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Item 1A. Risk Factors

2023-02-23 compared with 2022-02-22 · 156 added, 199 removed, 242 unchanged (59% of the section changed)

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Under these circumstances, the trading prices of the Company’s securities could decline, and you could lose all or part of your investment in the Company’s securities.

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 business 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, 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 combinations and investment transactions”), and also handle any post-closing issues, such as integration and transition services.

For example, in 2022, the Company completed the divestitures of its Security and Oil & Gas businesses.

The Company may make additional divestitures or pursue acquisitions in the future .

Risks associated with business combinations 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 and to close on such acquisitions within desired time frames and at a reasonable cost;

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

• the ability to conduct and evaluate the results of due diligence with respect to business combinations and investment transactions;

• the failure to identify significant issues with a 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, and the failure to identify, or accurately assess the risks of, historical practices of target companies that would create liability or other exposures for the Company if they continue post-completion or as a result of successor liability;

• the difficulties and cost in obtaining any necessary regulatory or government approvals on acceptable terms and any delay from the inability to satisfy pre-closing conditions;

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

• the acquired businesses may 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, ongoing or new lawsuits related to the transaction or otherwise or pre-closing regulatory violations of the acquired business, potential impairment of acquired goodwill and other intangible assets, and increasing the Company's expenses and working capital requirements;

• 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 current and the proposed changes to the U.S.

and foreign regulatory approval process and requirements in connection with an acquisition or divestiture may jeopardize, delay or reduce the anticipated benefits of the transaction to the Company.

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.

Business and Operational Risks

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

The Company’s business is subject to risks associated with sourcing, manufacturing and maintaining appropriate inventory levels.

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.

Lead times for these items vary significantly and may be further impacted by global shortages of critical components.

Global supply chain constraints in the wake of the COVID-19 pandemic limited the Company's visibility into availability and lead times for products and their component parts and raw materials but such constraints have softened in the second half of 2022.

In addition, the Company’s ability to import these items in a timely and cost-effective manner may 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 2022 and 2021, the Company experienced significantly higher freight costs compared to freight costs incurred in 2020.

These issues have delayed, and could delay in the future, 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.

The Company also relies on its ability to maintain inventory levels appropriate to meet consumer and customer demand.

During the second half of 2020 and during 2021, the Company experienced higher than historical customer demand and increased supply chain constraints, resulting in historically high inventory levels.

As consumer and DIY demand softened in the second quarter of 2022, the Company’s inventory levels peaked in the first half of the year.

The Company is actively addressing this dynamic through the Global Cost Reduction Program implemented in the third quarter of 2022, which includes an initiative to reduce inventory levels by curtailing production and by reducing complexity through SKU rationalization.

This initiative resulted in $775 million of inventory reduction in the second half of 2022.

However, any failure to achieve SKU rationalization efforts in an efficient manner or reduce inventory levels, or otherwise maintain appropriate inventory levels to meet consumer and customer demand, may expose the Company to risks of excess inventory and less marketable or obsolete inventory and could require the Company to sell excess or obsolete inventory at a discount, which could result in inventory write-offs that would negatively impact the Company’s revenues and profit margin.

Substantially all of the Company's 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 United States 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.

For example, in 2018 the United States 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.

Imports are also subject to unpredictable foreign currency changes 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.

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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.

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, China and Taiwan.

Any future tensions or conflicts in such regions could cause material 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.

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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 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).

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.

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.

If strategic initiatives are delayed, such initiatives may not achieve some or all of the expected benefits, which could have a material adverse effect on the Company’s competitive position, business, financial condition and results of operations and cash flows.

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 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.

The Company has certain significant customers, particularly home centers and major retailers.

In 2021, the two largest customers comprised approximately 29% of net sales, with U.S.

and international mass merchants and home centers collectively comprising approximately 46% of net sales.

In 2022, the two largest customers comprised approximately 28% of consolidated net sales, with U.S.

and international mass merchants and home centers collectively comprising approximately 41% of consolidated net sales.

