Stanley Black & Decker 10-Q 2021-10-02

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 2, 2021

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from [ ] to [ ]

Commission File Number 001-05224

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

1000 STANLEY DRIVE

NEW BRITAIN, CT 06053

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE 860 225-5111

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

163,033,211 shares of the registrant’s common stock were outstanding as of November 8, 2021.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

STANLEY BLACK & DECKER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

THREE AND NINE MONTHS ENDED OCTOBER 2, 2021 AND SEPTEMBER 26, 2020

(Unaudited, Millions of Dollars, Except Share and Per Share Amounts)

See Notes to Unaudited Condensed Consolidated Financial Statements.

STANLEY BLACK & DECKER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

OCTOBER 2, 2021 AND JANUARY 2, 2021

(Unaudited, Millions of Dollars, Except Share and Per Share Amounts)

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The following discussion contains statements reflecting the Company's views about its future performance that constitute “forward-looking statements” under the Private Securities Litigation Act of 1995. There are a number of important factors that could cause actual results to differ materially from those indicated by such forward-looking statements. Please read the information under the caption entitled “Cautionary Statement under the Private Securities Litigation Reform Act of 1995."

Throughout this Management's Discussion and Analysis (“MD&A”), references to Notes refer to the "Notes To Unaudited Condensed Consolidated Financial Statements" in Part 1, Item 1 of this Form 10-Q, unless otherwise indicated.

BUSINESS OVERVIEW

Strategy

The Company is a diversified global industrial provider of hand tools, power tools, outdoor products and related accessories, engineered fastening systems and products, services and equipment for oil & gas and infrastructure applications, commercial electronic security and monitoring systems, healthcare solutions, and automatic doors. The Company continues to execute a growth and acquisition strategy over the long-term that involves industry, geographic and customer diversification to foster sustainable revenue, earnings and cash flow growth. The Company remains focused on delivering above-market organic growth with margin expansion by leveraging its proven and long-standing Stanley Black & Decker Operating Model (“SBD Operating Model”) which has continually evolved over the past 15 years as times have changed. At the center of the SBD Operating Model is the concept of the interrelationship between people and technology, which intersect and interact with the other key elements: 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. The Company will leverage the SBD Operating Model to continue making strides towards achieving its vision of delivering top-quartile financial performance, becoming known as one of the world’s leading innovators and elevating its commitment to social responsibility.

The Company’s growth and acquisition strategy is interdependent with its social responsibility (ESG) strategy focused on workforce upskilling, product innovation, and environmental preservation including mitigating the impacts of climate change. These are core business issues that ensure the long-term viability of the Company, its customers, suppliers, and communities. The Company has established environmental, social and corporate governance targets embodied in its 2030 Corporate Social Responsibility (“CSR”) strategy that include upskilling 10 million makers and creators, enhancing 500 million lives through purpose driven product innovation, becoming carbon-positive, landfill-free, and reducing water use in water stressed and scarce areas. The carbon positive target includes third-party approved science-based targets to reduce absolute scope 1 and 2 greenhouse gas emissions by greater than 100% by 2030, and to reduce supply chain emissions by 35%. The Company’s CSR strategy considers all life-cycle stages including material procurement from supply chain partners, product design, manufacturing, distribution and transportation, product use, product service and end-of-life. Refer to section "Human Capital Management" in Item 1 Business of the Company’s Form 10-K for the year ended January 2, 2021 for additional information regarding the Company's commitment to upskilling its employees and improving diversity, equity and inclusion.

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 in 2020, which delivered approximately $625 million of net savings across 2021 and 2020. Cost actions

executed under the program included headcount reductions, furloughs, reduced employee work schedules, a voluntary retirement program, and footprint rationalizations. The Company took steps in 2020 to make some of the cost actions permanent while certain employees were returned to full-time status. This ensured the sustainability of the cost reduction program into 2021 while providing more employment stability for the Company's remaining associates.

Acquisitions

On February 24, 2020, the Company acquired Consolidated Aerospace Manufacturing, LLC ("CAM"), an industry-leading manufacturer of specialty fasteners and components for the aerospace and defense markets. The acquisition further diversified the Company's presence in the industrial markets and expanded its portfolio of specialty fasteners in the aerospace and defense markets.

Pending Acquisitions

On August 16, 2021, the Company agreed to acquire the remaining 80 percent ownership stake in MTD Holdings, Inc. ("MTD"), a privately held global manufacturer of outdoor power equipment, for $1.6 billion in cash. The Company previously acquired a 20 percent interest in MTD in January 2019 for $234 million in cash. With over $2.5 billion of revenue in the last twelve months, MTD designs, manufactures and distributes lawn tractors, zero turn mowers, walk behind mowers, snow blowers, residential robotic mowers, handheld outdoor power equipment and garden tools for both residential and professional consumers under well-known brands like Cub Cadet® and Troy-Bilt®. The Company expects the combination of businesses will create a global leader in the $25 billion and growing outdoor category, with strong brands and growth opportunities. Upon closing of the remaining 80 percent ownership stake, the acquisition will be accounted for as a business combination using the acquisition method of accounting and consolidated into the Company's Tools & Storage segment. The transaction is subject to customary closing conditions, including regulatory approvals, and is expected to close in the fourth quarter of 2021.

