Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 global provider of hand tools, power tools, outdoor products and related accessories, as well as a leading provider of engineered fastening solutions and attachment tools for infrastructure applications. The Company has executed a growth and acquisition strategy that involves industry, geographic and customer diversification to foster sustainable revenue, earnings and cash flow growth over the long term. Over the next two to three years, the Company is focused on leveraging past acquisitions through an organic strategy that optimizes the newly focused portfolio surrounding its Tools & Outdoor and Industrial businesses. Execution of this strategy means reducing complexity and optimizing the operating structure to invest in the Company’s leading franchises to deliver organic growth at 2 to 3 times the market and to transform the supply chain to be shorter, closer to customers and more responsive to demand with 35+ gross margin rates.

A key enabler of the strategy is the long-standing Stanley Black & Decker Operating Model (“SBD Operating Model”) which has continually evolved over the past 15 years as times have changed. The core tenets of the SBD Operating Model include the concept of the interrelationship between people and technology, which intersect and interact with the other key elements that are focused on delivering capital efficient growth and margin expansion.

The Company’s growth strategy is interdependent with its social responsibility 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 ("ESG") targets embodied in its 2030 ESG strategy that include empowering 10 million makers and creators, enhancing 500 million lives through purpose-driven product innovation, becoming carbon-neutral, landfill-free across its operations, and reducing water use in water stressed and scarce areas. The carbon neutrality 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 ESG 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 1, 2022 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 the long-term, to returning approximately 50% of excess capital to shareholders through a strong and growing dividend as well as opportunistically repurchasing shares. The remaining capital (approximately 50%) will be deployed towards acquisitions. Over the next two to three years, the Company expects to prioritize return of excess capital to shareholders.

Share Repurchases And Other Securities

During the first quarter of 2022, the Company repurchased 12,645,371 shares of common stock for approximately $2.3 billion through a combination of an accelerated share repurchase ("ASR") and open market share repurchases. The ASR terms provided for an initial delivery of 85% of the total notional share equivalent at execution, or 10,756,770 shares. The final delivery of the remaining shares totaling 3,211,317 under the ASR was completed during the second quarter of 2022. Refer to Note J, Equity Arrangements, for further discussion.

In addition, on April 23, 2021, the Board of Directors approved repurchases by the Company of its outstanding securities other than common stock up to an aggregate amount of $3.0 billion. No repurchases have been executed pursuant to this authorization to date.

Sale of Oil & Gas business

On August 19, 2022, the Company completed the previously announced sale of its Oil & Gas business comprising of pipeline services and equipment businesses to Pipeline Technique Limited.

Sale of Mechanical Access Solutions ("MAS")

On July 5, 2022, the Company completed the previously announced sale of its MAS business comprising of the automatic doors business to Allegion plc for net proceeds of $922.2 million.

Sale of Convergent Security Solutions ("CSS")

On July 22, 2022, the Company completed the previously announced sale of its CSS business comprising of commercial electronic security and healthcare businesses to Securitas AB for net proceeds of $3.1 billion.

Proceeds from the sale of these businesses were used to repay borrowings made in the first quarter of 2022 to fund the Company's share repurchase program previously discussed. The use of proceeds to support a share repurchase program is consistent with the Company's long-term capital allocation strategy.

Acquisitions

On December 1, 2021, the Company acquired the remaining 80 percent ownership stake in MTD Holdings Inc. ("MTD"), a privately held global manufacturer of outdoor power equipment. The Company previously acquired a 20 percent interest in MTD in January 2019. With over $2.6 billion of revenue in 2021, MTD designs, manufactures and distributes lawn tractors, zero turn ride on mowers, walk behind mowers, snow blowers, residential robotic mowers, handheld outdoor power equipment and garden tools for both residential and professional consumers under well-known brands like Cub Cadet® and Troy-Bilt®.

On November 12, 2021, the Company acquired Excel Industries ("Excel"). Excel is a leading designer and manufacturer of premium commercial and residential turf-care equipment under the Hustler Turf Equipment® brand. The Company believes this is a strategically important bolt-on acquisition that bolsters its presence in the independent dealer network.

The Company expects the combination of MTD, Excel and its existing outdoor strategic business unit in Tools & Outdoor will create a global leader in the $25 billion and growing outdoor category, with strong brands and growth opportunities. As part of the integration of these businesses, the Company plans to design, develop and manufacture battery and electric-powered solutions for professional and residential users. This will position the combined businesses to be a leader as preferences shift from gas powered equipment toward electrified solutions in outdoor power equipment.

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

Global Cost Reduction Program Update

The Company’s primary areas of strategic focus are:

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

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

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

• Prioritizing cash flow generation and inventory optimization.

