What changed in this filing

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Item 1A. Risk Factors

2022-02-22 compared with 2021-02-18 · 153 added, 109 removed, 288 unchanged (48% of the section changed)

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Business and Operational Risks

The Company’s business is subject to risks associated with sourcing and manufacturing.

The Company imports large quantities of finished goods, component parts and raw materials.

Lead times for these items vary significantly and are increasing in light of global shortages of critical components, including semiconductors.

Global supply chain constraints in the wake of the COVID-19 pandemic continue to decrease the Company's visibility into availability and lead times for the products and their component parts and raw materials.

In addition, the Company’s ability to import these items in a timely and cost-effective manner has been and may continue to be affected by conditions at ports or issues that otherwise affect transportation and warehousing providers, such as fluctuations in freight costs, port and shipping capacity, labor disputes and shortages, severe weather due to climate change or increased homeland security requirements in the U.S.

and other countries.

In 2021, the Company experienced significantly higher freight costs compared to freight costs incurred in 2020 and 2019.

These issues have and could delay importation of products or require the Company to locate alternative ports or warehousing providers to avoid disruption to customers.

These alternatives have not and in the future may not be available on short notice or have and could result in higher transit costs, which could have an adverse impact on the Company’s business and financial condition.

Substantially all of its import operations are subject to customs requirements and to tariffs and quotas set by governments through mutual agreements, bilateral actions or, in some cases unilateral action.

In addition, the countries in which the Company’s products and materials are manufactured or imported from (including importation into the U.S.

of the Company's products manufactured overseas) may from time to time impose additional quotas, duties, tariffs or other restrictions on its imports (including restrictions on manufacturing operations) or adversely modify existing restrictions.

In recent years, changes in U.S.

policy regarding international trade, including import and export regulation and international trade agreements, have negatively impacted the Company’s business.

For example, in 2018 the U.S.

imposed tariffs on steel and aluminum as well as on goods imported from China and certain other countries, which resulted in retaliatory tariffs by China and other countries.

actions and any corresponding retaliatory efforts, could result in an increase in supply chain costs that the Company may not be able to offset or otherwise adversely impact the Company’s results of operations.

Imports are also subject to unpredictable foreign currency variation which may increase the Company’s cost of goods sold.

Adverse changes in these import costs and restrictions, or failure by the Company’s suppliers to comply with customs regulations or similar laws, could harm the Company’s business.

The Company’s operations are also subject to the effects of international trade agreements and regulations such as the United States-Mexico-Canada Agreement, and the activities and regulations of the World Trade Organization.

Although these trade agreements generally have positive effects on trade liberalization, sourcing flexibility and cost of goods by reducing or eliminating the duties and/or quotas assessed on products manufactured in a particular country, trade agreements can also impose requirements that adversely affect the Company’s business, such as setting quotas on products that may be imported from a particular country into key markets including the U.S.

or the European Union ("EU"), or making it easier for other

companies to compete, by eliminating restrictions on products from countries where the Company’s competitors source products.

In addition, the Company has a number of key suppliers in South Korea.

Escalation of hostilities with North Korea and/or military action in the region could cause disruptions in the Company's supply chain which could, in turn, cause product shortages, delays in delivery and/or increases in the Company's cost incurred to produce and deliver products to its customers.

The Company also relies on its suppliers to provide high quality products and to comply with applicable laws.

The Company’s ability to find qualified suppliers who meet its standards, including a majority having carbon emission reduction targets, and supply products in a timely, cost-effective and efficient manner is a significant challenge with the increasing demand from customers, especially with respect to goods sourced from outside the U.S.

For certain products, the Company may rely on one or very few suppliers.

A supplier’s failure to meet the Company’s standards, provide products in a timely, cost-effective and efficient manner, or comply with applicable laws is beyond the Company’s control.

These issues could have a material negative impact on the Company's business and profitability.

Poor quality or an insecure supply chain, may also adversely affect the reliability and reputation of the Company.

The effects of climate change, such as extreme weather conditions, could also place capacity constraints on the Company’s supply chain.

For example, steel and copper are critical to the design of the Company's products and some countries, including Chile and Australia, where steel and copper are sourced from have experienced and are expected to continue to experience severe weather due to climate change.

A severe weather event in these countries could cause disruptions in the Company's supply chain which could, in turn, cause product shortages, delays in delivery and/or increases in the Company's cost incurred to produce and deliver products to its customers.

The continued adverse effects of the COVID-19 pandemic and an indeterminate recovery period could have a materially negative impact on the Company’s business, operations, financial condition, results of operations, and liquidity, the nature and extent of which is highly uncertain.

The impact of the COVID-19 pandemic has resulted in a widespread public health crisis and governmental authorities have implemented numerous measures attempting to contain and mitigate the effects of the virus.

These measures have adversely affected, and may continue to adversely affect, the Company’s workforce and operations and the operations of its customers, distributors, suppliers and contractors.

There is significant uncertainty regarding such measures and potential future measures, and restrictions on the Company's access to its manufacturing facilities or on its support operations or workforce, or similar limitations for its distributors and suppliers.

These measures have limited and could continue to limit customer demand and/or the Company's capacity to meet customer demand, which could have a material negative impact on its financial condition and results of operations.

In addition, a sustained downturn in customer demand or other economic conditions could result in material charges related to bad debt or inventory write-offs, restructuring charges, or impairments of long-lived assets, including both tangible and intangible assets.

The impact of the COVID-19 pandemic has adversely affected, and may continue to adversely affect, the Company’s business, financial condition, workforce and operations and the operations of its customers, distributors, suppliers and contractors.

There continues to be significant uncertainty regarding restrictions on the Company's access to its manufacturing facilities or on its support operations or workforce, or similar limitations for its distributors and suppliers.