On September 12, 2021, the Company reached an agreement to acquire Excel Industries ("Excel") for $375 million in cash. Excel is a leading designer and manufacturer of premium commercial and residential turf-care equipment under the brands of Hustler Turf Equipment and BigDog Mower Co. The Company believes this is a strategically important bolt-on acquisition as it builds an outdoor products leader. The acquisition will be accounted for as a business combination using the acquisition method of accounting and consolidated into the Company's Tools & Storage segment. The transaction is subject to customary closing conditions, including regulatory approvals, and is expected to close in the fourth quarter of 2021.

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

Segments

The Company's operations are classified into three reportable business segments, which also represent its operating segments: Tools & Storage, Industrial and Security.

Tools & Storage

The Tools & Storage segment is comprised of the Power Tools Group ("PTG"), Hand Tools, Accessories & Storage ("HTAS"), and Outdoor Products Group ("OPG") businesses. Annual revenues in the Tools & Storage segment were $10.3 billion in 2020, representing 71% of the Company’s total revenues.

The PTG business includes both professional and consumer products. Professional products include professional grade corded and cordless electric power tools and equipment including drills, impact wrenches and drivers, grinders, saws, routers and sanders, as well as pneumatic tools and fasteners including nail guns, nails, staplers and staples, concrete and masonry anchors. Consumer products include corded and cordless electric power tools sold primarily under the BLACK+DECKER® brand, and home products such as hand-held vacuums, paint tools and cleaning appliances.

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.

The OPG business primarily sells corded and cordless electric lawn and garden products, including hedge trimmers, string trimmers, lawn mowers, pressure washers and related accessories to professionals and consumers under the BLACK+DECKER®, CRAFTSMAN® and DEWALT® brand names.

Industrial

The Industrial segment is comprised of the Engineered Fastening and Infrastructure businesses. Annual revenues in the Industrial segment were $2.3 billion in 2020, representing 16% of the Company’s total revenues.

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.

Security

The Security segment is comprised of the Convergent Security Solutions ("CSS") and Mechanical Access Solutions ("MAS") businesses. Annual revenues in the Security segment were $1.9 billion in 2020, representing 13% of the Company’s total revenues.

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.

RESULTS OF OPERATIONS

Certain Items Impacting Earnings

The Company has provided a discussion of its results both inclusive and exclusive of acquisition-related and other charges. Organic growth is also utilized to describe results aside from the impacts of foreign currency fluctuations, acquisitions during their initial 12 months of ownership, and divestitures. The results and measures, including gross profit, selling, general, and administrative ("SG&A"), Other, net, and segment profit, on a basis excluding acquisition-related and other charges, and organic growth are Non-GAAP financial measures. The Company considers the use of Non-GAAP financial measures relevant to aid analysis and understanding of the Company’s results and business trends aside from the material impact of these items and ensures appropriate comparability to operating results of prior periods.

The Company’s operating results at the consolidated level as discussed below include and exclude acquisition-related and other charges impacting gross profit, SG&A, and Other, net. The Company’s business segment results as discussed below include and exclude acquisition-related and other charges impacting gross profit and SG&A. These amounts for the third quarter and year-to-date periods of 2021 and 2020 are as follows:

Third Quarter and Year-To-Date 2021

The Company reported approximately $43 million and $116 million in pre-tax charges in the third quarter and year-to-date 2021 periods, respectively, which were comprised of the following:

• $5 million and $12 million for the third quarter and year-to-date 2021 periods, respectively, reducing Gross Profit pertaining to facility-related charges;

• $24 million and $68 million for the third quarter and year-to-date 2021 periods, respectively, in SG&A primarily for functional transformation initiatives;

• $8 million and $10 million for the third quarter and year-to-date 2021 periods, respectively, in Other, net primarily related to deal transaction costs;

• $4 million net loss for the year-to-date 2021 period pertaining to divested businesses; and

• $6 million and $22 million for the third quarter and year-to-date 2021 periods, respectively, in Restructuring charges pertaining to severance and facility closures.

The tax effect on the above charges during the third quarter and year-to-date periods of 2021 was approximately $10 million and $28 million, respectively. In addition, the Company's share of MTD's net earnings included an after-tax charge for the year-to-date 2021 period of $11 million related primarily to a one-time retroactive duty on imports of a specific component.

The above items resulted in net after-tax charges of approximately $33 million, or $0.20 per diluted share, and $99 million, or $0.61 per diluted share, respectively, for the third quarter and year-to-date 2021 periods.

Third Quarter and Year-To-Date 2020

The Company reported approximately $89 million and $320 million in net pre-tax charges in the third quarter and year-to-date 2020 periods, respectively, which were comprised of the following:

• $7 million and $59 million for the third quarter and year-to-date 2020 periods, respectively, reducing Gross Profit pertaining to a cost reduction program and inventory step-up charges;

• $36 million and $145 million for the third quarter and year-to-date 2020 periods, respectively, in SG&A primarily for a cost reduction program, Security business transformation and margin resiliency initiatives;

• $3 million and $41 million for the third quarter and year-to-date 2020 periods, respectively, in Other, net primarily related to a cost reduction program and deal transaction costs; and

• $43 million and $75 million for the third quarter and year-to-date 2020 periods, respectively, in Restructuring charges pertaining to severance and facility closures.

