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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended January 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
STANLEY BLACK & DECKER, INC.
(Exact Name Of Registrant As Specified In Its Charter)
Connecticut   06-0548860
(State or Other Jurisdiction of
Incorporation or Organization) 		  (I.R.S. Employer
Identification Number)
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:
Title Of Each Class Trading Symbol(s) Name Of Each Exchange on Which Registered
Common Stock $2.50 Par Value per Share SWK New York Stock Exchange
Corporate Units SWT New York Stock Exchange
Securities Registered Pursuant To Section 12(g) Of The Act:
None 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  þ    No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.        Yes  ¨    No  þ
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  þ    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  þ    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. 
Large Accelerated Filer þ    Accelerated Filer ¨
Non-Accelerated Filer
¨  
   Smaller Reporting Company ☐
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ☐    No  þ
As of June 26, 2020, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was $21.8 billion based on the New York Stock Exchange closing price for such shares on that date. On February 15, 2021, the registrant had 160,893,004 shares of common stock outstanding. 
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement relating to its 2021 annual meeting of shareholders (the "2021 Proxy Statement") are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated. The 2021 Proxy Statement will be filed with the U.S. Securities Exchange Commission within 120 days after the end of the fiscal year to which this report relates.


TABLE OF CONTENTS
ITEM 1.
3
ITEM 1A.
9
ITEM 1B.
22
ITEM 2.
22
ITEM 3.
22
ITEM 4.
22
ITEM 5.
23
ITEM 6.
25
ITEM 7.
27
ITEM 7A.
50
ITEM 8.
50
ITEM 9.
50
ITEM 9A.
51
ITEM 9B.
51
ITEM 10.
52
ITEM 11.
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ITEM 12.
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ITEM 13.
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ITEM 14.
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ITEM 15.
56
ITEM 16.
58
SIGNATURES
59
EX-4.11
EX-10.6
EX-10.7
EX-10.17
EX-10.28
EX-10.29
EX-21
EX-23
EX-24
EX-31.1(a)
EX-31.1(b)
EX-32.1
EX-32.2

2

FORM 10-K
PART I
ITEM 1. BUSINESS
Stanley Black & Decker, Inc. ("the Company") was founded in 1843 by Frederick T. Stanley and incorporated in Connecticut in 1852. In March 2010, the Company completed a merger ("the Merger") with The Black & Decker Corporation (“Black & Decker”), a company founded by S. Duncan Black and Alonzo G. Decker and incorporated in Maryland in 1910. At that time, the Company changed its name from The Stanley Works to Stanley Black & Decker, Inc. The Company’s principal executive office is located at 1000 Stanley Drive, New Britain, Connecticut 06053 and its telephone number is (860) 225-5111.

The Company is a diversified global provider of hand tools, power tools 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, with 2020 consolidated annual revenues of $14.5 billion. Approximately 61% of the Company’s 2020 revenues were generated in the United States, with the remainder largely from Europe (19%), emerging markets (11%) and Canada (5%).

The Company continues to execute a growth and acquisition strategy 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 above strategy has also resulted in approximately $11.5 billion of acquisitions since 2002 (excluding the Merger), which was enabled by strong cash flow generation and increased debt capacity. In recent years, the Company completed the acquisitions of Consolidated Aerospace Manufacturing, LLC ("CAM") for approximately $1.4 billion, International Equipment Solutions Attachments Group ("IES Attachments") for approximately $654 million, Nelson Fastener Systems ("Nelson") for approximately $424 million, the Tools business of Newell Brands ("Newell Tools") for approximately $1.8 billion, and the Craftsman® brand from Sears Holdings Corporation ("Sears Holdings") for an estimated cash purchase price of approximately $937 million on a discounted basis. The CAM acquisition further diversifies the Company's presence in the industrial markets and expands its portfolio of specialty fasteners in the aerospace and defense markets. The IES Attachments acquisition further diversified the Company's presence in the industrial markets, expanded its portfolio of attachment solutions and provided a meaningful platform for continued growth. The Nelson acquisition was complementary to the Company's product offerings, enhanced its presence in the general industrial end markets, and expanded its portfolio of highly-engineered fastening solutions. The Newell Tools acquisition, which included the industrial cutting, hand tool and power tool accessory brands IRWIN® and LENOX®, enhanced the Company’s position within the global tools & storage industry and broadened the Company’s product offerings and solutions to customers and end users, particularly within power tool accessories. The Craftsman acquisition provided the Company with the rights to develop, manufacture and sell Craftsman®-branded products in non-Sears Holdings channels.
In January 2019, the Company acquired a 20 percent interest in MTD Holdings Inc. ("MTD"), a privately held global manufacturer of outdoor power equipment, for $234 million in cash.  Under the terms of the agreement, the Company has the option to acquire the remaining 80 percent of MTD beginning on July 1, 2021. The investment in MTD increases the Company's presence in the greater than $20 billion lawn and garden segment and enables the two companies to work together to pursue revenue and cost opportunities, improve operational efficiency, and introduce new and innovative products for professional and residential outdoor equipment customers, utilizing each company's respective portfolios of strong brands.

In May 2019, the Company sold its Sargent and Greenleaf mechanical locks business within the Security segment for net proceeds of $79 million. In February 2017, the Company completed the sale of the majority of its mechanical security businesses, which included the commercial hardware brands of Best Access, phi Precision and GMT, for net proceeds of approximately $717 million. These divestitures allowed the Company to invest in other areas of the Company that fit into its long-term growth strategy.
The Company has also divested several smaller businesses in recent years that did not fit into its long-term strategic objectives.

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Refer to Note E, Acquisitions and Investments, and Note T, Divestitures, of the Notes to Consolidated Financial Statements in Item 8 for further discussion.
The Company’s growth and acquisition 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 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" for additional information regarding the Company's commitment to upskilling its employees and improving diversity, equity and inclusion.
Description of the Business
The Company’s operations are classified into three reportable business segments, which also represent its operating segments: Tools & Storage, Industrial and Security. All segments have significant international operations and are exposed to translational and transactional impacts from fluctuations in foreign currency exchange rates.
Additional information regarding the Company’s business segments and geographic areas is incorporated herein by reference to the material captioned “Business Segment Results” in Item 7 and Note P, Business Segments and Geographic Areas, of the Notes to Consolidated Financial Statements in Item 8.
Tools & Storage
The Tools & Storage segment is comprised of the Power Tools and Equipment ("PTE") and Hand Tools, Accessories & Storage ("HTAS") businesses. Annual revenues in the Tools & Storage segment were $10.3 billion in 2020, representing 71% of the Company’s total revenues.
The PTE business includes both professional and consumer products. Professional products include professional grade corded and cordless electric power tools and equipment including drills, impact wrenches and drivers, grinders, saws, routers and sanders, as well as pneumatic tools and fasteners including nail guns, nails, staplers and staples, concrete and masonry anchors. Consumer products include corded and cordless electric power tools sold primarily under the BLACK+DECKER® brand, lawn and garden products, including hedge trimmers, string trimmers, lawn mowers, edgers and related accessories, and home products such as hand-held vacuums, paint tools and cleaning appliances.
The HTAS business sells hand tools, power tool accessories and storage products. Hand tools include measuring, leveling and layout tools, planes, hammers, demolition tools, clamps, vises, knives, saws, chisels and industrial and automotive tools. Power tool accessories include drill bits, screwdriver bits, router bits, abrasives, saw blades and threading products. Storage products include tool boxes, sawhorses, medical cabinets and engineered storage solution products.
The segment sells its products to professional end users, distributors, retail consumers and industrial customers in a wide variety of industries and geographies. The majority of sales are distributed through retailers, including home centers, mass merchants, hardware stores, and retail lumber yards, as well as third-party distributors and a direct sales force.
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 business sells to customers in the automotive, manufacturing, electronics, construction, and aerospace industries, amongst others, and its products are distributed through direct sales forces and, to a lesser extent, third-party distributors.

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The Infrastructure business consists of the Attachment Tools and Oil & Gas product lines. Attachment Tools sells hydraulic tools and high quality, performance-driven heavy equipment attachment tools for off-highway applications. Oil & Gas sells and rents custom pipe handling, joint welding and coating equipment used in the construction of large and small diameter pipelines, and provides pipeline inspection services. The Infrastructure business sells to the oil and natural gas pipeline industry and other industrial customers. The products and services are primarily distributed through a direct sales force and, to a lesser extent, third-party distributors.
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 CSS business sells to consumers, retailers, educational, financial and healthcare institutions, as well as commercial, governmental and industrial customers. The MAS business primarily sells automatic doors to commercial customers. Products for both businesses are sold predominantly on a direct sales basis.
Other Information
Competition
The Company competes on the basis of its reputation for product quality, its well-known brands, its commitment to customer service, its strong customer relationships, the breadth of its product lines, its innovative products and customer value propositions.
The Company encounters active competition in the Tools & Storage and Industrial segments from both larger and smaller companies that offer the same or similar products and services. Certain large customers offer private label brands (“house brands”) that compete across a wide spectrum of the Company’s Tools & Storage segment product offerings. Competition in the Security segment is generally fragmented via both large international companies and regional providers. Competition tends to be based primarily on price and the quality and comprehensiveness of services offered to customers.
Major Customers
A significant portion of the Company’s Tools & Storage products are sold to home centers and mass merchants in the U.S. and Europe. A consolidation of retailers both in North America and abroad has occurred over time. While this consolidation and the domestic and international expansion of these large retailers have provided the Company with opportunities for growth, the increasing size and importance of individual customers creates a certain degree of exposure to potential sales volume loss. Lowe's accounted for approximately 15%, 15% and 12% of the Company's consolidated net sales in 2020, 2019 and 2018, respectively, while The Home Depot accounted for approximately 12% and 10% of the Company's consolidated net sales in 2020 and 2019, respectively. No other customer exceeded 10% of the Company's consolidated net sales in 2020, 2019 or 2018.

Working Capital
The Company continues to practice the five operating principles encompassed by Operations Excellence, one element of the SBD Operating Model, which work in concert: sales and operations planning, operational lean, complexity reduction, global supply management, order-to-cash excellence, the application of Industry 4.0 and upskilling the Company's workforce. The Company develops standardized business processes and system platforms to reduce costs and provide scalability. The continued focus on the operating principles above have been instrumental in reducing working capital and creating significant opportunities to generate incremental free cash flow (defined as cash flow from operations less capital and software expenditures). Working capital turns were 10.4 at the end of 2020, up 0.6 turns from 2019, reflecting the strong revenue performance in 2020. The Company plans to continue leveraging Operations Excellence to generate ongoing improvements, both in the existing business and future acquisitions, in working capital turns, cycle times, complexity reduction and customer service levels, with a long-term goal of sustaining 10+ working capital turns.
Raw Materials
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The Company’s products are manufactured using resins, ferrous and non-ferrous metals including, but not limited to, steel, zinc, copper, brass, aluminum and nickel. The Company also purchases components such as batteries, motors, and electronic components to use in manufacturing and assembly operations along with resin-based molded parts. The raw materials required are procured globally and generally available from multiple sources at competitive prices. As part of the Company's Enterprise Risk Management, the Company has implemented a supplier risk mitigation strategy in order to identify and address any potential supply disruption or material scarcity issues associated with commodities, components, finished goods and critical services. The Company does not anticipate difficulties in obtaining supplies for any raw materials or energy used in its production processes.
Patents and Trademarks
No business segment is solely dependent, to any significant degree, on patents, licenses, franchises or concessions, and the loss of one or several of these patents, licenses, franchises or concessions would not have a material adverse effect on any of the Company's businesses. The Company owns numerous patents, none of which individually is material to the Company's operations as a whole. These patents expire at various times over the next 20 years. The Company holds licenses, franchises and concessions, none of which individually or in the aggregate are material to the Company's operations as a whole. These licenses, franchises and concessions vary in duration, but generally run from one to 40 years.
The Company has numerous trademarks that are used in its businesses worldwide. In the Tools & Storage segment, significant trademarks include STANLEY®, BLACK+DECKER®, DEWALT®, FLEXVOLT®, IRWIN®, LENOX®, CRAFTSMAN®, PORTER-CABLE®, BOSTITCH®, FATMAX®, Powers®, Guaranteed Tough®, MAC TOOLS®, PROTO®, Vidmar®, FACOM®, Expert®, LISTA® and the yellow & black color scheme for power tools and accessories. Significant trademarks in the Industrial segment include STANLEY®, CRC®, NELSON®, LaBounty®, Dubuis®, CribMaster®, POP®, Avdel®, Heli-Coil®, Tucker®, NPR®, Spiralock®, PALADIN®, CAM®, Bristol Industries®, Voss™, Aerofit™, EA Patten™, Integra®, Optia®, PENGO® and STANLEY® Assembly Technologies. The Security segment includes significant trademarks such as STANLEY®, HSM®, SONITROL®, Stanley Access Technologies™, AeroScout®, Hugs®, WanderGuard®, Roam Alert®, MyCall®, Arial® and Bed-Check®. The terms of these trademarks typically vary from 10 to 20 years, with most trademarks being renewable indefinitely for like terms.
Governmental Regulations
The Company's operations are subject to numerous federal, state and local laws and regulations, both within and outside the U.S., in areas such as environmental protection, international trade, data privacy, tax, consumer protection, government contracts, and others. The Company is subject to import and export controls, tariffs, and other trade-related regulations and restrictions in the countries in which it has operations or otherwise does business. These controls, tariffs, regulations, and restrictions have had, and may continue to have, a material impact on the Company's business, including its ability to sell products and to manufacture or source components. Refer to Item 1A. Risk Factors in Part I of this Form 10-K for additional information regarding various laws and regulations that affect the Company's business operations.
The Company is also subject to various environmental laws and regulations in the U.S. and foreign countries where it has operations. In the normal course of business, the Company is involved in various legal proceedings relating to environmental issues. The Company’s policy is to accrue environmental investigatory and remediation costs for identified sites when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. In the event that no amount in the range of probable loss is considered most likely, the minimum loss in the range is accrued. The amount of liability recorded is based on an evaluation of currently available facts with respect to each individual site and includes such factors as existing technology, presently enacted laws and regulations, and prior experience in remediation of contaminated sites. The liabilities recorded do not take into account any claims for recoveries from insurance or third parties. As assessments and remediation progress at individual sites, the amounts recorded are reviewed periodically and adjusted to reflect additional technical and legal information that becomes available. As of January 2, 2021 and December 28, 2019, the Company had reserves of $174.2 million and $213.8 million, respectively, for remediation activities associated with Company-owned properties, as well as for Superfund sites, for losses that are probable and estimable. Of the 2020 amount, $46.7 million is classified as current and $127.5 million as long-term, which is expected to be paid over the estimated remediation period. As of January 2, 2021, the Company has recorded $15.9 million in other assets related to funding by the Environmental Protection Agency ("EPA") and monies received have been placed in trust in accordance with the Consent Decree associated with the West Coast Loading Corporation ("WCLC") proceedings, as further discussed in Note S, Contingencies, of the Notes to Consolidated Financial Statements in Item 8. Accordingly, the Company's net cash obligation as of January 2, 2021 associated with the aforementioned remediation activities is $158.3 million. The range of environmental remediation costs that is reasonably possible is $102.9 million to $245.3 million, which is subject to change in the near term. The Company may be liable for environmental remediation of sites it no longer owns. Liabilities have been recorded on those sites in accordance with the Company's policy.
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The amount recorded for identified contingent liabilities is based on estimates. Amounts recorded are reviewed periodically and adjusted to reflect additional technical and legal information that becomes available. Actual costs to be incurred in future periods may vary from the estimates, given the inherent uncertainties in evaluating certain exposures. Subject to the imprecision in estimating future contingent liability costs, the Company does not expect that any sum it may have to pay in connection with these matters in excess of the amounts recorded will have a materially adverse effect on its financial position, results of operations or liquidity. Additional information regarding environmental matters is available in Note S, Contingencies, of the Notes to Consolidated Financial Statements in Item 8.
Compliance with government regulations, including environmental regulations, has not had, and based on current information and the applicable laws and regulations currently in effect, is not expected to have a material effect on the Company's capital expenditures, results of operations or competitive position. However, laws and regulations may be changed, accelerated or adopted that impose significant operational restrictions and compliance requirements upon the Company and which could negatively impact its operating results and financial condition.
Human Capital Management
The Company’s purpose is For Those Who Make the World, which puts employees, customers, communities and plants at the heart of its human capital strategies and practices. The Company defines success as delivering value for all stakeholders. The Company believes its commitment to quality, safety and sustainability enables its vision to be the type of uniquely human-centered global industrial company that strives to keep every stakeholder in mind and the Company's values, operating model and oversight of its human capital support this purpose.
As of January 2, 2021, the Company had approximately 53,100 employees in over 60 countries, approximately one-third of whom were employed in the U.S. In addition, the Company had approximately 10,500 temporary contractors globally, primarily in operations. The workforce is comprised of approximately 68% hourly-paid employees, principally in manufacturing, distribution center and security monitoring operations, and 32% salaried employees. Nearly 1,400 U.S. employees are covered by collective bargaining agreements dispersed among 28 different local labor unions, and a majority of European employees are represented by workers councils. The Company strives to maintain a positive relationship with all its employees, as well as the unions and workers councils representing them where applicable. There have been no significant interruptions of the Company’s operations in recent years due to labor disputes.
Governance and Oversight
The CEO and the management Executive Committee are entrusted with developing and advancing the Company’s key human capital strategy which is reviewed with the Board of Directors. The Chief Human Resource Officer is charged with the development and stewardship of this strategy on an enterprise-wide basis. This incorporates a broad range of dimensions, including culture, values, labor and employee relations, leadership capabilities, performance management and total rewards. Diversity, equity and inclusion are key to successfully achieving business and organizational objectives. Key processes include ongoing performance and development feedback, quarterly diversity, equity and inclusion reviews, and periodic engagement surveys that are reviewed by the management Executive Committee and Board of Directors. Code of Business Ethics, Workplace Harassment Prevention, and Managing Unconscious Bias trainings are provided to employees and the content is regularly reviewed for applicability and improvement, and updated as needed. All employees have access to the INTEGRITY@SBD platform where support, guidance and resources are available on topics regarding integrity, code of ethics, diversity, compliance, and workplace harassment. Employees are encouraged to address any concerns through multiple channels, including anonymously whenever possible, without fear of retaliation or retribution.
Diversity, Equity & Inclusion
The Company's management Executive Committee, Board of Directors and workforce are dedicated to diversity, equity and inclusion and work to ensure that all employees feel valued, heard and are positioned to succeed. As of January 2, 2021, the Company's CEO and his direct staff reside in the U.S. and are comprised of 27% women and 20% of the CEO and his direct staff are racially or ethnically diverse. Women represent approximately 31% of the global workforce. As stated in the Company's Equal Employment Opportunity reporting to the U.S. government, in the U.S., approximately 33% of employees are racially or ethnically diverse.
The Company strives to create a culture of equality that unlocks human potential and uncovers the key drivers of a workplace in which everyone can advance and thrive. The Company is executing initiatives across the global workforce designed to foster an inclusive workplace and facilitate equitable career development opportunities. The Company has nine employee resource groups ("ERGs") with more than 90 local chapters across the globe. These ERGs are formed around various dimensions of diversity and participation across groups is encouraged. The ERGs include Abilities (including cognitive, social-emotional, and physical abilities), African Ancestry, Asian Heritage, Hispanic/Latinx, Developing Professionals, Pride & Allies (LGBTQ+),
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Veterans, Women, and Working Parents. Company leaders actively participate, sponsor and engage with the ERGs. Management monitors hiring, retention, promotion and continued progress toward achieving the Company's diversity goals. The Company also prioritizes investing in its communities by supporting individuals and organizations that advance these goals across cities and regions in which it operates. In 2020, the management Executive Committee prioritized a focus on gender and racial/ethnic diversity across the Company. The Company launched an equity campaign designed to reach, inspire, support and engage (“RISE”) women and people of color. Through RISE, the Company has supported ten actions to confront racism and social injustice throughout its communities and across the world, which includes specific goals across culture, career, and community focus areas. In 2019, the Company became a signatory of Paradigm for Parity committing to addressing the gender gap in corporate leadership. The Company has also participated in the Business Roundtable Diversity & Inclusion Index, where the largest U.S.-based employers are committed to building a more inclusive environment. The Company's CEO was among the signatories of the CEO Action for Diversity & Inclusion.
Lifelong Learning
The Company believes a sustainable competitive advantage is achieved through lifelong learning. The employees' rate of learning, resilience, and adaptive performance enables the Company to innovate, operate with excellence, and deliver value to customers and shareholders. Employee learning and development is a key enabler to engage, motivate and inspire the Company's workforce and is supported internally through the Stanley Black & Decker University and externally with key partners. Tailored programs address career advancement, leadership development, and skill development needs of the workforce across the Company. Employees consumed more than 25,000 hours of online voluntary learning in 2020. As a leader in advanced manufacturing the Company also strives to provide meaningful training and development for critical skills, new skills, and ways of working with technology to its labor and factory workforce. This includes new operational skills, maintenance, digital, and management skills. The Company utilizes a broad range of capabilities, modes of learning, and platforms, including the use of artificial intelligence and data analytics to achieve its lifelong learning and advanced manufacturing objectives.
Talent Attraction, Advancement, and Retention
The diversity of skills, ways of working, and adaptability of the Company's operating model continue to increase and are reflected in all aspects of its talent management practices. Approximately 35% of global new hires in 2020 were women, and in the U.S. approximately 47% of new employees were racially or ethnically diverse. Internal talent reviews are conducted annually to manage talent and leadership performance. The Company utilizes feedback provided by employees through multiple channels, including internal social platforms, listening sessions, and periodic surveys to improve the employee experience and aspires to be the employer of choice. Development and succession plans are managed in partnership with Human Resources and business segments. Employee compensation and benefits are globally managed and locally adjusted to maintain market and skill competitiveness to attract and retain talent.
Employee Wellness, Health and Safety
The Company is committed to providing competitive benefits to attract and retain talent, that vary by country, including benefits and programs to support healthy lifestyles, mental health, and retirement readiness. In 2020, the Company's commitment to ensuring the health and safety of its employees and supply chain partners was demonstrated through its agile and adaptive response to the ongoing novel coronavirus (COVID-19) pandemic. The Company was able to sustain business operations by implementing critical safety measures and wellness policies, oversight and systems. These actions proved to be highly effective in protecting critical manufacturing and operating employees in site locations and field operations. The Company also quickly transitioned its office employees around the globe to a nearly complete virtual workforce, providing the necessary technical and collaboration support to enable these employees to adjust to a virtual working environment. The Company believes the adopted hybrid work policies are likely to be a lasting result of the pandemic and will be a key enabler to support the broad needs of critical on-site to fully virtual employees. Additional information regarding the Company's response to COVID-19 is available under the caption “COVID-19 Pandemic” in Item 7.
The Company’s Environmental, Health, and Safety (“EHS”) Management System Plan describes the core elements of health and safety responsibility and accountability, including policies and procedures, designed in alignment with global standards, the Company’s Code of Business Ethics, applicable law and individual facility needs. Health and safety requirements apply to all employees and operating unit locations worldwide, including all manufacturing facilities, distribution centers, warehouses, field service centers, retail, office locations and mobile units, as well as to the Company's subsidiaries and joint ventures (in which the Company exercises decision making control over operations). Legal requirements may vary in different countries in which the Company’s facilities are located. Primary measures of safety performance include Total Recordable Incident Rate ("TRIR") and the Lost Time Incident Rate ("LTIR") based upon the number of incidents per 100 employees (or per 200,000 work hours).
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Through December 2020, the Company reported a TRIR of 0.48, a LTIR of 0.17 and zero work-related fatalities. Reported total workforce numbers include employees and supervised contractors.
Additional information regarding the Company's Human Capital programs and initiatives is available in the Company's Annual Sustainability Report located under the Social Responsibility section of the Company’s website. The information on the Company’s website is not, and is not intended to be, part of this Form 10-K and is not incorporated into this report by reference.
Research and Development Costs
Research and development costs, which are classified in Selling, general and administrative ("SG&A"), were $211.0 million, $255.2 million and $275.8 million for fiscal years 2020, 2019 and 2018, respectively. The reduction in spending in 2020 versus 2019 was primarily due to the temporary cost actions taken in response to COVID-19 that were broadly reinstated. In 2021, the Company plans to return to historic normalized spend levels consistent with 2019 as the Company continues to focus on becoming known as one of the world's greatest innovators and remains committed to generating new core and breakthrough innovations.
Available Information
The Company’s website is located at http://www.stanleyblackanddecker.com. This URL is intended to be an inactive textual reference only. It is not intended to be an active hyperlink to the Company's website. The information on the Company's website is not, and is not intended to be, part of this Form 10-K and is not incorporated into this report by reference. The Company makes its Forms 10-K, 10-Q, 8-K and amendments to each available free of charge on its website as soon as reasonably practicable after filing them with, or furnishing them to, the U.S. Securities and Exchange Commission ("SEC").


ITEM 1A. RISK FACTORS

The Company’s business, operations and financial condition are subject to various risks and uncertainties. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, including those risks set forth under the heading entitled "Cautionary Statements Under the Private Securities Litigation Reform Act of 1995" in Item 7, and in other documents that the Company files with the SEC, before making any investment decision with respect to its securities. If any of the risks or uncertainties actually occur or develop, the Company’s business, financial condition, results of operations and future growth prospects could change. Under these circumstances, the trading prices of the Company’s securities could decline, and you could lose all or part of your investment in the Company’s securities.

Business and Operational Risks

The continued adverse effects of the COVID-19 pandemic and an indeterminate recovery period could have a materially negative impact on the Company’s business, operations, financial condition, results of operations, and liquidity, the nature and extent of which is highly uncertain.

The impact of the COVID-19 pandemic has resulted in a widespread public health crisis and governmental authorities have implemented numerous measures attempting to contain and mitigate the effects of the virus. These measures have adversely affected, and may continue to adversely affect, the Company’s workforce and operations and the operations of its customers, distributors, suppliers and contractors. There is significant uncertainty regarding such measures and potential future measures, and restrictions on the Company's access to its manufacturing facilities or on its support operations or workforce, or similar limitations for its distributors and suppliers. These measures have limited and could continue to limit customer demand and/or the Company's capacity to meet customer demand, which could have a material negative impact on its financial condition and results of operations. In addition, a sustained downturn in customer demand or other economic conditions could result in material charges related to bad debt or inventory write-offs, restructuring charges, or impairments of long-lived assets, including both tangible and intangible assets. Furthermore, a sustained downturn in financial markets and asset values could adversely affect the Company’s cost of capital, liquidity and access to capital markets, in addition to potentially increasing its pension funding obligations to ensure its pension plans continue to be adequately funded.

The ongoing COVID-19 pandemic has caused the Company to modify its business practices (including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences), and the Company may take further actions as may be required by government authorities or that the Company determines are in the best interests
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of its employees, customers, distributors, suppliers and contractors. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus, and the Company's ability to perform critical functions could be harmed. Furthermore, as a result of the ongoing COVID-19 pandemic, the Company executed certain temporary and permanent cost reduction measures including adjustments to its supply chain and manufacturing labor base to match the demand environment and reductions in staffing, compensation and benefits in a manner that allows the Company to respond to changes in demand. These cost reduction measures may not prove to be successful and the Company may need to undertake further measures that could adversely impact its business and/or its ability to ramp up operations in a timely manner.

The continued spread of COVID-19 has caused, and may continue to cause, disruptions in the Company's supply chain, cause delay, or limit the ability of, customers to continue to operate and perform, including in making timely payments to the Company, result in the Company's inability to meet its consumers' and customers' needs due to disruptions in manufacturing and supply arrangements caused by the loss or disruption of essential manufacturing and supply elements, and cause other unpredictable events.

In addition, the ongoing COVID-19 pandemic may also limit the Company’s resources or delay the Company’s ability to implement strategic initiatives. If strategic initiatives are delayed, such initiatives may not achieve some or all of the expected benefits, which could have a material adverse effect on the Company’s competitive position, business, financial condition and results of operations and cash flows.

The continued spread of COVID-19 has caused, and may continue to cause, significant reductions in demand or significant volatility in demand for certain of the Company’s products. As lockdowns occurred in the first and second quarters of 2020, those subject to lockdowns engaged in home improvement projects in large numbers, and demand for the Company’s products at its retail partners increased significantly. As different geographical areas anticipate moving into a recovery era, demand for the Company’s products may decrease as focus shifts to activities outside the home. The degree to which COVID-19 ultimately affects the Company’s results and operations will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, the availability, distribution, acceptance and efficacy of a vaccine, and how quickly and to what extent normal economic and operating conditions can resume.

Changes in customer preferences, the inability to maintain mutually beneficial relationships with large customers, inventory reductions by customers, and the inability to penetrate new channels of distribution could adversely affect the Company’s business.

The Company has certain significant customers, particularly home centers and major retailers. In 2020, the two largest customers comprised approximately 27% of net sales, with U.S. and international mass merchants and home centers collectively comprising approximately 42% of net sales. The loss or material reduction of business, the lack of success of sales initiatives, or changes in customer preferences or loyalties for the Company’s products, related to any such significant customer could have a material adverse impact on the Company’s results of operations and cash flows. In addition, the Company’s major customers are volume purchasers, a few of which are much larger than the Company and have strong bargaining power with suppliers. This limits the ability to recover cost increases through higher selling prices. Furthermore, unanticipated inventory adjustments by these customers can have a negative impact on the Company's net sales.

If customers in the Convergent Security Solutions ("CSS") business are dissatisfied with services and switch to competitive services or disconnect for other reasons, such as preference for digital technology products or other technology enhancements not then offered by CSS, the Company's attrition rates may increase. In periods of increasing attrition rates, recurring revenue and results of operations may be materially adversely affected. The risk is more pronounced in times of economic uncertainty, as customers may reduce amounts spent on the products and services the Company provides.

In times of tough economic conditions, the Company has experienced significant distributor inventory corrections reflecting de-stocking of the supply chain associated with difficult credit markets. Such distributor de-stocking exacerbated sales volume declines pertaining to weak end user demand and the broader economic recession. The Company’s results may be adversely impacted in future periods by such customer inventory adjustments. Further, the inability to continue to penetrate new channels of distribution may have a negative impact on the Company’s future results.

The Company faces active global competition and if it does not compete effectively, its business may suffer.

The Company faces active competition and resulting pricing pressures. The Company’s products compete on the basis of, among other things, its reputation for product quality, its well-known brands, price, innovation and customer service capabilities. The Company competes with both larger and smaller companies that offer the same or similar products and
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services or that produce different products appropriate for the same uses. These companies are often located in countries such as China, Taiwan and India where labor and other production costs are substantially lower than in the U.S., Canada and Western Europe. Also, certain large customers offer house brands that compete with some of the Company’s product offerings as a lower-cost alternative. To remain profitable and defend market share, the Company must maintain a competitive cost structure, develop new products and services, lead product innovation, respond to competitor innovations and enhance its existing products in a timely manner. The Company may not be able to compete effectively on all of these fronts and with all of its competitors, and the failure to do so could have a material adverse effect on its sales and profit margins.

Operations Excellence, one element of the SBD Operating Model, is a continuous operational improvement process applied to many aspects of the Company’s business such as procurement, quality in manufacturing, maximizing customer fill rates, integrating acquisitions and other key business processes. In the event the Company is not successful in effectively applying the Operations Excellence principles to its key business processes, including those of acquired businesses, its ability to compete and future earnings could be adversely affected.

In addition, the Company may have to reduce prices on its products and services, or make other concessions, to stay competitive and retain market share. Price reductions taken by the Company in response to customer and competitive pressures, as well as price reductions and promotional actions taken to drive demand that may not result in anticipated sales levels, could also negatively impact its business. The Company engages in restructuring actions, sometimes entailing shifts of production to low-cost countries, as part of its efforts to maintain a competitive cost structure. If the Company does not execute restructuring actions well, its ability to meet customer demand may decline, or earnings may otherwise be adversely impacted. Similarly, if such efforts to reform the cost structure are delayed relative to competitors or other market factors, the Company may lose market share and profits.

Customer consolidation could have a material adverse effect on the Company’s business.

A significant portion of the Company’s products are sold through home centers and mass merchant distribution channels in the U.S. and Europe. A consolidation of retailers in both North America and abroad has occurred over time and the increasing size and importance of individual customers creates risk of exposure to potential volume loss. The loss of certain larger home centers as customers would have a material adverse effect on the Company’s business.

Low demand for new products and the inability to develop and introduce new products at favorable margins could adversely impact the Company’s performance and prospects for future growth.

The Company’s competitive advantage is due in part to its ability to develop and introduce new products in a timely manner at favorable margins. The uncertainties associated with developing and introducing new products, such as market demand and costs of development and production, may impede the successful development and introduction of new products on a consistent basis. Introduction of new technology may result in higher costs to the Company than that of the technology replaced. That increase in costs, which may continue indefinitely or until increased demand and greater availability in the sources of the new technology drive down its cost, could adversely affect the Company’s results of operations. Market acceptance of the new products introduced in recent years and scheduled for introduction in future years may not meet sales expectations due to various factors, such as the failure to accurately predict market demand, end-user preferences, evolving industry standards, or the emergence of new or disruptive technologies. Moreover, the ultimate success and profitability of the new products may depend on the Company’s ability to resolve technical and technological challenges in a timely and cost-effective manner, and to achieve manufacturing efficiencies. The Company’s investments in productive capacity and commitments to fund advertising and product promotions in connection with these new products could erode profits if those expectations are not met.

The pace of technological change continues to accelerate and the Company's ability to react effectively to such change may present significant competitive risks.

The pace of technological change is increasing at an exponential rate. The continued creation, development and advancement of new technologies such as 5G data networks, artificial intelligence, blockchain, quantum computing, data analytics, 3-D printing, robotics, sensor technology, data storage, neural networks, augmented reality, amongst others, as well as other technologies in the future that are not foreseen today, continue to transform the Company’s processes, products and services.

In order to remain competitive, the Company will need to stay abreast of such technologies, require its employees to continue to learn and adapt to new technologies and be able to integrate them into its current and future business models, products, services and processes and also guard against existing and new competitors disrupting its business using such technologies. The Company’s strategy, value creation model, operating model and innovation ecosystem have important technological elements and many of the Company’s products and offerings are based on technological advances, including artificial intelligence,
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machine learning, advanced analytics and the Internet of Things. In addition, the Company will need to compete for talent that is familiar with such technologies including upskilling its workforce. There can be no assurance that the Company will continue to compete effectively with its industry peers due to technological changes, which could result in a material adverse effect on the Company's business and results of operations.

The Company has significant operations outside of the United States, which are subject to political, legal, economic and other risks arising from operating outside of the United States.

The Company generates a significant portion of its total revenue outside of the United States. Business operations outside of the United States are subject to political, economic and other risks inherent in operating in certain countries, such as:

•the difficulty of enforcing agreements and protecting assets through legal systems outside the U.S. including intellectual property rights, which may not be recognized, and which the Company may not be able to protect outside the U.S. to the same extent as under U.S. law;
•managing widespread operations and enforcing internal policies and procedures such as compliance with U.S. and foreign anti-bribery, anti-corruption, and sanctions regulations;
•trade protection measures and import or export licensing requirements including those related to the U.S.'s relationship with China;
•the application of certain labor regulations outside of the United States;
•compliance with a wide variety of non-U.S. laws and regulations;
•ongoing stability or changes in the general political and economic conditions in the countries where the Company operates, particularly in emerging markets;
•the threat of nationalization and expropriation;
•increased costs and risks of doing business and managing a workforce in a wide variety of jurisdictions;
•the increased possibility of cyber threats in certain jurisdictions;
•government controls limiting importation of goods;
•government controls limiting payments to suppliers for imported goods;
•limitations on, or impacts from, the repatriation of foreign earnings; and
•exposure to wage, price and capital controls.

Changes in the political or economic environments in the countries in which the Company operates could have a material adverse effect on its financial condition, results of operations or cash flows. Additionally, the Company is subject to complex U.S., foreign and other local laws and regulations that are applicable to its operations abroad, such as the Foreign Corrupt Practices Act of 1977, the UK Bribery Act of 2010 and other anti-bribery and anti-corruption laws. Although the Company has implemented internal controls, policies and procedures and employee training and compliance programs to deter prohibited practices, such measures may not be effective in preventing employees, contractors or agents from violating or circumventing such internal policies and violating applicable laws and regulations. Any determination that the Company has violated anti-bribery or anti-corruption laws or sanctions regulations could have a material adverse effect on the Company’s business, operating results and financial condition. Compliance with international and U.S. laws and regulations that apply to the Company’s international operations increases the cost of doing business in foreign jurisdictions. Violations of such laws and regulations may result in severe fines and penalties, criminal sanctions, administrative remedies or restrictions on business conduct, and could have a material adverse effect on the Company’s reputation, its ability to attract and retain employees, its business, operating results and financial condition.

The Company’s business is subject to risks associated with sourcing and manufacturing overseas.

The Company imports large quantities of finished goods, component parts and raw materials. Substantially all of its import operations are subject to customs requirements and to tariffs and quotas set by governments through mutual agreements, bilateral actions or, in some cases unilateral action. In addition, the countries in which the Company’s products and materials are manufactured or imported from (including importation into the U.S. of the Company's products manufactured overseas) may from time to time impose additional quotas, duties, tariffs or other restrictions on its imports (including restrictions on manufacturing operations) or adversely modify existing restrictions. In recent years, changes in U.S. policy regarding international trade, including import and export regulation and international trade agreements, have negatively impacted the Company’s business. For example, in 2018 the U.S. imposed tariffs on steel and aluminum as well as on goods imported from China and certain other countries, which resulted in retaliatory tariffs by China and other countries. Additional tariffs imposed by the U.S. on a broader range of imports, or further retaliatory trade measures taken by China or other countries in response, could result in an increase in supply chain costs that the Company may not be able to offset or otherwise adversely impact the Company’s results of operations. Furthermore, imported products and materials may be subject to future tariffs or other trade measures in the U.S. Imports are also subject to unpredictable foreign currency variation which may increase the Company’s
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cost of goods sold. Adverse changes in these import costs and restrictions, or failure by the Company’s suppliers to comply with customs regulations or similar laws, could harm the Company’s business.