These measures have limited and could continue to limit customer demand and has and could continue to limit the Company's capacity to meet customer demand, which could have a material negative impact on its financial condition and results of operations.

The COVID-19 pandemic has adversely affected global economics and markets and has resulted in disruptions in commerce that will continue to evolve, including with respect to financial and other economic activities, services, travel and supply chains.

Global and national health concerns could lead to further and/or increased volatility in global capital and credit markets.

A sustained downturn in customer demand or other economic conditions could result in material charges related to bad debt or inventory write-offs, restructuring charges, or impairments of long-lived assets, including both tangible and intangible assets.

Furthermore, a sustained downturn in financial markets and asset values could adversely affect the Company’s cost of capital, liquidity and access to capital markets, in addition to potentially increasing its pension funding obligations to ensure its pension plans continue to be adequately funded.

The ongoing COVID-19 pandemic has caused the Company to modify its business practices (including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences), and the Company may take further actions as may be required by government authorities or that the Company determines are in the best interests

of its employees, customers, distributors, suppliers and contractors.

There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus, and the Company's ability to perform critical functions could be harmed.

Furthermore, as a result of the ongoing COVID-19 pandemic, the Company executed certain temporary and permanent cost reduction measures including adjustments to its supply chain and manufacturing labor base to match the demand environment and reductions in staffing, compensation and benefits in a manner that allows the Company to respond to changes in demand.

The Company has announced an internal vaccine protocol.

The Department of Labor’s Occupational Safety and Health Administration (“OSHA”) had issued rules requiring that employers with more than 100 employees in the U.S.

have employee populations that are fully vaccinated against or tested weekly for COVID-19, however, the implementation of the OSHA rules was stayed by the Supreme Court on January 13, 2022 and the OSHA withdrew the rules on January 25, 2022.

Although OSHA left open the possibility that it might try to finalize a permanent vaccine and testing rule in the future, vaccine protocols are currently state and employer-specific.

It is currently not possible to predict with certainty the impact any future rules and the Company's vaccination policy will have on its workforce.

Additional vaccine mandates may also be implemented in other jurisdictions in which the Company operates and the Company may take further actions as may be required by government authorities or that the Company determines are in the best interests of its employees, customers, distributors, suppliers and contractors.

There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus, and the Company's ability to perform critical functions could be harmed and vaccine mandates could result in higher than usual employee attrition rates and adversely impact the operations of the Company if higher than usual customer demand of its products continues similar to demand levels experienced during the second half of 2020 and during 2021.

Furthermore, as a result of the ongoing COVID-19 pandemic, in 2020 the Company executed certain temporary and permanent cost reduction measures including adjustments to its supply chain and manufacturing labor base to match the demand environment and reductions in staffing, compensation and benefits in a manner that allows the Company to respond to changes in demand, some of which were reversed and some were made

These cost reduction measures may not prove to be successful and the Company may need to undertake further measures that could adversely impact its business and/or its ability to ramp up operations in a timely manner.

The continued spread of COVID-19 has caused, and may continue to cause, disruptions in the Company's supply chain, cause delay, or limit the ability of, customers to continue to operate and perform, including in making timely payments to the Company, result in the Company's inability to meet its consumers' and customers' needs due to disruptions in manufacturing and supply arrangements caused by the loss or disruption of essential manufacturing and supply elements, and cause other unpredictable events.

Continued uncertainties related to the COVID-19 pandemic have caused, and may continue to cause, disruptions in the Company's supply chain, cause delay, or limit the ability of, customers to continue to operate and perform, including in making timely payments to the Company, result in the Company's inability to meet its consumers' and customers' needs due to disruptions in manufacturing and supply arrangements caused by the loss or disruption of essential manufacturing and supply elements, and cause other unpredictable events.

In addition, the ongoing COVID-19 pandemic may also limit the Company’s resources or delay the Company’s ability to implement strategic initiatives.

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The continued spread of COVID-19 has caused, and may continue to cause, significant reductions in demand or significant volatility in demand for certain of the Company’s products.

As lockdowns occurred in the first and second quarters of 2020, those subject to lockdowns engaged in home improvement projects in large numbers, and demand for the Company’s products at its retail partners increased significantly.

As different geographical areas anticipate moving into a recovery era, demand for the Company’s products may decrease as focus shifts to activities outside the home.

The degree to which COVID-19 ultimately affects the Company’s results and operations will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, the availability, distribution, acceptance and efficacy of a vaccine, and how quickly and to what extent normal economic and operating conditions can resume.

As lockdowns occurred in the first and second quarters of 2020 and the work from home trend continued in 2021, those subject to lockdowns and working from home engaged in home improvement projects in large numbers, and demand for the Company’s products at its retail partners increased significantly.

As different geographical areas anticipate and begin moving into a recovery era, demand for the Company’s products may decrease as focus shifts to activities outside the home.

The degree to which COVID-19 ultimately affects the Company’s business, liquidity, results and operations will depend on future developments, which continue to be highly uncertain and cannot be predicted.

These uncertainties, include, but are not limited to, the duration and spread of the outbreak and the resurgence in cases,, its severity, the actions to contain the virus or treat its impact, the availability of vaccines, effectiveness against new variants of COVID-19 and achievement of sufficient vaccination levels, supply chain disruptions, competition in the labor market and how quickly and to what extent economic and operating conditions can become more predictable and certain.

Changes in customer preferences, the inability to maintain mutually beneficial relationships with large customers, inventory reductions by customers, and the inability to penetrate new channels of distribution could adversely affect the Company’s business.

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Furthermore, unanticipated inventory adjustments by these customers can have a negative impact on the Company's net sales.

If customers in the Convergent Security Solutions ("CSS") business are dissatisfied with services and switch to competitive services or disconnect for other reasons, such as preference for digital technology products or other technology enhancements not then offered by CSS, the Company's attrition rates may increase.