The Company advanced a series of initiatives in the third quarter designed to generate cost savings by resizing the organization and reducing inventory with the ultimate objective of driving long-term growth, improving profitability and generating strong cash flow. These initiatives are expected to optimize the cost base as well as provide a platform to fund investments to accelerate growth in the core businesses. The Company remains on track and expects these initiatives to generate cost savings of approximately $150 to $200 million in 2022, $1 billion by the end of 2023 and grow to approximately $2 billion by 2025.

The program consists of a selling, general, and administrative ("SG&A") reduction of $500 million and a supply chain transformation expected to deliver $1.5 billion of cumulative cost savings to achieve 35%+ adjusted gross margins. The $500 million SG&A savings is generated by simplifying the corporate structure, optimizing organizational spans and layers and reducing indirect spend and is expected to be achieved by the end of 2023. These savings are intended to fund $300 million to

$500 million of innovation and commercial investments over the next three years to accelerate organic growth. The charges associated with the SG&A savings are reflected in the full year estimate of acquisiton-related and other charges detailed below in 2022 Outlook.

The supply chain transformation consists of:

• Leveraging strategic sourcing and contract manufacturing;

• Consolidating facilities and optimizing the distribution network;

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

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

The investment required over the next two to three years to achieve the $1.5 billion of cumulative supply chain cost savings is approximately $700 to $750 million, of which approximately 45% is expected to be capital expenditures.

During the third quarter, the Company realized $65 million of savings primarily from lower headcount and indirect spend reductions. In addition, the Company reduced inventory by approximately $290 million sequentially and expects further inventory and working capital reductions in the fourth quarter to support free cash flow generation.

Segments

The Company’s operations are classified into two reportable business segments: Tools & Outdoor and Industrial.

Tools & Outdoor

The Tools & Outdoor segment is comprised of the Power Tools Group ("PTG"), Hand Tools, Accessories & Storage ("HTAS"), and Outdoor Power Equipment ("Outdoor") businesses. Annual revenues in the Tools & Outdoor segment were $12.8 billion in 2021, representing 82% 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 Outdoor business primarily sells corded and cordless electric lawn and garden products, including hedge trimmers, string trimmers, lawn mowers, pressure washers and related accessories, and gas powered lawn and garden products, including lawn tractors, zero turn ride on mowers, walk behind mowers, snow blowers, residential robotic mowers, utility terrain vehicles (UTVs), handheld outdoor power equipment, garden tools, and parts and accessories to professionals and consumers under the DEWALT®, CUB CADET®, BLACK+DECKER®, CRAFTSMAN®, TROY-BILT®, and HUSTLER® brand names.

Industrial

The Industrial segment is comprised of the Engineered Fastening and Infrastructure businesses. Annual revenues in the Industrial segment were $2.5 billion in 2021, 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 product line and sells hydraulic tools and high quality, performance-driven heavy equipment attachment tools for off-highway applications.

RESULTS OF OPERATIONS

The Company’s results represent continuing operations and exclude the commercial electronic security, healthcare, and automatic doors businesses, unless specifically noted. These divestitures represent a single plan to exit the Security segment and are considered a strategic shift that will have a major effect on the Company's operations and financial results. Therefore, the operating results of these businesses have been classified as discontinued operations. The divestiture of the Oil & Gas business did not qualify for discontinued operations and therefore, its results are included in the Company's continuing operations within the Industrial segment for all periods presented through the date of sale in the third quarter of 2022.

Certain Items Impacting Earnings

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, 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 2022 and 2021 are as follows:

Third Quarter 2022

			(Millions of Dollars)						GAAP						Acquisition- Related Charges & Other						Non-GAAP
			Gross profit						$	1,018.1					$	(2.5)					$	1,015.6
			Selling, general and administrative1						799.8						(41.3)						758.5
			Operating profit						218.3						38.8						257.1
			(Loss) earnings from continuing operations before income taxes and equity interest						(4.3)						118.7						114.4
			Income taxes on continuing operations						(40.9)						39.4						(1.5)
			Net Earnings from Continuing Operations Attributable to Common Shareowners - Diluted						36.9						79.3						116.2
			Diluted earnings per share of common stock - Continuing operations						$	0.24					$	0.52					$	0.76
1			Includes provision for credit losses

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

• A net benefit to Gross profit primarily pertaining to reserve adjustments relating to the Russia business closure;

• Charges in SG&A primarily related to integration-related costs;

• Other charges included in (Loss) earnings from continuing operations before income taxes and equity interest consisting of:

◦$2.7 million in Other, net primarily related to deal transaction costs;

◦$8.6 million loss pertaining to the sale of the Oil & Gas business; and

◦$68.6 million of restructuring charges primarily pertaining to severance and related costs;