The Company’s operations are also subject to the effects of international trade agreements and regulations such as the United States-Mexico-Canada Agreement, and the activities and regulations of the World Trade Organization. Although these trade agreements generally have positive effects on trade liberalization, sourcing flexibility and cost of goods by reducing or eliminating the duties and/or quotas assessed on products manufactured in a particular country, trade agreements can also impose requirements that adversely affect the Company’s business, such as setting quotas on products that may be imported from a particular country into key markets including the U.S. or the European Union ("EU"), or making it easier for other companies to compete, by eliminating restrictions on products from countries where the Company’s competitors source products.

The Company’s ability to import products in a timely and cost-effective manner may also be affected by conditions at ports or issues that otherwise affect transportation and warehousing providers, such as fluctuations in freight costs, port and shipping capacity, labor disputes, severe weather due to climate change or increased homeland security requirements in the U.S. and other countries. These issues could delay importation of products or require the Company to locate alternative ports or warehousing providers to avoid disruption to customers. These alternatives may not be available on short notice or could result in higher transit costs, which could have an adverse impact on the Company’s business and financial condition.

In addition, the Company has a number of key suppliers in South Korea. Escalation of hostilities with North Korea and/or military action in the region could cause disruptions in the Company's supply chain which could, in turn, cause product shortages, delays in delivery and/or increases in the Company's cost incurred to produce and deliver products to its customers.

The Company’s success depends on its ability to improve productivity and streamline operations to control or reduce costs.

The Company is committed to continuous productivity improvement and evaluating opportunities to reduce fixed costs, simplify or improve processes, and eliminate excess capacity. The Company has undertaken restructuring actions, the savings of which may be mitigated by many factors, including economic weakness, competitive pressures, and decisions to increase costs in areas such as sales promotion or research and development above levels that were otherwise assumed. Failure to achieve, or delays in achieving, projected levels of efficiencies and cost savings from such measures, or unanticipated inefficiencies resulting from manufacturing and administrative reorganization actions in progress or contemplated, would adversely affect the Company’s business and financial results.

The performance of the Company may suffer from business disruptions with catastrophic losses affecting distribution centers and other infrastructure, or other costs associated with information technology, system implementations, or cyber security risks.

The Company’s operations are significantly dependent on infrastructure, notably certain distribution centers and security alarm monitoring facilities, which are concentrated in various geographic locations. Factors that are hard to predict or are beyond the Company’s control, like weather (including any potential effects of climate change), natural disasters, supply and commodity shortages, fire, explosions, acts or threats of war or terrorism, political unrest, cybersecurity breaches, sabotage, generalized labor unrest or public health crises, including pandemics, could damage or disrupt the Company’s infrastructure, or that of its suppliers or distributors. If the Company does not effectively plan for or respond to disruptions in its operations, or cannot quickly repair damage to its information, production or supply systems, the Company may be late in delivering or unable to deliver products and services to its customers, and the quality and safety of its products and services might be negatively affected. If a material or extended disruption occurs, the Company may lose its customers’ or business partners’ confidence or suffer damage to its reputation, and long-term consumer demand for its products and services could decline. Although the Company maintains business interruption insurance, it may not fully protect the Company against all adverse effects that could result from significant disruptions. These events could materially and adversely affect the Company’s product sales, financial condition and results of operations.

The Company relies heavily on digital technology, including those of third parties, to manage and operate its businesses, and record and process transactions. Digital technologies are important to sales and marketing, production planning, manufacturing, customer service and order fulfillment among other business-critical processes. Consistent and efficient operation of the computer hardware and software systems is imperative to the successful sales and earnings performance of the Company's various businesses in many countries. Additionally, the Company relies on software applications and enterprise cloud storage systems and cloud computing services provided by third-party vendors, and the Company's business may be adversely affected by service disruptions or security breaches in such third-party systems.

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In addition, the Company is in the process of system integrations, conversions, and capability additions such as eCommerce, Artificial Intelligence and Data Analytics to drive enhanced business outcomes. There can be no assurances that expected expense or revenue synergies will be achieved or that there will not be delays to the expected timing of system integrations, conversions or capability additions. It is possible the costs to complete the system integrations, conversions or capability additions may exceed expectations, and that significant costs may be incurred that will require immediate expense recognition as opposed to capitalization. The risk of disruption to key operations and overall business is increased when complex system changes, such as integrations, conversions or additions are undertaken. If systems fail to function effectively, or become damaged, operational delays may ensue and the Company may be forced to make significant expenditures to remedy such issues. Any significant disruption in the Company’s digital technology could have a material adverse impact on its business and results.

Despite efforts to prevent such situations and maintaining insurance policies and loss control and risk management practices that partially mitigate these risks, the Company’s digital technologies may be affected by damage or interruption from, among other causes, power outages, system failures or cyber attacks.

Industry and Economic Risks

The Company’s results of operations could be negatively impacted by inflationary or deflationary economic conditions which could affect the ability to obtain raw materials, component parts, freight, energy, labor and sourced finished goods in a timely and cost-effective manner.

The Company’s products are manufactured using both ferrous and non-ferrous metals including, but not limited to, steel, zinc, copper, brass, aluminum, and nickel. Additionally, the Company uses other commodity-based materials for components and packaging including, but not limited to, plastics, resins, wood and corrugated products. The Company’s cost base also reflects significant elements for freight, energy and labor. The Company also sources certain finished goods directly from vendors. If the Company is unable to mitigate any inflationary increases through various customer pricing actions and cost reduction initiatives, its profitability may be adversely affected.

Conversely, in the event there is deflation, the Company may experience pressure from its customers to reduce prices, and there can be no assurance that the Company would be able to reduce its cost base (through negotiations with suppliers or other measures) to offset any such price concessions which could adversely impact results of operations and cash flows.

Further, as a result of inflationary or deflationary economic conditions, the Company believes it is possible that a limited number of suppliers may either cease operations or require additional financial assistance from the Company in order to fulfill their obligations. In a limited number of circumstances, the magnitude of the Company’s purchases of certain items is of such significance that a change in established relationships with suppliers or increase in the costs of purchased raw materials, component parts or finished goods could result in manufacturing interruptions, delays, inefficiencies or an inability to market products. Changes in value-added tax rebates, currently available to the Company or to its suppliers, could also increase the costs of the Company’s manufactured products, as well as purchased products and components, and could adversely affect the Company’s results.

In addition, many of the Company’s products incorporate battery technology. As other industries begin to adopt similar battery technology for use in their products or increase their current consumption of battery technology, the increased demand could place capacity constraints on the Company’s supply chain. In addition, increased demand for battery technology may also increase the costs to the Company for both the battery cells as well as the underlying raw materials. If the Company is unable to mitigate any possible supply constraints, related increased costs or drive alternative technology through innovation, its profitably and financial results could be negatively impacted.

Uncertainty about the financial stability of economies outside the U.S. could have a significant adverse effect on the Company's business, results of operations and financial condition.

The Company generates approximately 39% of its revenues outside the U.S., including 19% from Europe and 11% from various emerging market countries. Each of the Company’s segments generates sales in these marketplaces. While the Company believes any downturn in the European or emerging marketplaces might be offset to some degree by the relative stability in North America, the Company’s future growth, profitability and financial liquidity could be affected, in several ways, including but not limited to the following:

•depressed consumer and business confidence may decrease demand for products and services;
•customers may implement cost reduction initiatives or delay purchases to address inventory levels;
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•significant declines of foreign currency values in countries where the Company operates could impact both the revenue growth and overall profitability in those geographies;
•a slowing or contracting Chinese economy could reduce China’s consumption and negatively impact the Company’s sales in that region, as well as globally;
•a devaluation of foreign currencies could have an effect on the credit worthiness (as well as the availability of funds) of customers in those regions impacting the collectability of receivables;
•a devaluation of foreign currencies could have an adverse effect on the value of financial assets of the Company in the effected countries; and
•the impact of an event (individual country default, Brexit, or break up of the Euro) could have an adverse impact on the global credit markets and global liquidity potentially impacting the Company’s ability to access these credit markets and to raise capital.

Continuing uncertainty associated with Brexit could adversely affect the Company’s business.

While the UK Parliament has voted to approve the withdrawal/transition agreement negotiated by the EU and the UK government and while, in December 2020, the UK and the EU agreed on a trade and cooperation agreement that will apply provisionally after the end of the transition period, significant uncertainty remains with respect to the impacts of Brexit. Brexit could adversely affect European or worldwide political, regulatory, economic or market conditions and could contribute to instability in global political institutions, regulatory agencies and financial markets. Any impact from Brexit on the Company's business and operations over the long term will depend, in part, on the outcome of the implementation of the trade and cooperation agreement, future agreements (or lack thereof) between the UK and the EU, including with respect to tariff, tax treaties, trade, regulatory, and other negotiations.

In particular, the Company's operations in the UK will be particularly exposed to the risks and uncertainties relating to Brexit. Under the trade and cooperation agreement, UK service suppliers no longer benefit from automatic access to the entire EU single market, UK goods no longer benefit from the free movement of goods and there is no longer the free movement of people between the UK and the EU. The Bank of England and other observers have warned of a significant probability of a Brexit-related recession in the UK. Volatility in exchanges rates, including potential declines in the value of the British Pound, and in interest rates are also expected. Disruptions and uncertainty caused by Brexit may also cause customers to closely monitor their costs and reduce their spending budget on the Company's products and services. These impacts could cause a significant decline in revenue as the Company generates approximately 4% of its revenues in the UK. In addition, as the UK determines which EU laws to replace or replicate, including UK competition laws, Brexit could lead to potentially divergent national laws and regulations. Lack of clarity about the future relationship between the UK and the EU, and the laws and regulations that may apply, including in particular with respect to aspects of laws and regulations which were not covered by the trade and cooperation agreement, such as financial laws and regulations, could increase costs and depress economic activity. Any of the foregoing factors could result in an uncertain and difficult regulatory environment that could negatively impact the Company’s UK business.

The Company is exposed to market risk from changes in foreign currency exchange rates which could negatively impact profitability.

The Company manufactures and sells its products in many countries throughout the world. As a result, there is exposure to foreign currency risk as the Company enters into transactions and makes investments denominated in multiple currencies. The Company’s predominant currency exposures are related to the Euro, Canadian Dollar, British Pound, Australian Dollar, Brazilian Real, Argentine Peso, Chinese Renminbi (“RMB”) and the Taiwan Dollar. In preparing its financial statements, for foreign operations with functional currencies other than the U.S. dollar, asset and liability accounts are translated at current exchange rates, while income and expenses are translated using average exchange rates. With respect to the effects on translated earnings, if the U.S. dollar strengthens relative to local currencies, the Company’s earnings could be negatively impacted. Although the Company utilizes risk management tools, including hedging, as it deems appropriate, to mitigate a portion of potential market fluctuations in foreign currencies, there can be no assurance that such measures will result in all market fluctuation exposure being eliminated. The Company generally does not hedge the translation of its non-U.S. dollar earnings in foreign subsidiaries but may choose to do so in certain instances.

The Company sources many products from China and other low-cost countries for resale in other regions. To the extent the RMB or other currencies appreciate, the Company may experience cost increases on such purchases. The Company may not be successful at implementing customer pricing or other actions in an effort to mitigate the related cost increases and thus its profitability may be adversely impacted.

Financing Risks
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The Company has incurred, and may incur in the future, significant indebtedness, and may in the future issue additional equity securities, including in connection with mergers or acquisitions, which may impact the manner in which it conducts business or the Company’s access to external sources of liquidity. The potential issuance of such securities may limit the Company’s ability to implement elements of its growth strategy and may have a dilutive effect on earnings.

As described in Note H, Long-Term Debt and Financing Arrangements, of the Notes to Consolidated Financial Statements in Item 8, the Company has a five-year $2.0 billion committed credit facility and a 364-day $1.0 billion committed credit facility. No amounts were outstanding against either of these facilities at January 2, 2021. As of January 2, 2021, the Company had $4.3 billion principal amount of indebtedness.

The instruments and agreements governing certain of the Company’s current indebtedness contain requirements or restrictive covenants that include, among other things:

•a limitation on creating liens on certain property of the Company and its subsidiaries;
•a restriction on entering into certain sale-leaseback transactions;
•customary events of default. If an event of default occurs and is continuing, the Company might be required to repay all amounts outstanding under the respective instrument or agreement; and
•maintenance of a specified financial ratio. The Company has an interest coverage covenant that must be maintained to permit continued access to its committed revolving credit facilities. The interest coverage ratio tested for covenant compliance compares adjusted Earnings Before Interest, Taxes, Depreciation and Amortization to adjusted Interest Expense ("adjusted EBITDA"/"adjusted Interest Expense"); such adjustments to interest or EBITDA include, but are not limited to, removal of non-cash interest expense and stock-based compensation expense. In April 2020, the Company entered into an amendment to: (a) amend the definition of Adjusted EBITDA to allow for additional adjustment addbacks, which primarily relate to anticipated incremental charges related to the COVID-19 pandemic, for amounts incurred beginning in the second quarter of 2020 through the second quarter of 2021, and (b) lower the minimum interest coverage ratio from 3.5 to 2.5 times for the period from and including the second quarter of 2020 through the end of fiscal year 2021. The interest coverage ratio must not be less than 2.5 times and is computed quarterly, on a rolling twelve months (last twelve months) basis. Under this covenant definition, the interest coverage ratio was 8.4 times EBITDA or higher in each of the 2020 quarterly measurement periods. Management does not believe it is reasonably likely the Company will breach this covenant. Failure to maintain this ratio could adversely affect further access to liquidity.

Future instruments and agreements governing indebtedness may impose other restrictive conditions or covenants. Such covenants could restrict the Company in the manner in which it conducts business and operations as well as in the pursuit of its growth and acquisition strategy.

The Company is exposed to counterparty risk in its hedging arrangements.

From time to time, the Company enters into arrangements with financial institutions to hedge exposure to fluctuations in currency and interest rates, including forward contracts, options and swap agreements. The Company may incur significant losses from hedging activities due to factors such as demand volatility. The failure of one or more counterparties to the Company’s hedging arrangements to fulfill their obligations could adversely affect the Company’s results of operations.

Tight capital and credit markets or the failure to maintain credit ratings could adversely affect the Company by limiting the Company’s ability to borrow or otherwise access liquidity.

The Company’s long-term growth plans are dependent on, among other things, the availability of funding to support corporate initiatives and complete appropriate acquisitions and the ability to increase sales of existing product lines. While the Company has not encountered financing difficulties to date, the capital and credit markets have experienced extreme volatility and disruption in the past and may again in the future. Market conditions could make it more difficult for the Company to borrow or otherwise obtain the cash required for significant new corporate initiatives and acquisitions.

Furthermore, there could be a number of follow-on effects from a credit crisis on the Company’s businesses, including insolvency of key suppliers resulting in product delays; inability of customers to obtain credit to finance purchases of the Company’s products and services and/or customer insolvencies.

In addition, the major rating agencies regularly evaluate the Company for purposes of assigning credit ratings. The Company’s ability to access the credit markets, and the cost of these borrowings, is affected by the strength of its credit ratings and current
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market conditions. Failure to maintain credit ratings that are acceptable to investors may adversely affect the cost and other terms upon which the Company is able to obtain financing, as well as its access to the capital markets.

Discontinuation, reform or replacement of the London Inter-bank Offered Rate ("LIBOR") and other benchmark rates, or uncertainty related to the potential for any of the foregoing, may adversely affect the Company.

A portion of the Company’s indebtedness bears interest at rates that fluctuate with changes in certain short-term prevailing interest rates, including the LIBOR. The UK Financial Conduct Authority announced in 2017 that it intends to phase out LIBOR by the end of 2021. In addition, other regulators have suggested reforming or replacing other benchmark rates. These may be replaced by the Secured Overnight Financing Rate or other benchmark rates over the next several years. The discontinuation, reform or replacement of LIBOR or any other benchmark rates may have an unpredictable impact on contractual mechanics in the credit markets or cause disruption to the broader financial markets. These changes, and related uncertainty as to the nature of such potential discontinuation, reform or replacement may create incremental uncertainty in obtaining financing or increase the cost of borrowing. At this time, the Company cannot predict the overall effect of the modification or discontinuation of LIBOR or the establishment of alternative benchmark rates.

The Company is exposed to credit risk on its accounts receivable.

The Company’s outstanding trade receivables are not generally covered by collateral or credit insurance. While the Company has procedures to monitor and limit exposure to credit risk on its trade and non-trade receivables, there can be no assurance such procedures will effectively limit its credit risk and avoid losses, which could have an adverse effect on the Company’s financial condition and operating results.

If the Company were required to write-down all or part of its goodwill, indefinite-lived trade names, or other definite-lived intangible assets, its net income and net worth could be materially adversely affected.

As a result of the Black and Decker merger and other acquisitions, the Company has approximately $10.0 billion of goodwill, approximately $2.2 billion of indefinite-lived trade names and approximately $1.9 billion of net definite-lived intangible assets at January 2, 2021. The Company is required to periodically, at least annually, determine if its goodwill or indefinite-lived trade names have become impaired, in which case it would write down the impaired portion of the asset. The definite-lived intangible assets, including customer relationships, are amortized over their estimated useful lives and are evaluated for impairment when appropriate. Impairment of intangible assets may be triggered by developments outside of the Company’s control, such as worsening economic conditions, technological change, intensified competition or other factors, which could have an adverse effect on the Company’s financial condition and results of operations.

If the investments in employee benefit plans do not perform as expected, the Company may have to contribute additional amounts to these plans, which would otherwise be available to cover operating expenses or other business purposes.

The Company sponsors pension and other post-retirement defined benefit plans. The Company’s defined benefit plan assets are currently invested in equity securities, government and corporate bonds and other fixed income securities, money market instruments and insurance contracts. The Company’s funding policy is generally to contribute amounts determined annually on an actuarial basis to provide for current and future benefits in accordance with applicable law which require, among other things, that the Company make cash contributions to under-funded pension plans. During 2020, the Company made cash contributions to its defined benefit plans of approximately $40 million and expects to contribute $41 million to its defined benefit plans in 2021.

There can be no assurance that the value of the defined benefit plan assets, or the investment returns on those plan assets, will be sufficient in the future. It is therefore possible that the Company may be required to make higher cash contributions to the plans in future years which would reduce the cash available for other business purposes, and that the Company will have to recognize a significant pension liability adjustment which would decrease the net assets of the Company and result in higher expense in future years. The fair value of the defined benefit plan assets at January 2, 2021 was approximately $2.4 billion.

Strategic Risks

The successful execution of the Company’s business strategy depends on its ability to recruit, retain, train, motivate, and develop employees and execute effective succession planning.

The success of the Company’s efforts to grow its business depends on the contributions and abilities of key executives and management personnel, its sales force and other personnel, including the ability of its sales force to adapt to any changes made
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in the sales organization and achieve adequate customer coverage. The Company must therefore continue to recruit, retain, train and motivate management, sales and other personnel sufficiently to maintain its current business and support its projected growth. In addition, the Company must invest heavily in reskilling and upskilling its employees, including placing an emphasis on lifelong learning.

A shortage of key employees might jeopardize the Company’s ability to implement its growth strategy, and changes in the key management team can result in loss of continuity, loss of accumulated knowledge, departure of other key employees, disruptions to the Company’s operations and inefficiency during transitional periods. The Company’s reputation, business, revenue and results of operations could be materially and adversely affected if it is unable to recruit, retain, train, motivate, and develop employees and successfully execute organizational change and management transitions at leadership levels.

The Company’s acquisitions, as well as general business reorganizations, may result in significant costs and certain risks for its business and operations.

In 2020, the Company completed the Consolidated Aerospace Manufacturing, LLC (“CAM”) acquisition, as well as smaller acquisitions, and may make additional acquisitions in the future.

Acquisitions involve a number of risks, including:
•the failure to identify the most suitable candidates for acquisitions;
•the difficulties and cost in obtaining any necessary regulatory approvals;
•the ability to identify and close on appropriate acquisition opportunities within desired time frames at reasonable cost;
•the anticipated additional revenues from the acquired companies do not materialize, despite extensive due diligence;
•the possibility that the acquired companies will not be successfully integrated or that anticipated cost savings, synergies, or other benefits will not be realized;
•the acquired businesses will lose market acceptance or profitability;
•the diversion of Company management’s attention and other resources;
•the incurrence of unexpected costs and liabilities, including those associated with undisclosed pre-closing regulatory violations by the acquired business; and
•the loss of key personnel, clients or customers of acquired companies.

In addition, the success of the Company’s long-term growth and acquisition strategy will depend in part on successful general reorganization including its ability to:
•combine businesses and operations;
•integrate departments, systems and procedures; and
•obtain cost savings and other efficiencies from such reorganizations, including the Company's margin resiliency initiative.

Failure to effectively integrate acquired companies, consummate or manage any future acquisitions or general business reorganizations, and mitigate the related risks, may adversely affect the Company’s existing businesses and harm its operational results due to large write-offs, significant restructuring costs, contingent liabilities, substantial depreciation, and/or adverse tax or other consequences. The Company cannot ensure that such integrations and reorganizations will be successfully completed or that all of the planned synergies and other benefits will be realized.

Expansion of the Company’s activity in emerging markets may result in risks due to differences in business practices and cultures.

The Company’s growth plans include efforts to increase revenue from emerging markets through both organic growth and acquisitions. Local business practices in these regions may not comply with U.S. laws, local laws or other laws applicable to the Company. When investigating potential acquisitions, the Company seeks to identify historical practices of target companies that would create liability or other exposures for the Company were they to continue post-completion or as a successor to the target. Where such practices are discovered, the Company assesses the risk to determine whether it is prepared to proceed with the transaction. In assessing the risk, the Company looks at, among other factors, the nature of the violation, the potential liability, including any fines or penalties that might be incurred, the ability to avoid, minimize or obtain indemnity for the risks, and the likelihood that the Company would be able to ensure that any such practices are discontinued following completion of the acquisition through implementation of its own policies and procedures. Due diligence and risk assessment are, however, imperfect processes, and it is possible that the Company will not discover problematic practices until after completion, or that the Company will underestimate the risks associated with historical activities. Should that occur, the Company may incur fees, fines, penalties, injury to its reputation or other damage that could negatively impact the Company's earnings.

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Legal, Tax, Regulatory and Compliance Risks

The Company’s brands are important assets of its businesses and violation of its trademark rights by imitators, or the failure of its licensees or vendors to comply with the Company’s product quality, manufacturing requirements, marketing standards, and other requirements could negatively impact revenues and brand reputation. Any inability to protect the Company's other intellectual property rights could also reduce the value of its products and services or diminish its competitiveness.

The Company considers its intellectual property rights, including patents, trademarks, copyrights and trade secrets, and licenses held, to be a significant part and valuable aspect of its business. The Company attempts to protect its intellectual property rights through a combination of patent, trademark, copyright and trade secret laws, as well as licensing agreements and third-party nondisclosure and assignment agreements.

The Company’s trademarks have a reputation for quality and value and are important to the Company's success and competitive position. Unauthorized use of the Company’s trademark rights may not only erode sales of the Company’s products, but may also cause significant damage to its brand name and reputation, interfere with its ability to effectively represent the Company to its customers, contractors, suppliers, and/or licensees, and increase litigation costs. Similarly, failure by licensees or vendors to adhere to the Company’s standards of quality and other contractual requirements could result in loss of revenue, increased litigation, and/or damage to the Company’s reputation and business. There can be no assurance that the Company’s ongoing efforts to protect its brand and trademark rights and ensure compliance with its licensing and vendor agreements will prevent all violations.

In addition, the Company's ability to compete could be negatively impacted by its failure to obtain and adequately protect its intellectual property and preserve its associated intellectual property rights, including patents, copyrights, trade secrets, and licenses, as well as its products and any new features of its products or processes. The Company's patent applications may not be approved and any patents owned could be challenged, invalidated or designed around by third parties. In addition, the Company's patents may not be of sufficient scope or strength to provide meaningful protection or commercial advantage.

The Company is exposed to risks related to cybersecurity.
The Company’s operations rely on the secure processing, storage and transmission of confidential, sensitive, proprietary and other types of information relating to its business operations, as well as confidential and sensitive information about its customers and employees maintained in the Company’s computer systems and networks, certain products and services, and in the computer systems and networks of its third-party vendors. Cyber threats are rapidly evolving as data thieves and hackers have become increasingly sophisticated and carry out direct large-scale, complex automated attacks against a company or through vendor software supply chain compromises. In particular, the Company is increasingly relying on its IT infrastructure to support its operations as it manages the impact of COVID-19, including supporting remote-work protocols for a substantial number of the Company’s employees in regions impacted by the spread of COVID-19, which can increase cyber risks. The Company is not able to anticipate or prevent all such attacks and could be held liable for any resulting material security breach or data loss. In addition, it is not always possible to deter misconduct by employees or third-party vendors.

Breaches of the Company’s technology systems, or those of the Company’s vendors, whether from circumvention of security systems, denial-of-service attacks or other cyber-attacks, hacking, “phishing” attacks, computer viruses, ransomware or malware, employee or insider error, malfeasance, social engineering, vendor software supply chain compromises, physical breaches or other actions, have and may result in manipulation or corruption of sensitive data, material interruptions or malfunctions in the Company’s or such vendors’ websites, applications, data processing, and certain products and services, or disruption of other business operations. Furthermore, any such breaches could compromise the confidentiality and integrity of material information held by the Company (including information about the Company’s business, employees or customers), as well as sensitive personally identifiable information, the disclosure of which could lead to identity theft. Breaches of the Company’s products that rely on technology and internet connectivity can expose the Company to product and other liability risk and reputational harm. Measures that the Company takes to avoid, detect, mitigate or recover from material incidents, including implementing and conducting training on insider trading policies for the Company’s employees and maintaining contractual obligations for the Company’s third-party vendors, can be expensive, and may be insufficient, circumvented, or may become ineffective.

The Company has invested and continues to invest in risk management and information security and data privacy measures in order to protect its systems and data, including employee training, organizational investments, incident response plans, table top exercises and technical defenses. The cost and operational consequences of implementing, maintaining and enhancing further data or system protection measures could increase significantly to overcome increasingly intense, complex, and sophisticated
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global cyber threats. Despite the Company’s best efforts, it is not fully insulated from data breaches and system disruptions. Recent well-publicized security breaches at other companies have led to enhanced government and regulatory scrutiny of the measures taken by companies to protect against cyber-attacks, and may in the future result in heightened cybersecurity requirements, including additional regulatory expectations for oversight of vendors and service providers. Any material breaches of cybersecurity, including the accidental loss, inadvertent disclosure or unapproved dissemination of proprietary information or sensitive or confidential data, or media reports of perceived security vulnerabilities to the Company’s systems, products and services or those of the Company’s third parties could cause the Company to experience reputational harm, loss of customers and revenue, fines, regulatory actions and scrutiny, sanctions or other statutory penalties, litigation, liability for failure to safeguard the Company’s customers’ information, or financial losses that are either not insured against or not fully covered through any insurance maintained by the Company. The report, rumor or assumption regarding a potential breach may have similar results, even if no breach has been attempted or occurred. Any of the foregoing may have a material adverse effect on the Company’s business, operating results and financial condition.

The Company is exposed to risks related to compliance with data privacy laws.

To conduct its operations, the Company regularly moves data across national borders, and consequently is subject to a variety of continuously evolving and developing laws and regulations in the United States and abroad regarding privacy, data protection and data security. The scope of the laws that may be applicable to the Company is often uncertain and may be conflicting, particularly with respect to foreign laws. For example, the European Union’s General Data Protection Regulation (“GDPR”), which became effective in May 2018, greatly increased the jurisdictional reach of European Union law and added a broad array of requirements for handling personal data, including the public disclosure of significant data breaches. Similarly, the California Consumer Privacy Act of 2018 (“CCPA”), came into effect in January 2020, provides, among other things, a new private right of action for data breaches, requires companies that process information on California residents to make new disclosures to consumers about their data collection, use and sharing practices, and provides consumers with additional rights. The California Privacy Rights and Enforcement Act, which will become effective on January 1, 2023 amends and expands the CCPA, creating new industry requirements, consumer privacy rights and enforcement mechanisms. The Company's reputation and brand and its ability to attract new customers could also be adversely impacted if the Company fails, or is perceived to have failed, to properly respond to security breaches of its or third party’s information technology systems. Such failure to properly respond could also result in similar exposure to liability.

Additionally, other countries have enacted or are enacting data localization laws that require data to stay within their borders. In many cases, these laws and regulations apply not only to transfers between unrelated third parties but also to transfers between the Company and its subsidiaries.

All of these evolving compliance and operational requirements impose significant costs that are likely to increase over time. Privacy laws that may be implemented in the future, including the Schrems II decision invalidating the EU - U.S. Privacy Shield, will continue to require changes to certain business practices, thereby increasing costs, or may result in negative publicity, require significant management time and attention, and may subject the Company to remedies that may harm its business, including fines or demands or orders that the Company modify or cease existing business practices.

Significant judgment and certain estimates are required in determining the Company’s worldwide provision for income taxes. Future tax law changes and audit results may materially increase the Company’s prospective income tax expense.

The Company is subject to income taxation in the U.S. as well as numerous foreign jurisdictions. Significant judgment is required in determining the Company’s worldwide income tax provision and accordingly there are many transactions and computations for which the final income tax determination is uncertain. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments, and which may not accurately anticipate actual outcomes. The Company periodically assesses its liabilities and contingencies for all tax years still subject to audit based on the most currently available information, which involves inherent uncertainty. The Company is routinely audited by income tax authorities in many tax jurisdictions. Although management believes the recorded tax estimates are reasonable, the ultimate outcome of any audit (or related litigation) could differ materially from amounts reflected in the Company’s income tax accruals. Additionally, the global income tax provision can be materially impacted due to foreign currency fluctuations against the U.S. dollar since a significant amount of the Company’s earnings are generated outside the United States. Lastly, it is possible that future income tax legislation may be enacted that could have a material impact on the Company’s worldwide income tax provision, cash tax liability, and effective tax rate beginning with the period that such legislation becomes enacted.

The Company’s failure to continue to successfully avoid, manage, defend, litigate and accrue for claims and litigation could negatively impact its results of operations or cash flows.
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The Company is exposed to and becomes involved in various litigation matters arising out of the ordinary routine conduct of its business, including, from time to time, actual or threatened litigation relating to such items as commercial transactions, product liability, workers compensation, arrangements between the Company and its distributors, franchisees or vendors, intellectual property claims and regulatory actions.

In addition, the Company is subject to environmental laws in each jurisdiction in which business is conducted. Some of the Company’s products incorporate substances that are regulated in some jurisdictions in which it conducts manufacturing operations. The Company has been and could be in the future subject to liability if it does not comply with these regulations. In addition, the Company is currently, and may in the future be held responsible for remedial investigations and clean-up costs resulting from the discharge of hazardous substances into the environment, including sites that have never been owned or operated by the Company but at which it has been identified as a potentially responsible party under federal and state environmental laws and regulations. Changes in environmental and other laws and regulations in both domestic and foreign jurisdictions could adversely affect the Company’s operations due to increased costs of compliance and potential liability for non-compliance.

The Company manufactures products, configures and installs security systems and performs various services that create exposure to product and professional liability claims and litigation. The failure of the Company’s products, systems and services to be properly manufactured, configured, installed, designed or delivered, resulting in personal injuries, property damage or business interruption could subject the Company to claims for damages. The Company has and is currently defending product liability claims, some of which have resulted in settlements or monetary judgments against the Company. The costs associated with defending ongoing or future product liability claims and payment of damages could be substantial. The Company’s reputation could also be adversely affected by such claims, whether or not successful.

There can be no assurance that the Company will be able to continue to successfully avoid, manage and defend such matters. In addition, given the inherent uncertainties in evaluating certain exposures, actual costs to be incurred in future periods may vary from the Company’s estimates for such contingent liabilities.

The Company’s products could be recalled.

The Company maintains an awareness of and responsibility for the potential health and safety impacts on its customers. The Company's product development processes include tollgates for product safety review, and extensive testing is conducted on product safety. Safety reviews are performed at various product development milestones, including a review of product labeling and marking to ensure safety and operational hazards are identified for the customer.

Despite safety and quality reviews, the Consumer Product Safety Commission or other applicable regulatory bodies may require, or the Company may voluntarily institute, the recall, repair or replacement of the Company’s products if those products are found not to be in compliance with applicable standards or regulations. A recall could increase the Company's costs and adversely impact its reputation.

The Company’s sales to government customers exposes it to business volatility and risks, including government budgeting cycles and appropriations, procurement regulations, governmental policy shifts, early termination of contracts, audits, investigations, sanctions and penalties.

The Company derives a portion of its revenues from contracts with the U.S. government, state and local governments and foreign governments. Government contractors must comply with specific procurement regulations and other requirements. These requirements, although customary in government contracts, could impact the Company’s performance and compliance costs, including limiting or delaying the Company’s ability to share information with its business partners, customers and investors, which may negatively impact the Company’s business and reputation.

The U.S. government may demand contract terms that are less favorable than standard arrangements with private sector customers and may have statutory, contractual or other legal rights to terminate contracts with the Company. For example, the U.S. government may have contract clauses that permit it to terminate any of the Company’s government contracts and subcontracts at its convenience, and procurement regulations permit termination for default based on the Company’s performance. In addition, changes in U.S. government budgetary priorities could lead to changes in the procurement environment, affecting availability of government contracting or funding opportunities. Changes in government procurement policy, priorities, regulations, technology initiatives and requirements, and/or contract award criteria may negatively impact the Company’s potential for growth in the government sector. Changes in government cybersecurity and system requirements could
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negatively impact the Company’s eligibility for the award of future contracts, negatively impacting the Company’s business and reputation.

Government contracts laws and regulations impose certain risks, and contracts are generally subject to audits, investigations and approval of policies, procedures and internal controls for compliance with procurement regulations and applicable law. If violations of law are found, they could result in civil and criminal penalties and administrative sanctions, including termination of contracts, refund of a portion of fees received, forfeiture of profits, suspension of payments, fines and suspensions or debarment from future government business. Each of these factors could negatively impact the Company’s business, results of operations, financial condition, and reputation.

Other Risks

The Company’s results of operations and earnings may not meet guidance or expectations.

The Company’s results of operations and earnings may not meet guidance or expectations. The Company may provide public guidance on expected results of operations for future periods. This guidance is comprised of forward-looking statements subject to risks and uncertainties, including the risks and uncertainties described in this Form 10-K and in the Company’s other public filings and public statements, and is based necessarily on assumptions the Company makes at the time it provides such guidance. The Company’s guidance may not always be accurate. The Company may also choose to withdraw guidance, as it did in response to the uncertainty of the COVID-19 pandemic. If, in the future, the Company’s results of operations for a particular period do not meet its guidance or the expectations of investment analysts, the Company reduces its guidance for future periods, or the Company withdraws guidance, the market price of the Company’s common stock could decline significantly.

ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

ITEM 2. PROPERTIES
As of January 2, 2021, the Company and its subsidiaries owned or leased significant facilities used for manufacturing, distribution and sales offices in 20 states and 18 countries. The Company leases its corporate headquarters in New Britain, Connecticut. The Company has 92 facilities including its corporate headquarters that are larger than 100,000 square feet, as follows:
Owned Leased Total
Tools & Storage 43 22 65
Industrial 15 6 21
Security 1 2 3
Corporate 2 1 3
Total 61 31 92
The combined size of these facilities is approximately 25 million square feet. The buildings are in good condition, suitable for their intended use, adequate to support the Company’s operations, and generally fully utilized.

ITEM 3. 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.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company’s common stock is listed and traded on the New York Stock Exchange, Inc. (“NYSE”) under the abbreviated ticker symbol “SWK”, and is a component of the Standard & Poor’s (“S&P”) 500 Composite Stock Price Index. The Company’s high and low quarterly stock prices on the NYSE for the years ended January 2, 2021 and December 28, 2019 follow:
  2020 2019
  High Low Dividend Per
Common
Share 		High Low Dividend Per
Common
Share
QUARTER:
First $ 172.53  $ 72.03  $ 0.69  $ 138.92  $ 115.69  $ 0.66 
Second $ 148.23  $ 92.13  $ 0.69  $ 153.08  $ 127.22  $ 0.66 
Third $ 166.25  $ 135.61  $ 0.70  $ 152.51  $ 128.85  $ 0.69 
Fourth $ 190.94  $ 161.48  $ 0.70  $ 167.76  $ 135.09  $ 0.69 
Total $ 2.78  $ 2.70 
As of February 5, 2021, there were 9,029 holders of record of the Company’s common stock. Information required by Item 201(d) of Regulation S-K concerning securities authorized for issuance under equity compensation plans can be found under Item 12 of this Annual Report on Form 10-K.
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 Securities Exchange Act of 1934 for the three months ended January 2, 2021:
 
2020 Total Number Of Shares Purchased
(a) 		Average Price Paid Per Share    Total Number Of Shares Purchased As Part Of A Publicly Announced Plan
or Program 		Maximum Number Of Shares That May
Yet Be Purchased Under The Program
(b)
September 27 - October 31 3,494  $ 175.67     —  11,450,000 
November 1 - November 28 11  $ 164.57     —  11,450,000 
November 29 - January 2 79,591  $ 176.76     —  11,450,000 
Total 83,096  $ 176.71     —  11,450,000 
 
(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 July 20, 2017, the Board of Directors approved a new repurchase program for up to 15.0 million shares of the Company’s common stock and terminated its previously approved repurchase program. As of January 2, 2021, the authorized shares available for repurchase under the new repurchase program totaled approximately 11.5 million shares. 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, Capital Stock, of the Notes to Consolidated Financial Statements in Item 8 for further discussion.

