 | 2019 | | :--- | :--- | :--- | | Finished products | $1,922.5 | $1,526.0 | | Work in process | $222.3 | $162.0 | | Raw materials | $592.6 | $567.0 | | **Total** | **$2,737.4** | **$2,255.0** | - Net inventories valued at LIFO cost were **$1.3 billion in 2020** and **$1.1 billion in 2019**[466](index=466&type=chunk) - The CAM acquisition in Q1 2020 included **$124.3 million in net inventory** at fair value[467](index=467&type=chunk) [D. PROPERTY, PLANT AND EQUIPMENT](index=89&type=section&id=D.%20PROPERTY%2C%20PLANT%20AND%20EQUIPMENT) This note presents the gross and net values of property, plant, and equipment and details depreciation and amortization expense Property, Plant and Equipment, Net (2019-2020) | (Millions of Dollars) | 2020 | 2019 | | :--- | :--- | :--- | | Property, plant & equipment, gross | $4,679.9 | $4,290.8 | | Less: accumulated depreciation and amortization | $(2,626.1) | $(2,331.3) | | **Property, plant & equipment, net** | **$2,053.8** | **$1,959.5** | Depreciation and Amortization Expense (2018-2020) | (Millions of Dollars) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | **Depreciation and amortization expense** | **$376.5** | **$372.8** | **$331.2** | [E. ACQUISITIONS AND INVESTMENTS](index=89&type=section&id=E.%20ACQUISITIONS%20AND%20INVESTMENTS) This note details the company's acquisition activities, including purchase prices, fair values of acquired assets, and resulting goodwill - On February 24, 2020, the Company acquired Consolidated Aerospace Manufacturing, LLC (CAM) for an estimated purchase price of **$1.46 billion**[469](index=469&type=chunk) - The CAM acquisition included an initial cash payment of **$1.30 billion** and future contingent payments up to **$200.0 million**[469](index=469&type=chunk) - In November 2020, **$100 million was paid for contingent consideration** related to the 737 MAX return to service[470](index=470&type=chunk) Estimated Acquisition Date Value of CAM Net Assets (Millions USD) | Asset/Liability | Value | | :--- | :--- | | **Total identifiable net assets** | **$858.6** | | Goodwill | $633.2 | | Contingent consideration | $(155.3) | | **Total consideration paid** | **$1,336.5** | - Goodwill from the CAM acquisition was **$633.2 million**, with $569.8 million estimated to be tax deductible[473](index=473&type=chunk) - In 2020, one smaller acquisition was completed for **$28.2 million**, adding goodwill to the Security segment[476](index=476&type=chunk) - On March 8, 2019, the Company acquired IES Attachments for **$653.5 million**, adding **$311.3 million in goodwill** to the Industrial segment[478](index=478&type=chunk)[480](index=480&type=chunk) - In 2019, five smaller acquisitions totaled **$40.8 million**[483](index=483&type=chunk) - On April 2, 2018, Nelson Fastener Systems was acquired for **$424.2 million**, adding **$216.9 million in goodwill** to the Industrial segment[484](index=484&type=chunk)[485](index=485&type=chunk) - In 2018, six smaller acquisitions totaled **$104.5 million**[487](index=487&type=chunk) Actual Impact from 2020 Acquisitions (Millions USD) | Metric | 2020 | | :--- | :--- | | Net sales | $233.9 | | Net loss attributable to common shareowners | $(89.4) | Pro-forma Impact from Acquisitions (Millions USD, except per share amounts) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net sales | $14,592.6 | $14,903.7 | | Net earnings attributable to common shareowners | $1,256.7 | $923.0 | | Diluted earnings per share | $8.06 | $6.13 | - The Company made additional immaterial investments in new and emerging start-up companies in 2020, 2019, and 2018[495](index=495&type=chunk) [F. GOODWILL AND INTANGIBLE ASSETS](index=94&type=section&id=F.