The loss or material reduction of business, the lack of success of sales initiatives, or changes in customer preferences or loyalties for the Company’s products, related to any such significant customer could have a material adverse impact on the Company’s results of operations and cash flows.

In addition, the Company’s major customers are volume purchasers, a few of which are much larger than the Company, and have strong bargaining power with suppliers.

This limits the ability to recover cost increases through higher selling prices.

This factor limits the ability to recover cost increases through higher selling prices.

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

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Also, certain large customers offer house brands that compete with some of the Company’s product offerings as a lower-cost alternative.

To remain profitable and defend market share, the Company must maintain a competitive cost structure, develop new products and services, lead product innovation, respond to competitor innovations and enhance its existing products in a timely manner.

To remain profitable and maintain or grow market share, the Company must maintain a competitive cost structure, develop new products and services, lead product innovation, respond to competitor innovations and enhance its existing products in a timely manner.

The Company also competes for labor, particularly in its manufacturing facilities, which can drive higher labor costs and adversely impact its ability to efficiently operate.

Any failure to attract and retain employees at the Company’s manufacturing facilities or in other parts of the Company’s operations may adversely affect its business and ability to meet customer demand, which in turn could adversely affect the Company’s liquidity and results of operations.

The Company may not be able to compete effectively on all of these fronts and with all of its competitors, and the failure to do so could have a material adverse effect on its sales and profit margins.

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In the event the Company is not successful in effectively applying the Operations Excellence principles to its key business processes, including those of acquired businesses, its ability to compete and future earnings could be adversely affected.

In addition, the Company may have to reduce prices on its products and services, or make other concessions, to stay competitive and retain market share.

In addition, the Company may have to reduce prices on its products and services, or make other concessions, to stay competitive.

Price reductions taken by the Company in response to customer and competitive pressures, as well as price reductions and promotional actions taken to drive demand that may not result in anticipated sales levels, could also negatively impact its business.

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The pace of technological change continues to accelerate and the Company's ability to react effectively to such change may present significant competitive risks.

The pace of technological change is increasing at an exponential rate.

The continued creation, development and advancement of new technologies such as 5G data networks, artificial intelligence, blockchain, quantum computing, data analytics, 3-D printing, robotics, sensor technology, data storage, neural networks, augmented reality, amongst others, as well as other technologies in the future that are not foreseen today, continue to transform the Company’s processes, products and services.

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 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.

The Company's future growth rate depends upon a number of factors, including its ability to (i) identify and evolve with emerging technological and broader industry trends in its target end-markets;

(ii) defend its market share against an ever-expanding number of competitors, including many new and non-traditional competitors;

(iii) monitor disruptive technologies and business models;

and (iv) attract, develop, and retain individuals with the requisite technical expertise and understanding of customers’ needs to develop new technologies and introduce new products.

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

For example, changing market trends, such as increased consumer demand for energy efficient products and technologies in response to climate change, require the Company to develop and adopt new innovations focused on electrification.

The Company may not adequately meet these demands or develop and adapt to the applicable new technologies focused on electrification, which could adversely affect the Company’s reputation and the consumer and customer demand for the Company’s products.

The failure of the Company's technologies or products to gain market acceptance due to more attractive offerings by its competitors or the failure to address any of the above factors could negatively impact revenues and adversely affect its competitive standing and prospects.

The Company has significant operations outside of the United States, which are subject to political, legal, economic and other risks arising from operating outside of the United States.

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laws and regulations;

• ongoing stability or changes in the general political and economic conditions in the countries where the Company operates, particularly in emerging markets;

• instability or changes in the general political and economic conditions in the countries where the Company operates (such as the conflict between Russia and Ukraine);

• the threat of nationalization and expropriation;

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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 continuing adverse effects of the COVID-19 pandemic, including new variants, could have a materially negative impact on the Company’s business, operations, financial condition, results of operations, and liquidity.

The COVID-19 pandemic, including new variants, and the responses of governments, consumers and other businesses have 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.

