STANLEY BLACK & DECKER, INC. – 10-K/A OF OPERATIONS


Restatement

As discussed in the Explanatory Note to this Annual Report on Form 10-K/A and
Note A, Significant Accounting Policies - Restatement, the Company is restating
its consolidated financial statements and related financial information for the
years ended January 2, 2021, December 28, 2019 and December 29, 2018. The
Restatement relates to the correction of basic and diluted earnings per share,
as applicable, and the classification of certain amounts in the consolidated
balance sheets, statements of cash flows and statements of changes in
shareowners' equity. The corrections have no impact on the Company's net
earnings, total assets, cash flows from operations or business segment
information. Furthermore, any forward-looking statements herein are as of the
Original Form 10-K filed with the SEC on February 18, 2021. Refer to Note A,
Significant Accounting Policies - Restatement, which accompany the financial
statements in Item 8 of this Annual Report on Form 10-K/A, for further
discussion regarding the restatement impacts. In addition, for further
information regarding the matters leading to the restatement and related
findings with respect to the Company's internal control over financial
reporting, refer to Item 9A. Controls and Procedures in Part II of this Annual
Report on Form 10-K/A.
The financial and business analysis below provides information which the Company
believes is relevant to an assessment and understanding of its consolidated
financial position, results of operations and cash flows. This financial and
business analysis should be read in conjunction with the Consolidated Financial
Statements and related notes. All references to "Notes" in this Item 7 refer to
the Notes to Consolidated Financial Statements included in Item 8 of this Annual
Report.
The following discussion and certain other sections of this Annual Report on
Form 10-K/A contain statements reflecting the Company's views about its future
performance that constitute "forward-looking statements" under the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are
based on current expectations, estimates, forecasts and projections about the
industry and markets in which the Company operates as well as management's
beliefs and assumptions. Any statements contained herein (including without
limitation statements to the effect that Stanley Black & Decker, Inc. or its
management "believes," "expects," "anticipates," "plans" and similar
expressions) that are not statements of historical fact should be considered
forward-looking statements. These statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions that are
difficult to predict. There are a number of important factors that could cause
actual results to differ materially from those indicated by such forward-looking
statements. These factors include, without limitation, those set forth, or
incorporated by reference, below under the heading "Cautionary Statements Under
The Private Securities Litigation Reform Act Of 1995." The Company does not
intend to update publicly any forward-looking statements whether as a result of
new information, future events or otherwise.
                              Strategic Objectives
The Company continues to pursue a growth and acquisition strategy, which
involves industry, geographic and customer diversification to foster sustainable
revenue, earnings and cash flow growth, and employ the following strategic
framework in pursuit of its vision to deliver top-quartile financial
performance, become known as one of the world's leading innovators and elevate
its commitment to social responsibility:
•Continue organic growth momentum by leveraging the SBD Operating Model to drive
innovation and commercial excellence, while diversifying toward higher-growth,
higher-margin businesses;
•Be selective and operate in markets where brand is meaningful, the value
proposition is definable and sustainable through innovation, and global cost
leadership is achievable; and
•Pursue acquisitive growth on multiple fronts by building upon its existing
global tools platform, expanding the Industrial platform in Engineered Fastening
and Infrastructure, consolidating the commercial electronic security industry,
and pursuing adjacencies with sound industrial logic.
Execution of the above strategy has resulted in approximately $11.5 billion of
acquisitions since 2002 (excluding the Black & Decker merger), a 20 percent
investment in MTD Holdings Inc. ("MTD"), several divestitures, improved
efficiency in the supply chain and manufacturing operations, and enhanced
investments in organic growth, enabled by cash flow generation and increased
debt capacity. In addition, the Company's continued focus on diversification and
organic growth has resulted in improved financial results and an increase in its
global presence. The Company also remains focused on leveraging its SBD
Operating Model to deliver success in the 2020s and beyond. The 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
                                       30
--------------------------------------------------------------------------------

skillsets, incorporates technology advances in all areas, maintains operational
excellence, drives efficiency in business processes and resiliency into its
culture, delivers extreme innovation and ensures the customer experience is
world class. The operating model underpins the Company's ability to deliver
above-market organic growth with margin expansion, maintain efficient levels of
selling, general and administrative expenses ("SG&A") and deliver top-quartile
asset efficiency.
The Company's long-term financial objectives remain as follows:
•4-6% organic revenue growth;
•10-12% total revenue growth;
•10-12% total EPS growth (7-9% organically) excluding acquisition-related
charges;
•Free cash flow equal to, or exceeding, net income;
•Sustain 10+ working capital turns; and
•Cash Flow Return On Investment ("CFROI") between 12-15%.
In terms of capital allocation, the Company remains committed, over time, to
returning approximately 50% of free cash flow to shareholders through a strong
and growing dividend as well as opportunistically repurchasing shares. The
remaining free cash flow (approximately 50%) will be deployed towards
acquisitions.
COVID-19 Pandemic

The novel coronavirus (COVID-19) outbreak has adversely affected the Company's
workforce and operations, as well as the operations of its customers,
distributors, suppliers and contractors. The COVID-19 pandemic has also resulted
in significant volatility and uncertainty in the markets in which the Company
operates. To successfully navigate through this unprecedented period, the
Company has remained focused on the following key priorities:

•Ensuring the health and safety of its employees and supply chain partners;
•Maintaining business continuity and financial strength and stability;
•Serving its customers as they provide essential products and services to the
world; and
•Doing its part to mitigate the impact of the virus across the globe.

To respond to the volatile and uncertain environment, the Company implemented a
comprehensive cost reduction and efficiency program, which delivered
approximately $500 million of savings in 2020 and is expected to deliver net
savings of approximately $125 million in 2021. Cost actions executed under the
program included headcount reductions, furloughs, reduced employee work
schedules, a voluntary retirement program, and footprint rationalizations. The
Company has taken steps to make some of the cost actions permanent while certain
employees were returned to full-time status. This ensures the sustainability of
the cost reduction program into 2021 while providing more employment stability
for the Company's remaining associates.

The program's primary focus was to: (a) adjust the Company's supply chain and
manufacturing labor base to match the demand environment; (b) substantially
reduce indirect spending; (c) reduce staffing, compensation and benefits in a
manner that ensured the Company was prepared to respond to changes in demand;
and (d) capture the significant raw material deflation opportunity from 2020. In
addition, the Company reduced capital expenditures in 2020.

As a result of these actions, the Company continues to believe it is in a strong
financial position and has significant flexibility to continue navigating this
dynamic period. However, the overall impact of the COVID-19 pandemic on the
Company's business, results of operations, or liquidity remains uncertain. Refer
to Financial Condition below and Item 1A. Risk Factors in Part I of this Form
10-K/A for further discussion.

Share Repurchases

In April 2018, the Company repurchased 1,399,732 shares of common stock for
approximately $200 million. In July 2018, the Company repurchased 2,086,792
shares of common stock for approximately $300 million.


Acquisitions and Investments
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
diversifies the Company's presence in the industrial markets and expands its
portfolio of specialty fasteners in the aerospace and defense markets.
                                       31
--------------------------------------------------------------------------------

On March 8, 2019, the Company acquired the International Equipment Solutions
Attachments businesses, Paladin and Pengo, ("IES Attachments"), manufacturers of
high quality, performance-driven heavy equipment attachment tools for
off-highway applications. The acquisition further diversified the Company's
presence in the industrial markets, expanded its portfolio of attachment
solutions and provided a meaningful platform for growth.
On January 2, 2019, the Company acquired a 20 percent interest in MTD, a
privately held global manufacturer of outdoor power equipment. MTD manufactures
and distributes gas-powered lawn tractors, zero turn mowers, walk behind mowers,
snow throwers, trimmers, chain saws, utility vehicles and other outdoor power
equipment. Under the terms of the agreement, the Company has the option to
acquire the remaining 80 percent of MTD beginning on July 1, 2021 and ending on
January 2, 2029. In the event the option is exercised, the companies have agreed
to a valuation multiple based on MTD's 2018 Earnings Before Interest, Taxes,
Depreciation and Amortization ("EBITDA"), with an equitable sharing arrangement
for future EBITDA growth. The investment in MTD increases the Company's presence
in the greater than $20 billion lawn and garden segment and enables the two
companies to work together to pursue revenue and cost opportunities, improve
operational efficiency, and introduce new and innovative products for
professional and residential outdoor equipment customers, utilizing each
company's respective portfolios of strong brands.
On April 2, 2018, the Company acquired Nelson Fastener Systems ("Nelson"), which
excluded Nelson's automotive stud welding business. This acquisition, which has
been integrated into the Engineered Fastening business, was complementary to the
Company's product offerings, enhanced its presence in the general industrial end
markets, and expanded its portfolio of highly-engineered fastening solutions.
On March 9, 2017, the Company acquired the Tools business of Newell Brands
("Newell Tools") which included the highly attractive industrial cutting, hand
tool and power tool accessory brands IRWIN® and LENOX®. The acquisition enhanced
the Company's position within the global tools & storage industry and broadened
the Company's product offerings and solutions to customers and end users,
particularly within power tool accessories.
On March 8, 2017, the Company purchased the Craftsman® brand from Sears Holdings
Corporation ("Sears Holdings"). The acquisition provided the Company with the
rights to develop, manufacture and sell Craftsman®-branded products in non-Sears
Holdings channels. The acquisition significantly increased the availability of
Craftsman®-branded products to consumers in previously underpenetrated channels,
enhanced innovation, and added manufacturing jobs in the U.S. to support growth.

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

Divestitures

On May 30, 2019, the Company sold its Sargent and Greenleaf mechanical locks
business within the Security segment. On February 22, 2017, the Company sold the
majority of its mechanical security businesses, which included the commercial
hardware brands of Best Access, phi Precision and GMT. These divestitures allow
the Company to invest in other areas of the Company that fit into its long-term
growth strategy.
The Company has also divested several smaller businesses in recent years that
did not fit into its long-term strategic objectives.