The tax effect on the above charges during the third quarter and year-to-date periods of 2020 was approximately $21 million and $75 million, respectively. The Company also recorded a one-time tax benefit of $119 million in the second quarter of 2020 associated with a supply chain reorganization. In addition, the Company's share of MTD's net earnings included an after-tax charge during the third quarter and year-to-date 2020 periods of $3 million and $7 million, respectively, related primarily to restructuring charges.

The above items resulted in net after-tax charges of approximately $71 million, or $0.45 per diluted share, and $134 million, or $0.86 per diluted share, respectively, for the third quarter and year-to-date 2020 periods.

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

Consolidated Results

Net Sales: Net sales were $4.263 billion in the third quarter of 2021 compared to $3.850 billion in the third quarter of 2020, representing an increase of 11% driven by an 8% increase in volume, 2% increase in price and favorable foreign currency impacts of 1%. Tools & Storage net sales increased 14% compared to the third quarter of 2020 due to an 11% increase in volume, 2% increase in price and favorable currency impacts of 1%. Industrial net sales increased 1% compared to the third quarter of 2020 primarily due to a 2% increase in price and favorable currency impacts of 1%, partially offset by a 1% decrease from both volume and an Oil & Gas product line divestiture. Net sales in the Security segment increased 5% compared to the third quarter of 2020 driven by increased volume of 7%, favorable impacts from foreign currency of 1% and 1% increases from both price and acquisitions, partially offset by a 5% decline from divestitures.

Net sales were $12.761 billion in the first nine months of 2021 compared to $10.127 billion in the first nine months of 2020, representing an increase of 26%, driven by a 22% increase in volume, 2% increase in price and favorable foreign currency

impacts of 3%, partially offset by a 1% decline related to divestitures. Tools & Storage net sales increased 34% compared to the first nine months of 2020 due to a 29% increase in volume, favorable foreign currency impacts of 3% and a 2% increase in price. Industrial net sales increased 9% compared to the first nine months of 2020 primarily due to increased volume of 6%, favorable currency impacts of 2%, a 1% increase in price and a 1% increase related to the CAM acquisition, partially offset by a 1% decrease from an Oil & Gas product line divestiture. Net sales in the Security segment increased 8% compared to the first nine months of 2020 driven by a 6% increase in volume, favorable impacts from foreign currency of 4% and a 1% increase due to both price and acquisitions, partially offset by a 4% decline from divestitures.

Gross Profit: Gross profit was $1.392 billion, or 32.6% of net sales, in the third quarter of 2021 compared to $1.376 billion, or 35.7% of net sales, in the third quarter of 2020. Acquisition-related and other charges, which reduced gross profit, were $5.0 million for the three months ended October 2, 2021 and $7.0 million for the three months ended September 26, 2020. Excluding these charges, gross profit was 32.8% of net sales for the three months ended October 2, 2021, compared to 35.9% for the three months ended September 26, 2020, as volume, price, productivity and mix benefits from innovation were more than offset by accelerated commodity, transportation and labor inflation required to meet strong demand.

Gross profit was $4.499 billion, or 35.3% of net sales, in the first nine months of 2021 compared to $3.412 billion, or 33.7% of net sales, in the first nine months of 2020. Acquisition-related and other charges, which reduced gross profit, were $12.3 million for the nine months ended October 2, 2021 and $58.7 million for the nine months ended September 26, 2020. Excluding these charges, gross profit was 35.4% of net sales for the nine months ended October 2, 2021, compared to 34.3% for the nine months ended September 26, 2020. The year-over-year change was primarily driven by volume, price, productivity and mix benefits from innovation, and savings from the 2020 cost reduction program, partially offset by accelerated commodity, transportation and labor inflation required to meet strong demand.

SG&A Expenses: SG&A, inclusive of the provision for credit losses, was $898.8 million, or 21.1% of net sales, in the third quarter of 2021, compared to $738.9 million, or 19.2% of net sales, in the third quarter of 2020. Within SG&A, acquisition-related and other charges totaled $15.9 million for the three months ended October 2, 2021 and $36.0 million for the three months ended September 26, 2020. Excluding these charges, SG&A was 20.5% of net sales for the three months ended October 2, 2021, compared to 18.3% for the three months ended September 26, 2020, as growth investment was deployed across the businesses.

SG&A, inclusive of the provision for credit losses, was $2.653 billion, or 20.8% of net sales, in the first nine months of 2021, compared to $2.219 billion, or 21.9% of net sales, in the first nine months of 2020. Within SG&A, acquisition-related and other charges totaled $59.5 million for the nine months ended October 2, 2021 and $145.0 million for the nine months ended September 26, 2020. Excluding these charges, SG&A was 20.3% of net sales for the nine months ended October 2, 2021, compared to 20.5% for the nine months ended September 26, 2020. The year-over-year change was primarily driven by savings from the 2020 cost reduction program partially offset by growth investments deployed across the businesses.

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 profit may not be comparable.