The impacts of the COVID-19 pandemic include, but are not limited to:

• restrictions on the Company's access to its manufacturing facilities and on its support operations or workforce, and similar limitations for its distributors and suppliers;

• shifts and volatility in consumer spending and purchasing behaviors (such as the higher than usual customer demand for the Company’s products that occurred during the second half of 2020 and during 2021) that may hinder its ability to meet customer demand or may hinder its production capacity or supply chain;

• disruptions in commerce, including with respect to financial and other economic activities, services, travel and supply chains, and impacts on third parties with which the Company does business, which has, and may in the future result in, disruptions in the Company's supply chain, the inability of customers or suppliers to meet their obligations to the Company, loss or disruption of essential manufacturing and supply elements, operational delays, and increases in the cost of freight and labor;

• modifications to the Company’s business practices, including with respect to employee travel, employee work locations, restrictions on in-person meetings and events, and government-mandated vaccine protocols or policies;

• deteriorating economic conditions, such as economic slowdowns or recessions or significant disruptions or volatility in financial markets;

• delays or modifications to the Company's strategic plans and other initiatives, including as a result of temporary and permanent cost-reduction measures such as adjustments to its supply chain and manufacturing labor base to match the demand environment or reductions in staffing, compensation and benefits, both of which the Company implemented in response to the COVID-19 pandemic, and may continue or occur in the future.

The degree to which COVID-19 and related responses continue to affect 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 of the outbreak, the severity of any resurgence in cases, the actions to contain the virus or treat its impact and the availability and effectiveness of vaccines and other treatments.

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

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, 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 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, 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.

There can be no assurances that expected expense or revenue synergies will be achieved or that there will not be delays to the expected timing of system integrations, conversions or capability additions.

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 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.

Any significant disruption in the Company’s digital technology could have a material adverse impact on its business and results.

Despite efforts to prevent such situations and maintaining insurance policies and loss control and risk management practices that partially mitigate these risks, the Company’s digital technologies may be affected by damage or interruption from, among other causes, power outages, system failures or cyber attacks.

The Company has undertaken restructuring and cost-reduction 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.

In the third quarter of 2022, the Company initiated a supply chain transformation aiming to improve fill rates and better match the needs of its customers, while improving gross margins.

This transformation will involve significant investment from the Company over the next two to three years, and the success and anticipated cost savings from this transformation are not assured.

Failure to achieve, or delays in achieving, projected levels of efficiencies and cost savings from this transformation and other restructuring or cost reduction actions introduced by the Company, significant increases in the costs related to such actions, or unanticipated inefficiencies resulting from this transformation and other manufacturing and administrative reorganization actions in progress or contemplated, could adversely affect the anticipated cost savings.

A material disruption of the Company's operations, particularly at its manufacturing facilities or within its information technology infrastructure, could adversely affect business.

The Company's facilities, supply chains, distribution systems, and information technology systems are subject to catastrophic loss due to natural disasters or other disruptions, including hurricanes and floods, power outages, fires, explosions, terrorism, equipment failures, sabotage, cyber incidents, any potential effects of climate change and adverse weather conditions, labor disputes, critical supply failure, inaccurate downtime forecast, political disruption, public health crises, like a regional or global pandemic, and other reasons, which can result in undesirable consequences, including financial losses and damaged relationships with customers.

The COVID-19 pandemic has disrupted, and may continue to disrupt, the Company's supply chain, distribution channels, production facilities, operations and customer demand, which has negatively impacted its operations and adversely affected its business and could continue to do so.

The Company employs information technology systems and networks to support the business and relies on them to process, transmit and store electronic information, and to manage or support a variety of business processes and activities.

Disruptions to its information technology infrastructure from system failures, shutdowns, power outages, telecommunication or utility failures, cybersecurity incidents, and other events, including disruptions at its cloud computing, server, systems and other third party IT service providers, could interfere with its operations, interrupt production and shipments, damage customer and business partner relationships, and negatively impact its reputation.