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

Year-To-Date 2022

			(Millions of Dollars)						GAAP						Acquisition- Related Charges & Other						Non-GAAP
			Gross profit						$	3,530.6					$	102.9					$	3,633.5
			Selling, general and administrative1						2,612.8						(153.1)						2,459.7
			Operating profit						917.8						256.0						1,173.8
			Earnings from continuing operations before income taxes and equity interest						190.1						588.2						778.3
			Income taxes on continuing operations						(80.8)						121.7						40.9
			Net Earnings from Continuing Operations Attributable to Common Shareowners - Diluted						271.7						466.5						738.2
			Diluted earnings per share of common stock - Continuing operations						$	1.72					$	2.95					$	4.67
1			Includes provision for credit losses

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

• Charges reducing Gross profit primarily pertaining to inventory step-up charges and the Russia business closure;

• Charges in SG&A primarily related to integration-related costs, a voluntary retirement program, and the Russia business closure;

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

◦$14.6 million in Other, net primarily related to a voluntary retirement program and deal transaction costs;

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

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

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

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

Third Quarter 2021

			(Millions of Dollars)						GAAP						Acquisition- Related Charges & Other						Non-GAAP
			Gross profit						$	1,215.6					$	5.1					$	1,220.7
			Selling, general and administrative1						773.5						(18.7)						754.8
			Operating profit						442.1						23.8						465.9
			Earnings from continuing operations before income taxes and equity interest						369.2						32.5						401.7
			Income taxes on continuing operations						(0.5)						6.8						6.3
			Share of net earnings of equity method investment						9.8						—						9.8
			Net Earnings from Continuing Operations Attributable to Common Shareowners - Diluted						380.0						25.7						405.7
			Diluted earnings per share of common stock - Continuing operations						$	2.30					$	0.15					$	2.45
1			Includes provision for credit losses

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

• Charges reducing Gross profit pertaining to facility-related charges;

• Charges in SG&A primarily for functional transformation initiatives;

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

◦$8.1 million in Other, net primarily related to deal transactions costs; and

◦$0.6 million of restructuring charges;

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

Year-To-Date 2021

			(Millions of Dollars)						GAAP						Acquisition- Related Charges & Other						Non-GAAP
			Gross profit						$	3,965.2					$	10.8					$	3,976.0
			Selling, general and administrative1						2,259.7						(52.1)						2,207.6
			Operating profit						1,705.5						62.9						1,768.4
			Earnings from continuing operations before income taxes and equity interest						1,437.9						89.5						1,527.4
			Income taxes on continuing operations						182.3						21.2						203.5
			Share of net earnings of equity method investment						16.0						11.2						27.2
			Net Earnings from Continuing Operations Attributable to Common Shareowners - Diluted						1,260.0						79.5						1,339.5
			Diluted earnings per share of common stock - Continuing operations						$	7.64					$	0.48					$	8.12
1			Includes provision for credit losses

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

• Charges reducing Gross profit pertaining to facility-related charges;

• Charges in SG&A primarily for functional transformation initiatives;

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

◦$10.2 million in Other, net primarily related to deal transactions costs;

◦$3.6 million net loss pertaining to a previously divested business; and

◦$12.8 million of restructuring charges pertaining to severance and facility closures;

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

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 $4.120 billion in the third quarter of 2022 compared to $3.780 billion in the third quarter of 2021, representing an increase of 9%, primarily driven by a 16% increase from strategic outdoor power equipment acquisitions and an 8% increase from price realization, partially offset by a 10% decrease in volume, 4% decrease from foreign currency, and a 1% decrease from divestitures. Tools & Outdoor net sales increased 10% compared to the third quarter of 2021 due to an 18% increase from the MTD and Excel acquisitions and a 7% increase in price, partially offset by a 12% decline in volume and a 3% decrease from foreign currency. Industrial net sales increased by 5% compared to the third quarter of 2021 as a 9% increase in price and 5% increase in volume was partially offset by a 6% impact from foreign currency and a 3% impact from the Oil & Gas divestiture.

Net sales were $12.961 billion in the first nine months of 2022 compared to $11.299 billion in the first nine months of 2021, representing an increase of 15%, primarily driven by a 21% increase from strategic outdoor power equipment acquisitions and a 7% increase from price realization, partially offset by 10% and 3% decreases from volume and foreign currency, respectively. Tools & Outdoor net sales increased 17% compared to the first nine months of 2021 due to a 25% increase from the MTD and Excel acquisitions and a 7% increase in price, partially offset by a 12% decline in volume and a 3% decrease from foreign currency. Industrial net sales increased 4% compared to the first nine months of 2021 as an 8% increase in price and 1% increase in volume were partially offset by a 4% impact from foreign currency and a 1% impact from the Oil & Gas divestiture.