%20GOODWILL%20AND%20INTANGIBLE%20ASSETS) This note details changes in goodwill by segment, provides a breakdown of intangible assets, and reports on annual impairment testing Changes in Goodwill by Segment (2018-2021) | (Millions of Dollars) | Tools & Storage | Industrial | Security | Total | | :--- | :--- | :--- | :--- | :--- | | **Balance December 28, 2019** | **$5,161.8** | **$1,995.5** | **$2,080.2** | **$9,237.5** | | Acquisitions | $0.1 | $635.7 | $14.9 | $650.7 | | Foreign currency translation and other | $85.8 | $15.3 | $48.8 | $149.9 | | **Balance January 2, 2021** | **$5,247.7** | **$2,646.5** | **$2,143.9** | **$10,038.1** | - Goodwill for the CAM acquisition is subject to change upon finalization of acquisition accounting[496](index=496&type=chunk) - Goodwill for the Security segment was reduced by **$31.3 million** due to a divestiture[497](index=497&type=chunk) - Annual impairment testing in Q3 2020 determined that the fair values of all reporting units **substantially exceeded their carrying amounts**[498](index=498&type=chunk)[300](index=300&type=chunk) Intangible Assets, Net (2019-2020) | (Millions of Dollars) | 2020 Gross Carrying Amount | 2020 Accumulated Amortization | 2019 Gross Carrying Amount | 2019 Accumulated Amortization | | :--- | :--- | :--- | :--- | :--- | | **Total Amortized Intangible Assets** | **$3,867.8** | **$(2,010.0)** | **$3,209.0** | **$(1,773.3)** | | Indefinite-lived trade names | $2,198.0 | N/A | $2,186.0 | N/A | - Indefinite-lived trade names were tested for impairment in Q3 2020, with fair values exceeding carrying amounts[501](index=501&type=chunk) Intangible Assets Amortization Expense by Segment (2018-2020) | (Millions of Dollars) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | **Consolidated** | **$201.6** | **$187.4** | **$175.3** | - Future amortization expense is projected at **$201.8 million for 2021**[502](index=502&type=chunk) [G. ACCRUED EXPENSES](index=95&type=section&id=G.%20ACCRUED%20EXPENSES) This note provides a detailed breakdown of the company's accrued expenses as of January 2, 2021, and December 28, 2019 Accrued Expenses (2019-2020) | (Millions of Dollars) | 2020 | 2019 | | :--- | :--- | :--- | | Payroll and related taxes | $324.2 | $262.4 | | Income and other taxes | $241.0 | $243.9 | | Customer rebates and sales returns | $229.6 | $112.0 | | Restructuring costs | $90.2 | $147.8 | | Derivative financial instruments | $185.3 | $22.4 | | **Total** | **$2,110.4** | **$1,977.5** | [H. LONG-TERM DEBT AND FINANCING ARRANGEMENTS](index=95&type=section&id=H.%20LONG-TERM%20DEBT%20AND%20FINANCING%20ARRANGEMENTS) This note details the company's long-term debt, recent issuances and redemptions, and other financing arrangements Long-Term Debt and Financing Arrangements (2019-2021) | (Millions of Dollars) | Interest Rate | Original Notional | 2021 Carrying Value | 2019 Carrying Value | | :--- | :--- | :--- | :--- | :--- | | Notes payable due 2026 | 3.40% | $500.0 | $497.2 | $496.5 | | Notes payable due 2028 | 4.25% | $500.0 | $496.2 | $495.8 | | Notes payable due 2030 | 2.30% | $750.0 | $742.9 | $— | | Notes payable due 2048 | 4.85% | $500.0 | $494.3 | $494.1 | | Notes payable due 2050 | 2.75% | $750.0 | $739.9 | $— | | **Total long-term debt, including current maturities** | | **$4,300.0** | **$4,245.4** | **$3,179.5** | - As of January 2, 2021, total aggregate annual principal maturities of long-term debt are **$4.3 billion thereafter**[505](index=505&type=chunk) - In November 2020, the Company issued **$750.0 million of 2.75% senior unsecured term notes due 2050**[506](index=506&type=chunk) - Contemporaneously, the Company redeemed **$1.2 billion of 2021 and 2022 Term Notes**, recognizing a **$46.9 million pre-tax loss**[507](index=507&type=chunk) - In February 2020, the Company issued **$750.0 million of 2.3% notes due 2030** and **$750.0 million of 4.0% debentures due 2060**[508](index=508&type=chunk)[509](index=509&type=chunk) - In March 2019, **$500.0 million of 3.40% senior unsecured notes due 2026** were issued[510](index=510&type=chunk) - In November 2018, the Company issued **$500.0 million of 4.25% notes due 2028** and **$500.0 million of 4.85% notes due 2048**[511](index=511&type=chunk) - The Company