In periods of increasing attrition rates, recurring revenue and results of operations may be materially adversely affected.

The risk is more pronounced in times of economic uncertainty, as customers may reduce amounts spent on the products and services the Company provides.

In times of tough economic conditions, the Company has experienced significant distributor inventory corrections reflecting de-stocking of the supply chain associated with difficult credit markets.

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The Company’s products compete on the basis of, among other things, its reputation for product quality, its well-known brands, price, innovation and customer service capabilities.

The Company competes with both larger and smaller companies that offer the same or similar products and

services or that produce different products appropriate for the same uses.

The Company competes with both larger and smaller companies that offer the same or similar products and services or that produce different products appropriate for the same uses.

These companies are often located in countries such as China, Taiwan and India where labor and other production costs are substantially lower than in the U.S., Canada and Western Europe.

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The Company’s competitive advantage is due in part to its ability to develop and introduce new products in a timely manner at favorable margins.

The uncertainties associated with developing and introducing new products, such as market demand and costs of development and production, may impede the successful development and introduction of new products on a consistent basis.

The uncertainties associated with developing and introducing new products, such as market demand, the unavailability of raw materials necessary for production of the Company's products and costs of development and production, may impede the successful development and introduction of new products on a consistent basis.

Introduction of new technology may result in higher costs to the Company than that of the technology replaced.

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In order to remain competitive, the Company will need to stay abreast of such technologies, require its employees to continue to learn and adapt to new technologies and be able to integrate them into its current and future business models, products, services and processes and also guard against existing and new competitors disrupting its business using such technologies.

The Company’s strategy, value creation model, operating model and innovation ecosystem have important technological elements and many of the Company’s products and offerings are based on technological advances, including artificial intelligence,

machine learning, advanced analytics and the Internet of Things.

In addition, the Company will need to compete for talent that is familiar with such technologies including upskilling its workforce.

In addition, the Company will need to compete for talent in a competitive market that is familiar with such technologies including upskilling its workforce.

Higher than expected employee attrition rates may also result in difficulties to recruit and obtain talent needed to compete effectively.

There can be no assurance that the Company will continue to compete effectively with its industry peers due to technological changes, which could result in a material adverse effect on the Company's business and results of operations.

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Violations of such laws and regulations may result in severe fines and penalties, criminal sanctions, administrative remedies or restrictions on business conduct, and could have a material adverse effect on the Company’s reputation, its ability to attract and retain employees, its business, operating results and financial condition.

The Company’s business is subject to risks associated with sourcing and manufacturing overseas.

The Company imports large quantities of finished goods, component parts and raw materials.

In addition, the countries in which the Company’s products and materials are manufactured or imported from (including importation into the U.S.

In recent years, changes in U.S.

policy regarding international trade, including import and export regulation and international trade agreements, have negatively impacted the Company’s business.

For example, in 2018 the U.S.

imposed tariffs on steel and aluminum as well as on goods imported from China and certain other countries, which resulted in retaliatory tariffs by China and other countries.

Additional tariffs imposed by the U.S.

on a broader range of imports, or further retaliatory trade measures taken by China or other countries in response, could result in an increase in supply chain costs that the Company may not be able to offset or otherwise adversely impact the Company’s results of operations.

Furthermore, imported products and materials may be subject to future tariffs or other trade measures in the U.S.

Imports are also subject to unpredictable foreign currency variation which may increase the Company’s

cost of goods sold.

Adverse changes in these import costs and restrictions, or failure by the Company’s suppliers to comply with customs regulations or similar laws, could harm the Company’s business.

or the European Union ("EU"), or making it easier for other companies to compete, by eliminating restrictions on products from countries where the Company’s competitors source products.

The Company’s ability to import products in a timely and cost-effective manner may also be affected by conditions at ports or issues that otherwise affect transportation and warehousing providers, such as fluctuations in freight costs, port and shipping capacity, labor disputes, severe weather due to climate change or increased homeland security requirements in the U.S.

and other countries.

These issues could delay importation of products or require the Company to locate alternative ports or warehousing providers to avoid disruption to customers.

These alternatives may not be available on short notice or could result in higher transit costs, which could have an adverse impact on the Company’s business and financial condition.

In addition, the Company has a number of key suppliers in South Korea.

The Company’s success depends on its ability to improve productivity and streamline operations to control or reduce costs.

The Company is committed to continuous productivity improvement and evaluating opportunities to reduce fixed costs, simplify or improve processes, and eliminate excess capacity.

The Company has undertaken restructuring actions, the savings of which may be mitigated by many factors, including economic weakness, competitive pressures, and decisions to increase costs in areas such as sales promotion or research and development above levels that were otherwise assumed.

The Company has undertaken restructuring actions, the savings of which may be mitigated by many factors, including economic weakness, inflation, competitive pressures, higher labor costs and decisions to increase costs in areas such as sales promotion or research and development above levels that were otherwise assumed.

Failure to achieve, or delays in achieving, projected levels of efficiencies and cost savings from such measures, or unanticipated inefficiencies resulting from manufacturing and administrative reorganization actions in progress or contemplated, would adversely affect the Company’s business and financial results.

The performance of the Company may suffer from business disruptions with catastrophic losses affecting distribution centers and other infrastructure, or other costs associated with information technology, system implementations, or cyber security risks.

The Company’s operations are significantly dependent on infrastructure, notably certain distribution centers and security alarm monitoring facilities, which are concentrated in various geographic locations.

Factors that are hard to predict or are beyond the Company’s control, like weather (including any potential effects of climate change), natural disasters, supply and commodity shortages, fire, explosions, acts or threats of war or terrorism, political unrest, cybersecurity breaches, sabotage, generalized labor unrest or public health crises, including pandemics, could damage or disrupt the Company’s infrastructure, or that of its suppliers or distributors.

