Stanley Black & Decker(SWK) - 2021 Q4 - Annual Report

PART I ITEM 1. BUSINESS 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] - The Company is a diversified global provider of hand tools, power tools, engineered fastening systems, and commercial electronic security solutions[14] 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] - Since 2002, the Company has completed approximately $11.5 billion in acquisitions, including notable purchases like CAM, Newell Tools, and the Craftsman® brand[16] - 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] - The Company has divested several businesses, including mechanical locks and security businesses, to align with its long-term growth strategy[18][19] - The Company's 2030 Corporate Social Responsibility strategy includes targets for workforce upskilling, product innovation, and environmental preservation[21] - The Company's operations are classified into three reportable business segments: Tools & Storage, Industrial, and Security[22] 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][26][27] - The Industrial segment comprises Engineered Fastening and Infrastructure, serving automotive, manufacturing, aerospace, and other sectors[29][30] - The Security segment includes Convergent Security Solutions and Mechanical Access Solutions, primarily sold directly[32] - Competition is active across all segments, based on product quality, brands, innovation, and value[33][34] 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] 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] - The Company owns numerous significant patents and trademarks, including STANLEY®, BLACK+DECKER®, DEWALT®, and CRAFTSMAN®[39][40] - Operations are subject to various laws and regulations, including environmental, international trade, data privacy, and consumer protection[41] 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] - The Company's human capital strategy focuses on culture, leadership, performance management, and Diversity, Equity & Inclusion (DE&I)[47][48] - The Company promotes lifelong learning through internal and external partnerships, focusing on reskilling and upskilling employees[51] - The Company is committed to employee wellness, health, and safety, demonstrated by its agile response to the COVID-19 pandemic[53] 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] ITEM 1A. RISK FACTORS 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] - The pandemic caused cost reduction measures, including headcount reductions and supply chain adjustments, which may impact future operational ramp-ups[62] - Significant reductions or volatility in demand for products could negatively impact results[65] - Changes in customer preferences and relationships with large customers like Lowe's and Home Depot could adversely affect the business[66] - Active global competition and pricing pressures require maintaining a competitive cost structure and continuous innovation[69][70] - Failure to effectively apply Operations Excellence principles or execute restructuring could adversely affect competitiveness[71][72] - Low demand for new products or inability to develop them at favorable margins poses significant competitive risks[74][75] - Significant international operations (39% of revenue outside U.S.) expose the Company to political, economic, and regulatory risks[78] - Sourcing and manufacturing overseas are subject to customs requirements, tariffs, and foreign currency variations[79][80] - The Company's success depends on improving productivity and streamlining operations to control costs[84] - Business disruptions from catastrophic losses or IT system issues could negatively impact operations and reputation[85][87] - Inflationary or deflationary conditions could impact the cost of raw materials, components, freight, and labor[89][90] - Financial instability in economies outside the U.S, including Brexit, could decrease demand and impact receivables[93][94][95] - Exposure to market risk from changes in foreign currency exchange rates could negatively impact profitability[96][97] - Significant indebtedness and potential future equity issuances may limit growth and dilute earnings[99][100] - Tight capital markets or failure to maintain credit ratings could limit access to liquidity[102][104][105] - Discontinuation or reform of LIBOR could unpredictably impact contractual mechanics and increase borrowing costs[106] - Credit risk on accounts receivable could lead to losses if customers fail to meet obligations[107] - Potential write-downs of goodwill ($10.0B), indefinite-lived trade names ($2.2B), or other intangible assets could materially adversely affect net income[108] - Underperformance of employee benefit plan investments may require additional contributions, reducing available cash[109][110] - The successful execution of business strategy depends on the ability to recruit, retain, and develop employees[111][112][113] - Acquisitions and reorganizations involve risks such as integration difficulties, unexpected costs, and failure to realize anticipated benefits[114][115] - Expansion into emerging markets carries risks due to differences in business practices and cultures[116] - Violation of trademark rights or inability to protect intellectual property could negatively impact revenues and brand reputation[117][119][120] - Reliance on digital technology exposes the Company to cybersecurity risks, including data breaches and system disruptions[121][122][123][124] - Compliance with evolving data privacy laws (e.g., GDPR, CCPA) imposes significant costs and risks[125][126][127] - Future tax law changes or audit results may materially increase tax expense[128] - Exposure to various litigation matters and regulatory actions could negatively impact results or cash flows[129][130][131][132][133] - Product recalls could increase costs and adversely impact the Company's reputation[134][135] - Sales to government customers expose the Company to business volatility and procurement regulations[136][137][139] - The Company's results of operations may not meet guidance, leading to potential declines in stock price[140] ITEM 1B. UNRESOLVED STAFF COMMENTS There are no unresolved staff comments to report for the fiscal year - No unresolved staff comments[141] ITEM 2. PROPERTIES 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] 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] ITEM 3. LEGAL PROCEEDINGS 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] - Management does not expect the resolution of these matters to have a materially adverse effect on the Company's financial position or liquidity[143] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the Company's operations - Not applicable[144] PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 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] 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] 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] - 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] 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 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] - 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][152] - 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] - 2017 results include $156 million of pre-tax acquisition-related charges and a $264 million pre-tax gain on sales of businesses[152] ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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] 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] - In response to COVID-19, the Company implemented a cost reduction program that delivered $500 million in savings in 2020[159] - The cost reduction program included headcount reductions, furloughs, a voluntary retirement program, and footprint rationalizations[159][160] - 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] - Key acquisitions include CAM (2020, $1.46B), IES Attachments (2019, $653.5M), and Nelson Fastener Systems (2018, $424.2M)[163][164][165][167][168][169][170] - Divestitures include Sargent and Greenleaf mechanical locks (2019) and the majority of mechanical security businesses (2017)[172][173] - 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][176] - 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] - The Company's core franchises (Tools & Storage, Engineered Fastening, Security) are characterized by world-class brands and scalability[180][183] - The Company invests heavily in brand building and commercial support, leveraging sponsorships and digital marketing[185][186][187][188][189] - The SBD Operating Model emphasizes people and technology, focusing on Performance Resiliency, Extreme Innovation, and Operations Excellence[190][191][192][193][194][195][196][197] - The SBD Operating Model aims for 4-6% organic growth and expanded operating margins over the next 3-5 years[199] - For 2021, the Company expects diluted EPS of $9.15 to $9.85 and free cash flow conversion of approximately 100%[202] 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] - 2019 net sales increased 3% driven by organic growth and acquisitions, partially offset by foreign currency impact[207] 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] - 2019 gross margin (excl. charges) decreased to 33.5% from 35.2% in 2018, due to tariffs, inflation, and foreign exchange[209] 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] - Distribution center costs, classified in SG&A, amounted to $347.8 million in 2020[212] 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] 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] 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] 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] - The 2018 effective tax rate included net charges associated with the Tax Cuts and Jobs Act[222] 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] - Tools & Storage segment profit (excl. charges) increased to 18.3% of net sales in 2020 from 15.7% in 2019[227] 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] - Industrial segment profit (excl. charges) decreased to 12.4% of net sales in 2020 from 14.8% in 2019[232] 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] - Security segment profit (excl. charges) decreased to 9.8% of net sales in 2020 from 10.9% in 2019[237] 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][243] - The 2020 restructuring actions are expected to achieve annual net cost savings of approximately $175 million by the end of 2021[244] 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] 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] - 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][256] 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][260][261] - In April 2020, the 5-Year Credit Agreement was amended to provide greater financial flexibility due to COVID-19 impacts[265] 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] - Foreign currency risk is managed through derivative financial instruments, with a hypothetical 10% adverse movement estimated at a $157 million pre-tax impact[282][283] - Interest rate risk is managed through fixed and floating rate debt and interest rate swaps[284][285] - Commodity price exposures are managed through customer pricing, procurement cost reductions, and productivity improvements[286] - Fluctuations in common stock fair value affect domestic retirement plan expense and defined benefit plan assets[287][288] - The Company's strong financial position and operating cash flows provide flexibility for dividends, investments, and acquisitions[290] - ESOP expense was $6.3 million in 2020, affected by the market value of the Company's stock[291] - Critical accounting estimates include allowance for credit losses, inventory valuation, goodwill impairment, and income taxes[292][293][295][297][304][306][308][313][314] - The Company had no off-balance sheet arrangements as of January 2, 2021[315] ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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] ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 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] ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There are no changes in or disagreements with accountants on accounting and financial disclosure to report - None[323] ITEM 9A. CONTROLS AND PROCEDURES 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] - The Company excluded Consolidated Aerospace Manufacturing, LLC (CAM) from its assessment of internal control over financial reporting as of January 2, 2021[326] 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] - The Company's disclosure controls and procedures were evaluated and concluded to be effective as of January 2, 2021[328] - No material changes in internal control over financial reporting occurred during the fiscal year, aside from the CAM acquisition integration[328] ITEM 9B. OTHER INFORMATION There is no other information to report under this item - None[329] PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE OF THE REGISTRANT 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] - The Company maintains a Code of Business Ethics for all directors, officers, and employees[332] 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 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] ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 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] 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] - Column (C) includes 1,480,962 shares available for purchase under the ESPP and 8,113,781 securities available for future grants[338] ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 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] ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 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] PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE 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][343][345] - Includes Management's Report on Internal Control Over Financial Reporting and Reports of Independent Registered Public Accounting Firm[345] - The consolidated financial statements for the fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018, are incorporated by reference[346][347] ITEM 16. FORM 10-K SUMMARY This item indicates that a Form 10-K summary is not applicable - Not applicable[349] 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][353] FINANCIAL STATEMENTS AND NOTES Schedule II — Valuation and Qualifying Accounts 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 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] - The assessment of internal control over financial reporting as of January 2, 2021, excluded the recently acquired Consolidated Aerospace Manufacturing, LLC (CAM)[357] - Management