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

Certain Items Impacting Earnings


Throughout MD&A, the Company has provided a discussion of the results both
inclusive and exclusive of acquisition-related and other charges. The results
and measures, including gross profit and segment profit, on a basis excluding
these amounts are considered relevant to aid analysis and understanding of the
Company's results aside from the material impact of these items. These amounts
are as follows:

2020

The Company reported $400 million in pre-tax charges during 2020, which were
comprised of the following:


•$71 million reducing Gross Profit pertaining to inventory step-up charges, a
cost reduction program and facility-related costs;
•$176 million in SG&A primarily for a cost reduction program, Security business
transformation and margin resiliency initiatives;
                                       32
--------------------------------------------------------------------------------

•$9 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;
•$14 million net loss related to the sales of businesses;
•$83 million in Restructuring charges pertaining to severance and facility
closures; and
•$47 million related to a loss on the extinguishment of debt.
The tax effect on the above net charges was approximately $92 million. The
Company also recorded a one-time tax benefit of $119 million associated with a
supply chain reorganization. In addition, the Company's share of MTD's net
earnings included an after-tax charge of approximately $10 million related
primarily to restructuring charges. The amounts above resulted in net after-tax
charges of $199 million, or $1.22 per diluted share.

2019

The Company reported $363 million in pre-tax charges during 2019, which were
comprised of the following:


•$40 million reducing Gross Profit pertaining to facility-related and inventory
step-up charges;
•$139 million in SG&A primarily for integration-related costs, Security business
transformation and margin resiliency initiatives;
•$30 million in Other, net primarily related to deal transaction costs;
•$17 million gain related to the sale of the Sargent & Greenleaf business;
•$153 million in Restructuring charges pertaining to severance and facility
closures associated with a cost reduction program; and
•$18 million related to a non-cash loss on the extinguishment of debt.

The tax effect on the above net charges was approximately $78 million. In
addition, the Company's share of MTD's net earnings included an after-tax charge
of approximately $24 million primarily related to an inventory step-up
adjustment. The amounts above resulted in net after-tax charges of $309 million,
or $1.98 per diluted share.

2018

The Company reported $450 million in pre-tax charges during 2018, which were
comprised of the following:


•$66 million reducing Gross Profit primarily pertaining to inventory step-up
charges for the Nelson acquisition and an incremental freight charge due to
nonperformance by a third-party service provider;
•$158 million in SG&A primarily for integration-related costs, consulting fees,
and a non-cash fair value adjustment;
•$108 million in Other, net primarily related to deal transaction costs and a
settlement with the Environmental Protection Agency ("EPA");
•$1 million related to a previously divested business; and
•$117 million in Restructuring charges which primarily related to a cost
reduction program.

The Company also recorded a net tax charge of $181 million, which was comprised
of charges related to the Tax Cuts and Jobs Act ("the Act") partially offset by
the tax benefit of the above pre-tax charges. The above amounts resulted in net
after-tax charges of $631 million, or $4.03 per diluted share.

Driving Further Profitable Growth by Fully Leveraging Our 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 & Storage business is the tool company to own, with strong brands,
proven innovation, global scale, and a broad offering of power tools, hand
tools, accessories, and storage & digital products across many channels in both
developed and developing markets.
•The Engineered Fastening business is a highly profitable, GDP+ growth business
offering highly engineered, value-added innovative solutions with recurring
revenue attributes and global scale.
•The Security business, with its attractive recurring revenue, presents a
significant margin accretion opportunity over the longer term and has
historically provided a stable revenue stream through economic cycles, is a
gateway into the
                                       33
--------------------------------------------------------------------------------

digital world and an avenue to capitalize on rapid market or societal changes.
Security has embarked on a business transformation which will apply technology
to lower its cost to serve and create new commercial offerings for its small to
medium enterprise and large key account customers.
While diversifying the business portfolio through strategic acquisitions remains
important, management recognizes that the core franchises described above are
important foundations that continue to provide strong cash flow and growth
prospects. Management is committed to growing these businesses through
innovative product development, brand support, continued investment in emerging
markets and a sharp focus on global cost competitiveness.
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®, AeroScout®,
Powers®, LISTA®, Vidmar®, SONITROL®, and GQ®. Among the Company's most valuable
assets, STANLEY®, BLACK+DECKER® and DEWALT® are recognized as three of the
world's great brands, while CRAFTSMAN® is recognized as a premier American
brand.
The Company's initial strategic marketing plan for 2020 was to put brand
awareness into overdrive through continued sponsorships and a live presence at
nearly 500 tried-and-true sporting events, including NASCAR and NHRA racing,
Major League Baseball ("MLB") and global soccer with English Premier League
("EPL") and FC Barcelona ("FCB"). In March 2020, COVID-19 brought a halt to live
sporting events worldwide and with the stands virtually empty, the Company
revised its strategic marketing plan in order to bring a virtual brand
experience to life.
Through the power of Zoom, the Company provided fans a new kind of venue by
hosting virtual VIP and customer engagement events. The Company brought the
owners, the players, the drivers and the influencers together online to engage
audiences and reinforce its name brands, including CRAFTSMAN®, DEWALT® and
STANLEY®.

In late spring and summer 2020, when sponsorship events like NASCAR, MLB, EPL
and FCB resumed with millions of fans tuning in from the comfort of home, the
Company's brands were there with strong visibility thanks to prime stadium
signage placement and car wraps that put CRAFTSMAN®, DEWALT®, BLACK+DECKER®,
IRWIN®, MAC TOOLS® and STANLEY® front, center and in the lead.
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. The Company will continue allocating its brand and advertising
spend wisely to capture the emerging digital landscape, while continuing to
evolve proven marketing programs to deliver famous global brands that are deeply
committed to societal improvement, along with transformative technologies to
build relevant and meaningful 1:1 customer, consumer, employee and shareholder
relationships in support of the Company's long-term vision.
The SBD Operating Model: Winning in the 2020s
Over the past 15 years, the Company has successfully leveraged its proven and
continually evolving operating model to focus the organization to sustain
top-quartile performance, resulting in asset efficiency, above-market organic
growth and expanding operating margins. 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. Entering into 2020 and recognizing the changing
dynamics of the world in which the Company operates, including the acceleration
of technological change, geopolitical instability and the changing nature of
work, the Company launched the SBD Operating Model: Winning in the 2020s.

At the center of the model is the concept of the interrelationship between
people and technology. The remaining four categories are: Performance
Resiliency; Extreme Innovation; Operations Excellence and Extraordinary Customer
Experience. Each of these elements co-exists synergistically with the others in
a systems-based approach.

People and Technology
This pillar emphasizes the Company's belief that the right combination of
digitally proficient people applying technology such as artificial intelligence,
machine learning, advanced analytics, Internet of Things and others in focused
ways can be an enormous source of value creation and sustainability for the
Company. It also brings to light the changing nature of work and the talent and
skillsets required for individuals and institutions to thrive in the future.
With technology infiltrating the workplace
                                       34
--------------------------------------------------------------------------------

at an increasingly rapid pace, the Company believes that the winners in the
2020s will invest heavily in reskilling, upskilling and lifelong learning with
an emphasis on the places where people and technology intersect. In other words,
technology can make humans more powerful and productive if, and only if, humans
know how to apply the technology to maximum advantage. The Company has created
plans and programs, as well as a new leadership model to ensure people have the
right skills, tools and mindsets to thrive in this era. The ability for
employees to embrace technology, learn and relearn new skills and take advantage
of the opportunities presented in this new world will be critical to the
Company's success.

Performance Resiliency
The Company views performance resiliency as the agility, flexibility and
adaptability to sustain strong performance regardless of the operating
environment conditions, which requires planning for the unexpected and
anticipating exogenous volatility as the new normal. Technology, applied to key
business processes, products and business models, will be a key enabler for
value creation and performance resiliency as the Company executes sustainable,
ongoing transformation across the enterprise.

Extreme Innovation
The Company has a historically strong foundation in innovation, launching more
than 1,000 products a year, including breakthroughs such as DEWALT Flexvolt,
Atomic and Xtreme. In recent years, the Company has expanded its
innovation-focused internal teams and external partnerships, but now it is
growing that innovation ecosystem at a rapid pace, expanding the number of
external collaborations with start-ups and entrepreneurs, academic institutions,
research labs and others. This innovation culture, which includes a focus on
social impact in addition to the Company's traditional product and customer
focus, enables the Company to introduce products to market faster and reimagine
how to operate in today's technology-enabled, fast-paced world.

Operations Excellence
An intense focus on operations excellence and asset efficiency is mandatory in a
dynamic world in which the bar for competitiveness is always moving higher. To
help maintain the Company's edge, a much more agile, adaptable and
technology-enabled supply chain is necessary to manufacture closer to its
customers. This "Make Where We Sell" strategy will improve customer
responsiveness, lower lead times, reduce costs and mitigate geopolitical and
currency risk while facilitating major improvements in carbon footprint.

Extraordinary Customer Experience
Customers are increasingly demanding world-class experiences from their brands
and expectations for execution at the customer level are growing every day. It
is no longer sufficient to have great products on the shelf or in the catalog.
The Company knows that to sustain market share growth, it needs to evolve and
adapt to provide the types of experiences that customers now expect. Each of the
Company's businesses evaluates and works to systematically improve its various
customer experiences and acts on customer insights to continuously improve to
the extraordinary level. As previously noted, the interaction between people and
technology will define success in this area.

Leveraging the SBD Operating Model, the Company is building a culture in which
it strives to become known as one of the world's great innovative companies by
embracing the current environment of rapid innovation and digital
transformation. The Company continues to build a vast innovation focused
ecosystem to pursue faster innovation and to remain aware of and open to new
technologies and advances by leveraging both internal initiatives and external
partnerships. The innovation ecosystem used in concert with the SBD Operating
Model is anticipated to allow the Company to apply innovation to its core
processes in manufacturing and back office functions to reduce operating costs
and inefficiencies, develop core and breakthrough product innovations within
each of its businesses, and pursue disruptive business models to either push
into new markets or change existing business models before competition or new
market entrants capture the opportunity. The Company continues to make progress
towards this vision, as evidenced by the creation of Innovation Everywhere, a
program that encourages and empowers all employees to implement value creation
and cost savings using collaborative and innovative solutions, breakthrough
innovation teams in each business, the Stanley Ventures group, which invests
capital in new and emerging start-ups in core focus areas, the Techstars
partnership, which selects start-ups from around the world with the goal of
bringing breakthrough technologies to market, the Manufactory 4.0, which is the
Company's epicenter for Industry 4.0 technology development and partnership, and
STANLEY X, a Silicon Valley based team, which is building its own set of
disruptive initiatives and exploring new business models.

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

                                       35
--------------------------------------------------------------------------------

The Company believes that the SBD Operating Model will serve as a powerful value
driver in the years ahead, ensuring the Company is positioned to win in the
2020s by developing and obtaining the right people and technology to deliver
performance resiliency, extreme innovation, operations excellence and an
extraordinary customer experience. The operating model, in concert with the
Company's innovation ecosystem, will enable the Company to change as rapidly as
the external environment which directly supports achievement of the Company's
long-term financial objectives, including its vision, and further enables its
shareholder-friendly capital allocation approach, which has served the Company
well in the past and will continue to do so in the future.