If the Company does not effectively plan for or respond to disruptions in its operations, or cannot quickly repair damage to its information, production or supply systems, the Company may be late in delivering or unable to deliver products and services to its customers, and the quality and safety of its products and services might be negatively affected.

The Company relies heavily on digital technology, including from third parties, to manage and operate its businesses and record and process transactions.

Digital technology plays a crucial role in effectively operating the Company’s physical operations, notably manufacturing sites, distribution centers, security alarm monitoring facilities, offices and processing centers, which are distributed in various geographic locations.

Factors that are hard to predict or are beyond the Company’s control, like weather (including any potential effects of climate change), natural disasters, supply and commodity shortages, fire, explosions, acts or threats of war or terrorism, political unrest, cybersecurity breaches, sabotage, generalized labor unrest or public health crises, including pandemics, could damage or disrupt the Company’s digital technology infrastructure, or that of its suppliers or distributors.

If the Company does not effectively plan for or respond to disruptions in its operations, or cannot quickly repair

damage to its systems, the Company may be late in delivering or unable to deliver products and services to its customers, and the quality and safety of its products and services might be negatively affected.

If a material or extended disruption occurs, the Company may lose its customers’ or business partners’ confidence or suffer damage to its reputation, and long-term consumer demand for its products and services could decline.

Although the Company maintains business interruption insurance, it may not fully protect the Company against all adverse effects that could result from significant disruptions.

These events could materially and adversely affect the Company’s product sales, financial condition and results of operations.

The Company relies heavily on digital technology, including those of third parties, to manage and operate its businesses, and record and process transactions.

Digital technologies are important to sales and marketing, production planning, manufacturing, customer service and order fulfillment among other business-critical processes.

Consistent and efficient operation of the computer hardware and software systems is imperative to the successful sales and earnings performance of the Company's various businesses in many countries.

Additionally, the Company relies on software applications and enterprise cloud storage systems and cloud computing services provided by third-party vendors, and the Company's business may be adversely affected by service disruptions or security breaches in such third-party systems.

These events could materially and adversely affect the Company’s product sales, financial condition, results of operations, and reputation.

In addition, the Company is in the process of system integrations, conversions, and capability additions such as eCommerce, Artificial Intelligence and Data Analytics to drive enhanced business outcomes.

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It is possible the costs to complete the system integrations, conversions or capability additions may exceed expectations, and that significant costs may be incurred that will require immediate expense recognition as opposed to capitalization.

The risk of disruption to key operations and overall business is increased when complex system changes, such as integrations, conversions or additions are undertaken.

The risk of disruption to key operations and overall business is increased when complex system changes, such as integrations, conversions or capability additions are undertaken.

If systems fail to function effectively, or become damaged, operational delays may ensue and the Company may be forced to make significant expenditures to remedy such issues.

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Industry and Economic Risks

The Company’s results of operations could be negatively impacted by inflationary or deflationary economic conditions which could affect the ability to obtain raw materials, component parts, freight, energy, labor and sourced finished goods in a timely and cost-effective manner, as well as lead to changes in interest rate environments which impact its cost of funds, the general strength of the economy and demand for its products in the market.

The Company’s products are manufactured using both ferrous and non-ferrous metals including, but not limited to, steel, zinc, copper, brass, aluminum, and nickel.

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The Company also sources certain finished goods directly from vendors.

If the Company is unable to mitigate any inflationary increases through various customer pricing actions and cost reduction initiatives, its profitability may be adversely affected.

If the Company is unable to mitigate inflationary increases through various customer pricing actions and cost reduction initiatives, its profitability may be adversely affected.

Conversely, in the event there is deflation, the Company may experience pressure from its customers to reduce prices, and there can be no assurance that the Company would be able to reduce its cost base (through negotiations with suppliers or other measures) to offset any such price concessions which could adversely impact results of operations and cash flows.

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In addition, many of the Company’s products incorporate battery technology.

As other industries begin to adopt similar battery technology for use in their products or increase their current consumption of battery technology, the increased demand could place capacity constraints on the Company’s supply chain.

In addition, increased demand for battery technology may also increase the costs to the Company for both the battery cells as well as the underlying raw materials.

As the world moves towards a lower-carbon economy and as other industries begin to adopt similar battery technology for use in their products or increase their current consumption of battery technology, the increased demand could place capacity constraints on the Company’s supply chain.

In addition, increased demand for battery technology may also increase the costs to the Company for both the battery cells as well as the underlying raw materials such as cobalt and lithium, among others.

If the Company is unable to mitigate any possible supply constraints, related increased costs or drive alternative technology through innovation, its profitably and financial results could be negatively impacted.

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• the impact of an event (individual country default, Brexit, or break up of the Euro) could have an adverse impact on the global credit markets and global liquidity potentially impacting the Company’s ability to access these credit markets and to raise capital.

Continuing uncertainty associated with Brexit could adversely affect the Company’s business.

While the UK Parliament has voted to approve the withdrawal/transition agreement negotiated by the EU and the UK government and while, in December 2020, the UK and the EU agreed on a trade and cooperation agreement that will apply provisionally after the end of the transition period, significant uncertainty remains with respect to the impacts of Brexit.

Brexit could adversely affect European or worldwide political, regulatory, economic or market conditions and could contribute to instability in global political institutions, regulatory agencies and financial markets.

Any impact from Brexit on the Company's business and operations over the long term will depend, in part, on the outcome of the implementation of the trade and cooperation agreement, future agreements (or lack thereof) between the UK and the EU, including with respect to tariff, tax treaties, trade, regulatory, and other negotiations.

In particular, the Company's operations in the UK will be particularly exposed to the risks and uncertainties relating to Brexit.

Under the trade and cooperation agreement, UK service suppliers no longer benefit from automatic access to the entire EU single market, UK goods no longer benefit from the free movement of goods and there is no longer the free movement of people between the UK and the EU.