The development of technology products and services presents security and safety risks.

An increasing number of the Company's products, services, and technologies are delivered with Internet of Things (IoT) capabilities and the accompanying interconnected device networks, which include sensors, data and advanced computing capabilities.

The Company has developed product software designs that it believes are less susceptible to cyber-attacks, but despite these efforts, if products and services that include IoT solutions do not work as intended or are compromised, the possible consequences include financial loss, reputational damage, exposure to legal claims or enforcement actions, theft of intellectual property, and diminution in the value of the Company's investment in research, development and engineering, which in turn could adversely affect its competitiveness and results of operations.

Industry and Economic Risks

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Further, as a result of inflationary or deflationary economic conditions, the Company believes it is possible that a limited number of suppliers may either cease operations or require additional financial assistance from the Company in order to fulfill their obligations.

In a limited number of circumstances, the magnitude of the Company’s purchases of certain items is of such significance that a change in established relationships with suppliers or increase in the costs of purchased raw materials, component parts or finished goods could result in manufacturing interruptions, delays, inefficiencies or an inability to market products.

Changes in value-added tax rebates, currently available to the Company or to its suppliers, could also increase the costs of the Company’s manufactured products, as well as purchased products and components, and could adversely affect the Company’s results.

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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.

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

Uncertainty about the financial stability of economies outside the U.S.

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• significant declines of foreign currency values in countries where the Company operates could impact both the revenue growth and overall profitability in those geographies;

• a slowing or contracting Chinese economy could reduce China’s consumption and negatively impact the Company’s sales in that region, as well as globally;

• a devaluation of foreign currencies could have an effect on the credit worthiness (as well as the availability of funds) of customers in those regions impacting the collectability of receivables;

• a devaluation of foreign currencies could have an adverse effect on the value of financial assets of the Company in the effected countries;

• 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.

• the impact of an event or changes to political and economic conditions (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 or disrupt global energy supply or supply chains.

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

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As a result, there is exposure to foreign currency risk as the Company enters into transactions and makes investments denominated in multiple currencies.

The Company’s predominant currency exposures are related to the Euro, Canadian Dollar, British Pound, Australian Dollar, Brazilian Real, Argentine Peso, Chinese Renminbi (“RMB”) and the Taiwan Dollar.

The Company’s predominant currency exposures are related to the Euro, Canadian Dollar, British Pound, Australian Dollar, Brazilian Real, Chinese Renminbi (“RMB”) and the Taiwan Dollar.

In preparing its financial statements, for foreign operations with functional currencies other than the U.S.

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Financing Risks

The Company has incurred, and may incur in the future, significant indebtedness, and may in the future issue additional equity securities, including in connection with mergers or acquisitions, which may impact the manner in which it conducts business or the Company’s access to external sources of liquidity.

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 $2.5 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.

The Company has incurred, and may incur in the future, significant indebtedness, and may in the future issue additional equity or debt securities, including in connection with mergers or acquisitions, which may impact the manner in which it conducts business or the Company’s access to external sources of liquidity.

The potential issuance of such securities may limit the Company’s ability to implement elements of its business 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 $2.5 billion committed credit facility, a $1.5 billion syndicated 364-Day Credit Agreement, and a $0.5 billion revolving credit loan.

No amounts were outstanding against any of these facilities on December 31, 2022.

As of December 31, 2022, the Company had $7.5 billion of indebtedness, including $5.4 billion of principal and $2.1 billion of commercial paper borrowings.

The instruments and agreements governing certain of the Company’s current indebtedness contain requirements or restrictive covenants that include, among other things:

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• a restriction on entering into certain sale-leaseback transactions;

• customary events of default.

If an event of default occurs and is continuing, the Company might be required to repay all amounts outstanding under the respective instrument or agreement;

• customary events of default, including repayment of all amounts outstanding in the event of the occurrence and continuance of an event of default;

• maintenance of a specified financial ratio.

The Company has an interest coverage covenant that must be maintained to permit continued access to its committed revolving credit facilities.

