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Item 7. Management’s Discussion and Analysis

2024-02-27 compared with 2023-02-23 · 302 added, 298 removed, 379 unchanged (61% of the section changed)

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Strategic Objectives

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;

Over the past two years, the Company has re-shaped its portfolio to focus on its leading positions in the tools & outdoor and engineered fastening markets.

Leveraging the benefits of a more focused portfolio, the Company initiated a business transformation in mid-2022 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 multi-year strategic focus remain unchanged as follows:

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

• Streamlining and simplifying the organization, and investing in initiatives that more directly impact the Company's customers and end users;

• Returning adjusted gross margins to historical 35%+ levels by accelerating the operations and supply chain transformation to improve fill rates and better match inventory with customer demand;

• 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 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:

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

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

• Cash Flow Return On Investment ("CFROI"), computed as cash from operations plus after-tax interest expense, divided by the two-point average of debt and equity, between 12-15%.

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.

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

Share Repurchases And Other Securities

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.

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"), which provided for an initial delivery of 85% of the total notional share equivalent at execution, or 10,756,770 shares, and open market share repurchases for a total of 1,888,601 shares.

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

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

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

Pending Sale of Infrastructure Business

In December 2023, the Company announced that it had entered into a definitive agreement for the sale of its Infrastructure business to Epiroc AB for $760 million in cash.

The transaction is subject to regulatory approval and other customary closing conditions.

The Company expects to utilize the net proceeds to reduce debt.

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 $916.0 million.

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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.

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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.

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 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.

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

Refer to Note E, Acquisitions, for further discussion.

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.

In mid-2022, the Company launched a program comprised of 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.

The program consists of a selling, general, and administrative ("SG&A") planned pre-tax run-rate cost savings of $500 million and a supply chain transformation expected to deliver $1.5 billion of pre-tax run-rate cost savings by the end of 2025 to achieve projected 35%+ adjusted gross margins.

The SG&A cost savings are expected to be generated by simplifying the corporate structure, optimizing organizational spans and layers and reducing indirect spend.

These savings will help fund $300 million to $500 million of innovation and commercial investments through 2025 to accelerate organic growth.

The charges associated with the SG&A savings were reflected in Non-GAAP adjustments in 2022 detailed below in "Results From Operations".

The $1.5 billion of pre-tax run-rate cost savings from the supply chain transformation will be driven by the following value streams:

• Strategic Sourcing:

Implementing capabilities to source in a more efficient and integrated manner across all of the Company’s businesses and leveraging contract manufacturing;

• Operational Excellence:

Leveraging the SBD Operating Model and re-designing in-plant operations following footprint rationalization to deliver incremental efficiencies, simplified organizational design and inventory optimization;

• Footprint Rationalization:

Transforming the Company’s manufacturing and distribution network from a decentralized and inefficient system of sites built through years of acquisitions to a strategically focused supply chain, inclusive of site closures, transformations of existing sites into manufacturing centers of excellence and re-configuration of the distribution network;

• Complexity Reduction:

Reducing complexity through platforming products and implementing initiatives to drive a SKU reduction.

The charges associated with the supply chain transformation are reflected in the Non-GAAP adjustments detailed below in "Results From Operations" and the full year estimate of Non-GAAP adjustments detailed below in "2024 Outlook".

The cash investment required to achieve the $1.5 billion of pre-tax run-rate supply chain cost savings is expected to be approximately $0.9 billion to $1.1 billion, of which approximately 40% is expected to be capital expenditures.

Through 2023, the Company has made approximately $0.2 billion of these cash investments.

During 2023 and since inception of the program, the Company has generated approximately $835 million and $1.0 billion, respectively, of pre-tax run-rate savings, driven by lower headcount, indirect spend reductions and the supply chain transformation.

These savings are comprised of supply chain efficiency benefits, which will support gross margin improvements as the benefits turn through inventory, and SG&A savings.

The Company believes that it is on track to grow to approximately $2 billion of pre-tax run-rate savings by year-end 2025.

In addition, the Company has reduced inventory by approximately $1.9 billion since the end of the second quarter of 2022 and expects further inventory and working capital reductions to support free cash flow generation in 2024.

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

Each of the Company's franchises share common attributes:

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 & 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.

Each of the Company's core franchises share common attributes:

they have iconic brands and attractive growth characteristics, they are scalable and defensible and they can differentiate through innovation.

• The Tools & Outdoor business carries 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.

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 match inventory with customer demand, 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®, 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.

The Company has a strong portfolio of brands associated with high-quality products including the iconic DEWALT®, CRAFTSMAN® and STANLEY® brands, as well as BLACK+DECKER®, DEWALT FLEXVOLT®, DEWALT POWERSTACK®, DEWALT POWERSHIFT™, IRWIN®, LENOX®, 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.

During 2023, the National Collegiate Athletic Association sponsorship delivered DEWALT® to an estimated 237+ million viewers through TV-visible branding and 9+ million fans in stadiums at 25 colleges and universities across five Division 1 conferences (Atlantic Coast Conference, Big Ten, Big 12, Pac-12 and Mountain West).

CRAFTSMAN® returned as the title sponsor of the NASCAR CRAFTSMAN® Truck Series through the Company’s sponsorship with NASCAR as the “Official Tools Partner of NASCAR” and “Official Tools" of all NASCAR-owned tracks.

The Company has also maintained long-standing NASCAR and NHRA team sponsorships, which provided brand exposure during nearly 60 events in 2023 with the DEWALT®, CRAFTSMAN®, and MAC TOOLS® brands.

In 2023, 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.

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 Company also advertises in the English Premier League, which is the number one soccer league in the world, featuring the DEWALT® brand to a global audience.

The Company continued its sponsorship of one of the world’s most popular football clubs, FC Barcelona, 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.

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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

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, 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 focused on:

Operations Excellence;

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 & 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, and 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.

The HTAS business sells hand tools, power tool accessories and storage products.

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

The PTG product line includes both professional and consumer products.

Professional products, primarily under the DEWALT® brand, 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, and concrete and masonry anchors.

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

The HTAS product line sells hand tools, power tool accessories and storage products.

Hand tools include measuring, leveling and layout tools, planes, hammers, demolition tools, clamps, vises, knives, saws, chisels and industrial and automotive tools.

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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), 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 Outdoor product line 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®, CRAFTSMAN®, CUB CADET®, BLACK+DECKER®, and HUSTLER® brand names.

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

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

The Infrastructure business designs, manufactures, and sells attachments, typically used on excavators, and handheld hydraulic and battery-powered tools for applications in infrastructure, construction, scrap recycling, demolition, and railroad infrastructure.

RESULTS OF OPERATIONS

The Company’s results represent continuing operations and as a result of the 2022 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.

These divestitures represented a single plan to exit the Security segment and were considered a strategic shift that had a major effect on the Company's operations and financial results.

Therefore, the operating results of these businesses were classified as discontinued operations through their respective dates of sale.

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

The pending divestiture of the Infrastructure 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.

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.

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 has provided a discussion of its results both inclusive and exclusive of certain gains and charges.

The results and measures, including gross profit, SG&A, Other, net, Income taxes, and segment profit (including Corporate Overhead), on a basis excluding certain gains and charges, free cash flow, organic revenue 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.

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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.

With the exception of forecasted free cash flow included in "2024 Outlook" as discussed below, the Non-GAAP financial measures of gross profit, SG&A, Other, net, Income taxes, and segment profit (including Corporate Overhead), presented on a basis excluding certain gains and charges, as well as free cash flow, organic revenue 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.

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

GAAP Acquisition-

Related Charges & Other

The Company’s operating results at the consolidated level as discussed below include and exclude certain gains and charges impacting gross profit, SG&A, Other, net, and Income taxes.

The Company’s business segment results as discussed below include and exclude certain gains and charges impacting gross profit and SG&A.

These amounts for 2023, 2022 and 2021 are as follows:

(Millions of Dollars) GAAP Non-GAAP Adjustments 2

Gross profit $ 3,932.6 $ 166.9 $ 4,099.5

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3,290.7 (99.4) 3,191.3

Operating profit 914.1 307.7 1,221.8

Earnings from continuing operations before income taxes and equity interest 37.9 642.2 680.1

(Loss) earnings from continuing operations before income taxes (375.7) 566.2 190.5

Income taxes on continuing operations (94.0) 65.8 (28.2)

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

Diluted earnings per share of common stock - Continuing operations $ 1.06 $ 3.56 $ 4.62

1 Includes provision for credit losses

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

• 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:

◦ $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.

GAAP Acquisition-

Related Charges & Other

Net (Loss) Earnings from Continuing Operations Attributable to Common Shareowners - Diluted (281.7) 500.4 218.7

Diluted (loss) earnings per share of common stock - Continuing operations $ (1.88) $ 3.33 $ 1.45

(Millions of Dollars) GAAP Non-GAAP Adjustments 2

Gross profit $ 4,284.1 $ 127.4 $ 4,411.5

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3,370.0 (180.3) 3,189.7

Operating profit 1,899.1 222.6 2,121.7

Earnings from continuing operations before income taxes and equity interest 1,586.9 193.9 1,780.8

Earnings from continuing operations before income taxes 37.9 642.2 680.1

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

Diluted earnings per share of common stock - Continuing operations $ 1.06 $ 3.56 $ 4.62

1 Includes provision for credit losses

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;

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

◦ $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;

◦ $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-

Related Charges & Other

(Millions of Dollars) GAAP Non-GAAP Adjustments 2

Gross profit $ 5,092.2 $ 39.0 $ 5,131.2

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3,193.1 (183.6) 3,009.5

Operating profit 1,738.8 173.8 1,912.6

Earnings from continuing operations before income taxes and equity interest 1,586.9 193.9 1,780.8

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1 Includes provision for credit losses

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;

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

◦ $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.

2 Refer to table below for additional detail of the Non-GAAP adjustments

Below is a summary of the pre-tax Non-GAAP adjustments for 2023, 2022 and 2021.

(Millions of Dollars) 2023 2022 2021

Supply Chain Transformation Costs:

Footprint Rationalization 1

$ 96.9 $ 25.3 $ —

Strategic Sourcing & Operational Excellence 2

Inventory step-up charges — 80.3 20.7

Facility-related costs 1.5 14.8 17.3

Voluntary retirement program (0.4) 5.7 —

Other charges (gains) (0.2) 1.3 1.0

Gross Profit $ 166.9 $ 127.4 $ 39.0

Supply Chain Transformation Costs:

Footprint Rationalization 1

$ 10.8 $ — $ —

Complexity Reduction 3

Acquisition & Integration-related costs 4

33.6 85.2 43.6

Transition services costs related to previously divested businesses 46.6 21.1 —

Functional transformation initiatives — 19.2 28.1

Voluntary retirement program (2.7) 33.4 0.8

Craftsman contingent consideration remeasurement from MTD acquisition — — 101.1

Other charges (gains) 2.1 14.2 10.0

Selling, general and administrative $ 99.4 $ 180.3 $ 183.6

$ (25.1) $ 16.9 $ 24.2

Loss on sales of businesses 10.8 8.4 0.6

Restructuring charges 6

39.4 140.8 14.5

Gain on equity method investment — — (68.0)

Asset impairment charges 7

274.8 168.4 —

(Loss) earnings from continuing operations before income taxes $ 566.2 $ 642.2 $ 193.9

1 Footprint Rationalization costs in 2023 relate to transfers and closures of targeted manufacturing sites, including Fort Worth, Texas and Cheraw, South Carolina as previously announced in March 2023, which resulted in accelerated depreciation of production equipment of $49.1 million, non-cash asset write-downs of $44.0 million (predominantly tooling, raw materials and WIP) and other site closure and re-configuration costs of $14.6 million.

2 Strategic Sourcing & Operational Excellence costs primarily relate to third-party consultant fees to provide expertise in identifying and quantifying opportunities to source in a more integrated manner and re-design in-plant operations following footprint rationalization, developing a detailed program and related governance, and assisting the Company with the implementation of actions necessary to achieve the related objectives.

3 Complexity Reduction costs primarily relate to third-party consultant fees to assist the Company with identifying strategies related to its SKU reduction and product platforming initiatives, quantifying the opportunities and designing detailed plans to achieve the related benefits.

4 Acquisition & Integration-related costs primarily relate to the MTD and Excel acquisitions, including costs to integrate the organizations and shared processes, as well as harmonize key IT applications and infrastructure.

5 Includes deal-related costs, net of income in 2023 and 2022 related to providing transition services to previously divested businesses.

6 Refer to “Restructuring Activities” below for further discussion.

7 Asset impairment charges in 2023 include a $124.0 million pre-tax impairment loss related to the Irwin and Troy-Bilt trade names and a $150.8 million pre-tax impairment loss related to the Infrastructure business.

The $168.4 million pre-tax asset impairment charge in 2022 related to the Oil & Gas business.

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

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Consolidated Results

Net sales were $15.781 billion in 2023 compared to $16.947 billion in 2022, representing a decrease of 7%, as a 1% increase in price was more than offset by a 7% decrease in volume and a 1% decrease from the Oil & Gas divestiture.

Tools & Outdoor net sales decreased 7% compared to 2022 due to a 7% decline in volume.

Industrial net sales decreased 4% compared to 2022 as a 3% increase in price was more than offset by a 4% decrease from the Oil & Gas divestiture and a 3% decrease in volume.

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.

Tools & Storage 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.

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

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.

Gross Profit:

The Company reported gross profit of $3.933 billion, or 24.9% of net sales, in 2023 compared to $4.284 billion, or 25.3% of net sales, in 2022.

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.

Non-GAAP adjustments, which reduced gross profit, were $166.9 million in 2023 and $127.4 million in 2022.

Despite lower volume, the impact of selling through high-cost inventory, and production curtailments, gross profit, excluding Non-GAAP adjustments, was 26.0% of net sales in both 2023 and 2022, due to price realization, supply chain transformation benefits, lower inventory destocking costs, and lower shipping costs.

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 $59.0 million in 2020.

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.

Non-GAAP adjustments, which reduced gross profit, were $127.4 million in 2022 and $39.0 million in 2021.

Excluding these adjustments, 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.

SG&A Expenses:

Selling, general and administrative expenses, inclusive of the provision for credit losses, were $3.291 billion, or 20.9% of net sales, in 2023 compared to $3.370 billion, or 19.9% of net sales, in 2022.

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 18.8% of net sales in 2022 compared to 19.7% in 2021 due to the successful implementation of cost control actions.

SG&A declined year-over-year on an absolute dollar basis reflecting cost reductions.

Within SG&A, Non-GAAP adjustments totaled $99.4 million in 2023 and $180.3 million in 2022.

Excluding these adjustments, SG&A was 20.2% of net sales in 2023 compared to 18.8% in 2022, reflecting the impact of lower sales volume, but relatively flat year-over-year on an absolute dollar basis as the benefits from the Global Cost Reduction Program were offset by increased investments in growth initiatives, higher variable compensation expense and inflation.

SG&A expenses 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 $183.6 million in 2021 and $114.8 million in 2020.

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.

Within SG&A, Non-GAAP adjustments totaled $180.3 million in 2022 and $183.6 million in 2021.

Excluding these adjustments, 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.

Distribution center costs (i.e.

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Such distribution costs classified in SG&A amounted to $521.7 million, $498.7 million and $416.1 million in 2023, 2022, and 2021, respectively.

The increase in distribution costs in 2023 compared to 2022 reflects costs associated with footprint rationalization actions under the supply chain transformation as well as the Company's focus on inventory reduction.

Other, net totaled $320.1 million, $274.8 million, and $189.5 million in 2023, 2022, and 2021, 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 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.

Excluding Non-GAAP adjustments, Other, net, totaled $345.2 million, $257.9 million, and $165.3 million in 2023, 2022, and 2021, respectively.

The increase in 2023 is driven by higher pension and environmental remediation costs as well as write-downs on certain investments.

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

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 2023, the Company reported a loss of $10.8 million primarily related to the divestiture of a small business in the Industrial segment.

During 2022, the Company reported a net loss of $8.4 million 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.

Gain on Equity Method Investment:

Upon the acquisition of MTD in the fourth quarter of 2021, the Company recognized a $68.0 million gain on its previously held equity method investment.

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

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.

Refer to Note E, Acquisitions , for further discussion.

Asset Impairment Charges :

During 2023, the Company recorded impairment charges of $274.8 million, comprised of a $124.0 million impairment charge related to the Irwin and Troy-Bilt trade names and a $150.8 million impairment charge related to the Infrastructure business.

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

Refer to Note F, Goodwill and Intangible Assets , for additional information on the trade name impairments.

Refer to Note T, Divestitures , for additional information on the pending divestiture of the Infrastructure business and the 2022 divestiture of the Oil & Gas business.

Interest, net:

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The 2023 increase was primarily driven by higher U.S.

interest rates and debt issuances in March 2023, partially offset by higher interest income due to an increase in rates.

The increase in 2022 compared to 2021 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.

Income Taxes :

The Company's effective tax rate on continuing operations was 25.0% in 2023, (349.3)% in 2022, and 3.5% in 2021.

Excluding the impact of acquisition-related and other charges, the effective tax rate in 2022 on continuing operations was (7.1)%.

Excluding the tax effect on Non-GAAP adjustments, the effective tax rate in 2023 on continuing operations was (14.8)%.

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.

statutory tax rate primarily due to a tax benefit associated with an intra-entity asset transfer of certain intangible assets related to the continued reorganization of the supply chain, tax on foreign earnings at tax rates different than the U.S.

tax rate, state income taxes, and tax credits, partially offset by U.S.

tax on foreign earnings, non-deductible expenses, withholding taxes, and losses for which a tax benefit is not recognized.

Excluding the tax effect on Non-GAAP adjustments, the effective tax rate on continuing operations in 2022 was (7.1)%.

This effective tax rate differs from 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 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 tax effect on Non-GAAP adjustments, 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 tax on foreign earnings at tax rates different than the U.S.

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.

statutory tax rate primarily due to a tax benefit associated with an intra-entity asset transfer of certain intangible assets related to 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.

On December 20, 2021, the Organization for Economic Cooperation and Development (“OECD”) published a proposal for the establishment of a global minimum tax rate of 15% (“Pillar Two").

The Pillar Two rules provide a template that jurisdictions can translate into domestic law, to assist with the implementation within an agreed upon timeframe and in a coordinated manner, and are effective for fiscal years beginning after January 1, 2024.

To date, jurisdictions in which the Company operates are in various stages of implementation.

The Company has performed an initial assessment of the potential impact to income taxes as a result of Pillar Two.

The assessment of the potential impact is based on the most recent tax filings, country-by-country reporting, and financial statements of affected subsidiaries.

Based on results of the assessment, the Company believes it can avail itself of the transitional safe harbor rules in most jurisdictions in which the Company operates.

There are, however, a limited number of jurisdictions where the transitional safe harbor relief does not apply.

The Company does not currently expect a material impact to income taxes in those jurisdictions in the near term.

The Company continues to assess the potential impact of Pillar Two and monitor developments in legislation, regulation, and interpretive guidance in this area.

Business Segment Results

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% of Net sales 5.1 % 6.7 % 15.5 %

Tools & Outdoor net sales decreased $1.057 billion, or 7%, in 2023 compared to 2022 due to a 7% decline in volume.

Organic revenue decreased 8%, 4% and 3% in North America, Europe and emerging markets, respectively.

The overall 7% organic decline was a result of lower consumer outdoor and DIY market demand.

The 2023 U.S.

retail point-of-sale demand remained above pre-pandemic 2019 levels, supported by price increases and strength in professional tools.

Segment profit amounted to $687.6 million, or 5.1% of net sales, in 2023 compared to $971.9 million, or 6.7% of net sales, in 2022.

Excluding Non-GAAP adjustments of $196.7 million and $235.4 million in 2023 and 2022, respectively, segment profit amounted to 6.6% of net sales in 2023 compared to 8.4% in 2022, as supply chain transformation savings and reduced shipping costs were more than offset by selling through high-cost inventory, production curtailments and lower volume.

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.

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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.

Segment profit amounted to $971.9 million, or 6.7% of net sales, in 2022 compared to $1.985 billion, or 15.5% of net sales, in 2021.

Excluding Non-GAAP adjustments 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.

(Millions of Dollars) 2023 2022 2021

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% of Net sales 11.0 % 9.4 % 10.4 %

Industrial net sales decreased $109.4 million, or 4%, in 2023 compared to 2022, as a 3% increase in price was more than offset by a 4% decrease from the Oil & Gas divestiture and a 3% decrease in volume.

Engineered Fastening organic revenues were up 6%, with double-digit growth in both aerospace and automotive, which was partially offset by softness in general industrial fastener markets.

Segment profit totaled $266.5 million, or 11.0% of net sales, in 2023 compared to $236.2 million, or 9.4% of net sales, in 2022.

Excluding Non-GAAP adjustments of $18.7 million and $7.8 million in 2023 and 2022, respectively, segment profit amounted to 11.8% of net sales in 2023 compared to 9.7% in 2022, as price realization and cost control more than offset lower volume.

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.

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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.

Engineered Fastening organic revenues increased 5% for the full year, as general industrial growth and a strong first half in automotive more than offset the market-driven aerospace declines.

Infrastructure organic revenues were down 1% as mid-teen growth in Attachment Tools was more than offset by lower pipeline activity in Oil & Gas.

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 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 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.

Excluding Non-GAAP adjustments 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 higher volumes and price realization were more than offset by commodity inflation, higher supply chain costs and adverse mix.

Corporate Overhead

Corporate Overhead includes the corporate overhead element of SG&A, which is not allocated to the business segments.

Corporate Overhead amounted to $312.2 million, $294.0 million, and $342.9 million in 2023, 2022, and 2021, respectively.

Excluding Non-GAAP adjustments of $50.9 million, $64.5 million, and $31.1 million, in 2023, 2022, and 2021, respectively, the Corporate Overhead element of SG&A was $261.3 million, $229.5 million, and $311.8 million in 2023, 2022, and 2021, respectively.

The year-over-year increase in 2023 compared to 2022 was primarily driven by higher employee-related variable compensation costs.

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.

RESTRUCTURING ACTIVITIES

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

A summary of the restructuring reserve activity from December 31, 2022 to December 30, 2023 is as follows:

(Millions of Dollars) December 31, 2022 Net Additions Usage Currency December 30, 2023

Severance and related costs $ 57.0 $ 20.3 $ (51.1) $ (0.4) $ 25.8

Facility closures and asset impairments 3.5 14.9 (13.2) 0.1 5.3

Facility closures and other 5.3 19.1 (21.3) — 3.1

Total $ 62.3 $ 39.4 $ (72.4) $ (0.4) $ 28.9

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

During 2023, the Company recognized net restructuring charges of $39 million, primarily related to severance and facility closures associated with the footprint rationalization actions under the supply chain transformation.

The Company expects to achieve annual net cost savings of approximately $45 million by the end of 2024 related to the restructuring costs incurred during 2023.

The majority of the $29 million of reserves remaining as of December 30, 2023 is expected to be utilized within the next twelve months.

During 2022, the Company recognized net restructuring charges of $141 million, primarily related to severance and related costs, including SG&A cost actions under the Global Cost Reduction Program.

The Company estimates that these actions resulted in net cost savings of approximately $300 million in 2023.

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

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

The $39 million of net restructuring charges in 2023 includes:

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

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.

The Company expects 2024 diluted earnings per share to approximate $1.60 to $2.85 on a GAAP basis ($3.50 to $4.50 excluding Non-GAAP adjustments).

Free cash flow is expected to approximate $0.6 billion to $0.8 billion, significantly ahead of net income, as the Company continues to prioritize inventory reductions.

This outlook assumes the previously announced Infrastructure divestiture closes at the end of the first quarter 2024.

The difference between 2024 diluted earnings per share outlook and the diluted earnings per share range, excluding Non-GAAP adjustments, is approximately $1.65 to $1.90, consisting primarily of charges related to the supply chain transformation under the Global Cost Reduction Program.

FINANCIAL CONDITION

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Operating Activities:

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.

Cash flows provided by operations were $1.191 billion in 2023 compared to cash used in operations of $1.460 billion in 2022.

The year-over-year change was primarily driven by the Company's focus on reducing inventory, as evidenced by a decline of $1.123 billion in inventory in 2023.

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

The year-over-year change 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 in the first half of 2022 as consumer and DIY demand softened.

Free Cash Flow:

Free cash flow, as defined in the table below, was an inflow of $853 million in 2023 compared to an outflow of $1.990 billion in 2022 and an inflow of $144 million in 2021.

The year-over-year changes in free cash flow are due to the same factors discussed above in operating activities, as well as lower planned capital expenditures in 2023.

Management considers free cash flow an important indicator 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 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.

(Millions of Dollars) 2023 2022 2021

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

Net cash provided by (used in) operating activities $ 1,191 $ (1,460) $ 663

capital and software expenditures (338) (530) (519)

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Investing Activities:

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 totaled $328 million in 2023 primarily due to capital and software expenditures of $338 million.

Cash flows provided by investing activities in 2022 totaled $3.573 billion, 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.

Financing Activities:

Cash flows used in financing activities totaled $816 million in 2023 primarily driven by net repayments of short-term commercial paper borrowings of $1.045 billion and cash dividend payments on common stock of $483 million, partially offset by net proceeds from debt issuances of $745 million.

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.

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 proceeds from issuances of common stock of $131 million, 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.

Fluctuations in foreign currency rates positively impacted cash by $2 million in 2023.

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.

Fluctuations in foreign currency rates positively impacted cash by $23 million in 2020 due to the weakening of the U.S.

dollar against other currencies.

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.

Credit Ratings and Liquidity:

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

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

rating agencies on its senior unsecured debt (S&P A-, Fitch BBB+, Moody's Baa3), as well as its commercial paper program (S&P A-2, Fitch F2, Moody's P-3).

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.

In the first quarter of 2023, Fitch downgraded the Company's senior unsecured debt credit rating to BBB+, from its previous rating of A-, and its commercial paper program to F2, from its previous rating of F1.

In the third quarter of 2023, S&P downgraded the Company's senior unsecured debt credit rating to A-, from its previous rating of A, and its commercial paper program to A-2, from its previous rating of A-1.

In the fourth quarter of 2023, Moody's downgraded the Company's senior unsecured debt credit rating to Baa3, from its previous rating of Baa2, and its commercial paper program to P-3, from its previous rating of P-2.

Failure to maintain 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 $449 million as of December 30, 2023 of which approximately 50% was held in foreign jurisdictions.

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.

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 $242 million at December 31, 2022.

As a result of the Tax Cuts and Jobs Act (the "Act"), the Company's tax liability related to the one-time transition tax associated with unremitted foreign earnings and profits totaled $171 million at December 30, 2023.

The Act permits a U.S.

company to elect to pay the net tax liability interest-free over a period of up to eight years.

See the Contractual Obligations table below for the estimated amounts due by period.

See the "Contractual Obligations" table below for

the estimated amounts due by period.

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.

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.

As of December 30, 2023, the Company had commercial paper borrowings outstanding of $1.1 billion, of which $399.7 million in Euro denominated commercial paper was designated as a net investment hedge.

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

As of December 31, 2022, the Company had commercial paper borrowings outstanding of $2.1 billion, which did not include any Euro denominated commercial paper.

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

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Dollar and Euro commercial paper program.

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.

As of December 30, 2023 and December 31, 2022, the Company had not drawn on its five-year committed credit facility.

In September 2023, the Company terminated its $1.5 billion syndicated 364-Day Credit Agreement (the "Syndicated 364-Day Credit Agreement") dated September 2022, as amended.

There were no outstanding borrowings under the Syndicated 364-Day Credit Agreement upon termination and as of December 31, 2022.

Contemporaneously, the Company entered into a new $1.5 billion syndicated 364-Day Credit Agreement (the "2023 Syndicated 364-Day Credit Agreement") which is a revolving credit loan.

The borrowings under the 2023 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 2023 Syndicated 364-Day Credit Agreement.

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As of December 30, 2023, the Company had not drawn on its 2023 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 September 2023, the Company terminated its $0.5 billion revolving credit loan (the "Club 364-Day Credit Agreement") dated September 2022, as amended.

There were no outstanding borrowings under the Club 364-Day Credit Agreement upon termination and as of December 31, 2022.

In addition, the Company has other short-term lines of credit that are primarily uncommitted, with numerous banks, aggregating $252 million, of which approximately $155 million was available at December 30, 2023.

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.

Approximately $97 million of the short-term credit lines were 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.

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The weighted-average interest rates on U.S.

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%.

dollar denominated short-term borrowings for the years ended December 30, 2023 and December 31, 2022 were 5.1% and 2.3%, respectively.

The weighted-average interest rate on Euro denominated short-term borrowings for the year ended December 30, 2023 was 3.5%.

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:

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

In February 2023, the Company entered into an amendment to its 5-Year 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.

The amended provisions described above also apply to the 2023 Syndicated 364-Day Credit Agreement.

In March 2023, the Company issued $350.0 million of senior unsecured term notes maturing March 6, 2026 ("2026 Term Notes") and $400.0 million of senior unsecured term notes maturing March 6, 2028 (“2028 Term Notes”).

The 2026 Term Notes accrue interest at a fixed rate of 6.272% per annum and the 2028 Term Notes at a fixed rate of 6.0% per annum, with interest payable semi-annually in arrears, and both notes 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 $745.3 million, net of $4.7 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 program.

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 2025 Term Notes 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.

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

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

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supplier it may be possible to change to a European supplier.

Management estimates the combined translational and transactional impact, on pre-tax earnings, of a 10% overall movement in exchange rates is approximately $244 million, or approximately $1.23 per diluted share.

In 2022, translational and transactional foreign currency fluctuations negatively impacted pre-tax earnings from continuing operations by approximately $144 million, or approximately $0.73 per diluted share.

Management estimates the combined translational and transactional impact, on pre-tax earnings, of a 10% overall movement in exchange rates is approximately $217 million.

In 2023, translational and transactional foreign currency fluctuations negatively impacted pre-tax earnings from continuing operations by approximately $89 million.

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.

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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.

In 2023, investment gains resulted in an increase of $144 million to pension plan assets.

In 2022 and 2021, investment returns on

pension plan assets resulted in a decrease of $560 million and an increase $81 million, respectively.

The funded status percentage (total plan assets divided by total projected benefit obligation) of all global pension plans was 87% in 2023, 2022 and 2021.

The Company expects funding obligations on its defined benefit plans to be approximately $35 million in 2024.

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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

Employee Stock Ownership Plan ("ESOP") — As detailed in Note L, Employee Benefit Plans , the Company has an ESOP under which the ongoing U.S.

Core and 401(k) defined contribution plans have been funded.

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 $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.

CRITICAL ACCOUNTING ESTIMATES — Preparation of the Company’s Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses.

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In accordance with Accounting Standards Codification ("ASC") 350-20, Goodwill , acquired goodwill and indefinite-lived intangible assets are not amortized but are subject to impairment testing at least annually or when an event occurs or circumstances change that indicate it is more likely than not an impairment exists.

Definite-lived intangible assets are amortized and are tested for impairment when an event occurs or circumstances change that indicate it is more likely than not that an impairment exists.

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

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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 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 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.

The discount rate was increased by 100 basis points with no impairment indicated.

The perpetual growth rate was decreased by 150 basis points with no impairment indicated.

For its annual impairment testing performed in the third quarter of 2023, 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 was in excess of its carrying amount.

As previously disclosed in the Company’s Form 10-Q for the third quarter of 2023, the fair value of the Engineered Fastening reporting unit exceeded its carrying amount by 16%.

In connection with the preparation of the Consolidated Financial Statements for the year ended December 30, 2023, the Company performed an updated impairment analysis with respect to the Engineered Fastening reporting unit, which included approximately $2.020 billion of goodwill at year-end.

The key assumptions applied to the updated cash flow projections for the Engineered Fastening reporting unit included a 10.0% discount rate, near-term revenue growth rates over the next six years, which represented a compound annual growth rate of approximately 5%, and a 3% perpetual growth rate.

Based on this analysis, it was determined that the fair value of the Engineering Fastening reporting unit exceeded its carrying amount by 22%.

The increase in excess fair value is reflective of a slightly more favorable long-term outlook based on 2023 results and a lower carrying value driven by working capital reductions.

Management remains confident in the long-term viability and success of the Engineered Fastening reporting unit,

particularly given its market position, growth prospects, such as automotive electrification and the aerospace market recovery, and geographies served.

As previously discussed, in December 2023, the Company entered into an agreement to sell its Infrastructure business.

As a result, the Company performed an impairment analysis with respect to the Infrastructure reporting unit and recognized a $150.8 million pre-tax asset impairment charge to adjust the carrying amount of the long-lived asset group to its estimated fair value less selling costs.

Refer to Note T, Divestitures , for further discussion.

The Company also tested its indefinite-lived trade names for impairment during the third quarter of 2023 utilizing a discounted cash flow model.

The key assumptions used included discount rates, royalty rates, and perpetual growth rates applied to the projected sales.

The Company determined that the fair values of its indefinite-lived trade names exceeded their respective carrying amounts.

With the exception of the Irwin and Troy-Bilt trade names discussed below, the Company determined that the fair values of its indefinite-lived trade names exceeded their respective carrying amounts.

During the third quarter of 2023, as a result of new leadership within the Tools & Outdoor segment, the Company reviewed its brand portfolio resulting in a decision to shift prioritization and investment to its major brands, while leveraging certain of its specialty brands in a more focused manner.

As a result of this shift in brand prioritization, the Company recognized a $124.0 million pre-tax, non-cash impairment charge related to the Irwin and Troy-Bilt trade names in the third quarter of 2023.

Subsequent to this impairment charge, the carrying value of the Irwin and Troy-Bilt trade names totaled $113.0 million.

The Company intends to continue utilizing these trade names, which accounted for less than 5% of 2023 net sales for the Tools & Outdoor segment, indefinitely in more focused product categories and end markets.

In the event that future operating results of any of the Company's reporting units or indefinite-lived trade names do not meet current expectations, management, based upon conditions at the time, would consider taking restructuring or other strategic actions, as necessary, to maximize revenue growth and profitability.

A thorough analysis of all the facts and circumstances existi ng at that time would need to be performed to determine if recording an impairment loss would be appropriate.

DEFINED BENEFIT OBLIGATIONS — The valuation of pension and other postretirement benefits costs and obligations is dependent on various assumptions.

DEFINED BENEFIT OBLIGATIONS — T he valuation of pension and other postretirement benefits costs and obligations is dependent on various assumptions.

These assumptions, which are updated annually, include discount rates, expected return on plan assets, future salary increase rates, and health care cost trend rates.

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The Company’s weighted-average discount rates used to determine benefit obligations at December 30, 2023 for the United States and international pension plans were 5.04% and 4.43%, 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.

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.

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 6.70% and 5.29%, respecti vely, at December 30, 2023.

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 2023 net periodic benefit cost by approximatel y $4 million on a pre-tax basis.

The Company will us e a 5.99% we ighted-average expected rate of return assumption to determine t he 2024 n et periodic benefit cost.

A 25 basis point reduction in the expected rate of return assumption would increase 2024 net periodic benefit cost by approximately $4 million on a pre-tax basis.

The Company believes that the assumptions used are appropriate;

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The Company recognized approximately $29 million of defined benefit plan expense in 2023, which may fluctuate in future years depending upon various factors including future discount rates and actual returns on plan assets.

Additional information regarding the Company's pension plans is available in Note L, Employee Benefit Plans.

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.

The Company’s policy is to accrue environmental investigatory and remediation costs for identified sites when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated.

The Company’s policy is to accrue environmental investigatory and remediation costs for identified sites when it is probable that a liability has been incurred and

the amount of loss can be reasonably estimated.

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 December 30, 2023, the Company had reserves of $125 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.

As of December 30, 2023, the range of environmental remediation costs that is reasonably possible is $80 million to $227 million which is subject to change in the near term.

The Company may be liable for environmental remediation of sites it no longer owns.

Liabilities have been recorded on those sites in accordance with this policy.

Additional information regarding environmental matters is available in Note S, Contingencies.

INCOME TAXES — The Company accounts for income taxes under the asset and liability method in accordance with ASC 740, Income Taxes , which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements.

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In making this determination, management considers all available positive and negative evidence, including future reversals of existing temporary differences, estimates of future taxable income, tax-planning strategies, and the realizability of net operating loss carryforwards.

In the event that it is determined that an asset is not more likely that not to be realized, a valuation allowance is recorded against the asset.

In the event that it is determined that an asset is not more likely than not to be realized, a valuation allowance is recorded against the asset.

Valuation allowances related to deferred tax assets can be impacted by changes to tax laws, changes to statutory tax rates and future taxable income levels.

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The Company maintains an accounting policy of recording interest and penalties on uncertain tax positions as a component of Income taxes in the Consolidated Statements of Operations.

The Company is subject to income tax in a number of locations, including many state and foreign jurisdictions.

The Company is subject to income tax in a number of locations, including U.S.

federal, state and foreign jurisdictions.

Significant judgment is required when calculating the worldwide provision for income taxes.

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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, 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;

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any statements regarding future economic conditions or performance;

any statements relating to initiatives concerning environmental, social and governance ("ESG") matters, including environmental sustainability and diversity, equity and inclusion;

any statements of belief;

and any statements of assumptions underlying any of the foregoing.

Forward-looking statements may include, among others, the words “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect,” “anticipate” or any other similar words.

Forward-looking statements may include, among others, the words “may,” “will,” “estimate,” “intend,” “could,” “project,” “plan,” “continue,” “believe,” “expect,” “anticipate,” “run-rate,” “annualized,” “forecast,” “commit,” “goal,” “target,” “design,” “on-track,” “position or positioning,” “guidance” or any other similar words.

Although the Company believes that the expectations reflected in any of its forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of its forward-looking statements.

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(i) successfully developing, marketing and achieving sales from new products and services and the continued acceptance of current products and services;

(ii) macroeconomic factors, including global and regional business conditions (such as Brexit), commodity prices, inflation and deflation, and currency exchange rates;

(ii) macroeconomic factors, including global and regional business conditions, commodity prices, inflation and deflation, interest rate volatility, currency exchange rates, and uncertainties in the global financial markets related to the recent failures of several financial institutions;

(iii) laws, regulations and governmental policies affecting the Company's activities in the countries where it does business, including those related to tariffs, taxation, data privacy, anti-bribery, anti-corruption, government contracts and trade controls such as section 301 tariffs and section 232 steel and aluminum tariffs;

(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, including the divestitures of the Security and Oil & Gas businesses;

(iv) the economic, political, cultural and legal environment in Europe and the emerging markets in which the Company generates sales, particularly Latin America and China;

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

(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 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;

(viii) the impact that the tightened credit markets may have on the Company or its customers or suppliers;

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

(x) the Company's ability to identify and effectively execute productivity improvements and cost reductions;

(xi) potential business and distribution disruptions, including those related to physical security threats, information technology or cyber-attacks, epidemics, pandemics, sanctions, political unrest, war, terrorism or natural disasters;

(xi) potential business, supply chain and distribution disruptions, including those related to physical security threats, information technology or cyber-attacks, epidemics, natural disasters, pandemics, sanctions, political unrest, war or terrorism, including the conflicts between Russia and Ukraine, and Israel and Hamas and tensions or conflicts in South Korea, China and Taiwan;

(xii) the continued consolidation of customers, particularly in consumer channels, and the Company’s continued reliance on significant customers;

(xiii) managing franchisee relationships;

(xiv) the impact of poor weather conditions and climate change;

(xv) maintaining or improving production rates in the Company's manufacturing facilities, responding to significant changes in customer preferences, product demand and fulfilling demand for new and existing products, and learning, adapting and integrating new technologies into products, services and processes;

(xvi) changes in the competitive landscape in the Company's markets;

(xvii) the Company's non-U.S.

(xiv) the impact of poor weather conditions and climate change and risks related to the transition to a lower-carbon economy, such as the Company’s ability to successfully adopt new technology, meet market-driven demands for carbon neutral and renewable energy technology, or to comply with more stringent and increasingly complex environmental regulations or requirements for its manufacturing facilities and business operations;

(xv) failure to meet ESG expectations or standards, or achieve its ESG goals;

(xvi) maintaining or improving production rates in the Company's manufacturing facilities, responding to significant changes in customer preferences, product demand and fulfilling demand for new and existing products, and learning, adapting and integrating new technologies into products, services and processes;

(xvii) changes in the competitive landscape in the Company's markets;

(xviii) the Company's non-U.S.

operations, including sales to non-U.S.

(xviii) the impact from demand changes within world-wide markets associated with homebuilding and remodeling;

(xix) potential adverse developments in new or pending litigation and/or government investigations;

(xx) the incurrence of debt and changes in the Company's ability to obtain debt on commercially reasonable terms and at competitive rates;

(xxi) substantial pension and other postretirement benefit obligations;

(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, labor shortages, work stoppages or other labor disruptions;

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

(xxv) changes in accounting estimates;

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

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

(xix) the impact from demand changes within world-wide markets associated with homebuilding and remodeling;

(xx) potential adverse developments in new or pending litigation and/or government investigations;

(xxi) the incurrence of debt and changes in the Company's ability to obtain debt on commercially reasonable terms and at competitive rates;

(xxii) substantial pension and other postretirement benefit obligations;

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

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

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

(xxvi) changes in accounting estimates;

(xxvii) the Company’s ability to protect its intellectual property rights and to maintain its public reputation and the strength of its brands;

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;

streamlining and simplifying the organization, and investing in initiatives that more directly impact the Company's customers and end users;

returning adjusted

gross margins to historical 35%+ levels by accelerating the supply chain transformation to leverage strategic sourcing, drive operational excellence, consolidate facilities, optimize the distribution network and reduce complexity of the product portfolio;

improving fill rates and matching inventory with customer demand;

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.

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

and reducing complexity through platforming products and implementing initiatives to drive a SKU reduction.

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.

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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.

Any standards of measurement and performance made in reference to the Company's ESG and other sustainability plans and goals are developing and based on assumptions that continue to evolve, and no assurance can be given that any such plan, initiative, projection, goal, commitment, expectation, or prospect can or will be achieved.

The inclusion of information related to ESG goals and initiatives is not an indication that such information is material under the standards of the Securities and Exchange Commission.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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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