The Bank of England and other observers have warned of a significant probability of a Brexit-related recession in the UK.

Volatility in exchanges rates, including potential declines in the value of the British Pound, and in interest rates are also expected.

Disruptions and uncertainty caused by Brexit may also cause customers to closely monitor their costs and reduce their spending budget on the Company's products and services.

These impacts could cause a significant decline in revenue as the Company generates approximately 4% of its revenues in the UK.

In addition, as the UK determines which EU laws to replace or replicate, including UK competition laws, Brexit could lead to potentially divergent national laws and regulations.

Lack of clarity about the future relationship between the UK and the EU, and the laws and regulations that may apply, including in particular with respect to aspects of laws and regulations which were not covered by the trade and cooperation agreement, such as financial laws and regulations, could increase costs and depress economic activity.

Any of the foregoing factors could result in an uncertain and difficult regulatory environment that could negatively impact the Company’s UK business.

The Company is exposed to market risk from changes in foreign currency exchange rates which could negatively impact profitability.

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The potential issuance of such securities may limit the Company’s ability to implement elements of its growth strategy and may have a dilutive effect on earnings.

As described in Note H, Long-Term Debt and Financing Arrangements , of the Notes to Consolidated Financial Statements in Item 8 , the Company has a five-year $2.0 billion committed credit facility and a 364-day $1.0 billion committed credit facility.

No amounts were outstanding against either of these facilities at January 2, 2021.

As described in Note H, Long-Term Debt and Financing Arrangements , of the Notes to Consolidated Financial Statements in Item 8 , the Company has a five-year $2.5 billion committed credit facility and $2.0 billion 364-day committed credit facilities.

No amounts were outstanding against either of these facilities on January 1, 2022.

As of January 1, 2022, the Company had $4.4 billion principal amount of indebtedness.

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such adjustments to interest or EBITDA include, but are not limited to, removal of non-cash interest expense and stock-based compensation expense.

In April 2020, the Company entered into an amendment to:

(a) amend the definition of Adjusted EBITDA to allow for additional adjustment addbacks, which primarily relate to anticipated incremental charges related to the COVID-19 pandemic, for amounts incurred beginning in the second quarter of 2020 through the second quarter of 2021, and (b) lower the minimum interest coverage ratio from 3.5 to 2.5 times for the period from and including the second quarter of 2020 through the end of fiscal year 2021.

The interest coverage ratio must not be less than 2.5 times and is computed quarterly, on a rolling twelve months (last twelve months) basis.

The interest coverage ratio must not be less than 2.5 times through December 31, 2021 and not less than 3.5 times thereafter and is computed quarterly, on a rolling twelve months (last twelve months) basis.

Under this covenant definition, the interest coverage ratio was 14.9 times EBITDA or higher in each of the 2021 quarterly measurement periods.

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In addition, the major rating agencies regularly evaluate the Company for purposes of assigning credit ratings.

The Company’s ability to access the credit markets, and the cost of these borrowings, is affected by the strength of its credit ratings and current

market conditions.

The Company’s ability to access the credit markets, and the cost of these borrowings, is affected by the strength of its credit ratings and current market conditions.

Failure to maintain credit ratings that are acceptable to investors may adversely affect the cost and other terms upon which the Company is able to obtain financing, as well as its access to the capital markets.

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A portion of the Company’s indebtedness bears interest at rates that fluctuate with changes in certain short-term prevailing interest rates, including the LIBOR.

The UK Financial Conduct Authority announced in 2017 that it intends to phase out LIBOR by the end of 2021.

In March 2021, UK Financial Conduct Authority announced that all LIBOR settings will either cease to be provided by any administrator or no longer be representative immediately after December 31, 2021.

Banks currently reporting information used to set U.S.

dollar LIBOR are presently expected to stop doing so during 2023.

In addition, other regulators have suggested reforming or replacing other benchmark rates.

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The Company’s outstanding trade receivables are not generally covered by collateral or credit insurance.

While the Company has procedures to monitor and limit exposure to credit risk on its trade and non-trade receivables, there can be no assurance such procedures will effectively limit its credit risk and avoid losses, which could have an adverse effect on the Company’s financial condition and operating results.

While the Company has procedures to monitor and limit exposure to credit risk on its trade and non-trade receivables, there can be no assurance

such procedures will effectively limit its credit risk and avoid losses, which could have an adverse effect on the Company’s financial condition and operating results.

If the Company were required to write-down all or part of its goodwill, indefinite-lived trade names, or other definite-lived intangible assets, its net income and net worth could be materially adversely affected.

As a result of the Black and Decker merger and other acquisitions, the Company has approximately $10.0 billion of goodwill, approximately $2.2 billion of indefinite-lived trade names and approximately $1.9 billion of net definite-lived intangible assets at January 2, 2021.

As a result of the Black and Decker merger and other acquisitions, the Company has approximately $8.8 billion of goodwill, approximately $2.5 billion of indefinite-lived trade names and approximately $2.2 billion of net definite-lived intangible assets on January 1, 2022.

The Company is required to periodically, at least annually, determine if its goodwill or indefinite-lived trade names have become impaired, in which case it would write down the impaired portion of the asset.

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The Company’s funding policy is generally to contribute amounts determined annually on an actuarial basis to provide for current and future benefits in accordance with applicable law which require, among other things, that the Company make cash contributions to under-funded pension plans.

During 2020, the Company made cash contributions to its defined benefit plans of approximately $40 million and expects to contribute $41 million to its defined benefit plans in 2021.

During 2021, the Company made cash contributions to its defined benefit plans of approximatel y $40 million a nd expects to contribu te $41 million t o its defined benefit plans i n 2022.

There can be no assurance that the value of the defined benefit plan assets, or the investment returns on those plan assets, will be sufficient in the future.