Specifically, the Company has an interest coverage covenant that must be maintained to permit continued access to its committed revolving credit facilities.

The interest coverage ratio tested for covenant compliance compares adjusted Earnings Before Interest, Taxes, Depreciation and Amortization to adjusted Interest Expense ("Adjusted EBITDA"/"Adjusted Interest Expense");

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

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.

During 2022, the interest coverage ratio must not be less than 3.5 times and is computed quarterly, on a rolling twelve months (last twelve months) basis.

Under this covenant definition, the interest coverage ratio was 8.6 times EBITDA or higher in each of the 2022 quarterly measurement periods.

In February 2023, the Company entered into amendments to its credit facilities described above to:

(a) amend the definition of Adjusted EBITDA to allow for additional adjustment addbacks, not to exceed $500 million in the aggregate, for amounts incurred during each four fiscal quarter period beginning with the period ending in the third quarter of 2023 through the period ending in the second quarter of 2024, and (b) amend the minimum interest coverage ratio to not less than 1.5 to 1.0 times computed quarterly, on a rolling twelve months (last twelve months) basis, for the period from and including the third quarter of 2023 through the second quarter of 2024.

The minimum interest coverage ratio will revert back to 3.5 times for periods after the second quarter of 2024.

Management does not believe it is reasonably likely the Company will breach this covenant.

Failure to maintain this ratio could adversely affect further access to liquidity.

Failure to maintain these ratios could adversely affect further access to liquidity.

Future instruments and agreements governing indebtedness may impose other restrictive conditions or covenants.

Such covenants could restrict the Company in the manner in which it conducts business and operations as well as in the pursuit of its growth and acquisition strategy.

Such covenants could restrict the Company in the manner in which it conducts business and operations as well as in the pursuit of its business strategy.

The Company is exposed to counterparty risk in its hedging arrangements.

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Tight capital and credit markets or the failure to maintain credit ratings could adversely affect the Company by limiting the Company’s ability to borrow or otherwise access liquidity.

The Company’s long-term growth plans are dependent on, among other things, the availability of funding to support corporate initiatives and complete appropriate acquisitions and the ability to increase sales of existing product lines.

While the Company has not encountered financing difficulties to date, the capital and credit markets have experienced extreme volatility and disruption in the past and may again in the future.

Market conditions could make it more difficult for the Company to borrow or otherwise obtain the cash required for significant new corporate initiatives and acquisitions.

The Company’s long-term growth plans are dependent on, among other things, the availability of funding to support corporate initiatives and the ability to increase sales of existing product lines.

While the Company has not encountered financing difficulties to date, the capital and credit markets have experienced extreme volatility and disruption in the past (including in connection with COVID-19) and may again in the future.

Market conditions could make it more difficult for the Company to borrow or otherwise obtain the cash required for significant new corporate initiatives.

Furthermore, there could be a number of follow-on effects from a credit crisis on the Company’s businesses, including insolvency of key suppliers resulting in product delays;

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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.

Discontinuation, reform or replacement of the London Inter-bank Offered Rate ("LIBOR") and other benchmark rates, or uncertainty related to the potential for any of the foregoing, may adversely affect the Company.

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.

Certain of the Company’s contracts and derivative financial instruments use short-term prevailing interest rates, including LIBOR, as a reference rate.

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.

dollar LIBOR are presently expected to stop doing so by mid-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 $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.

As a result of the Black and Decker merger and other acquisitions, the Company has approximately $8.5 billion of goodwill, approximately $2.5 billion of indefinite-lived trade names and approximately $2.0 billion of net definite-lived intangible assets on December 31, 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 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.

During 2022, the Company made cash contributions to its defined benefit plans of approximately $32 million and expects to contribute $37 million to its defined benefit plans in 2023.

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 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 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.

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;

• the ability to identify and close on appropriate acquisition opportunities within desired time frames at reasonable cost;

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

• 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;

• 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, 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.

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.

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.

Expansion of the Company’s activity in emerging markets may result in risks due to differences in business practices and cultures.