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Stock Performance Graph
The following line graph compares the yearly percentage change in the Company’s cumulative total shareholder return for the last five years to that of the S&P 500 Index and the S&P 500 Industrials Index. The Company has decided to use the S&P 500 Industrials Index, which is utilized by a number of the Company’s industrial peers, for the purpose of this disclosure.
SWK-20210102_G1.JPG
THE POINTS IN THE ABOVE TABLE ARE AS FOLLOWS: 2015 2016 2017 2018 2019 2020
Stanley Black & Decker $ 100.00  $ 109.65  $ 165.01  $ 117.68  $ 167.54  $ 183.69 
S&P 500 $ 100.00  $ 111.95  $ 136.38  $ 129.28  $ 171.90  $ 202.96 
S&P 500 Industrials $ 100.00  $ 110.16  $ 135.19  $ 130.05  $ 174.00  $ 213.76 
The comparison assumes $100 invested at the closing price on January 2, 2016 in the Company’s common stock, S&P 500 Index, and S&P 500 Industrials Index. Total return assumes reinvestment of dividends.   

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ITEM 6. SELECTED FINANCIAL DATA
Acquisitions and divestitures completed by the Company during the five-year period presented below affect comparability of results. Refer to Note E, Acquisitions and Investments, and Note T, Divestitures, of the Notes to Consolidated Financial Statements in Item 8 and prior year 10-K filings for further information.
(Millions of Dollars, Except Per Share Amounts) 2020 (a) 2019 (b) 2018 (c) 2017 (d) 2016
Net sales $ 14,535  $ 14,442  $ 13,982  $ 12,967  $ 11,594 
Net Earnings Attributable to Common Shareowners $ 1,210  $ 956  $ 605  $ 1,227  $ 968 
Earnings per share of common stock:
Basic $ 7.85  $ 6.44  $ 4.06  $ 8.20  $ 6.63 
Diluted $ 7.77  $ 6.35  $ 3.99  $ 8.05  $ 6.53 
Percent of net sales:
Cost of sales 65.8  % 66.7  % 65.3  % 63.1  % 63.2  %
Selling, general and administrative(e) 21.3  % 21.1  % 22.7  % 23.1  % 22.7  %
Other, net 1.8  % 1.7  % 2.1  % 2.1  % 1.6  %
Restructuring charges 0.6  % 1.1  % 1.1  % 0.4  % 0.4  %
Interest, net 1.4  % 1.6  % 1.5  % 1.4  % 1.5  %
Earnings before income taxes and equity interest 8.7  % 7.8  % 7.3  % 11.8  % 10.6  %
Net Earnings Attributable to Common Shareowners 8.3  % 6.6  % 4.3  % 9.5  % 8.3  %
Balance sheet data:
Total assets(f) $ 23,566  $ 20,597  $ 19,408  $ 19,098  $ 15,655 
Long-term debt, including current maturities $ 4,245  $ 3,180  $ 3,822  $ 3,806  $ 3,806 
Stanley Black & Decker, Inc.’s shareowners’ equity $ 11,060  $ 9,136  $ 7,836  $ 8,302  $ 6,374 
Ratios:
Total debt to total capital 27.7  % 27.8  % 34.9  % 31.5  % 37.4  %
Income tax rate 3.3  % 14.2  % 40.7  % 19.7  % 21.3  %
Common stock data:
Dividends per share $ 2.78  $ 2.70  $ 2.58  $ 2.42  $ 2.26 
Equity per basic share at year-end $ 70.40  $ 60.97  $ 53.07  $ 55.20  $ 42.80 
Market price per share — high $ 190.94  $ 167.76  $ 175.91  $ 170.03  $ 125.78 
Market price per share — low $ 72.03  $ 115.69  $ 108.45  $ 115.75  $ 90.14 
Weighted-average shares outstanding (in 000’s):
Basic 154,176  148,365  148,919  149,629  146,041 
Diluted 155,861  150,558  151,643  152,449  148,207 
Other information:
Average number of employees(g) 62,606  61,755  60,785  57,076  53,231 
Shareowners of record at end of year 9,064  9,360  9,727  10,014  10,313 

(a)The Company's 2020 results include $400 million of pre-tax charges related to a cost reduction program, loss on extinguishment of debt, inventory step-up charges, deal costs, Security business transformation and margin resiliency initiatives, and a net loss related to the sales of businesses, partially offset by a release of a contingent consideration liability relating to the CAM acquisition. As a result, as a percentage of Net sales, Cost of sales was 49 basis points higher, Selling, general, & administrative was 121 basis points higher, Other, net was 6 basis points higher, Restructuring charges was 57 basis points higher, and Earnings before income taxes and equity interest was 275 basis points lower. The Company also recorded a tax benefit of $211 million, which is comprised of a $119 million one-time tax benefit associated with a supply chain reorganization and a $92 million tax benefit of the above pre-tax charges. In addition, the Company's share of MTD's net earnings included an after-tax charge of approximately $10 million. Overall, the amounts described above resulted in a decrease to the Company's 2020 Net earnings attributable to common shareowners of $199 million (or $1.27 per diluted share).
(b)The Company's 2019 results include $363 million of pre-tax charges related to restructuring, deal and integration costs, loss on extinguishment of debt, Security business transformation and margin resiliency initiatives, and a gain on a sale of a business. As a result, as a percentage of Net sales, Cost of sales was 27 basis points higher, Selling, general, & administrative was 97 basis points higher, Other, net was 21 basis points higher, Restructuring charges was 106 basis points higher, and Earnings before income taxes and equity interest was 251 basis points lower. In addition, the
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Company's share of MTD's net earnings included an after-tax charge of approximately $24 million. Overall, the amounts described above resulted in a decrease to the Company's 2019 Net earnings attributable to common shareowners of $309 million (or $2.05 per diluted share).
(c)The Company's 2018 results include $450 million of pre-tax charges related to acquisitions, an environmental remediation settlement, a non-cash fair value adjustment, a cost reduction program, an incremental freight charge related to a service provider's bankruptcy, and a loss related to a previously divested business. As a result, as a percentage of Net sales, Cost of sales was 47 basis points higher, Selling, general, & administrative was 113 basis points higher, Other, net was 77 basis points higher, Restructuring charges was 84 basis points higher, and Earnings before income taxes was 322 basis points lower. The Company also recorded a net tax charge of $181 million, which is comprised of charges related to the Tax Cuts and Jobs Act ("the Act"), partially offset by the tax benefit of the above pre-tax charges. Overall, the amounts described above resulted in a decrease to the Company's 2018 Net earnings attributable to common shareowners of $631 million (or $4.16 per diluted share).
(d)The Company's 2017 results include $156 million of pre-tax acquisition-related charges and a $264 million pre-tax gain on sales of businesses, primarily related to the divestiture of the mechanical security businesses. As a result, as a percentage of Net sales, Cost of sales was 36 basis points higher, Selling, general, & administrative was 29 basis points higher, Other, net was 45 basis points higher, Restructuring charges was 11 basis points higher, and Earnings before income taxes was 83 basis points higher. The net tax benefit of the acquisition-related charges and gain on sales of businesses was $7 million. Income taxes for 2017 also includes a one-time net tax charge of $24 million related to the Act. Overall, the acquisition-related charges, gain on sales of businesses, and one-time net tax charge related to the Act resulted in a net increase to the Company's 2017 Net earnings attributable to common shareowners of $91 million (or $0.59 per diluted share).
(e)SG&A is inclusive of the Provision for credit losses.
(f)In the first quarter of 2019, the Company adopted ASU 2016-02, Leases (Topic 842) ("new lease standard") utilizing the transition method, which allowed the new lease standard to be applied as of the adoption date with no adjustment for periods prior to fiscal year 2019.  As a result, total assets as of January 2, 2021 and as of December 28, 2019 reflect a lease right-of-use asset of approximately $523 million and $535 million, respectively.
(g)The average number of employees includes temporary contractors.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The financial and business analysis below provides information which the Company believes is relevant to an assessment and understanding of its consolidated financial position, results of operations and cash flows. This financial and business analysis should be read in conjunction with the Consolidated Financial Statements and related notes. All references to “Notes” in this Item 7 refer to the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report.
The following discussion and certain other sections of this Annual Report on Form 10-K contain statements reflecting the Company’s views about its future performance that constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry and markets in which the Company operates as well as management’s beliefs and assumptions. Any statements contained herein (including without limitation statements to the effect that Stanley Black & Decker, Inc. or its management “believes,” “expects,” “anticipates,” “plans” and similar expressions) that are not statements of historical fact should be considered forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. There are a number of important factors that could cause actual results to differ materially from those indicated by such forward-looking statements. These factors include, without limitation, those set forth, or incorporated by reference, below under the heading “Cautionary Statements Under The Private Securities Litigation Reform Act Of 1995.” The Company does not intend to update publicly any forward-looking statements whether as a result of new information, future events or otherwise.
Strategic Objectives
The Company continues to pursue a growth and acquisition strategy, which involves industry, geographic and customer diversification to foster sustainable revenue, earnings and cash flow growth, and employ the following strategic framework in pursuit of its vision to deliver top-quartile financial performance, become known as one of the world’s leading innovators and elevate its commitment to social responsibility:
•Continue organic growth momentum by leveraging the SBD Operating Model to drive innovation and commercial excellence, while diversifying toward higher-growth, higher-margin businesses;
•Be selective and operate in markets where brand is meaningful, the value proposition is definable and sustainable through innovation, and global cost leadership is achievable; and
•Pursue acquisitive growth on multiple fronts by building upon its existing global tools platform, expanding the Industrial platform in Engineered Fastening and Infrastructure, consolidating the commercial electronic security industry, and pursuing adjacencies with sound industrial logic.
Execution of the above strategy has resulted in approximately $11.5 billion of acquisitions since 2002 (excluding the Black & Decker merger), a 20 percent investment in MTD Holdings Inc. ("MTD"), several divestitures, improved efficiency in the supply chain and manufacturing operations, and enhanced investments in organic growth, enabled by cash flow generation and increased debt capacity. In addition, the Company's continued focus on diversification and organic growth has resulted in improved financial results and an increase in its global presence. The Company also remains focused on leveraging its SBD Operating Model to deliver success in the 2020s and beyond. The latest evolution of the SBD Operating Model builds on the strength of the Company's past while embracing changes in the external environment to ensure the Company has the right skillsets, incorporates technology advances in all areas, maintains operational excellence, drives efficiency in business processes and resiliency into its culture, delivers extreme innovation and ensures the customer experience is world class. The operating model underpins the Company's ability to deliver above-market organic growth with margin expansion, maintain efficient levels of selling, general and administrative expenses ("SG&A") and deliver top-quartile asset efficiency.
The Company’s long-term financial objectives remain as follows:
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•4-6% organic revenue growth;
•10-12% total revenue growth;
•10-12% total EPS growth (7-9% organically) excluding acquisition-related charges;
•Free cash flow equal to, or exceeding, net income;
•Sustain 10+ working capital turns; and
•Cash Flow Return On Investment ("CFROI") between 12-15%.
In terms of capital allocation, the Company remains committed, over time, to returning approximately 50% of free cash flow to shareholders through a strong and growing dividend as well as opportunistically repurchasing shares. The remaining free cash flow (approximately 50%) will be deployed towards acquisitions.
COVID-19 Pandemic

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

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

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

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

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

Share Repurchases

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

Acquisitions and Investments
On February 24, 2020, the Company acquired Consolidated Aerospace Manufacturing, LLC ("CAM"), an industry-leading manufacturer of specialty fasteners and components for the aerospace and defense markets. The acquisition further diversifies the Company's presence in the industrial markets and expands its portfolio of specialty fasteners in the aerospace and defense markets.
On March 8, 2019, the Company acquired the International Equipment Solutions Attachments businesses, Paladin and Pengo, ("IES Attachments"), manufacturers of high quality, performance-driven heavy equipment attachment tools for off-highway applications. The acquisition further diversified the Company's presence in the industrial markets, expanded its portfolio of attachment solutions and provided a meaningful platform for growth.
On January 2, 2019, the Company acquired a 20 percent interest in MTD, a privately held global manufacturer of outdoor power equipment. MTD manufactures and distributes gas-powered lawn tractors, zero turn mowers, walk behind mowers,
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snow throwers, trimmers, chain saws, utility vehicles and other outdoor power equipment. Under the terms of the agreement, the Company has the option to acquire the remaining 80 percent of MTD beginning on July 1, 2021 and ending on January 2, 2029. In the event the option is exercised, the companies have agreed to a valuation multiple based on MTD’s 2018 Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), with an equitable sharing arrangement for future EBITDA growth. The investment in MTD increases the Company's presence in the greater than $20 billion lawn and garden segment and enables the two companies to work together to pursue revenue and cost opportunities, improve operational efficiency, and introduce new and innovative products for professional and residential outdoor equipment customers, utilizing each company's respective portfolios of strong brands.
On April 2, 2018, the Company acquired Nelson Fastener Systems (“Nelson”), which excluded Nelson's automotive stud welding business. This acquisition, which has been integrated into the Engineered Fastening business, was complementary to the Company's product offerings, enhanced its presence in the general industrial end markets, and expanded its portfolio of highly-engineered fastening solutions.
On March 9, 2017, the Company acquired the Tools business of Newell Brands ("Newell Tools") which included the highly attractive industrial cutting, hand tool and power tool accessory brands IRWIN® and LENOX®. The acquisition enhanced the Company’s position within the global tools & storage industry and broadened the Company’s product offerings and solutions to customers and end users, particularly within power tool accessories.
On March 8, 2017, the Company purchased the Craftsman® brand from Sears Holdings Corporation (“Sears Holdings”). The acquisition provided the Company with the rights to develop, manufacture and sell Craftsman®-branded products in non-Sears Holdings channels. The acquisition significantly increased the availability of Craftsman®-branded products to consumers in previously underpenetrated channels, enhanced innovation, and added manufacturing jobs in the U.S. to support growth.

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

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

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

Certain Items Impacting Earnings

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

2020

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

•$71 million reducing Gross Profit pertaining to inventory step-up charges, a cost reduction program and facility-related costs;
•$176 million in SG&A primarily for a cost reduction program, Security business transformation and margin resiliency initiatives;
•$9 million in Other, net primarily related to a cost reduction program, loss on interest rate swaps in connection with the extinguishment of debt, and deal transactions costs, partially offset by a release of a contingent consideration liability relating to the CAM acquisition;
•$14 million net loss related to the sales of businesses;
•$83 million in Restructuring charges pertaining to severance and facility closures; and
•$47 million related to a loss on the extinguishment of debt.
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The tax effect on the above net charges was approximately $92 million. The Company also recorded a one-time tax benefit of $119 million associated with a supply chain reorganization. In addition, the Company's share of MTD's net earnings included an after-tax charge of approximately $10 million related primarily to restructuring charges. The amounts above resulted in net after-tax charges of $199 million, or $1.27 per diluted share.

2019

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

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

The tax effect on the above net charges was approximately $78 million. In addition, the Company's share of MTD's net earnings included an after-tax charge of approximately $24 million primarily related to an inventory step-up adjustment. The amounts above resulted in net after-tax charges of $309 million, or $2.05 per diluted share.

2018

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

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

The Company also recorded a net tax charge of $181 million, which was comprised of charges related to the Tax Cuts and Jobs Act ("the Act") partially offset by the tax benefit of the above pre-tax charges. The above amounts resulted in net after-tax charges of $631 million, or $4.16 per diluted share.

Driving Further Profitable Growth by Fully Leveraging Our Core Franchises

Each of the Company's franchises share common attributes: they have world-class brands and attractive growth characteristics, they are scalable and defensible, they can differentiate through innovation, and they are powered by the SBD Operating Model.
•The Tools & Storage business is the tool company to own, with strong brands, proven innovation, global scale, and a broad offering of power tools, hand tools, accessories, and storage & digital products across many channels in both developed and developing markets.
•The Engineered Fastening business is a highly profitable, GDP+ growth business offering highly engineered, value-added innovative solutions with recurring revenue attributes and global scale.
•The Security business, with its attractive recurring revenue, presents a significant margin accretion opportunity over the longer term and has historically provided a stable revenue stream through economic cycles, is a gateway into the digital world and an avenue to capitalize on rapid market or societal changes. Security has embarked on a business transformation which will apply technology to lower its cost to serve and create new commercial offerings for its small to medium enterprise and large key account customers.
While diversifying the business portfolio through strategic acquisitions remains important, management recognizes that the core franchises described above are important foundations that continue to provide strong cash flow and growth prospects. Management is committed to growing these businesses through innovative product development, brand support, continued investment in emerging markets and a sharp focus on global cost competitiveness.
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Continuing to Invest in the Stanley Black & Decker Brands
The Company has a strong portfolio of brands associated with high-quality products including STANLEY®, BLACK+DECKER®, DEWALT®, FLEXVOLT®, IRWIN®, LENOX®, CRAFTSMAN®, PORTER-CABLE®, BOSTITCH®, PROTO®, MAC TOOLS®, FACOM®, AeroScout®, Powers®, LISTA®, Vidmar®, SONITROL®, and GQ®. Among the Company's most valuable assets, STANLEY®, BLACK+DECKER® and DEWALT® are recognized as three of the world's great brands, while CRAFTSMAN® is recognized as a premier American brand.
The Company’s initial strategic marketing plan for 2020 was to put brand awareness into overdrive through continued sponsorships and a live presence at nearly 500 tried-and-true sporting events, including NASCAR and NHRA racing, Major League Baseball (“MLB”) and global soccer with English Premier League (“EPL”) and FC Barcelona (“FCB”). In March 2020, COVID-19 brought a halt to live sporting events worldwide and with the stands virtually empty, the Company revised its strategic marketing plan in order to bring a virtual brand experience to life.
Through the power of Zoom, the Company provided fans a new kind of venue by hosting virtual VIP and customer engagement events. The Company brought the owners, the players, the drivers and the influencers together online to engage audiences and reinforce its name brands, including CRAFTSMAN®, DEWALT® and STANLEY®.

In late spring and summer 2020, when sponsorship events like NASCAR, MLB, EPL and FCB resumed with millions of fans tuning in from the comfort of home, the Company’s brands were there with strong visibility thanks to prime stadium signage placement and car wraps that put CRAFTSMAN®, DEWALT®, BLACK+DECKER®, IRWIN®, MAC TOOLS® and STANLEY® front, center and in the lead.
The above marketing initiatives highlight the Company's strong emphasis on brand building and commercial support, which has resulted in more than 300 billion global brand impressions from digital and traditional advertising and strong brand awareness. The Company will continue allocating its brand and advertising spend wisely to capture the emerging digital landscape, while continuing to evolve proven marketing programs to deliver famous global brands that are deeply committed to societal improvement, along with transformative technologies to build relevant and meaningful 1:1 customer, consumer, employee and shareholder relationships in support of the Company's long-term vision.
The SBD Operating Model: Winning in the 2020s
Over the past 15 years, the Company has successfully leveraged its proven and continually evolving operating model to focus the organization to sustain top-quartile performance, resulting in asset efficiency, above-market organic growth and expanding operating margins. In its first evolution, the Stanley Fulfillment System ("SFS") focused on streamlining operations, which helped reduce lead times, realize synergies during acquisition integrations, and mitigate material and energy price inflation. In 2015, the Company launched a refreshed and revitalized SFS operating system, entitled SFS 2.0, to drive from a more programmatic growth mentality to a true organic growth culture by more deeply embedding breakthrough innovation and commercial excellence into its businesses, and at the same time, becoming a significantly more digitally-enabled enterprise. Entering into 2020 and recognizing the changing dynamics of the world in which the Company operates, including the acceleration of technological change, geopolitical instability and the changing nature of work, the Company launched the SBD Operating Model: Winning in the 2020s.

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

People and Technology
This pillar emphasizes the Company's belief that the right combination of digitally proficient people applying technology such as artificial intelligence, machine learning, advanced analytics, Internet of Things and others in focused ways can be an enormous source of value creation and sustainability for the Company. It also brings to light the changing nature of work and the talent and skillsets required for individuals and institutions to thrive in the future. With technology infiltrating the workplace at an increasingly rapid pace, the Company believes that the winners in the 2020s will invest heavily in reskilling, upskilling and lifelong learning with an emphasis on the places where people and technology intersect. In other words, technology can make humans more powerful and productive if, and only if, humans know how to apply the technology to maximum advantage. The Company has created plans and programs, as well as a new leadership model to ensure people have the right skills, tools and mindsets to thrive in this era. The ability for employees to embrace technology, learn and relearn new skills and take advantage of the opportunities presented in this new world will be critical to the Company's success.

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

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

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

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

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

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

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

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Outlook for 2021
This outlook discussion is intended to provide broad insight into the Company’s near-term earnings and cash flow generation prospects. The Company expects 2021 diluted earnings per share to approximate $9.15 to $9.85 ($9.70 to $10.30 excluding acquisition-related and other charges). This range is $0.40 wider than the Company's traditional guide recognizing that while visibility has improved, the operating environment remains dynamic. Free cash flow conversion, defined as free cash flow divided by net income, is expected to approximate 100%.

The difference between the 2021 diluted earnings per share outlook and the diluted earnings per share range, excluding charges, is $0.45 - $0.55, consisting of acquisition-related and other charges. These forecasted charges primarily relate to facility moves, deal and integration costs and functional transformation initiatives.

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

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

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

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

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

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

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

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

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

Corporate Overhead: The corporate overhead element of SG&A, which is not allocated to the business segments, amounted to $297.7 million, or 2.0% of net sales, in 2020, $229.5 million, or 1.6% of net sales, in 2019 and $202.8 million, or 1.5% of net sales, in 2018. Excluding acquisition-related charges of $60.3 million in 2020, $23.4 million in 2019, and $12.7 million in
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2018, the corporate overhead element of SG&A was 1.6% of net sales in 2020, compared to 1.4% of net sales in 2019 and 2018. The increase in 2020 compared to 2019 and 2018 was primarily due to higher employee-related costs.

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

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

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

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

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

The Company's effective tax rate was 3.3% in 2020, 14.2% in 2019, and 40.7% in 2018. Excluding the one-time tax benefit of $118.8 million recorded in the second quarter of 2020 to reverse a deferred tax liability previously established related to certain unremitted earnings of foreign subsidiaries not permanently reinvested as a result of initiating a supply chain reorganization, and the impact of divestitures and acquisition-related and other charges previously discussed, the effective tax rate in 2020 was 15.1%. This effective tax rate differs from the U.S. statutory tax rate primarily due to tax on foreign earnings at tax rates different than the U.S. rate, the re-measurement of uncertain tax position reserves, the tax benefit of equity compensation, and tax benefits arising from an increase in deferred tax assets associated with the Company’s supply chain reorganization and partial realignment of the Company's legal structure.

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

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


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

The Company classifies its business into three reportable segments, which also represent its operating segments: Tools & Storage, Industrial and Security.
Tools & Storage:
The Tools & Storage segment is comprised of the Power Tools & Equipment ("PTE") and Hand Tools, Accessories & Storage ("HTAS") businesses. The PTE business includes both professional and consumer products. Professional products include professional grade corded and cordless electric power tools and equipment including drills, impact wrenches and drivers, grinders, saws, routers and sanders, as well as pneumatic tools and fasteners including nail guns, nails, staplers and staples, concrete and masonry anchors. Consumer products include corded and cordless electric power tools sold primarily under the BLACK+DECKER® brand, lawn and garden products, including hedge trimmers, string trimmers, lawn mowers, edgers and related accessories, and home products such as hand-held vacuums, paint tools and cleaning appliances. The HTAS business sells hand tools, power tool accessories and storage products. Hand tools include measuring, leveling and layout tools, planes, hammers, demolition tools, clamps, vises, knives, saws, chisels and industrial and automotive tools. Power tool accessories include drill bits, screwdriver bits, router bits, abrasives, saw blades and threading products. Storage products include tool boxes, sawhorses, medical cabinets and engineered storage solution products.
(Millions of Dollars) 2020 2019 2018
Net sales $ 10,330  $ 10,062  $ 9,814 
Segment profit $ 1,842  $ 1,533  $ 1,393 
% of Net sales 17.8  % 15.2  % 14.2  %
Tools & Storage net sales increased $267.6 million, or 3%, in 2020 compared to 2019 due to a 2% increase in both volume and price, partially offset by unfavorable currency of 1%. The 4% organic growth was driven by a strong second half organic performance of 18% from a consumer reconnection with the home and garden and a shift to eCommerce that emerged from the pandemic and was accelerated by a robust lineup of new and innovative products. Double digit growth was realized across all regions in the second half of 2020. For the full year, North America and Europe organic growth more than offset a decline in emerging markets.
Segment profit amounted to $1.842 billion, or 17.8% of net sales, in 2020 compared to $1.533 billion, or 15.2% of net sales, in 2019. Excluding acquisition-related and other charges of $46.4 million and $44.3 million in 2020 and 2019, respectively, segment profit amounted to 18.3% of net sales in 2020 compared to 15.7% in 2019, as volume, productivity, cost control and price were partially offset by new growth investments, tariffs and currency.

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

Segment profit amounted to $1.533 billion, or 15.2% of net sales, in 2019 compared to $1.393 billion, or 14.2% of net sales, in 2018. Excluding acquisition-related and other charges of $44.3 million and $142.6 million in 2019 and 2018, respectively, segment profit amounted to 15.7% of net sales in 2019 compared to 15.6% in 2018, as the benefits from volume leverage, actions taken in response to external headwinds and price were partially offset by tariffs, commodity inflation, and foreign exchange.
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Industrial:
The Industrial segment is comprised of the Engineered Fastening and Infrastructure businesses. The Engineered Fastening business primarily sells highly engineered components such as fasteners, fittings and various engineered products, which are designed for specific application across multiple verticals. The product lines include externally threaded fasteners, blind rivets and tools, blind inserts and tools, drawn arc weld studs and systems, engineered plastic and mechanical fasteners, self-piercing riveting systems, precision nut running systems, micro fasteners, high-strength structural fasteners, axel swage, latches, heat shields, pins, and couplings. The Infrastructure business consists of the Attachment Tools and Oil & Gas product lines. Attachment Tools sells hydraulic tools and high quality, performance-driven heavy equipment attachment tools for off-highway applications. Oil & Gas sells and rents custom pipe handling, joint welding and coating equipment used in the construction of large and small diameter pipelines and provides pipeline inspection services.
(Millions of Dollars) 2020 2019 2018
Net sales $ 2,353  $ 2,435  $ 2,188 
Segment profit $ 226  $ 334  $ 320 
% of Net sales 9.6  % 13.7  % 14.6  %
Industrial net sales decreased $82.0 million, or 3%, in 2020 compared to 2019, due to pandemic-related market declines in volume of 15%, partially offset by acquisition growth of 12%. Engineered Fastening organic revenues decreased 15% for the full year, due to the significant impacts from the pandemic to automotive and general industrial production. Infrastructure organic revenues were down 15% from lower volumes in Attachment Tools and a sharp decline in Oil & Gas pipeline construction. The deepest segment organic revenue decline was the second quarter and each quarter thereafter delivered stronger revenue as markets recovered.

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

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

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

Security:
The Security segment is comprised of the Convergent Security Solutions ("CSS") and the Mechanical Access Solutions ("MAS") businesses. The CSS business designs, supplies and installs commercial electronic security systems and provides electronic security services, including alarm monitoring, video surveillance, fire alarm monitoring, systems integration and system maintenance. Purchasers of these systems typically contract for ongoing security systems monitoring and maintenance at the time of initial equipment installation. The business also sells healthcare solutions, which include asset tracking, infant protection, pediatric protection, patient protection, wander management, fall management, and emergency call products. The MAS business primarily sells automatic doors.
(Millions of Dollars) 2020 2019 2018
Net sales $ 1,852  $ 1,945  $ 1,981 
Segment profit $ 109  $ 127  $ 169 
% of Net sales 5.9  % 6.5  % 8.5  %
Security net sales decreased $93.2 million, or 5%, in 2020 compared to 2019, as 1% increases in both price and small bolt-on commercial electronic security acquisitions were more than offset by a 5% decrease in volume attributed to the pandemic and a 2% decrease from divestitures. Organic sales for North America declined 3% driven by lower installations within commercial electronic security and automatic doors. Europe declined 4% organically as growth in France and the Nordics was offset by lower volume in the UK related to the pandemic. While customer access and sales were severely impeded by government lockdowns and safety precautions in the first half of 2020, the market and business showed recovery across the second half.
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Segment profit amounted to $108.7 million, or 5.9% of net sales, in 2020 compared to $126.6 million, or 6.5% of net sales, in 2019. Excluding acquisition-related and other charges of $73.5 million and $85.7 million in 2020 and 2019, respectively, segment profit amounted to 9.8% of net sales in 2020 compared to 10.9% in 2019, as price and cost control were more than offset by lower volume from pandemic disruptions and growth investments.

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

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

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

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

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

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

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

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

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

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

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In 2019, cash flows from operations were $1.506 billion compared to $1.261 billion in 2018. The year-over-year increase was mainly attributable to improved working capital (accounts receivable, inventory, accounts payable, and deferred revenue) as a result of an intense focus on working capital management and lower inventory investment associated with Tools & Storage brand roll-outs.

Free Cash Flow: Free cash flow, as defined in the table below, was $1.674 billion in 2020 compared to $1.081 billion in 2019 and $769 million in 2018. The improvement in free cash flow in 2020 was driven by higher operating cash flows as discussed above and lower capital expenditures due to cash preservation initiatives implemented during the year in response to COVID-19 driven market volatility. Management considers free cash flow an important indicator of its liquidity, as well as its ability to fund future growth and provide dividends to shareowners. Free cash flow does not include deductions for mandatory debt service, other borrowing activity, discretionary dividends on the Company’s common and preferred stock and business acquisitions, among other items.
(Millions of Dollars) 2020 2019 2018
Net cash provided by operating activities $ 2,022  $ 1,506  $ 1,261 
Less: capital and software expenditures (348) (425) (492)
Free cash flow $ 1,674  $ 1,081  $ 769 

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

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

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

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

Financing Activities: Cash flows provided by financing activities totaled $616 million in 2020 primarily driven by net proceeds from debt issuances of $2.223 billion and $897 million of proceeds from issuances of common stock, partially offset by payments on long-term debt of $1.154 billion, cash dividend payments on common stock of $432 million, net repayments of short-term borrowings of $343 million under the Company's commercial paper program, and a $250 million Craftsman deferred purchase price payment.

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

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

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Fluctuations in foreign currency rates positively impacted cash by $23 million in 2020 due to the weakening of the U.S. Dollar against other currencies, while negatively impacting cash by $1 million and $54 million in 2019 and 2018, respectively, due to the strengthening of the U.S. Dollar against the Company's other currencies.

Refer to Note H, Long-Term Debt and Financing Arrangements, and Note J, Capital Stock, for further discussion regarding the Company's debt and equity arrangements.
Credit Ratings and Liquidity:
The Company maintains strong investment grade credit ratings from the major U.S. rating agencies on its senior unsecured debt (S&P A, Fitch A-, Moody's Baa1), as well as its commercial paper program (S&P A-1, Fitch F1, Moody's P-2). In the second quarter of 2020, S&P and Fitch revised their outlooks to ‘negative’ from ‘stable’ in response to the potential negative economic effects stemming from the COVID-19 pandemic. Refer to Item 1A. Risk Factors in Part I of this Form 10-K for further discussion of the risks associated with the ongoing COVID-19 pandemic. Failure to maintain strong investment grade rating levels could adversely affect the Company’s cost of funds, liquidity and access to capital markets, but would not have an adverse effect on the Company’s ability to access its existing committed credit facilities.

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

As a result of the Act, the Company's tax liability related to the one-time transition tax associated with unremitted foreign earnings and profits totaled $325 million at January 2, 2021. The Act permits a U.S. company to elect to pay the net tax liability interest-free over a period of up to eight years. See the Contractual Obligations table below for the estimated amounts due by period. The Company has considered the implications of paying the required one-time transition tax, and believes it will not have a material impact on its liquidity.

The Company has a $3.0 billion commercial paper program which includes Euro denominated borrowings in addition to U.S. Dollars. As of January 2, 2021, the Company had no borrowings outstanding. As of December 28, 2019, the Company had approximately $336 million of borrowings outstanding representing Euro denominated commercial paper, which was designated as a net investment hedge. Refer to Note I, Financial Instruments, for further discussion.

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

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

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

At January 2, 2021, the aggregate amount of committed and uncommitted lines of credit, long-term and short-term, was approximately $3.5 billion. At January 2, 2021, $2 million was recorded as short-term borrowings relating to amounts outstanding against uncommitted lines. In addition, $96 million of the short-term credit lines was utilized primarily pertaining
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to outstanding letters of credit for which there are no required or reported debt balances. The weighted-average interest rate on U.S. dollar denominated short-term borrowings for 2020 and 2019 were 1.3% and 2.3%, respectively. The weighted-average interest rate on Euro denominated short-term borrowings for 2020 and 2019 were negative 0.2% and 0.3%, respectively.

The Company has an interest coverage covenant that must be maintained to permit continued access to its committed credit facilities described above. The interest coverage ratio tested for covenant compliance compares adjusted Earnings Before Interest, Taxes, Depreciation and Amortization to adjusted Interest Expense ("adjusted EBITDA"/"adjusted Interest Expense"). In April 2020, the Company entered into an amendment to its 5-Year Credit Agreement to: (a) amend the definition of Adjusted EBITDA to allow for additional adjustment addbacks, which primarily relate to anticipated incremental charges related to the COVID-19 pandemic, for amounts incurred beginning in the second quarter of 2020 through the second quarter of 2021, and (b) lower the minimum interest coverage ratio from 3.5 to 2.5 times for the period from and including the second quarter of 2020 through the end of fiscal year 2021. These amendments are also applicable to the new 364-Day Credit Agreement described above.

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

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

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

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

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

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

In November 2019, the Company issued 7,500,000 Equity Units with a total notional value of $750 million ("2019 Equity Units"). Each unit has a stated amount of $100 and initially consisted of a three-year forward stock purchase contract ("2022
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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 expense 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, as discussed above. The Company also used $19 million of the proceeds to enter into capped call transactions utilized to hedge potential economic dilution. On and after November 15, 2022, the Series D Preferred Stock may be converted into common stock at the option of the holder. At the election of the Company, upon conversion, the Company may deliver cash, common stock, or a combination thereof. On or after December 22, 2022, the Company may elect to redeem for cash, all or any portion of the outstanding shares of the Series D Preferred Stock at a redemption price equal to 100% of the liquidation preference, plus any accumulated and unpaid dividends. If the Company calls the Series D Preferred Stock for redemption, holders may convert their shares immediately preceding the redemption date. Upon 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 January 2, 2021, the present value of the contract adjustment payments was approximately $76 million.

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

In May 2017, the Company issued 7,500,000 Equity Units with a total notional value of $750 million ("2017 Equity Units"). Each unit has a stated amount of $100 and initially consisted of a three-year forward stock purchase contract ("2020 Purchase Contracts") for the purchase of a variable number of shares of common stock, on May 15, 2020, for a price of $100, and a 10% beneficial ownership interest in one share of 0% Series C Cumulative Perpetual Convertible Preferred Stock, without par, with a liquidation preference of $1,000 per share ("Series C Preferred Stock"). The Company received approximately $726 million in cash proceeds from the 2017 Equity Units, net of underwriting costs and commissions, before offering expenses, and issued 750,000 shares of Series C Preferred Stock, 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, a described more fully in Note J, Capital 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 is equivalent to a conversion price of approximately $148.47 per share. As of January 2, 2021, due to the customary anti-dilution provisions, the conversion rate was 6.7504, equivalent to a conversion price of approximately $148.14 per share of common stock. Beginning on May 15, 2020, the holders have the option to convert the Series C Preferred Stock into common stock. At the election of the Company, upon conversion, the Company may deliver cash, common stock, or a combination thereof. The Company does not have the right to redeem the Series C Preferred Stock prior to May 15, 2021. At the election of the Company, on or after May 15, 2021, the Company may redeem for cash, all or any portion of the outstanding shares of the Series C Preferred Stock at a redemption price equal to 100% of the liquidation preference, plus any accumulated and unpaid dividends. If the Company calls the Series C Preferred Stock for redemption, holders may convert their shares immediately preceding the redemption date.

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

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Refer to Note H, Long-Term Debt and Financing Arrangements, and Note J, Capital Stock, for further discussion regarding the Company's debt and equity arrangements.
Contractual Obligations: The following table summarizes the Company’s significant contractual obligations and commitments that impact its liquidity:
Payments Due by Period
(Millions of Dollars) Total 2021 2022-2023 2024-2025 Thereafter
Long-term debt (a) $ 4,300  $ —  $ —  $ —  $ 4,300 
Interest payments on long-term debt (b) 3,363  161  324  324  2,554 
Short-term borrowings 2  2  —  —  — 
Lease obligations 599  141  192  118  148 
Inventory purchase commitments (c) 545  545  —  —  — 
Deferred compensation 28  1  1  1  25 
Marketing commitments 39  27  12  —  — 
Derivatives (d) 177  174  3  —  — 
Forward stock purchase contract (e) 350  —  350  —  — 
Pension funding obligations (f) 41  41  —  —  — 
Contract adjustment fees (g) 78  39  39  —  — 
U.S. income tax (h) 325  35  91  197  2 
Total contractual cash obligations $ 9,847  $ 1,166  $ 1,012  $ 640  $ 7,029 
 
(a)Future payments on long-term debt encompass all payments related to aggregate debt maturities, excluding certain fair value adjustments included in long-term debt, as discussed further in Note H, Long-Term Debt and Financing Arrangements.
(b)Future interest payments on long-term debt reflect the applicable interest rate in effect at January 2, 2021.
(c)Inventory purchase commitments primarily consist of open purchase orders to purchase raw materials, components, and sourced products.
(d)Future cash flows on derivative instruments reflect the fair value and accrued interest as of January 2, 2021. The ultimate cash flows on these instruments will differ, perhaps significantly, based on applicable market interest and foreign currency rates at their maturity.
(e)In March 2015, the Company entered into a forward share purchase contract with a financial institution counterparty which obligates the Company to pay $350 million, plus an additional amount related to the forward component of the contract.  In February 2020, the Company amended the settlement date to April 2022, or earlier at the Company's option. See Note J, Capital Stock, for further discussion.
(f)This amount principally represents contributions either required by regulations or laws or, with respect to unfunded plans, necessary to fund current benefits. The Company has not presented estimated pension and post-retirement funding beyond 2021 as funding can vary significantly from year to year based upon changes in the fair value of the plan assets, actuarial assumptions, and curtailment/settlement actions.
(g)These amounts represent future contract adjustment payments to holders of the Company's 2022 Purchase Contracts. See Note J, Capital Stock, for further discussion.
(h)Income tax liability for the one-time deemed repatriation tax on unremitted foreign earnings and profits. See Note Q, Income Taxes, for further discussion.