concluded that the Company's internal control over financial reporting was effective as of January 2, 2021, based on the COSO criteria[358] Report of Independent Registered Public Accounting Firm 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] - An unqualified opinion was also expressed on the effectiveness of the Company's internal control over financial reporting as of January 2, 2021[363] - Critical audit matters include accounting for the CAM acquisition, the goodwill impairment test for the Infrastructure reporting unit, and uncertain tax positions[366][367][369] - Auditing the CAM acquisition involved subjective judgment due to significant estimation in determining the fair value of customer relationships[368] - The goodwill impairment test for the Infrastructure reporting unit was challenging due to significant estimation, particularly the revenue growth assumption[369] - Auditing uncertain tax positions was challenging and subjective due to global operations and interpretations of tax law[369] Consolidated Statements of Operations 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 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 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 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 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 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] - Acquisitions in 2020 (CAM), 2019 (IES Attachments), and 2018 (Nelson) were accounted for as business combinations[397] - A 20% interest in MTD Holdings Inc was acquired in January 2019, accounted for using the equity method[398] - Divestitures in 2020 and 2019 are reported in the Consolidated Financial Statements through their sale dates[400][401] - Foreign operations' assets and liabilities are translated at current exchange rates, with adjustments reported in shareowners' equity[404] - The allowance for credit losses is determined using specific reserves and a percentage-based reserve based on historical data[409] - U.S. inventories are primarily valued at LIFO cost, while non-U.S. inventories use FIFO cost[410] - Property, plant and equipment are valued at historical cost less accumulated depreciation[411] - Goodwill and indefinite-lived intangible assets are not amortized but are tested for impairment annually[414][415][416][417] - Derivative financial instruments are used to manage foreign currency, interest rate, and commodity price risks[418][419][420][421] - Revenue is recognized based on a five-step model (ASC 606), primarily at a point in time for tangible products[422][425] - For contracts with multiple performance obligations, transaction price is allocated based on standalone selling price[426][427] - Revenue for security systems and construction projects is recognized over time using the input method[429][430] - Cost of sales includes manufacturing, service delivery, freight, and overhead; SG&A includes selling, distribution, and administrative expenses[434][435] - Advertising costs are expensed when incurred or when the advertisement first airs[436] - Stock-based compensation is recognized on a straight-line basis over the vesting period[439] - Income taxes are accounted for under the asset and liability method (ASC 740)[441][442][443][444] - Recently adopted accounting standards include those for cloud computing costs, fair value disclosures, and credit losses[446][447][448][449][450] - ASU 2016-13 (Credit Losses) adoption in Q1 2020 resulted in a $3.8 million cumulative-effect adjustment to opening retained earnings[450] - Newly issued accounting standards not yet adopted relate to convertible debt, reference rate reform, and income taxes[451][452][454][455][456] B. ACCOUNTS AND NOTES RECEIVABLE 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] 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][460] 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] 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][465] C. INVENTORIES 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] - The CAM acquisition in Q1 2020 included $124.3 million in net inventory at fair value[467] D. PROPERTY, PLANT AND EQUIPMENT 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 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] - The CAM acquisition included an initial cash payment of $1.30 billion and future contingent payments up to $200.0 million[469] - In November 2020, $100 million was paid for contingent consideration related to the 737 MAX return to service[470] 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] - In 2020, one smaller acquisition was completed for $28.2 million, adding goodwill to the Security segment[476] - On March 8, 2019, the Company acquired IES Attachments for $653.5 million, adding $311.3 million in goodwill to the Industrial segment[478][480] - In 2019, five smaller acquisitions totaled $40.8 million[483] - On April 2, 2018, Nelson Fastener Systems was acquired for $424.2 million, adding $216.9 million in goodwill to the Industrial segment[484][485] - In 2018, six smaller acquisitions totaled $104.5 million[487] 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] F. GOODWILL AND INTANGIBLE ASSETS 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] - Goodwill for the Security segment was reduced by $31.3 million due to a divestiture[497] - Annual impairment testing in Q3 2020 determined that the fair values of all reporting units substantially exceeded their carrying amounts[498][300] 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] 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] G. ACCRUED EXPENSES 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 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] - In November 2020, the Company issued $750.0 million of 2.75% senior unsecured term notes due 2050[506] - Contemporaneously, the Company redeemed $1.2 billion of 2021 and 2022 Term Notes, recognizing a $46.9 million pre-tax loss[507] - 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][509] - In March 2019, $500.0 million of 3.40% senior unsecured notes due 2026 were issued[510] - 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] - The Company has a $3.0 billion commercial paper program and committed credit facilities as liquidity back-stops[515][516][517][518] - As of January 2, 2021, no borrowings were outstanding under the commercial paper program or committed credit facilities[515][516][518] - The Company's interest coverage covenant was amended in April 2020 to provide greater financial flexibility[521] I. FINANCIAL INSTRUMENTS 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][523] 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] - After-tax mark-to-market losses for cash flow hedge effectiveness were $103.0 million in 2020 and $54.2 million in 2019[527] - 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] 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] - The Company uses forward contracts to hedge forecasted inventory purchases and sales[535] - Net investment hedges offset translation adjustments from foreign subsidiaries, with total after-tax amounts in OCI of $72.8 million in 2021[540] - As of January 2, 2021, the Company had cross currency swaps with a notional value of $839.4 million[541] 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 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