The Company’s growth plans include efforts to increase revenue from emerging markets through both organic growth and acquisitions.

Local business practices in these regions may not comply with U.S.

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.

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

In assessing the risk, the Company looks at, among other factors, the nature of the violation, the potential liability, including any fines or penalties that might be incurred, the ability to avoid, minimize or obtain indemnity for the risks, and the likelihood that the Company would be able to ensure that any such practices are discontinued following completion of the acquisition through implementation of its own policies and procedures.

Due diligence and risk assessment are, however, imperfect processes, and it is possible that the Company will not discover problematic practices until after completion, or that the Company will underestimate the risks associated with historical activities.

Should that occur, the Company may incur fees, fines, penalties, injury to its reputation or other damage that could negatively impact the Company's earnings.

The fair value of the defined benefit plan assets on December 31, 2022 was approximately $1.8 billion.

Legal, Tax, Regulatory and Compliance Risks

The Company’s brands are important assets of its businesses and violation of its trademark rights by imitators, or the failure of its licensees or vendors to comply with the Company’s product quality, manufacturing requirements, marketing standards, and other requirements could negatively impact revenues and brand reputation.

standards, and other requirements could negatively impact revenues and brand reputation.

Any inability to protect the Company's other intellectual property rights could also reduce the value of its products and services or diminish its competitiveness.

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In addition, the Company's patents may not be of sufficient scope or strength to provide meaningful protection or commercial advantage.

The Company is exposed to risks related to cybersecurity.

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 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.

In addition, it is not always possible to deter misconduct by employees or third-party vendors.

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.

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.

Measures that the Company takes to avoid, detect, mitigate or recover from material incidents, including implementing and conducting training on insider trading policies for the Company’s employees and maintaining contractual obligations for the Company’s third-party vendors, can be expensive, and may be insufficient, circumvented, or may become ineffective.

Cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information, and adversely impact the Company's reputation and results of operations.

Global cybersecurity threats and incidents can range from uncoordinated individual attempts to gain unauthorized access to

information technology ("IT") systems to sophisticated and targeted measures known as advanced persistent threats, directed at the Company, its products, its customers and/or its third-party service providers, including cloud providers.

While the Company has experienced, and expects to continue to experience, these types of threats and incidents, none of them to date have been material to the Company.

The Company deploys measures which align to industry accepted frameworks to deter, prevent, detect, respond to, and mitigate these threats.

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.

Recent well-publicized security breaches at other companies have led to enhanced government and regulatory scrutiny of the measures taken by companies to protect against cyber-attacks, and may in the future result in heightened cybersecurity requirements, including additional regulatory expectations for oversight of vendors and service providers.

Any material breaches of cybersecurity, including the accidental loss, inadvertent disclosure or unapproved dissemination of proprietary information or sensitive or confidential data, or media reports of perceived security vulnerabilities to the Company’s systems, products and services or those of the Company’s third parties could cause the Company to experience reputational harm, loss of customers and revenue, fines, regulatory actions and scrutiny, sanctions or other statutory penalties, litigation, liability for failure to safeguard the Company’s customers’ information, or financial losses that are either not insured against or not fully covered through any insurance maintained by the Company.

The cost and operational consequences of implementing, maintaining and enhancing these measures could increase significantly to overcome increasingly intense, complex, and sophisticated global cyber threats.

Despite these efforts, cybersecurity incidents (against the Company or parties with whom the Company contracts), depending on their nature and scope, could potentially result in the misappropriation, destruction, corruption or unavailability of critical data and confidential or proprietary information (the Company's or that of third parties) and the disruption of business operations.

The potential consequences of a material cybersecurity incident and its effects include financial loss, reputational damage, litigation with third parties, theft of intellectual property, fines levied by the Federal Trade Commission or other government agencies, diminution in the value of the Company's investment in research, development and engineering, and increased cybersecurity protection and remediation costs due to the increasing sophistication and proliferation of threats, which in turn could adversely affect its competitiveness and results of operations.