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

Payments of the above contractual obligations (with the exception of payments related to debt principal, the forward stock purchase contract, contract adjustment fees, and tax obligations) will typically generate a cash tax benefit such that the net cash outflow will be lower than the gross amounts summarized above.
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Other Significant Commercial Commitments:
Amount of Commitment Expirations Per Period
(Millions of Dollars) Total 2021 2022-2023 2024-2025 Thereafter
U.S. lines of credit $ 3,000  $ 1,000  $ 2,000  $ —  $ — 
Short-term borrowings, long-term debt and lines of credit are explained in detail within Note H, Long-Term Debt and Financing Arrangements.
MARKET RISK
Market risk is the potential economic loss that may result from adverse changes in the fair value of financial instruments, currencies, commodities and other items traded in global markets. The Company is exposed to market risk from changes in foreign currency exchange rates, interest rates, stock prices, bond prices and commodity prices, amongst others.
Exposure to foreign currency risk results because the Company, through its global businesses, enters into transactions and makes investments denominated in multiple currencies. The Company’s predominant currency exposures are related to the Euro, Canadian Dollar, British Pound, Australian Dollar, Brazilian Real, Argentine Peso, Chinese Renminbi and the Taiwan Dollar. Certain cross-currency trade flows arising from both trade and affiliate sales and purchases are consolidated and netted prior to obtaining risk protection through the use of various derivative financial instruments which may include: purchased basket options, purchased options, collars, cross-currency swaps and currency forwards. The Company is thus able to capitalize on its global positioning by taking advantage of naturally offsetting exposures and portfolio efficiencies to reduce the cost of purchasing derivative protection. At times, the Company also enters into foreign exchange derivative contracts to reduce the earnings and cash flow impacts of non-functional currency denominated receivables and payables, primarily for affiliate transactions. Gains and losses from these hedging instruments offset the gains or losses on the underlying net exposures. Management determines the nature and extent of currency hedging activities, and in certain cases, may elect to allow certain currency exposures to remain un-hedged. The Company may also enter into cross-currency swaps and forward contracts to hedge the net investments in certain subsidiaries and better match the cash flows of operations to debt service requirements. Management estimates the foreign currency impact from its derivative financial instruments outstanding at the end of 2020 would have been an incremental pre-tax loss of approximately $43 million based on a hypothetical 10% adverse movement in all net derivative currency positions. The Company follows risk management policies in executing derivative financial instrument transactions, and does not use such instruments for speculative purposes. The Company generally does not hedge the translation of its non-U.S. dollar earnings in foreign subsidiaries, but may choose to do so in certain instances in future periods.
As mentioned above, the Company routinely has cross-border trade and affiliate flows that cause an impact on earnings from foreign exchange rate movements. The Company is also exposed to currency fluctuation volatility from the translation of foreign earnings into U.S. dollars and the economic impact of foreign currency volatility on monetary assets held in foreign currencies. It is more difficult to quantify the transactional effects from currency fluctuations than the translational effects. Aside from the use of derivative instruments, which may be used to mitigate some of the exposure, transactional effects can potentially be influenced by actions the Company may take. For example, if an exposure occurs from a European entity sourcing product from a U.S. supplier it may be possible to change to a European supplier. Management estimates the combined translational and transactional impact, on pre-tax earnings, of a 10% overall movement in exchange rates is approximately $157 million, or approximately $0.85 per diluted share. In 2020, translational and transactional foreign currency fluctuations negatively impacted pre-tax earnings by approximately $73 million, or approximately $0.40 per diluted share.
The Company’s exposure to interest rate risk results from its outstanding debt and derivative obligations, short-term investments, and derivative financial instruments employed in the management of its debt portfolio. The debt portfolio including both trade and affiliate debt, is managed to achieve capital structure targets and reduce the overall cost of borrowing by using a combination of fixed and floating rate debt as well as interest rate swaps, and cross-currency swaps.
The Company’s primary exposure to interest rate risk comes from its commercial paper program in which the pricing is partially based on short-term U.S. interest rates. At January 2, 2021, the impact of a hypothetical 10% increase in the interest rates associated with the Company’s commercial paper borrowings would have an immaterial effect on the Company’s financial position and results of operations.
The Company has exposure to commodity prices in many businesses, particularly brass, nickel, resin, aluminum, copper, zinc, steel, and energy used in the production of finished goods. Generally, commodity price exposures are not hedged with derivative financial instruments, but instead are actively managed through customer product and service pricing actions, procurement-driven cost reduction initiatives and other productivity improvement projects.
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Fluctuations in the fair value of the Company’s common stock affect domestic retirement plan expense as discussed below in the Employee Stock Ownership Plan ("ESOP") section of MD&A. Additionally, the Company has $120 million of liabilities as of January 2, 2021 pertaining to unfunded defined contribution plans for certain U.S. employees for which there is mark-to-market exposure.
The assets held by the Company’s defined benefit plans are exposed to fluctuations in the market value of securities, primarily global stocks and fixed-income securities. The funding obligations for these plans would increase in the event of adverse changes in the plan asset values, although such funding would occur over a period of many years. In 2020, 2019, and 2018, investment returns on pension plan assets resulted in a $280 million increase, a $323 million increase, and a $72 million decrease, respectively. The Company expects funding obligations on its defined benefit plans to be approximately $41 million in 2021. The Company employs diversified asset allocations to help mitigate this risk. Management has worked to minimize this exposure by freezing and terminating defined benefit plans where appropriate.
The Company has access to financial resources and borrowing capabilities around the world. There are no instruments within the debt structure that would accelerate payment requirements solely due to a change in credit rating.
The Company’s existing credit facilities and sources of liquidity, including operating cash flows, are considered more than adequate to conduct business as normal. Accordingly, based on present conditions and past history, management believes it is unlikely that operations will be materially affected by any potential deterioration of the general credit markets that may occur. The Company believes that its strong financial position, operating cash flows, committed long-term credit facilities and borrowing capacity, and ability to access equity markets, provide the financial flexibility necessary to continue its record of annual dividend payments, to invest in the routine needs of its businesses, to make strategic acquisitions and to fund other initiatives encompassed by its growth strategy and maintain its strong investment grade credit ratings.
OTHER MATTERS
Employee Stock Ownership Plan ("ESOP") — As detailed in Note L, Employee Benefit Plans, the Company has an ESOP under which the ongoing U.S. Core and 401(k) defined contribution plans have been funded. Overall ESOP expense was affected by the market value of the Company’s stock on the monthly dates when shares were released, among other factors. The Company’s net ESOP activity resulted in expense of $6.3 million in 2020, income of $0.5 million in 2019 and expense of $0.4 million in 2018. U.S. defined contribution retirement plan expense will increase in the future as all remaining unallocated shares were released in the first quarter of 2020.
CRITICAL ACCOUNTING ESTIMATES — Preparation of the Company’s Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Significant accounting policies used in the preparation of the Consolidated Financial Statements are described in Note A, Significant Accounting Policies. Management believes the most complex and sensitive judgments, because of their significance to the Consolidated Financial Statements, result primarily from the need to make estimates about the effects of matters with inherent uncertainty. The most significant areas involving management estimates are described below. Actual results in these areas could differ from management’s estimates.
ALLOWANCE FOR CREDIT LOSSES — The Company maintains an allowance for credit losses, which represents an estimate of expected losses over the remaining contractual life of its receivables. The allowance is determined using two methods. The amounts calculated from each of these methods are combined to determine the total amount reserved. First, a specific reserve is established for individual accounts where information indicates the customers may have an inability to meet financial obligations. In these cases, management uses its judgment, based on the surrounding facts and circumstances, to record a specific reserve for those customers against amounts due to reduce the receivable to the amount expected to be collected. These specific reserves are reevaluated and adjusted as additional information is received. Second, a reserve is determined for all customers based on a range of percentages applied to receivable aging categories. These percentages are based on historical collection rates, write-off experience, and forecasts of future economic conditions.
If circumstances change, for example, due to the occurrence of higher-than-expected defaults, a significant adverse change in a major customer’s ability to meet its financial obligation to the Company, or adverse changes in forecasts of future economic conditions, then the Company's estimates of the recoverability of receivable amounts due could be reduced.
INVENTORIES — Inventories in the U.S. are primarily valued at the lower of Last-In First-Out (“LIFO”) cost or market, while non-U.S. inventories are primarily valued at the lower of First-In, First-Out (“FIFO”) cost and net realizable value. The calculation of LIFO reserves, and therefore the net inventory valuation, is affected by inflation and deflation in inventory components. The Company continually reviews the carrying value of discontinued product lines and stock-keeping-units (“SKUs”) to determine that these items are properly valued. The Company also continually evaluates the composition of its
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inventory and identifies obsolete and/or slow-moving inventories. Inventory items identified as obsolete and/or slow-moving are evaluated to determine if write-downs are required. The Company assesses the ability to dispose of these inventories at a price greater than cost. If it is determined that cost is less than market or net realizable value, as applicable, cost is used for inventory valuation. If market value or net realizable value, as applicable, is less than cost, the Company writes down the related inventory to that value.
GOODWILL AND INTANGIBLE ASSETS — The Company acquires businesses in purchase transactions that result in the recognition of goodwill and intangible assets. The determination of the value of intangible assets requires management to make estimates and assumptions. In accordance with Accounting Standards Codification ("ASC") 350-20, Goodwill, acquired goodwill and indefinite-lived intangible assets are not amortized but are subject to impairment testing at least annually or when an event occurs or circumstances change that indicate it is more likely than not an impairment exists. Definite-lived intangible assets are amortized and are tested for impairment when an event occurs or circumstances change that indicate it is more likely than not that an impairment exists. Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. At January 2, 2021, the Company reported $10.038 billion of goodwill, $2.198 billion of indefinite-lived trade names and $1.858 billion of net definite-lived intangibles.
Management tests goodwill for impairment at the reporting unit level. A reporting unit is an operating segment as defined in ASC 280, Segment Reporting, or one level below an operating segment (component level) as determined by the availability of discrete financial information that is regularly reviewed by operating segment management or an aggregate of component levels of an operating segment having similar economic characteristics. If the carrying value of a reporting unit (including the value of goodwill) is greater than its estimated fair value, an impairment charge would be recorded for the amount that the carrying amount of the reporting unit exceeded its fair value.
As required by the Company’s policy, goodwill was tested for impairment in the third quarter of 2020. In accordance with Accounting Standards Update ("ASU") 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment, companies are permitted to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test. Impairment tests are completed separately with respect to the goodwill of each of the Company’s reporting units. For its annual impairment testing performed in the third quarter of 2020, the Company applied a quantitative test for all of its reporting units using a discounted cash flow valuation model. Based on the results of this testing, it was determined that the fair value of each of the reporting units substantially exceeded its respective carrying amount by in excess of 40%, with the exception of the Infrastructure reporting unit as discussed below.
As previously disclosed in the Company's Form 10-Q for the third quarter of 2020, the fair value of the Infrastructure reporting unit exceeded its carrying amount by 16%. In connection with the preparation of the Consolidated Financial Statements for the year ended January 2, 2021, the Company performed an updated impairment analysis with respect to the Infrastructure reporting unit, which included approximately $585 million of goodwill at year-end. The key assumptions applied to the updated cash flow projections for the Infrastructure reporting unit included a 9.5% discount rate, near-term revenue growth rates over the next six years, which represented a compound annual growth rate of approximately 4%, and a 3% perpetual growth rate. Based on this analysis, it was determined that the fair value of the Infrastructure reporting unit exceeded its carrying amount by 23%. The increase in excess fair value is reflective of an improved near-term outlook based on results and trends in the fourth quarter of 2020. Management remains confident in the long-term viability and success of the Infrastructure reporting unit based on its leading market position in its respective industries and the Company's continued commitment to, and investments in, organic growth and margin resiliency initiatives.
For the Company’s remaining reporting units, the key assumptions applied to the cash flow projections were discount rates, which ranged from 7.5% to 9.5%, near-term revenue growth rates over the next six years, which represented cumulative annual growth rates ranging from approximately 3% to 5%, and perpetual growth rates of 3%. These assumptions contemplated business, market and overall economic conditions. Furthermore, management performed sensitivity analyses on the estimated fair values from the discounted cash flow valuation models for these reporting units utilizing more conservative assumptions that reflect reasonably likely future changes in the discount rate and perpetual growth rate. The discount rate was increased by 100 basis points with no impairment indicated. The perpetual growth rate was decreased by 150 basis points with no impairment indicated.
The Company also tested its indefinite-lived trade names for impairment during the third quarter of 2020 utilizing a discounted cash flow model. The key assumptions used included discount rates, royalty rates, and perpetual growth rates applied to the projected sales. With the exception of an immaterial trade name, the Company determined that the fair values of its indefinite-lived trade names exceeded their respective carrying amounts.
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In the event that future operating results of any of the Company's reporting units or indefinite-lived trade names do not meet current expectations, management, based upon conditions at the time, would consider taking restructuring or other strategic actions, as necessary, to maximize revenue growth and profitability. A thorough analysis of all the facts and circumstances existing at that time would need to be performed to determine if recording an impairment loss would be appropriate.
DEFINED BENEFIT OBLIGATIONS — The valuation of pension and other postretirement benefits costs and obligations is dependent on various assumptions. These assumptions, which are updated annually, include discount rates, expected return on plan assets, future salary increase rates, and health care cost trend rates. The Company considers current market conditions, including interest rates, to establish these assumptions. Discount rates are developed considering the yields available on high-quality fixed income investments with maturities corresponding to the duration of the related benefit obligations. The Company’s weighted-average discount rates used to determine benefit obligations at January 2, 2021 for the United States and international pension plans were 2.39% and 1.31%, respectively. The Company’s weighted-average discount rates used to determine benefit obligations at December 28, 2019 for the United States and international pension plans were 3.20% and 1.80%, respectively. As discussed further in Note L, Employee Benefit Plans, the Company develops the expected return on plan assets considering various factors, which include its targeted asset allocation percentages, historic returns, and expected future returns. The Company’s expected rate of return assumptions for the United States and international pension plans were 5.25% and 3.90%, respectively, at January 2, 2021. The Company will use a 3.16% weighted-average expected rate of return assumption to determine the 2021 net periodic benefit cost. A 25 basis point reduction in the expected rate of return assumption would increase 2021 net periodic benefit cost by approximately $6 million on a pre-tax basis.
The Company believes that the assumptions used are appropriate; however, differences in actual experience or changes in the assumptions may materially affect the Company’s financial position or results of operations. To the extent that actual (newly measured) results differ from the actuarial assumptions, the difference is recognized in accumulated other comprehensive loss, and, if in excess of a specified corridor, amortized over future periods. The expected return on plan assets is determined using the expected rate of return and the fair value of plan assets. Accordingly, market fluctuations in the fair value of plan assets can affect the net periodic benefit cost in the following year. The projected benefit obligation for defined benefit plans exceeded the fair value of plan assets by $667 million at January 2, 2021. A 25 basis point reduction in the discount rate would have increased the projected benefit obligation by approximately $108 million at January 2, 2021. The primary Black & Decker U.S. pension and post employment benefit plans were curtailed in late 2010, as well as the only material Black & Decker international plan, and in their place the Company implemented defined contribution benefit plans. The vast majority of the projected benefit obligation pertains to plans that have been frozen; the remaining defined benefit plans that are not frozen are predominantly small domestic union plans and those that are statutorily mandated in certain international jurisdictions. The Company recognized approximately $19 million of defined benefit plan expense in 2020, which may fluctuate in future years depending upon various factors including future discount rates and actual returns on plan assets.
ENVIRONMENTAL — The Company incurs costs related to environmental issues as a result of various laws and regulations governing current operations as well as the remediation of previously contaminated sites. The Company’s policy is to accrue environmental investigatory and remediation costs for identified sites when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. The amount of liability recorded is based on an evaluation of currently available facts with respect to each individual site and includes such factors as existing technology, presently enacted laws and regulations, and prior experience in remediation of contaminated sites. The liabilities recorded do not take into account any claims for recoveries from insurance or third parties. As assessments and remediation progress at individual sites, the amounts recorded are reviewed periodically and adjusted to reflect additional technical and legal information that becomes available.
As of January 2, 2021, the Company had reserves of $174 million for remediation activities associated with Company-owned properties as well as for Superfund sites, for losses that are probable and estimable. The range of environmental remediation costs that is reasonably possible is $103 million to $245 million which is subject to change in the near term. The Company may be liable for environmental remediation of sites it no longer owns. Liabilities have been recorded on those sites in accordance with this policy.
INCOME TAXES — The Company accounts for income taxes under the asset and liability method in accordance with ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using the enacted tax rates in effect for the year in which the differences are expected to reverse. Any changes in tax rates on deferred tax assets and liabilities are recognized in income in the period that includes the enactment date.

The Company records net deferred tax assets to the extent that it is more likely than not that these assets will be realized. In making this determination, management considers all available positive and negative evidence, including future reversals of existing temporary differences, estimates of future taxable income, tax-planning strategies, and the realizability of net operating
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loss carryforwards. In the event that it is determined that an asset is not more likely that not to be realized, a valuation allowance is recorded against the asset. Valuation allowances related to deferred tax assets can be impacted by changes to tax laws, changes to statutory tax rates and future taxable income levels. In the event the Company were to determine that it would not be able to realize all or a portion of its deferred tax assets in the future, the unrealizable amount would be charged to earnings in the period in which that determination is made. Conversely, if the Company were to determine that it would be able to realize deferred tax assets in the future in excess of the net carrying amounts, it would decrease the recorded valuation allowance through a favorable adjustment to earnings in the period that the determination was made.
The Company records uncertain tax positions in accordance with ASC 740, which requires a two-step process. First, management determines whether it is more likely than not that a tax position will be sustained based on the technical merits of the position and second, for those tax positions that meet the more likely than not threshold, management recognizes the largest amount of the tax benefit that is greater than 50 percent likely to be realized upon ultimate settlement with the related taxing authority. The Company maintains an accounting policy of recording interest and penalties on uncertain tax positions as a component of Income taxes in the Consolidated Statements of Operations.
The Company is subject to income tax in a number of locations, including many state and foreign jurisdictions. Significant judgment is required when calculating the worldwide provision for income taxes. Many factors are considered when evaluating and estimating the Company's tax positions and tax benefits, which may require periodic adjustments, and which may not accurately anticipate actual outcomes. It is reasonably possible that the amount of the unrecognized benefit with respect to certain of the Company's unrecognized tax positions will significantly increase or decrease within the next twelve months. These changes may be the result of settlements of ongoing audits, litigation, or other proceedings with taxing authorities. The Company periodically assesses its liabilities and contingencies for all tax years still subject to audit based on the most current available information, which involves inherent uncertainty.
Additional information regarding income taxes is available in Note Q, Income Taxes.
RISK INSURANCE — To manage its insurance costs efficiently, the Company self insures for certain U.S. business exposures and generally has low deductible plans internationally. For domestic workers’ compensation, automobile and product liability (liability for alleged injuries associated with the Company’s products), the Company generally purchases insurance coverage only for severe losses that are unlikely, and these lines of insurance involve the most significant accounting estimates. While different self insured retentions, in the form of deductibles and self insurance through its captive insurance company, exist for each of these lines of insurance, the maximum self insured retention is set at no more than $5 million per occurrence. The process of establishing risk insurance reserves includes consideration of actuarial valuations that reflect the Company’s specific loss history, actual claims reported, and industry trends among statistical and other factors to estimate the range of reserves required. Risk insurance reserves are comprised of specific reserves for individual claims and additional amounts expected for development of these claims, as well as for incurred but not yet reported claims discounted to present value. The cash outflows related to risk insurance claims are expected to occur over a period of approximately 15 years. The Company believes the liabilities recorded for these U.S. risk insurance reserves, totaling $98 million and $87 million as of January 2, 2021, and December 28, 2019, respectively, are adequate. Due to judgments inherent in the reserve estimation process, it is possible the ultimate costs will differ from this estimate.
WARRANTY — The Company provides product and service warranties which vary across its businesses. The types of warranties offered generally range from one year to limited lifetime, and certain branded products carry a lifetime warranty. There are also certain products with no warranty. Further, the Company sometimes incurs discretionary costs to service its products in connection with product performance issues. Historical warranty and service claim experience forms the basis for warranty obligations recognized. Adjustments are recorded to the warranty liability as new information becomes available. The Company believes the $114 million reserve for expected product warranty claims as of January 2, 2021 is adequate, but due to judgments inherent in the reserve estimation process, including forecasting future product reliability levels and costs of repair as well as the estimated age of certain products submitted for claims, the ultimate claim costs may differ from the recorded warranty liability. The Company also establishes a reserve for product recalls on a product-specific basis during the period in which the circumstances giving rise to the recall become known and estimable for both company-initiated actions and those required by regulatory bodies.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements as of January 2, 2021.
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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, including the successful integration of the CAM acquisition into the Company; (vi) pricing pressure and other changes within competitive markets; (vii) availability and price of raw materials, component parts, freight, energy, labor and sourced finished goods; (viii) the impact the tightened credit markets and change to LIBOR and other benchmark rates may have on the Company or its customers or suppliers; (ix) the extent to which the Company has to write off accounts receivable or assets or experiences supply chain disruptions in connection with bankruptcy filings by customers or suppliers; (x) the Company's ability to identify and effectively execute productivity improvements and cost reductions; (xi) potential business and distribution disruptions, including those related to physical security threats, information technology or cyber-attacks, epidemics, pandemics, sanctions, political unrest, war, terrorism or natural disasters; (xii) the continued consolidation of customers, particularly in consumer channels and the Company’s continued reliance on significant customers; (xiii) managing franchisee relationships; (xiv) the impact of poor weather conditions and climate change; (xv) maintaining or improving production rates in the Company's manufacturing facilities, responding to significant changes in customer preferences, product demand and fulfilling demand for new and existing products, and learning, adapting and integrating new technologies into products, services and processes; (xvi) changes in the competitive landscape in the Company's markets; (xvii) the Company's non-U.S. operations, including sales to non-U.S. customers; (xviii) the impact from demand changes within world-wide markets associated with homebuilding and remodeling; (xix) potential adverse developments in new or pending litigation and/or government investigations; (xx) the incurrence of debt and changes in the Company's ability to obtain debt on commercially reasonable terms and at competitive rates; (xxi) substantial pension and other postretirement benefit obligations; (xxii) potential regulatory liabilities, including environmental, privacy, data breach, workers compensation and product liabilities; (xxiii) attracting and retaining key employees, managing a workforce in many jurisdictions, work stoppages or other labor disruptions; (xxiv) the Company's ability to keep abreast with the pace of technological change; (xxv) changes in accounting estimates; (xxvi) the Company’s ability to protect its intellectual property rights and associated reputational impacts; and (xxvii) the continued adverse effects of the COVID-19 pandemic and an indeterminate recovery period.
Additional factors that could cause actual results to differ materially from forward-looking statements are set forth in this Annual Report on Form 10-K, including under the heading “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in the Consolidated Financial Statements and the related Notes.
Forward-looking statements in this Annual Report on Form 10-K speak only as of the date hereof, and forward-looking statements in documents attached that are incorporated by reference speak only as of the date of those documents. The Company does not undertake any obligation to update or release any revisions to any forward-looking statement or to report any events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as required by law.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company incorporates by reference the material captioned “Market Risk” in Item 7 and in Note I, Financial Instruments, of the Notes to Consolidated Financial Statements in Item 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 15 for an index to Financial Statements and Financial Statement Schedule. Such Financial Statements and Financial Statement Schedule are incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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ITEM 9A. CONTROLS AND PROCEDURES
The management of Stanley Black & Decker, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
In February 2020, the Company acquired Consolidated Aerospace Manufacturing, LLC ("CAM") for approximately $1.4 billion. Since Stanley Black & Decker, Inc. has not yet fully incorporated the internal controls and procedures of CAM into Stanley Black & Decker, Inc.'s internal control over financial reporting, management excluded this business from its assessment of the effectiveness of internal control over financial reporting as of January 2, 2021. CAM accounted for 6% of Stanley Black & Decker, Inc.'s total assets as of January 2, 2021 and 2% of Stanley Black & Decker, Inc.'s net sales for the year then ended.
Management has assessed the effectiveness of the Company’s internal control over financial reporting as of January 2, 2021. In making its assessment, management has utilized the criteria set forth by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission in Internal Control — Integrated Framework (2013 Framework). Management concluded that based on its assessment, the Company’s internal control over financial reporting was effective as of January 2, 2021. Ernst & Young LLP, the auditor of the financial statements included in this annual report, has issued an attestation report on the registrant’s internal control over financial reporting, a copy of which appears on page 65.
Under the supervision and with the participation of management, including the Company’s President and Chief Executive Officer and its Executive Vice 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 President and Chief Executive Officer and its Executive Vice President and Chief Financial Officer have concluded that, as of January 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 fiscal year ended January 2, 2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting aside from the previously mentioned acquisition of CAM. As part of the ongoing integration activities, the Company will complete an assessment of existing controls and incorporate its controls and procedures into CAM.
ITEM 9B. OTHER INFORMATION
None.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE OF THE REGISTRANT
The information required by this Item, except for certain information with respect to the Company’s Code of Ethics, the identification of the executive officers of the Company and any material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors, as set forth below, is incorporated herein by reference to the information set forth in the section of the Company’s definitive proxy statement (which will be filed pursuant to Regulation 14A under the Exchange Act within 120 days after the close of the Company’s fiscal year) under the headings “Information Concerning Nominees for Election as Directors,” and “Board of Directors".

Available on the Company's website at http://www.stanleyblackanddecker.com on the “Corporate Governance” section which appears under the “Investors” heading is the Code of Business Ethics applicable to all of its directors, officers and employees worldwide and a Code of Ethics for the Chief Executive Officer and senior financial officers including the Chief Financial Officer and principal accounting officer. The Company intends to post on its website required information regarding any amendment to, or waiver from, the Code of Business Ethics that applies to our Chief Executive Officer and senior financial officers within four business days after any such amendment or waiver.

The following is a list of the executive officers of the Company as of February 18, 2021: 
Name and Age Office Date Elected to
Office
James M. Loree (62) President & Chief Executive Officer since August 2016. President & Chief Operating Officer (2013); Executive Vice President and Chief Operating Officer (2009); Executive Vice President Finance and Chief Financial Officer (1999). 7/19/1999
Donald Allan, Jr. (56) Executive Vice President & Chief Financial Officer since October 2016. Senior Vice President & Chief Financial Officer (2010); Vice President & Chief Financial Officer (2009); Vice President & Corporate Controller (2002); Corporate Controller (2000); Assistant Controller (1999). 10/24/2006
Jeffery D. Ansell (53) Executive Vice President, Stanley Black & Decker since July 2020. Executive Vice President & President, Tools & Storage (2016); Senior Vice President and Group Executive, Global Tools & Storage (2015); Senior Vice President and Group Executive, Construction & DIY (2010); Vice President & President, Stanley Consumer Tools Group (2006); President - Consumer Tools and Storage (2004); President of Industrial Tools & Storage (2002); Vice President - Global Consumer Tools Marketing (2001); Vice President Consumer Sales America (1999). 2/22/2006
Janet M. Link (51)
Senior Vice President, General Counsel and Secretary since July 2017. Executive Vice President, General Counsel, JC Penney Company, Inc. (2015); Vice President, Deputy General Counsel, JC Penney Company, Inc. (2014); Vice President, Deputy General Counsel, Clear Channel Companies (2013). 7/19/2017
Jaime A. Ramirez (53) Executive Vice President & President, Global Tools & Storage since July 2020. Senior Vice President & Chief Operating Officer, Tools & Storage (2019); Senior Vice President & President, Global Emerging Markets (2012); President, Construction & DIY, Latin America (2010); Vice President and General Manager - Latin America, Power Tools & Accessories, The Black & Decker Corporation (2008); Vice President and General Manager - Andean Region The Black & Decker Corporation (2007). 3/12/2010
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John H. Wyatt (62) Senior Vice President & President, Stanley Outdoor since January 2021. Senior Vice President & President, Stanley Outdoor and Aerospace (2020); President, Stanley Engineered Fastening (2016); President, Sales & Marketing - Global Tools & Storage (2015); President, Construction & DIY, Europe and ANZ (2012); President, Construction & DIY, EMEA (2010); President-Europe, Middle East, and Africa, Power Tools and Accessories, The Black & Decker Corporation (2008); Vice President-Consumer Products (Europe, Middle East and Africa), The Black & Decker Corporation (2006).
3/12/2010
Robert H. Raff (54) President, Stanley Security since November 2016. President, Stanley Electronic Security North America (2015); President, North America Sales, Construction & DIY (2010); President, Stanley National Hardware (2007); Vice President of Latin America, Construction & DIY (2005); General Manager, Construction & DIY (2002).
4/19/2018
Robert Blackburn (52)
Senior Vice President of Global Operations since May 2019. Hoffman Group, CEO and Chairman of the Executive Board (2017); BASF S.E., President of Supply Chain Operations & Information Services (2007).
5/6/2019
Graham N. Robinson (52) Senior Vice President & President, Stanley Industrial since April 2020. President, Honeywell Industrial Safety (Honeywell International) (2018); President, Honeywell Sensing and Internet of Things (Honeywell International) (2016); Chief Marketing Officer and Vice President, Global Strategy & Marketing, Automation and Control Solutions (Honeywell International) (2014). 4/17/2020
Stephen Subasic (52) Senior Vice President, Chief Human Resources Officer since January 2021. Vice President, Human Resources & Corporate Talent Management (2019); Vice President, Human Resources, Global Tools & Storage (2015); Vice President, Human Resources, Construction & DIY (2011). 2/18/2021

53

ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the information set forth under the sections entitled "Compensation Discussion & Analysis" and “2020 Executive Compensation” of the Company’s definitive proxy statement, which will be filed pursuant to Regulation 14A under the Exchange Act within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by Item 403 of Regulation S-K is incorporated herein by reference to the information set forth under the sections entitled "Security Ownership of Certain Beneficial Owners," "Security Ownership of Directors and Officers," "Compensation Discussion & Analysis" and “2020 Executive Compensation” of the Company’s definitive proxy statement, which will be filed pursuant to Regulation 14A under the Exchange Act within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
EQUITY COMPENSATION PLAN INFORMATION
Compensation plans under which the Company’s equity securities are authorized for issuance at January 2, 2021 follow:
 
(A) (B) (C)
Plan Category Number of securities to be
issued upon exercise of
outstanding options and stock awards 		  Weighted-average exercise
price of outstanding options 		  Number of securities
remaining available for
future issuance under equity
compensation plans
(excluding securities
reflected in column (A)) 		 
Equity compensation plans approved by security holders 8,004,647 
(1)
$ 138.84 
(2)
9,594,743 
(3)
Equity compensation plans not approved by security holders (4)
— 
  
— 
  
— 
  
Total 8,004,647 
  
$ 138.84 
  
9,594,743 
 
(1)Consists of 5,875,246 shares underlying outstanding stock options (whether vested or unvested) with a weighted-average exercise price of $138.84 and a weighted-average term of 7.13 years; 2,033,157 shares underlying time-vesting restricted stock units that have not yet vested and the maximum number of shares that will be issued pursuant to outstanding performance awards if all established goals are met; and 96,244 of shares earned but related to which participants elected deferral of delivery. All stock-based compensation plans are discussed in Note J, Capital Stock, of the Notes to Consolidated Financial Statements in Item 8.
(2)There is no cost to the recipient for shares issued pursuant to time-vesting restricted stock units or performance awards. Because there is no strike price applicable to these stock awards they are excluded from the weighted-average exercise price which pertains solely to outstanding stock options.
(3)Consists of 1,480,962 of shares available for purchase under the employee stock purchase plan ("ESPP") at the election of employees and 8,113,781 securities available for future grants by the Board of Directors under stock-based compensation plans. On January 22, 2018, the Board of Directors adopted the 2018 Omnibus Award Plan (the "2018 Plan") and authorized the issuance of 16,750,000 shares of the Company's common stock in connection with the awards pursuant to the 2018 Plan. No further awards will be issued under the Company's 2013 Long-Term Incentive Plan.
(4)U.S. employees are eligible to contribute from 1% to 25% of their salary to a qualified tax deferred savings plan as described in the Employee Stock Ownership Plan ("ESOP") section of Note L, Employee Benefit Plans, of the Notes to the Consolidated Financial Statements in Item 8. The Company contributes an amount equal to one half of the employee contribution up to the first 7% of salary.  There is a non-qualified tax deferred savings plan for highly compensated salaried employees which mirrors the qualified plan provisions, but was not specifically approved by security holders.  Eligible highly compensated salaried U.S. employees are eligible to contribute from 1% to 50% of their salary to the non-qualified tax deferred savings plan.  The same matching arrangement was provided for highly compensated salaried employees in the non-qualified plan, to the extent the match was not fully met in the qualified plan, except that the arrangement for these employees is outside of the ESOP, and is not funded in advance of distributions. Effective January 1, 2019, the Company, at its discretion, will determine whether matching and core contributions will be made for the non-qualified tax deferred savings plan for a particular year.  If the Company decides to make matching contributions for a year, it will make contributions, in an amount determined in its discretion, that may constitute part or all of or more than the matching contributions that would have been made pursuant to the provisions of the Stanley Black & Decker Supplemental Retirement Account Plan that were in effect prior to 2019. For
54

both qualified and non-qualified plans, the investment of the employee’s contribution and the Company’s contribution is controlled by the employee and may include an election to invest in Company stock. Shares of the Company’s common stock may be issued at the time of a distribution from the qualified plan. The number of securities remaining available for issuance under the plans at January 2, 2021 is not determinable, since the plans do not authorize a maximum number of securities.
55

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Items 404 and 407(a) of Regulation S-K is incorporated by reference to the information set forth under the sections entitled "Corporate Governance," "Director Independence" and "Related Party Transactions" of the Company’s definitive proxy statement, which will be filed pursuant to Regulation 14A under the Exchange Act within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Item 9(e) of Schedule 14A is incorporated herein by reference to the information set forth under the section entitled “Fees of Independent Auditors” of the Company’s definitive proxy statement, which will be filed pursuant to Regulation 14A under the Exchange Act within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a) Index to documents filed as part of this report:
1. and 2. Financial Statements and Financial Statement Schedule.
The response to this portion of Item 15 is submitted as a separate section of this report beginning with an index thereto on page 57.
3. Exhibits
See Exhibit Index in this Form 10-K on page 122.
(b) See Exhibit Index in this Form 10-K on page 122.
(c) The response in this portion of Item 15 is submitted as a separate section of this Form 10-K with an index thereto beginning on page 57.
56

FORM 10-K
ITEM 15(a) (1) AND (2)
STANLEY BLACK & DECKER, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
 
Schedule II — Valuation and Qualifying Accounts is included in Item 15 (page 60).
Management’s Report on Internal Control Over Financial Reporting (page 61).
Report of Independent Registered Public Accounting Firm — Financial Statement Opinion (page 62).
Report of Independent Registered Public Accounting Firm — Internal Control Opinion (page 65).
Consolidated Statements of Operations — fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018 (page 66).
Consolidated Statements of Comprehensive Income — fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018 (page 67).
Consolidated Balance Sheets — January 2, 2021 and December 28, 2019 (page 68).
Consolidated Statements of Cash Flows — fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018 (page 69).
Consolidated Statements of Changes in Shareowners’ Equity — fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018 (page 71).
Notes to Consolidated Financial Statements (page 72).
Selected Quarterly Financial Data (Unaudited) (page 121).
Consent of Independent Registered Public Accounting Firm (Exhibit 23).
All other schedules are omitted because either they are not applicable or the required information is shown in the financial statements or the notes thereto.

57

ITEM 16. FORM 10-K SUMMARY
Not applicable.