Gross Profit: Gross profit was $1.018 billion, or 24.7% of net sales, in the third quarter of 2022 compared to $1.216 billion, or 32.2% of net sales, in the third quarter of 2021. Acquisition-related and other charges were a net benefit of $2.5 million for the three months ended October 1, 2022 and a $5.1 million charge for the three months ended October 2, 2021. Excluding these items, gross profit was 24.7% of net sales for the three months ended October 1, 2022, compared to 32.3% for the three months ended October 2, 2021, as price realization was more than offset by commodity inflation, higher supply chain costs, including the impact of planned production curtailments, and lower volume.

Gross profit was $3.531 billion, or 27.2% of net sales, in the first nine months of 2022 compared to $3.965 billion, or 35.1% of net sales, in the first nine months of 2021. Acquisition-related and other charges, which reduced gross profit, were $102.9 million for the nine months ended October 1, 2022 and $10.8 million for the nine months ended October 2, 2021. Excluding

these items, gross profit was 28.0% of net sales for the nine months ended October 1, 2022, compared to 35.2% for the nine months ended October 2, 2021, driven by the factors discussed above that impacted the third quarter of 2022.

SG&A Expenses: SG&A, inclusive of the provision for credit losses, was $799.8 million, or 19.4% of net sales, in the third quarter of 2022, compared to $773.5 million, or 20.5% of net sales, in the third quarter of 2021. Within SG&A, acquisition-related and other charges totaled $41.3 million for the three months ended October 1, 2022 and $18.7 million for the three months ended October 2, 2021. Excluding these charges, SG&A was 18.4% of net sales for the three months ended October 1, 2022, compared to 20.0% for the three months ended October 2, 2021 due to the successful implementation of cost control actions.

SG&A, inclusive of the provision for credit losses, was $2.613 billion, or 20.2% of net sales, in the first nine months of 2022, compared to $2.260 billion, or 20.0% of net sales, in the first nine months of 2021. Within SG&A, acquisition-related and other charges totaled $153.1 million for the nine months ended October 1, 2022 and $52.1 million for the nine months ended October 2, 2021. Excluding these charges, SG&A was 19.0% of net sales for the nine months ended October 1, 2022, compared to 19.5% for the nine months ended October 2, 2021.

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.

Other, net: Other, net amounted to $69.1 million and $28.9 million in the third quarter of 2022 and 2021, respectively. Excluding acquisition-related and other charges of $2.7 million, Other, net totaled $66.4 million for the three months ended October 1, 2022. Excluding acquisition-related and other charges of $8.1 million, Other, net totaled $20.8 million for the three months ended October 2, 2021. The increase in 2022 compared to 2021 is driven by higher intangible asset amortization in 2022 due to the MTD and Excel acquisitions and appreciation of Stanley Ventures' investments in the third quarter of 2021.

Other, net amounted to $210.2 million and $119.4 million in the first nine months of 2022 and 2021, respectively. Excluding acquisition-related and other charges of $14.6 million, Other, net totaled $195.6 million for the nine months ended October 1, 2022. Excluding acquisition-related and other charges of $10.2 million, Other, net totaled $109.2 million for the nine months ended October 2, 2021. The increase in 2022 compared to 2021 is driven by the factors discussed above.

Loss on Sales of Businesses: During the third quarter of 2022, the Company recorded an $8.6 million pre-tax loss related to the sale of the Oil & Gas business. The Company also recognized a $0.2 million pre-tax gain in the second quarter of 2022 related to a previously divested business, resulting in a net loss of $8.4 million for the first nine months of 2022.

During the first nine months of 2021, the Company recorded a pre-tax loss of $3.6 million related to previously divested businesses.

Asset Impairment Charge: During the second quarter of 2022, the Company recorded a pre-tax impairment loss of $168.4 million related to the Oil & Gas business. Refer to Footnote T, Divestitures, for additional information on the divestiture of the Oil & Gas business.

Interest, net: Net interest expense was $76.3 million in the third quarter of 2022 compared to $43.4 million in the third quarter of 2021. On a year-to-date basis, net interest expense was $199.9 million in 2022 and $131.8 million in 2021. The year-over-year increase was primarily driven by higher U.S. interest rates and higher average balances relating to the Company's commercial paper borrowings, as well as the $1.0 billion issuance of debt in the first quarter of 2022.