Corporate Overhead: The corporate overhead element of SG&A, which is not allocated to the business segments, 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. Corporate overhead amounted to $76.5 million, or 1.8% of net sales, in the third quarter of 2021 compared to $62.8 million, or 1.6% of net sales, in the third quarter of 2020. Excluding acquisition-related and other charges of $6.4 million for the three months ended October 2, 2021 and $17.9 million for the three months ended September 26, 2020, the corporate overhead element of SG&A was 1.6% and 1.2%, in the third quarter of 2021 and 2020, respectively. The increase in 2021 compared to 2020 was primarily due to higher employee-related costs.

On a year-to-date basis, the corporate overhead element of SG&A amounted to $244.6 million, or 1.9% of net sales, in 2021 compared to $190.4 million, or 1.9% of net sales, in 2020. Excluding acquisition-related and other charges of $25.5 million for the nine months ended October 2, 2021 and $49.7 million for the nine months ended September 26, 2020, the corporate overhead element of SG&A was 1.7% and 1.4%, in the first nine months of 2021 and 2020, respectively. The year-over-year change was primarily due to higher employee-related costs.

Other, net: Other, net amounted to $39.5 million and $74.3 million in the third quarter of 2021 and 2020, respectively. Excluding acquisition-related and other charges of $8.1 million and $3.2 million in the third quarter of 2021 and 2020,

respectively, Other, net totaled $31.4 million and $71.1 million, respectively, during these periods. The year-over-year change was primarily due to appreciation of Stanley Ventures' investments.

Other, net amounted to $152.3 million and $236.1 million in the first nine months of 2021 and 2020, respectively. Excluding acquisition-related and other charges of $10.2 million and $41.9 million in the first nine months of 2021 and 2020, respectively, Other, net totaled $142.1 million and $194.2 million, respectively, during these periods. The year-over-year change was primarily due to appreciation of Stanley Ventures' investments.

Loss on Sale of Businesses: The Company reported a pre-tax loss on divestitures of $3.6 million for nine months ended October 2, 2021.

Interest, net: Net interest expense was $43.5 million in the third quarter of 2021 compared to $50.7 million in the third quarter of 2020. On a year-to-date basis, net interest expense was $131.9 million in 2021 compared to $155.1 million in 2020. The year-over-year decrease for both periods was primarily driven by lower U.S. interest rates and lower average balances relating to the Company's commercial paper borrowings. On a year-to-date basis, the decrease was partially offset by lower interest income due to a decline in rates.

Income Taxes: The Company recognized a net income tax benefit of $0.4 million and income tax expense of $192.8 million for the three and nine months ended October 2, 2021, respectively, resulting in effective tax rates of (0.1)% and 12.6%. Excluding the impacts of the acquisition-related and other charges, the effective tax rates were 2.0% and 13.3% for the three and nine months ended October 2, 2021, respectively. These effective tax rates differ from the U.S. statutory tax rate primarily due to a benefit associated with the Company's supply chain reorganization, tax on foreign earnings, the re-measurement of uncertain tax position reserves, the re-measurement of the deferred tax assets and liabilities due to foreign corporate income tax rate changes, and the tax benefit of equity-based compensation.

The Company recognized income tax expense of $78.4 million and a net tax benefit of $26.0 million for the three and nine months ended September 26, 2020, respectively, resulting in effective tax rates of 16.7% and (3.6)%. Excluding the one-time 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 impacts of the acquisition-related and other charges, the effective tax rates were 17.8% and 16.0% for the three and nine months ended September 26, 2020, respectively. These effective tax rates differ from the U.S. statutory tax rate primarily due to tax on foreign earnings, the re-measurement of uncertain tax position reserves, an intra-entity transfer of certain intellectual property rights, and the tax benefit of equity-based compensation.

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.

The Company's operations are classified into three reportable business segments, which also represent its operating segments: Tools & Storage, Industrial and Security.

Tools & Storage:

Tools & Storage net sales increased $381.8 million, or 14%, in the third quarter of 2021 compared to the third quarter of 2020. Sales volume increased by 11%, while price and foreign currency increased sales by 2% and 1%, respectively. All regions delivered organic growth with growth in North America, Europe and emerging markets of 9%, 20% and 28%, respectively. Demand was robust across all markets as the secular shifts related to the reconnection with the home and garden and eCommerce were amplified by the Company's industry-leading innovation and strong professional demand. North America reflected retail growth as well as consistently strong commercial and industrial channels. Point-of-sale demand remained at robust levels in U.S. retail and channel inventory ended below historical levels. Europe experienced growth across all major

geographies and the commercial, retail brick and mortar, and eCommerce channels. Emerging markets growth was pervasive across all regions and was led by strong professional demand.

Tools & Storage net sales increased $2,373.2 million, or 34%, in the first nine months of 2021 compared to the first nine months of 2020. Sales volume increased by 29%, while foreign currency and price increased sales by 3% and 2%, respectively. All regions saw organic growth and share gain with organic growth in North America, Europe and emerging markets of 25%, 41% and 56%, respectively. The year-over-year change was primarily driven by the same factors that impacted the third quarter of 2021, as discussed above.