58

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
STANLEY BLACK & DECKER, INC.
By: /s/ James M. Loree
James M. Loree, President and Chief Executive Officer
Date: February 18, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
Signature    Title    Date  
/s/ James M. Loree    President and Chief Executive Officer    February 18, 2021   
James M. Loree      
/s/ Donald Allan, Jr.    Executive Vice President and Chief Financial Officer    February 18, 2021   
Donald Allan, Jr.      
/s/ Jocelyn S. Belisle    Vice President and Chief Accounting Officer    February 18, 2021   
Jocelyn S. Belisle      
*    Director    February 18, 2021
Andrea J. Ayers      
*    Director    February 18, 2021   
George W. Buckley      
*    Director February 18, 2021   
Patrick D. Campbell      
*    Director    February 18, 2021   
Carlos M. Cardoso      
*    Director    February 18, 2021   
Robert B. Coutts      
*    Director    February 18, 2021
Debra A. Crew      
*    Director    February 18, 2021   
Michael D. Hankin      
* Director February 18, 2021
Dmitri L. Stockton
* Director February 18, 2021
Irving Tan

*By: /s/ Janet M. Link                      
Janet M. Link
(As Attorney-in-Fact)

59

Schedule II — Valuation and Qualifying Accounts
Stanley Black & Decker, Inc. and Subsidiaries
Fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018
(Millions of Dollars)
 
    ADDITIONS    
  Beginning
Balance 		Charged To
Costs And
Expenses 		Charged
To Other
Accounts (b) 		(a)
Deductions 		Ending
Balance
Allowance for Credit Losses:
Year Ended 2020 $ 112.4  $ 41.1  $ 23.7  $ (36.1) $ 141.1 
Year Ended 2019 $ 102.0  $ 33.0  $ 5.9  $ (28.5) $ 112.4 
Year Ended 2018 $ 80.4  $ 28.0  $ 12.5  $ (18.9) $ 102.0 
Tax Valuation Allowance:
Year Ended 2020 (c) $ 1,065.0  $ 312.0  $ (8.6) $ (309.5) $ 1,058.9 
Year Ended 2019 $ 626.7  $ 461.5  $ (0.5) $ (22.7) $ 1,065.0 
Year Ended 2018 $ 516.7  $ 146.2  $ (6.4) $ (29.8) $ 626.7 
 
(a)With respect to the allowance for credit losses, deductions represent amounts charged-off less recoveries of accounts previously charged-off.
(b)Amounts represent the impact of foreign currency translation, acquisitions and net transfers to/from other accounts.
(c)Refer to Note Q, Income Taxes, of the Notes to Consolidated Financial Statements in Item 8 for further discussion.

60

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Stanley Black & Decker, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
In February 2020, the Company acquired Consolidated Aerospace Manufacturing, LLC ("CAM") for approximately $1.4 billion. Since Stanley Black & Decker, Inc. has not yet fully incorporated the internal controls and procedures of CAM into Stanley Black & Decker, Inc.'s internal control over financial reporting, management excluded this business from its assessment of the effectiveness of internal control over financial reporting as of January 2, 2021. CAM accounted for 6% of Stanley Black & Decker, Inc.'s total assets as of January 2, 2021 and 2% of Stanley Black & Decker, Inc.'s net sales for the year then ended.
Management has assessed the effectiveness of Stanley Black & Decker, Inc.’s internal control over financial reporting as of January 2, 2021. In making its assessment, management has utilized the criteria set forth by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission in Internal Control — Integrated Framework (2013 Framework). Management concluded that based on its assessment, Stanley Black & Decker, Inc.’s internal control over financial reporting was effective as of January 2, 2021. Ernst & Young LLP, Registered Public Accounting Firm included in this annual report, has issued an attestation report on the registrant’s internal control over financial reporting, a copy of which appears on page 65.
 
/s/ James M. Loree
James M. Loree, President and Chief Executive Officer
 
/s/ Donald Allan, Jr.
Donald Allan, Jr., Executive Vice President and Chief Financial Officer

61

Report of Independent Registered Public Accounting Firm

To the Shareowners and Board of Directors of Stanley Black & Decker, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Stanley Black & Decker, Inc. (the Company) as of January 2, 2021 and December 28, 2019, the related consolidated statements of operations, comprehensive income, shareowners’ equity and cash flows for each of the three years in the period ended January 2, 2021, and the related notes and the financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at January 2, 2021 and December 28, 2019, and the results of its operations and its cash flows for each of the three years in the period ended January 2, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of January 2, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 18, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the US federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Accounting for Acquisition of Consolidated Aerospace Manufacturing, LLC
Description of the Matter As discussed in Note E of the consolidated financial statements, the Company acquired the specialty fasteners and components manufacturer, Consolidated Aerospace Manufacturing, LLC, on February 24, 2020 for a total purchase price of approximately $1.46 billion, net of cash acquired. The Company allocated the purchase price, on a preliminary basis, to the assets acquired and liabilities assumed based on their respective fair values, including identified intangible assets of $590 million and resulting goodwill of approximately $633 million.

Auditing the Company's accounting for the acquired intangible assets involved subjective auditor judgment due to the significant estimation required in management’s determination of the fair value of customer relationships. The significant estimation was primarily due to the sensitivity of the significant assumptions in determining fair value, including discount rates, projected revenue growth rates and profit margins. These assumptions related to the future performance of the acquired business, are forward-looking and could be affected by future economic and market conditions.
62

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the controls over the Company’s accounting for business combinations. Our audit procedures included, among other procedures, testing controls over the valuation of customer relationships, including the valuation models and underlying assumptions used to develop such estimates.

To test the estimated fair value of the customer relationships, we performed audit procedures that included, among other procedures, evaluating the appropriateness of the valuation methodologies and testing the significant assumptions used in the model, as described above, including the completeness and accuracy of the underlying data. We compared the significant assumptions to current industry, market and economic trends, to the historical results of the acquired business and to other guideline companies within the same industry. We performed sensitivity analyses to evaluate the change in the fair value of the customer relationships that would result from changes in the discount rates, projected revenue growth rates and profit margins. We involved our internal valuation specialists to assist with our evaluation of the methodology used by the Company as well as certain assumptions within the valuation.
Annual Test of Impairment of Goodwill in the Infrastructure Reporting Unit
Description of the Matter
At January 2, 2021, the Company’s goodwill balance was approximately $10,038 million. As discussed in Note A of the consolidated financial statements, goodwill is not amortized but rather is tested for impairment at least annually at the reporting unit level. The Company’s goodwill is initially assigned to its reporting units as of the relevant acquisition date.
Auditing management’s annual goodwill impairment test for the Infrastructure reporting unit was challenging and highly judgmental due to the significant estimation required. In particular, the fair value estimate was sensitive to the significant assumption of revenue growth, which is affected by expected future market or economic conditions. A substantial portion of the revenues of the Infrastructure reporting unit are derived from customers’ investments in cyclical industries that typically are subject to severe economic cycles, partially driven by the prices of oil and of scrap metal, which could have an impact on the goodwill impairment analysis for the Infrastructure reporting unit.
How We Addressed the Matter in Our Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the determination of fair value, including the significant assumption of revenue growth discussed above, used in the Infrastructure goodwill impairment analysis. Our audit procedures included, among other procedures, testing controls over the Company’s budgetary process and management’s review of that information.
To test the estimated fair value of the Infrastructure reporting unit, we performed audit procedures that included, among other procedures, assessing the Company’s methodologies and testing the revenue growth assumption discussed above and the underlying data used by the Company in its analysis. We compared the revenue growth rates used by management to current industry and economic trends, including, among other factors, the price of oil and scrap metal, and considering the Company’s business model, customer base, product mix and other relevant factors. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses to evaluate the change in the fair value of the reporting unit that would result from changes in the revenue growth assumption. In addition, we evaluated the reconciliation of the combined estimated fair value of the Company’s reporting units to the market capitalization of the Company and assessed the resulting control premium. Further, we involved our internal valuation specialists to assist in the evaluation of the methodology and certain assumptions used to estimate the fair value of the Infrastructure reporting unit.
Uncertain Tax Positions
Description of the Matter
At January 2, 2021, the Company had recorded a liability for uncertain tax positions of approximately $444 million. As discussed in Notes A and Q of the consolidated financial statements, the Company conducts business globally and, as a result, is subject to income tax in a number of locations, including many state and foreign jurisdictions. Uncertainty in a tax position may arise as tax laws are subject to interpretation. The Company uses significant judgment in (1) determining whether a tax position’s technical merits are more likely than not to be sustained and (2) measuring the amount of tax benefit that qualifies for recognition. The Company considers many factors when evaluating and estimating its tax positions such as, but not limited to, the settlements of on-going audits.
Auditing the measurement and determination of whether a tax position is more likely than not to be upheld under examination is challenging and subjective due to the Company’s global operations, the many tax jurisdictions in which it operates, the distinctive nature and unique facts and circumstances of each tax position and the interpretations of tax law and legal rulings. Many of these same factors also make it challenging to audit the completeness of the uncertain tax reserves.
63

How We Addressed the Matter in Our Audit
We identified and tested controls around the Company’s judgments and determinations on tax positions, including the Company’s process to verify that all uncertain tax positions are identified and considered as part of the analysis, controls addressing completeness of the uncertain tax positions and the determination of the more-likely-than-not amount of the positions to be upheld.
With the support of our tax professionals, we performed an evaluation of the Company’s estimates with respect to uncertain tax positions including the technical merits of the Company’s tax positions. This included assessing the Company’s analysis of jurisdictions with potential tax liabilities and other international tax considerations. We considered the Company’s judgments and the factors involved with each significant tax position. To support our evaluation, we used our knowledge of, and experience with, the application of international and local income tax laws by the relevant income tax authorities to evaluate the Company’s accounting for those tax positions. We analyzed the Company’s assumptions and data used to determine the amount of tax benefit to recognize and tested the completeness and accuracy of the data used to determine the amount of tax benefits recognized and tested the accuracy of such calculations. We also evaluated the Company’s income tax disclosures included in Note Q to the consolidated financial statements in relation to these matters.

/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1932.
Hartford, Connecticut
February 18, 2021


64

Report of Independent Registered Public Accounting Firm
To the Shareowners and the Board of Directors of Stanley Black & Decker, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Stanley Black & Decker, Inc.’s internal control over financial reporting as of January 2, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Stanley Black & Decker, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of January 2, 2021, based on the COSO criteria.
As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Consolidated Aerospace Manufacturing, LLC (“CAM”), which is included in the 2020 consolidated financial statements of the Company and constituted 6% of total assets as of January 2, 2021 and 2% of net sales for the fiscal year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of CAM.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of January 2, 2021 and December 28, 2019, the related consolidated statements of operations, comprehensive income, shareowners' equity and cash flows for each of the three fiscal years in the period ended January 2, 2021, and the related notes and schedule listed in the Index at Item 15(a) and our report dated February 18, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Hartford, Connecticut
February 18, 2021
65

Consolidated Statements of Operations
Fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018
(Millions of Dollars, Except Per Share Amounts)
 
2020 2019 2018
Net Sales $ 14,534.6  $ 14,442.2  $ 13,982.4 
Costs and Expenses
Cost of sales $ 9,566.7  $ 9,636.7  $ 9,131.3 
Selling, general and administrative 3,048.5  3,008.0  3,143.7 
Provision for credit losses 41.1  33.0  28.0 
Other, net 262.8  249.1  287.0 
Loss (gain) on sales of businesses 13.5  (17.0) 0.8 
Restructuring charges 83.0  154.1  160.3 
Loss on debt extinguishments 46.9  17.9  — 
Interest income (18.0) (53.9) (68.7)
Interest expense 223.1  284.3  277.9 
$ 13,267.6  $ 13,312.2  $ 12,960.3 
Earnings before income taxes and equity interest 1,267.0  1,130.0  1,022.1 
Income taxes 41.4  160.8  416.3 
Net earnings before equity interest $ 1,225.6  $ 969.2  $ 605.8 
Share of net earnings (losses) of equity method investment 9.1  (11.2) — 
Net earnings $ 1,234.7  $ 958.0  $ 605.8 
Less: Net earnings attributable to non-controlling interests 0.9  2.2  0.6 
Net earnings attributable to Stanley Black & Decker, Inc. $ 1,233.8  $ 955.8  $ 605.2 
Less: Preferred stock dividends 23.4  —  — 
Net Earnings Attributable to Common Shareowners $ 1,210.4  $ 955.8  $ 605.2 
Earnings per share of common stock:
Basic $ 7.85  $ 6.44  $ 4.06 
Diluted $ 7.77  $ 6.35  $ 3.99 
See Notes to Consolidated Financial Statements.
66

Consolidated Statements of Comprehensive Income
Fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018
(Millions of Dollars)

2020 2019 2018
Net Earnings Attributable to Common Shareowners $ 1,210.4  $ 955.8  $ 605.2 
Other comprehensive income (loss):
Currency translation adjustment and other 281.9  (36.0) (373.0)
(Losses) gains on cash flow hedges, net of tax (48.8) (27.4) 85.8 
(Losses) gains on net investment hedges, net of tax (24.5) 34.0  59.9 
Pension (losses) gains, net of tax (37.7) (40.9) 2.1 
Other comprehensive income (loss) $ 170.9  $ (70.3) $ (225.2)
Comprehensive income attributable to common shareowners $ 1,381.3  $ 885.5  $ 380.0 

See Notes to Consolidated Financial Statements.
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Consolidated Balance Sheets
January 2, 2021 and December 28, 2019
(Millions of Dollars)
2020 2019
ASSETS
Current Assets
Cash and cash equivalents $ 1,381.0  $ 297.7 
Accounts and notes receivable, net 1,512.2  1,454.6 
Inventories, net 2,737.4  2,255.0 
Prepaid expenses 370.7  395.4 
Other current assets 34.7  53.9 
Total Current Assets 6,036.0  4,456.6 
Property, Plant and Equipment, net 2,053.8  1,959.5 
Goodwill 10,038.1  9,237.5 
Customer Relationships, net 1,735.1  1,317.3 
Trade Names, net 2,277.3  2,253.6 
Other Intangible Assets, net 43.0  51.1 
Other Assets 1,383.0  1,321.0 
Total Assets $ 23,566.3  $ 20,596.6 
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities
Short-term borrowings $ 1.5  $ 337.3 
Current maturities of long-term debt —  3.1 
Accounts payable 2,446.4  2,087.8 
Accrued expenses 2,110.4  1,977.5 
Total Current Liabilities 4,558.3  4,405.7 
Long-Term Debt 4,245.4  3,176.4 
Deferred Taxes 568.0  731.2 
Post-Retirement Benefits 642.6  609.4 
Other Liabilities 2,485.6  2,531.7 
Commitments and Contingencies (Notes R and S)
Shareowners’ Equity
Stanley Black & Decker, Inc. Shareowners’ Equity
Preferred stock, without par value:
Authorized 10,000,000 shares in 2020 and 2019
Issued and outstanding 1,500,000 shares in 2020 and 2019
1,500.0  1,500.0 
Common stock, par value $2.50 per share:
Authorized 300,000,000 shares in 2020 and 2019
Issued 176,902,738 shares in 2020 and 2019
442.3  442.3 
Retained earnings 7,547.6  6,772.8 
Additional paid in capital 4,832.7  4,492.9 
Accumulated other comprehensive loss (1,713.7) (1,884.6)
ESOP —  (2.3)
12,608.9  11,321.1 
Less: cost of common stock in treasury (16,150,476 shares in 2020 and 23,396,329 shares in 2019)
(1,549.3) (2,184.8)
Stanley Black & Decker, Inc. Shareowners’ Equity 11,059.6  9,136.3 
Non-controlling interests 6.8  5.9 
Total Shareowners’ Equity 11,066.4  9,142.2 
Total Liabilities and Shareowners’ Equity $ 23,566.3  $ 20,596.6 
See Notes to Consolidated Financial Statements.
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Consolidated Statements of Cash Flows
Fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018
(Millions of Dollars)
2020 2019 2018
Operating Activities:
Net earnings $ 1,234.7  $ 958.0  $ 605.8 
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization of property, plant and equipment 376.5  372.8  331.2 
Amortization of intangibles 201.6  187.4  175.3 
Inventory step-up amortization 29.0  7.4  9.6 
Loss (gain) on sales of businesses 13.5  (17.0) 0.8 
Loss on debt extinguishments 46.9  17.9  — 
Stock-based compensation expense 109.1  88.8  76.5 
Provision for credit losses 41.1  33.0  28.0 
Share of net (earnings) losses of equity method investment (9.1) 11.2  — 
Deferred tax (benefit) expense (241.7) (17.9) 191.1 
Other non-cash items 44.7  (13.8) 10.1 
Changes in operating assets and liabilities:
Accounts receivable (39.6) 137.8  (48.8)
Inventories (401.5) 137.7  (401.6)
Accounts payable 310.4  (169.1) 211.0 
Deferred revenue (0.3) 8.5  1.5 
Other current assets (100.2) (183.6) (4.4)
Other long-term assets (14.0) (37.3) 28.9 
Accrued expenses 381.7  123.6  70.1 
Defined benefit liabilities (40.2) (47.6) (44.7)
Other long-term liabilities 79.5  (92.1) 20.5 
Net cash provided by operating activities 2,022.1  1,505.7  1,260.9 
Investing Activities:
Capital and software expenditures (348.1) (424.7) (492.1)
Sales of assets 19.9  100.1  45.2 
Business acquisitions, net of cash acquired (1,324.4) (685.4) (524.6)
Sales of businesses, net of cash sold 59.1  76.6  (3.0)
Purchases of investments (18.7) (260.6) (21.7)
Net investment hedge settlements 41.0  8.0  25.7 
Other (5.9) (22.6) (18.6)
Net cash used in investing activities (1,577.1) (1,208.6) (989.1)
Financing Activities:
Payments on long-term debt (1,154.3) (1,150.0) (977.5)
Proceeds from debt issuances, net of fees 2,222.5  496.2  990.0 
Net short-term (repayments) borrowings (342.6) (18.1) 433.2 
Stock purchase contract fees (59.8) (40.3) (40.3)
Purchases of common stock for treasury (26.2) (27.5) (527.1)
Proceeds from issuances of preferred stock —  735.0  — 
Premium paid on equity options —  (19.2) (57.3)
Premium paid on debt extinguishment (48.7) —  — 
Proceeds from issuances of common stock 897.0  146.0  38.5 
Craftsman deferred purchase price (250.0) —  — 
Craftsman contingent consideration (45.9) —  — 
CAM contingent consideration (94.4) —  — 
Termination of interest rate swaps (20.5) (1.0) (22.7)
Cash dividends on common stock (431.8) (402.0) (384.9)
Cash dividends on preferred stock (18.8) —  — 
Other (10.6) (11.6) (13.5)
Net cash provided by (used in) financing activities 615.9  (292.5) (561.6)
Effect of exchange rate changes on cash and cash equivalents 22.8  (1.4) (53.9)
Change in cash, cash equivalents and restricted cash 1,083.7  3.2  (343.7)
Cash, cash equivalents and restricted cash, beginning of year 314.6  311.4  655.1 
Cash, cash equivalents and restricted cash, end of year $ 1,398.3  $ 314.6  $ 311.4 

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The following table provides a reconciliation of the cash, cash equivalents and restricted cash balances as of January 2, 2021 and December 28, 2019, as shown above:
January 2, 2021 December 28, 2019
Cash and cash equivalents $ 1,381.0  $ 297.7 
Restricted cash included in Other current assets 17.3  16.9 
Cash, cash equivalents and restricted cash $ 1,398.3  $ 314.6 

See Notes to Consolidated Financial Statements.
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Consolidated Statements of Changes in Shareowners’ Equity
Fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018
(Millions of Dollars, Except Per Share Amounts)
Preferred
Stock 		Common
Stock 		Additional
Paid In
Capital 		Retained
Earnings 		Accumulated
Other
Comprehensive
Loss 		ESOP Treasury
Stock 		Non-
Controlling
Interests 		Shareowners’
Equity
Balance December 30, 2017 $ 750.0  $ 442.3  $ 4,643.2  $ 5,998.7  $ (1,589.1) $ (18.8) $ (1,924.1) $ 2.8  $ 8,305.0 
Net earnings 605.2  0.6  605.8 
Other comprehensive loss (225.2) (225.2)
Cash dividends declared — $2.58 per share
(384.9) (384.9)
Issuance of common stock (941,854 shares)
(41.4) 79.9  38.5 
Repurchase of common stock (3,677,435 shares)
(527.1) (527.1)
Non-controlling interest buyout 0.3  0.3 
Premium paid on equity option (57.3) (57.3)
Stock-based compensation related 76.5  76.5 
ESOP 8.3  8.3 
Balance December 29, 2018 $ 750.0  $ 442.3  $ 4,621.0  $ 6,219.0  $ (1,814.3) $ (10.5) $ (2,371.3) $ 3.7  $ 7,839.9 
Net earnings 955.8  2.2  958.0 
Other comprehensive loss (70.3) (70.3)
Cash dividends declared — $2.70 per share
(402.0) (402.0)
Issuance of common stock (2,391,336 shares)
(68.0) 214.0  146.0 
Repurchase of common stock (187,377 shares)
(27.5) (27.5)
Issuance of preferred stock (750,000 shares)
750.0  (15.5) 734.5 
Equity units - stock contract fees (114.2) (114.2)
Premium paid on equity option (19.2) (19.2)
Stock-based compensation related 88.8  88.8 
ESOP 8.2  8.2 
Balance December 28, 2019 $ 1,500.0  $ 442.3  $ 4,492.9  $ 6,772.8  $ (1,884.6) $ (2.3) $ (2,184.8) $ 5.9  $ 9,142.2 
Net earnings 1,233.8  0.9  1,234.7 
Other comprehensive income 170.9  170.9 
Cash dividends declared — $2.78 per common share
(431.8) (431.8)
Cash dividends declared — $50.00 per annum per preferred share
(23.4) (23.4)
Issuance of common stock (7,474,394 shares)
225.3  671.7  897.0 
Repurchase of common stock (228,541 shares)
10.0 (36.2) (26.2)
Preferred stock issuance costs (4.6) (4.6)
Stock-based compensation related 109.1  109.1 
ESOP 2.3  2.3 
Adoption of ASU 2016-13 (3.8) (3.8)
Balance January 2, 2021 $ 1,500.0  $ 442.3  $ 4,832.7  $ 7,547.6  $ (1,713.7) $ —  $ (1,549.3) $ 6.8  $ 11,066.4 

See Notes to Consolidated Financial Statements.
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Notes to Consolidated Financial Statements

A. SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION — The Consolidated Financial Statements include the accounts of Stanley Black & Decker, Inc. and its majority-owned subsidiaries (collectively the “Company”) which require consolidation, after the elimination of intercompany accounts and transactions. The Company’s fiscal year ends on the Saturday nearest to December 31. There were 53 weeks in fiscal year 2020 and 52 weeks in the fiscal years 2019 and 2018.

In February 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 is being accounted for as a business combination using the acquisition method of accounting and the results have been consolidated into the Company's Industrial segment. In March 2019, the Company acquired International Equipment Solutions Attachments businesses, Paladin and Pengo, ("IES Attachments"). In April 2018, the Company acquired the industrial business of Nelson Fastener Systems ("Nelson"), which excluded Nelson's automotive stud welding business. The results of IES Attachments and Nelson have been consolidated into the Company's Industrial segment. The 2019 and 2018 acquisitions were accounted for as business combinations using the acquisition method of accounting.

In January 2019, the Company acquired a 20 percent interest in MTD Holdings Inc. ("MTD"), a privately held global manufacturer of outdoor power equipment.  MTD manufactures and distributes gas-powered lawn tractors, zero turn mowers, walk behind mowers, snow throwers, trimmers, chain saws, utility vehicles and other outdoor power equipment. Under the terms of the agreement, the Company has the option to acquire the remaining 80 percent of MTD beginning on July 1, 2021 and ending on January 2, 2029. In the event the option is exercised, the companies have agreed to a valuation multiple based on MTD’s 2018 Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), with an equitable sharing arrangement for future EBITDA growth. The Company is applying the equity method of accounting to the MTD investment.

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

In November 2020, the Company sold its commercial electronic operations in five countries in Europe and emerging markets within the Security segment. In October 2020, the Company sold a product line in Oil & Gas within the Industrial segment. The operating results of these businesses have been reported in the Consolidated Financial Statements through the date of sale in 2020 and for the years ended December 28, 2019 and December 29, 2018.

In the second quarter of 2019, the Company sold its Sargent & Greenleaf mechanical locks business within the Security segment. The operating results of this business have been reported in the Consolidated Financial Statements through the date of sale in 2019 and for the year ended December 29, 2018.

Refer to Note T, Divestitures, for further discussion.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements. While management believes that the estimates and assumptions used in the preparation of the financial statements are appropriate, actual results could differ from these estimates. Certain amounts reported in previous years have been reclassified to conform to the 2020 presentation.
FOREIGN CURRENCY — For foreign operations with functional currencies other than the U.S. dollar, asset and liability accounts are translated at current exchange rates, while income and expenses are translated using average exchange rates. Translation adjustments are reported in a separate component of shareowners’ equity and exchange gains and losses on transactions are included in earnings.
CASH EQUIVALENTS — Highly liquid investments with original maturities of three months or less are considered cash equivalents.
ACCOUNTS AND FINANCING RECEIVABLE — Trade receivables are stated at gross invoice amounts less discounts, other allowances and provisions for credit losses. Financing receivables are initially recorded at fair value, less impairments or provisions for credit losses. Interest income earned from financing receivables that are not delinquent is recorded on the effective interest method. The Company considers any financing receivable that has not been collected within 90 days of original billing date as past-due or delinquent. The Company's payment terms are generally consistent with the industries in which its businesses operate and typically range from 30-90 days globally. Additionally, the Company considers the credit
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quality of all past-due or delinquent financing receivables as nonperforming. The Company does not adjust the promised amount of consideration for the effects of a significant financing component when the period between transfer of the product and receipt of payment is less than one year. Any significant financing components for contracts greater than one year are included in revenue over time.
ALLOWANCE FOR CREDIT LOSSES — The Company maintains an allowance for credit losses, which represents an estimate of expected losses over the remaining contractual life of its receivables. The allowance is determined using two methods. The amounts calculated from each of these methods are combined to determine the total amount reserved. First, a specific reserve is established for individual accounts where information indicates the customers may have an inability to meet financial obligations. Second, a reserve is determined for all customers based on a range of percentages applied to aging categories. These percentages are based on historical collection rates, write-off experience, and forecasts of future economic conditions. Actual write-offs are charged against the allowance when collection efforts have been unsuccessful.
INVENTORIES — U.S. inventories are primarily valued at the lower of Last-In First-Out (“LIFO”) cost or market because the Company believes it results in better matching of costs and revenues. Other inventories are primarily valued at the lower of First-In, First-Out (“FIFO”) cost and net realizable value because LIFO is not permitted for statutory reporting outside the U.S.  Refer to Note C, Inventories, for a quantification of the LIFO impact on inventory valuation.
PROPERTY, PLANT AND EQUIPMENT — The Company generally values property, plant and equipment (“PP&E”), including capitalized software, at historical cost less accumulated depreciation and amortization. Costs related to maintenance and repairs which do not prolong the asset's useful life are expensed as incurred. Depreciation and amortization are provided using straight-line methods over the estimated useful lives of the assets as follows:
     Useful Life
(Years)
Land improvements 10 — 20
Buildings 40
Machinery and equipment 3 — 15
Computer software 3 — 7
Leasehold improvements are depreciated over the shorter of the estimated useful life or the term of the lease.
The Company reports depreciation and amortization of property, plant and equipment in cost of sales and selling, general and administrative expenses based on the nature of the underlying assets. Depreciation and amortization related to the production of inventory and delivery of services are recorded in cost of sales. Depreciation and amortization related to distribution center activities, selling and support functions are reported in selling, general and administrative expenses.
The Company assesses its long-lived assets for impairment when indicators that the carrying amounts may not be recoverable are present. In assessing long-lived assets for impairment, the Company groups its long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are generated (“asset group”) and estimates the undiscounted future cash flows that are directly associated with, and expected to be generated from, the use of and eventual disposition of the asset group. If the carrying value is greater than the undiscounted cash flows, an impairment loss must be determined and the asset group is written down to fair value. The impairment loss is quantified by comparing the carrying amount of the asset group to the estimated fair value, which is generally determined using weighted-average discounted cash flows that consider various possible outcomes for the disposition of the asset group.
GOODWILL AND INTANGIBLE ASSETS — Goodwill represents costs in excess of values assigned to the underlying net assets of acquired businesses. Intangible assets acquired are recorded at estimated fair value. Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are tested for impairment annually during the third quarter, and at any time when events suggest an impairment more likely than not has occurred.
To assess goodwill for impairment, the Company, depending on relevant facts and circumstances, performs either a qualitative assessment or a quantitative analysis utilizing a discounted cash flow valuation model. In performing a qualitative assessment, the Company first assesses relevant factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test. The Company identifies and considers the significance of relevant key factors, events, and circumstances that could affect the fair value of each reporting unit. These factors include external factors such as macroeconomic, industry, and market conditions, as well as entity-specific factors, such as actual and planned financial performance. The Company also considers changes in each reporting unit's fair value and carrying amount since the most recent date a fair value measurement was performed. In performing a quantitative analysis, the Company determines the fair value of a reporting unit using
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management’s assumptions about future cash flows based on long-range strategic plans. This approach incorporates many assumptions including discount rates, future growth rates and expected profitability. In the event the carrying amount of a reporting unit exceeded its fair value, an impairment loss would be recognized.
Indefinite-lived intangible assets are tested for impairment utilizing either a qualitative assessment or a quantitative analysis. For a qualitative assessment, the Company identifies and considers relevant key factors, events, and circumstances to determine whether it is necessary to perform a quantitative impairment test. The key factors considered include macroeconomic, industry, and market conditions, as well as the asset's actual and forecasted results. For the quantitative impairment tests, the Company compares the carrying amounts to the current fair market values, usually determined by the estimated royalty savings attributable to owning the intangible assets. Intangible assets with definite lives are amortized over their estimated useful lives to reflect the pattern over which the economic benefits of the intangible assets are consumed. Definite-lived intangible assets are also evaluated for impairment when impairment indicators are present. If the carrying amount exceeds the total undiscounted future cash flows, a discounted cash flow analysis is performed to determine the fair value of the asset. If the carrying amount of the asset was to exceed the fair value, it would be written down to fair value. No significant goodwill or other intangible asset impairments were recorded during 2020, 2019 or 2018.
FINANCIAL INSTRUMENTS — Derivative financial instruments are employed to manage risks, including foreign currency, interest rate exposures and commodity prices and are not used for trading or speculative purposes. As part of the Company’s risk management program, a variety of financial instruments such as interest rate swaps, currency swaps, purchased currency options, foreign exchange contracts and commodity contracts, may be used to mitigate interest rate exposure, foreign currency exposure and commodity price exposure. The Company recognizes all derivative instruments on the balance sheet at fair value.

Changes in the fair value of derivatives are recognized periodically either in earnings or in shareowners’ equity as a component of other comprehensive income (loss) ("OCI"), depending on whether the derivative financial instrument is undesignated or qualifies for hedge accounting, and if so, whether it represents a fair value, cash flow, or net investment hedge. Changes in the fair value of derivatives accounted for as fair value hedges are recorded in earnings in the same caption as the changes in the fair value of the hedged items. Gains and losses on derivatives designated as cash flow hedges, to the extent they are included in the assessment of effectiveness, are recorded in OCI and subsequently reclassified to earnings to offset the impact of the hedged items when they occur. In the event it becomes probable the forecasted transaction to which a cash flow hedge relates will not occur, the derivative would be terminated and the amount in accumulated other comprehensive income (loss) would be recognized in earnings. Changes in the fair value of derivatives that are designated and qualify as a hedge of the net investment in foreign operations, to the extent they are included in the assessment of effectiveness, are reported in OCI and are deferred until disposal of the underlying assets. Gains and losses representing components excluded from the assessment of effectiveness for cash flow and fair value hedges are recognized in earnings on a straight-line basis in the same caption as the hedged item over the term of the hedge. Gains and losses representing components excluded from the assessment of effectiveness for net investment hedges are recognized in earnings on a straight-line basis in Other, net over the term of the hedge.

The net interest paid or received on interest rate swaps is recognized as interest expense. Gains and losses resulting from the early termination of interest rate swap agreements are deferred and amortized as adjustments to interest expense over the remaining period of the debt originally covered by the terminated swap.

Changes in the fair value of derivatives not designated as hedges are reported in Other, net in the Consolidated Statements of Operations. Refer to Note I, Financial Instruments, for further discussion.
REVENUE RECOGNITION — The Company’s revenues result from the sale of goods or services and reflect the consideration to which the Company expects to be entitled. The Company records revenue based on a five-step model in accordance with Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606"). For its contracts with customers, the Company identifies the performance obligations (goods or services), determines the transaction price, allocates the contract transaction price to the performance obligations, and recognizes the revenue when (or as) the performance obligation is transferred to the customer. A good or service is transferred when (or as) the customer obtains control of that good or service. The majority of the Company’s revenues are recorded at a point in time from the sale of tangible products.

A portion of the Company’s revenues within the Security and Infrastructure businesses is generated from equipment leased to customers. Customer arrangements are identified as leases if they include transfer of a tangible asset which is provided to the customer in exchange for payments typically at fixed rates payable monthly, quarterly or annually. Customer leases may include terms to allow for extension of leases for a short period of time, but typically do not provide for customer termination prior to the initial term. Some customer leases include terms to allow the customer to purchase the underlying asset, which occurs occasionally, and virtually no customer leases include residual value guarantee clauses. Within the Security business, the
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underlying asset typically has no value at termination of the customer lease, so no residual value asset is recorded in the financial statements. For Infrastructure business leases, underlying assets are assessed for functionality at termination of the lease and, if necessary, an impairment to the leased asset value is recorded.

Provisions for customer volume rebates, product returns, discounts and allowances are variable consideration and are recorded as a reduction of revenue in the same period the related sales are recorded. Such provisions are calculated using historical averages adjusted for any expected changes due to current business conditions. Consideration given to customers for cooperative advertising is recognized as a reduction of revenue except to the extent that there is a distinct good or service and evidence of the fair value of the advertising, in which case the expense is classified as selling, general, and administrative expense.

The Company’s revenues can be generated from contracts with multiple performance obligations. When a contract involves multiple performance obligations, each obligation is separately identified and the transaction price is allocated based on the amount of consideration the Company expects to be entitled to in exchange for transferring the promised good or service to the customer.

Sales of security monitoring systems may have multiple performance obligations, including equipment, installation and monitoring or maintenance services. In most instances, the Company allocates the appropriate amount of consideration to each performance obligation based on the standalone selling price ("SSP") of the distinct goods or services performance obligation. In circumstances where SSP is not observable, the Company allocates the consideration for the performance obligations by utilizing one of the following methods: expected cost plus margin, the residual approach, or a mix of these estimation methods.

For performance obligations that the Company satisfies over time, revenue is recognized by consistently applying a method of measuring progress toward complete satisfaction of that performance obligation. The Company utilizes the method that most accurately depicts the progress toward completion of the performance obligation.

The Company’s contract sales for the installation of security intruder systems and other construction-related projects are generally recorded under the input method. The input method recognizes revenue on the basis of the Company’s efforts or inputs to the satisfaction of a performance obligation relative to the total inputs expected to satisfy that performance obligation. Revenue recognized on security contracts in process are based upon the allocated contract price and related total inputs of the project at completion. The extent of progress toward completion is generally measured using input methods based on labor metrics. Revisions to these estimates as contracts progress have the effect of increasing or decreasing profits each period. Provisions for anticipated losses are made in the period in which they become determinable. The revenues for monitoring and monitoring-related services are recognized as services are rendered over the contractual period.

The Company utilizes the output method for contract sales in the Oil & Gas product line. The output method recognizes revenue based on direct measurements of the customer value of the goods or services transferred to date relative to the remaining goods or services promised under the contract. The output method includes methods such as surveys of performance completed to date, appraisals of results achieved, milestones reached, time elapsed, and units produced or units delivered.

Contract assets or liabilities result from transactions with revenue recorded over time. If the measure of remaining rights exceeds the measure of the remaining performance obligations, the Company records a contract asset. Conversely, if the measure of the remaining performance obligations exceeds the measure of the remaining rights, the Company records a contract liability.

Incremental costs of obtaining or fulfilling a contract with a customer that are expected to be recovered are recognized and classified in Other current assets or Other assets in the Consolidated Balance Sheets and are typically amortized over the contract period. The Company recognizes the incremental costs of obtaining or fulfilling a contract as expense when incurred if the amortization period of the asset is one year or less.

Customer billings for services not yet rendered are deferred and recognized as revenue as the services are rendered. The associated deferred revenue is included in Accrued expenses or Other liabilities, as appropriate, in the Consolidated Balance Sheets.

Refer to Note B, Accounts and Notes Receivable, for further discussion.
COST OF SALES AND SELLING, GENERAL & ADMINISTRATIVE — Cost of sales includes the cost of products and services provided, reflecting costs of manufacturing and preparing the product for sale. These costs include expenses to acquire and manufacture products to the point that they are allocable to be sold to customers and costs to perform services pertaining to
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service revenues (e.g. installation of security systems, automatic doors, and security monitoring costs). Cost of sales is primarily comprised of freight, direct materials, direct labor as well as overhead which includes indirect labor and facility and equipment costs. Cost of sales also includes quality control, procurement and material receiving costs as well as internal transfer costs. Selling, general & administrative costs ("SG&A") include the cost of selling products as well as administrative function costs. These expenses generally represent the cost of selling and distributing the products once they are available for sale and primarily include salaries and commissions of the Company’s sales force, distribution costs, notably salaries and facility costs, as well as administrative expenses for certain support functions and related overhead.
ADVERTISING COSTS — Television advertising is expensed the first time the advertisement airs, whereas other advertising is expensed as incurred. Advertising costs are classified in SG&A and amounted to $76.8 million in 2020, $90.4 million in 2019 and $101.3 million in 2018. Expense pertaining to cooperative advertising with customers reported as a reduction of Net Sales was $357.3 million in 2020, $323.2 million in 2019 and $315.8 million in 2018. Cooperative advertising with customers classified as SG&A expense amounted to $17.8 million in 2020, $6.9 million in 2019 and $5.4 million in 2018.
SALES TAXES — Sales and value added taxes collected from customers and remitted to governmental authorities are excluded from Net Sales reported in the Consolidated Statements of Operations.
SHIPPING AND HANDLING COSTS — The Company generally does not bill customers for freight. Shipping and handling costs associated with inbound and outbound freight are reported in Cost of sales. Distribution costs are classified in SG&A and amounted to $347.8 million, $326.7 million and $316.0 million in 2020, 2019 and 2018, respectively.
STOCK-BASED COMPENSATION — Compensation cost relating to stock-based compensation grants is recognized on a straight-line basis over the vesting period, which is generally four years. The expense for stock options and restricted stock units awarded to retirement-eligible employees (those aged 55 and over, and with 10 or more years of service) is recognized on the grant date, or (if later) by the date they become retirement-eligible.
POSTRETIREMENT DEFINED BENEFIT PLAN — The Company uses the corridor approach to determine expense recognition for each defined benefit pension and other postretirement plan. The corridor approach defers actuarial gains and losses resulting from variances between actual and expected results (based on economic estimates or actuarial assumptions) and amortizes them over future periods. For pension plans, these unrecognized gains and losses are amortized when the net gains and losses exceed 10% of the greater of the market-related value of plan assets or the projected benefit obligation at the beginning of the year. For other postretirement benefits, amortization occurs when the net gains and losses exceed 10% of the accumulated postretirement benefit obligation at the beginning of the year. For ongoing, active plans, the amount in excess of the corridor is amortized on a straight-line basis over the average remaining service period for active plan participants. For plans with primarily inactive participants, the amount in excess of the corridor is amortized on a straight-line basis over the average remaining life expectancy of inactive plan participants.
INCOME TAXES — The Company accounts for income taxes under the asset and liability method in accordance with ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using the enacted tax rates in effect for the year in which the differences are expected to reverse. Any changes in tax rates on deferred tax assets and liabilities are recognized in earnings in the period that includes the enactment date. The Company recognizes the tax on global intangible low-taxed income as a period expense in the period the tax is incurred.