It is therefore possible that the Company may be required to make higher cash contributions to the plans in future years which would reduce the cash available for other business purposes, and that the Company will have to recognize a significant pension liability adjustment which would decrease the net assets of the Company and result in higher expense in future years.

The fair value of the defined benefit plan assets at January 2, 2021 was approximately $2.4 billion.

The fair value of the defined benefit plan assets on January 1, 2022 was approximate ly $2.6 billion.

Strategic Risks

The successful execution of the Company’s business strategy depends on its ability to recruit, retain, train, motivate, and develop employees and execute effective succession planning.

The success of the Company’s efforts to grow its business depends on the contributions and abilities of key executives and management personnel, its sales force and other personnel, including the ability of its sales force to adapt to any changes made

in the sales organization and achieve adequate customer coverage.

The Company must therefore continue to recruit, retain, train and motivate management, sales and other personnel sufficiently to maintain its current business and support its projected growth.

In addition, the Company must invest heavily in reskilling and upskilling its employees, including placing an emphasis on lifelong learning.

Additionally, any unplanned turnover or inability to attract and retain key employees could have a negative effect on the Company’s results of operations.

A shortage of key employees might jeopardize the Company’s ability to implement its growth strategy, and changes in the key management team can result in loss of continuity, loss of accumulated knowledge, departure of other key employees, disruptions to the Company’s operations and inefficiency during transitional periods.

The Company’s reputation, business, revenue and results of operations could be materially and adversely affected if it is unable to recruit, retain, train, motivate, and develop employees and successfully execute organizational change and management transitions at leadership levels.

The Company’s acquisitions, as well as general business reorganizations, may result in significant costs and certain risks for its business and operations.

In 2020, the Company completed the Consolidated Aerospace Manufacturing, LLC (“CAM”) acquisition, as well as smaller acquisitions, and may make additional acquisitions in the future.

Acquisitions involve a number of risks, including:

The Company’s acquisitions, exiting of businesses, divestitures, strategic investments and alliances and joint ventures, as well as general business reorganizations, may result in financial results that are different than expected and certain risks for its business and operations.

As part of the Company's strategy, it may acquire businesses or assets, divest businesses or assets, enter into strategic alliances and joint ventures, and make investments to further its business (collectively, “business combination and investment transactions”), and also handle any post-closing issues, such as integration.

For example, in 2021, the Company completed the MTD Holdings Inc.

("MTD") and Excel Industries ("Excel") acquisitions, as well as smaller acquisitions, and may make

additional acquisitions in the future.

In December 2021, the Company announced it entered into an agreement to divest its commercial electronic security and healthcare businesses, which it expects to complete in the first half of 202 2, pending regulatory approvals and other customary closing conditions.

Risks associated with business combination and investment transactions include the following, any of which could adversely

affect the Company's financial results, including its effective tax rate:

• the failure to identify the most suitable candidates for acquisitions;

• difficulty in finding buyers or alternative exit strategies on acceptable terms in a timely manner, or the Company may dispose of a business at a price or on terms that are less desirable than the Company had anticipated for a divestiture;

• the ability to conduct due diligence with respect to business combination and investment transactions, and the ability to evaluate the results of such due diligence, which is dependent on the veracity and completeness of statements and

disclosures made or actions taken by third parties or their representatives and the failure to identify significant issues

with the target company’s product quality, financial disclosures, accounting practices or internal control deficiencies or

the factors necessary to estimate reasonably accurate costs, timing and other matters;

• for an acquisition or other combination, the acquired business may have differing or inadequate cybersecurity and

data protection controls, which could impact its exposure to data security incidents and potentially increase

anticipated costs or time to integrate the business;

• the difficulties and cost in obtaining any necessary regulatory approvals;

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• the anticipated additional revenues from the acquired companies do not materialize, despite extensive due diligence;

• the possibility that the acquired companies will not be successfully integrated or that anticipated cost savings, synergies, or other benefits will not be realized;

• the acquired businesses will lose market acceptance or profitability;

• the impact of divestitures on the Company's revenue growth may be larger than projected, as the Company may experience greater dis-synergies than expected;

• the diversion of Company management’s attention and other resources;

• incurring significant restructuring charges and amortization expense, assuming liabilities and ongoing or new lawsuits related to the transaction or otherwise, potential impairment of acquired goodwill and other intangible assets, and increasing the Company's expenses and working capital requirements;

• the incurrence of unexpected costs and liabilities, including those associated with undisclosed pre-closing regulatory violations by the acquired business;

• the loss of key personnel, clients or customers of acquired companies.

• for a divestiture, if the Company does not satisfy pre-closing conditions and necessary regulatory and governmental approvals on acceptable terms, it may prevent the Company from completing the transaction;

• continued financial involvement in a divested business, such as through continuing equity ownership, guarantees, indemnities or other financial obligations;

• the loss of key personnel, distributors, clients or customers of acquired companies.

In addition, the success of the Company’s long-term growth and acquisition strategy will depend in part on successful general reorganization including its ability to:

• combine businesses and operations;

• combine businesses, product or service offerings and operations or fully realize all of the anticipated benefits of any particular business combination and investment transaction;

• integrate departments, systems and procedures;

• obtain cost savings and other efficiencies from such reorganizations, including the Company's margin resiliency initiative.

Failure to effectively integrate acquired companies, consummate or manage any future acquisitions or general business reorganizations, and mitigate the related risks, may adversely affect the Company’s existing businesses and harm its operational results due to large write-offs, significant restructuring costs, contingent liabilities, substantial depreciation, and/or adverse tax or other consequences.

In addition, the current and the proposed changes to the U.S.

and foreign regulatory approval process and requirements in connection with an acquisition may cause approvals to take longer than anticipated to obtain, not be forthcoming or contain burdensome conditions, which may jeopardize, delay or reduce the anticipated benefits of the transaction to the Company and could impede the execution of the Company's business strategy.