                                       36
--------------------------------------------------------------------------------

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

Terminology: The term "organic" is utilized to describe results aside from the
impacts of foreign currency fluctuations, acquisitions during their initial
12 months of ownership, and divestitures. This ensures appropriate comparability
to operating results of prior periods.

Net Sales: Net sales were $14.535 billion in 2020 compared to $14.442 billion in
2019, representing an increase of 1% driven by a 2% increase from acquisitions,
primarily CAM, and a 1% increase in price, partially offset by pandemic-related
volume decreases of 2%. Organic growth of 10% in the second half of 2020 and
acquisitions more than offset first half pandemic related market impacts. Tools
& Storage net sales increased 3% compared to 2019 due to 2% increases in both
volume and price, partially offset by a decrease of 1% from foreign currency.
Industrial net sales decreased 3% compared to 2019 primarily due to volume
decreases of 15%, partially offset by acquisition growth of 12%. Security net
sales declined 5% compared to 2019 as 1% increases in both price and small
bolt-on commercial electronic security acquisitions were more than offset by a
5% decrease in volume and a 2% decrease from the sales of the Sargent &
Greenleaf business and the commercial electronic security businesses in five
countries in Europe and emerging markets.

Net sales were $14.442 billion in 2019 compared to $13.982 billion in 2018,
representing an increase of 3% driven by organic growth of 3%, including a 2%
increase in volume and 1% increase in price. Acquisitions, primarily IES
Attachments, increased sales by 2%, while the impact of foreign currency
decreased sales by 2%. Tools & Storage net sales increased 3% compared to 2018
due to increases in volume and price of 4% and 1%, respectively, partially
offset by a 2% decrease from foreign currency. Industrial net sales increased
11% compared to 2018 primarily due to acquisition growth of 16%, partially
offset by decreases of 3% from lower volumes and 2% from foreign currency.
Security net sales declined 2% compared to 2018 as 1% increases in both price
and small bolt-on commercial electronic security acquisitions were more than
offset by a 3% decrease due to foreign currency and a 1% decrease from the sale
of the Sargent & Greenleaf business.

Gross Profit: The Company reported gross profit of $4.968 billion, or 34.2% of
net sales, in 2020 compared to $4.806 billion, or 33.3% of net sales, in 2019.
Acquisition-related and other charges, which reduced gross profit, were $71.2
million in 2020 and $39.7 million in 2019. Excluding these charges, gross profit
was 34.7% of net sales in 2020 compared to 33.5% in 2019, driven by
productivity, margin resiliency initiatives and price realization.

The Company reported gross profit of $4.806 billion, or 33.3% of net sales, in
2019 compared to $4.851 billion, or 34.7% of net sales, in 2018.
Acquisition-related and other charges, which reduced gross profit, were $39.7
million in 2019 and $65.7 million in 2018. Excluding these charges, gross profit
was 33.5% of net sales in 2019, compared to 35.2% in 2018, as volume,
productivity and price were more than offset by tariffs, commodity inflation and
foreign exchange.

SG&A Expense: Selling, general and administrative expenses, inclusive of the
provision for credit losses ("SG&A"), were $3.090 billion, or 21.3% of net
sales, in 2020 compared to $3.041 billion, or 21.1% of net sales, in 2019.
Within SG&A, acquisition-related and other charges totaled $176.1 million in
2020 and $139.5 million in 2019. Excluding these charges, SG&A was 20.0% of net
sales in 2020 compared to 20.1% in 2019, primarily reflecting the benefits of
cost management programs implemented in response to the global pandemic,
partially offset by growth investments to pursue market recoveries and
opportunities across the businesses that have emerged during the pandemic.

SG&A expenses were $3.041 billion, or 21.1% of net sales, in 2019 compared to
$3.172 billion, or 22.7% of net sales, in 2018. Acquisition-related and other
charges totaled $139.5 million in 2019 and $157.8 million in 2018. Excluding
these charges, SG&A was 20.1% of net sales in 2019 compared to 21.6% in 2018,
primarily reflecting disciplined cost management and actions taken in response
to external headwinds.

Distribution center costs (i.e. warehousing and fulfillment facility and
associated labor costs) are classified within SG&A. This classification may
differ from other companies who may report such expenses within cost of sales.
Due to diversity in practice, to the extent the classification of these
distribution costs differs from other companies, the Company's gross margins may
not be comparable. Such distribution costs classified in SG&A amounted to $347.8
million in 2020, $326.7 million in 2019 and $316.0 million in 2018.

Corporate Overhead: The corporate overhead element of SG&A, which is not
allocated to the business segments, amounted to $297.7 million, or 2.0% of net
sales, in 2020, $229.5 million, or 1.6% of net sales, in 2019 and $202.8
million, or 1.5% of net sales, in 2018. Excluding acquisition-related charges of
$60.3 million in 2020, $23.4 million in 2019, and $12.7 million in
                                       37
--------------------------------------------------------------------------------

2018, the corporate overhead element of SG&A was 1.6% of net sales in 2020,
compared to 1.4% of net sales in 2019 and 2018. The increase in 2020 compared to
2019 and 2018 was primarily due to higher employee-related costs.


Other, net: Other, net totaled $262.8 million in 2020 compared to $249.1
million in 2019 and $287.0 million in 2018. Excluding acquisition-related and
other charges, Other, net totaled $253.8 million, $218.9 million, and $178.9
million in 2020, 2019, and 2018, respectively. The year-over-year increase in
2020 was driven by higher intangible asset amortization and negative impacts
from foreign currency. The year-over-year increase in 2019 was driven by higher
intangible asset amortization and a favorable resolution of a prior claim in
2018.

Loss (Gain) on Sales of Businesses: During 2020, the Company reported a $13.5
million net loss primarily relating to the sale of a product line within Oil &
Gas. During 2019, the Company reported a $17.0 million gain relating to the sale
of the Sargent and Greenleaf business. During 2018, the Company reported a $0.8
million loss relating to a previously divested business.

Loss on Debt Extinguishments: During the fourth quarter of 2020, the Company
extinguished $1.154 billion of its notes payable and recognized a $46.9 million
pre-tax loss primarily due to a make-whole premium payment. In 2019, the Company
extinguished $750 million of its notes payable and recognized a $17.9 million
pre-tax loss related to the write-off of deferred financing fees.

Interest, net: Net interest expense in 2020 was $205.1 million compared to
$230.4 million in 2019 and $209.2 million in 2018. The decrease in 2020 compared
to 2019 was primarily driven by lower U.S. interest rates and lower average
balances relating to the Company's commercial paper borrowings, partially offset
by lower interest income due to a decline in rates. The increase in net interest
expense in 2019 versus 2018 was primarily driven by interest on the senior
unsecured notes issued in November 2018 and lower interest income on deposits
due to a decline in rates.

Income Taxes: On March 27, 2020, the Coronavirus Aid, Relief and Economic
Security Act (the "CARES Act") was enacted. The CARES Act, among other things,
includes provisions relating to refundable payroll tax credits, deferment of
employer social security payments, net operating loss carryback periods,
alternative minimum tax credit refunds, modifications to the net interest
deduction limitations and technical corrections to tax depreciation methods for
qualified improvement property. The CARES Act did not have a material impact on
the Company's consolidated financial statements in 2020. The Company continues
to evaluate the potential impacts the CARES Act may have on its operations and
consolidated financial statements in future periods.

The Company's effective tax rate was 3.3% in 2020, 14.2% in 2019, and 40.7% in
2018. Excluding the one-time tax benefit of $118.8 million recorded in the
second quarter of 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 divestitures and acquisition-related and other charges
previously discussed, the effective tax rate in 2020 was 15.1%. 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 re-measurement
of uncertain tax position reserves, the tax benefit of equity compensation, and
tax benefits arising from an increase in deferred tax assets associated with the
Company's supply chain reorganization and partial realignment of the Company's
legal structure.

Excluding the impact of divestitures and acquisition-related and other charges
previously discussed, the effective tax rate in 2019 was 16.0%. This effective
tax rate differed from the U.S. statutory tax rate primarily due to a portion of
the Company's earnings being realized in lower-taxed foreign jurisdictions and
the favorable effective settlements of income tax audits.

The 2018 effective tax rate included net charges associated with the Act, which
primarily related to the re-measurement of existing deferred tax balances,
adjustments to the one-time transition tax, and the provision of deferred taxes
on unremitted foreign earnings and profits for which the Company no longer
asserted indefinite reinvestment. Excluding the impacts of the net charge
related to the Act as well as the acquisition-related and other charges
previously discussed, the effective tax rate in 2018 was 16.0%.  This effective
tax rate differed from the U.S. statutory tax rate primarily due to a portion of
the Company's earnings being realized in lower-taxed foreign jurisdictions and
the favorable effective settlements of income tax audits.


                                       38
--------------------------------------------------------------------------------

Business Segment Results
The Company's reportable segments are aggregations of businesses that have
similar products, services and end markets, among other factors. The Company
utilizes segment profit which is defined as net sales minus cost of sales and
SG&A inclusive of the provision for credit losses (aside from corporate overhead
expense), and segment profit as a percentage of net sales to assess the
profitability of each segment. Segment profit excludes the corporate overhead
expense element of SG&A, other, net (inclusive of intangible asset amortization
expense), gain or loss on sales of businesses, restructuring charges, loss on
debt extinguishments, interest income, interest expense, income taxes and share
of net earnings or losses of equity method investment. Corporate overhead is
comprised of world headquarters facility expense, cost for the executive
management team and expenses pertaining to certain centralized functions that
benefit the entire Company but are not directly attributable to the businesses,
such as legal and corporate finance functions. Refer to Note F, Goodwill and
Intangible Assets, and Note O, Restructuring Charges, for the amount of
intangible asset amortization expense and net restructuring charges,
respectively, attributable to each segment.