The Company records net deferred tax assets to the extent that it is more likely than not that these assets will be realized. In making this determination, management considers all available positive and negative evidence, including future reversals of existing temporary differences, estimates of future taxable income, tax-planning strategies, and the realizability of net operating loss carryforwards. In the event that it is determined that an asset is not more likely that not to be realized, a valuation allowance is recorded against the asset. Valuation allowances related to deferred tax assets can be impacted by changes to tax laws, changes to statutory tax rates and future taxable income levels. In the event the Company were to determine that it would not be able to realize all or a portion of its deferred tax assets in the future, the unrealizable amount would be charged to earnings in the period in which that determination is made. Conversely, if the Company were to determine that it would be able to realize deferred tax assets in the future in excess of the net carrying amounts, it would decrease the recorded valuation allowance through a favorable adjustment to earnings in the period that the determination was made. The Company records uncertain tax positions in accordance with ASC 740, which requires a two-step process. First, management determines whether it is more likely than not that a tax position will be sustained based on the technical merits of the position and second, for those tax positions that meet the more likely than not threshold, management recognizes the largest amount of the tax benefit that is greater than 50 percent likely to be realized upon ultimate settlement with the related taxing authority. The Company maintains
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an accounting policy of recording interest and penalties on uncertain tax positions as a component of Income taxes in the Consolidated Statements of Operations.
The Company is subject to income tax in a number of locations, including many state and foreign jurisdictions. Significant judgment is required when calculating the worldwide provision for income taxes. Many factors are considered when evaluating and estimating the Company's tax positions and tax benefits, which may require periodic adjustments, and which may not accurately anticipate actual outcomes. It is reasonably possible that the amount of the unrecognized benefit with respect to certain of the Company's unrecognized tax positions will significantly increase or decrease within the next twelve months. These changes may be the result of settlements of ongoing audits, litigation, or other proceedings with taxing authorities. The Company periodically assesses its liabilities and contingencies for all tax years still subject to audit based on the most current available information, which involves inherent uncertainty.

Refer to Note Q, Income Taxes, for further discussion.
EARNINGS PER SHARE — Basic earnings per share equals net earnings attributable to common shareowners divided by weighted-average shares outstanding during the year. Diluted earnings per share include the impact of common stock equivalents using the treasury stock method when the effect is dilutive.
NEW ACCOUNTING STANDARDS ADOPTED — In August 2018, the FASB issued Accounting Standards Update ("ASU") 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. The standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted this standard in the first quarter of 2020 and it did not have a material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20). The standard modifies disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The Company adopted this standard in the fourth quarter of 2020 and it did not have a material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820). The standard modifies disclosure requirements of fair value measurements. The Company adopted this standard in the first quarter of 2020 and it did not have a material impact on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350). The new standard simplifies the subsequent measurement of goodwill by eliminating the second step of the goodwill impairment test. The Company adopted this standard in the first quarter of 2020 and it did not have an impact on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326). The new standard amends the impairment model by requiring entities to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including accounts and notes receivable. The Company adopted this standard in the first quarter of 2020 and recognized a $3.8 million cumulative-effect adjustment to opening retained earnings related to the Company's allowance for credit losses on accounts and notes receivable. Refer to Note B, Accounts and Notes Receivable, Net, for further discussion.

RECENTLY ISSUED ACCOUNTING STANDARDS NOT YET ADOPTED — In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). The new standard reduces the number of accounting models for convertible debt instruments and convertible preferred stock, and amends the guidance for the derivatives scope exception for contracts in an entity's own equity. The standard also amends and makes targeted improvements to the related earnings per share guidance. The ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The standard allows for either modified or full retrospective transition methods. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The new standard provides optional expedients and exceptions that companies can apply during a limited time period to account for contracts, hedging relationships, and other transactions affected by reference rate reform, if certain criteria are met. Companies may elect to apply these optional expedients and exceptions beginning March 12, 2020 through December 31, 2022. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848). The objective of the new reference rate reform standard is to clarify the scope of Topic 848 and provide explicit guidance to help
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companies applying optional expedients and exceptions. This ASU is effective immediately for all entities that have applied optional expedients and exceptions. The Company is currently evaluating these standards to determine the impact they may have on it consolidated financial statements.

In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815). The new standard clarifies the interaction of accounting for the transition into and out of the equity method. The new standard also clarifies the accounting for measuring certain purchased options and forward contracts to acquire investments. The ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company will adopt this guidance in the first quarter of 2021 and does not expect it to have a material impact on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740). The new standard simplifies the accounting for income taxes by removing certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation and calculating income taxes in interim periods. The new standard also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. The ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company will adopt this guidance in the first quarter of 2021 and does not expect it to have a material impact on its consolidated financial statements.

B. ACCOUNTS AND NOTES RECEIVABLE
(Millions of Dollars) 2020 2019
Trade accounts receivable $ 1,345.7  $ 1,284.0 
Trade notes receivable 156.1  156.7 
Other accounts receivable 151.5  126.3 
Gross accounts and notes receivable 1,653.3  1,567.0 
Allowance for credit losses (141.1) (112.4)
Accounts and notes receivable, net $ 1,512.2  $ 1,454.6 
Long-term receivable, net $ 139.9  $ 146.1 
Trade receivables are dispersed among a large number of retailers, distributors and industrial accounts in many countries. Adequate reserves have been established to cover anticipated credit losses. Long-term receivables, net of $139.9 million and $146.1 million at January 2, 2021 and December 28, 2019, respectively, are reported within Other Assets in the Consolidated Balance Sheets. The Company's financing receivables are predominantly related to certain security equipment sales-type leases with commercial businesses. As of January 2, 2021, the current portion of finance receivables within Trade notes receivable approximated $80.3 million. Generally, the Company retains legal title to any equipment under lease and holds the right to repossess such equipment in an event of default. All financing receivables are interest-bearing and the Company has not classified any financing receivables as held-for-sale. Interest income earned from financing receivables that are not delinquent are recorded on the effective interest method.
The changes in the allowance for credit losses at January 2, 2021 are as follows:

(Millions of Dollars) Balance
December 28,
2019 		Cumulative Effect Adjustment (a) Charged To Costs and Expenses Charged To Other Accounts
(b) 		Deductions (c) Balance
January 2,
2021
Accounts receivable $ 99.3  $ 2.9  $ 41.1  $ 15.3  $ (31.9) $ 126.7 
Notes receivable $ 13.1  $ 0.9  $ —  $ 4.6  $ (4.2) $ 14.4 
Total $ 112.4  $ 3.8  $ 41.1  $ 19.9  $ (36.1) $ 141.1 
(a) Represents the cumulative-effect adjustment to opening retained earnings due to the adoption of ASU 2016-13. Refer to Note A, Significant Accounting Policies, for further discussion.
(b) Amounts represent the impacts of foreign currency translation, acquisitions and net transfers to/from other accounts.
(c) Amounts represent charge-offs less recoveries of accounts previously charged-off.
The Company considers any financing receivable that has not been collected within 90 days of original billing date as past-due or delinquent. The Company's payment terms are generally consistent with the industries in which their businesses operate and typically range from 30-90 days globally. Additionally, the Company considers the credit quality of all past-due or delinquent
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financing receivables as nonperforming. The Company does not adjust the promised amount of consideration for the effects of a significant financing component when the period between transfer of the product and receipt of payment is less than one year. Any significant financing components for contracts greater than one year are included in revenue over time.
The following is a summary of the expected timing of receipt of payments from customers on an undiscounted basis as of January 2, 2021 relating to the Company's lease receivables:
(Millions of Dollars) Total Within 1 Year 2 Years 3 Years 4 Years 5 Years Thereafter
Finance receivables $ 209.5  $ 80.3  $ 56.5  $ 38.9  $ 21.4  $ 8.1  $ 4.3 
Operating leases $ 39.7  $ 38.5  $ 0.9  $ 0.3  $ —  $ —  $ — 

The following is a summary of lease revenue and sales-type lease profit for the years ended January 2, 2021 and December 28, 2019:
(Millions of Dollars) 2020 2019
Sales-type lease revenue $ 113.0  $ 88.9 
Lease interest revenue 13.3  12.7 
Operating lease revenue 131.5  148.9 
Total lease revenue $ 257.8  $ 250.5 
Sales-type lease profit $ 45.0  $ 35.3 

The Company has an accounts receivable sale program. According to the terms, the Company sells certain of its trade accounts receivables at fair value to a wholly owned, consolidated, bankruptcy-remote special purpose subsidiary (“BRS"). The BRS, in turn, can sell such receivables to a third-party financial institution (“Purchaser”) for cash. The Purchaser’s maximum cash investment in the receivables at any time is $110.0 million. The purpose of the program is to provide liquidity to the Company. These transfers qualify as sales under ASC 860, Transfers and Servicing, and receivables are derecognized from the Company’s Consolidated Balance Sheets when the BRS sells those receivables to the Purchaser. The Company has no retained interests in the transferred receivables, other than collection and administrative responsibilities. At January 2, 2021, the Company did not record a servicing asset or liability related to its retained responsibility based on its assessment of the servicing fee, market values for similar transactions and its cost of servicing the receivables sold.

At January 2, 2021 and December 28, 2019, net receivables of approximately $86.8 million and $100.0 million, respectively, were derecognized. Proceeds from transfers of receivables to the Purchaser totaled $259.6 million and $495.4 million for the years ended January 2, 2021 and December 28, 2019, respectively, and payments to the Purchaser totaled $272.8 million and $495.5 million, respectively. The program resulted in a pre-tax loss of $1.7 million and $3.6 million for the years ended January 2, 2021 and December 28, 2019, respectively, which included service fees of $0.6 million and $0.9 million, respectively. All cash flows under the program are reported as a component of changes in accounts receivable within operating activities in the Consolidated Statements of Cash Flows since all the cash from the Purchaser is received upon the initial sale of the receivable.

As of January 2, 2021 and December 28, 2019, the Company's deferred revenue totaled $207.6 million and $209.8 million, respectively, of which $108.7 million and $108.9 million, respectively, was classified as current. Revenue recognized for the years ended January 2, 2021 and December 28, 2019 that was previously deferred as of December 28, 2019 and December 29, 2018 totaled $96.8 million and $96.4 million, respectively.

As of January 2, 2021, approximately $1.107 billion of revenue from long-term contracts primarily in the Security segment was unearned related to customer contracts which were not completely fulfilled and will be recognized on a decelerating basis over the next 5 years. This amount excludes any of the Company's contracts with an original expected duration of one year or less.
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C. INVENTORIES
(Millions of Dollars) 2020 2019
Finished products $ 1,922.5  $ 1,526.0 
Work in process 222.3  162.0 
Raw materials 592.6  567.0 
Total $ 2,737.4  $ 2,255.0 
Net inventories in the amount of $1.3 billion at January 2, 2021 and $1.1 billion at December 28, 2019 were valued at the lower of LIFO cost or market. If the LIFO method had not been used, inventories would have been higher than reported by $52.5 million at January 2, 2021 and $78.1 million at December 28, 2019.
As part of the CAM acquisition in the first quarter of 2020, the Company acquired net inventory with an estimated fair value of
$124.3 million. Refer to Note E, Acquisitions and Investments, for further discussion of the CAM acquisition.

D. PROPERTY, PLANT AND EQUIPMENT
(Millions of Dollars) 2020 2019
Land $ 140.5  $ 112.2 
Land improvements 56.4  52.6 
Buildings 655.2  630.3 
Leasehold improvements 192.6  172.1 
Machinery and equipment 3,077.5  2,812.8 
Computer software 557.7  510.8 
Property, plant & equipment, gross $ 4,679.9  $ 4,290.8 
Less: accumulated depreciation and amortization (2,626.1) (2,331.3)
Property, plant & equipment, net $ 2,053.8  $ 1,959.5 
Depreciation and amortization expense associated with property, plant and equipment was as follows:
(Millions of Dollars) 2020 2019 2018
Depreciation $ 332.6  $ 325.2  $ 288.4 
Amortization 43.9  47.6  42.8 
Depreciation and amortization expense $ 376.5  $ 372.8  $ 331.2 

E. ACQUISITIONS AND INVESTMENTS

2020 ACQUISITION

CAM

On February 24, 2020, the Company acquired CAM for a total estimated purchase price of approximately $1.46 billion, net of cash acquired. The purchase price consists of an initial cash payment of approximately $1.30 billion, net of cash acquired, and future payments up to $200.0 million contingent on The Boeing Company ("Boeing") 737 MAX Airplanes receiving Federal Aviation Administration ("FAA") authorization to return to service and Boeing achieving certain production levels, which were valued at $155.3 million as of the acquisition date.

In November 2020, the FAA rescinded the 737 MAX grounding order and as a result of the subsequent return to revenue service of the 737 MAX in December 2020, the Company paid $100 million to the former owners of CAM. The remaining contingent consideration was remeasured at January 2, 2021 and the Company concluded the achievement of certain production levels based on Boeing’s future forecast is remote and released the remaining $55.3 million contingent consideration liability to the Consolidated Statements of Operations in Other, net.

CAM is an industry-leading manufacturer of specialty fasteners and components for the aerospace and defense markets. The acquisition further diversifies the Company's presence in the industrial markets and expands its portfolio of specialty fasteners in the aerospace and defense markets. The results of CAM subsequent to the date of acquisition are included in the Company's Industrial segment.
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The CAM acquisition is being accounted for as a business combination using the acquisition method of accounting, which requires, among other things, certain assets acquired and liabilities assumed to be recognized at their fair values as of the acquisition date. The following table summarizes the estimated acquisition date value of identifiable net assets acquired and liabilities assumed:

(Millions of Dollars)
Cash and cash equivalents $ 35.8 
Accounts receivable, net 48.3 
Inventories, net 124.3 
Prepaid expenses and other assets 2.6 
Property, plant and equipment 127.0 
Trade names 25.0 
Customer relationships 565.0 
Accounts payable (25.9)
Accrued expenses (26.9)
Deferred taxes (16.3)
Other liabilities (0.3)
Total identifiable net assets $ 858.6 
Goodwill 633.2 
Contingent consideration (155.3)
Total consideration paid $ 1,336.5 

The weighted-average useful life assigned to the intangible assets is 20 years.
Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the expected cost synergies of the combined business and assembled workforce. It is estimated that $569.8 million of goodwill will be deductible for tax purposes.
The acquisition accounting for CAM is substantially complete with the exception of certain tax matters. The Company will complete its acquisition accounting in the first quarter of 2021. Any measurement period adjustments resulting from the finalization of the Company’s acquisition accounting are not expected to be material.
A single estimate of fair value results from a complex series of judgments about future events and uncertainties and relies heavily on estimates and assumptions. The Company’s judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact the Company’s results from operations.

Other 2020 Acquisition

During 2020, the Company completed one smaller acquisition for $28.2 million, net of cash acquired. The estimated acquisition date value of the identifiable net assets acquired is $13.4 million, which includes $14.8 million of customer relationships. The related goodwill is $14.8 million. The useful life assigned to the customer relationships is 8 years. The results of this acquisition subsequent to the date of acquisition are included in the Company's Security segment.

The acquisition accounting for this acquisition is preliminary in certain respects. During the measurement period, the Company
expects to record adjustments relating to working capital accounts and various opening balance sheet contingencies, amongst others. These adjustments are not expected to have a material impact on the Company’s Consolidated Financial Statements.

2019 ACQUISITIONS

IES Attachments

On March 8, 2019, the Company acquired IES Attachments for $653.5 million, net of cash acquired. IES Attachments is a manufacturer of high quality, performance-driven heavy equipment attachment tools for off-highway applications. The acquisition further diversified the Company's presence in the industrial markets, expanded its portfolio of attachment solutions
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and provided a meaningful platform for growth. The results of IES Attachments subsequent to the date of acquisition are included in the Company's Industrial segment.

The IES Attachments acquisition was accounted for as a business combination using the acquisition method of accounting, which requires, among other things, certain assets acquired and liabilities assumed to be recognized at their fair values as of the acquisition date. The estimated acquisition date value of identifiable net assets acquired, which included $77.8 million of working capital (primarily inventory), $78.3 million of deferred tax liabilities, and $328.0 million of intangible assets, was $342.2 million. The related goodwill was $311.3 million. The amount allocated to intangible assets included $304.0 million for customer relationships. The weighted-average useful life assigned to the intangible assets was 14 years.

Goodwill was calculated as the excess of the consideration transferred over the net assets recognized and represents the expected cost synergies of the combined business and assembled workforce. It is estimated that $2.4 million of goodwill, relating to the pre-acquisition historical tax basis of goodwill, will be deductible for tax purposes.

The acquisition accounting for IES Attachments is complete. The measurement period adjustments recorded in 2020 did not have a material impact to the Company's Consolidated Financial Statements.

Other 2019 Acquisitions

During 2019, the Company completed five smaller acquisitions for $40.8 million, net of cash acquired. The estimated acquisition date value of the identifiable net assets acquired, which included $5.9 million of working capital and $8.8 million of customer relationships, was $19.0 million. The related goodwill was $21.8 million. The useful lives assigned to the customer relationships ranged from 8 to 10 years. The results of these acquisitions subsequent to the dates of acquisition are included in the Company's Industrial and Security segments. The acquisition accounting for these acquisitions is complete. The measurement period adjustments recorded in 2020 did not have a material impact to the Company's Consolidated Financial Statements.
2018 ACQUISITIONS
Nelson Fastener Systems
On April 2, 2018, the Company acquired Nelson for $424.2 million, net of cash acquired. Nelson was complementary to the Company's product offerings, enhanced its presence in the general industrial end markets, and expanded its portfolio of highly-engineered fastening solutions. The results of Nelson are included in the Company's Industrial segment.
The Nelson acquisition was accounted for as a business combination using the acquisition method of accounting. The acquisition date value of identifiable net assets acquired, which included $64.2 million of working capital and $167.0 million of intangible assets, was $211.8 million. The related goodwill was $216.9 million. The amount allocated to intangible assets included $149.0 million for customer relationships. The useful lives assigned to the intangible assets ranged from 12 to 15 years.
Goodwill was calculated as the excess of the consideration transferred over the net assets recognized and represents the expected cost synergies of the combined business, assembled workforce, and the going concern nature of Nelson. Goodwill is not expected to be deductible for tax purposes.
Other 2018 Acquisitions
During 2018, the Company completed six smaller acquisitions for a total purchase price of $104.5 million, net of cash acquired. The acquisition date value of the identifiable net assets acquired, which included $13.4 million of working capital and $35.5 million of intangible assets, was $38.1 million. The related goodwill was $66.4 million. The amount allocated to intangible assets included $32.0 million for customer relationships. The useful lives assigned to intangible assets ranged from 10 to 14 years.

ACTUAL AND PRO-FORMA IMPACT FROM ACQUISITIONS
Actual Impact from Acquisitions
The net sales and net loss from the 2020 acquisitions included in the Company's Consolidated Statements of Operations for the year ended January 2, 2021 are shown in the table below. The net loss includes amortization expense relating to intangible assets recorded upon acquisition, inventory step-up charges, transaction costs, and other integration-related costs.
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(Millions of Dollars) 2020
Net sales $ 233.9 
Net loss attributable to common shareowners $ (89.4)

Pro-forma Impact from Acquisitions

The following table presents supplemental pro-forma information as if the 2020 acquisitions had occurred on December 30, 2018 and the 2019 acquisitions had occurred on December 31, 2017. The pro-forma consolidated results are not necessarily indicative of what the Company’s consolidated net sales and net earnings would have been had the Company completed the acquisitions on the aforementioned dates. In addition, the pro-forma consolidated results do not purport to project the future results of the Company.

(Millions of Dollars, except per share amounts) 2020 2019
Net sales $ 14,592.6  $ 14,903.7 
Net earnings attributable to common shareowners 1,256.7  923.0 
Diluted earnings per share $ 8.06  $ 6.13 

2020 Pro-forma Results

The 2020 pro-forma results were calculated by combining the results of Stanley Black & Decker with the stand-alone results of the 2020 acquisitions for their respective pre-acquisition periods. Accordingly the following adjustments were made:

•Elimination of the historical pre-acquisition intangible asset amortization expense and the addition of intangible asset amortization expense related to intangibles valued as part of the acquisition accounting that would have been incurred from December 29, 2019 to the acquisition dates.

•Additional depreciation expense for the property, plant, and equipment fair value adjustments that would have been incurred from December 29, 2019 to the acquisition date of CAM.

•Because the 2020 acquisitions were assumed to occur on December 30, 2018, there were no acquisition-related costs or inventory step-up charges factored into the 2020 pro-forma year, as such expenses would have occurred in the first year following the assumed acquisition date.

2019 Pro-forma Results

The 2019 pro-forma results were calculated by combining the results of Stanley Black & Decker with the stand-alone results of the 2019 and 2020 acquisitions for their respective pre-acquisition periods. Accordingly the following adjustments were made:

•Elimination of the historical pre-acquisition intangible asset amortization expense and the addition of intangible asset amortization expense related to intangibles valued as part of the acquisition accounting that would have been incurred from December 30, 2018 to the acquisition dates of the 2019 acquisitions and for the year ended December 28, 2019 for the 2020 acquisitions.

•Additional depreciation expense for the property, plant, and equipment fair value adjustments that would have been incurred from December 30, 2018 to the acquisition date of IES attachments and for the year ended December 28, 2019 for CAM.

•Additional expense for acquisition-related costs and inventory step-up charges relating to the 2020 acquisitions, as such expenses would have been incurred during the year ended December 28, 2019.

•Because the 2019 acquisitions were assumed to occur on December 31, 2017, there were no acquisition-related costs or inventory step-up charges factored into the 2019 pro-forma period, as such expenses would have occurred in the first year following the assumed acquisition date.

INVESTMENTS

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On January 2, 2019, the Company acquired a 20 percent interest in MTD, a privately held global manufacturer of outdoor power equipment, for $234 million in cash. With annual revenues of approximately $2.6 billion, MTD manufactures and distributes gas-powered lawn tractors, zero turn mowers, walk behind mowers, snow throwers, trimmers, chain saws, utility vehicles and other outdoor power equipment. Under the terms of the agreement, the Company has the option to acquire the remaining 80 percent of MTD beginning on July 1, 2021 and ending on January 2, 2029. In the event the option is exercised, the companies have agreed to a valuation multiple based on MTD’s 2018 EBITDA, with an equitable sharing arrangement for future EBITDA growth. The Company is applying the equity method of accounting to the MTD investment.

During 2020, 2019 and 2018, the Company made additional immaterial investments in new and emerging start-up companies focused on innovation, breakthrough products and advanced technologies. These investments, which are included in Other assets in the Consolidated Balance Sheets, do not qualify for equity method accounting as the Company acquired less than 20 percent interest in each investment and does not have the ability to significantly influence the operating or financial decisions of any of the investees.

F. GOODWILL AND INTANGIBLE ASSETS
GOODWILL — The changes in the carrying amount of goodwill by segment are as follows:
 
(Millions of Dollars) Tools & Storage Industrial Security Total
Balance December 29, 2018 $ 5,154.3  $ 1,679.7  $ 2,122.7  $ 8,956.7 
Acquisitions (1.3) 320.5  8.2  327.4 
Foreign currency translation and other 8.8  (4.7) (50.7) (46.6)
Balance December 28, 2019 $ 5,161.8  $ 1,995.5  $ 2,080.2  $ 9,237.5 
Acquisitions 0.1  635.7  14.9  650.7 
Foreign currency translation and other 85.8  15.3  48.8  149.9 
Balance January 2, 2021 $ 5,247.7  $ 2,646.5  $ 2,143.9  $ 10,038.1 
The goodwill amount for the CAM acquisition is subject to change based upon the finalization of the acquisition accounting during the measurement period. Refer to Note E, Acquisitions and Investments, for further discussion.
In accordance with ASC 350, Intangibles - Goodwill and Other, a portion of the goodwill associated with the Security segment was allocated to the aforementioned commercial electronic security divestiture based on the relative fair value of the business disposed of and the portion of the reporting unit that was retained. Accordingly, goodwill for the Security segment was reduced by $31.3 million and included in the gain on sale of this divestiture in 2020. Refer to Note T, Divestitures, for further discussion.
As required by the Company's policy, goodwill and indefinite-lived trade names were tested for impairment in the third quarter of 2020. The Company assessed the fair values of its reporting units utilizing a discounted cash flow valuation model. The key assumptions used were discount rates and perpetual growth rates applied to cash flow projections. Also inherent in the discounted cash flow valuations were near-term revenue growth rates over the next six years. These assumptions contemplated business, market and overall economic conditions. Based on the results of the annual impairment testing performed in the third quarter of 2020, the Company determined that the fair values of each of its reporting units exceeded their respective carrying amounts.

INTANGIBLE ASSETS — Intangible assets at January 2, 2021 and December 28, 2019 were as follows:
 
  2020 2019
(Millions of Dollars) Gross
Carrying
Amount 		Accumulated
Amortization 		Gross
Carrying
Amount 		Accumulated
Amortization
Amortized Intangible Assets — Definite lived
Patents and copyrights $ 45.5  $ (44.0) $ 42.4  $ (41.5)
Trade names 220.8  (141.1) 194.5  (127.2)
Customer relationships 3,369.1  (1,634.0) 2,739.0  (1,421.7)
Other intangible assets 232.4  (190.9) 233.1  (182.9)
Total $ 3,867.8  $ (2,010.0) $ 3,209.0  $ (1,773.3)
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Indefinite-lived trade names totaled $2.198 billion at January 2, 2021 and $2.186 billion at December 28, 2019. The year-over-year change is primarily due to currency fluctuations.
The fair values of the Company's indefinite-lived trade names were assessed using quantitative analyses, which utilized discounted cash flow valuation models taking into consideration appropriate discount rates, royalty rates and perpetual growth rates applied to projected sales. With the exception of an immaterial trade name, the Company determined that the fair values of its indefinite-lived trade names exceeded their respective carrying amounts.
Intangible assets amortization expense by segment was as follows:
(Millions of Dollars) 2020 2019 2018
Tools & Storage $ 61.5  $ 73.1  $ 75.5 
Industrial 96.6  69.6  50.7 
Security 43.5  44.7  49.1 
Consolidated $ 201.6  $ 187.4  $ 175.3 
Future amortization expense in each of the next five years amounts to $201.8 million for 2021, $192.7 million for 2022, $183.9 million for 2023, $175.4 million for 2024, $156.9 million for 2025 and $947.1 million thereafter.

G. ACCRUED EXPENSES
Accrued expenses at January 2, 2021 and December 28, 2019 were as follows:
(Millions of Dollars) 2020 2019
Payroll and related taxes $ 324.2  $ 262.4 
Income and other taxes 241.0  243.9 
Customer rebates and sales returns 229.6  112.0 
Insurance and benefits 80.4  69.8 
Restructuring costs 90.2  147.8 
Derivative financial instruments 185.3  22.4 
Warranty costs
81.5  69.6 
Deferred revenue 108.7  108.9 
Freight costs 93.5  72.9 
Environmental costs 46.7  57.8 
Deferred purchase price —  249.2 
Current lease liability 138.8  141.3 
Other 490.5  419.5 
Total $ 2,110.4  $ 1,977.5 

H. LONG-TERM DEBT AND FINANCING ARRANGEMENTS
Long-term debt and financing arrangements at January 2, 2021 and December 28, 2019 were as follows:
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January 2, 2021 December 29, 2019
(Millions of Dollars) Interest Rate Original Notional Unamortized Discount
Unamortized Gain (Loss) Terminated Swaps1
Purchase Accounting FV Adjustment Deferred Financing Fees Carrying Value Carrying Value
Notes payable due 2021 3.40% $ —  $ —  $ —  $ —  $ —  $ —  $ 406.0 
Notes payable due 2022 2.90% —  —  —  —  —  —  752.3 
Notes payable due 2026 3.40% 500.0  (0.5) —  —  (2.3) 497.2  496.5 
Notes payable due 2028 7.05% 150.0  —  8.2  7.9  —  166.1  168.3 
Notes payable due 2028 4.25% 500.0  (0.3) —  —  (3.5) 496.2  495.8 
Notes payable due 2030 2.30% 750.0  (2.3) —  —  (4.8) 742.9  — 
Notes payable due 2040 5.20% 400.0  (0.2) (29.0) —  (2.7) 368.1  366.5 
Notes payable due 2048 4.85% 500.0  (0.5) —  —  (5.2) 494.3  494.1 
Notes payable due 2050 2.75% 750.0  (2.0) —  —  (8.1) 739.9  — 
Notes payable due 2060 (junior subordinated) 4.00% 750.0  —  —  —  (9.3) 740.7  — 
Total long-term debt, including current maturities $ 4,300  $ (5.8) $ (20.8) $ 7.9  $ (35.9) $ 4,245.4  $ 3,179.5 
Less: Current maturities of long-term debt —  (3.1)
Long-term debt $ 4,245.4  $ 3,176.4 
1 Unamortized gain (loss) associated with interest rate swaps are more fully discussed in Note I, Financial Instruments.
As of January 2, 2021, the total aggregate annual principal maturities of long-term debt for the next five years and thereafter are as follows: no principal maturities from 2021 to 2025, and $4.3 billion thereafter. These maturities represent the principal amounts to be paid and accordingly exclude the remaining $7.9 million of unamortized fair value adjustments made in purchase accounting, which increased the Black & Decker note payable due 2028, as well as a net loss of $26.6 million pertaining to unamortized termination gains and losses on interest rate swaps and unamortized discounts on the notes as described in Note I, Financial Instruments, and $35.9 million of unamortized deferred financing fees. Interest paid during 2020, 2019 and 2018 amounted to $192.1 million, $252.9 million and $249.6 million, respectively.

In November 2020, the Company issued $750.0 million of senior unsecured term notes maturing November 15, 2050 ("2050 Term Notes"). The 2050 Term Notes will accrue interest at a fixed rate of 2.75% per annum, with interest payable semi-annually in arrears, and rank equally in right of payment with all of the Company's existing and future unsecured unsubordinated debt. The Company received total net proceeds from this offering of approximately $739.9 million, net of approximately $10.1 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 other borrowings.

Contemporaneously with the issuance of the 2050 Term Notes, the Company redeemed the 3.4% senior unsecured term notes due 2021 (“2021 Term Notes”) and the 2.9% senior unsecured term notes due 2022 (“2022 Term Notes”) for approximately $1.2 billion representing the outstanding principal amounts, accrued and unpaid interest, and a make-whole premium. The Company recognized a net pre-tax loss of $46.9 million from the extinguishment, which was comprised of the $48.7 million make-whole premium payment and a $1.7 million loss related to the write-off of deferred financing fees, partially offset by a $3.5 million gain relating to the write-off of unamortized fair value swap terminations. The Company also recognized a pre-tax loss of $19.6 million relating to the unamortized loss on cash flow swap terminations related to the 2022 Term Notes. Refer to Note I, Financial Instruments, for further discussion.

In February 2020, the Company issued $750.0 million of senior unsecured term notes maturing March 15, 2030 ("2030 Term Notes") and $750.0 million of fixed-to-fixed reset rate junior subordinated debentures maturing March 15, 2060 (“2060 Junior Subordinated Debentures”). The 2030 Term Notes accrue interest at a fixed rate of 2.3% per annum, with interest payable semi-annually in arrears, and rank equally in right of payment with all of the Company's existing and future unsecured and unsubordinated debt. The 2060 Junior Subordinated Debentures bear interest at a fixed rate of 4.0% per annum, payable semi-annually in arrears, up to but excluding March 15, 2025. From and including March 15, 2025, the interest rate will be reset for each subsequent five-year reset period equal to the Five-Year Treasury Rate plus 2.657%. The Five-Year Treasury Rate is based on the average yields on actively traded U.S. treasury securities adjusted to constant maturity, for five-year maturities.  On each five-year reset date, the 2060 Junior Subordinated Debentures can be called at 100% of the principal amount, plus accrued interest, if any. The 2060 Junior Subordinated Debentures are unsecured and rank subordinate and junior in right of payment to all of the Company’s existing and future senior debt. The Company received total net proceeds from these offerings
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of approximately $1.483 billion, net of underwriting expenses and other fees associated with the transactions. The net proceeds from these offerings were used for general corporate purposes, including acquisition funding.
In March 2019, the Company issued $500.0 million of senior unsecured notes maturing on March 1, 2026 ("2026 Term Notes"). The 2026 Term Notes accrue interest at a fixed rate of 3.40% per annum with interest payable semi-annually in arrears. The 2026 Term Notes rank equally in right of payment with all of the Company's existing and future unsecured and unsubordinated debt. The Company received net cash proceeds of $496.2 million which reflected the notional amount offset by a discount, underwriting expenses, and other fees associated with the transaction. The Company used the net proceeds from the offering for general corporate purposes, including repayment of other borrowings.
In November 2018, the Company issued $500.0 million of senior unsecured notes maturing on November 15, 2028 ("2028 Term Notes") and $500.0 million of senior unsecured notes maturing on November 15, 2048 ("2048 Term Notes"). The 2028 Term Notes and 2048 Term Notes accrue interest at fixed rates of 4.25% per annum and 4.85% per annum, respectively, with interest payable semi-annually in arrears on both notes. The notes are unsecured and rank equally with all of the Company's existing and future unsecured and unsubordinated debt. The Company received net proceeds of $990.0 million which reflected a discount of $0.9 million and $9.1 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 other borrowings.
Contemporaneously with the issuance of the 2028 Term Notes and 2048 Term Notes, the Company paid $977.5 million to settle its remaining obligations of two unsecured notes which matured in November 2018.
In December 2013, the Company issued $400.0 million aggregate principal amount of 5.75% fixed-to-floating rate junior subordinated debentures maturing December 15, 2053 (“2053 Junior Subordinated Debentures”). The 2053 Junior Subordinated Debentures bore interest at a fixed rate of 5.75% per annum, payable semi-annually in arrears to, but excluding December 15, 2018. From and including December 15, 2018, the 2053 Junior Subordinated Debentures bore interest at an annual rate equal to three-month LIBOR plus 4.304%, payable quarterly in arrears. In February 2019, the Company redeemed all of the outstanding 2053 Junior Subordinated Debentures for $405.7 million, which represented 100% of the principal amount plus accrued and unpaid interest to the redemption date. The Company recognized a net pre-tax loss of $3.2 million from the redemption, which was comprised of a $7.8 million loss related to the write-off of deferred financing fees partially offset by a $4.6 million gain relating to an unamortized terminated interest rate swap as described in more detailed in Note I, Financial Instruments.
In July 2012, the Company issued $750.0 million of junior subordinated debentures, maturing on July 25, 2052 (“2052 Junior Subordinated Debentures”) with fixed interest payable quarterly, in arrears, at a rate of 5.75% per annum. In December 2019, the Company redeemed all of the outstanding 2052 Junior Subordinated Debentures for $760.5 million, which represented 100% of the principal amount plus accrued and unpaid interest. The Company recognized a pre-tax loss of $17.9 million from the redemption related to the write-off of unamortized deferred financing fees.
Commercial Paper and Credit Facilities

The Company has a $3.0 billion commercial paper program which includes Euro denominated borrowings in addition to U.S. Dollars. As of January 2, 2021, the Company had no borrowings outstanding. As of December 28, 2019, the Company had $335.5 million of borrowings outstanding representing Euro denominated commercial paper, which was designated as a net investment hedge. Refer to Note I, Financial Instruments, for further discussion.

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

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

In addition, the Company has other short-term lines of credit that are primarily uncommitted, with numerous banks, aggregating to $469.1 million, of which $373.4 million was available at January 2, 2021. Short-term arrangements are reviewed annually for renewal.

At January 2, 2021, the aggregate amount of committed and uncommitted lines of credit, long-term and short-term, was approximately $3.5 billion. At January 2, 2021, $1.5 million was recorded as short-term borrowings relating to amounts outstanding against uncommitted lines. In addition, $95.6 million of the short-term credit lines was utilized primarily pertaining to outstanding letters of credit for which there are no required or reported debt balances. The weighted-average interest rates on U.S. dollar denominated short-term borrowings for the years ended January 2, 2021 and December 28, 2019 were 1.3% and 2.3%, respectively. The weighted-average interest rates on Euro denominated short-term borrowings for the years ended January 2, 2021 and December 28, 2019 were negative 0.2% and 0.3%, respectively.

The Company has an interest coverage covenant that must be maintained to permit continued access to its committed credit facilities described above. The interest coverage ratio tested for covenant compliance compares adjusted Earnings Before Interest, Taxes, Depreciation and Amortization to adjusted Interest Expense ("adjusted EBITDA"/"adjusted Interest Expense"). In April 2020, the Company entered into an amendment to its 5-Year Credit Agreement to: (a) amend the definition of Adjusted EBITDA to allow for additional adjustment addbacks, which primarily relate to anticipated incremental charges related to the COVID-19 pandemic, for amounts incurred beginning in the second quarter of 2020 through the second quarter of 2021, and (b) lower the minimum interest coverage ratio from 3.5 to 2.5 times for the period from and including the second quarter of 2020 through the end of fiscal year 2021. These amendments are also applicable to the new 364-Day Credit Agreement described above.