has a **$3.0 billion commercial paper program** and committed credit facilities as liquidity back-stops[515](index=515&type=chunk)[516](index=516&type=chunk)[517](index=517&type=chunk)[518](index=518&type=chunk) - As of January 2, 2021, **no borrowings were outstanding** under the commercial paper program or committed credit facilities[515](index=515&type=chunk)[516](index=516&type=chunk)[518](index=518&type=chunk) - The Company's interest coverage covenant was amended in April 2020 to provide greater financial flexibility[521](index=521&type=chunk) [I. FINANCIAL INSTRUMENTS](index=99&type=section&id=I.%20FINANCIAL%20INSTRUMENTS) This note details the company's use of derivative financial instruments to manage various market risks - The Company uses derivative financial instruments to manage market risks, not for speculative purposes[522](index=522&type=chunk)[523](index=523&type=chunk) Fair Values of Derivatives (2019-2021) | (Millions of Dollars) | 2020 Fair Value | 2019 Fair Value | | :--- | :--- | :--- | | **Total Designated as hedging instruments** | **$175.4** | **$394.9** | | **Derivatives not designated as hedging instruments** | **$15.6** | **$3.7** | | **Total** | **$191.0** | **$401.0** | - The Company is exposed to credit risk for net exchanges but limits exposure by contracting with diverse financial institutions[525](index=525&type=chunk) - After-tax mark-to-market losses for cash flow hedge effectiveness were **$103.0 million in 2020** and **$54.2 million in 2019**[527](index=527&type=chunk) - An after-tax loss of **$20.1 million** from cash flow hedges is expected to be reclassified to earnings within the next twelve months[527](index=527&type=chunk) Pre-tax Effect of Cash Flow Hedge Accounting on Consolidated Statements of Operations (2018-2020) | (Millions of dollars) | 2020 Cost of Sales | 2020 Interest Expense | 2019 Cost of Sales | 2019 Interest Expense | 2018 Cost of Sales | 2018 Interest Expense | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Gain (loss) reclassified from OCI into Income | $12.4 | $(16.3) | $(6.5) | $(16.2) | $(17.9) | $(15.3) | - In 2020, the Company terminated forward starting interest rate swaps totaling **$1.0 billion**, resulting in a **$20.5 million loss**[530](index=530&type=chunk) - The Company uses forward contracts to hedge forecasted inventory purchases and sales[535](index=535&type=chunk) - Net investment hedges offset translation adjustments from foreign subsidiaries, with total after-tax amounts in OCI of **$72.8 million in 2021**[540](index=540&type=chunk) - As of January 2, 2021, the Company had cross currency swaps with a notional value of **$839.4 million**[541](index=541&type=chunk) Pre-tax Gains and Losses from Fair Value Changes on Net Investment Hedges (2018-2020) | (Millions of Dollars) | 2020 Total Gain (Loss) Recorded in OCI | 2019 Total Gain (Loss) Recorded in OCI | 2018 Total Gain (Loss) Recorded in OCI | | :--- | :--- | :--- | :--- | | Forward Contracts | $0.8 | $6.4 | $37.1 | | Cross Currency Swap | $(5.4) | $54.8 | $(2.3) | | Option Contracts | $— | $(3.7) | $(2.0) | | Non-derivative designated as Net Investment Hedge | $(8.5) | $21.7 | $61.8 | Gain (Loss) from Undesignated Foreign Exchange Contracts (2018-2020) | (Millions of Dollars) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Foreign Exchange Contracts (Other-net) | $(15.7) | $(4.1) | $17.0 | [J. CAPITAL STOCK](index=104&type=section&id=J.%20CAPITAL%20STOCK) This note details earnings per share, common stock activity, stock-based compensation plans, and other equity arrangements Earnings Per Share Reconciliation (2018-2020) | (Millions of Dollars, in thousands for shares) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net Earnings Attributable to Common Shareowners | $1,210.4 | $955.8 | $605.2 | | Diluted weighted-average shares outstanding | 155,861 | 150,558 | 151,643 | | Earnings per share of common stock: Diluted | $7.77 | $6.35 | $3.99 | - The 2019