Segment profit for the third quarter of 2021 was $485.8 million, or 15.2% of net sales, compared to $597.1 million, or 21.3% of net sales, in the third quarter of 2020. Excluding acquisition-related and other charges of $14.2 million and $5.6 million for the three months ended October 2, 2021 and September 26, 2020, respectively, segment profit was 15.7% of net sales in the third quarter of 2021 and 21.5% in the third quarter of 2020, as volume, price, productivity and benefits from innovation were more than offset by accelerating transit costs to meet strong demand, commodity inflation and new growth investments.

Segment profit for the first nine months of 2021 was $1.772 billion, or 18.8% of net sales, compared to $1.177 billion, or 16.6% of net sales, in the first nine months of 2020. Excluding acquisition-related and other charges of $27.6 million and $37.1 million for the nine months ended October 2, 2021 and September 26, 2020, respectively, segment profit was 19.1% of net sales in the first nine months of 2021 and 17.2% in the first nine months of 2020. The year-over-year change was primarily driven by volume, price, productivity and mix benefits from innovation, and savings from the 2020 cost reduction program, partially offset by accelerating transit costs to meet strong demand, commodity inflation and new growth investments.

Industrial:

Industrial net sales increased $6.9 million, or 1%, in the third quarter of 2021 compared to the third quarter of 2020, primarily due to a 2% increase in price and favorable currency impacts of 1%, partially offset by a 1% decrease from both volume and an Oil & Gas product line divestiture. Engineered Fastening organic growth was down 1% as strong general industrial growth was offset by market-driven aerospace declines and lower automotive OEM production resulting from the global semiconductor shortage. Infrastructure organic revenues were up 7% as 16% organic growth in Attachment Tools was partially offset by lower pipeline project activity in Oil & Gas.

On a year-to-date basis, Industrial net sales increased $158.6 million, or 9%, in the first nine months of 2021 compared to the first nine months of 2020, as increases of 6% from volume, 2% from favorable currency and 1% from both price and acquisitions were partially offset by a 1% decline related to an Oil & Gas product line divestiture. Engineered Fastening organic revenues increased 10% as strong automotive and general industrial markets were partially offset by market-driven aerospace declines and lower automotive OEM production resulting from the global semiconductor shortage. Infrastructure organic revenues decreased 2% as growth in Attachment Tools was more than offset by lower pipeline project activity in Oil & Gas.

Industrial segment profit for the third quarter of 2021 totaled $43.8 million, or 7.4% of net sales, compared to $63.8 million, or 10.9% of net sales, in the corresponding 2020 period. Excluding acquisition-related and other charges of $3.2 million and $8.4 million for the three months ended October 2, 2021 and September 26, 2020, respectively, segment profit amounted to 7.9% of net sales in the third quarter of 2021 compared to 12.3% in the third quarter of 2020 as the benefits from price and productivity were more than offset by commodity inflation, growth investments and volume declines in higher-margin automotive and aerospace fasteners.

Year-to-date segment profit for the first nine months of 2021 totaled $207.4 million, or 11.2% of net sales, compared to $136.7 million, or 8.1% of net sales, in the corresponding 2020 period. Excluding acquisition-related and other charges of $9.8 million and $59.4 million for the nine months ended October 2, 2021 and September 26, 2020, respectively, segment profit amounted to 11.7% of net sales in the first nine months of 2021 compared to 11.6% in the first nine months of 2020. The year-over-year change was primarily driven by volume, price, productivity and benefits from the 2020 cost savings program partially offset by commodity inflation, growth investments and unfavorable mix.

Security:

Security net sales increased $24.3 million, or 5%, in the third quarter of 2021 compared to the third quarter of 2020, as an increase of 7% from volume, favorable impacts from foreign currency of 1% and 1% increases from both price and acquisitions were partially offset by a 5% decline from divestitures. North America organic growth was 12% driven by strong backlog conversion in commercial electronic security and growth within automatic doors and healthcare. Europe was positive organically led by data-driven product solutions in France which is one of the new Health and Safety growth opportunities.

On a year-to-date basis, net sales increased $102.4 million, or 8%, in the first nine months of 2021 compared to the first nine months of 2020, as an increase of 6% from volume, favorable impacts from foreign currency of 4% and a 1% increase from both price and acquisitions was partially offset by a 4% decline from divestitures. North America and Europe organic revenues increased 9% and 5%, respectively, primarily due to the same factors that impacted the third quarter of 2021, as discussed above.

Security segment profit for the third quarter of 2021 was $39.6 million, or 8.2% of net sales, compared to $39.3 million, or 8.6% of net sales, in the corresponding 2020 period. Excluding acquisition-related and other charges of $5.0 million and $11.1 million for the three months ended October 2, 2021 and September 26, 2020, respectively, segment profit amounted to 9.2% of net sales in the third quarter of 2021 compared to 11.0% in the third quarter of 2020, as price and volume gains were more than offset by higher labor costs, pandemic-related inefficiencies and growth investments.

Year-to-date segment profit for the first nine months of 2021 was $111.1 million, or 7.6% of net sales, compared to $69.4 million, or 5.1% of net sales, in the corresponding 2020 period. Excluding acquisition-related and other charges of $16.8 million and $57.5 million for the nine months ended October 2, 2021 and September 26, 2020, respectively, segment profit amounted to 8.7% and 9.3% of net sales in the first nine months of 2021 and 2020, respectively. The year-over-year decrease was primarily driven by the factors discussed above that impacted the third quarter of 2021.

RESTRUCTURING ACTIVITIES

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

For the three and nine months ended October 2, 2021, the Company recognized net restructuring charges of $5.8 million and $22.1 million, respectively, primarily related to severance and facility-related costs. The Company expects to achieve annual net cost savings of approximately $31 million by the end of 2022 related to the restructuring costs incurred during the nine months ended October 2, 2021. The majority of the $49.1 million of reserves remaining as of October 2, 2021 is expected to be utilized within the next 12 months.

Segments: The $22 million of net restructuring charges for the nine months ended October 2, 2021 includes: $7 million pertaining to the Tools & Storage segment; $2 million pertaining to the Industrial segment; $9 million pertaining to the Security segment; and $4 million relating to Corporate.

The $6 million of net restructuring charges for the three months ended October 2, 2021 includes: $1 million of net reversals pertaining to the Tools & Storage segment; $5 million pertaining to the Security segment; and $2 million relating to Corporate.

The anticipated annual net cost savings of approximately $31 million related to the 2021 restructuring actions include: $7 million in the Tools & Storage segment; $10 million in the Industrial segment; $13 million in the Security segment; and $1 million in Corporate.

2021 OUTLOOK

This outlook discussion is intended to provide broad insight into the Company's near-term earnings and cash flow generation prospects. The Company is updating its 2021 diluted earnings per share outlook to $10.00 to $10.25, from $10.80 to $11.20 (as disclosed in the Form 10-Q for the quarter ended July 3, 2021), and its diluted earnings per share range, excluding charges, to $10.70 to $10.90 from $11.35 to $11.65 (as disclosed in the Form 10-Q for the quarter ended July 3, 2021). Free cash flow is expected to approximate $1.1 - $1.3 billion. The Company has changed the following assumptions for 2021 from its prior outlook: an incremental $230 million in commodity, transit and labor inflation will result in approximately $1.25 of incremental dilution to earnings per share; currency will approximate $0.15 of incremental dilution to earnings per share; a change in the calculation of diluted earnings per share with respect to its outstanding Equity Units will approximate $0.20 of incremental dilution to earnings per share; a lower tax rate and other items below operating margin will approximate $0.60 of accretion per diluted share; and margin resiliency, incremental pricing actions and other cost control activity will approximate $0.30 of accretion per diluted share. The change in the Company's free cash flow assumption is due to an expectation for higher levels of inventory to support the strong demand and to serve its customers.

The difference between the 2021 diluted earnings per share outlook and the diluted earnings per share range, excluding charges, is $0.65 to $0.70, consisting of acquisition-related and other charges. These forecasted charges primarily relate to facility moves, deal and integration costs and functional transformation initiatives. The diluted earnings per share outlook excludes charges associated with MTD and Excel which will be incorporated post closure. Subject to remaining regulatory approvals, the Company expects that within the coming weeks, both the MTD and Excel acquisitions will have closed. If the transactions close before year end, 2021 charges associated with inventory step-up, deal and integration costs are estimated to total $0.20 to $0.30 per diluted share.

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 $4.6 million in the third quarter of 2021 compared to $677.2 million in the corresponding period of 2020. Year-to-date cash flows provided by operations were $291.2 million compared to $600.2 million in the corresponding period of 2020. The year-over-year change was mainly attributable to higher inventory balances to support strong demand in the Tools and Storage segment.

Free Cash Flow: Free cash flow, as defined in the table below, was an outflow of $124.5 million in the third quarter of 2021 compared to an inflow of $615.1 million in the corresponding period of 2020. On a year-to-date basis, free cash flow was an outflow of $31.3 million in 2021 compared to an inflow of $390.7 million in 2020. Free cash flow decreased in both periods due to higher inventory balances to support strong demand in the Tools and Storage segment and higher capital expenditures as discussed below. Management considers free cash flow an important indicator of its liquidity, as well as its ability to fund future growth and provide dividends to shareowners, and is useful information for investors. Free cash flow does not include deductions for mandatory debt service, other borrowing activity, discretionary dividends on the Company’s common and preferred stock and business acquisitions, among other items.

Investing Activities: Cash flows used in investing activities totaled $143.0 million and $63.8 million during the third quarter of 2021 and 2020, respectively, primarily due to capital and software expenditures of $129.1 million and $62.1 million, respectively.

Year-to-date cash flows used in investing activities totaled $399.7 million in 2021 primarily due to capital and software expenditures of $322.5 million and net investment hedge settlements of $53.9 million. Cash flows used in investing activities totaled $1.484 billion in the first nine months of 2020, primarily due to the CAM acquisition of $1.301 billion, net of cash acquired, and capital and software expenditures of $209.5 million.

Capital expenditures increased in both periods due to current year growth investments as well as planned lower capital expenditures levels during 2020 in response to the uncertainty around the long-term impact of the COVID-19 pandemic on the Company's business.

Financing Activities: Cash flows provided by financing activities totaled $7.8 million in the third quarter of 2021 primarily driven by net short-term borrowings under the Company's commercial paper program of $149.6 million, partially offset by cash dividend payments on common stock of $126.0 million. Cash flows used in financing activities totaled $810.2 million in the third quarter of 2020 primarily driven by net payments on short-term borrowings under the Company's commercial paper program of $712.9 million and cash dividend payments on common stock of $109.6 million.

Year-to-date cash flows used in financing activities totaled $940.5 million in the first nine months of 2021 primarily driven by the Series C Preferred Stock redemption and conversion for $750.0 million and cash dividend payments on common stock of $347.7 million, partially offset by net short-term borrowings under the Company's commercial paper program of $150.7 million and proceeds from issuances of common stock of $108.1 million. Cash flows provided by financing activities totaled $1.274 billion in the first nine months of 2020 primarily driven by net proceeds from debt issuances of $1.483 billion, proceeds from issuances of common stock of $843.8 million, partially offset by net short-term borrowings under the Company's commercial paper program of $341.8 million, cash dividend payments of $321.0 million and the Craftsman deferred purchase price payment of $250.0 million.

Credit Ratings & 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), and its commercial paper program (S&P A-1, Fitch F1, Moody's P-2). There were no changes to any of the Company's credit ratings during the first nine months of 2021, however, S&P and Fitch revised their outlook to 'stable' from 'negative' in the first half of the year as a result of the Company's strong performance during the COVID-19 pandemic. Failure to maintain strong investment grade credit 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 $293 million as of October 2, 2021, comprised of $71 million in the U.S. and $222 million in foreign jurisdictions. As of January 2, 2021, cash and cash equivalents totaled $1.381 billion, comprised of $1.119 billion in the U.S. and $262 million in foreign jurisdictions.

As a result of the Tax Cuts and Jobs Act (the “Act”), the Company's tax liability related to the one-time transition tax associated with unremitted foreign earnings and profits totaled $290 million at October 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. The Company has considered the implications of paying the required one-time transition tax and believes it will not have a material impact on its liquidity.

In October 2021, the Company increased the commercial paper program from $3.0 billion to $3.5 billion, which includes Euro denominated borrowings in addition to U.S. Dollars. As of October 2, 2021, the Company had $147.0 million of borrowings outstanding. As of January 2, 2021, the Company had no borrowings outstanding.

In September 2021, the Company amended and restated its existing five-year $2.0 billion committed credit facility with the concurrent execution of a new five-year $2.5 billion committed credit facility (the “5-Year Credit Agreement”). Borrowings under the 5-Year Credit Agreement may be made in U.S. Dollars, Euros or Pounds Sterling. A sub-limit amount of $814.3 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 8, 2026 or upon termination. The 5-Year Credit Agreement is designated to be a liquidity back-stop for the Company's $3.5 billion U.S. Dollar and Euro commercial paper program. As of October 2, 2021, and January 2, 2021, the Company had not drawn on its five-year committed credit facility.

In September 2021, the Company terminated its 364-Day $1.0 billion credit facility and concurrently executed a new 364-Day $1.0 billion committed credit facility (the "364-Day Credit Agreement"). Borrowings under the 364-Day Credit Agreement may be made in U.S. Dollars or Euros and bear interest at a floating rate plus an applicable margin dependent upon the denomination of the borrowing and pursuant to the terms of the 364-Day Credit Agreement. The Company must repay all advances under the 364-Day Credit Agreement by the earlier of September 7, 2022 or 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 $3.5 billion U.S. Dollar and Euro commercial paper program previously discussed. As of October 2, 2021, and January 2, 2021, the Company had not drawn on its 364-Day committed credit facility.

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 consisted of a three-year forward stock purchase contract ("2022 Purchase Contracts") for the purchase of a variable number of shares of common stock, on November 15, 2022, for a price of $100, and a 10% beneficial ownership interest in one share of 0% Series D Cumulative Perpetual Convertible Preferred Stock, without par, with a liquidation preference of $1,000 per share ("Series D Preferred Stock"). The Company received approximately $735 million in cash proceeds from the 2019 Equity Units, net of offering expenses and underwriting costs and commissions, and issued 750,000 shares of Series D Preferred Stock, recording $750 million in preferred stock. The proceeds were used, together with cash on hand, to redeem the 2052 Junior Subordinated Debentures in December 2019. The Company also used $19 million of the proceeds to enter into capped call transactions utilized to hedge potential economic dilution. On and after November 15, 2022, the Series D Preferred Stock may be converted into common stock at the option of the holder. At the election of the Company, upon conversion, the Company may deliver cash, common stock, or a combination thereof. On or after December 22, 2022, the Company may elect to redeem for cash, all or any portion of the outstanding shares of the Series D Preferred Stock at a redemption price equal to 100% of the liquidation preference, plus any accumulated and unpaid dividends. If the Company calls the Series D Preferred Stock for redemption, holders may convert their shares immediately preceding the redemption date. Upon settlement of the 2022 Purchase Contracts, the Company will receive additional cash proceeds of $750 million. The Company pays the holders of the 2022 Purchase Contracts quarterly contract adjustment payments, which commenced February 15, 2020. As of October 2, 2021, the present value of the contract adjustment payments was approximately $48 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 call options on its common stock and received 61,767 shares using an average reference price of $162.26 per common share. On June 9, 2020, the Company amended the 2018 capped call options to align with and offset the potential economic dilution associated with the common shares issuable upon conversion of the remarketed Series C Preferred Stock, as further discussed below. Subsequent to the amendment, the capped call options had an initial lower strike price of $148.34 and an upper strike price of $165.00, which was approximately 30% higher than the closing price of the Company's common stock on June 9, 2020. During the second quarter of 2021, the Company net-share settled the remaining capped call options on its common stock and received 344,004 shares using an average reference price of $209.80 per common share.

In May 2017, the Company issued 7,500,000 Equity Units with a total notional value of $750 million ("2017 Equity Units"). Each unit had a stated amount of $100 and initially consisted of a three-year forward stock purchase contract ("2020 Purchase Contracts") for the purchase of a variable number of shares of common stock, on May 15, 2020, for a price of $100, and a 10% beneficial ownership interest in one share of 0% Series C Cumulative Perpetual Convertible Preferred Stock, without par, with a liquidation preference of $1,000 per share ("Series C Preferred Stock"). The Company received approximately $726 million in cash proceeds from the 2017 Equity Units, net of offering expenses and underwriting costs and commissions, and issued 750,000 shares of Series C Preferred Stock, recording $750 million in 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 successfully remarketed the Series C Preferred Stock*.* The remarketing generated cash proceeds of $750 million which were applied to settle the holders' stock purchase contract obligations, resulting in the Company issuing 5,463,750 common shares. 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 was equivalent to a conversion price of approximately $148.47 per share. On and after May 15, 2020, the Series C Preferred Stock may be converted into common stock at the option of the holder. The Company did not have the right to redeem the Series C Preferred Stock prior to May 15, 2021. On April 28, 2021,

the Company informed holders that it would redeem all outstanding shares of the Series C Preferred Stock on June 3, 2021 (the “Redemption Date”) at $1,002.50 per share in cash (the “Redemption Price”), which was equal to 100% of the liquidation preference of a share of Series C Preferred Stock, plus accumulated and unpaid dividends to, but excluding, the Redemption Date. If a holder elected to convert its shares of Series C Preferred Stock prior to the Redemption Date, the Company elected a combination settlement with a specified cash amount of $1,000 per share. In June 2021, the Company redeemed the Series C Preferred Stock and settled all conversions, paying $750 million in cash and issuing 1,469,055 common shares.

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 $350.0 million, plus an additional amount related to the forward component of the contract, by April 2022, or earlier at the Company's option.

Refer to Note H, Long-Term Debt and Financing Arrangements, and Note J, Equity Arrangements, for further discussion of the Company's financing arrangements.

OTHER MATTERS

Critical Accounting Estimates: There have been no significant changes in the Company’s critical accounting estimates during the third quarter of 2021.

Refer to the “Other Matters” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Form 10-K for the year ended January 2, 2021 for a discussion of the Company’s critical accounting estimates.

There has been no significant change in the Company’s exposure to market risk during the third quarter of 2021. Refer to the Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Form 10-K for the year ended January 2, 2021 for further discussion.

Under the supervision and with the participation of management, including the Company’s Chief Executive Officer and its President and Chief Financial Officer, the Company has, pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined under Rule 13a-15(e) of the Exchange Act). Based upon that evaluation, the Company’s Chief Executive Officer and its President and Chief Financial Officer have concluded that, as of October 2, 2021, the Company’s disclosure controls and procedures are effective. There has been no change in the Company’s internal control over financial reporting that occurred during the third quarter of 2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

CAUTIONARY STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION

REFORM ACT OF 1995

This document contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including any projections or guidance of earnings, revenue or other financial items; 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.

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; (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; (xxvii) the continued adverse effects of the COVID-19 pandemic and an indeterminate recovery period; and (xxviii) the possibility that the Company does not achieve the intended financial benefits from the acquisition of MTD.

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

Forward-looking statements in this Quarterly Report on Form 10-Q 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.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the normal course of business, the Company is involved in various lawsuits and claims, including product liability, environmental and distributor claims, and administrative proceedings. The Company does not expect that the resolution of these matters will have a materially adverse effect on the Company’s consolidated financial position, results of operations or liquidity.

There have been no material changes to the risk factors as disclosed in the Company’s Form 10-K for the year ended January 2, 2021 filed with the Securities and Exchange Commission on February 18, 2021.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

The following table provides information about the Company’s purchases of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act during the three months ended October 2, 2021:

(a)The shares of common stock in this column were deemed surrendered to the Company by participants in various benefit plans of the Company to satisfy the participants’ taxes related to vesting or delivery of time-vesting restricted share units under those plans.

(b)On April 23, 2021, the Board of Directors approved a new repurchase program of up to 20.0 million shares of the Company's common stock and terminated the previously approved repurchase program. As of October 2, 2021, the authorized shares available for repurchase under the new program totaled 20.0 million shares. The repurchase program does not have an expiration date. In the second quarter of 2021, the Company net-share settled capped call options and received 344,004 shares. This transaction was completed under the previously approved repurchase program. The currently authorized shares available for repurchase do not include approximately 3.6 million shares reserved and authorized for purchase under the Company’s previously approved repurchase program relating to a forward share purchase contract entered into in March 2015. Refer to Note J, Equity Arrangements, of the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 for further discussion.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.