I. FINANCIAL INSTRUMENTS
The Company is exposed to market risk from changes in foreign currency exchange rates, interest rates, stock prices and commodity prices. As part of the Company’s risk management program, a variety of financial instruments such as interest rate swaps, currency swaps, purchased currency options, foreign exchange contracts and commodity contracts, may be used to mitigate interest rate exposure, foreign currency exposure and commodity price exposure.

If the Company elects to do so and if the instrument meets the criteria specified in ASC 815, management designates its derivative instruments as cash flow hedges, fair value hedges or net investment hedges. Generally, commodity price exposures are not hedged with derivative financial instruments and instead are actively managed through customer pricing initiatives, procurement-driven cost reduction initiatives and other productivity improvement projects. Financial instruments are not utilized for speculative purposes.

A summary of the fair values of the Company’s derivatives recorded in the Consolidated Balance Sheets at January 2, 2021 and December 28, 2019 follows:
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(Millions of Dollars) Balance Sheet
Classification 		2020 2019 Balance Sheet
Classification 		2020 2019
Derivatives designated as hedging instruments:
Interest Rate Contracts Cash Flow Other current assets $ —  $ —  Accrued expenses $ 90.9  $ — 
LT other assets —  —  LT other liabilities —  40.5 
Foreign Exchange Contracts Cash Flow Other current assets —  7.0  Accrued expenses 23.7  7.8 
Net Investment Hedge Other current assets 3.5  18.6  Accrued expenses 55.1  8.5 
LT other assets —  —  LT other liabilities 5.7  2.6 
Non-derivative designated as hedging instrument:
Net Investment Hedge —  —  Short-term borrowings —  335.5 
Total Designated as hedging instruments $ 3.5  $ 25.6  $ 175.4  $ 394.9 
Derivatives not designated as hedging instruments:
Foreign Exchange Contracts Other current assets $ 10.5  $ 3.7  Accrued expenses $ 15.6  $ 6.1 
Total $ 14.0  $ 29.3  $ 191.0  $ 401.0 

The counterparties to all of the above mentioned financial instruments are major international financial institutions. The Company is exposed to credit risk for net exchanges under these agreements, but not for the notional amounts. The credit risk is limited to the asset amounts noted above. The Company limits its exposure and concentration of risk by contracting with diverse financial institutions and does not anticipate non-performance by any of its counterparties. Further, as more fully discussed in Note M, Fair Value Measurements, the Company considers non-performance risk of its counterparties at each reporting period and adjusts the carrying value of these assets accordingly. The risk of default is considered remote. As of January 2, 2021 and December 28, 2019, there were no assets that had been posted as collateral related to the above mentioned financial instruments.

In 2020, 2019 and 2018, cash flows related to derivatives, including those that are separately discussed below, resulted in net cash received of $33.4 million, $69.9 million and $2.4 million, respectively.

CASH FLOW HEDGES — There were after-tax mark-to-market losses of $103.0 million and $54.2 million as of January 2, 2021 and December 28, 2019, respectively, reported for cash flow hedge effectiveness in Accumulated other comprehensive loss. An after-tax loss of $20.1 million is expected to be reclassified to earnings as the hedged transactions occur or as amounts are amortized within the next twelve months. The ultimate amount recognized will vary based on fluctuations of the hedged currencies and interest rates through the maturity dates.

The tables below detail pre-tax amounts of derivatives designated as cash flow hedges in Accumulated other comprehensive loss during the periods in which the underlying hedged transactions affected earnings for 2020, 2019 and 2018: 
2020 (Millions of Dollars)
Gain (Loss)
Recorded in OCI 		Classification of
Gain (Loss)
Reclassified from
OCI to Income 		Gain (Loss)
Reclassified from
OCI to Income 		Gain (Loss)
Recognized in
Income on Amounts Excluded from Effectiveness Testing
Interest Rate Contracts $ (70.9) Interest expense $ (16.3) $ — 
Foreign Exchange Contracts $ (16.1) Cost of sales $ 12.4  $ — 
 
2019 (Millions of Dollars) Gain (Loss) 
Recorded in OCI 		Classification of
Gain (Loss)
Reclassified from
OCI to Income 		Gain (Loss)
Reclassified from
OCI to Income 		Gain (Loss)
Recognized in
Income on Amounts Excluded from Effectiveness Testing
Interest Rate Contracts $ (40.5) Interest expense $ (16.2) $ — 
Foreign Exchange Contracts $ (16.7) Cost of sales $ (6.5) $ — 

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2018 (Millions of Dollars)
Gain (Loss) 
Recorded in OCI 		Classification of
Gain (Loss)
Reclassified from
OCI to Income 		Gain (Loss)
Reclassified from
OCI to Income
(Effective Portion) 		Gain (Loss)
Recognized in
Income
(Ineffective Portion)
Interest Rate Contracts $ 33.1  Interest expense $ (15.3) $ — 
Foreign Exchange Contracts $ 35.9  Cost of sales $ (17.9) $ — 

A summary of the pre-tax effect of cash flow hedge accounting on the Consolidated Statements of Operations for 2020, 2019 and 2018 is as follows:
2020 2019 2018
(Millions of dollars) Cost of Sales Interest Expense Cost of Sales Interest Expense Cost of Sales Interest Expense
Total amount in the Consolidated Statements of Operations in which the effects of the cash flow hedges are recorded $ 9,566.7  $ 223.1  $ 9,636.7  $ 284.3  $ 9,131.3  $ 277.9 
Gain (loss) on cash flow hedging relationships:
Foreign Exchange Contracts:
Hedged Items $ (12.4) $ —  $ 6.5  $ —  $ 17.9  $ — 
Gain (loss) reclassified from OCI into Income $ 12.4  $ —  $ (6.5) $ —  $ (17.9) $ — 
Interest Rate Swap Agreements:
Gain (loss) reclassified from OCI into Income 1
$ —  $ (16.3) $ —  $ (16.2) $ —  $ (15.3)
1 Inclusive of the gain/loss amortization on terminated derivative financial instruments.

For 2020, 2019 and 2018 after-tax losses of $15.4 million, $13.1 million, and $15.4 million, respectively, were reclassified from Accumulated other comprehensive loss into earnings (inclusive of the gain/loss amortization on terminated derivative financial instruments) during the periods in which the underlying hedged transactions affected earnings.

Interest Rate Contracts: The Company enters into interest rate swap agreements in order to obtain the lowest cost source of funds within a targeted range of variable to fixed-rate debt proportions. During 2020, the Company entered into forward starting interest rate swaps totaling $1.0 billion to offset expected variability on future interest rate payments associated with debt instruments expected to be issued in the future. The Company terminated these swaps in 2020 resulting in a loss of $20.5 million, which was recorded in Accumulated other comprehensive loss and is being amortized to interest expense over future periods. The cash flows stemming from the maturity of such interest rate swaps designated as cash flow hedges are presented within other financing activities in the Consolidated Statements of Cash Flows.

During 2019, the Company entered into forward starting interest rate swaps totaling $650.0 million to offset expected variability on future interest rate payments associated with debt instruments expected to be issued in the future. During 2019, swaps with a notional amount of $250.0 million matured resulting in a loss of $1.0 million, which was recorded in Accumulated other comprehensive loss and is being amortized to earnings as interest expense over future periods. The cash flows stemming from the maturity of such interest rate swaps designated as cash flow hedges are presented within other financing activities in the Consolidated Statements of Cash Flows.

In 2018, forward starting interest rate swaps with an aggregate notional amount of $400 million fixing 10 years of interest payments ranging from 4.25%-4.85% matured. The objective of the hedges was to offset the expected variability on future payments associated with the interest rate on debt instruments. This resulted in a loss of $22.7 million, which was recorded in Accumulated other comprehensive loss and is being amortized to earnings as interest expense over future periods. The cash flows stemming from the maturity of such interest rate swaps designated as cash flow hedges are presented within other financing activities in the Consolidated Statements of Cash Flows.

In December 2020, the Company redeemed all of the outstanding 2021 Term Notes and 2022 Term Notes, as further discussed in Note H, Long-Term Debt and Financing Arrangements. As a result, the Company recorded a pre-tax loss of $19.6 million relating to the remaining unamortized loss on cash flow swap terminations related to the 2022 Term Notes.

As of January 2, 2021 and December 28, 2019, the Company had $400 million of forward starting swaps outstanding.

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Foreign Currency Contracts

Forward Contracts: Through its global businesses, the Company enters into transactions and makes investments denominated in multiple currencies that give rise to foreign currency risk. The Company and its subsidiaries regularly purchase inventory from subsidiaries with functional currencies different than their own, which creates currency-related volatility in the Company’s results of operations. The Company utilizes forward contracts to hedge these forecasted purchases and sales of inventory. Gains and losses reclassified from Accumulated other comprehensive loss are recorded in Cost of sales as the hedged item affects earnings. There are no components excluded from the assessment of effectiveness for these contracts. At January 2, 2021, and December 28, 2019, the notional values of the forward currency contracts outstanding was $595.8 million and $518.2 million, respectively, maturing on various dates through 2021.

Purchased Option Contracts: The Company and its subsidiaries have entered into various intercompany transactions whereby the notional values are denominated in currencies other than the functional currencies of the party executing the trade. In order to better match the cash flows of its intercompany obligations with cash flows from operations, the Company enters into purchased option contracts. Gains and losses reclassified from Accumulated other comprehensive loss are recorded in Cost of sales as the hedged item affects earnings. There are no components excluded from the assessment of effectiveness for these contracts. At January 2, 2021 and December 28, 2019 there were no outstanding option contracts.

FAIR VALUE HEDGES

Interest Rate Risk: In an effort to optimize the mix of fixed versus floating rate debt in the Company’s capital structure, the Company enters into interest rate swaps. In prior years, the Company entered into interest rate swaps related to certain of its notes payable which were subsequently terminated. Amortization of the gain/loss on previously terminated swaps is reported as a reduction of interest expense. Prior to termination, the changes in fair value of the swaps and the offsetting changes in fair value related to the underlying notes were recognized in earnings. The Company did not have any active fair value interest rate swaps at January 2, 2021 or December 28, 2019.

A summary of the pre-tax effect of fair value hedge accounting on the Consolidated Statements of Operations for 2020, 2019 and 2018 is as follows:
2020 2019 2018
(Millions of dollars)
Interest Expense
Interest Expense
Interest Expense
Total amount in the Consolidated Statements of Operations in which the effects of the fair value hedges are recorded $ 223.1  $ 284.3  $ 277.9 
Amortization of gain on terminated swaps $ (3.0) $ (7.7) $ (3.2)

In December 2020, the Company redeemed all of the outstanding 2021 Term Notes and 2022 Term Notes, as further discussed in Note H, Long-Term Debt and Financing Arrangements. As a result, the Company recorded a pre-tax gain of $3.5 million relating to the remaining unamortized gain on fair value swap terminations related to the 2021 Term Notes.

In February 2019, the Company redeemed all of the outstanding 2053 Junior Subordinated Debentures, as further discussed in Note H, Long-Term Debt and Financing Arrangements. As a result, the Company recorded a pre-tax gain of $4.6 million relating to the remaining unamortized gain on swap termination related to this debt.

A summary of the amounts recorded in the Consolidated Balance Sheets related to cumulative basis adjustments for fair value hedges as of 2020 and 2019 is as follows:
(Millions of dollars)
2020 Carrying Amount of Hedged Liability1
2020 Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liability
Current maturities of long-term debt $ —  Terminated Swaps $ — 
Long-Term Debt $ 4,245.4  Terminated Swaps $ (20.8)
1Represents hedged items no longer designated in qualifying fair value hedging relationships.
(Millions of dollars)
2019 Carrying Amount of Hedged Liability1
2019 Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liability
Current maturities of long-term debt $ 3.1  Terminated Swaps $ 3.1 
Long-Term Debt $ 3,176.4  Terminated Swaps $ (17.5)
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1Represents hedged items no longer designated in qualifying fair value hedging relationships.
NET INVESTMENT HEDGES

Foreign Exchange Contracts: The Company utilizes net investment hedges to offset the translation adjustment arising from re-measurement of its investment in the assets and liabilities of its foreign subsidiaries. The total after-tax amounts in Accumulated other comprehensive gains of $72.8 million and $97.3 million at January 2, 2021 and December 28, 2019, respectively.

As of January 2, 2021, the Company had cross currency swaps with a notional value totaling $839.4 million maturing on various dates through 2023 hedging a portion of its Japanese yen, Euro and Swiss franc denominated net investments. As of January 2, 2021, the Company had no Euro denominated commercial paper designated as a net investment hedge.

As of December 28, 2019, the Company had cross currency swaps with a notional value totaling $1.1 billion maturing on various dates through 2023 hedging a portion of its Japanese yen, Euro and Swiss franc denominated net investments and Euro denominated commercial paper with a value of $335.5 million maturing in 2020 hedging a portion of its Euro denominated net investments.

Maturing foreign exchange contracts resulted in net cash received of $41.0 million, $8.0 million, and $25.7 million during 2020, 2019 and 2018, respectively.

Gains and losses on net investment hedges remain in Accumulated other comprehensive loss until disposal of the underlying assets. Gains and losses representing components excluded from the assessment of effectiveness are recognized in earnings in Other, net on a straight-line basis over the term of the hedge. Gains and losses after a hedge has been de-designated are recorded directly to the Consolidated Statements of Operations in Other, net.

The pre-tax gains and losses from fair value changes during 2020, 2019 and 2018 were as follows:
2020
(Millions of Dollars) Total Gain (Loss) Recorded in OCI Excluded Component Recorded in OCI Income Statement Classification Total Gain (Loss) Reclassified from OCI to Income Excluded Component Amortized from OCI to Income
Forward Contracts $ 0.8  $ —  Other, net $ —  $ — 
Cross Currency Swap $ (5.4) $ 60.7  Other, net $ 18.2  $ 18.2 
Option Contracts $ —  $ —  Other, net $ —  $ — 
Non-derivative designated as Net Investment Hedge $ (8.5) $ —  Other, net $ —  $ — 

2019
(Millions of Dollars) Total Gain (Loss) Recorded in OCI Excluded Component Recorded in OCI Income Statement Classification Total Gain (Loss) Reclassified from OCI to Income Excluded Component Amortized from OCI to Income
Forward Contracts $ 6.4  $ 4.6  Other, net $ 4.3  $ 4.3 
Cross Currency Swap $ 54.8  $ 48.8  Other, net $ 29.9  $ 29.9 
Option Contracts $ (3.7) $ —  Other, net $ —  $ — 
Non-derivative designated as Net Investment Hedge $ 21.7  $ —  Other, net $ —  $ — 


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2018
(Millions of Dollars) Total Gain (Loss) Recorded in OCI Excluded Component Recorded in OCI Income Statement Classification Total Gain (Loss) Reclassified from OCI to Income Excluded Component Amortized from OCI to Income
Forward Contracts $ 37.1  $ 8.6  Other, net $ 8.2  $ 8.2 
Cross Currency Swap $ (2.3) $ 5.8  Other, net $ 6.8  $ 6.8 
Option Contracts $ (2.0) $ —  Other, net $ —  $ — 
Non-derivative designated as Net Investment Hedge $ 61.8  $ —  Other, net $ —  $ — 

As discussed in Note H, Long-Term Debt and Financing Arrangements, the Company has a commercial paper program which authorizes Euro denominated borrowings in addition to U.S. Dollars. Euro denominated borrowings against this commercial paper program are designated as a net investment hedge against a portion of its Euro denominated net investment. As of January 2, 2021 the Company had no Euro denominated borrowings outstanding against this commercial paper program and as of December 28, 2019, the Company had $335.5 million in Euro denominated borrowings outstanding against this commercial paper program.

UNDESIGNATED HEDGES

Foreign Exchange Contracts: Currency swaps and foreign exchange forward contracts are used to reduce risks arising from the change in fair value of certain foreign currency denominated assets and liabilities (such as affiliate loans, payables and receivables). The objective of these practices is to minimize the impact of foreign currency fluctuations on operating results. The total notional amount of the forward contracts outstanding at January 2, 2021 was $1.3 billion maturing on various dates through 2021. The total notional amount of the forward contracts outstanding at December 28, 2019 was $946.8 million maturing on various dates through 2020. The gain (loss) recorded in the income statement from changes in the fair value related to derivatives not designated as hedging instruments under ASC 815 for 2020, 2019 and 2018 are as follows:
(Millions of Dollars) Income Statement
Classification 		2020 2019 2018
Foreign Exchange Contracts Other-net $ (15.7) $ (4.1) $ 17.0 

J. CAPITAL STOCK
EARNINGS PER SHARE — The following table reconciles net earnings attributable to common shareowners and the weighted-average shares outstanding used to calculate basic and diluted earnings per share for the fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018.
2020 2019 2018
Numerator (in millions):
Net Earnings Attributable to Common Shareowners $ 1,210.4  $ 955.8  $ 605.2 

Denominator (in thousands):
Basic weighted-average shares outstanding 154,176  148,365  148,919 
Dilutive effect of stock contracts and awards 1,685  2,193  2,724 
Diluted weighted-average shares outstanding 155,861  150,558  151,643 

Earnings per share of common stock:
Basic $ 7.85  $ 6.44  $ 4.06 
Diluted $ 7.77  $ 6.35  $ 3.99 

The following weighted-average stock options were not included in the computation of weighted-average diluted shares outstanding because the effect would be anti-dilutive (in thousands):
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2020 2019 2018
Number of stock options 2,376  2,151  1,339 

In November 2019, the Company issued 7,500,000 Equity Units with a total notional value of $750.0 million (“2019 Equity Units”). Each unit initially consists of 750,000 shares of convertible preferred stock ("Series D Preferred Stock") and forward stock purchase contracts. 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. The conversion rate is initially 5.2263 shares of common stock per one share of Series D Preferred Stock, which was equivalent to an initial conversion price of approximately $191.34 per share of common stock. As of January 2, 2021, due to customary anti-dilution provisions, the conversion rate was 5.2269, equivalent to a conversion price of approximately $191.32 per share of common stock. The Series D Preferred Stock is excluded from the denominator of the diluted earnings per share calculation on the basis that the convertible preferred stock will be settled in cash except to the extent that the conversion value of the convertible preferred stock exceeds its liquidation preference. Therefore, before any redemption or conversion, the common shares that would be required to settle the applicable conversion value in excess of the liquidation preference, if the Company elects to settle such excess in common shares, are included in the denominator of diluted earnings per share in periods in which they are dilutive. The shares related to the Series D Preferred Stock were anti-dilutive during 2020 and during November and December of 2019.

In May 2017, the Company issued 7,500,000 Equity Units with a total notional value of $750.0 million (“2017 Equity Units”). Each unit initially consisted of 750,000 shares of convertible preferred stock ("Series C Preferred Stock") and forward stock purchase contracts. In May 2020, the Company successfully remarketed the Series C Preferred Stock, generating cash proceeds of $750.0 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 addition, holders have the option to convert the Series C Preferred Stock into common stock. At the election of the Company, upon conversion, the Company may deliver cash, common stock, or a combination thereof. In connection with the remarketing described above, the conversion rate was reset to 6.7352 shares of the Company's common stock per one share of Series C Preferred Stock, which was equivalent to a conversion price of approximately $148.47 per share of common stock. As of January 2, 2021, due to customary anti-dilution provisions, the conversion rate was 6.7504, equivalent to a conversion price of approximately $148.14 per share of common stock. The Series C Preferred Stock is excluded from the denominator of the diluted earnings per share calculation on the basis that the convertible preferred stock will be settled in cash except to the extent that the conversion value of the convertible preferred stock exceeds its liquidation preference. Therefore, before any redemption or conversion, the common shares that would be required to settle the applicable conversion value in excess of the liquidation preference, if the Company elects to settle such excess in common shares, are included in the denominator of diluted earnings per share in periods in which they are dilutive. The shares related to the Series C Preferred Stock were anti-dilutive during certain months in 2020 and most of 2019.

See "Other Equity Arrangements" below for further details of the above transactions.
COMMON STOCK ACTIVITY — Common stock activity for 2020, 2019 and 2018 was as follows:
2020 2019 2018
Outstanding, beginning of year 153,506,409  151,302,450  154,038,031 
Issued from treasury 7,474,394  2,391,336  941,854 
Returned to treasury (228,541) (187,377) (3,677,435)
Outstanding, end of year 160,752,262  153,506,409  151,302,450 
Shares subject to the forward share purchase contract (3,645,510) (3,645,510) (3,645,510)
Outstanding, less shares subject to the forward share purchase contract 157,106,752  149,860,899  147,656,940 

In May 2020, the Company issued 5,463,750 shares of common stock to settle the purchase contracts related to the 2017 Equity Units.
In April 2018, the Company repurchased 1,399,732 shares of common stock for approximately $200.0 million. In July 2018, the Company repurchased 2,086,792 shares of common stock for approximately $300.0 million.
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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. In February 2020, the Company amended the settlement date to April 2022, or earlier at the Company's option. The reduction of common shares outstanding was recorded at the inception of the forward share purchase contract in March 2015 and factored into the calculation of weighted-average shares outstanding at that time.
COMMON STOCK RESERVED — Common stock shares reserved for issuance under various employee and director stock plans at January 2, 2021 and December 28, 2019 are as follows:
 
2020 2019
Employee stock purchase plan 1,480,962  1,593,759 
Other stock-based compensation plans 8,113,781  11,330,531 
Total shares reserved 9,594,743  12,924,290 

STOCK-BASED COMPENSATION PLANS — The Company has stock-based compensation plans for salaried employees and non-employee members of the Board of Directors. The plans provide for discretionary grants of stock options, restricted stock units and other stock-based awards.
The plans are generally administered by the Compensation and Talent Development Committee of the Board of Directors, consisting of non-employee directors.
Stock Option Valuation Assumptions:
Stock options are granted at the fair market value of the Company’s stock on the date of grant and have a 10-year term. Generally, stock option grants vest ratably over 4 years from the date of grant.
The following describes how certain assumptions affecting the estimated fair value of stock options are determined: the dividend yield is computed as the annualized dividend rate at the date of grant divided by the strike price of the stock option; expected volatility is based on an average of the market implied volatility and historical volatility for the 5.25 year expected life; the risk-free interest rate is based on U.S. Treasury securities with maturities equal to the expected life of the option; and a seven percent forfeiture rate is assumed. The Company uses historical data in order to estimate forfeitures and holding period behavior for valuation purposes.
The fair value of stock option grants is estimated on the date of grant using the Black-Scholes option pricing model. The following weighted-average assumptions were used to value grants made in 2020, 2019 and 2018:
2020 2019 2018
Average expected volatility 35.0  % 25.0  % 23.0  %
Dividend yield 1.6  % 1.8  % 2.0  %
Risk-free interest rate 0.4  % 1.5  % 2.9  %
Expected life 5.3 years 5.3 years 5.3 years
Fair value per option $ 48.36  $ 30.09  $ 26.54 
Weighted-average vesting period 2.8 years 2.8 years 2.9 years
Stock Options:
The number of stock options and weighted-average exercise prices as of January 2, 2021 are as follows:
  Options Price
Outstanding, beginning of year 6,454,671  $ 122.42 
Granted 1,103,538  179.85 
Exercised (1,419,699) 94.24 
Forfeited (263,264) 148.68 
Outstanding, end of year 5,875,246  $ 138.84 
Exercisable, end of year 3,289,889  $ 121.65 

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At January 2, 2021, the range of exercise prices on outstanding stock options was $64.79 to $179.85. Stock option expense was $31.6 million, $27.7 million and $23.9 million for the years ended January 2, 2021, December 28, 2019 and December 29, 2018, respectively. At January 2, 2021, the Company had $70.8 million of unrecognized pre-tax compensation expense for stock options. This expense will be recognized over the remaining vesting periods which are 1.9 years on a weighted-average basis.

During 2020, the Company received $133.8 million in cash from the exercise of stock options. The related tax benefit from the exercise of these options was $24.6 million. During 2020, 2019 and 2018, the total intrinsic value of options exercised was $104.3 million, $143.7 million and $18.3 million, respectively. When options are exercised, the related shares are issued from treasury stock.

An excess tax benefit is generated on the extent to which the actual gain, or spread, an optionee receives upon exercise of an option exceeds the fair value determined at the grant date; that excess spread over the fair value of the option times the applicable tax rate represents the excess tax benefit. During 2020, 2019 and 2018, the excess tax benefit arising from tax deductions in excess of recognized compensation cost totaled $17.6 million, $25.8 million and $2.3 million, respectively, and was recorded in income tax expense.
Outstanding and exercisable stock option information at January 2, 2021 follows:
  Outstanding Stock Options Exercisable Stock Options
Exercise Price Ranges Options Weighted-
Average
Remaining
Contractual Life 		Weighted-
Average
Exercise Price 		Options Weighted-
Average
Remaining
Contractual Life 		Weighted-
Average
Exercise Price
$75.00 and below 427,354  1.47 $ 67.96  427,354  1.47 $ 67.96 
$75.01 — $125.00 1,483,536  4.97 108.40  1,483,536  4.97 108.40 
$125.01 and higher 3,964,356  8.55 157.87  1,378,999  7.70 152.56 
5,875,246  7.13 $ 138.84  3,289,889  5.66 $ 121.65 
Compensation cost for new grants is recognized on a straight-line basis over the vesting period. The expense for retirement eligible employees (those aged 55 and over and with 10 or more years of service) is recognized by the date they become retirement eligible, as such employees may retain their options for the 10 year contractual term in the event they retire prior to the end of the vesting period stipulated in the grant.
As of January 2, 2021, the aggregate intrinsic value of stock options outstanding and stock options exercisable was $234.8 million and $187.2 million, respectively.
Employee Stock Purchase Plan: 
The Employee Stock Purchase Plan (“ESPP”) enables eligible employees in the United States, Canada and Israel to purchase shares of the Company's common stock at the lower of 85.0% of the fair market value of the shares on the grant date ($123.83 per share for fiscal year 2020 purchases) or 85.0% of the fair market value of the shares on the last business day of each month. A maximum of 1,600,000 shares are authorized for subscription. In conjunction with the Company’s cost savings initiatives, the ESPP was temporarily suspended in 2019 and was subsequently reinstated in 2020. During 2020, 2019 and 2018, 119,038 shares, 12,465 shares and 139,715 shares, respectively, were issued under the plan at average prices of $110.97, $103.02, and $121.00 per share, respectively, and the intrinsic value of the ESPP purchases was $3.3 million, $0.3 million and $3.1 million, respectively. For 2020, the Company received $13.2 million in cash from ESPP purchases, and there was no related tax benefit. The fair value of ESPP shares was estimated using the Black-Scholes option pricing model. ESPP compensation cost is recognized ratably over the one year term based on actual employee stock purchases under the plan. The fair value of the employees’ purchase rights under the ESPP was estimated using the following assumptions for 2020, 2019 and 2018, respectively: dividend yield of 1.7%, 2.2% and 1.6%; expected volatility of 28.0%, 28.0% and 16.0%; risk-free interest rates of 1.6%, 2.5%, and 1.6%; and expected lives of one year. The weighted-average fair value of those purchase rights granted in 2020, 2019 and 2018 was $41.02, $27.75 and $43.69, respectively. Total compensation expense recognized for ESPP was $3.9 million in 2020, de minimus in 2019 and $6.6 million in 2018.
Restricted Share Units and Awards: 
Compensation cost for restricted share units and awards, including restricted shares granted to French employees in lieu of RSUs, (collectively “RSUs”) granted to employees is recognized ratably over the vesting term, which varies but is generally 4 years. RSU grants totaled 325,448 shares, 282,598 shares and 413,838 shares in 2020, 2019 and 2018, respectively. The
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weighted-average grant date fair value of RSUs granted in 2020, 2019 and 2018 was $165.44, $149.14 and $133.90 per share, respectively.
Total compensation expense recognized for RSUs amounted to $35.6 million, $41.2 million and $40.1 million in 2020, 2019 and 2018, respectively. The actual tax benefit received related to the shares that were delivered in 2020 was $9.0 million. The excess tax benefit recognized was $2.3 million, $3.2 million, and $1.8 million in 2020, 2019 and 2018, respectively. As of January 2, 2021, unrecognized compensation expense for RSUs amounted to $85.6 million and will be recognized over a weighted-average period of 2 years.
A summary of non-vested restricted stock unit and award activity as of January 2, 2021, and changes during the twelve month period then ended is as follows:
Restricted Share
Units & Awards 		Weighted-Average
Grant
Date Fair Value
Non-vested at December 28, 2019 866,520  $ 139.23 
Granted 325,448  165.44 
Vested (291,523) 134.48 
Forfeited (69,061) 137.98 
Non-vested at January 2, 2021 831,384  $ 151.26 
The total fair value of shares vested (market value on the date vested) during 2020, 2019 and 2018 was $58.5 million, $56.7 million and $46.8 million, respectively.
Prior to 2020, non-employee members of the Board of Directors received annual restricted share-based grants which must be cash settled and accordingly mark-to-market accounting is applied. The Company recognized $1.6 million and $6.8 million of expense for these awards in 2020 and 2019, respectively, and $3.4 million of income in 2018. Beginning in 2020, the annual grant issued to non-employee members of the Board of Directors will be stock settled. The expense related to the 2020 annual grant was $1.4 million in 2020. Additionally, members of the Board of Directors were granted restricted share units for which compensation expense of $1.0 million, $1.2 million, and $1.2 million was recognized for 2020, 2019 and 2018, respectively.
Management Incentive Compensation Plan Performance Stock Units:
In 2020 and 2019, the Company granted Performance Stock Units (collectively "MICP-PSUs") under the Management Incentive Compensation Plan ("MICP") to participating employees. Awards are payable in shares of common stock and generally no award is made if the employee terminates employment prior to the settlement dates. The ultimate delivery of the shares related to the 2020 and 2019 MICP-PSU grant will occur ratably in 2021, 2022, and 2023 for the 2020 plan and in 2020, 2021, and 2022 for the 2019 plan. The total shares to be delivered are based on actual 2020 and 2019 performance in relation to the established goals.
A summary of the activity pertaining to the maximum number of shares that may be issued is as follows:
Share Units Weighted-Average
Grant
Date Fair Value
Non-vested at December 28, 2019 346,011  $ 127.27 
Granted 508,860  93.58 
Vested (62,613) 127.27 
Forfeited (199,223) 122.60 
Non-vested at January 2, 2021 593,035  $ 99.93 

Compensation cost for these performance awards is recognized ratably over the vesting term of 3 years. Total expense recognized in 2020 and 2019 related to these MICP-PSUs approximated $18.5 million and $9.5 million, respectively. The actual tax benefit received related to the shares that were delivered in 2020 was $1.9 million.
Long-Term Performance Awards:  
The Company has granted Long-Term Performance Awards (“LTIP”) under its 2018 Omnibus Award Plan and 2013 Long Term Incentive Plan to senior management employees for achieving Company performance measures. Awards are payable in shares of common stock, which may be restricted if the employee has not achieved certain stock ownership levels, and generally no award is made if the employee terminates employment prior to the settlement date. LTIP grants were made in
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2018, 2019 and 2020. Each grant has separate annual performance goals for each year within the respective three year performance period. Earnings per share and cash flow return on investment represent 75% of the grant value. There is a third market-based metric, representing 25% of the total grant, which measures the Company’s common stock return relative to peers over the performance period. The ultimate delivery of shares will occur in 2021, 2022 and 2023 for the 2018, 2019 and 2020 grants, respectively. Share settlements are based on actual performance in relation to these goals.
Expense recognized for these performance awards amounted to $17.1 million in 2020, $9.0 million in 2019, and $4.7 million in 2018. With the exception of the market-based metric comprising 25% of the award, in the event performance goals are not met, compensation cost is not recognized and any previously recognized compensation cost is reversed. The actual tax benefit received related to the shares that were delivered in 2020 was $3.9 million. The excess tax benefit recognized was $0.7 million and $1.5 million in 2020 and 2019, respectively. There was no excess tax benefit recognized in 2018.
A summary of the activity pertaining to the maximum number of shares that may be issued is as follows:
Share Units Weighted-Average
Grant
Date Fair Value
Non-vested at December 28, 2019 607,532  $ 131.46 
Granted 205,964  154.07 
Vested (97,560) 119.34 
Forfeited (107,198) 122.78 
Non-vested at January 2, 2021 608,738  $ 142.58 

OTHER EQUITY ARRANGEMENTS

2019 Equity Units and Capped Call Transactions

In November 2019, the Company issued 7,500,000 Equity Units with a total notional value of $750.0 million (“2019 Equity Units”). Each unit has a stated amount of $100 and initially consists of a three-year forward stock purchase contract (“2022 Purchase Contracts”) for the purchase of a variable number of shares of common stock, on November 15, 2022, for a price of $100, and a 10% beneficial ownership interest in one share of 0% Series D Cumulative Perpetual Convertible Preferred Stock, without par, with a liquidation preference of $1,000 per share (“Series D Preferred Stock”). The Company received approximately $735.0 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 $750.0 million in preferred stock. The proceeds were used for general corporate purposes, including repayment of short-term borrowings. The Company also used $19.2 million of the proceeds to enter into capped call transactions utilized to hedge potential economic dilution as described in more detail below.

Convertible Preferred Stock

In November 2019, the Company issued 750,000 shares of Series D Preferred Stock, without par, with a liquidation preference of $1,000 per share. The convertible preferred stock will initially not bear any dividends and the liquidation preference of the convertible preferred stock will not accrete. The convertible preferred stock has no maturity date and will remain outstanding unless converted by holders or redeemed by the Company. Holders of shares of the convertible preferred stock will generally have no voting rights.

The Series D Preferred Stock is pledged as collateral to support holders’ purchase obligations under the 2022 Purchase Contracts and can be remarketed. In connection with any successful remarketing, the Company may (but is not required to) modify certain terms of the convertible preferred stock, including the dividend rate, the conversion rate, and the earliest redemption date. After any successful remarketing in connection with which the dividend rate on the convertible preferred stock is increased, the Company will pay cumulative dividends on the convertible preferred stock, if declared by the Board of Directors, quarterly in arrears from the applicable remarketing settlement date.

On and after November 15, 2022, the Series D Preferred Stock may be converted into common stock at the option of the holder. The conversion rate was initially 5.2263 shares of common stock per one share of Series D Preferred Stock, which was equivalent to an initial conversion price of approximately $191.34 per share of common stock. As of January 2, 2021, due to customary anti-dilution provisions, the conversation rate was 5.2269, equivalent to a conversion price of approximately $191.32
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per share of common stock. At the election of the Company, upon conversion, the Company may deliver cash, common stock, or a combination thereof.

The Company may not redeem the Series D Preferred Stock prior to December 22, 2022. At the election of the Company, on or after December 22, 2022, the Company may 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.

2022 Purchase Contracts

The 2022 Purchase Contracts obligate the holders to purchase, on November 15, 2022, for a price of $100 in cash, a maximum number of 4.7 million shares of the Company’s common stock (subject to customary anti-dilution adjustments). The 2022 Purchase Contract holders may elect to settle their obligation early, in cash. The Series D Preferred Stock is pledged as collateral to guarantee the holders’ obligations to purchase common stock under the terms of the 2022 Purchase Contracts. The initial settlement rate determining the number of shares that each holder must purchase will not exceed the maximum settlement rate, and is determined over a market value averaging period immediately preceding November 15, 2022.

The initial maximum settlement rate of 0.6272 was calculated using an initial reference price of $159.45, equal to the last reported sale price of the Company's common stock on November 7, 2019. As of January 2, 2021, due to the customary anti-dilution provisions, the maximum settlement rate was 0.6272, equivalent to a reference price of $159.43. If the applicable market value of the Company's common stock is less than or equal to the reference price, the settlement rate will be the maximum settlement rate; and if the applicable market value of the Company's common stock is greater than the reference price, the settlement rate will be a number of shares of the Company's common stock equal to $100 divided by the applicable market value. 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 payments (“Contract Adjustment Payments”) at a rate of 5.25% per annum, payable quarterly in arrears on February 15, May 15, August 15 and November 15, which commenced on February 15, 2020. The $114.2 million present value of the Contract Adjustment Payments reduced Shareowners’ Equity at inception. As each quarterly Contract Adjustment Payment is made, the related liability is reduced and the difference between the cash payment and the present value will accrete to interest expense, approximately $1.3 million per year over the three-year term. As of January 2, 2021, the present value of the Contract Adjustment Payments was $76.3 million.

The holders can settle the purchase contracts early, for cash, subject to certain exceptions and conditions in the prospectus supplement. Upon early settlement of any purchase contracts, the Company will deliver the number of shares of its common stock equal to 85% of the number of shares of common stock that would have otherwise been deliverable.

Capped Call Transactions

In order to offset the potential economic dilution associated with the common shares issuable upon conversion of the Series D Preferred Stock, to the extent that the conversion value of the convertible preferred stock exceeds its liquidation preference, the Company entered into capped call transactions with three major financial institutions.

The capped call transactions have a term of approximately three years and are intended to cover the number of shares issuable upon conversion of the Series D Preferred Stock. Subject to customary anti-dilution adjustments, the capped call has an initial lower strike price of $191.34, which corresponds to the minimum 5.2263 settlement rate of the Series D Preferred Stock, and an upper strike price of $207.29, which is approximately 30% higher than the closing price of the Company's common stock on November 7, 2019. As of January 2, 2021, due to the customary anti-dilution provisions, the capped call transactions were at an adjusted lower strike price of $191.32 and an adjusted upper strike price of $207.26.