In addition, cybersecurity laws and regulations continue to evolve, and are increasingly demanding, both in the U.S.

and globally, which adds compliance complexity and may increase costs of compliance and expose the Company to reputational damage or litigation, monetary damages, regulatory enforcement actions or fines in one or more jurisdictions.

While the Company carries cyber insurance, it cannot be certain that coverage will be adequate for liabilities actually incurred, that insurance will continue to be available to the Company on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim.

The report, rumor or assumption regarding a potential breach may have similar results, even if no breach has been attempted or occurred.

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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 California Privacy Rights Act of 2020, which became 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 come into effect on January 1, 2023 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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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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dollar since a significant amount of the Company’s earnings are generated outside the United States.

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.

Lastly, it is possible that future income tax legislation, including the Organization for Economic Cooperation and Development (“OECD”) Global Minimum Tax, 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.

The OECD Global Minimum Tax is expected to require multi-national corporations with revenue in excess of €750 million to pay an effective tax rate of at least 15% in each jurisdiction in which they operate effective with the 2024 tax year.

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.

The effects of climate change, such as severe weather, including droughts and water scarcity, could impact the Company’s business, disrupt the Company’s operations by impacting the availability and costs of materials needed for manufacturing and 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.

The Company also faces risks related to the transition to a lower-carbon economy, such as its ability to successfully adopt new technology, meet market-driven demands for carbon neutral and renewable energy 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.

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.

The Company currently purchases renewable energy certificates (“RECs”) to mitigate the potential 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.

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The Company has been, and could be in the future, subject to liability if it does not comply with these regulations.

In addition, the Company is currently, and may in the future be held responsible for remedial investigations and clean-up costs resulting from the discharge of hazardous substances into the environment, including sites that have never been owned or operated by the Company but at which it has been identified as a potentially responsible party under federal and state environmental laws and regulations.

In addition, the Company is currently being, and may in the future be, held responsible for remedial investigations and clean-up costs resulting from the discharge of hazardous substances into the environment, including sites that have never been owned or operated by the Company but at which it has been identified as a potentially responsible party under federal and state environmental laws and regulations.

Changes in environmental and other laws and regulations in both domestic and foreign jurisdictions could adversely affect the Company’s operations due to increased costs of compliance and potential liability for non-compliance.

The Company manufactures products, configures and installs security systems and performs various services that create exposure to product and professional liability claims and litigation.

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 manufactures products and performs various services that create exposure to product and professional liability claims and litigation.

The failure of the Company’s products 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 costs associated with defending ongoing or future product liability claims and payment of damages could be substantial.

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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.

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

If violations of law are found, they could result in civil and criminal penalties and administrative sanctions, including termination of contracts, refund of a portion of fees received, forfeiture of profits, suspension of payments, fines and suspensions or debarment from future government business.

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The Company’s guidance may not always be accurate.

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.

The Company may also choose to withdraw guidan c e, as it did in response to the uncertainty of the COVID-19 pandemic in 2020, 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.

If the Company is unable to maintain effective internal control over financial reporting, the accuracy and timeliness of its financial reporting may be adversely affected , which could have a material adverse effect on the Company’s financial condition and the trading price of its common stock.

As a public company, the Company is required to design and maintain proper and effective internal control over financial reporting and to report any material weaknesses in such internal control.

Section 404 of the Sarbanes-Oxley Act of 2002 requires that the Company evaluate and determine the effectiveness of its internal control over financial reporting and provide a management report on the internal control over financial reporting, which must be attested to by the Company’s independent registered public accounting firm.

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.

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.

During the first quarter of fiscal 2022, the Company successfully completed the testing necessary to conclude that the material weaknesses have been remediated.

If in the future the Company’s internal control over financial reporting is determined to be not effective, resulting in a material weakness, investor perceptions regarding the reliability of the Company’s financial statements may be adversely affected which could cause a decline in the market price of its stock and otherwise negatively affect the Company’s financial condition.

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