The Company classifies its business into three reportable segments, which also
represent its operating segments: Tools & Storage, Industrial and Security.
Tools & Storage:
The Tools & Storage segment is comprised of the Power Tools & Equipment ("PTE")
and Hand Tools, Accessories & Storage ("HTAS") businesses. The PTE business
includes both professional and consumer products. Professional products include
professional grade corded and cordless electric power tools and equipment
including drills, impact wrenches and drivers, grinders, saws, routers and
sanders, as well as pneumatic tools and fasteners including nail guns, nails,
staplers and staples, concrete and masonry anchors. Consumer products include
corded and cordless electric power tools sold primarily under the BLACK+DECKER®
brand, lawn and garden products, including hedge trimmers, string trimmers, lawn
mowers, edgers and related accessories, 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. Hand tools include
measuring, leveling and layout tools, planes, hammers, demolition tools, clamps,
vises, knives, saws, chisels and industrial and automotive tools. Power tool
accessories include drill bits, screwdriver bits, router bits, abrasives, saw
blades and threading products. Storage products include tool boxes, sawhorses,
medical cabinets and engineered storage solution products.
(Millions of Dollars)      2020           2019           2018
Net sales               $ 10,330$ 10,062$ 9,814
Segment profit          $  1,842$  1,533$ 1,393
% of Net sales              17.8  %        15.2  %       14.2  %


Tools & Storage net sales increased $267.6 million, or 3%, in 2020 compared to
2019 due to a 2% increase in both volume and price, partially offset by
unfavorable currency of 1%. The 4% organic growth was driven by a strong second
half organic performance of 18% from a consumer reconnection with the home and
garden and a shift to eCommerce that emerged from the pandemic and was
accelerated by a robust lineup of new and innovative products. Double digit
growth was realized across all regions in the second half of 2020. For the full
year, North America and Europe organic growth more than offset a decline in
emerging markets.
Segment profit amounted to $1.842 billion, or 17.8% of net sales, in 2020
compared to $1.533 billion, or 15.2% of net sales, in 2019. Excluding
acquisition-related and other charges of $46.4 million and $44.3 million in 2020
and 2019, respectively, segment profit amounted to 18.3% of net sales in 2020
compared to 15.7% in 2019, as volume, productivity, cost control and price were
partially offset by new growth investments, tariffs and currency.

Tools & Storage net sales increased $248.1 million, or 3%, in 2019 compared to
2018 due to a 4% increase in volume and 1% increase in price, partially offset
by unfavorable currency of 2%. The 5% organic growth was led by North America
and Europe, more than offsetting a decline in emerging markets. North America
organic growth was driven by the roll-out of the Craftsman brand and new product
innovation, such as DEWALT Flexvolt, Atomic and Xtreme, partially offset by
declines in Canada and industrial-focused businesses. Europe growth was
supported by new products and successful commercial actions. The organic decline
in emerging markets was driven by weak market conditions in Turkey, China and
certain countries in Latin America, which more than offset the benefits from
price, new product launches and e-commerce expansion.

Segment profit amounted to $1.533 billion, or 15.2% of net sales, in 2019
compared to $1.393 billion, or 14.2% of net sales, in 2018. Excluding
acquisition-related and other charges of $44.3 million and $142.6 million in
2019 and 2018, respectively, segment profit amounted to 15.7% of net sales in
2019 compared to 15.6% in 2018, as the benefits from volume leverage, actions
taken in response to external headwinds and price were partially offset by
tariffs, commodity inflation, and foreign exchange.
                                       39
--------------------------------------------------------------------------------

Industrial:

The Industrial segment is comprised of the Engineered Fastening and
Infrastructure businesses. The Engineered Fastening business primarily sells
highly engineered components such as fasteners, fittings and various engineered
products, which are designed for specific application across multiple verticals.
The product lines include externally threaded fasteners, blind rivets and tools,
blind inserts and tools, drawn arc weld studs and systems, engineered plastic
and mechanical fasteners, self-piercing riveting systems, precision nut running
systems, micro fasteners, high-strength structural fasteners, axel swage,
latches, heat shields, pins, and couplings. The Infrastructure business consists
of the Attachment Tools and Oil & Gas product lines. Attachment Tools sells
hydraulic tools and high quality, performance-driven heavy equipment attachment
tools for off-highway applications. Oil & Gas sells and rents custom pipe
handling, joint welding and coating equipment used in the construction of large
and small diameter pipelines and provides pipeline inspection services.
(Millions of Dollars)      2020          2019          2018
Net sales               $ 2,353$ 2,435$ 2,188
Segment profit          $   226$   334$   320
% of Net sales              9.6  %       13.7  %       14.6  %


Industrial net sales decreased $82.0 million, or 3%, in 2020 compared to 2019,
due to pandemic-related market declines in volume of 15%, partially offset by
acquisition growth of 12%. Engineered Fastening organic revenues decreased 15%
for the full year, due to the significant impacts from the pandemic to
automotive and general industrial production. Infrastructure organic revenues
were down 15% from lower volumes in Attachment Tools and a sharp decline in Oil
& Gas pipeline construction. The deepest segment organic revenue decline was the
second quarter and each quarter thereafter delivered stronger revenue as markets
recovered.

Segment profit totaled $225.6 million, or 9.6% of net sales, in 2020 compared to
$334.1 million, or 13.7% of net sales, in 2019. Excluding acquisition-related
and other charges of $67.1 million and $25.8 million in 2020 and 2019,
respectively, segment profit amounted to 12.4% of net sales in 2020 compared to
14.8% in 2019, as productivity gains and cost control were more than offset by
market driven volume declines.

Industrial net sales increased $246.9 million, or 11%, in 2019 compared to 2018,
due to acquisition growth of 16%, partially offset by declines of 3% in volume
and 2% from foreign currency. Engineered Fastening organic revenues decreased 3%
as fastener penetration gains were more than offset by inventory reductions and
lower production levels within industrial and automotive customers.
Infrastructure organic revenues were down 2%, as growth within Oil & Gas was
offset by declines in hydraulic tools from a difficult scrap steel market.

Segment profit totaled $334.1 million, or 13.7% of net sales, in 2019 compared
to $319.8 million, or 14.6% of net sales, in 2018. Excluding acquisition-related
and other charges of $25.8 million and $26.0 million in 2019 and 2018,
respectively, segment profit amounted to 14.8% of net sales in 2019 compared to
15.8% in 2018, as productivity gains and cost control were more than offset by
lower volume and externally driven cost inflation.

Security:

The Security segment is comprised of the Convergent Security Solutions ("CSS")
and the Mechanical Access Solutions ("MAS") businesses. The CSS business
designs, supplies and installs commercial electronic security systems and
provides electronic security services, including alarm monitoring, video
surveillance, fire alarm monitoring, systems integration and system maintenance.
Purchasers of these systems typically contract for ongoing security systems
monitoring and maintenance at the time of initial equipment installation. The
business also sells healthcare solutions, which include asset tracking, infant
protection, pediatric protection, patient protection, wander management, fall
management, and emergency call products. The MAS business primarily sells
automatic doors.
(Millions of Dollars)      2020          2019          2018
Net sales               $ 1,852$ 1,945$ 1,981
Segment profit          $   109$   127$   169
% of Net sales              5.9  %        6.5  %        8.5  %


Security net sales decreased $93.2 million, or 5%, in 2020 compared to 2019, as
1% increases in both price and small bolt-on commercial electronic security
acquisitions were more than offset by a 5% decrease in volume attributed to the
pandemic and a 2% decrease from divestitures. Organic sales for North America
declined 3% driven by lower installations within commercial electronic security
and automatic doors. Europe declined 4% organically as growth in France and the
Nordics was offset by lower volume in the UK related to the pandemic. While
customer access and sales were severely impeded by government lockdowns and
safety precautions in the first half of 2020, the market and business showed
recovery across the second half.
                                       40
--------------------------------------------------------------------------------

Segment profit amounted to $108.7 million, or 5.9% of net sales, in 2020
compared to $126.6 million, or 6.5% of net sales, in 2019. Excluding
acquisition-related and other charges of $73.5 million and $85.7 million in 2020
and 2019, respectively, segment profit amounted to 9.8% of net sales in 2020
compared to 10.9% in 2019, as price and cost control were more than offset by
lower volume from pandemic disruptions and growth investments.

Security net sales increased $35.2 million, or 2%, in 2019 compared to 2018, as
1% increases in both price and small bolt-on commercial electronic security
acquisitions were more than offset by a 3% decrease due to foreign currency and
a 1% decrease from the sale of the Sargent & Greenleaf business. Organic sales
for North America increased 3% driven by increased installations within
commercial electronic security and higher volumes in healthcare and automatic
doors. Europe declined 1% organically as growth in France was offset by
continued market weakness in the Nordics and the UK.

Segment profit amounted to $126.6 million, or 6.5% of net sales, in 2019
compared to $169.3 million, or 8.5% of net sales, in 2018. Excluding
acquisition-related and other charges of $85.7 million and $42.2 million in 2019
and 2018, respectively, segment profit amounted to 10.9% of net sales in 2019
compared to 10.7% in 2018, as the benefits of organic growth and a focus on cost
containment were partially offset by investments to support the business
transformation in commercial electronic security and the dilutive impact from
the Sargent & Greenleaf divestiture.

RESTRUCTURING ACTIVITIES
A summary of the restructuring reserve activity from December 28, 2019 to
January 2, 2021 is as follows:

                                       December 28,                                                                     January 2,
(Millions of Dollars)                      2019             Net Additions            Usage            Currency             2021
Severance and related costs            $   140.3          $         63.9          $ (111.0)$    (5.7)$    87.5
Facility closures and asset
impairments                                  7.5                    19.1             (23.9)                 -                2.7
Total                                  $   147.8          $         83.0          $ (134.9)$    (5.7)$    90.2



During 2020, the Company recognized net restructuring charges of $83.0 million,
primarily related to severance costs associated with a cost reduction program
announced in the second quarter of 2020. The Company expects to achieve annual
net cost savings of approximately $175 million by the end of 2021 related to
restructuring costs incurred during 2020. The majority of the $90.2 million of
reserves remaining as of January 2, 2021 is expected to be utilized within the
next twelve months.

During 2019, the Company recognized net restructuring charges of $154.1 million,
primarily related to severance costs associated with a cost reduction program
announced in the third quarter of 2019. The 2019 actions resulted in annual net
cost savings of approximately $185 million, primarily in the Tools & Storage
segment.

During 2018, the Company recognized net restructuring charges of $160.3 million,
which primarily related to a cost reduction program executed in the fourth
quarter of 2018. This amount reflected $151.0 million of net severance charges
associated with the reduction of 4,184 employees and $9.3 million of facility
closure and other restructuring costs. The 2018 actions resulted in annual net
cost savings of approximately $230 million, primarily in the Tools & Storage and
Security segments.

Segments: The $83 million of net restructuring charges in 2020 includes: $40
million pertaining to the Tools & Storage segment; $29 million pertaining to the
Industrial segment; $9 million pertaining to the Security segment; and $5
million pertaining to Corporate.