Failure to effectively integrate acquired companies, strategic investments and alliances, consummate or manage any future acquisitions, exit businesses or consummate divestitures, or general business reorganizations, and mitigate the related risks, may adversely affect the Company’s existing businesses and harm its operational results due to large write-offs, significant restructuring costs, contingent liabilities, substantial depreciation, and/or adverse tax or other consequences.

The Company cannot ensure that such integrations and reorganizations will be successfully completed or that all of the planned synergies and other benefits will be realized.

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laws, local laws or other laws applicable to the Company.

When investigating potential acquisitions, the Company seeks to identify historical practices of target companies that would create liability or other exposures for the Company were they to continue post-completion or as a successor to the target.

When investigating potential acquisitions, the Company seeks to identify historical practices of target companies that

would create liability or other exposures for the Company were they to continue post-completion or as a successor to the target.

Where such practices are discovered, the Company assesses the risk to determine whether it is prepared to proceed with the transaction.

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The Company’s operations rely on the secure processing, storage and transmission of confidential, sensitive, proprietary and other types of information relating to its business operations, as well as confidential and sensitive information about its customers and employees maintained in the Company’s computer systems and networks, certain products and services, and in the computer systems and networks of its third-party vendors.

Cyber threats are rapidly evolving as data thieves and hackers have become increasingly sophisticated and carry out direct large-scale, complex automated attacks against a company or through vendor software supply chain compromises.

In particular, the Company is increasingly relying on its IT infrastructure to support its operations as it manages the impact of COVID-19, including supporting remote-work protocols for a substantial number of the Company’s employees in regions impacted by the spread of COVID-19, which can increase cyber risks.

Cyber threats are rapidly evolving as data thieves and hackers have become increasingly sophisticated and carry out direct large-scale, complex attacks against a company or through vendor software supply chain compromises.

In particular, the Company is increasingly relying on its digital technology to support its operations as it manages the impact of COVID-19, including supporting remote-work protocols for a substantial number of the Company’s employees in regions impacted by the spread of COVID-19 and future, ongoing hybrid-work protocols, which can increase cyber risks.

The Company is not able to anticipate or prevent all such attacks and could be held liable for any resulting material security breach or data loss.

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Breaches of the Company’s technology systems, or those of the Company’s vendors, whether from circumvention of security systems, denial-of-service attacks or other cyber-attacks, hacking, “phishing” attacks, computer viruses, ransomware or malware, employee or insider error, malfeasance, social engineering, vendor software supply chain compromises, physical breaches or other actions, have and may result in manipulation or corruption of sensitive data, material interruptions or malfunctions in the Company’s or such vendors’ websites, applications, data processing, and certain products and services, or disruption of other business operations.

Furthermore, any such breaches could compromise the confidentiality and integrity of material information held by the Company (including information about the Company’s business, employees or customers), as well as sensitive personally identifiable information, the disclosure of which could lead to identity theft.

well as sensitive personally identifiable information, the disclosure of which could lead to identity theft.

Breaches of the Company’s products that rely on technology and internet connectivity can expose the Company to product and other liability risk and reputational harm.

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The Company has invested and continues to invest in risk management and information security and data privacy measures in order to protect its systems and data, including employee training, organizational investments, incident response plans, table top exercises and technical defenses.

The cost and operational consequences of implementing, maintaining and enhancing further data or system protection measures could increase significantly to overcome increasingly intense, complex, and sophisticated

global cyber threats.

Despite the Company’s best efforts, it is not fully insulated from data breaches and system disruptions.

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For example, the European Union’s General Data Protection Regulation (“GDPR”), which became effective in May 2018, greatly increased the jurisdictional reach of European Union law and added a broad array of requirements for handling personal data, including the public disclosure of significant data breaches.

Similarly, the California Consumer Privacy Act of 2018 (“CCPA”), came into effect in January 2020, provides, among other things, a new private right of action for data breaches, requires companies that process information on California residents to make new disclosures to consumers about their data collection, use and sharing practices, and provides consumers with additional rights.

The California Privacy Rights and Enforcement Act, which will become effective on January 1, 2023 amends and expands the CCPA, creating new industry requirements, consumer privacy rights and enforcement mechanisms.

Similarly, the California Consumer Privacy Act of 2018 (“CCPA”), which became effective in January 2020, provided, among other things, a new private right of action for data breaches, required companies that process information on California residents to make new disclosures to consumers about their data collection, use and sharing practices, and provided consumers with additional rights.

The California Privacy Rights Act of 2020, which will become effective on January 1, 2023, amends and expands the CCPA, creating new industry requirements, consumer privacy rights and enforcement mechanisms.

Virginia and Colorado have also passed robust privacy laws that will come into effect on January 1 and July 1, 2023, respectively.

The Company's reputation and brand and its ability to attract new customers could also be adversely impacted if the Company fails, or is perceived to have failed, to properly respond to security breaches of its or third party’s information technology systems.

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All of these evolving compliance and operational requirements impose significant costs that are likely to increase over time.

Privacy laws that may be implemented in the future, including the Schrems II decision invalidating the EU - U.S.

Privacy laws that may be implemented in the future, and court decisions impacting activities across borders, including the Schrems II decision invalidating the EU - U.S.

Privacy Shield, will continue to require changes to certain business practices, thereby increasing costs, or may result in negative publicity, require significant management time and attention, and may subject the Company to remedies that may harm its business, including fines or demands or orders that the Company modify or cease existing business practices.

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Significant judgment is required in determining the Company’s worldwide income tax provision and accordingly there are many transactions and computations for which the final income tax determination is uncertain.

The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments, and which may not accurately anticipate actual outcomes.

The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments, and which may not accurately

anticipate actual outcomes.