Income Taxes: The Company recognized an income tax benefit on continuing operations of $40.9 million and $80.8 million for the three and nine months ended October 1, 2022, respectively, resulting in effective tax rates of 951.2% and (42.5)%. The effective tax rate for the three months ended October 1, 2022 differs from the U.S. statutory tax rate primarily due to the continued reorganization of the supply chain and the impact of lower forecasted earnings in North America, offset by tax on foreign earnings and the re-measurement of uncertain tax positions. The effective tax rate for the nine months ended October 1, 2022 differs from the U.S. statutory tax rate primarily due to a benefit associated with the disposition of the Company's Oil & Gas business in addition to the items discussed above. Excluding the impacts of the acquisition-related and other charges, the effective tax rates were (1.3)% and 5.3% for the three and nine months ended October 1, 2022, respectively. These effective tax rates differ from the U.S. statutory tax rate due to the items discussed above, excluding the benefit associated with the disposition of the Company's Oil & Gas business.

The Company recognized an income tax benefit on continuing operations of $0.5 million and expense of $182.3 million for the three and nine months ended October 2, 2021, respectively, resulting in effective tax rates of (0.1)% and 12.7%. Excluding the impacts of the acquisition-related and other charges, the effective tax rates were 1.6% 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.

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 two reportable business segments: Tools & Outdoor and Industrial.

Tools & Outdoor:

			Third Quarter												Year-to-Date
(Millions of Dollars)			2022						2021						2022						2021
Net sales			$	3,494.7					$	3,185.9					$	11,040.8					$	9,445.3
Segment profit			$	228.4					$	478.5					$	968.5					$	1,750.2
% of Net sales			6.5		%				15.0		%				8.8		%				18.5		%

Tools & Outdoor net sales increased $308.8 million, or 10%, in the third quarter of 2022 compared to the third quarter of 2021, as an 18% increase from the MTD and Excel acquisitions and a 7% increase in price were partially offset by lower volume of 12% and 3% from unfavorable currency impacts. The overall 5% organic decline was a result of lower consumer and DIY market demand. Regional year-over-year organic revenue declines were 2%, 4%, and 12% in emerging markets, North America, and Europe, respectively. U.S. retail point-of-sale demand was supported by price increases and professional demand, which remained stable compared to levels exiting the second quarter of 2022.

Tools & Outdoor net sales increased $1.596 billion, or 17%, in the first nine months of 2022 compared to the first nine months of 2021, primarily driven by a 25% increase from the MTD and Excel acquisitions and a 7% increase in price, partially offset by lower volume of 12% and 3% from unfavorable currency impacts. Organic revenue in emerging markets increased 2% year-over-year and declined in both Europe and North America by 6%. The overall 5% organic decline was primarily driven by the same factors that impacted the third quarter of 2022, as discussed above.

Segment profit for the third quarter of 2022 was $228.4 million, or 6.5% of net sales, compared to $478.5 million, or 15.0% of net sales, in the third quarter of 2021. Excluding acquisition-related and other charges of $10.6 million and $14.2 million for the three months ended October 1, 2022 and October 2, 2021, respectively, segment profit was 6.8% of net sales in the third quarter of 2022 and 15.5% in the third quarter of 2021, as the benefit from price realization was more than offset by commodity inflation, higher supply chain costs, production curtailment costs and lower volume.

Segment profit for the first nine months of 2022 was $968.5 million, or 8.8% of net sales, compared to $1.750 billion, or 18.5% of net sales, in the first nine months of 2021. Excluding acquisition-related and other charges of $205.6 million and $27.6 million for the nine months ended October 1, 2022 and October 2, 2021, respectively, segment profit was 10.6% of net sales in the first nine months of 2022 and 18.8% in the first nine months of 2021, primarily driven by the same factors discussed above.

Industrial:

			Third Quarter												Year-to-Date
(Millions of Dollars)			2022						2021						2022						2021
Net sales			$	624.8					$	593.5					$	1,919.5					$	1,853.4
Segment profit			$	68.4					$	42.6					$	168.0					$	202.9
% of Net sales			10.9		%				7.2		%				8.8		%				10.9		%

Industrial net sales increased $31.3 million, or 5%, in the third quarter of 2022 compared to the third quarter of 2021, driven by a 9% increase in price and 5% increase in volume, partially offset by 6% from unfavorable currency impacts and a 3% impact from the Oil & Gas divestiture. Engineered Fastening organic revenues were up 15%, with growth in the aerospace, automotive and general industrial markets. Infrastructure organic revenues were up 12%, with Attachment Tools delivering 19% growth, with a continued strong backlog.

Industrial net sales increased $66.1 million, or 4%, in the first nine months of 2022 compared to the first nine months of 2021, driven by a 8% increase in price and 1% increase in volume, partially offset by 4% from foreign currency and a 1% impact from the Oil & Gas divestiture. Engineered Fastening and Infrastructure organic revenues grew 7% and 14%, respectively, primarily driven by the same factors discussed above.

Industrial segment profit for the third quarter of 2022 totaled $68.4 million, or 10.9% of net sales, compared to $42.6 million, or 7.2% of net sales, in the corresponding 2021 period. Excluding acquisition-related and other charges of $1.0 million and $3.2 million for the three months ended October 1, 2022 and October 2, 2021, respectively, segment profit amounted to 11.1% of net sales in the third quarter of 2022, up 340 basis points from 7.7% in the third quarter of 2021 as volume growth and price realization were partially offset by commodity inflation and higher supply chain costs.

Industrial segment profit for the first nine months of 2022 totaled $168.0 million, or 8.8% of net sales, compared to $202.9 million, or 10.9% of net sales, in the corresponding 2021 period. Excluding acquisition-related and other charges of $6.4 million and $9.8 million for the nine months ended October 1, 2022 and October 2, 2021, respectively, segment profit amounted to 9.1% of net sales in the first nine months of 2022 compared to 11.5% in the first nine months of 2021 as volume growth and price realization were more than offset by commodity inflation, higher supply chain costs and adverse mix.

Corporate Overhead

Corporate Overhead includes the corporate overhead element of SG&A, which is not allocated to the business segments. Corporate Overhead amounted to $78.5 million and $79.0 million in the third quarter of 2022 and 2021, respectively. Excluding acquisition-related and other charges of $27.2 million for the three months ended October 1, 2022 and $6.4 million for the three months ended October 2, 2021, the corporate overhead element of SG&A was $51.3 million and $72.6 million for the three months ended October 1, 2022 and October 2, 2021, respectively. The decrease in 2022 compared to 2021 was primarily due to lower employee-related costs.

On a year-to-date basis, the corporate overhead element of SG&A amounted to $218.7 million in 2022 compared to $247.6 million in 2021. Excluding acquisition-related and other charges of $44.0 million for the nine months ended October 1, 2022 and $25.5 million for the nine months ended October 2, 2021, the corporate overhead element of SG&A was $174.7 million and $222.1 million for the nine months ended October 1, 2022 and October 2, 2021, respectively, primarily driven by the same factor discussed above.

RESTRUCTURING ACTIVITIES

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

(Millions of Dollars)			January 1, 2022						Net Additions						Usage						Currency						October 1, 2022
Severance and related costs			$	28.2					$	128.2					$	(65.6)					$	3.6					$	94.4
Facility closures and asset impairments			3.5						12.6						(10.6)						0.3						5.8
Total			$	31.7					$	140.8					$	(76.2)					$	3.9					$	100.2

For the three and nine months ended October 1, 2022, the Company recognized net restructuring charges of $68.6 million and $140.8 million, respectively, primarily related to severance and related costs. The Company expects to achieve annual net cost savings of approximately $270 million by the end of 2023 related to the restructuring costs incurred during the nine months ended October 1, 2022. The majority of the $100.2 million of reserves remaining as of October 1, 2022 is expected to be utilized within the next 12 months.

Segments:

The $141 million of net restructuring charges for the nine months ended October 1, 2022 includes: $81 million in the Tools & Outdoor segment; $26 million in the Industrial segment; and $34 million in Corporate.

The $69 million of net restructuring charges for the three months ended October 1, 2022 includes: $36 million in the Tools & Outdoor segment; $10 million in the Industrial segment; and $23 million in Corporate.

The anticipated annual net cost savings of approximately $270 million related to the 2022 restructuring actions include: $165 million in the Tools & Outdoor segment; $32 million in the Industrial segment; and $73 million in Corporate.

2022 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 revising its 2022 diluted earnings per share outlook to $0.10 to $0.80 on a diluted GAAP basis, from $0.80 to $2.05, and on an adjusted diluted EPS basis to $4.15 to $4.65 from $5.00 to $6.00. Free cash flow is expected to be approximately $0.3 billion to $0.6 billion in the fourth quarter. The Company remains focused on disciplined capital allocation, and intends to balance share repurchase activity with its commitment to dividends, debt reduction and strong investment grade credit ratings.

The Company has changed the following assumptions for 2022 from its prior outlook: lower fourth quarter revenue, primarily driven by Europe, will approximate $0.30 of dilution to earnings per share; currency translation will approximate $0.23 of dilution to earnings per share; the impact from higher production curtailment and destocking costs will approximate $0.82 of dilution to earnings per share; and the 2022 tax impact from lower earnings will approximate $0.25 of accretion per diluted share.

The difference between the 2022 diluted earnings per share outlook and the diluted earnings per share range, excluding charges, is $3.85 to $4.05, consisting of acquisition-related and other charges. These forecasted charges primarily relate to restructuring expenses, a voluntary retirement program, the Russia business closure, integration-related costs, a non-cash impairment charge for Oil & Gas, and non-cash inventory step-up charges.

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 used in operations were $425.6 million in the third quarter of 2022 compared to cash provided by operations of $4.6 million in the corresponding period of 2021, primarily driven by lower payable balances and lower earnings from continuing operations, partially offset by lower inventory balances. Year-to-date cash flows used in operations were $2.111 billion in 2022 compared to cash provided by operations of $291.2 million in 2021. The year-over-year change was mainly attributable to lower payable balances and lower earnings from continuing operations.

Free Cash Flow: Free cash flow, as defined in the table below, was an outflow of $540.0 million and $124.5 million in the third quarter of 2022 and 2021, respectively. On a year-to-date basis, free cash flow was an outflow of $2.511 billion and $31.3 million in 2022 and 2021, respectively. The decrease in free cash flow during both periods were primarily due to the same factors discussed above in operating activities. The Company has implemented significant production curtailments to slow finished goods manufacturing and expects inventory to continue to decline sequentially in the fourth quarter of 2022 to support strong free cash flow generation. 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.

			Third Quarter												Year-to-Date
(Millions of Dollars)			2022						2021						2022						2021
Net cash (used in) provided by operating activities			$	(425.6)					$	4.6					$	(2,110.6)					$	291.2
Less: capital and software expenditures			(114.4)						(129.1)						(399.9)						(322.5)
Free cash flow			$	(540.0)					$	(124.5)					$	(2,510.5)					$	(31.3)

Investing Activities: Cash flows provided by investing activities totaled $4.015 billion in the third quarter of 2022, primarily due to proceeds from sales of businesses, net of cash sold of $4.147 billion, partially offset by capital and software expenditures of $114.4 million. Cash flows used in investing activities were $143.0 million in the third quarter of 2021, primarily due to capital and software expenditures of $129.1 million.

Year-to-date cash flows provided by investing activities totaled $3.697 billion in 2022 primarily due to proceeds from sales of businesses, net of cash sold of 4.147 billion, partially offset by capital and software expenditures of $399.9 million. Cash flows used in investing activities totaled $399.7 million in the first nine months of 2021, primarily due to capital and software expenditures of $322.5 million and net investment hedge settlements of $53.9 million.

Financing Activities: Cash flows used in financing activities totaled $3.405 billion in the third quarter of 2022 primarily driven by net repayments of short-term borrowings of $3.263 billion and cash dividend payments on common stock of $115.5 million. 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.

Year-to-date cash flows used in financing activities totaled $1.371 billion in the first nine months of 2022 primarily driven by share repurchases of $2.319 billion and cash dividend payments on common stock of $345.8 million, partially offset by proceeds from debt issuances, net of fees, of $992.6 million and net short-term borrowings of $328.0 million. Cash flows used in financing activities totaled $940.5 million in the first nine months of 2021 primarily driven by the redemption and conversion of the Remarketed Series C Preferred Stock 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.

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), as well as its commercial paper program (S&P A-1, Fitch F1, Moody's P-2). There were no changes to any of the Company's credit ratings, however Moody's Corporation changed the Company's outlook from "stable" to "negative" during the second quarter of 2022 and Fitch changed the Company's outlook from "stable" to "negative" during the third quarter of 2022 . 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 $408.7 million as of October 1, 2022, which was primarily held in foreign jurisdictions, and $142.1 million as of January 1, 2022, which was primarily held in the U.S.

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 $252 million at October 1, 2022. 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.

The Company has a $3.5 billion commercial paper program which includes Euro denominated borrowings in addition to U.S. Dollars. As of October 1, 2022 and January 1, 2022, the Company had commercial paper borrowings outstanding of $2.6 billion and $2.2 billion, respectively.

The Company has a five-year $2.5 billion committed credit facility (the “5-Year Credit Agreement”). Borrowings under the 5-Year Credit Agreement may be made in U.S. 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 1, 2022, and January 1, 2022, the Company had not drawn on its five-year committed credit facility.

In September 2022, the Company terminated its 364-Day $1.0 billion committed credit facility (the "364-Day Credit Agreement"), dated September 2021. There were no outstanding borrowings under the 364-Day Credit Agreement upon termination and as of January 1, 2022. Contemporaneously, the Company entered into a $1.5 billion syndicated 364-Day Credit Agreement (the “Syndicated 364-Day Credit Agreement”) which is a revolving credit loan. Borrowings under the Syndicated 364-Day Credit Agreement may be made in U.S. Dollars or Euros and bear interest at a floating rate plus an applicable margin dependent upon the denomination of the borrowing and pursuant to the terms of the Syndicated 364-Day Credit Agreement. The Company must repay all advances under the Syndicated 364-Day Credit Agreement by the earlier of September 6, 2023 or upon termination. The Company may, however, convert all advances outstanding upon termination into a term loan that shall be repaid in full no later than the first anniversary of the termination date provided that the Company, among other things, pays a fee to the administrative agent for the account of each lender. The Syndicated 364-Day Credit Agreement serves as part of the liquidity back-stop for the Company’s $3.5 billion U.S. Dollar and Euro commercial paper program. As of October 1, 2022, the Company had not drawn on its Syndicated 364-Day Credit Agreement.

In September 2022 the Company terminated its second 364-Day $1.0 billion committed credit facility (the "Second 364-Day Credit Agreement"), dated November 2021, and replaced it with a $0.5 billion revolving credit loan (the "Club 364-Day Credit Agreement"). There were no outstanding borrowings under the Second 364-Day Credit Agreement upon termination and as of January 1, 2022. Borrowings under the Club 364-Day Credit Agreement may be made in U.S. Dollars and Euros and bear

interest at a floating rate plus an applicable margin dependent upon the denomination of the borrowing and pursuant to the terms of the Club 364-Day Credit Agreement. The Company must repay all advances under the Club 364-Day Credit Agreement by the earlier of September 6, 2023 or 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. As of October 1, 2022, the Company had not drawn on its Club 364-Day Credit Agreement.

In August 2022, the Company paid $2.5 billion to settle the outstanding amount of its third 364-Day committed credit facility (the "Third 364-Day Credit Agreement"), dated January 2022, using proceeds from the sales of the Security and Oil & Gas businesses and subsequently terminated the agreement. There were no outstanding borrowings under the Third 364-Day Credit Agreement upon termination. The Company did not incur any termination penalties in connection with the termination.

In February 2022, the Company issued $500.0 million of senior unsecured term notes maturing February 24, 2025 ("2025 Term Notes") and $500.0 million of senior unsecured term notes maturing May 15, 2032 (“2032 Term Notes”). The 2025 Term Notes will accrue interest at a fixed rate of 2.3% per annum and the 2032 Term Notes at a fixed rate of 3.0% per annum, with interest payable semi-annually in arrears, and rank equally in right of payment with all of the Company's existing and future unsecured unsubordinated debt. The Company received total net proceeds from this offering of approximately $992.6 million, net of approximately $7.4 million of underwriting expenses and other fees associated with the transaction. The Company used the net proceeds from the offering for general corporate purposes, including repayment of indebtedness under the commercial paper facilities.

In November 2019, the Company issued 7,500,000 Equity Units with a total notional value of $750 million ("2019 Equity Units"). Each unit has a stated amount of $100 and initially consists of a three-year forward stock purchase contract ("2022 Purchase Contracts") for the purchase of a variable number of shares of common stock, on November 15, 2022, for a price of $100 per share, and a 10% beneficial ownership interest in one share of 0% Series D Cumulative Perpetual Convertible Preferred Stock, without par, with a liquidation preference of $1,000 per share ("Series D Preferred Stock"). The Company received approximately $735 million in cash proceeds from the 2019 Equity Units, net of offering expenses and underwriting costs and commissions, and issued 750,000 shares of Series D Preferred Stock. The proceeds were used, together with cash on hand, to redeem the 2052 Junior Subordinated Debentures in December 2019. The Company also used $19 million of the proceeds to enter into capped call transactions utilized to hedge potential economic dilution. On and after November 15, 2022, the Series D Preferred Stock may be converted into common stock at the option of the holder. At the election of the Company, upon conversion, the Company may deliver cash, common stock, or a combination thereof. On or after December 22, 2022, the Company may elect to redeem for cash, all or any portion of the outstanding shares of the Series D Preferred Stock at a redemption price equal to 100% of the liquidation preference, plus any accumulated and unpaid dividends. If the Company calls the Series D Preferred Stock for redemption, holders may convert their shares immediately preceding the redemption date. Upon a successful remarketing of the Series D Preferred Stock (the "Remarketed Series D Preferred Stock"), the Company will receive additional cash proceeds of $750 million and issue shares of Remarketed Series D Preferred Stock. On October 20, 2022, the Company informed the holders of the Company’s intent to remarket the Series D Preferred Stock in November 2022, with final settlement to coincide with the settlement of the 2022 Purchase Contracts on November 15, 2022. The Company pays the holders of the 2022 Purchase Contracts quarterly contract adjustment payments, which commenced February 15, 2020. As of October 1, 2022, the present value of the contract adjustment payments was approximately $10 million.

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 2022, the Company amended the settlement date to April 2023, 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 2022.

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 1, 2022 for a discussion of the Company’s critical accounting estimates.