The anticipated annual net cost savings of approximately $175 million related to
the 2020 restructuring actions include: $71 million in the Tools & Storage
segment; $61 million in the Industrial segment; $31 million in the Security
segment; and $12 million in Corporate.
FINANCIAL CONDITION
Liquidity, Sources and Uses of Capital: The Company's primary sources of
liquidity are cash flows generated from operations and available lines of credit
under various credit facilities.

Operating Activities: Cash flows provided by operations were $2.022 billion in
2020 compared to $1.506 billion in 2019. The year-over-year increase was mainly
attributable to higher earnings driven by increased demand in the Tools &
Storage segment and strong cost control.

In 2019, cash flows from operations were $1.506 billion compared to $1.261
billion in 2018. The year-over-year increase was mainly attributable to improved
working capital (accounts receivable, inventory, accounts payable, and deferred
revenue) as a
                                       41
--------------------------------------------------------------------------------

result of an intense focus on working capital management and lower inventory
investment associated with Tools & Storage brand roll-outs.


Free Cash Flow: Free cash flow, as defined in the table below, was $1.674
billion in 2020 compared to $1.081 billion in 2019 and $769 million in 2018. The
improvement in free cash flow in 2020 was driven by higher operating cash flows
as discussed above and lower capital expenditures due to cash preservation
initiatives implemented during the year in response to COVID-19 driven market
volatility. Management considers free cash flow an important indicator of its
liquidity, as well as its ability to fund future growth and provide dividends to
shareowners. 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)                          2020         2019         

2018

Net cash provided by operating activities    $ 2,022$ 1,506$ 1,261
Less: capital and software expenditures         (348)        (425)        (492)
Free cash flow                               $ 1,674$ 1,081$   769



As previously discussed, the COVID-19 pandemic has adversely affected the
Company's operations, as well as the operations of its customers, distributors,
suppliers and contractors, and has resulted in significant volatility and
uncertainty in the markets in which the Company operates. Although the Company
experienced a strong demand improvement in the second half of 2020, primarily in
its Tools & Storage segment, the long-term impact of the COVID-19 pandemic on
the Company's business, results of operations, and liquidity remains uncertain.
However, the Company continues to believe it is in a strong financial position
as of January 2, 2021 and has significant flexibility to navigate this volatile
period as the Company: (a) continues to maintain strong investment grade credit
ratings; (b) possesses approximately $1.4 billion of cash on-hand as of January
2, 2021; (c) manages a robust and highly-rated $3.0 billion commercial paper
program; and (d) carries $3.0 billion of revolving credit facilities backed by a
well-capitalized and diverse bank group. Refer to Item 1A. Risk Factors in Part
I of this Form 10-K/A for further discussion of the COVID-19 pandemic.

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

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

Cash flows used in investing activities in 2018 totaled $989 million, primarily
due to business acquisitions of $525 million, mainly related to the Nelson
acquisition, and capital and software expenditures of $492 million. The increase
in capital and software expenditures in 2018 was primarily due to
technology-related and capacity investments to support the Company's strong
organic growth and its SFS 2.0 initiatives.

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

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

Cash flows used in financing activities in 2018 totaled $562 million primarily
related to the repurchase of common shares for $527 million and cash dividend
payments of $385 million, partially offset by $433 million of net proceeds from
short-term
borrowings under the Company's commercial paper program.

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, while
negatively impacting cash by $1 million and $54 million in 2019 and 2018,
respectively, due to the strengthening of the U.S. Dollar against the Company's
other currencies.

                                       42
--------------------------------------------------------------------------------

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. rating agencies on its senior unsecured debt (S&P A, Fitch A-, Moody's
Baa1), as well as its commercial paper program (S&P A-1, Fitch F1, Moody's
P-2). In the second quarter of 2020, S&P and Fitch revised their outlooks to
'negative' from 'stable' in response to the potential negative economic effects
stemming from the COVID-19 pandemic. Refer to Item 1A. Risk Factors in Part I of
this Form 10-K/A for further discussion of the risks associated with the ongoing
COVID-19 pandemic. Failure to maintain strong investment grade rating levels
could adversely affect the Company's cost of funds, liquidity and access to
capital markets, but would not have an adverse effect on the Company's ability
to access its existing committed credit facilities.

Cash and cash equivalents totaled $1.381 billion as of January 2, 2021,
comprised of $1.119 billion in the U.S. and $262 million in foreign
jurisdictions. As of December 28, 2019, cash and cash equivalents totaled $298
million
, comprised of $57 million in the U.S. and $241 million in foreign
jurisdictions.


As a result of the Act, the Company's tax liability related to the one-time
transition tax associated with unremitted foreign earnings and profits totaled
$325 million at January 2, 2021. 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. 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 $3.0 billion commercial paper program which includes Euro
denominated borrowings in addition to U.S. Dollars. As of January 2, 2021, the
Company had no borrowings outstanding. As of December 28, 2019, the Company had
approximately $336 million of borrowings outstanding representing Euro
denominated commercial paper, which was designated as a net investment hedge.
Refer to Note I, Financial Instruments, for further discussion.

The Company has a five-year $2.0 billion committed credit facility (the "5-Year
Credit Agreement"). Borrowings under the 5-Year Credit Agreement may be made in
U.S. Dollars, Euros or Pounds Sterling. A sub-limit amount of $653.3 million is
designated for swing line advances which may be drawn in Euros pursuant to the
terms of the 5-Year Credit Agreement. Borrowings bear interest at a floating
rate plus an applicable margin dependent upon the denomination of the borrowing
and specific terms of the 5-Year Credit Agreement. The Company must repay all
advances under the 5-Year Credit Agreement by the earlier of September 12, 2023
or upon termination. The 5-Year Credit Agreement is designated to be a liquidity
back-stop for the Company's $3.0 billionU.S. Dollar and Euro commercial paper
program. As of January 2, 2021, and December 28, 2019, the Company had not drawn
on its five-year committed credit facility.

In September 2020, the Company terminated its 364-day $1.0 billion committed
credit facility and concurrently executed a new 364-Day $1.0 billion committed
credit facility (the "364-Day Credit Agreement"). Borrowings under the 364-Day
Credit Agreement may be made in U.S. Dollars or Euros and bear interest at a
floating rate plus an applicable margin dependent upon the denomination of the
borrowing and pursuant to the terms of the 364-Day Credit Agreement. The Company
must repay all advances under the 364-Day Credit Agreement by the earlier of
September 8, 2021 or upon termination. The Company may, however, convert all
advances outstanding upon termination into a term loan that shall be repaid in
full no later than the first anniversary of the termination date provided that
the Company, among other things, pays a fee to the administrative agent for the
account of each lender. The 364-Day Credit Agreement serves as part of the
liquidity back-stop for the Company's $3.0 billionU.S. Dollar and Euro
commercial paper program previously discussed. As of January 2, 2021 and
December 28, 2019, the Company had not drawn on its 364-Day committed credit
facility.

In addition, the Company has other short-term lines of credit that are primarily
uncommitted, with numerous banks, aggregating $469 million, of which
approximately $373 million was available at January 2, 2021. Short-term
arrangements are reviewed annually for renewal.


At January 2, 2021, the aggregate amount of committed and uncommitted lines of
credit, long-term and short-term, was approximately $3.5 billion. At January 2,
2021, $2 million was recorded as short-term borrowings relating to amounts
outstanding against uncommitted lines. In addition, $96 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. The
weighted-average interest rate on U.S. dollar denominated short-term borrowings
for 2020 and 2019 were 1.3% and 2.3%, respectively. The weighted-average
interest rate on Euro denominated short-term borrowings for 2020 and 2019 were
negative 0.2% and 0.3%, respectively.

                                       43
--------------------------------------------------------------------------------

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"https://www.marketscreener.com/"adjusted Interest Expense"). In April 2020,
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, which primarily relate to anticipated incremental charges related to
the COVID-19 pandemic, for amounts incurred beginning in the second quarter of
2020 through the second quarter of 2021, and (b) lower the minimum interest
coverage ratio from 3.5 to 2.5 times for the period from and including the
second quarter of 2020 through the end of fiscal year 2021. These amendments are
also applicable to the new 364-Day Credit Agreement described above.

In November 2020, the Company issued $750.0 million of senior unsecured term
notes maturing November 15, 2050 ("2050 Term Notes"). The 2050 Term Notes will
accrue interest at a fixed rate of 2.75% per annum, with interest payable
semi-annually in arrears, and rank equally in right of payment with all of the
Company's existing and future unsecured unsubordinated debt. The Company
received total net proceeds from this offering of approximately $740 million,
net of underwriting expenses and other fees associated with the transaction. The
Company used the net proceeds from the offering for general corporate purposes,
including repayment of other borrowings.

Contemporaneously with the issuance of the 2050 Term Notes, the Company redeemed
the 3.4% senior unsecured term notes due 2021 ("2021 Term Notes") and the 2.9%
senior unsecured term notes due 2022 ("2022 Term Notes") for approximately
$1.2 billion representing the outstanding principal amounts, accrued and unpaid
interest, and a make-whole premium. The Company recognized a net pre-tax loss of
$47 million from the extinguishment, which was comprised of the $49 million
make-whole premium payment and a $2 million loss related to the write-off of
deferred financing fees, partially offset by a $4 million gain relating to the
write-off of unamortized fair value swap terminations. The Company also
recognized a pre-tax loss of $20 million relating to the unamortized loss on
cash flow swap terminations related to the 2022 Term Notes. Refer to Note I,
Financial Instruments, for further discussion.

In February 2020, the Company issued $750 million of senior unsecured term notes
maturing March 15, 2030 ("2030 Term Notes") and $750.0 million of fixed-to-fixed
reset rate junior subordinated debentures maturing March 15, 2060 ("2060 Junior
Subordinated Debentures"). The 2030 Term Notes accrue interest at a fixed rate
of 2.3% per annum, with interest payable semi-annually in arrears, and rank
equally in right of payment with all of the Company's existing and future
unsecured and unsubordinated debt. The 2060 Junior Subordinated Debentures bear
interest at a fixed rate of 4.0% per annum, payable semi-annually in arrears, up
to but excluding March 15, 2025. From and including March 15, 2025, the interest
rate will be reset for each subsequent five-year reset period equal to the
Five-Year Treasury Rate plus 2.657%. The Five-Year Treasury Rate is based on the
average yields on actively traded U.S. treasury securities adjusted to constant
maturity, for five-year maturities. On each five-year reset date, the 2060
Junior Subordinated Debentures can be called at par value. The 2060 Junior
Subordinated Debentures are unsecured and rank subordinate and junior in right
of payment to all of the Company's existing and future senior debt. The Company
received total net proceeds from these offerings of approximately $1.483
billion, net of underwriting expenses and other fees associated with the
transactions. The net proceeds from the offering were used for general corporate
purposes, including acquisition funding.

In December 2019, the Company redeemed all of the outstanding 2052 Junior
Subordinated Debentures for approximately $760 million, which represented 100%
of the principal amount plus accrued and unpaid interest.


In March 2019, the Company issued $500 million of senior unsecured notes
maturing on March 1, 2026 ("2026 Term Notes"). The 2026 Term Notes accrue
interest at a fixed rate of 3.40% per annum with interest payable semi-annually
in arrears. The 2026 Term Notes rank equally in right of payment with all of the
Company's existing and future unsecured and unsubordinated debt. The Company
received net cash proceeds of $496 million which reflected the notional amount
offset by a discount, underwriting expenses, and other fees associated with the
transaction. The Company used the net proceeds from the offering for general
corporate purposes, including repayment of other borrowings.

In February 2019, the Company redeemed all of the outstanding 2053 Junior
Subordinated Debentures for approximately $406 million, which represented 100%
of the principal amount plus accrued and unpaid interest.


In November 2019, the Company issued 7,500,000 Equity Units with a total
notional value of $750 million ("2019 Equity Units"). Each unit has a stated
amount of $100 and initially consists of a three-year forward stock purchase
contract ("2022 Purchase Contracts") for the purchase of a variable number of
shares of common stock, on November 15, 2022, for a price of $100, and a 10%
beneficial ownership interest in one share of 0% Series D Cumulative Perpetual
Convertible Preferred Stock, without par, with a liquidation preference of
$1,000 per share ("Series D Preferred Stock"). The Company received
approximately $735 million in cash proceeds from the 2019 Equity Units, net of
offering expenses and underwriting costs and
                                       44
--------------------------------------------------------------------------------

commissions, and issued 750,000 shares of Series D Preferred Stock. The proceeds
were used, together with cash on hand, to redeem the 2052 Junior Subordinated
Debentures in December 2019, as discussed above. The Company also used $19
million of the proceeds to enter into capped call transactions utilized to hedge
potential economic dilution. On and after November 15, 2022, the Series D
Preferred Stock may be converted into common stock at the option of the holder.
At the election of the Company, upon conversion, the Company may deliver cash,
common stock, or a combination thereof. On or after December 22, 2022, the
Company may elect to redeem for cash, all or any portion of the outstanding
shares of the Series D Preferred Stock at a redemption price equal to 100% of
the liquidation preference, plus any accumulated and unpaid dividends. If the
Company calls the Series D Preferred Stock for redemption, holders may convert
their shares immediately preceding the redemption date. Upon a successful
remarketing of the Series D Preferred Stock (the "Remarketed Series D Preferred
Stock"), the Company will receive additional cash proceeds of $750 million and
issue shares of Remarketed Series D Preferred Stock. The Company pays the
holders of the 2022 Purchase Contracts quarterly contract adjustment payments,
which commenced February 15, 2020. As of January 2, 2021, the present value of
the contract adjustment payments was approximately $76 million.

In March 2018, the Company purchased from a financial institution "at-the-money"
capped call options with an approximate term of three years, on 3.2 million
shares of its common stock (subject to customary anti-dilution adjustments) for
an aggregate premium of $57 million. In February 2020, the Company net-share
settled 0.6 million of the 3.2 million capped options on its common stock and
received 61,767 shares using an average reference price of $162.26 per common
share. On June 9, 2020, the Company amended the 2018 capped call options to
align with and offset the potential economic dilution associated with the common
shares issuable upon conversion of the Remarketed Series C Preferred Stock, as
further discussed below. Subsequent to the amendment, the capped call options
had an initial lower strike price of $148.34 and an upper strike price of
$165.00, which was approximately 30% higher than the closing price of the
Company's common stock on June 9, 2020. As of January 2, 2021, due to the
customary anti-dilution provisions, the lower and upper strike prices were
$148.14 and $164.77, respectively. The aggregate fair value of the options at
January 2, 2021 was $53 million.

In May 2017, the Company issued 7,500,000 Equity Units with a total notional
value of $750 million ("2017 Equity Units"). Each unit has a stated amount of
$100 and initially consisted of a three-year forward stock purchase contract
("2020 Purchase Contracts") for the purchase of a variable number of shares of
common stock, on May 15, 2020, for a price of $100, and a 10% beneficial
ownership interest in one share of 0% Series C Cumulative Perpetual Convertible
Preferred Stock, without par, with a liquidation preference of $1,000 per share
("Series C Preferred Stock"). The Company received approximately $727 million in
cash proceeds from the 2017 Equity Units, net of underwriting costs and
commissions, before offering expenses, and issued 750,000 shares of Series C
Preferred Stock. The proceeds were used for general corporate purposes,
including repayment of short-term borrowings. The Company also used $25 million
of the proceeds to enter into capped call transactions utilized to hedge
potential economic dilution.

In May 2020, the Company generated cash proceeds of $750 million from the
successful remarketing of the Series C Preferred Stock (the "Remarketed Series C
Preferred Stock"), a described more fully in Note J, Capital Stock. Upon
completion of the remarketing, the holders of the 2017 Equity Units received
5,463,750 common shares and the Company issued 750,000 shares of Remarketed
Series C Preferred Stock. Holders of the Remarketed Series C Preferred Stock are
entitled to receive cumulative dividends, if declared by the Board of Directors,
at an initial fixed rate equal to 5.0% per annum of the $1,000 per share
liquidation preference (equivalent to $50.00 per annum per share). In connection
with the remarketing, the conversion rate was reset to 6.7352 shares of the
Company's common stock, which is equivalent to a conversion price of
approximately $148.47 per share. As of January 2, 2021, due to the customary
anti-dilution provisions, the conversion rate was 6.7504, equivalent to a
conversion price of approximately $148.14 per share of common stock. Beginning
on May 15, 2020, the holders have the option to convert the Remarketed Series C
Preferred Stock into common stock. At the election of the Company, upon
conversion, the Company may deliver cash, common stock, or a combination
thereof. The Company does not have the right to redeem the Remarketed Series C
Preferred Stock prior to May 15, 2021. At the election of the Company, on or
after May 15, 2021, the Company may redeem for cash, all or any portion of the
outstanding shares of the Remarketed Series C Preferred Stock at a redemption
price equal to 100% of the liquidation preference, plus any accumulated and
unpaid dividends. If the Company calls the Remarketed Series C Preferred Stock
for redemption, holders may convert their shares immediately preceding the
redemption date.

In March 2015, the Company entered into a forward share purchase contract with a
financial institution counterparty for 3,645,510 shares of common stock. The
contract obligates the Company to pay $350 million, plus an additional amount
related to the forward component of the contract. In February 2020, the Company
amended the settlement date to April 2022, or earlier at the Company's option.

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.

                                       45
--------------------------------------------------------------------------------

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

                                                     Payments Due by Period
(Millions of Dollars)                    Total             2021             2022-2023           2024-2025           Thereafter
Long-term debt (a)                    $  4,300          $      -          $        -          $        -          $     4,300
Interest payments on long-term debt
(b)                                      3,363               161                 324                 324                2,554
Short-term borrowings                        2                 2                   -                   -                    -
Lease obligations                          599               141                 192                 118                  148
Inventory purchase commitments (c)         545               545                   -                   -                    -
Deferred compensation                       28                 1                   1                   1                   25
Marketing commitments                       39                27                  12                   -                    -
Derivatives (d)                            177               174                   3                   -                    -
Forward stock purchase contract (e)        350                 -                 350                   -                    -
Pension funding obligations (f)             41                41                   -                   -                    -
Contract adjustment fees (g)                78                39                  39                   -                    -
U.S. income tax (h)                        325                35                  91                 197                    2

Total contractual cash obligations $ 9,847$ 1,166 $

1,012 $ 640$ 7,029




(a)Future payments on long-term debt encompass all payments related to aggregate
debt maturities, excluding certain fair value adjustments included in long-term
debt, as discussed further in Note H, Long-Term Debt and Financing Arrangements.
(b)Future interest payments on long-term debt reflect the applicable interest
rate in effect at January 2, 2021.
(c)Inventory purchase commitments primarily consist of open purchase orders to
purchase raw materials, components, and sourced products.
(d)Future cash flows on derivative instruments reflect the fair value and
accrued interest as of January 2, 2021. The ultimate cash flows on these
instruments will differ, perhaps significantly, based on applicable market
interest and foreign currency rates at their maturity.
(e)In March 2015, the Company entered into a forward share purchase contract
with a financial institution counterparty which obligates the Company to pay
$350 million, plus an additional amount related to the forward component of the
contract.  In February 2020, the Company amended the settlement date to April
2022, or earlier at the Company's option. See Note J, Capital Stock, for further
discussion.
(f)This amount principally represents contributions either required by
regulations or laws or, with respect to unfunded plans, necessary to fund
current benefits. The Company has not presented estimated pension and
post-retirement funding beyond 2021 as funding can vary significantly from year
to year based upon changes in the fair value of the plan assets, actuarial
assumptions, and curtailment/settlement actions.
(g)These amounts represent future contract adjustment payments to holders of the
Company's 2022 Purchase Contracts. See Note J, Capital Stock, for further
discussion.
(h)Income tax liability for the one-time deemed repatriation tax on unremitted
foreign earnings and profits. See Note Q, Income Taxes, for further discussion.

To the extent the Company can reliably determine when payments will occur, the
related amounts will be included in the table above. However, due to the high
degree of uncertainty regarding the timing of potential future cash flows
associated with the contingent consideration liability related to the Craftsman
acquisition and the unrecognized tax liabilities of $187 million and $494
million, respectively, at January 2, 2021, the Company is unable to make a
reliable estimate of when (if at all) these amounts may be paid. Refer to Note
E, Acquisitions and Investments, Note M, Fair Value Measurements, and Note Q,
Income Taxes, for further discussion.

Payments of the above contractual obligations (with the exception of payments
related to debt principal, the forward stock purchase contract, contract
adjustment fees, and tax obligations) will typically generate a cash tax benefit
such that the net cash outflow will be lower than the gross amounts summarized
above.
                                       46
--------------------------------------------------------------------------------

Other Significant Commercial Commitments:

                           Amount of Commitment Expirations Per Period
(Millions of Dollars)        Total        2021        2022-2023       2024-2025      Thereafter
U.S. lines of credit       $ 3,000$ 1,000$    2,000      $       -      $         -


Short-term borrowings, long-term debt and lines of credit are explained in
detail within Note H, Long-Term Debt and Financing Arrangements.
MARKET RISK
Market risk is the potential economic loss that may result from adverse changes
in the fair value of financial instruments, currencies, commodities and other
items traded in global markets. The Company is exposed to market risk from
changes in foreign currency exchange rates, interest rates, stock prices, bond
prices and commodity prices, amongst others.
Exposure to foreign currency risk results because the Company, through its
global businesses, enters into transactions and makes investments denominated in
multiple currencies. The Company's predominant currency exposures are related to
the Euro, Canadian Dollar, British Pound, Australian Dollar, Brazilian Real,
Argentine Peso, Chinese Renminbi and the Taiwan Dollar. Certain cross-currency
trade flows arising from both trade and affiliate sales and purchases are
consolidated and netted prior to obtaining risk protection through the use of
various derivative financial instruments which may include: purchased basket
options, purchased options, collars, cross-currency swaps and currency forwards.
The Company is thus able to capitalize on its global positioning by taking
advantage of naturally offsetting exposures and portfolio efficiencies to reduce
the cost of purchasing derivative protection. At times, the Company also enters
into foreign exchange derivative contracts to reduce the earnings and cash flow
impacts of non-functional currency denominated receivables and payables,
primarily for affiliate transactions. Gains and losses from these hedging
instruments offset the gains or losses on the underlying net exposures.
Management determines the nature and extent of currency hedging activities, and
in certain cases, may elect to allow certain currency exposures to remain
un-hedged. The Company may also enter into cross-currency swaps and forward
contracts to hedge the net investments in certain subsidiaries and better match
the cash flows of operations to debt service requirements. Management estimates
the foreign currency impact from its derivative financial instruments
outstanding at the end of 2020 would have been an incremental pre-tax loss of
approximately $43 million based on a hypothetical 10% adverse movement in all
net derivative currency positions. The Company follows risk management policies
in executing derivative financial instrument transactions, and does not use such
instruments for speculative purposes. The Company generally does not hedge the
translation of its non-U.S. dollar earnings in foreign subsidiaries, but may
choose to do so in certain instances in future periods.
As mentioned above, the Company routinely has cross-border trade and affiliate
flows that cause an impact on earnings from foreign exchange rate movements. The
Company is also exposed to currency fluctuation volatility from the translation
of foreign earnings into U.S. dollars and the economic impact of foreign
currency volatility on monetary assets held in foreign currencies. It is more
difficult to quantify the transactional effects from currency fluctuations than
the translational effects. Aside from the use of derivative instruments, which
may be used to mitigate some of the exposure, transactional effects can
potentially be influenced by actions the Company may take. For example, if an
exposure occurs from a European entity sourcing product from a U.S. 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 $157 million, or
approximately $0.81 per diluted share. In 2020, translational and transactional
foreign currency fluctuations negatively impacted pre-tax earnings by
approximately $73 million, or approximately $0.38 per diluted share.
The Company's exposure to interest rate risk results from its outstanding debt
and derivative obligations, short-term investments, and derivative financial
instruments employed in the management of its debt portfolio. The debt portfolio
including both trade and affiliate debt, is managed to achieve capital structure
targets and reduce the overall cost of borrowing by using a combination of fixed
and floating rate debt as well as interest rate swaps, and cross-currency swaps.
The Company's primary exposure to interest rate risk comes from its commercial
paper program in which the pricing is partially based on short-term U.S.
interest rates. At January 2, 2021, the impact of a hypothetical 10% increase in
the interest rates associated with the Company's commercial paper borrowings
would have an immaterial effect on the Company's financial position and results
of operations.
The Company has exposure to commodity prices in many businesses, particularly
brass, nickel, resin, aluminum, copper, zinc, steel, and energy used in the
production of finished goods. Generally, commodity price exposures are not
hedged with derivative financial instruments, but instead are actively managed
through customer product and service pricing actions, procurement-driven cost
reduction initiatives and other productivity improvement projects.
                                       47
--------------------------------------------------------------------------------

Fluctuations in the fair value of the Company's common stock affect domestic
retirement plan expense as discussed below in the Employee Stock Ownership Plan
("ESOP") section of MD&A. Additionally, the Company has $120 million of
liabilities as of January 2, 2021 pertaining to unfunded defined contribution
plans for certain U.S. employees for which there is mark-to-market exposure.
The assets held by the Company's defined benefit plans are exposed to
fluctuations in the market value of securities, primarily global stocks and
fixed-income securities. The funding obligations for these plans would increase
in the event of adverse changes in the plan asset values, although such funding
would occur over a period of many years. In 2020, 2019, and 2018, investment
returns on pension plan assets resulted in a $280 million increase, a $323
million increase, and a $72 million decrease, respectively. The Company expects
funding obligations on its defined benefit plans to be approximately $41 million
in 2021. The Company employs diversified asset allocations to help mitigate this
risk. Management has worked to minimize this exposure by freezing and
terminating defined benefit plans where appropriate.
The Company has access to financial resources and borrowing capabilities around
the world. There are no instruments within the debt structure that would
accelerate payment requirements solely due to a change in credit rating.
The Company's existing credit facilities and sources of liquidity, including
operating cash flows, are considered more than adequate to conduct business as
normal. Accordingly, based on present conditions and past history, management
believes it is unlikely that operations will be materially affected by any
potential deterioration of the general credit markets that may occur. The
Company believes that its strong financial position, operating cash flows,
committed long-term credit facilities and borrowing capacity, and ability to
access equity markets, provide the financial flexibility necessary to continue
its record of annual dividend payments, to invest in the routine needs of its
businesses, to make strategic acquisitions and to fund other initiatives
encompassed by its growth strategy and maintain its strong investment grade
credit ratings.
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 $6.3 million in 2020, income of $0.5 million in 2019 and expense of
$0.4 million in 2018. U.S. defined contribution retirement plan expense will
increase in the future as all remaining unallocated shares were released in the
first quarter 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.
Significant accounting policies used in the preparation of the Consolidated
Financial Statements are described in Note A, Significant Accounting Policies.
Management believes the most complex and sensitive judgments, because of their
significance to the Consolidated Financial Statements, result primarily from the
need to make estimates about the effects of matters with inherent uncertainty.
The most significant areas involving management estimates are described below.
Actual results in these areas could differ from management's estimates.
ALLOWANCE FOR CREDIT LOSSES - The Company maintains an allowance for credit
losses, which represents an estimate of expected losses over the remaining
contractual life of its receivables. The allowance is determined using two
methods. The amounts calculated from each of these methods are combined to
determine the total amount reserved. First, a specific reserve is established
for individual accounts where information indicates the customers may have an
inability to meet financial obligations. In these cases, management uses its
judgment, based on the surrounding facts and circumstances, to record a specific
reserve for those customers against amounts due to reduce the receivable to the
amount expected to be collected. These specific reserves are reevaluated and
adjusted as additional information is received. Second, a reserve is determined
for all customers based on a range of percentages applied to receivable aging
categories. These percentages are based on historical collection rates,
write-off experience, and forecasts of future economic conditions.
If circumstances change, for example, due to the occurrence of
higher-than-expected defaults, a significant adverse change in a major
customer's ability to meet its financial obligation to the Company, or adverse
changes in forecasts of future economic conditions, then the Company's estimates
of the recoverability of receivable amounts due could be reduced.
INVENTORIES - Inventories in the U.S. are primarily valued at the lower of
Last-In First-Out ("LIFO") cost or market, while non-U.S. inventories are
primarily valued at the lower of First-In, First-Out ("FIFO") cost and net
realizable value. The calculation of LIFO reserves, and therefore the net
inventory valuation, is affected by inflation and deflation in inventory
components. The Company continually reviews the carrying value of discontinued
product lines and stock-keeping-units ("SKUs") to determine that these items are
properly valued. The Company also continually evaluates the composition of its
                                       48
--------------------------------------------------------------------------------

inventory and identifies obsolete and/or slow-moving inventories. Inventory
items identified as obsolete and/or slow-moving are evaluated to determine if
write-downs are required. The Company assesses the ability to dispose of these
inventories at a price greater than cost. If it is determined that cost is less
than market or net realizable value, as applicable, cost is used for inventory
valuation. If market value or net realizable value, as applicable, is less than
cost, the Company writes down the related inventory to that value.
GOODWILL AND INTANGIBLE ASSETS - The Company acquires businesses in purchase
transactions that result in the recognition of goodwill and intangible assets.
The determination of the value of intangible assets requires management to make
estimates and assumptions. 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. At January 2, 2021, the Company reported $10.038 billion
of goodwill, $2.198 billion of indefinite-lived trade names and $1.858 billion
of net definite-lived intangibles.
Management tests goodwill for impairment at the reporting unit level. A
reporting unit is an operating segment as defined in ASC 280, Segment Reporting,
or one level below an operating segment (component level) as determined by the
availability of discrete financial information that is regularly reviewed by
operating segment management or an aggregate of component levels of an operating
segment having similar economic characteristics. If the carrying value of a
reporting unit (including the value of goodwill) is greater than its estimated
fair value, an impairment charge would be recorded for the amount that the
carrying amount of the reporting unit exceeded its fair value.
As required by the Company's policy, goodwill was tested for impairment in the
third quarter of 2020. In accordance with Accounting Standards Update ("ASU")
2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for
Impairment, companies are permitted to first assess qualitative factors to
determine whether it is more likely than not that the fair value of a reporting
unit is less than its carrying amount as a basis for determining whether it is
necessary to perform a quantitative goodwill impairment test. 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 2020, the Company applied a quantitative test for all of its
reporting units using a discounted cash flow valuation model. Based on the
results of this testing, it was determined that the fair value of each of the
reporting units substantially exceeded its respective carrying amount by in
excess of 40%, with the exception of the Infrastructure reporting unit as
discussed below.
As previously disclosed in the Company's Form 10-Q for the third quarter of
2020, the fair value of the Infrastructure reporting unit exceeded its carrying
amount by 16%. In connection with the preparation of the Consolidated Financial
Statements for the year ended January 2, 2021, the Company performed an updated
impairment analysis with respect to the Infrastructure reporting unit, which
included approximately $585 million of goodwill at year-end. The key assumptions
applied to the updated cash flow projections for the Infrastructure reporting
unit included a 9.5% discount rate, near-term revenue growth rates over the next
six years, which represented a compound annual growth rate of approximately 4%,
and a 3% perpetual growth rate. Based on this analysis, it was determined that
the fair value of the Infrastructure reporting unit exceeded its carrying amount
by 23%. The increase in excess fair value is reflective of an improved near-term
outlook based on results and trends in the fourth quarter of 2020. Management
remains confident in the long-term viability and success of the Infrastructure
reporting unit based on its leading market position in its respective industries
and the Company's continued commitment to, and investments in, organic growth
and margin resiliency initiatives.
For the Company's remaining reporting units, the key assumptions applied to the
cash flow projections were discount rates, which ranged from 7.5% to 9.5%,
near-term revenue growth rates over the next six years, which represented
cumulative annual growth rates ranging from approximately 3% to 5%, and
perpetual growth rates of 3%. These assumptions contemplated business, market
and overall economic conditions. Furthermore, management performed sensitivity
analyses on the estimated fair values from the discounted cash flow valuation
models for these reporting units 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.
The Company also tested its indefinite-lived trade names for impairment during
the third quarter of 2020 utilizing a discounted cash flow model. The key
assumptions used included discount rates, royalty rates, and perpetual growth
rates applied to the projected sales. With the exception of an immaterial trade
name, the Company determined that the fair values of its indefinite-lived trade
names exceeded their respective carrying amounts.
                                       49
--------------------------------------------------------------------------------

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
existing 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. These
assumptions, which are updated annually, include discount rates, expected return
on plan assets, future salary increase rates, and health care cost trend rates.
The Company considers current market conditions, including interest rates, to
establish these assumptions. Discount rates are developed considering the yields
available on high-quality fixed income investments with maturities corresponding
to the duration of the related benefit obligations. The Company's
weighted-average discount rates used to determine benefit obligations at
January 2, 2021 for the United States and international pension plans were 2.39%
and 1.31%, respectively. The Company's weighted-average discount rates used to
determine benefit obligations at December 28, 2019 for the United States and
international pension plans were 3.20% and 1.80%, 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 5.25% and 3.90%, respectively, at January 2,
2021. The Company will use a 3.16% weighted-average expected rate of return
assumption to determine the 2021 net periodic benefit cost. A 25 basis point
reduction in the expected rate of return assumption would increase 2021 net
periodic benefit cost by approximately $6 million on a pre-tax basis.
The Company believes that the assumptions used are appropriate; however,
differences in actual experience or changes in the assumptions may materially
affect the Company's financial position or results of operations. To the extent
that actual (newly measured) results differ from the actuarial assumptions, the
difference is recognized in accumulated other comprehensive loss, and, if in
excess of a specified corridor, amortized over future periods. The expected
return on plan assets is determined using the expected rate of return and the
fair value of plan assets. Accordingly, market fluctuations in the fair value of
plan assets can affect the net periodic benefit cost in the following year. The
projected benefit obligation for defined benefit plans exceeded the fair value
of plan assets by $667 million at January 2, 2021. A 25 basis point reduction in
the discount rate would have increased the projected benefit obligation by
approximately $108 million at January 2, 2021. The primary Black & Decker U.S.
pension and post employment benefit plans were curtailed in late 2010, as well
as the only material Black & Decker international plan, and in their place the
Company implemented defined contribution benefit plans. The vast majority of the
projected benefit obligation pertains to plans that have been frozen; the
remaining defined benefit plans that are not frozen are predominantly small
domestic union plans and those that are statutorily mandated in certain
international jurisdictions. The Company recognized approximately $19 million of
defined benefit plan expense in 2020, which may fluctuate in future years
depending upon various factors including future discount rates and actual
returns on plan assets.
ENVIRONMENTAL - The Company incurs costs related to environmental issues as a
result of various laws and regulations governing current operations as well as
the remediation of previously contaminated sites. 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. As assessments and remediation progress at
individual sites, the amounts recorded are reviewed periodically and adjusted to
reflect additional technical and legal information that becomes available.
As of January 2, 2021, the Company had reserves of $174 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 $103 million to $245 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.
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.
Deferred tax assets and liabilities are determined based on the differences
between the financial statements and tax basis of assets and liabilities using
the enacted tax rates in effect for the year in which the differences are
expected to reverse. Any changes in tax rates on deferred tax assets and
liabilities are recognized in income in the period that includes the enactment
date.

The Company records net deferred tax assets to the extent that it is more likely
than not that these assets will be realized. 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
                                       50
--------------------------------------------------------------------------------

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. 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. In the event the Company were to determine that it would not be able to
realize all or a portion of its deferred tax assets in the future, the
unrealizable amount would be charged to earnings in the period in which that
determination is made. Conversely, if the Company were to determine that it
would be able to realize deferred tax assets in the future in excess of the net
carrying amounts, it would decrease the recorded valuation allowance through a
favorable adjustment to earnings in the period that the determination was made.
The Company records uncertain tax positions in accordance with ASC 740, which
requires a two-step process. First, management determines whether it is more
likely than not that a tax position will be sustained based on the technical
merits of the position and second, for those tax positions that meet the more
likely than not threshold, management recognizes the largest amount of the tax
benefit that is greater than 50 percent likely to be realized upon ultimate
settlement with the related taxing authority. 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. Significant judgment is required when
calculating the worldwide provision for income taxes. Many factors are
considered when evaluating and estimating the Company's tax positions and tax
benefits, which may require periodic adjustments, and which may not accurately
anticipate actual outcomes. It is reasonably possible that the amount of the
unrecognized benefit with respect to certain of the Company's unrecognized tax
positions will significantly increase or decrease within the next twelve months.
These changes may be the result of settlements of ongoing audits, litigation, or
other proceedings with taxing authorities. The Company periodically assesses its
liabilities and contingencies for all tax years still subject to audit based on
the most current available information, which involves inherent uncertainty.
Additional information regarding income taxes is available in Note Q, Income
Taxes.
RISK INSURANCE - To manage its insurance costs efficiently, the Company self
insures for certain U.S. business exposures and generally has low deductible
plans internationally. For domestic workers' compensation, automobile and
product liability (liability for alleged injuries associated with the Company's
products), the Company generally purchases insurance coverage only for severe
losses that are unlikely, and these lines of insurance involve the most
significant accounting estimates. While different self insured retentions, in
the form of deductibles and self insurance through its captive insurance
company, exist for each of these lines of insurance, the maximum self insured
retention is set at no more than $5 million per occurrence. The process of
establishing risk insurance reserves includes consideration of actuarial
valuations that reflect the Company's specific loss history, actual claims
reported, and industry trends among statistical and other factors to estimate
the range of reserves required. Risk insurance reserves are comprised of
specific reserves for individual claims and additional amounts expected for
development of these claims, as well as for incurred but not yet reported claims
discounted to present value. The cash outflows related to risk insurance claims
are expected to occur over a period of approximately 15 years. The Company
believes the liabilities recorded for these U.S. risk insurance reserves,
totaling $98 million and $87 million as of January 2, 2021, and December 28,
2019, respectively, are adequate. Due to judgments inherent in the reserve
estimation process, it is possible the ultimate costs will differ from this
estimate.
WARRANTY - The Company provides product and service warranties which vary across
its businesses. The types of warranties offered generally range from one year to
limited lifetime, and certain branded products carry a lifetime warranty. There
are also certain products with no warranty. Further, the Company sometimes
incurs discretionary costs to service its products in connection with product
performance issues. Historical warranty and service claim experience forms the
basis for warranty obligations recognized. Adjustments are recorded to the
warranty liability as new information becomes available. The Company believes
the $114 million reserve for expected product warranty claims as of January 2,
2021 is adequate, but due to judgments inherent in the reserve estimation
process, including forecasting future product reliability levels and costs of
repair as well as the estimated age of certain products submitted for claims,
the ultimate claim costs may differ from the recorded warranty liability. The
Company also establishes a reserve for product recalls on a product-specific
basis during the period in which the circumstances giving rise to the recall
become known and estimable for both company-initiated actions and those required
by regulatory bodies.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements as of January 2, 2021.
                                       51
--------------------------------------------------------------------------------


         CAUTIONARY STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION
                               REFORM ACT OF 1995
This Amendment to the Company's Annual Report on Form 10-K (the "Amendment" or
"Form 10-K/A") for the fiscal year ended January 2, 2021 contains
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. All statements other than statements of historical fact are
"forward-looking statements" for purposes of federal and state securities laws,
including any projections or guidance of earnings, revenue or other financial
items; any statements of the plans, strategies and objectives of management for
future operations; any statements concerning proposed new products, services or
developments; any statements regarding future economic conditions or
performance; 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.

Except with respect to statements in this Form 10-K/A revised or provided to
reflect the effects of the Restatement, forward-looking statements herein are as
of the Original Form 10-K, filed with the SEC on February 18, 2021, unless
specifically stated to be made as of a different date, and the Company has not
updated forward-looking statements or information to reflect events occurring
after the Original Form 10-K.
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. The Company's future financial condition and results of operations,
as well as any forward-looking statements, are subject to change and to inherent
risks and uncertainties, such as those disclosed or incorporated by reference in
the Company's filings with the Securities and Exchange Commission.
Important factors that could cause the Company's actual results, performance and
achievements, or industry results to differ materially from estimates or
projections contained in its forward-looking statements include, among others,
the following: (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; (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 successful integration of the CAM acquisition into the Company;
(vi) pricing pressure and other changes within competitive markets; (vii)
availability and price of raw materials, component parts, freight, energy, labor
and sourced finished goods; (viii) the impact the tightened credit markets and
change to LIBOR and other benchmark rates may have on the Company or its
customers or suppliers; (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; (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; (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.
operations, including sales to non-U.S. customers; (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, 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; and (xxvii) the continued
adverse effects of the COVID-19 pandemic and an indeterminate recovery period.
                                       52
--------------------------------------------------------------------------------

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/A,
including under the heading "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and in the
Consolidated Financial Statements and the related Notes.
Forward-looking statements in this Annual Report on Form 10-K/A speak only as of
the date hereof, and forward-looking statements in documents attached that are
incorporated by reference speak only as of the date of those documents. The
Company does not undertake any obligation to update or release any revisions to
any forward-looking statement or to report any events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events, except as
required by law.
                                       53
--------------------------------------------------------------------------------

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company incorporates by reference the material captioned “Market Risk” in
Item 7 and in Note I, Financial Instruments, of the Notes to Consolidated
Financial Statements in Item 8.

© Edgar Online, source Glimpses



Source link

Leave a Comment

Your email address will not be published. Required fields are marked *