The Company periodically assesses its liabilities and contingencies for all tax years still subject to audit based on the most currently available information, which involves inherent uncertainty.

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Lastly, it is possible that future income tax legislation may be enacted that could have a material impact on the Company’s worldwide income tax provision, cash tax liability, and effective tax rate beginning with the period that such legislation becomes enacted.

Climate change and climate change legislation or regulations may adversely affect the Company's business.

The effects of climate change, such as severe weather, including droughts and water scarcity, could impact the Company’s business.

The effects of climate change could also disrupt the Company’s operations by impacting the availability and costs of materials needed for manufacturing and could increase insurance and other operating costs.

There may be operational risk due to the significant impact climate change could pose to employees’ lives, the Company’s supply chain, or electrical power availability from climate-related weather events.

The Company also face risks related to the transition to a lower-carbon economy, such as its ability to successfully adopt new technology or to comply with more stringent and increasingly complex environmental regulations or requirements for the Company's manufacturing facilities and business operations, increased prices related to freight and shipping costs and other permitting requirements.

There continues to be a lack of consistent climate legislation, which creates economic and regulatory uncertainty.

Increased public awareness and concern regarding global climate change may result in more international, regional and/or federal requirements or other stakeholder expectations that could mandate more restrictive or expansive standards, more prescriptive reporting of environmental, social and governance metrics than the voluntary commitments the Company adopted, or require related changes on a more accelerated time frame than the Company anticipates.

A number of governmental bodies have finalized, proposed or are contemplating legislative and regulatory changes in response to the potential effect of climate change.

Such legislation or regulation has and potentially could include provisions for a “cap and trade” system of allowances and credits or a carbon tax or require increased measurement of metrics and disclosure, among other provisions.

The Company currently purchases renewable energy certificates (“RECs”) to mitigate the impact of carbon tax and is also assessing expanding its use of solar panels as an alternative energy source.

If carbon tax legislation is changed or adopted, the Company may not be able to mitigate the future impact of carbon tax through the purchase of RECs and the use of solar panels or other measures.

The Company may also face reputational risks and risks to the Company's investor confidence and market share if the Company is unable to make progress on the Company's voluntary environmental goals or is unable to keep apace with the progress made by the Company's peers.

If environmental laws or regulations are either changed or adopted and impose significant operational restrictions and compliance requirements on the Company, they may have a material adverse effect on the Company’s business, access to credit, capital expenditures, operating results and financial condition.

The Company’s failure to continue to successfully avoid, manage, defend, litigate and accrue for claims and litigation could negatively impact its results of operations or cash flows.

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The failure of the Company’s products, systems and services to be properly manufactured, configured, installed, designed or delivered, resulting in personal injuries, property damage or business interruption could subject the Company to claims for damages.

The Company has and is currently defending product liability claims, some of which have resulted in settlements or monetary judgments against the Company.

The Company has and is currently

defending product liability claims, some of which have resulted in settlements or monetary judgments against the Company.

The costs associated with defending ongoing or future product liability claims and payment of damages could be substantial.

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Changes in government procurement policy, priorities, regulations, technology initiatives and requirements, and/or contract award criteria may negatively impact the Company’s potential for growth in the government sector.

Changes in government cybersecurity and system requirements could

negatively impact the Company’s eligibility for the award of future contracts, negatively impacting the Company’s business and reputation.

Changes in government cybersecurity and system requirements could negatively impact the Company’s eligibility for the award of future contracts, negatively impacting the Company’s business and reputation.

Government contracts laws and regulations impose certain risks, and contracts are generally subject to audits, investigations and approval of policies, procedures and internal controls for compliance with procurement regulations and applicable law.

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The Company’s guidance may not always be accurate.

The Company may also choose to withdraw guidance, as it did in response to the uncertainty of the COVID-19 pandemic.

If, in the future, the Company’s results of operations for a particular period do not meet its guidance or the expectations of investment analysts, the Company reduces its guidance for future periods, or the Company withdraws guidance, the market price of the Company’s common stock could decline significantly.

The Company may also choose to withdraw guidan c e, as it did in response to the uncertainty of the COVID-19 pandemic, or lower guidance in future periods.

If, in the future, the Company’s results of operations for a particular period do not meet its guidance or the expectations of investment analysts, the Company

reduces its guidance for future periods, or the Company withdraws guidance, the market price of the Company’s common stock could decline significantly.

The Company has identified material weaknesses in its internal control over financial reporting.

If not remediated, the Company’s failure to establish and maintain effective disclosure controls and procedures and internal control over financial reporting could result in material misstatements in its financial statements and a failure to meet its reporting and financial obligations, each of which could have a material adverse effect on the Company’s financial condition and the trading price of its common stock.

Subsequent to the filing of its 2020 Form 10-K, the Company received comments from the SEC Staff regarding its accounting for equity units issued in May 2017 and November 2019 (the “Equity Units”).

Upon further reflection of the comments received by the Staff and the nature of the Equity Units, the Company determined that errors were made in its original accounting conclusions resulting from material weaknesses in its internal control over financial reporting for such instruments.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.

As discussed in I tem 9A.

Controls and Procedures of this Annual Report on Form 10-K, the Company’s management has evaluated its assessment of the effectiveness of internal control over financial reporting and its disclosure controls and procedures and concluded that they were not effective as of January 1, 2022.

The Company is committed to remediating its material weaknesses as promptly as possible.

Management is in the process of implementing its remediation plan.

However, there can be no assurance as to when the material weaknesses will be remediated or that additional material weaknesses will not arise in the future.

If the Company is unable to maintain effective internal control over financial reporting, its ability to record, process and report financial information timely and accurately could be adversely affected, which could subject the Company to litigation or investigations, require management resources, increase costs, negatively affect investor confidence and adversely impact its stock price.

UNRESOLVED STAFF COMMENTS

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors