What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-02-23 compared with 2022-02-22 · 320 added, 384 removed, 357 unchanged (66% of the section changed)

2 unchanged sentences

This financial and business analysis should be read in conjunction with the Consolidated Financial Statements and related notes.

All references to “ Notes ” in this Item 7 refer to the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report.

All references to “ Notes ” in this Item 7 refer to the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

The following discussion and certain other sections of this Annual Report on Form 10-K contain statements reflecting the Company’s views about its future performance that constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry and markets in which the Company operates as well as management’s beliefs and assumptions.

Any statements contained herein (including without limitation statements to the effect that Stanley Black & Decker, Inc.

or its management “believes,” “expects,” “anticipates,” “plans” and similar expressions) that are not statements of historical fact should be considered forward-looking statements.

Any statements contained herein (including without limitation statements to the effect that the Company or its management “believes,” “expects,” “anticipates,” “plans” and similar expressions) that are not statements of historical fact should be considered forward-looking statements.

These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict.

2 unchanged sentences

Strategic Objectives

The Company continues to pursue a growth and acquisition strategy, which involves industry, geographic and customer diversification to foster sustainable revenue, earnings and cash flow growth, and employ the following strategic framework in pursuit of its vision to deliver top-quartile financial performance, become known as one of the world’s leading innovators and elevate its commitment to ESG:

• Continue organic growth momentum by leveraging the SBD Operating Model to drive innovation and commercial excellence, while diversifying toward higher-growth, higher-margin businesses;

• Be selective and operate in markets where brand is meaningful, the value proposition is definable and sustainable through innovation, and global cost leadership is achievable;

• Pursue acquisitive growth on multiple fronts by building upon its existing global tools platform and expanding the outdoor products category, expanding the Industrial platform in Engineered Fastening and Infrastructure, and pursuing adjacencies with sound industrial logic.

Execution of the above strategy has resulted in approximately $13.5 billion of acquisitions since 2002 (excluding the Black & Decker merger), several divestitures, improved efficiency in the supply chain and manufacturing operations, and enhanced investments in organic growth, enabled by cash flow generation and increased debt capacity.

In addition, the Company's continued focus on diversification and organic growth has resulted in improved financial results and an increase in its global presence.

The Company also remains focused on leveraging its SBD Operating Model to deliver success in the 2020s and beyond.

The Company continues to execute a business strategy that involves organic growth in excess of the market and industry, geographic and customer diversification to foster sustainable revenue, earnings and cash flow growth over the long term.

Over the past two years, the Company has focused the portfolio on its leading positions in the Tools & Outdoor and Industrial businesses.

Leveraging the benefits of a more focused portfolio, the Company initiated a business transformation that includes reinvestment for faster growth as well as a $2.0 billion Global Cost Reduction Program through 2025.

The Company’s primary areas of strategic focus are as follows:

• Continuing to advance innovation, electrification and global market penetration to achieve organic revenue growth of 2 to 3 times the market;

• Streamlining and simplifying the organization, as well as shifting resources to prioritize investments believed to have a positive and more direct impact to customers;

• Accelerating the operations and supply chain transformation to improve fill rates and better match the needs of its customers while improving adjusted gross margins back to historical 35%+ levels;

• Prioritizing cash flow generation and inventory optimization.

The Company also remains focused on leveraging its SBD Operating Model to deliver success.

The latest evolution of the SBD Operating Model builds on the strength of the Company's past while embracing changes in the external environment to ensure the Company has the right skillsets, incorporates technology advances in all areas, maintains operational excellence, drives efficiency in business processes and resiliency into its culture, delivers extreme innovation and ensures the customer experience is world class.

The operating model underpins the Company's ability to deliver above-market organic growth with margin expansion, maintain efficient levels of selling, general and administrative expenses ("SG&A") and deliver top-quartile asset efficiency.

The Company’s long-term financial objectives remain as follows:

• 4-6% organic revenue growth;

• 10-12% total revenue growth;

• 10-12% total EPS growth (7-9% organically) excluding acquisition-related charges;

The SBD Operating Model underpins the Company's ability to deliver above-market organic growth with margin expansion, maintain efficient levels of selling, general and administrative expenses ("SG&A") and deliver top-quartile asset efficiency.

The Company's business transformation is intended to drive strong financial performance over the long term, including:

• Organic revenue growth at 2 to 3 times the market;

• 35%+ adjusted gross margins;

• Free cash flow equal to, or exceeding, net income;

• Deliver 10+ working capital turns;

• Cash Flow Return On Investment ("CFROI") between 12-15%.

In terms of capital allocation, the Company remains committed, over time, to returning approximately 50% of excess capital to shareholders through a strong and growing dividend as well as opportunistically repurchasing shares.

The remaining capital (approximately 50%) will be deployed towards acquisitions.

Pending Sale of Convergent Security Solutions ("CSS")

In December 2021, the Company announced that it had reached a definitive agreement for the sale of most of its Security assets to Securitas AB for $3.2 billion in cash.

The proposed transaction includes the Company's CSS business comprising of commercial electronic security and healthcare businesses.

The transaction does not include the Company's automatic doors business.

The sale is subject to regulatory approvals and other customary closing conditions, and is expected to close in the first half of 2022.

Net proceeds from the sale are expected to be used to fund, in part, an approximately $4 billion share repurchase which is planned to be completed in 2022.

The use of net proceeds towards a planned share repurchase program is consistent with the Company's long-term capital allocation strategy focused on value maximization.

In terms of capital allocation, the Company remains committed, over time, to returning excess capital to shareholders through a strong and growing dividend as well as opportunistically repurchasing shares.

In the near term, the Company intends to direct any capital in excess of the quarterly dividend on its common share toward debt reduction and internal investments.

Share Repurchases And Other Securities

During the first quarter of 2022, the Company repurchased 12,645,371 shares of its common stock for approximately $2.3 billion through a combination of an accelerated share repurchase ("ASR") and open market share repurchases.

The ASR terms provided for an initial delivery of 85% of the total notional share equivalent at execution, or 10,756,770 shares.

The final delivery of the remaining shares totaling 3,211,317 under the ASR was completed during the second quarter of 2022.

Refer to Note J, Capital Stock , for further discussion.

In addition, on April 23, 2021, the Board of Directors approved repurchases by the Company of its outstanding securities, other than its common stock up to an aggregate amount of $3.0 billion.

No repurchases have been executed pursuant to this authorization to date.

On August 19, 2022, the Company sold its Oil & Gas business comprised of the pipeline services and equipment businesses to Pipeline Technique Limited.

On July 22, 2022, the Company sold its Convergent Security Solutions ("CSS") business comprised of the commercial electronic security and healthcare businesses to Securitas AB for net proceeds of $3.1 billion.

On July 5, 2022, the Company sold its Mechanical Access Solutions ("MAS") business comprised of the automatic doors business to Allegion plc for net proceeds of $922.2 million.

Proceeds from the sale of these businesses were used to repay borrowings made in the first quarter of 2022 to fund the Company's share repurchase program previously discussed.

The use of proceeds to support a share repurchase program is consistent with the Company's long-term capital allocation strategy.

The Company has also divested several smaller businesses in recent years that allowed the Company to invest in other areas that fit into its long-term strategy.

Refer to Note T, Divestitures, for further discussion of the Company's divestitures.

Acquisitions and Investments

On December 1, 2021, the Company acquired the remaining 80 percent ownership stake in MTD Holdings Inc.

("MTD"), a privately held global manufacturer of outdoor power equipment.

("MTD"), a privately held global designer, manufacturer and distributor of lawn tractors, zero turn ride on mowers, walk behind mowers, snow blowers, residential robotic mowers, hand-held outdoor power equipment and garden tools for both residential and professional consumers under well-known brands like CUB CADET® and TROY-BILT®.

The Company previously acquired a 20 percent interest in MTD in January 2019.

With over $2.6 billion of revenue in 2021, MTD designs, manufactures and distributes lawn tractors, zero turn ride on mowers, walk behind mowers, snow blowers, residential robotic mowers, handheld outdoor power equipment and garden tools for both residential and professional consumers under well-known brands like Cub Cadet® and Troy-Bilt®.

On November 12, 2021, the Company acquired Excel Industries ("Excel").

Excel is a leading designer and manufacturer of premium commercial and residential turf-care equipment under the brands of Hustler Turf Equipment® and BigDog Mower Co®.

The Company believes this is a strategically important bolt-on acquisition that bolsters the presence in the independent dealer network.

The Company expects the combination of MTD, Excel and its existing outdoor strategic business unit in Tools & Storage will create a global leader in the $25 billion and growing outdoor category, with strong brands and growth opportunities.

As part of the integration of these businesses, the Company plans to design, develop and manufacture battery and electric-powered solutions for professional and residential users.

This will position the combined businesses to be a leader as preferences shift from gas powered equipment toward electrified solutions in outdoor power equipment.

On November 12, 2021, the Company acquired Excel Industries ("Excel"), a leading designer and manufacturer of premium commercial and residential turf-care equipment under the HUSTLER® brand.

This was a strategically important bolt-on acquisition that bolstered the Company's presence in the independent dealer network.

The combination of MTD, Excel and the Company's existing outdoor strategic business unit in Tools & Outdoor created a global leader in the $25 billion and growing outdoor category, with strong brands and growth opportunities.

As part of the integration of these businesses into the Tools & Outdoor segment, the Company designed, developed and manufactured battery and electric-powered solutions for professional and residential users.

This positioned the combined businesses to be a leader in outdoor power equipment as preferences shift from gas powered equipment toward electrified solutions.

On February 24, 2020, the Company acquired Consolidated Aerospace Manufacturing, LLC ("CAM"), an industry-leading manufacturer of specialty fasteners and components for the aerospace and defense markets.

The acquisition further diversified the Company's presence in the industrial markets and expanded its portfolio of specialty fasteners in the aerospace and defense markets.

On March 8, 2019, the Company acquired the International Equipment Solutions Attachments businesses, Paladin and Pengo, ("IES Attachments"), manufacturers of high quality, performance-driven heavy equipment attachment tools for off-highway applications.

The acquisition further diversified the Company's presence in the industrial markets, expanded its portfolio of attachment solutions and provided a meaningful platform for growth.

Refer to Note E, Acquisitions and Investments, for further discussion.

On May 30, 2019, the Company sold its Sargent and Greenleaf mechanical locks business within the Security segment.

The Company has also divested several smaller businesses in recent years that did not fit into its long-term strategic objectives.

These divestitures allow the Company to invest in other areas of the Company that fit into its long-term growth strategy.

Refer to Note T, Divestitures, for further discussion of the Company's divestitures.

COVID-19 Pandemic

The novel coronavirus ("COVID-19") outbreak has adversely affected the Company's workforce and operations, as well as the operations of its customers, distributors, suppliers and contractors.

The COVID-19 pandemic has also resulted in significant volatility and uncertainty in the markets in which the Company operates.

To successfully navigate through this unprecedented period, the Company has remained focused on the following key priorities:

• Ensuring the health and safety of its employees and supply chain partners;

• Maintaining business continuity and financial strength and stability;

• Serving its customers as they provide essential products and services to the world;

• Doing its part to mitigate the impact of the virus across the globe.

To respond to the volatile and uncertain environment, the Company implemented a comprehensive cost reduction and efficiency program in 2020, which delivered approximately $625 million of net savings across 2021 and 2020.

Cost actions executed under the program included headcount reductions, furloughs, reduced employee work schedules, a voluntary retirement program, and footprint rationalizations.

The Company took steps in 2020 to make some of the cost actions permanent while certain employees were returned to full-time status.

This ensured the sustainability of the cost reduction program into 2021 while providing more employment stability for the Company's remaining associates.

Global Cost Reduction Program

During 2022, the Company advanced a series of initiatives designed to generate cost savings by resizing the organization and reducing inventory with the ultimate objective of driving long-term growth, improving profitability and generating strong cash flow.

These initiatives are expected to optimize the cost base as well as provide a platform to fund investments to accelerate growth in the core businesses.

The Company realized approximately $200 million of pre-tax savings during the second half of

2022 from its leaner organizational structure, as well as enhanced cost controls, and believes that it remains on track to generate additional pre-tax savings of approximately $1 billion by the end of 2023 and grow to approximately $2 billion by 2025 from these initiatives.

In addition, the Company reduced inventory by $775 million during the second half of 2022 and expects further inventory and working capital reductions to support free cash flow generation in 2023.

The program consists of an SG&A reduction of $500 million and a supply chain transformation expected to deliver $1.5 billion of cumulative cost savings to achieve projected 35%+ adjusted gross margins.

The $500 million in SG&A savings is expected to be generated by simplifying the corporate structure, optimizing organizational spans and layers and reducing indirect spend and is expected to be achieved by the end of 2023.

These savings are intended to fund $300 million to $500 million of innovation and commercial investments over the next three years to accelerate organic growth.

The charges associated with the SG&A savings are reflected in the 2022 acquisition-related and other charges detailed below.

The supply chain transformation consists of:

• Leveraging strategic sourcing and contract manufacturing;

• Consolidating facilities and optimizing the distribution network;

• Executing the SBD Operating Model to deliver operational excellence through efficiency, simplified organizational design and inventory optimization;

• Platforming products and implementing initiatives to drive a SKU reduction.

The cash investment required over the next two to three years to achieve the $1.5 billion of cumulative supply chain cost savings is expected to be approximately $0.9 billion to $1.0 billion, of which approximately 40% is expected to be capital expenditures.

The Company will continue prioritizing capital expenditures consistent with its existing approach and expects total capital expenditures, inclusive of the supply chain transformation, to approximate 3.0% to 3.5% of net sales annually.

Driving Further Profitable Growth by Fully Leveraging the Company's Core Franchises

1 unchanged sentence

they have world-class brands and attractive growth characteristics, they are scalable and defensible, they can differentiate through innovation, and they are powered by the SBD Operating Model.

• The Tools & Storage business is the tool company to own, with strong brands, proven innovation, global scale, and a broad offering of power tools, hand tools, outdoor products, accessories, and storage & digital products across many channels in both developed and developing markets.

• The Engineered Fastening business is a highly profitable, GDP+ growth business offering highly engineered, value-added innovative solutions with recurring revenue attributes and global scale.

While diversifying the business portfolio through strategic acquisitions remains important, management recognizes that the core franchises described above are important foundations that continue to provide strong cash flow and growth prospects.

Management is committed to growing these businesses through innovative product development, brand support, continued investment in emerging markets and a sharp focus on global cost competitiveness.

• The Tools & Outdoor business is the tool company to own, with strong brands, proven innovation, global scale, and a broad offering of power tools, hand tools, outdoor products, accessories, and storage and digital products across many channels in both developed and developing markets.

• The Engineered Fastening business within the Industrial segment is a highly profitable, GDP+ growth business offering highly engineered, value-added innovative solutions with recurring revenue attributes and global scale.

Management recognizes that the core franchises described above are important foundations that have a proven track record of providing strong cash flow and growth prospects.

Management is committed to growing these businesses through accelerating investments into innovative product development, brand support, commercial activation, and accelerating the operations and supply chain transformation to improve fill rates and better serve the Company's customers, while improving global cost competitiveness.

Continuing to Invest in the Stanley Black & Decker Brands

The Company has a strong portfolio of brands associated with high-quality products including STANLEY®, BLACK+DECKER®, DEWALT®, FLEXVOLT®, IRWIN®, LENOX®, CRAFTSMAN®, PORTER-CABLE®, BOSTITCH®, PROTO®, MAC TOOLS®, FACOM®, Powers®, LISTA®, Vidmar®, GQ® and through the 2021 acquisitions of MTD and Excel added CUB CADET®, TROY-BILT® and HUSTLER® in the Americas.

Among the Company's most valuable assets, STANLEY®, BLACK+DECKER® and DEWALT® are recognized as three of the world's great brands, while CRAFTSMAN® is recognized as a premier American brand.

The National Collegiate Athletic Association sponsorship delivered an estimated 308+ million views through TV-visible DEWALT® branding at 25 colleges and universities across five (Atlantic Coast Conference, Big Ten, Big 12, Pac-12 and Mountain West) Division 1 conferences.

During 2021, the Company also announced its “Official Tools” sponsorship with McLaren Racing in Formula 1 – a partnership well on track for 2022.

In 2021, the McLaren team sported the DEWALT® logo on the car for 16 races starting at the British Grand Prix in July.

The STANLEY®, DEWALT® and CRAFTSMAN® brands continue to have prominent signage in Major League Baseball ("MLB") stadiums appearing in many MLB games.

The Company has also maintained long-standing NASCAR and NHRA racing sponsorships, which provided brand exposure during nearly 60 events in 2021 with the STANLEY®, DEWALT®, CRAFTSMAN®, IRWIN® and MAC TOOLS® brands.

Among the Company's most valuable assets, STANLEY®, BLACK+DECKER®, DEWALT®, and CUB CADET® are recognized as four of the world's great brands, while CRAFTSMAN® is recognized as a premier American brand.

During 2022, the National Collegiate Athletic Association sponsorship delivered DEWALT® to an estimated 269+ million viewers through TV-visible branding at 25 colleges and universities across five Division 1 conferences (Atlantic Coast Conference, Big Ten, Big 12, Pac-12 and Mountain West).

The Company also announced its “Official Tools Partner of NASCAR” and “Official Tools" of all NASCAR-owned and operated tracks and announced that CRAFTSMAN® would return as the title sponsor of the NASCAR CRAFTSMAN® Truck Series starting in 2023.

The CRAFTSMAN® brand continued to have prominent signage in Major League Baseball ("MLB") with six team partnerships in the league.

The Company has also maintained long-standing NASCAR and NHRA racing sponsorships, which provided brand exposure during nearly 60 events in 2022 with the DEWALT®, CRAFTSMAN®, and MAC TOOLS® brands.

In 2022, the McLaren team sported the DEWALT® logo prominently on the team’s cars, fire suits, and equipment during the Formula 1 season.

The Company also advertises in the English Premier League, which is the number one soccer league in the world, featuring STANLEY®, BLACK+DECKER® and DEWALT® brands to a global audience.

In 2014, the Company became a sponsor for one of the world’s most popular football clubs, FC Barcelona ("FCB"), including player image rights, hospitality assets and stadium signage.

In 2018, the Company was announced as the first ever shirt sponsor for the FCB Women's team in support of its commitment to global diversity and inclusion.

The above marketing initiatives highlight the Company's strong emphasis on brand building and commercial support, which has resulted in more than 300 billion global brand impressions – an annual increase of 110% – from digital and traditional advertising and strong brand awareness.

The Company continued its sponsorship of one of the world’s most popular football clubs, FC Barcelona ("FCB"), sponsoring both the Men’s and Women’s first teams, which includes team and player image rights, hospitality assets and stadium signage.

The above marketing initiatives highlight the Company's strong emphasis on brand building and commercial support, which has resulted in more than 300 billion global brand impressions from digital and traditional advertising and strong brand awareness.

Allocating brand and advertising spend judiciously will continue to be the Company’s focus.

Among the goals:

being front and center in an emerging digital landscape, evolving proven marketing programs that tie trusted global brands with societal purpose and tapping into technologies to build meaning 1:1 experiences with customers, consumers, employees and shareholders in line with the Company’s mission and vision.

placing end-user data and insights at the core of product commercialization, generating demand and brand loyalty through promotional support, in-market execution and salesforce effectiveness, evolving proven marketing programs that tie trusted global brands with societal purpose and tapping into technologies to build meaningful 1:1 experiences with customers, consumers, employees and shareholders in line with the Company’s mission and vision.

The SBD Operating Model

Winning in the 2020s

Over the past 15 years, the Company has successfully leveraged its proven and continually evolving operating model to focus the organization to sustain top-quartile performance, resulting in asset efficiency, above-market organic growth and expanding operating margins.

Over the past 15 years, the Company has successfully leveraged its proven and continually evolving operating model to focus the organization to target asset efficiency, above-market organic growth and expanding operating margins.

In its first evolution, the Stanley Fulfillment System ("SFS") focused on streamlining operations, which helped reduce lead times, realize synergies during acquisition integrations, and mitigate material and energy price inflation.

In 2015, the Company launched a refreshed and revitalized SFS operating system, entitled SFS 2.0, to drive from a more programmatic growth mentality to a true organic growth culture by more deeply embedding breakthrough innovation and commercial excellence into its businesses, and at the same time, becoming a significantly more digitally-enabled enterprise.

The latest evolution occurred in 2020, when the Company launched the SBD Operating Model:

Winning in the 2020s, which recognized the changing dynamics of the world in which the Company operates, including the acceleration of technological change, geopolitical instability and the changing nature of work.

The latest evolution occurred in 2020, when the Company launched the SBD Operating Model, which recognized the changing dynamics of the world in which the Company operates, including the acceleration of technological change, geopolitical instability and the changing nature of work.

At the center of the model is the concept of the interrelationship between people and technology.

The remaining four categories are:

Performance Resiliency;

Extreme Innovation;

Operations Excellence and Extraordinary Customer Experience.

Each of these elements co-exists synergistically with the others in a systems-based approach.

People and Technology

This pillar emphasizes the Company's belief that the right combination of digitally proficient people applying technology such as artificial intelligence, machine learning, advanced analytics, Internet of Things and others in focused ways can be an enormous source of value creation and sustainability for the Company.

It also brings to light the changing nature of work and the talent and skillsets required for individuals and institutions to thrive in the future.

With technology infiltrating the workplace at an increasingly rapid pace, the Company believes that the winners in the 2020s will invest heavily in reskilling, upskilling and lifelong learning with an emphasis on the places where people and technology intersect.

In other words, technology can make humans more powerful and productive if, and only if, humans know how to apply the technology to maximum advantage.

The Company has created plans and programs, as well as a new leadership model to ensure people have the right skills, tools and mindsets to thrive in this era.

The ability for employees to embrace technology, learn and relearn new skills and take advantage of the opportunities presented in this new world will be critical to the Company's success.

Performance Resiliency

The Company views performance resiliency as the agility, flexibility and adaptability to sustain strong performance in a variety of operating environment conditions, which requires planning for the unexpected and anticipating exogenous volatility as the new normal.

Technology, applied to key business processes, products and business models, will be a key enabler for value creation and performance resiliency as the Company executes sustainable, ongoing transformation across the enterprise.

Extreme Innovation

The Company has a historically strong foundation in innovation, launching more than 1,000 products a year, including breakthroughs such as D E WALT Flexvolt, Atomic, Xtreme, and the launch of D E WALT PowerStack in December 2021.

In recent years, the Company has expanded its innovation-focused internal teams and external partnerships, but now it is growing that innovation ecosystem at a rapid pace, expanding the number of external collaborations with start-ups and entrepreneurs, academic institutions, research labs and others.

This innovation culture, which includes a focus on social impact in addition to the Company's traditional product and customer focus, enables the Company to introduce products to market faster and reimagine how to operate in today’s technology-enabled, fast-paced world.

The remaining four categories are focused on:

Operations Excellence;

An intense focus on operations excellence and asset efficiency is mandatory in a dynamic world in which the bar for competitiveness is always moving higher.

To help maintain the Company's edge, a much more agile, adaptable and technology-enabled supply chain is necessary to manufacture closer to its customers.

This “Make Where We Sell” strategy will improve customer responsiveness, lower lead times, reduce costs and mitigate geopolitical and currency risk while facilitating improvements in carbon footprint.

Extraordinary Customer Experience

Customers are increasingly demanding world-class experiences from their brands and expectations for execution at the customer level are growing every day.

It is no longer sufficient to have great products on the shelf or in the catalog.

The Company knows that to sustain market share growth, it needs to evolve and adapt to provide the types of experiences that customers now expect.

Each of the Company's businesses evaluates and works to systematically improve its various customer journeys and acts on customer insights to continuously deliver an extraordinary customer experience.

As previously noted, the interaction between people and technology will define success in this area.

Leveraging the SBD Operating Model, the Company is building a culture in which it strives to become known as one of the world’s great innovative companies by embracing the current environment of rapid innovation and digital transformation.

The Company continues to build a vast innovation focused ecosystem to pursue faster innovation and to remain aware of and open to new technologies and advances by leveraging both internal initiatives and external partnerships.

The innovation ecosystem used in concert with the SBD Operating Model is anticipated to allow the Company to apply innovation to its core processes in manufacturing and back office functions to reduce operating costs and inefficiencies, develop core and breakthrough product innovations within each of its businesses, and pursue disruptive business models to either push into new markets or change existing business models before competition or new market entrants capture the opportunity.

The Company continues to make progress towards this vision, as evidenced by the creation of Innovation Everywhere, a program that encourages and empowers all employees to implement value creation and cost savings using collaborative and innovative solutions, breakthrough innovation teams, the Stanley Ventures group, which invests capital in new and emerging start-ups in core focus areas, the Techstars partnership, which selects start-ups from around the world with the goal of bringing breakthrough technologies to market, the Manufactory 4.0, which is the Company's epicenter for Industry 4.0 technology development and partnership, and STANLEY X, a Silicon Valley based team, which is building its own set of disruptive initiatives and exploring new business models.

The Company has made a significant commitment to the SBD Operating Model and management believes that its success will be characterized by continued asset efficiency, organic growth in the 4-6% range in the long-term as well as expanded operating margin rates over the next 3 to 5 years as the Company leverages the growth and pursues structural cost reductions with the margin resiliency initiatives.

The Company believes that the SBD Operating Model will serve as a powerful value driver in the years ahead, ensuring the Company is positioned to win in the 2020s by developing and obtaining the right people and technology to deliver performance resiliency, extreme innovation, operations excellence and an extraordinary customer experience.

The operating model, in concert with the Company's innovation ecosystem, will enable the Company to change as rapidly as the external environment which directly supports achievement of the Company's long-term financial objectives, including its vision, and further enables its shareholder-friendly capital allocation approach, which has served the Company well in the past and will continue to do so in the future.

Functional Excellence;

and Extraordinary Customer Experience.

Each of these elements co-exists synergistically with the others in a systems-based approach.

The Company has made a significant commitment to the SBD Operating Model and management believes that its success will be characterized by asset efficiency, organic revenue growth 2 to 3 times the market in the long-term as well as expanded adjusted operating margin rates over the next 3 to 5 years as the Company leverages the growth and pursues structural cost reductions.

The Company’s operations are classified into two reportable business segments:

Tools & Storage and Industrial.

The Company has one non-reportable business operating segment, Mechanical Access Solutions ("MAS").

Tools & Storage

The Tools & Storage segment is comprised of the Power Tools Group ("PTG"), Hand Tools, Accessories & Storage ("HTAS"), and Outdoor Power Equipment ("Outdoor") businesses.

Tools & Outdoor and Industrial.

Tools & Outdoor

The Tools & Outdoor segment is comprised of the Power Tools Group ("PTG"), Hand Tools, Accessories & Storage ("HTAS"), and Outdoor Power Equipment ("Outdoor") businesses.

The PTG business includes both professional and consumer products.

Professional products include professional grade corded and cordless electric power tools and equipment including drills, impact wrenches and drivers, grinders, saws, routers and sanders, as well as pneumatic tools and fasteners including nail guns, nails, staplers and staples, concrete and masonry anchors.

Consumer products include corded and cordless electric power tools sold primarily under the BLACK+DECKER® brand, and home products such as hand-held vacuums, paint tools and cleaning appliances.

3 unchanged sentences

Storage products include tool boxes, sawhorses, medical cabinets and engineered storage solution products.

The Outdoor business primarily sells corded and cordless electric lawn and garden products, including hedge trimmers, string trimmers, lawn mowers, pressure washers and related accessories, and gas powered lawn and garden products, including lawn tractors, zero turn ride on mowers, walk behind mowers, snow blowers, residential robotic mowers, utility terrain vehicles (UTVs), handheld outdoor power equipment, garden tools, and parts and accessories to professionals and consumers under the DEWALT®, CUB CADET®, BLACK+DECKER®, CRAFTSMAN®, TROY-BILT®, and HUSTLER® brand names.

The Outdoor business primarily sells corded and cordless electric lawn and garden products, including hedge trimmers, string trimmers, lawn mowers, pressure washers and related accessories, and gas powered lawn and garden products, including lawn tractors, zero turn ride on mowers, walk behind mowers, snow blowers, residential robotic mowers, utility terrain vehicles (UTVs), hand-held outdoor power equipment, garden tools, and parts and accessories to professionals and consumers under the DEWALT®, CUB CADET®, BLACK+DECKER®, CRAFTSMAN®, TROY-BILT®, and HUSTLER® brand names.

The Industrial segment is comprised of the Engineered Fastening and Infrastructure businesses.

1 unchanged sentence

The product lines include externally threaded fasteners, blind rivets and tools, blind inserts and tools, drawn arc weld studs and systems, engineered plastic and mechanical fasteners, self-piercing riveting systems, precision nut running systems, micro fasteners, high-strength structural fasteners, axel swage, latches, heat shields, pins, and couplings.

The Infrastructure business consists of the Attachment Tools and Oil & Gas product lines.

Attachment Tools sells hydraulic tools and high quality, performance-driven heavy equipment attachment tools for off-highway applications.

Oil & Gas sells and rents custom pipe handling, joint welding and coating equipment used in the construction of large and small diameter pipelines and provides pipeline inspection services.

The Infrastructure business sells hydraulic tools and high quality, performance-driven heavy equipment attachment tools for off-highway applications.

RESULTS OF OPERATIONS

The Company’s results represent continuing operations and exclude the commercial electronic security and healthcare businesses following the aforementioned announced divestiture in December 2021, unless specifically noted.

The operating results of these businesses previously were included in the Security segment and have been classified as discontinued operations.

Certain Items Impacting Earnings

The Company’s results represent continuing operations and as a result of the divestitures of the Company’s CSS and MAS businesses, as described in further detail under the heading “ Divestitures ” in this Item 7 above, exclude the commercial electronic security, healthcare, and automatic doors businesses.

These divestitures represent a single plan to exit the Security segment and are considered a strategic shift that will have a major effect on the Company's operations and financial results.

Therefore, the operating results of these businesses have been classified as discontinued operations.

The divestiture of the Oil & Gas business did not qualify for discontinued operations and therefore, its results are included in the Company's continuing operations within the Industrial segment for all periods presented through the date of sale in the third quarter of 2022.

Certain Items Impacting Earnings and Non-GAAP Financial Measures

The Company has provided a discussion of its results both inclusive and exclusive of acquisition-related and other charges.

Organic growth is also utilized to describe results aside from the impacts of foreign currency fluctuations, acquisitions during their initial 12 months of ownership, and divestitures.

The results and measures, including gross profit, selling, general, and administrative ("SG&A"), Other, net, and segment profit, on a basis excluding acquisition-related and other charges, and organic growth are Non-GAAP financial measures.

The results and measures, including gross profit, SG&A, Other, net, and segment profit (including Corporate Overhead), on a basis excluding acquisition-related and other charges, free cash flow, CFROI and organic growth are Non-GAAP financial measures.

The Company considers the use of Non-GAAP financial measures relevant to aid analysis and understanding of the Company’s results and business trends aside from the material impact of these items and ensures appropriate comparability to operating results of prior periods.

Supplemental Non-GAAP information should not be considered in isolation or as a substitute for the related GAAP financial measures.

Non-GAAP financial measures presented herein may differ from similar measures used by other companies.

With the exception of forecasted free cash flow included in 2023 Outlook as discussed below, the Non-GAAP financial measures of gross profit, SG&A, Other, net, and segment profit (including Corporate Overhead), presented on a basis excluding acquisition-related and other charges, as well as free cash flow and organic growth are defined and reconciled to their most directly comparable GAAP financial measures below.

Due to high variability and difficulty in predicting items that impact cash flow from operations, a reconciliation of forecasted free cash flow to its most directly comparable GAAP estimate has been omitted.

The Company believes such a reconciliation would also imply a degree of precision that is inappropriate for this forward-looking measure.

The Company’s operating results at the consolidated level as discussed below include and exclude acquisition-related and other charges impacting gross profit, SG&A, and Other, net.

The Company’s business segment results as discussed below include and exclude acquisition-related and other charges impacting gross profit and SG&A.

These amounts for the year-to-date periods of 2021, 2020 and 2019 are as follows:

The acquisition-related and other charges amounts for the year-to-date periods of 2022, 2021 and 2020 are as follows:

GAAP Acquisition-

6 unchanged sentences

Income taxes on continuing operations (132.4) 84.0 (48.4)

Share of net earnings of equity method investment 19.0 11.2 30.2

Net Earnings from Continuing Operations Attributable to Common Shareowners - Diluted 165.5 558.2 723.7

2 unchanged sentences

The Acquisition-Related Charges and Other in the table above relate to the following:

• Charges reducing Gross profit pertaining to inventory step-up charges and facility-related costs;

• Charges in SG&A primarily related to a non-cash fair-value adjustment and functional transformation initiatives;

• Charges reducing Gross profit primarily pertaining to inventory step-up charges;

• Charges in SG&A primarily related to integration-related costs and a voluntary retirement program;

• Other charges included in Earnings from continuing operations before income taxes and equity interest consisting of:

◦ $24.1 million in Other, net primarily related to deal transactions costs;

◦ $0.6 million net loss pertaining to divested businesses;

◦ $14.5 million of restructuring charges pertaining to severance and facility closures;

◦ $68.0 million gain recognized on the MTD equity method investment upon acquisition;

◦ $16.9 million in Other, net primarily related to a voluntary retirement program and deal costs;

◦ $8.4 million net loss relating to the sale of the Oil & Gas business;

◦ $168.4 million asset impairment charge related to the Oil & Gas business;

◦ $140.8 million of restructuring charges primarily pertaining to severance and related costs;

• Income taxes on continuing operations include the tax effect on the above net charges.

• An after-tax, pre-acquisition charge related to the Company's share of MTD's net earnings related primarily to a one-time retroactive duty on imports of a specific component.

GAAP Acquisition-

11 unchanged sentences

The Acquisition-Related Charges and Other in the table above relate to the following:

• Charges reducing Gross profit pertaining to inventory step-up charges, a cost reduction program and facility-related costs;

• Charges in SG&A primarily for a cost reduction program and margin resiliency initiatives;

• Charges reducing Gross profit pertaining to inventory step-up charges and facility-related costs;

• Charges in SG&A primarily related to a non-cash fair-value adjustment and functional transformation initiatives;

• Other charges included in Earnings from continuing operations before income taxes and equity interest consisting of:

◦ $7.1 million in Other, net primarily related to a cost reduction program, loss on interest rate swaps in connection with the extinguishment of debt, and deal transactions costs, partially offset by a release of a contingent consideration liability relating to the CAM acquisition;

◦ $24.2 million in Other, net primarily related to deal transaction costs;

◦ $0.6 million net loss pertaining to divested businesses;

◦ $14.5 million of restructuring charges pertaining to severance and facility closures;

◦ $46.9 million charge related to a loss on the extinguishment of debt;

• Income taxes on continuing operations include the tax effect on the above net charges, as well as a one-time tax benefit of $119 million associated with a supply chain reorganization;

• An after-tax, pre-acquisition charge related to the Company's share of MTD's net earnings related primarily to restructuring charges.

◦ $68.0 million gain recognized on the MTD equity method investment upon acquisition;

• Income taxes on continuing operations include the tax effect on the above net charges;

• An after-tax, pre-acquisition charge related to the Company's share of MTD's net earnings related primarily to a one-time retroactive duty on imports of a specific component.

GAAP Acquisition-

6 unchanged sentences

Income taxes on continuing operations 38.0 189.6 227.6

Share of net losses of equity method investment (11.2) 24.3 13.1

Share of net earnings of equity method investment 9.1 9.8 18.9

Net Earnings from Continuing Operations Attributable to Common Shareowners - Diluted 1,131.5 145.8 1,277.3

2 unchanged sentences

The Acquisition-Related Charges and Other in the table above relate to the following:

• Charges reducing Gross profit pertaining to facility-related and inventory step-up charges;

• Charges in SG&A primarily for integration-related costs and margin resiliency initiatives;

• Charges reducing Gross profit pertaining to inventory step-up charges, a cost reduction program and facility-related costs;

• Charges in SG&A primarily for a cost reduction program and margin resiliency initiatives;

• Other charges included in Earnings from continuing operations before income taxes and equity interest consisting of:

◦ $27.6 million in Other, net primarily related to deal transaction costs;

◦ $17.0 million gain related to the sale of the Sargent & Greenleaf business;

◦ $134.7 million of restructuring charges pertaining to severance and facility closures associated with a cost reduction program;

◦ $17.9 million non-cash loss on the extinguishment of debt;

• Income taxes on continuing operations include the tax effect on the above net charges;

• An after-tax, pre-acquisition charge related to the Company's share of MTD's net earnings related primarily to an inventory step-up adjustment.

◦ $5.8 million in Other, net primarily related to a cost reduction program, loss on interest rate swaps in connection with the extinguishment of debt, and deal transactions costs, partially offset by a release of a contingent consideration liability relating to the CAM acquisition;

◦ $13.5 million net loss pertaining to divested businesses;

◦ $73.5 million of restructuring charges pertaining to severance and facility closures;

◦ $46.9 million charge related to a loss on the extinguishment of debt;

• Income taxes on continuing operations include the tax effect on the above net charges, as well as a one-time tax benefit of $118.8 million associated with a supply chain reorganization;

• An after-tax, pre-acquisition charge related to the Company's share of MTD's net earnings related primarily to restructuring charges.

Below is a summary of the Company’s operating results at the consolidated level, followed by an overview of business segment performance.

Organic growth is utilized to describe the Company's results excluding the impacts of foreign currency fluctuations, acquisitions during their initial 12 months of ownership, and divestitures.

Consolidated Results

Net sales were $16.947 billion in 2022 compared to $15.281 billion in 2021, representing an increase of 11% driven by a 7% increase in price and a 17% increase from acquisitions, partially offset by a 10% decrease in volume and a 3% decrease from foreign currency.

Tools & Outdoor net sales increased 13% compared to 2021 due to a 7% increase in price and a 21% increase from acquisitions, partially offset by a 12% decrease in volume and a 3% decrease from foreign currency.

Industrial net sales increased 2% compared to 2021 primarily due to a 1% increase in volume and an 8% increase in price, partially offset by a 5% decrease from foreign currency and a 2% decrease from the Oil & Gas divestiture.

Net sales were $15.281 billion in 2021 compared to $12.750 billion in 2020, representing an increase of 20% with organic growth of 17%, driven by a 14% increase in volume and 3% increase in price, 2% increases from both acquisitions and foreign currency, partially offset by a 1% decrease from divestitures.

1 unchanged sentence

Industrial net sales increased 5% compared to 2020 primarily due to a 2% increase in volume, a 1% increase in price, and 1% increases from both acquisitions and foreign currency.

Net sales were $13.058 billion in 2020 compared to $12.913 billion in 2019, representing an increase of 1% driven by a 2% increase from acquisitions, primarily CAM, and a 1% increase in price, partially offset by pandemic-related volume decreases of 1% and foreign currency of 1%.

Organic growth of 12% in the second half of 2020 and acquisitions more than offset first half pandemic related market impacts.

Tools & Storage net sales increased 3% compared to 2019 due to 2% increases in both volume and price, partially offset by a decrease of 1% from foreign currency.

Industrial net sales decreased 3% compared to 2019 primarily due to volume decreases of 15%, partially offset by acquisition growth of 12%.

Gross Profit:

The Company reported gross profit of $4.284 billion, or 25.3% of net sales, in 2022 compared to $5.092 billion, or 33.3% of net sales, in 2021.

Acquisition-related and other charges, which reduced gross profit, were $39.0 million in 2021

and $61.7 million in 2020.

Excluding these charges, gross profit was 33.5% of net sales in 2021 compared to 34.2% in 2020, as higher volume, productivity, price realization, and mix benefits from innovation were more than offset primarily by commodity inflation and higher supply chain costs to serve demand.

Acquisition-related and other charges, which reduced gross profit, were $127.4 million in 2022 and $39.0 million in 2021.

Excluding these charges, gross profit was 26.0% of net sales in 2022 compared to 33.6% in 2021, as

price realization was more than offset by commodity inflation, higher supply chain costs, including the impact of planned production curtailments, and lower volume.

The Company reported gross profit of $5.092 billion, or 33.3% of net sales, in 2021 compared to $4.318 billion, or 33.9% of net sales, in 2020.

Acquisition-related and other charges, which reduced gross profit, were $39.0 million in 2021 and $59.0 million in 2020.

Excluding these charges, gross profit was 34.2% of net sales in 2020, compared to 33.0% in 2019, driven by productivity, margin resiliency initiatives and price realization.

Excluding these charges, gross profit was 33.6% of net sales in 2021 compared to 34.3% in 2020, as higher volume, productivity, price realization, and mix benefits from innovation were more than offset primarily by commodity inflation and higher supply chain costs to serve demand.

SG&A Expenses:

Selling, general and administrative expenses, inclusive of the provision for credit losses (“SG&A”), were $3.240 billion, or 20.7% of net sales, in 2021 compared to $2.629 billion, or 20.1% of net sales, in 2020.

Selling, general and administrative expenses, inclusive of the provision for credit losses, were $3.370 billion, or 19.9% of net sales, in 2022 compared to $3.193 billion, or 20.9% of net sales, in 2021.

Within SG&A, acquisition-related and other charges totaled $180.3 million in 2022 and $183.6 million in 2021.

Excluding these charges, SG&A was 19.6% of net sales in 2021 compared to 19.2% in 2020, reflecting growth investments deployed across the businesses.

Excluding these charges, SG&A was 18.8% of net sales in 2022 compared to 19.7% in 2021 due to the successful implementation of cost control actions.

SG&A expenses were $3.193 billion, or 20.9% of net sales, in 2021 compared to $2.579 billion, or 20.2% of net sales, in 2020.

Within SG&A, acquisition-related and other charges totaled $183.6 million in 2021 and $114.8 million in 2020.

Excluding these charges, SG&A was 19.2% of net sales in 2020 compared to 19.3% in 2019, primarily reflecting the benefits of cost management programs implemented in response to the global pandemic, partially offset by growth investments to pursue market recoveries and opportunities across the businesses that emerged during the pandemic.

Excluding these charges, SG&A was 19.7% of net sales in 2021 compared to 19.3% in 2020, reflecting growth investments deployed across the businesses in 2021.

Distribution center costs (i.e.

2 unchanged sentences

Due to diversity in practice, to the extent the classification of these distribution costs differs from other companies, the Company’s gross margins may not be comparable.

Such distribution costs classified in SG&A amounted to $416.5 million, $347.3 million and $326.5 million in in 2021, 2020 and 2019, respectively.

Such distribution costs classified in SG&A amounted to $498.7 million, $416.1 million and $346.9 million in 2022, 2021, and 2020, respectively.

Other, net totaled $274.8 million, $189.5 million, and $215.7 million in 2022, 2021, and 2020, respectively.

Excluding acquisition-related and other charges, Other, net totaled $257.9 million, $165.3 million, and $209.9 million in 2022, 2021, and 2020, respectively.

The year-over-year decrease in 2021 was primarily due to appreciation of Stanley Ventures' investments.

The year-over-year increase in 2020 driven by higher intangible asset amortization and negative impacts from foreign currency.

Loss (gain) on Sales of Businesses:

The increase in 2022 was primarily due to higher intangible asset amortization due to the MTD and Excel acquisitions and appreciation of investments in 2021.

The year-over-year decrease in 2021 was primarily due to appreciation of investments.

Loss on Sales of Businesses:

During 2022, the Company reported an $8.4 million net loss primarily related to the divestiture of the Oil & Gas business.

During 2021, the Company reported a $0.6 million net loss on divestitures.

During 2020, the Company reported a $13.5 million net loss primarily relating to the sale of a product line within Oil & Gas.

During 2019, the Company reported a $17.0 million gain relating to the sale of the Sargent and Greenleaf business.

Gain on equity method investment:

1 unchanged sentence

Refer to Note E, Acquisitions and Investments , for further discussion.

Loss on Debt Extinguishments:

During the fourth quarter of 2020, the Company extinguished $1.154 billion of its notes payable and recognized a $46.9 million pre-tax loss primarily due to a make-whole premium payment .

In 2019, the Company extinguished $750 million of its notes payable and recognized a $17.9 million pre-tax loss primarily related to the write-off of deferred financing fees.

Asset Impairment Charge :

During 2022, the Company recorded an impairment loss of $168.4 million related to the Oil & Gas business.

Refer to Footnote T, Divestitures , for additional information on the divestiture of the Oil & Gas business.

Loss on Debt Extinguishment:

During the fourth quarter of 2020, the Company extinguished $1.154 billion of its notes payable and recognized a $46.9 million loss primarily due to a make-whole premium payment.

Interest, net:

Net interest expense in 2022 was $283.8 million compared to $175.6 million in 2021 and $205.2 million in 2020.

The 2022 increase was primarily driven by higher U.S.

interest rates and higher average balances relating to the Company's commercial paper borrowings, as well as the $1.0 billion issuance of debt in the first quarter of 2022, partially offset by higher interest income due to an increase in rates.

The decrease in 2021 compared to 2020 was primarily driven by lower U.S.

interest rates on commercial paper borrowings and lower interest expense related to the extinguishment of notes payable in the fourth quarter of 2020, partially offset by lower interest income due to a decline in rates.

The decrease in net interest expense in 2020 versus 2019 was primarily driven by lower U.S.

interest rates and lower average balances relating to the Company's commercial paper borrowings, partially offset by lower interest income due to a decline in rates.

Income Taxes :

On March 11, 2021, the American Rescue Plan Act of 2021 (the “ARPA”) was enacted.

The ARPA, among other things, includes provisions to expand the IRC Section 162(m) disallowance for deduction of certain compensation paid by publicly held corporations, provide a 100% COBRA subsidy, temporarily increase the income exclusion for dependent care assistance, and to extend and modify the employee retention credit and the Families First Coronavirus Response Act paid leave credit.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was enacted.

The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer social

security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property.

The Company completed its evaluation of the ARPA and CARES Act, and concluded that they did not have a material impact on the Company’s consolidated financial statements.

The Company's effective tax rate on continuing operations was (349.3)% in 2022, 3.5% in 2021, and 3.2% in 2020.

1 unchanged sentence

This effective tax rate differs from the U.S.

statutory tax rate primarily due to the continued reorganization of the supply chain, tax on foreign earnings at tax rates different than the U.S.

tax rate, and the recognition of previously unrecognized foreign deferred tax assets, offset by U.S.

tax on foreign earnings and the remeasurement of uncertain tax position reserves.

Excluding the impact of acquisition-related and other charges, the effective tax rate on continuing operations in 2021 was 6.7%.

This effective tax rate differs from the U.S.

statutory tax rate primarily due to a benefit associated with the Company's supply chain reorganization, tax on foreign earnings, the remeasurement of uncertain tax position reserves, the remeasurement of deferred tax assets and liabilities due to foreign corporate income tax rate changes, and the tax benefit of equity-based compensation.

Excluding the one-time tax benefit of $118.8 million recorded in the second quarter 2020 to reverse a deferred tax liability previously established related to certain unremitted earnings of foreign subsidiaries not permanently reinvested as a result of initiating a supply chain reorganization and the impact of acquisition-related and other charges, the effective tax rate on continuing operations in 2020 was 15.2%.

Excluding the one-time tax benefit of $118.8 million recorded in 2020 to reverse a deferred tax liability previously established related to certain unremitted earnings of foreign subsidiaries not permanently reinvested as a result of initiating a supply chain reorganization and the impact of acquisition-related and other charges, the effective tax rate on continuing operations in 2020 was 15.2%.

This effective tax rate differs from the U.S.

1 unchanged sentence

rate, the remeasurement of uncertain tax position reserves, the tax benefit of equity compensation, and tax benefits arising from an increase in deferred tax assets associated with the Company’s supply chain reorganization and partial realignment of the Company's legal structure.

Excluding the impact of acquisition-related and other charges, the effective tax rate on continuing operations in 2019 was 13.3%.

This effective tax rate differed from the U.S.

statutory tax rate primarily due to a portion of the Company's earnings being realized in lower-taxed foreign jurisdictions and the favorable effective settlements of income tax audits.

Business Segment Results

The Company’s reportable segments are aggregations of businesses that have similar products, services and end markets, among other factors.

The Company’s reportable segments represent businesses that have similar products, services and end markets, among other factors.

The Company utilizes segment profit which is defined as net sales minus cost of sales and SG&A inclusive of the provision for credit losses (aside from corporate overhead expense), and segment profit as a percentage of net sales to assess the profitability of each segment.

The Company’s operations are classified into two reportable business segments:

Tools & Storage and Industrial.

Tools & Storage:

Tools & Outdoor and Industrial.

Tools & Outdoor:

(Millions of Dollars) 2022 2021 2020

2 unchanged sentences

% of Net sales 6.7 % 15.5 % 17.6 %

Tools & Storage net sales increased $2.488 billion, or 24%, in 2021 compared to 2020 due to a 17% increase in volume, a 3% increase in price and 2% increases from both acquisitions and favorable currency.

The 20% organic growth was driven by stronger volumes due to the consumer reconnection with the home and garden, eCommerce and strong professional demand as well as price.

Tools & Outdoor net sales increased $1.606 billion, or 13%, in 2022 compared to 2021 due to a 7% increase in price and a 21% increase from acquisitions, partially offset by a 12% decrease in volume and a 3% decrease from foreign currency.

The overall 5% organic decline was a result of lower consumer and DIY market demand.

Organic revenue in emerging markets increased 1% and declined in both Europe and North America by 6%.

Segment profit amounted to $971.9 million, or 6.7% of net sales, in 2022 compared to $1,985.4 million, or 15.5% of net sales, in 2021.

Excluding acquisition-related and other charges of $235.4 million and $178.4 million in 2022 and 2021, respectively, segment profit amounted to 8.4% of net sales in 2022 compared to 16.9% in 2021, as the benefit from price realization was more than offset by commodity inflation, higher supply chain costs, production curtailment costs and lower volume.

Tools & Outdoor net sales increased $2.488 billion, or 24%, in 2021 compared to 2020 due to a 17% increase in volume, a 3% increase in price and 2% increases from both acquisitions and foreign currency.

The 20% organic growth was driven by stronger volumes due to the consumer reconnection with the home and garden, e-commerce and strong professional demand as well as price.

Segment profit amounted to $1.985 billion, or 15.5% of net sales, in 2021 compared to $1.820 billion, or 17.6% of net sales, in 2020.

Excluding acquisition-related and other charges of $178.4 million and $46.4 million in 2021 and 2020, respectively, segment profit amounted to 16.9% of net sales in 2021 compared to 18.1% in 2020, as volume and price benefits were more than offset by inflation, higher pandemic-related supply chain costs and growth investments.

Tools & Storage net sales increased $267.6 million, or 3%, in 2020 compared to 2019 due to a 2% increase in both volume and price, partially offset by unfavorable currency of 1%.

The 4% organic growth was driven by a strong second half organic performance of 18% from a consumer reconnection with the home and garden and a shift to eCommerce that emerged from the pandemic and was accelerated by a robust lineup of new and innovative products.

Double digit growth was realized across all regions in the second half of 2020.

For the full year, North America and Europe organic growth more than offset a decline in emerging markets.

Segment profit amounted to $1.820 billion, or 17.6% of net sales, in 2020 compared to $1.517 billion, or 15.1% of net sales, in 2019.

Excluding acquisition-related and other charges of $46.4 million and $44.3 million in 2020 and 2019, respectively, segment profit amounted to 18.1% of net sales in 2020 compared to 15.5% in 2019, as volume, productivity, cost control and price were partially offset by new growth investments, tariffs and currency.

(Millions of Dollars) 2022 2021 2020

2 unchanged sentences

% of Net sales 9.4 % 10.4 % 9.4 %

Industrial net sales increased $60.3 million, or 2%, in 2022 compared to 2021, due to a 1% increase in volume and an 8% increase in price, partially offset by a 5% decrease from foreign currency and a 2% decrease from the Oil & Gas divestiture.

Engineered Fastening organic revenues increased 7% driven by growth in the aerospace, automotive, and industrial markets.

Infrastructure organic revenues were up 14% with Attachment Tools providing 17% growth, which was partially offset by an organic decline in Oil & Gas, prior to its divestiture.

Segment profit totaled $236.2 million, or 9.4% of net sales, in 2022 compared to $256.6 million, or 10.4% of net sales, in 2021.

Excluding acquisition-related and other charges of $7.8 million and $13.1 million in 2022 and 2021, respectively, segment profit amounted to 9.7% of net sales in 2022 compared to 10.9% in 2021, as volume growth and price realization were more than offset by commodity inflation, higher supply chain costs and adverse mix.

Industrial net sales increased $110.4 million, or 5%, in 2021 compared to 2020, due to a 2% increase in volume, a 1% increase in price, and 1% increases from both acquisitions and foreign currency.

2 unchanged sentences

Segment profit totaled $256.6 million, or 10.4% of net sales, in 2021 compared to $220.6 million, or 9.4% of net sales, in 2020.

Excluding acquisition-related and other charges of $13.1 million and $67.1 million in 2021 and 2020, respectively, segment profit amounted to 10.9% of net sales in 2021 compared to 12.2% in 2020, as volume, price and productivity was more than offset by commodity inflation, growth investments and unfavorable mix.

Industrial net sales decreased $82.0 million, or 3%, in 2020 compared to 2019, due to pandemic-related market declines in volume of 15%, partially offset by acquisition growth of 12%.

Engineered Fastening organic revenues decreased 15% for the full year, due to the significant impacts from the pandemic to automotive and general industrial production.

Infrastructure organic revenues were down 15% from lower volumes in Attachment Tools and a sharp decline in Oil & Gas pipeline construction.

The deepest segment organic revenue decline was the second quarter and each quarter thereafter delivered stronger revenue as markets recovered.

Segment profit totaled $220.6 million, or 9.4% of net sales, in 2020 compared to $330.0 million, or 13.6% of net sales, in 2019.

Excluding acquisition-related and other charges of $67.1 million and $25.8 million in 2020 and 2019, respectively, segment profit amounted to 12.2% of net sales in 2020 compared to 14.6% in 2019, as productivity gains and cost control were more than offset by market driven volume declines.

Excluding acquisition-related and other charges of $13.1 million and $67.1 million in 2021 and 2020, respectively, segment profit amounted to 10.9% of net sales in 2021 compared to 12.2% in 2020, as volume, price and productivity were more than offset by commodity inflation, growth investments and unfavorable mix.

Corporate Overhead & Other

Corporate Overhead & Other includes the results of the commercial electronic security business in five countries in Europe and emerging markets through its disposition in the fourth quarter of 2020 and the Mechanical Access Solutions business, a non-reportable business operating segment, as well as the corporate overhead element of SG&A, which is not allocated to the business segments.

Corporate Overhead & Other amounted to $288.2 million, $264.0 million, and $181.9 million in 2021, 2020 and 2019, respectively, which includes $45.5 million, $33.7 million and $47.5 million of operating profit from the MAS business in 2021, 2020 and 2019, respectively.

Excluding acquisition-related charges, Corporate Overhead & Other is $256.2 million, $192.6 million and $152.9 million in 2021, 2020 and 2019, respectively.

Corporate Overhead & Other includes the results of the commercial electronic security business in five countries in Europe and emerging markets through its disposition in the fourth quarter of 2020 as well as the corporate overhead element of SG&A, which is not allocated to the business segments.

Corporate Overhead & Other amounted to $294.0 million, $342.9 million, and $302.1 million in 2022, 2021 and 2020, respectively.

Excluding acquisition-related and other charges, Corporate Overhead & Other was $229.5 million, $311.8 million and $241.8 million in 2022, 2021, and 2020, respectively.

The year-over-year decrease in 2022 compared to 2021 was primarily due to lower employee-related costs.

The year-over-year increase in 2021 compared to 2020 was driven by functional investments.

The year-over-year increase in 2020 compared to 2019 was driven by higher employee-related costs.

RESTRUCTURING ACTIVITIES

A summary of the restructuring reserve activity from January 2, 2021 to January 1, 2022 is as follows:

(Millions of Dollars) January 2, 2021 Net Additions Usage Currency January 1, 2022

A summary of the restructuring reserve activity from January 1, 2022 to December 31, 2022 is as follows:

(Millions of Dollars) January 1, 2022 Net Additions Usage Currency December 31, 2022

Severance and related costs $ 28.2 $ 125.9 $ (98.7) $ 1.6 $ 57.0

1 unchanged sentence

Total $ 31.7 $ 140.8 $ (111.9) $ 1.7 $ 62.3

During 2022, the Company recognized net restructuring charges of $141 million, primarily related to severance and related costs.

The Company expects to achieve annual net cost savings of approximately $300 million by the end of 2023 related to the restructuring costs incurred during 2022.

The majority of the $62 million of reserves remaining as of December 31, 2022 is expected to be utilized within the next twelve months.

During 2021, the Company recognized net restructuring charges of $15 million, primarily related to facility closures and asset impairments.

The Company expects to achieve annual net cost savings of approximately $24 million by the end of 2022 related to restructuring costs incurred during 2021.

The majority of the $31.9 million of reserves remaining as of January 1, 2022 is expected to be utilized within the next twelve months.

The Company estimates that these actions resulted in net cost savings of approximately $24 million in 2022.

During 2020, the Company recognized net restructuring charges of $74 million, primarily related to severance costs associated with a cost reduction program announced in the second quarter of 2020.

The 2020 actions resulted in net cost savings of approximately $125 million in 2021.

During 2019, the Company recognized net restructuring charges of $138.4 million, primarily related to severance costs associated with a cost reduction program announced in the third quarter of 2019.

The 2019 actions resulted in annual net cost savings of approximately $185 million, primarily in the Tools & Storage segment.

The Company estimates that these actions resulted in annual net cost savings of approximately $125 million in 2021.

The $141 million of net restructuring charges in 2022 includes:

$8 million pertaining to the Tools & Storage segment;

$81 million pertaining to the Tools & Outdoor segment;

$26 million pertaining to the Industrial segment;

1 unchanged sentence

The anticipated annual net cost savings of approximately $300 million related to the 2022 restructuring actions include:

$13 million in the Tools & Storage segment;

$184 million in the Tools & Outdoor segment;

$36 million in the Industrial segment;

1 unchanged sentence

This outlook discussion is intended to provide broad insight into the Company's near-term earnings and cash flow generation prospects.

The Company expects 2022 diluted earnings per share to approximate $10.10 to $10.70 ($12.00 to $12.50 excluding acquisition-related and other charges) reflecting year-over-year adjusted EPS growth of 15% to 19%.

Free cash flow is expected to approximate $2.0 billion as the Company focuses on serving its customers while leveraging the SBD Operating Model to drive working capital efficiency.

The 2022 outlook for adjusted diluted earnings per share assumes approximately $1.20 to $1.30 of accretion related to 6% to 7% price increases to exceed carryover headwinds, approximately $0.20 of dilution related to carryover growth investments, net of cost containment, approximately $0.60 accretion from Outdoor acquisitions, and approximately $0.10 of accretion from the impact of the 2022 share repurchase program, offsetting tax rate impacts and other below the line items.

The difference between 2022 diluted earnings per share outlook and the diluted earnings per share range, excluding charges, is $1.80 to $1.90, consisting of acquisition-related and other charges.

These forecasted charges primarily relate to integration costs and cost reduction actions.

The Company expects 2023 diluted earnings per share to approximate ($1.65) to $0.85 on a GAAP basis ($0.00 to $2.00 excluding acquisition-related and other charges).

The band reflects the wider range of 2023 demand possibilities and destocking scenarios with an earnings per share loss expected in the first half of 2023 as the Company prioritizes free cash flow generation.

Free cash flow is expected to approximate $0.5 billion to $1.0 billion, significantly ahead of net income, as the Company focuses on serving its customers while leveraging the SBD Operating Model to drive working capital efficiency.

The difference between 2023 diluted earnings per share outlook and the diluted earnings per share range, excluding charges, is approximately $1.15 to $1.65, consisting of acquisition-related charges and other charges primarily due to supply chain transformation under the Global Cost Reduction Program.

FINANCIAL CONDITION

2 unchanged sentences

Operating Activities:

Cash flows provided by operations were $663.1 million in 2021 compared to $2.022 billion in 2020.

The year-over-year decrease was mainly attributable to higher inventory levels to meet demand within the Tools and Storage segment, coupled with longer lead times related to the challenged global supply chain.

In 2020, cash flows provided by operations were $2.022 billion compared to $1.506 billion in 2019.

The year-over-year increase was mainly attributable to higher earnings driven by increased demand in the Tools & Storage segment and strong cost control.

Free Cash Flow:

Free cash flow, as defined in the table below, was $144.0 million in 2021 compared to $1.674 billion in 2020 and $1.081 billion in 2019.

The decrease in free cash flow in 2021 was primarily due to a $1.8 billion increase in inventory,

excluding acquisitions, to support the strong demand outlook and longer lead times related to the challenged global supply chain.

This included a substantial increase in inventory in transit of $600 million as well as higher unit costs associated with inflation.

At least $500 million of this inventory increase is anticipated to reverse in 2022.

Management considers free cash flow an important indicator of its liquidity, as well as its ability to fund future growth and provide dividends to shareowners, and is useful information for investors.

Free cash flow does not include deductions for mandatory debt service, other borrowing activity, discretionary dividends on the Company’s common and preferred stock and business acquisitions, among other items.

Cash flows used in operations were $1.460 billion in 2022 compared to cash provided by operations of $663.1 million in 2021.

The year-over-year decrease was mainly attributable to lower accounts payable balances, lower earnings from continuing operations, and higher inventory balances.

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.

As previously discussed, the Company is focused on reducing inventory levels as evidenced by a decline of $775 million during the second half of 2022.

In 2021, cash flows provided by operations were $663.1 million compared to $2.022 billion in 2020.

The year-over-year decrease was mainly attributable to higher inventory levels to meet anticipated demand within the Tools & Outdoor segment, coupled with longer lead times related to the challenged global supply chain.

Free Cash Flow and CFROI:

Free cash flow, as defined in the table below, was an outflow of $1.990 billion in 2022 compared to inflows of $144 million and $1.674 billion in 2021 and 2020, respectively.

The decrease in free cash flow in 2022 was primarily due to the same factors discussed above in operating activities.

The Company has implemented significant actions throughout 2022 to further reduce inventory and working capital, and support strong free cash flow generation in 2023.

CFROI, one of the Company's long-term financial measures, is computed as cash from operations plus after-tax interest expense, divided by the two-point average of debt and equity.

Management considers free cash flow and CFROI important indicators of its liquidity and capital efficiency, as well as its ability to fund future growth and provide dividends to shareowners, and is useful information for investors.

Free cash flow and cash from operations used in CFROI do not include deductions for mandatory debt service, other borrowing activity, discretionary dividends on the Company’s common and preferred stock and business acquisitions, among other items.

(Millions of Dollars) 2022 2021 2020

Net cash provided by operating activities $ 663 $ 2,022 $ 1,506

Net cash (used in) provided by operating activities $ (1,460) $ 663 $ 2,022

capital and software expenditures (530) (519) (348)

1 unchanged sentence

Investing Activities:

Cash flows used in investing activities totaled $2.624 billion in 2021, driven by business acquisitions of $2.044 billion, net of cash acquired, primarily related to the MTD and Excel acquisitions, and capital and software expenditures of $519 million.

Cash flows provided by investing activities totaled $3.573 billion in 2022 primarily due to proceeds from the Security and Oil & Gas divestitures, net of cash sold, of $4.147 billion, partially offset by capital and software expenditures of $530 million.

Cash flows used in investing activities in 2021 totaled $2.624 billion, driven by business acquisitions of $2.044 billion, net of cash acquired, primarily related to the MTD and Excel acquisitions, and capital and software expenditures of $519 million.

Cash flows used in investing activities in 2020 totaled $1.577 billion, driven by business acquisitions of $1.324 billion, net of cash acquired, primarily related to the CAM acquisition, and capital and software expenditures of $348 million.

Cash flows used in investing activities in 2019 totaled $1.209 billion, driven by business acquisitions of $685 million, mainly related to IES Attachments, capital and software expenditures of $425 million and purchases of investments of $261 million, which mainly related to the 20 percent investment in MTD.

Financing Activities:

Cash flows provided by financing activities totaled $919 million in 2021 primarily driven by net short-term borrowings of $2.225 billion and $131 million of proceeds from issuances of common stock, partially offset by the redemption and conversion of preferred stock for $750 million, cash dividend payments on common stock of $475 million, and $75 million related to the termination of interest rate swaps.

Cash flows provided by financing activities totaled $616 million in 2020 primarily driven by net proceeds from debt issuances of $2.223 billion, proceeds generated from the remarketing of the Series C Preferred Stock of $750 million and $147 million of proceeds from issuances of common stock, partially offset by payments on long-term debt of $1.154 billion, cash dividend payments of $432 million, net repayments of short-term borrowings of $343 million under the Company's commercial paper program, and a $250 million Craftsman deferred purchase price payment.

Cash flows used in financing activities in 2019 totaled $293 million primarily driven by payments on long-term debt of $1.150 billion and cash dividend payments of $402 million, partially offset by $735 million in net proceeds from the issuance of equity units and net proceeds from debt issuances of $496 million.

Fluctuations in foreign currency rates negatively impacted cash by $62 million in 2021 and $1 million in 2019 due to the strengthening of the U.S.

Cash flows used in financing activities totaled $1.971 billion in 2022 primarily driven by share repurchases of $2.323 billion, credit facility repayments of $2.5 billion, the redemption and conversion of preferred stock for $750 million, cash dividend payments on common stock of $466 million, and net repayments of short-term commercial paper borrowings of $138 million, partially offset by $2.5 billion from credit facility borrowings, net proceeds from debt issuances of $993 million and proceeds from the issuance of remarketed Series D Preferred Stock of $750 million.

Cash flows provided by financing activities totaled $919 million in 2021 primarily driven by net short-term commercial paper borrowings of $2.225 billion and $131 million of proceeds from issuances of common stock, partially offset by the redemption and conversion of preferred stock for $750 million, cash dividend payments on common stock of $475 million, and $75 million related to the termination of interest rate swaps.

Cash flows provided by financing activities totaled $616 million in 2020 primarily driven by net proceeds from debt issuances of $2.223 billion, proceeds from the issuance of the remarketed Series C Preferred Stock of $750 million and $147 million of proceeds from issuances of common stock, partially offset by payments on long-term debt of $1.154 billion, cash dividend payments of $432 million, net repayments of short-term commercial paper borrowings of $343 million, and a $250 million Craftsman deferred purchase price payment.

Fluctuations in foreign currency rates negatively impacted cash by $32 million and $62 million in 2022 and 2021, respectively, due to the strengthening of the U.S.

Dollar against other currencies.

4 unchanged sentences

The Company maintains strong investment grade credit ratings from the major U.S.

rating agencies on its senior unsecured debt (S&P A, Fitch A-, Moody's Baa1), as well as its commercial paper program (S&P A-1, Fitch F1, Moody's P-2).

There were no changes to any of the Company's credit ratings during 2021, however, S&P and Fitch revised their outlooks to ‘stable’ from ‘negative’in the first half of 2021 as a result of the Company's strong performance during the COVID-19 pandemic.

Refer to Item 1A.

Risk Factors in Part I of this Form 10-K for further discussion of the risks associated with the ongoing COVID-19 pandemic.

Failure to maintain strong investment grade rating levels could adversely affect the Company’s cost of funds, liquidity and access to capital markets, but would not have an adverse effect on the Company’s ability to access its existing committed credit facilities.

Cash and cash equivalents totaled $142 million and $1.242 billion as of January 1, 2022 and January 2, 2021, respectively, which was primarily held in the U.S.

As a result of the Tax Cuts and Jobs Act ("Act"), the Company's tax liability related to the one-time transition tax associated with unremitted foreign earnings and profits totaled $296 million at January 1, 2022.

rating agencies on its senior unsecured debt (S&P A, Fitch BBB+, Moody's Baa2), as well as its commercial paper program (S&P A-1, Fitch F2, Moody's P-2).

Standard & Poor's, Moody's Corporation ("Moody's") and Fitch changed the Company's outlook from "stable" to "negative" during 2022 and Moody’s downgraded the Company's senior unsecured debt credit rating to Baa2 from the previous rating of Baa1 in the fourth quarter of 2022.

In February 2023, Fitch downgraded the Company's senior unsecured debt credit rating to BBB+ from the previous rating of A-.

Failure to maintain strong investment grade rating levels could adversely affect the Company’s cost

of funds, liquidity and access to capital markets, but would not have an adverse effect on the Company’s ability to access its existing committed credit facilities.

Cash and cash equivalents totaled $396 million as of December 31, 2022, which was primarily held in foreign jurisdictions.

As of January 1, 2022, cash and cash equivalents totaled $142 million, which was primarily held in the U.S.

The Act permits a U.S.

2 unchanged sentences

The Company has considered the implications of paying the required one-time transition tax, and believes it will not have a material impact on its liquidity.

In October 2021, the Company increased its commercial paper program from $3.0 billion to $3.5 billion, which includes Euro denominated borrowings in addition to U.S.

As of January 1, 2022, the Company had $2.2 billion of borrowings outstanding.

As of January 2, 2021, the Company had no borrowings outstanding, Refer to Note I, Financial Instruments, for further discussion.

In September 2021, the Company amended and restated its existing a five-year $2.0 billion committed credit facilit y with the concurrent execution of a new five year $2.5 billion co mmitted credit facility (the "5-year Credit Agreement").

The Company has a $3.5 billion commercial paper program which includes Euro denominated borrowings in addition to U.S.

As of December 31, 2022 and January 1, 2022, the Company had commercial paper borrowings outstanding of $2.1 billion and $2.2 billion, respectively.

The Company has a five-year $2.5 billion committed credit facility (the “5-Year Credit Agreement”).

Borrowings under the 5-Year Credit Agreement may be made in U.S.

5 unchanged sentences

Dollar and Euro commercial paper program.

As of January 1, 2022 and January 2, 2021, the Company had not drawn on its five-year committed credit facility.

In September 2021, the Company terminated its 364-day $1.0 billion credit facility and concurrently executed a new 364-Day $1.0 billion committed credit facility (the "364-Day Credit Agreement").

Borrowings under the 364-Day Credit Agreement may be made in U.S.

Dollars or Euros and bear interest at a floating rate plus an applicable margin dependent upon the denomination of the borrowing and pursuant to the terms of the 364-Day Credit Agreement.

The Company must repay all advances under the 364-Day Credit Agreement by the earlier of September 7, 2022 or u pon termination.

As of December 31, 2022, and January 1, 2022, the Company had not drawn on its five-year committed credit facility.

In September 2022, the Company terminated its 364-D ay $1.0 billion comm itted credit facility (the "364-Day Credit Agreement"), dated September 2021.

There were no outstanding borrowings under the 364-Day Credit Agreement upon termination and as of January 1, 2022 .

Contemporaneously, the Company entered into a $1.5 billion s yndicated 364-Day Credit Agreement (the “Syndicated 364-Day Credit Agreement”) which is a revolving credit loan.

Borrowings under the Syndicated 364-Day Credit Agreement may be made in U.S.

Dollars or Euros and bear interest at a floating rate plus an applicable margin dependent upon the denomination of the borrowing and pursuant to the terms of the Syndicated 364-Day Credit Agreement.

The Company must repay all advances under the Syndicated 364-Day Credit Agreement by the earlier of September 6, 2023 or upon termination.

The Company may, however, convert all advances outstanding upon termination into a term loan that shall be repaid in full no later than the first anniversary of the termination date provided that the Company, among other things, pays a fee to the administrative agent for the account of each lender.

The 364-Day Credit Agreement serves as part of the liquidity back-stop for the Compan y’s $3.5 billion U .S.

The Syndicated 364-Day Credit Agreement serves as part of the liquidity back-stop for the Company’s $3.5 billion U.S.

Dollar and Euro commercial paper program.

As of January 1, 2022 and January 2, 2021, the Company had not drawn on this 364-Day committed credit facility.

In November 2021, the Company executed a second 364-Day $1.0 billion committed credit facility (the "Second 364-Day Credit Agreement").

Borrowings under the Second 364-Day Credit Agreement may be made in U.S.

Dollars and Euros and bear interest at a base rate plus an applicable margin determined at the time of the borrowing.

The Company must repay all advances under the Second 364-Day Credit Agreement by the earlier of November 15, 2022 or upon termination.

As of January 1, 2022, the Company had not drawn on this 364-Day committed credit facility.

In January 2022, the Company executed a third 364-Day $2.5 billion committed credit facility (the "Third 364-Day Credit Agreement").

Borrowings under the Third 364-Day Credit Agreement shall be made in U.S.

Dollars and bear interest at a base rate plus an applicable margin determined at the time of the borrowing.

The Company must repay all advances under the Third 364-Day Credit Agreement by the earlier of January 25, 2023 or upon termination.

The Company has not drawn on this 364-Day committed credit facility.

In addition, the Company has other short-term lines of credit that are primarily uncommitted, with numerous banks, aggregating $354 million, of which approximately $263 million was available at January 1, 2022.

As of December 31, 2022, the Company had not drawn on its Syndicated 364-Day Credit Agreement .

In September 2022, the Company terminated its second 364-Day $1.0 billion committed credit facility (the "Second 364-Day Credit A greement"), dated November 2021, and replaced it with a $0.5 billion revolving credit loan (the "Club 364-Day Credit Agreement").

There were no outstanding borrowings under the Second 364-Day Credit Agreement upon termination and as of January 1, 2022 .

Borrowings under the Club 364-Day Credit Agreement may be made in U.S.

Dollars and Euros and bear interest at a floating rate plus an applicable margin dependent upon the denomination of the borrowing and pursuant to the terms of the Club 364-Day Credit Agreement.

The Company must repay all advances under the Club 364-Day Credit Agreement by the earlier of September 6, 2023 or u pon termination.

The Company may, however, convert all advances outstanding upon termination into a term loan that shall be repaid in full no later than the firs t anniversary of the termination date provided that the Company, among other things, pays a fee to the administrative agent for the account of each lender.

As of December 31, 2022, the Company had not drawn on its Club 364-Day Credit Agreement .

In August 2022, the Company paid $2.5 billion to settle the outstanding amount of its third 364-Day committed credit facility (the "Third 364-Day Credit Agreement"), dated January 2022, usi ng proceeds from the sales of the Security and Oil & Gas businesses and subsequently terminated the agreement.

There were no outstanding borrowings under the Third 364-Day Credit Agreement upon terminatio n.

The Company did not incur any termination penalties in connection with the termination.

In addition, the Company has other short-term lines of credit that are primarily uncommitted, with numerous banks, aggregating $282 million, of which approximately $192 million was available at December 31, 2022.

The $90 million of the short-term credit lines was utilized primarily pertaining to outstanding letters of credit for which there are no required or reported debt balances.

Short-term arrangements are reviewed annually for renewal.

At January 1, 2022, the aggregate amount of committed and uncommitted lines of credit, long-term and short-term, was approximat ely $4.9 billion.

A t January 1, 2022, $2.2 billion was recorded as short-term borrowings.

In addition, $91 million of the short-term credit lines was utilized primarily pertaining to outstanding letters of credit for which there are no required or reported debt balances.

At December 31, 2022, the aggregate amount of short-term and long-term committed and uncommitted lines of credit was approximately $4.8 billion.

In addition, at December 31, 2022, $2.1 billion was recorded as short-term commercial paper borrowings.

The weighted-average interest rates on U.S.

dollar denominated short-term borrowings for 2021 and 2020 were 0.1% and 1.3%, respectively.

The weighted-average interest rate on Euro denominated short-term borrowings for 2021 and 2020 were negative 0.5% and 0.2%, respectively.

In the fourth quarter of 2021, the Company assumed $103.0 million and $4.3 million of debt in connection with the MTD and Excel acquisitions, respectively.

In November 2020, the Company issued $750.0 million of senior unsecured term notes maturing November 15, 2050 ("2050 Term Notes").

The 2050 Term Notes will accrue interest at a fixed rate of 2.75% per annum, with interest payable semi-annually in arrears, and rank equally in right of payment with all of the Company's existing and future unsecured unsubordinated debt.

The Company received total net proceeds from this offering of approximately $740 million, net of underwriting expenses and other fees associated with the transaction.

The Company used the net proceeds from the offering for general corporate purposes, including repayment of other borrowings.

Contemporaneously with the issuance of the 2050 Term Notes, the Company redeemed the 3.4% senior unsecured term notes due 2021 (“2021 Term Notes”) and the 2.9% senior unsecured term notes due 2022 (“2022 Term Notes”) for approximately $1.2 billion representing the outstanding principal amounts, accrued and unpaid interest, and a make-whole premium.

The Company recognized a net pre-tax loss of $47 million from the extinguishment, which was comprised of the $49 million make-whole premium payment and a $2 million loss related to the write-off of deferred financing fees, partially offset by a $4 million gain relating to the write-off of unamortized fair value swap terminations.

The Company also recognized a pre-tax loss of $20 million relating to the unamortized loss on cash flow swap terminations related to the 2022 Term Notes.

Refer to Note I, Financial Instruments , for further discussion.

In February 2020, the Company issued $750 million of senior unsecured term notes maturing March 15, 2030 ("2030 Term Notes") and $750.0 million of fixed-to-fixed reset rate junior subordinated debentures maturing March 15, 2060 (“2060 Junior Subordinated Debentures”).

The 2030 Term Notes accrue interest at a fixed rate of 2.3% per annum, with interest payable semi-annually in arrears, and rank equally in right of payment with all of the Company's existing and future unsecured and unsubordinated debt.

The 2060 Junior Subordinated Debentures bear interest at a fixed rate of 4.0% per annum, payable semi-annually in arrears, up to but excluding March 15, 2025.

From and including March 15, 2025, the interest rate will be reset for each subsequent five-year reset period equal to the Five-Year Treasury Rate plus 2.657%.

The Five-Year Treasury Rate is based on the average yields on actively traded U.S.

treasury securities adjusted to constant maturity, for five-year maturities.

On each five-year reset date, the 2060 Junior Subordinated Debentures can be called at par value.

The 2060 Junior Subordinated Debentures are unsecured and rank subordinate and junior in right of payment to all of the Company’s existing and future senior debt.

The Company received total net proceeds from these offerings of approximately $1.5 billion, net of underwriting expenses and other fees associated with the transactions.

The net proceeds from the offering were used for general corporate purposes, including acquisition funding.

dollar denominated short-term borrowings for the years ended December 31, 2022 and January 1, 2022 were 2.3% and 0.1%, respectively.

The weighted-average interest rate on Euro denominated short-term borrowings for the year ended January 1, 2022 was negative 0.5%.

For the year ended December 31, 2022, the Company had not drawn on its Euro denominated short-term borrowings.

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

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").

In February 2023, the Company entered into amendments to its 5-Year Credit Agreement, Syndicated 364-Day Credit Agreement, and Club 364-Day Credit Agreement 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 from 3.5 times 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.

In February 2022, the Company issued $500.0 million of senior unsecured term notes maturing February 24, 2025 ("2025 Term Notes") and $500.0 million of senior unsecured term notes maturing May 15, 2032 (“2032 Term Notes”).

The 2025 Term Notes will accrue interest at a fixed rate of 2.3% per annum and the 2032 Term Notes at a fixed rate of 3.0% per annum, with interest payable semi-annually in arrears, and rank equally in right of payment with all of the Company's existing and future unsecured unsubordinated debt.

The Company received total net proceeds from this offering of approximately $993 million, net of approximately $7 million of underwriting expenses and other fees associated with the transaction.

The Company used the net proceeds from the offering for general corporate purposes, including repayment of indebtedness under the commercial paper facilities.

In November 2019, the Company issued 7,500,000 Equity Units with a total notional value of $750 million ("2019 Equity Units").

Each unit has a stated amount of $100 and initially consists of a three-year forward stock purchase contract ("2022 Purchase Contracts") for the purchase of a variable number of shares of common stock, on November 15, 2022, for a price of $100, and a 10% beneficial ownership interest in one share of 0% Series D Cumulative Perpetual Convertible Preferred Stock, without par, with a liquidation preference of $1,000 per share ("Series D Preferred Stock").

The Company received approximately $735 million in cash proceeds from the 2019 Equity Units, net of offering expenses and underwriting costs and commissions, and issued 750,000 shares of Series D Preferred Stock.

The proceeds were used, together with cash on hand, to redeem the 2052 Junior Subordinated Debentures in December 2019.

The Company also used $19 million of the proceeds to enter into capped call transactions utilized to hedge potential economic dilution.

On and after November 15, 2022, the Series D Preferred Stock may be converted into common stock at the option of the holder.

At the election of the Company, upon conversion, the Company may deliver cash, common stock, or a combination thereof.

On or after December 22, 2022, the Company may elect to redeem for cash, all or any portion of the outstanding shares of the Series D Preferred Stock at a redemption price equal to 100% of the liquidation preference, plus any accumulated and unpaid dividends.

If the Company calls the Series D Preferred Stock for redemption, holders may convert their shares immediately preceding the redemption date.

Upon a successful remarketing of the Series D Preferred Stock (the "Remarketed Series D Preferred Stock"), the Company will receive additional cash proceeds of $750 million and issue shares of Remarketed Series D Preferred Stock.

The Company pays the holders of the 2022 Purchase Contracts quarterly contract adjustment payments, which commenced February 15, 2020.

As of January 1, 2022, the present value of the contract adjustment payments was approximately $38 million .

In March 2018, the Company purchased from a financial institution “at-the-money” capped call options with an approximate term of three years, on 3.2 million shares of its common stock (subject to customary anti-dilution adjustments) for an aggregate premium of $57 million.

In February 2020, the Company net-share settled 0.6 million of the 3.2 million capped options on its common stock and received 61,767 shares using an average reference price of $162.26 per common share.

On June 9, 2020, the Company amended the 2018 capped call options to align with and offset the potential economic dilution associated with the common shares issuable upon conversion of the Remarketed Series C Preferred Stock, as further discussed below.

Subsequent to the amendment, the capped call options had an initial lower strike price of $148.34 and an upper strike price of $165.00,

which was approximately 30% higher than the closing price of the Company's common stock on June 9, 2020.

During the second quarter of 2021, the Company net share settled the remaining capped call options on its common stock and received 344,004 shares using an average reference price of $209.80 per common share.

In May 2017, the Company issued 7,500,000 Equity Units with a total notional value of $750 million ("2017 Equity Units").

Each unit had a stated amount of $100 and initially consisted of a three-year forward stock purchase contract ("2020 Purchase Contracts") for the purchase of a variable number of shares of common stock, on May 15, 2020, for a price of $100, and a 10% beneficial ownership interest in one share of 0% Series C Cumulative Perpetual Convertible Preferred Stock, without par, with a liquidation preference of $1,000 per share ("Series C Preferred Stock").

The Company received approximately $727 million in cash proceeds from the 2017 Equity Units, net of underwriting costs and commissions, before offering expenses, and issued 750,000 shares of Series C Preferred Stock.

The proceeds were used for general corporate purposes, including repayment of short-term borrowings.

The Company also used $25 million of the proceeds to enter into capped call transactions utilized to hedge potential economic dilution.

In May 2020, the Company generated cash proceeds of $750 million from the successful remarketing of the Series C Preferred Stock (the "Remarketed Series C Preferred Stock"), as described more fully in Note J, Capital Stock .

Upon completion of the remarketing, the holders of the 2017 Equity Units received 5,463,750 common shares and the Company issued 750,000 shares of Remarketed Series C Preferred Stock.

Holders of the Remarketed Series C Preferred Stock are entitled to receive cumulative dividends, if declared by the Board of Directors, at an initial fixed rate equal to 5.0% per annum of the $1,000 per share liquidation preference (equivalent to $50.00 per annum per share).

In connection with the remarketing, the conversion rate was reset to 6.7352 shares of the Company's common stock, whic h was equivalent to a conversion price of approximately $148.47 per share.

Beginning on May 15, 2020, the holders have the option to convert the Remarketed Series C Preferred Stock into common stock.

At the election of the Company, upon conversion, the Company may deliver cash, common stock, or a combination thereof.

The Company did not have the right to redeem the Remarketed Series C Preferred Stock prior to May 15, 2021.

On April 28, 2021, the Company informed holders that it would redeem all outstanding shares of the Remarketed Series C Preferred Stock on June 3, 2021 (the “ Redemption date ” ) at $1,002.50 per share in cash ( “ Redemption price ”) , which was equal to 100% of the liquidation preference of a share of Remarketed Series C Preferred Stock, plus accumulated and unpaid dividends to, but excluding, the Redemption Date.

If a holder elected to convert its shares of Remarketed Series C Preferred Stock prior to the Redemption Date, the Company elected a combination settlement with a specified cash amount of $1,000 per share.

In June 2021, the Company redeemed the Remarketed Series C Preferred Stock and settled all conversions, paying $750 million in cash and issuing 1,469,055 common shares.

Each unit had a stated amount of $100 and initially consisted of a three-year forward stock purchase contract ("2022 Purchase Contracts") for the purchase of a variable number of shares of common stock, on November 15, 2022, for a price of $100 per share, and a 10% beneficial ownership interest in one share of 0% Series D Cumulative Perpetual Convertible Preferred Stock, without par, with a liquidation preference of $1,000 per share ("Series D Preferred Stock").

In November 2022, the Company generated cash proceeds of $750 million from the successful remarketing of the Series D Preferred Stock (the "Remarketed Series D Preferred Stock"), as described more fully in Note J, Capital Stock .

Upon completion of the remarketing, the holders of the 2019 Equity Units received 4,723,500 common shares and the Company issued 750,000 shares of Remarketed Series D Preferred Stock.

Holders of the Remarketed Series D Preferred Stock were entitled to receive cumulative dividends, if declared by the Board of Directors, at an initial fixed rate equal to 7.5% per annum of the $1,000 per share liquidation preference (equivalent to $75.00 per annum per share).

On November 15, 2022, the Company informed holders that it would redeem all outstanding shares of the Remarketed Series D Preferred Stock on December 22, 2022 (the “Redemption Date”) at $1,007.71 per share in cash, which was equal to 100% of the liquidation preference of a share of Remarketed Series D Preferred Stock, plus accumulated and unpaid dividends to, but excluding, the Redemption Date.

In December 2022, the Company redeemed the Remarketed Series D Preferred Stock, paying $750 million in cash.

In March 2015, the Company entered into a forward share purchase contract with a financial institution counterparty for 3,645,510 shares of common stock.

The contract obligates the Company to pay $350 million, plus an additional amount related to the forward component of the contract.

In February 2020, the Company amended the settlement date to April 2022, or earlier at the Company's option.

In November 2022, the Company amended the settlement date to November 2024, or earlier at the Company's option.

Refer to Note H, Long-Term Debt and Financing Arrangements , and Note J, Capital Stock , for further discussion regarding the Company's debt and equity arrangements.

Contractual Obligations:

The following table summarizes the Company’s significant contractual obligations and commitments that impact its liquidity:

The following table summarizes the Company’s significant contractual and other obligations that impact its liquidity:

Payments Due by Period

3 unchanged sentences

Short-term borrowings 2,103 2,103 — — —

Lease obligations (c) 577 146 198 120 113

Inventory purchase commitments (d) 802 799 3 — —

Lease obligations 490 116 165 107 102

Inventory purchase commitments (c) 771 765 6 — —

Deferred compensation 25 1 1 1 22

Marketing commitments (e) 77 54 23 — —

Forward stock purchase contract (f) 350 350 — — —

Pension funding obligations (g) 41 41 — — —

Contract adjustment fees (h) 39 39 — — —

income tax (i) 296 33 151 112 —

Supplier agreement (j) 78 78 — — —

Marketing commitments 82 45 30 7 —

Forward stock purchase contract (d) 350 — 350 — —

Pension funding obligations (e) 37 37 — — —

income tax (f) 242 65 175 2 —

Supplier agreements (g) 339 142 187 10 —

Derivatives (h) 16 16 — — —

Total contractual cash obligations $ 13,088 $ 3,483 $ 1,789 $ 1,006 $ 6,810

(a) Future payments on long-term debt encompass all payments related to aggregate debt maturities, excluding certain fair value adjustments included in long-term debt, as discussed further in Note H, Long-Term Debt and Financing Arrangements.

(b) Future interest payments on long-term debt reflect the applicable interest rate in effect at January 1, 2022 .

(c) Future lease obligations in the table above include $81 million for discontinued operations, $25 million in 2022, $19 million in 2023, $14 million in 2024, $10 million in 2025, $6 million in 2026, and $7 million thereafter.

(d) Inventory purchase commitments primarily consist of open purchase orders to purchase raw materials, components, and sourced products.

(e) Future marketing commitments in the table above include $1.0 million in 2022 attributable to discontinued operations.

(f) In March 2015, the Company entered into a forward share purchase contract with a financial institution counterparty which obligates the Company to pay $350 million, plus an additional amount related to the forward component of the contract.

In February 2020, the Company amended the settlement date to April 2022, or earlier at the Company's option.

(b) Future interest payments on long-term debt reflect the applicable interest rate in effect at December 31, 2022 .

(c) Inventory purchase commitments primarily consist of open purchase orders to purchase raw materials, components, and sourced products.

(d) In March 2015, the Company entered into a forward share purchase contract with a financial institution counterparty which obligates the Company to pay $350 million, plus an additional amount related to the forward component of the contract.

In November 2022, the Company amended the settlement date to November 2024, or earlier at the Company's option.

See Note J, Capital Stock, for further discussion.

(g) This amount principally represents contributions either required by regulations or laws or, with respect to unfunded plans, necessary to fund current benefits.

(e) This amount principally represents contributions either required by regulations or laws or, with respect to unfunded plans, necessary to fund current benefits.

The Company has not presented estimated pension and post-retirement funding beyond 2023 as funding can vary significantly from year to year based upon changes in the fair value of the plan assets, actuarial assumptions, and curtailment/settlement actions.

(h) These amounts represent future contract adjustment payments to holders of the Company's 2022 Purchase Contracts.

See Note J, Capital Stock, for further discussion.

(i) Income tax liability for the one-time deemed repatriation tax on unremitted foreign earnings and profits.

(j) Prepayment to vendor to support dedicated production of key material.

(f) Income tax liability for the one-time deemed repatriation tax on unremitted foreign earnings and profits.

(g) Supplier agreements with long-term minimum material purchase requirements and freight forwarding arrangements.

(h) Future cash flows on derivative instruments reflect the fair value and accrued interest as of December 31, 2022.

The ultimate cash flows on these instruments will differ, perhaps significantly, based on applicable market interest and foreign currency rates at their maturity.

To the extent the Company can reliably determine when payments will occur, the related amounts will be included in the table above.

However, due to the high degree of uncertainty regarding the timing of potential future cash flows associated with the contingent consideration liability related to the Craftsman acquisition and the unrecognized tax liabilities of $289 million and $548 million, respectively, at January 1, 2022, the Company is unable to make a reliable estimate of when (if at all) these amounts may be paid.

Refer to Note M, Fair Value Measurements, for further discussion.

Payments of the above contractual obligations (with the exception of payments related to debt principal, the forward stock purchase contract, contract adjustment fees, and tax obligations) will typically generate a cash tax benefit such that the net cash outflow will be lower than the gross amounts summarized above.

However, due to the high degree of uncertainty regarding the timing of potential future cash flows associated with the contingent consideration liability related to the Craftsman acquisition and the unrecognized tax liabilities of $269 million and $552 million, respectively, at December 31, 2022, the Company is unable to make a reliable estimate of when (if at all) these amounts may be paid.

Refer to Note M, Fair Value Measurements, and Note Q, Income Taxes, for further discussion.

Payments of the above contractual and other obligations (with the exception of payments related to debt principal, the forward stock purchase contract, and tax obligations) will typically generate a cash tax benefit such that the net cash outflow will be lower than the gross amounts summarized above.

Other Significant Commercial Commitments:

28 unchanged sentences

The Company’s exposure to interest rate risk results from its outstanding debt and derivative obligations, short-term investments, and derivative financial instruments employed in the management of its debt portfolio.

The debt portfolio including both trade and affiliate debt, is managed to achieve capital structure targets and reduce the overall cost of borrowing by using a combination of fixed and floating rate debt as well as interest rate swaps, and cross-currency swaps.

The debt portfolio including both trade and affiliate debt, is managed to achieve capital structure targets and reduce the overall cost of borrowing by leveraging, as appropriate, a combination of fixed and floating rate debt as well as interest rate swaps, and cross-currency swaps.

The Company’s primary exposure to interest rate risk comes from its commercial paper program in which the pricing is partially based on short-term U.S.

interest rates.

At January 1, 2022, the impact of a hypothetical 10% increase in the interest rates associated with the Company’s commercial paper borrowings would have an immaterial effect on the Company’s financial position and results of operations.

At December 31, 2022, the impact of a hypothetical 10% increase in the interest rates associated with the Company’s outstanding commercial paper borrowings would have been an incremental pre-tax loss of approximately $10 million.

The Company has exposure to commodity prices in many businesses, particularly brass, nickel, resin, aluminum, copper, zinc, steel, and energy used in the production of finished goods.

Generally, commodity price exposures are not hedged with derivative financial instruments, but instead are actively managed through customer product and service pricing actions, procurement-driven cost reduction initiatives and other productivity improvement projects.

The Company has $136 million of liabilities as of January 1, 2022 pertaining to unfunded defined contribution plans for certain U.S.

The Company has $95.6 million of liabilities as of December 31, 2022 pertaining to unfunded defined contribution plans for certain U.S.

employees for which there is mark-to-market exposure.

The assets held by the Company’s defined benefit plans are exposed to fluctuations in the market value of securities, primarily global stocks and fixed-income securities.

The funding obligations for these plans would increase in the event of adverse changes in the plan asset values, although such funding would occur over a period of many years.

In 2021, 2020, and 2019, investment returns on pension plan assets resulted in increases of $81 million, $280 million, and $323 million , respectively.

The Company expects funding obligations on its defined benefit plans to be approximately $41 million in 2022.

The Company employs diversified asset allocations to help mitigate this risk.

The Company's investment strategy for pension assets focuses on a liability-matching approach with gradual de-risking taking place over a period of many years to effectively manage portfolio risk.

The Company utilizes the current funded status to transition the portfolio toward investments that better match the duration and cash flow attributes of the underlying liabilities.

investment losses resulted in a decrease of $560 million to pension plan assets.

In 2021 and 2020, investment returns on pension plan assets resulted in increases of $81 million and $280 million, respectively.

The funded status percentage (total plan assets divided by total projected benefit obligation) of all global pension plans was 87% in both 2022 and 2021 and 80% in 2020.

The overall funded position remained consistent in 2022 compared to 2021 as the actual investment losses on pension plan assets during the year were offset by decreases in the benefit plan obligations primarily driven by increases in the discount rate.

These factors will both negatively impact net periodic benefit expense in 2023.

The Company expects funding obligations on its defined benefit plans to be approximately $37 million in 2023.

Management has worked to minimize this exposure by freezing and terminating defined benefit plans where appropriate.

Refer to Note L, Employee Benefit Plans, for further discussion regarding the Company's pension plans.

The Company has access to financial resources and borrowing capabilities around the world.

There are no inst ruments within the debt structure that would accelerate payment requirements solely due to a change in credit rating.

The Company’s existing credit facilities and sources of liquidity, including operating cash flows, are considered more than adequate to conduct business as normal.

Accordingly, based on present conditions and past history, management believes it is unlikely that operations will be materially affected by any potential deterioration of the general credit markets that may occur.

The Company believes that its strong financial position, operating cash flows, committed long-term credit facilities and borrowing capacity, and ability to access equity markets, provide the financial flexibility necessary to continue its record of annual dividend payments, to invest in the routine needs of its businesses, to make strategic acquisitions and to fund other initiatives encompassed by its growth strategy and maintain its strong investment grade credit ratings.

The Company’s existing credit facilities and sources of liquidity, including expected operating cash flows, are considered more than adequate to conduct business as normal.

The Company believes that its strong financial position, expected operating cash flows, committed long-term credit facilities and borrowing capacity, and ability to access equity markets, provide the financial flexibility necessary to continue its record of annual dividend payments, to invest in the routine needs of its businesses, and to fund other initiatives encompassed by its business strategy and maintain its strong investment grade credit ratings.

OTHER MATTERS

2 unchanged sentences

Overall ESOP expense was affected by the market value of the Company’s stock on the monthly dates when shares were released, among other factors.

The Company’s net ESOP activity resulted in expense of $59.1 million and $4.4 million in 2021 and 2020, respectively, and income of $5.1 million in 2019 .

defined contribution retirement plan expense increased in 2021 as all remaining unallocated shares in the ESOP were released in the first quarter of 2020.

The Company’s net ESOP activity resulted in expense of $61.1 million, $59.1 million, and $4.4 million in 2022, 2021 and 2020, respectively.

de fined contribution retirement plan expense increased in 2021 as all remaining unallocated shares in the ESOP were released in the first quarter of 2020.

In addition, employer contributions to the plan were suspended for the last three quarters of 2020.

9 unchanged sentences

Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses.

At January 1, 2022, the Company reported $8.784 billion of goodwill, $2.525 billion of indefinite-lived trade names and $2.175 billion of net definite-lived intangibles.

At December 31, 2022, the Company reported $8.503 billion of goodwill, $2.516 billion of indefinite-lived trade names and $1.959 billion of net definite-lived intangibles.

Management tests goodwill for impairment at the reporting unit level.

3 unchanged sentences

In accordance with Accounting Standards Update ("ASU") 2011-08, Intangibles - Goodwill and Other (Topic 350):

Testing Goodwill for Impairment , companies are permitted to first assess qualitative factors to determine whether it is more likely than not that the

fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test.

Testing Goodwill for Impairment , companies are permitted to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test.

Impairment tests are completed separately with respect to the goodwill of each of the Company’s reporting units.

For its annual impairment testing performed in the third quarter of 2021, the Company applied the qualitative assessment for two of its reporting units, while performing the quantitative test for three of its reporting units.

Based on the results of the Company’s annual impairment testing, it was determined that the fair value of each of its reporting units is substantially in excess of its carrying amount.

In performing the qualitative assessments, the Company identified and considered the significance of relevant key factors, events, and circumstances that could affect the fair value of each reporting unit.

These factors include external factors such as macroeconomic, industry, and market conditions, as well as entity-specific factors, such as actual and planned financial performance.

The Company also assessed changes in each reporting unit's fair value and carrying value since the most recent date a fair value measurement was performed.

As a result of the qualitative assessments performed, the Company concluded that it is more likely than not that the fair value of each of these reporting units exceeded its respective carrying value and therefore, no additional quantitative impairment testing was performed.

With respect to the quantitative tests, the Company assessed the fair values of the three reporting units based on a discounted cash flow valuation model.

The key assumptions applied to the cash flow projections were discount rates, which ranged from 7.0% to 8.0%, near-term revenue growth rates over the next six years, which represented cumulative annual growth rates ranging from approximately 4% to 7%, and perpetual growth rates of 3%.

For its annual impairment testing performed in the third quarter of 2022, the Company applied a

quantitative test for all of its reporting units using a discounted cash flow valuation model.

Based on the results of the Company’s annual impairment testing, it was determined that the fair value of each of its reporting units is in excess of its carrying amount.

With respect to the quantitative tests, the key assumptions applied to the cash flow projections were discount rates, which ranged from 9.5% to 10.0%, near-term revenue growth rates over the next six years, which represented cumulative annual growth rates ranging from approximately 5% to 6%, and perpetual growth rates of 3%.

These assumptions contemplated business, market and overall economic conditions.

Based on the results of this testing, the Company determined that the fair value for each of these reporting units exceeded its carrying amount by in excess of 50%.

Based on the results of this testing, the Company determined that the fair value for each of the reporting units exceeded its carrying amount in excess of 25%.

Furthermore, management performed sensitivity analyses on the estimated fair values from the discounted cash flow valuation models utilizing more conservative assumptions that reflect reasonably likely future changes in the discount rate and perpetual growth rate.

10 unchanged sentences

Discount rates are developed considering the yields available on high-quality fixed income investments with maturities corresponding to the duration of the related benefit obligations.

The Company’s weighted-average discount rates used to determine benefit obligations at January 1, 2022 for the United States and international pension plans were 2.80% and 1.78%, respectively.

The Company’s weighted-average discount rates used to determine benefit obligations at December 31, 2022 for the United States and international pension plans were 5.36% and 4.70%, respectively.

The Company’s weighted-average discount rates used to determine benefit obligations at January 1, 2022 for the United States and international pension plans were 2.80% and 1.78%, respectively.

As discussed further in Note L, Employee Benefit Plans , the Company develops the expected return on plan assets considering various factors, which include its targeted asset allocation percentages, historic returns, and expected future returns.

The Company’s expected rate of return assumptions for the United States and international pension plans were 4.75% and 3.25%, respectively, at January 1, 2022.

The Company’s expected rate of return assumptions for the United States and international pension plans were 4.69% and 3.41%, respecti vely, at December 31, 2022.

The Company will us e a 6.03% we ighted-average expected rate of return assumption to determine the 2023 net periodic benefit cost.

A 25 basis point reduction in the expected rate of return assumption would increase 2022 net periodic benefit cost by approximately $6 million on a pre-tax basis.

A 25 basis point reduction in the expected rate of return assumption would increase 2023 net periodic benefit cost by approximatel y $4 million on a pre-tax basis.

The Company believes that the assumptions used are appropriate;

3 unchanged sentences

Accordingly, market fluctuations in the fair value of plan assets can affect the net periodic benefit cost in the following year.

The projected benefit obligation for defined benefit plans exceeded the fair value of plan assets by $432 million at January 1, 2022.

A 25 basis point reduction in the discount rate would have increased the projected benefit obligation by approximately $101 million at January 1, 2022.

The projected benefit obligation for defined benefit plans exceeded the fair value of plan ass ets by $307 million at December 31, 2022.

A 25 basis point reduction in the discount rate would have increased the projected benefit obligation by approximately $50 million a t December 31, 2022.

The primary Black & Decker U.S.

pension and post employment benefit plans were curtailed in late 2010, as well as the only material Black & Decker

international plan, and in their place the Company implemented defined contribution benefit plans.

pension and post employment benefit plans were curtailed in late 2010, as well as the only material Black & Decker international plan, and in their place the Company implemented defined contribution benefit plans.

The vast majority of the projected benefit obligation pertains to plans that have been frozen;

the remaining defined benefit plans that are not frozen are predominantly small domestic union plans and those that are statutorily mandated in certain international jurisdictions.

The Company recognized approximately $8 million of defined benefit plan income in 2021, which may fluctuate in future years depending upon various factors including future discount rates and actual returns on plan assets.

The Company recognized approximately $1 million of defined benefit plan expense in 2022, which may fluctuate in future years depending upon various factors including future discount rates and actual returns on plan assets.

ENVIRONMENTAL — The Company incurs costs related to environmental issues as a result of various laws and regulations governing current operations as well as the remediation of previously contaminated sites.

1 unchanged sentence

The amount of liability recorded is based on an evaluation of currently available facts with respect to each individual site and includes such factors as existing technology, presently enacted laws and regulations, and prior experience in remediation of contaminated sites.

The liabilities recorded do not take into account any claims for recoveries from insurance or third parties.

The liabilities recorded do not take into account any

claims for recoveries from insurance or third parties.

As assessments and remediation progress at individual sites, the amounts recorded are reviewed periodically and adjusted to reflect additional technical and legal information that becomes available.

As of January 1, 2022, the Company had reserves of $159 million for remediation activities associated with Company-owned properties as well as for Superfund sites, for losses that are probable and estimable.

As of December 31, 2022, the Company had reserves of $129 million for remediation activities associated with Company-owned properties as well as for Superfund sites, for losses that are probable and estimable.

The range of environmental remediation costs that is reasonably possible is $59 million to $220 million which is subject to change in the near term.

23 unchanged sentences

This document contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including any projections or guidance of earnings, revenue or other financial items;

All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections or guidance of earnings, revenue or other financial items;

any statements of the plans, strategies and objectives of management for future operations;

11 unchanged sentences

(iv) the economic, political, cultural and legal environment of emerging markets, particularly Latin America, Russia, China and Turkey;

(v) realizing the anticipated benefits of mergers, acquisitions, joint ventures, strategic alliances or divestitures;

(v) realizing the anticipated benefits of mergers, acquisitions, joint ventures, strategic alliances or divestitures, including the divestitures of the Security and Oil & Gas businesses;

(vi) pricing pressure and other changes within competitive markets;

(vii) availability and price of raw materials, component parts, freight, energy, labor and sourced finished goods;

(viii) the impact the tightened credit markets and change to LIBOR and other benchmark rates may have on the Company or its customers or suppliers;

(viii) the impact the tightened credit markets and any discontinuation, reform or replacement of LIBOR and other benchmark rates may have on the Company or its customers or suppliers;

(ix) the extent to which the Company has to write off accounts receivable or assets or experiences supply chain disruptions in connection with bankruptcy filings by customers or suppliers;

13 unchanged sentences

(xxii) potential regulatory liabilities, including environmental, privacy, data breach, workers compensation and product liabilities;

(xxiii) attracting and retaining key employees, managing a workforce in many jurisdictions, work stoppages or other labor disruptions;

(xxiii) attracting and retaining key employees, managing a workforce in many jurisdictions, labor shortages, work stoppages or other labor disruptions;

(xxiv) the Company's ability to keep abreast with the pace of technological change;

1 unchanged sentence

(xxvi) the Company’s ability to protect its intellectual property rights and associated reputational impacts;

(xxvii) the continued adverse effects of the COVID-19 pandemic and an indeterminate recovery period;

(xxviii) the possibility that the Company does not achieve the intended financial benefits from the acquisition of MTD;

(xxix) the failure to consummate, or a delay in the consummation of, the Security sale transaction for various reasons (including but not limited to failure to receive, or delay in receiving, required regulatory approvals and meet customary closing conditions);

(xxx) the failure to undertake or complete, or a delay in the timing of, the share repurchase program;

and (xxxi) failure to realize the expected benefits of the Company's capital allocation strategy and share repurchase program.

Additional factors that could cause actual results to differ materially from forward-looking statements are set forth in this Annual Report on Form 10-K, including under the heading “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in the Consolidated Financial Statements and the related Notes.

Forward-looking statements in this Annual Report on Form 10-K speak only as of the date hereof, and forward-looking statements in documents attached that are incorporated by reference speak only as of the date of those documents.

The Company does not undertake any obligation to update or release any revisions to any forward-looking statement or to report any events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as required by law.

(xxvii) the continuing impact of the COVID-19 pandemic;

and (xxviii) the Company’s ability to implement, and achieve the expected benefits (including cost savings and reduction in working capital) from its Global Cost Reduction Program including:

continuing to advance innovation, electrification and global market penetration to achieve organic revenue growth of 2-3 times the market;

streamlining and simplifying the organization, as well as shifting resources to prioritize investments believed to have a positive and more direct impact to customers;

accelerating the operations and supply chain transformation to improve fill rates and better match the needs of its customers while improving adjusted gross margins back to historical 35%+ levels;

prioritizing cash flow generation and inventory optimization;

leveraging strategic sourcing and contract manufacturing;

consolidating facilities and optimizing the distribution network;

executing the SBD Operating Model to deliver operational excellence through efficiency, simplified organizational design and inventory optimization;

and platforming products.

Additional factors that could cause actual results to differ materially from forward-looking statements are set forth in this Annual Report on Form 10-K, including under the headings “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in the Consolidated Financial Statements and the related Notes.

Forward-looking statements in this Annual Report on Form 10-K speak only as of the date hereof, and forward-looking statements in documents that are incorporated by reference herein speak only as of the date of those documents.

The Company does not undertake any obligation or intention to update or revise any forward-looking statements, whether as a result of future events or circumstances, new information or otherwise, except as required by law.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

5 unchanged sentences

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 7. Management’s Discussion and Analysis