The capped call transactions may be settled by net share settlement (the default settlement method) or, at the Company’s option and subject to certain conditions, cash settlement, physical settlement or modified physical settlement. The number of shares the Company will receive will be determined by the terms of the contracts using a volume-weighted average price calculation for the market value of the Company's common stock, over an averaging period. The market value determined will then be measured against the applicable strike price of the capped call transactions. The Company expects the capped call transactions to offset the potential dilution upon conversion of the Series D Preferred Stock if the calculated market value is greater than the lower strike price but less than or equal to the upper strike price of the capped call transactions. Should the calculated market
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value exceed the upper strike price of the capped call transactions, the dilution mitigation will be limited based on such capped value as determined under the terms of the contracts.

With respect to the impact on the Company, the capped call transactions and 2019 Equity Units, when taken together, result in the economic equivalent of having the conversion price on the 2019 Equity Units at $207.26, the upper strike price of the capped call as of January 2, 2021.

The Company paid $19.2 million, or an average of $4.90 per option, to enter into capped call transactions on 3.9 million shares of common stock. The $19.2 million premium paid was recorded as a reduction of Shareowners’ Equity. The aggregate fair value of the options at January 2, 2021 was $22.3 million.

2017 Equity Units and Capped Call Transactions

In May 2017, the Company issued 7,500,000 Equity Units with a total notional value of $750.0 million (“2017 Equity Units”). Each unit has a stated amount of $100 and initially consists 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 $726.0 million in net 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 $750.0 million in preferred stock. The proceeds were used for general corporate purposes, including repayment of short-term borrowings. The Company also used $25.1 million of the proceeds to enter into capped call transactions utilized to hedge potential economic dilution as described in more detail below.

Convertible Preferred Stock

In May 2017, the Company issued 750,000 shares of Series C Preferred Stock, without par, with a liquidation preference of $1,000 per share. The convertible preferred stock initially did not bear any dividends and the liquidation preference of the convertible preferred stock did not accrete. The convertible preferred stock has no maturity date and remains outstanding unless converted by holders or redeemed by the Company. Holders of shares of the convertible preferred stock generally have no voting rights. The Series C Preferred Stock was pledged as collateral to support holders' purchase obligations under the 2020 Purchase Contracts.

In May 2020, the Company successfully remarketed the Series C Preferred Stock. In connection with the remarketing, the conversation rate was reset to 6.7352 shares of the Company's common stock, which is equivalent to a conversion price of approximately $148.47 per share. Beginning on May 15, 2020, the holders have the option to convert the Series C Preferred Stock into common stock. At the election of the Company, upon conversion, the Company may delivery cash, common stock, or a combination thereof. As of January 2, 2021 due to the customary anti-dilution provisions, the conversion rate was 6.7504, equivalent to a conversion price of approximately $148.14 per share of common stock.

Subsequent to the remarketing, holders of the convertible preferred stock will be entitled to receive, if declared by the Board of Directors, cumulative dividends (i) from, and including May 15, 2020 to, but excluding, May 15, 2023 (the "dividend step-up date") at a fixed rate equal to 5.0% per annum of the $1,000 per share liquidation preference (equivalent to $50.00 per annum per share) and (ii) from, and including, the dividend step-up date at a fixed rate equal to 10.0% per annum of the $1,000 per share liquidation preference (equivalent to $100.00 per annum per share). Dividends will be cumulative on the $1,000 liquidation preference per share and will be payable, if declared by the Board of Directors, quarterly in arrears on February 15, May 15, August 15 and November 15 of each year, beginning on August 15, 2020. Dividends accrued on the Series C Preferred Stock reduce net earnings for purposes of calculating earnings per share.

The Company does not have the right to redeem the Series C Preferred Stock prior to May 15, 2021. At the election of the Company, on or after May 15, 2021, the Company may redeem for cash, all or any portion of the outstanding shares of the Series C Preferred Stock at a redemption price equal to 100% of the liquidation preference, plus any accumulated and unpaid dividends. If the Company calls the Series C Preferred Stock for redemption, holders may convert their shares immediately preceding the redemption date.

2020 Purchase Contracts

The remarketing resulted in cash proceeds of $750.0 million, which were automatically applied to satisfy in full the related unit holders' obligations to purchase common shares under their 2020 Purchase Contracts. In May 2020, the Company issued
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5,463,750 common shares, settling all 2020 Purchase Contracts using the maximum settlement rate of 0.7285 (equivalent to a reference price of $137.26 per common share).

The Company paid the holders of the 2020 Purchase Contracts quarterly payments (“Contract Adjustment Payments”) at a rate of 5.375% per annum, payable quarterly in arrears on February 15, May 15, August 15 and November 15, which commenced August 15, 2017. The $117.1 million initial present value of these Contract Adjustment Payments reduced Shareowners’ Equity at inception. As each quarterly Contract Adjustment Payment was made, the related liability was reduced and the difference between the cash payment and the present value accreted to interest expense, approximately $1.3 million per year over the three-year term. On May 15, 2020, the Company paid the final contract adjustment payment related to the 2020 Purchase Contracts.

Capped Call Transactions

In May 2017, the Company entered into capped call transactions with three major financial institutions (the "counterparties") in order to offset the potential economic dilution associated with the common shares issuable upon conversion of the Series C preferred Stock, to the extent that the conversion value of the conversion preferred stock exceeds its liquidation preference. The Company paid $25.1 million, or an average of $5.43 per option, to enter into capped call transactions on 4.6 million shares of common stock. The $25.1 million paid was recorded as a reduction of Shareowners' Equity.

The capped call transactions had a term of approximately three years and were intended to cover the number of shares issuable upon conversion of the Series C preferred Stock. Subject to customary anti-dilution adjustments, the capped call had an initial lower strike price of $162.27, which corresponded to the minimum 6.1627 settlement rate of the Series C Preferred Stock at inception, and an upper strike price of $179.53, which was approximately 30% higher than the closing price of the Company's common stock on May 11, 2017. In June 2020, the capped call options expired out of the money.

2018 Capped Call Transactions

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 $57.3 million, or an average of $17.96 per share. The premium paid was recorded as reduction of Shareowners' Equity. The purpose of the capped call options was to hedge the risk of stock price appreciation between the lower and upper strike prices of the capped call options for a future share repurchase.

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 above. Subsequent to the amendment, the capped call options, subject to anti-dilution, had an initial lower strike price of $148.34 and an upper strike price of $165.00, which was approximately 30% higher than the closing price of the Company's common stock on June 9, 2020. As of January 2, 2021, due to the customary anti-dilution provisions, the capped call transactions had adjusted lower and upper strike prices of $148.14 and $164.77, respectively. The aggregate fair value of the options at January 2, 2021 was $53.4 million.

With the respect to the impact on the Company, the capped call transactions and Series C Preferred Stock, when taken together, result in the economic equivalent of having the conversion price on the Series C Preferred Stock at $164.77, the upper strike price of the capped call as of January 2, 2021.

The capped call transactions may be settled by net share settlement (the default settlement method) or, at the Company's option and subject to certain conditions, cash settlement, physical settlement or modified physical settlement. The number of shares the Company will receive will be determined by the terms of the contracts using a volume-weighted average price calculation for the market value of the Company's common stock, over an averaging period. The market value determined will then be measured against the applicable strike price of the capped call transactions.
K. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table summarizes the changes in the accumulated balances for each component of Accumulated other comprehensive loss:
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(Millions of Dollars) Currency translation adjustment and other (Losses) gains on cash flow hedges, net of tax Gains (losses) on net investment hedges, net of tax Pension (losses) gains, net of tax Total
Balance - December 29, 2018 $ (1,481.2) $ (26.8) $ 63.3  $ (369.6) $ (1,814.3)
Other comprehensive (loss) income before reclassifications (36.0) (40.5) 60.0  (53.3) (69.8)
Reclassification adjustments to earnings —  13.1  (26.0) 12.4  (0.5)
Net other comprehensive (loss) income (36.0) (27.4) 34.0  (40.9) (70.3)
Balance - December 28, 2019 $ (1,517.2) $ (54.2) $ 97.3  $ (410.5) $ (1,884.6)
Other comprehensive income (loss) before reclassifications 266.2  (64.2) (38.3) (53.4) 110.3 
Adjustments related to sales of businesses 15.7  —  —  0.6  16.3 
Reclassification adjustments to earnings —  15.4  13.8  15.1  44.3 
Net other comprehensive income (loss) 281.9  (48.8) (24.5) (37.7) 170.9 
Balance - January 2, 2021 $ (1,235.3) $ (103.0) $ 72.8  $ (448.2) $ (1,713.7)

The reclassifications out of Accumulated other comprehensive loss for the twelve months ended January 2, 2021 and December 28, 2019 were as follows:

(Millions of Dollars) 2020 2019
Components of accumulated other comprehensive loss Reclassification adjustments Reclassification adjustments Affected line item in Consolidated Statements of Operations
Realized gains (losses) on cash flow hedges $ 12.4  $ (6.5) Cost of sales
Realized losses on cash flow hedges (19.6) —  Other, net
Realized losses on cash flow hedges (16.3) (16.2) Interest expense
Total before taxes $ (23.5) $ (22.7)
Tax effect 8.1  9.6  Income taxes
Realized losses on cash flow hedges, net of tax $ (15.4) $ (13.1)
Realized (losses) gains on net investment hedges $ (18.2) $ 34.2  Other, net
Tax effect 4.4  (8.2) Income taxes
Realized (losses) gains on net investment hedges, net of tax $ (13.8) $ 26.0 
Actuarial losses and prior service costs / credits (19.5) (15.3) Other, net
Settlement losses
(0.6) (1.0) Other, net
Total before taxes (20.1) (16.3)
Tax effect 5.0  3.9  Income taxes
Amortization of defined benefit pension items, net of tax $ (15.1) $ (12.4)

L. EMPLOYEE BENEFIT PLANS

EMPLOYEE STOCK OWNERSHIP PLAN (“ESOP”) — Most U.S. employees may make contributions that do not exceed 25% of their eligible compensation to a tax-deferred 401(k) savings plan, subject to restrictions under tax laws. Employees generally direct the investment of their own contributions into various investment funds. An employer match benefit is provided under the plan equal to one-half of each employee’s tax-deferred contribution up to the first 7% of their compensation. Participants direct the entire employer match benefit such that no participant is required to hold the Company’s common stock in their 401(k) account. The employer match benefit, which was suspended in the second quarter of 2020, totaled $10.9 million, $28.8 million and $28.0 million in 2020, 2019 and 2018, respectively. In addition to the regular employer match, $0.7 million was allocated to the employee's accounts for forfeitures and a surplus resulting from appreciation of the Company's share value in 2018. There was no additional employer match allocated to employee's accounts in 2020 and 2019.
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In addition, approximately 9,300 U.S. salaried and non-union hourly employees are eligible to receive a non-contributory benefit under the Core benefit plan. Core benefit allocations range from 2% to 6% of eligible employee compensation based on age. Allocations for benefits earned under the Core plan, which were suspended in the second quarter of 2020, were $5.6 million, $28.8 million, and $29.0 million in 2020, 2019 and 2018, respectively. Assets held in participant Core accounts are invested in target date retirement funds which have an age-based allocation of investments.

Shares of the Company's common stock held by the ESOP were purchased with the proceeds of borrowings from the Company in 1991 ("1991 internal loan"). Shareowners' equity reflects a reduction equal to the cost basis of unearned (unallocated) shares purchased with the internal borrowings. In 2019 and 2018, the Company made additional contributions to the ESOP for $7.2 million, and $7.0 million, respectively, which were used by the ESOP to make additional payments on the 1991 internal loan. These payments triggered the release of 226,212 and 207,049 shares of unallocated stock in 2019 and 2018, respectively.

Net ESOP activity recognized is comprised of the cost basis of shares released, the cost of the aforementioned Core and 401(k) match defined contribution benefits, less the fair value of shares released and dividends on unallocated ESOP shares. The Company’s net ESOP activity resulted in expense of $6.3 million in 2020, income of $0.5 million in 2019 and expense of $0.4 million in 2018. ESOP expense is affected by the market value of the Company’s common stock on the monthly dates when shares are released. The weighted-average market value of shares released was $146.08 per share in 2020, $138.67 per share in 2019 and $139.45 per share in 2018.

Unallocated shares are released from the trust based on current period debt principal and interest payments as a percentage of total future debt principal and interest payments. Dividends on both allocated and unallocated shares may be used for debt service and to credit participant accounts for dividends earned on allocated shares. Dividends paid on the shares acquired with the 1991 internal loan were used solely to pay internal loan debt service in all periods. Dividends on ESOP shares, which are charged to shareowners’ equity as declared, were $1.3 million, $6.3 million and $7.7 million in 2020, 2019, and 2018, respectively, net of the tax benefit which is recorded in earnings. Dividends on ESOP shares were utilized entirely for debt service in all years. Interest costs incurred by the ESOP on the 1991 internal loan, which have no earnings impact, were $0.1 million, $0.5 million and $1.6 million for 2020, 2019 and 2018, respectively. Both allocated and unallocated ESOP shares are treated as outstanding for purposes of computing earnings per share. As of January 2, 2021, the cumulative number of ESOP shares allocated was 15,541,357, of which participants held 1,638,044 shares. There are no unallocated shares remaining as of January 2, 2021, as all shares in the ESOP trust holding account have been released. The Company made cash contributions totaling $9.2 million in 2020, $2.2 million in 2019 and $2.3 million in 2018, excluding additional contributions of $7.2 million and $7.0 million in 2019 and 2018, respectively, as discussed previously.

PENSION AND OTHER BENEFIT PLANS — The Company sponsors pension plans covering most domestic hourly and certain executive employees, and approximately 12,500 foreign employees. Benefits are generally based on salary and years of service, except for U.S. collective bargaining employees whose benefits are based on a stated amount for each year of service.

The Company contributes to a number of multi-employer plans for certain collective bargaining U.S. employees. The risks of participating in these multi-employer plans are different from single-employer plans in the following aspects:
a.    Assets contributed to the multi-employer plan by one employer may be used to provide benefit to employees of other participating employers.
b.    If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be inherited by the remaining participating employers.
c.    If the Company chooses to stop participating in some of its multi-employer plans, the Company may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

In addition, the Company also contributes to a number of multi-employer plans outside of the U.S. The foreign plans are insured, therefore, the Company’s obligation is limited to the payment of insurance premiums.

The Company has assessed and determined that none of the multi-employer plans to which it contributes are individually significant to the Company’s Consolidated Financial Statements. The Company does not expect to incur a withdrawal liability or expect to significantly increase its contributions over the remainder of the contract period.

In addition to the multi-employer plans, various other defined contribution plans are sponsored worldwide.
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The expense for defined contribution plans, aside from the earlier discussed ESOP plans, is as follows: 
(Millions of Dollars) 2020 2019 2018
Multi-employer plan expense $ 7.8  $ 7.2  $ 7.3 
Other defined contribution plan expense $ 29.7  $ 36.2  $ 12.9 

The components of net periodic pension expense (benefit) are as follows:
  U.S. Plans Non-U.S. Plans
(Millions of Dollars) 2020 2019 2018 2020 2019 2018
Service cost $ 6.8  $ 12.3  $ 7.5  $ 16.1  $ 14.6  $ 15.2 
Interest cost 35.3  47.1  42.8  22.5  30.3  28.6 
Expected return on plan assets (58.7) (61.7) (68.7) (41.2) (45.6) (46.5)
Amortization of prior service cost (credit) 1.0  1.0  1.1  (0.7) (0.6) (1.3)
Actuarial loss amortization 8.5  8.0  7.8  11.7  8.6  8.5 
Special termination benefit —  —  —  0.2  —  — 
Settlement / curtailment loss —  —  —  0.6  1.0  0.7 
Net periodic pension (benefit) expense $ (7.1) $ 6.7  $ (9.5) $ 9.2  $ 8.3  $ 5.2 

The Company provides medical and dental benefits for certain retired employees in the United States, Brazil, and Canada. Approximately 16,100 participants are covered under these plans. Net periodic post-retirement benefit expense was comprised of the following elements:
  Other Benefit Plans
(Millions of Dollars) 2020 2019 2018
Service cost $ 0.6  $ 0.3  $ 0.5 
Interest cost 1.5  1.6  1.6 
Amortization of prior service credit (1.3) (1.4) (1.3)
Actuarial loss amortization 0.3  (0.3) — 
Special termination benefit 16.1  —  — 
Net periodic post-retirement expense $ 17.2  $ 0.2  $ 0.8 

The components of net periodic benefit cost other than the service cost component are included in Other, net in the Consolidated Statements of Operations.

Changes in plan assets and benefit obligations recognized in Accumulated other comprehensive loss in 2020 are as follows:
(Millions of Dollars) 2020
Current year actuarial loss $ 51.9 
Amortization of actuarial loss (19.5)
Prior service cost from plan amendments 0.2 
Settlement / curtailment loss (0.6)
Currency / other 18.4 
Total loss recognized in Accumulated other comprehensive loss (pre-tax) $ 50.4 

The amounts in Accumulated other comprehensive loss expected to be recognized as components of net periodic benefit costs during 2021 total $22.3 million, representing amortization of actuarial losses.

The changes in the pension and other post-retirement benefit obligations, fair value of plan assets, as well as amounts recognized in the Consolidated Balance Sheets, are shown below.
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  U.S. Plans Non-U.S. Plans Other Benefits
(Millions of Dollars) 2020 2019 2020 2019 2020 2019
Change in benefit obligation
Benefit obligation at end of prior year $ 1,325.4  $ 1,260.9  $ 1,449.9  $ 1,305.3  $ 52.2  $ 44.8 
Service cost 6.8  12.3  16.1  14.6  0.6  0.3 
Interest cost 35.3  47.1  22.5  30.3  1.5  1.6 
Special termination benefit —  —  0.2  —  16.1  — 
Settlements/curtailments —  —  (5.5) (6.0) —  — 
Actuarial loss (gain) 123.3  130.4  112.0  140.6  (2.9) 8.6 
Plan amendments 0.1  1.4  0.1  0.7  —  — 
Foreign currency exchange rate changes —  —  84.9  25.8  (1.8) — 
Participant contributions —  —  0.3  0.3  —  — 
Acquisitions, divestitures, and other (4.0) (10.0) (6.5) (2.2) —  2.4 
Benefits paid (82.6) (116.7) (51.7) (59.5) (4.5) (5.5)
Benefit obligation at end of year $ 1,404.3  $ 1,325.4  $ 1,622.3  $ 1,449.9  $ 61.2  $ 52.2 
Change in plan assets
Fair value of plan assets at end of prior year $ 1,103.5  $ 1,020.7  $ 1,093.5  $ 974.3  $ —  $ — 
Actual return on plan assets 160.9  190.0  119.3  133.2  —  — 
Participant contributions —  —  0.3  0.3  —  — 
Employer contributions 13.7  19.5  22.0  22.6  4.5  5.5 
Settlements —  —  (5.2) (5.6) —  — 
Foreign currency exchange rate changes —  —  55.6  30.4  —  — 
Acquisitions, divestitures, and other (4.0) (10.0) (4.2) (2.2) —  — 
Benefits paid (82.6) (116.7) (51.7) (59.5) (4.5) (5.5)
Fair value of plan assets at end of plan year $ 1,191.5  $ 1,103.5  $ 1,229.6  $ 1,093.5  $ —  $ — 
Funded status — assets less than benefit obligation $ (212.8) $ (221.9) $ (392.7) $ (356.4) $ (61.2) $ (52.2)
Unrecognized prior service cost (credit) 3.8  4.7  (17.4) (17.5) (0.6) (2.0)
Unrecognized net actuarial loss (gain) 278.7  266.2  360.3  318.7  (3.2) 1.1 
Net amount recognized $ 69.7  $ 49.0  $ (49.8) $ (55.2) $ (65.0) $ (53.1)

  U.S. Plans Non-U.S. Plans Other Benefits
(Millions of Dollars) 2020 2019 2020 2019 2020 2019
Amounts recognized in the Consolidated Balance Sheets
Prepaid benefit cost (non-current) $ —  $ —  $ 0.2  $ 0.1  $ —  $ — 
Current benefit liability (7.3) (7.6) (10.2) (9.1) (6.8) (4.5)
Non-current benefit liability (205.5) (214.3) (382.7) (347.4) (54.4) (47.7)
Net liability recognized $ (212.8) $ (221.9) $ (392.7) $ (356.4) $ (61.2) $ (52.2)

Accumulated other comprehensive loss (pre-tax):
Prior service cost (credit) $ 3.8  $ 4.7  $ (17.4) $ (17.5) $ (0.6) $ (2.0)
Actuarial loss (gain) 278.7  266.2  360.3  318.7  (3.2) 1.1 
282.5  270.9  342.9  301.2  (3.8) (0.9)
Net amount recognized $ 69.7  $ 49.0  $ (49.8) $ (55.2) $ (65.0) $ (53.1)


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Actuarial losses and gains reflected in the table above are driven by changes in demographic experience, changes in assumptions, and differences in actual returns on investments compared to estimated returns. For the year ended January 2, 2021, the increase in the benefit obligation as a result of actuarial losses was primarily driven by the decline in the single equivalent discount rate used to measure these obligations. These actuarial losses were partially offset by an improved funded position, as the actual return on plan assets during the year exceeded the estimated return, and an updated mortality improvement scale which slightly reduced the projected obligation.
The accumulated benefit obligation for all defined benefit pension plans was $3.022 billion at January 2, 2021 and $2.768 billion at December 28, 2019. Information regarding pension plans in which accumulated benefit obligations exceed plan assets follows: 
  U.S. Plans Non-U.S. Plans
(Millions of Dollars) 2020 2019 2020 2019
Accumulated benefit obligation $ 1,401.5  $ 1,323.7  $ 1,531.8  $ 1,390.1 
Fair value of plan assets $ 1,191.5  $ 1,103.5  $ 1,201.3  $ 1,090.8 
Information regarding pension plans in which projected benefit obligations (inclusive of anticipated future compensation increases) exceed plan assets follows: 
  U.S. Plans Non-U.S. Plans
(Millions of Dollars) 2020 2019 2020 2019
Projected benefit obligation $ 1,404.3  $ 1,325.4  $ 1,619.9  $ 1,448.6 
Fair value of plan assets $ 1,191.5  $ 1,103.5  $ 1,227.0  $ 1,092.0 
The major assumptions used in valuing pension and post-retirement plan obligations and net costs were as follows:
  Pension Benefits
  U.S. Plans Non-U.S. Plans Other Benefits
  2020 2019 2018 2020 2019 2018 2020 2019 2018
Weighted-average assumptions used to determine benefit obligations at year end:
Discount rate 2.39  % 3.20  % 4.20  % 1.31  % 1.80  % 2.62  % 2.19  % 3.64  % 4.03  %
Rate of compensation increase 3.00  % 3.50  % 3.00  % 3.29  % 3.30  % 3.44  % 3.50  % 3.50  % 3.50  %
Weighted-average assumptions used to determine net periodic benefit cost:
Discount rate - service cost 3.58  % 4.43  % 3.72  % 1.57  % 2.37  % 2.15  % 5.62  % 5.22  % 5.11  %
Discount rate - interest cost 2.75  % 3.86  % 3.16  % 1.61  % 2.37  % 2.20  % 3.36  % 4.04  % 3.77  %
Rate of compensation increase 3.00  % 3.00  % 3.00  % 3.30  % 3.44  % 3.45  % 3.50  % 3.50  % 3.50  %
Expected return on plan assets 5.25  % 6.25  % 6.25  % 3.90  % 4.73  % 4.37  % —  —  — 
The expected rate of return on plan assets is determined considering the returns projected for the various asset classes and the relative weighting for each asset class. The Company will use a 3.16% weighted-average expected rate of return assumption to determine the 2021 net periodic benefit cost.
PENSION PLAN ASSETS — Plan assets are invested in equity securities, government and corporate bonds and other fixed income securities, money market instruments and insurance contracts. The Company’s worldwide asset allocations at January 2, 2021 and December 28, 2019 by asset category and the level of the valuation inputs within the fair value hierarchy established by ASC 820, Fair Value Measurement, are as follows:

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Asset Category (Millions of Dollars)
2020 Level 1 Level 2
Cash and cash equivalents $ 83.2  $ 69.0  $ 14.2 
Equity securities
U.S. equity securities 329.4  91.2  238.2 
Foreign equity securities 234.1  65.7  168.4 
Fixed income securities
Government securities 821.6  285.8  535.8 
Corporate securities 867.6  —  867.6 
Insurance contracts 41.7  —  41.7 
Other 43.5  —  43.5 
Total $ 2,421.1  $ 511.7  $ 1,909.4 
 
Asset Category (Millions of Dollars)
2019 Level 1 Level 2
Cash and cash equivalents $ 35.8  $ 16.1  $ 19.7 
Equity securities
U.S. equity securities 321.4  111.1  210.3 
Foreign equity securities 259.4  95.8  163.6 
Fixed income securities
Government securities 741.6  271.5  470.1 
Corporate securities 751.5  —  751.5 
Insurance contracts 39.0  —  39.0 
Other 48.3  —  48.3 
Total $ 2,197.0  $ 494.5  $ 1,702.5 
U.S. and foreign equity securities primarily consist of companies with large market capitalizations and to a lesser extent mid and small capitalization securities. Government securities primarily consist of U.S. Treasury securities and foreign government securities with de minimus default risk. Corporate fixed income securities include publicly traded U.S. and foreign investment grade and to a small extent high yield securities. Assets held in insurance contracts are invested in the general asset pools of the various insurers, mainly debt and equity securities with guaranteed returns. Other investments include diversified private equity holdings. The level 2 investments are primarily comprised of institutional mutual funds that are not publicly traded; the investments held in these mutual funds are generally level 1 publicly traded securities.

The Company's investment strategy for pension assets focuses on a liability-matching approach with gradual de-risking taking place over a period of many years.  The Company utilizes the current funded status to transition the portfolio toward investments that better match the duration and cash flow attributes of the underlying liabilities. Assets approximating 50% of the Company's current pension liabilities have been invested in fixed income securities, using a liability / asset matching duration strategy, with the primary goal of mitigating exposure to interest rate movements and preserving the overall funded status of the underlying plans. Plan assets are broadly diversified and are invested to ensure adequate liquidity for immediate and medium term benefit payments. The Company’s target asset allocations include approximately 20%-40% in equity securities, approximately 50%-70% in fixed income securities and approximately 10% in other securities. In 2020, the funded status percentage (total plan assets divided by total projected benefit obligation) of all global pension plans was 80%, which is consistent with 79% in 2019 and 78% in 2018.

CONTRIBUTIONS —  The Company’s funding policy for its defined benefit plans is to contribute amounts determined annually on an actuarial basis to provide for current and future benefits in accordance with federal law and other regulations. The Company expects to contribute approximately $41 million to its pension and other post-retirement benefit plans in 2021.

EXPECTED FUTURE BENEFIT PAYMENTS —  Benefit payments, inclusive of amounts attributable to estimated future employee service, are expected to be paid as follows over the next 10 years:
(Millions of Dollars) Total Year 1 Year 2 Year 3 Year 4 Year 5 Years 6-10
Future payments $ 1,440.2  $ 146.5  $ 146.4  $ 148.6  $ 146.4  $ 144.6  $ 707.7 
These benefit payments will be funded through a combination of existing plan assets, the returns on those assets, and amounts to be contributed in the future by the Company.

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HEALTH CARE COST TRENDS — The weighted-average annual assumed rate of increase in the per-capita cost of covered benefits (i.e., health care cost trend rate) is assumed to be 6.0% for 2021, reducing gradually to 4.6% by 2028 and remaining at that level thereafter.

M. FAIR VALUE MEASUREMENTS
ASC 820, Fair Value Measurement, defines, establishes a consistent framework for measuring, and expands disclosure requirements about fair value. ASC 820 requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs create the following fair value hierarchy:
Level 1 — Quoted prices for identical instruments in active markets.
Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs and significant value drivers are observable.
Level 3 — Instruments that are valued using unobservable inputs.
The Company is exposed to market risk from changes in foreign currency exchange rates, interest rates, stock prices and commodity prices. The Company holds various financial instruments to manage these risks. These financial instruments are carried at fair value and are included within the scope of ASC 820. The Company determines the fair value of these financial instruments through the use of matrix or model pricing, which utilizes observable inputs such as market interest and currency rates. When determining fair value for which Level 1 evidence does not exist, the Company considers various factors including the following: exchange or market price quotations of similar instruments, time value and volatility factors, the Company’s own credit rating and the credit rating of the counterparty.
The following table presents the Company’s financial assets and liabilities that are measured at fair value on a recurring basis for each of the hierarchy levels:
(Millions of Dollars) Total
Carrying
Value 		Level 1 Level 2 Level 3
January 2, 2021
Money market fund $ 10.3  $ 10.3  $ —  $ — 
Derivative assets $ 14.0  $ —  $ 14.0  $ — 
Derivative liabilities $ 191.0  $ —  $ 191.0  $ — 
Contingent consideration liability $ 187.0  $ —  $ —  $ 187.0 
December 28, 2019
Money market fund $ 1.2  $ 1.2  $ —  $ — 
Derivative assets $ 29.3  $ —  $ 29.3  $ — 
Derivative liabilities $ 65.5  $ —  $ 65.5  $ — 
Non-derivative hedging instrument $ 335.5  $ —  $ 335.5  $ — 
Contingent consideration liability $ 196.1  $ —  $ —  $ 196.1 
The following table provides information about the Company's financial assets and liabilities not carried at fair value:
 
  January 2, 2021 December 28, 2019
(Millions of Dollars) Carrying
Value 		Fair
Value 		Carrying
Value 		Fair
Value
Other investments $ 13.3  $ 13.9  $ 14.4  $ 14.8 
Long-term debt, including current portion $ 4,245.4  $ 4,934.5  $ 3,179.5  $ 3,601.0 
The money market fund and other investments related to the West Coast Loading Corporation ("WCLC") trust are considered Level 1 instruments within the fair value hierarchy. The long-term debt instruments are considered Level 2 instruments and are measured using a discounted cash flow analysis based on the Company’s marginal borrowing rates. The differences between the carrying values and fair values of long-term debt are attributable to the stated interest rates differing from the Company's marginal borrowing rates. The fair values of the Company's variable rate short-term borrowings approximate their carrying values at January 2, 2021 and December 28, 2019. The fair values of derivative financial instruments in the table above are based on current settlement values.
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As part of the Craftsman® brand acquisition in March 2017, the Company recorded a contingent consideration liability representing the Company's obligation to make future payments to Transform Holdco, LLC, which operates Sears and Kmart retail locations, of between 2.5% and 3.5% on sales of Craftsman products in new Stanley Black & Decker channels through March 2032. During the year ended January 2, 2021, the Company paid $45.9 million, which included a $33.0 million payment in the second quarter of 2020 relating to royalties owed for the first twelve quarters. The Company will continue making future payments quarterly through the second quarter of 2032. The estimated fair value of the contingent consideration liability is determined using a discounted cash flow analysis taking into consideration future sales projections, forecasted payments to Transform Holdco, LLC, based on contractual royalty rates, and the related tax impacts. The estimated fair value of the contingent consideration liability was $187.0 million and $196.1 million as of January 2, 2021 and December 28, 2019, respectively. Adjustments to the contingent consideration liability, with the exception of cash payments, are recorded in SG&A in the Consolidated Statements of Operations. A 100 basis point reduction in the discount rate would result in an increase to the liability of approximately $7.4 million as of January 2, 2021.
A single estimate of fair value results from a complex series of judgments about future events and uncertainties and relies heavily on estimates and assumptions. The Company's judgments used to determine the estimated contingent consideration liability discussed above, including estimated future sales projections, can materially impact the Company's results of operations.
The Company had no significant non-recurring fair value measurements, nor any other financial assets or liabilities measured using Level 3 inputs, during 2020 or 2019.
Refer to Note I, Financial Instruments, for more details regarding derivative financial instruments, Note S, Contingencies, for more details regarding the other investments related to the WCLC trust, and Note H, Long-Term Debt and Financing Arrangements, for more information regarding the carrying values of the Company's long-term debt.

N. OTHER COSTS AND EXPENSES
During 2020, the Company recognized pre-tax charges of approximately $185.0 million related to the comprehensive cost reduction and efficiency program in response to the impact of the COVID-19 pandemic. The charges were primarily related to costs associated with a voluntary retirement program as well as restructuring costs related to headcount actions, as further discussed in Note O, Restructuring Charges.

Other, net is primarily comprised of intangible asset amortization expense (see Note F, Goodwill and Intangible Assets), currency-related gains or losses, environmental remediation expense, acquisition-related transaction and consulting costs, and certain pension gains or losses. Acquisition-related transaction and consulting costs of $28.6 million, $30.2 million, and $30.4 million were included in Other, net for the years ended January 2, 2021, December 28, 2019, and December 29, 2018, respectively. In 2020, Other, net also included a $16.1 million special termination benefit charge associated with the voluntary retirement program, a $19.6 million loss relating to the unamortized loss on cash flow swap terminations, and a $55.3 million release of a contingent consideration liability relating to the CAM acquisition. Refer to Note E, Acquisitions and Investments, for further discussion of the CAM contingent consideration. In addition, Other, net included a $77.7 million environmental remediation charge recorded in 2018 related to a settlement with the Environmental Protection Agency ("EPA"). Refer to Note S, Contingencies, for further discussion of the EPA settlement.
Research and development costs, which are classified in SG&A, were $211.0 million, $255.2 million and $275.8 million for fiscal years 2020, 2019 and 2018, respectively.

O. RESTRUCTURING CHARGES
A summary of the restructuring reserve activity from December 28, 2019 to January 2, 2021 is as follows:
(Millions of Dollars) December 28, 2019 Net
Additions 		Usage Currency January 2, 2021
Severance and related costs $ 140.3  $ 63.9  $ (111.0) $ (5.7) $ 87.5 
Facility closures and asset impairments 7.5  19.1  (23.9) —  2.7 
Total $ 147.8  $ 83.0  $ (134.9) $ (5.7) $ 90.2 
During 2020, the Company recognized net restructuring charges of $83.0 million, primarily related to severance costs associated with a cost reduction program announced in the second quarter of 2020.
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The majority of the $90.2 million of reserves remaining as of January 2, 2021 is expected to be utilized within the next 12 months.

Segments: The $83 million of net restructuring charges for the year ended January 2, 2021 includes: $40 million pertaining to the Tools & Storage segment; $29 million pertaining to the Industrial segment; $9 million pertaining to the Security segment; and $5 million pertaining to Corporate.

P. BUSINESS SEGMENTS AND GEOGRAPHIC AREAS
The Company's operations are classified into three reportable segments, which also represent its operating segments: Tools & Storage, Industrial and Security.
The Tools & Storage segment is comprised of the Power Tools & Equipment ("PTE") and Hand Tools, Accessories & Storage ("HTAS") businesses. The PTE business includes both professional and consumer products. Professional products include professional grade corded and cordless electric power tools and equipment including drills, impact wrenches and drivers, grinders, saws, routers and sanders, as well as pneumatic tools and fasteners including nail guns, nails, staplers and staples, concrete and masonry anchors. Consumer products include corded and cordless electric power tools sold primarily under the BLACK+DECKER® brand, lawn and garden products, including hedge trimmers, string trimmers, lawn mowers, edgers and related accessories, and home products such as hand-held vacuums, paint tools and cleaning appliances. The HTAS business sells hand tools, power tool accessories and storage products. Hand tools include measuring, leveling and layout tools, planes, hammers, demolition tools, clamps, vises, knives, saws, chisels and industrial and automotive tools. Power tool accessories include drill bits, screwdriver bits, router bits, abrasives, saw blades and threading products. Storage products include tool boxes, sawhorses, medical cabinets and engineered storage solution products.
The Industrial segment is comprised of the Engineered Fastening and Infrastructure businesses. The Engineered Fastening business primarily sells highly engineered components such as fasteners, fittings and various engineered products, which are designed for specific application across multiple verticals. The product lines include externally threaded fasteners, blind rivets and tools, blind inserts and tools, drawn arc weld studs and systems, engineered plastic and mechanical fasteners, self-piercing riveting systems, precision nut running systems, micro fasteners, high-strength structural fasteners, axel swage, latches, heat shields, pins, and couplings. The Infrastructure business consists of the Attachment Tools and Oil & Gas product lines. Attachment Tools sells hydraulic tools and high quality, performance-driven heavy equipment attachment tools for off-highway applications. Oil & Gas sells and rents custom pipe handling, joint welding and coating equipment used in the construction of large and small diameter pipelines and provides pipeline inspection services.
The Security segment is comprised of the Convergent Security Solutions ("CSS") and Mechanical Access Solutions ("MAS") businesses. The CSS business designs, supplies and installs commercial electronic security systems and provides electronic security services, including alarm monitoring, video surveillance, fire alarm monitoring, systems integration and system maintenance. Purchasers of these systems typically contract for ongoing security systems monitoring and maintenance at the time of initial equipment installation. The business also sells healthcare solutions, which include asset tracking, infant protection, pediatric protection, patient protection, wander management, fall management, and emergency call products. The MAS business primarily sells automatic doors.
The Company utilizes segment profit, which is defined as net sales minus cost of sales and SG&A inclusive of the provision for credit losses (aside from corporate overhead expense), and segment profit as a percentage of net sales to assess the profitability of each segment. Segment profit excludes the corporate overhead expense element of SG&A, other, net (inclusive of intangible asset amortization expense), gain or loss on sales of businesses, restructuring charges, loss on debt extinguishments, interest income, interest expense, income taxes and share of net earnings or losses of equity method investment. Corporate overhead is comprised of world headquarters facility expense, cost for the executive management team and expenses pertaining to certain centralized functions that benefit the entire Company but are not directly attributable to the businesses, such as legal and corporate finance functions. Refer to Note F, Goodwill and Intangible Assets, and Note O, Restructuring Charges, for the amount of intangible asset amortization expense and net restructuring charges, respectively, attributable to each segment. Transactions between segments are not material. Segment assets primarily include cash, accounts receivable, inventory, other current assets, property, plant and equipment, right-of-use lease assets and intangible assets. Net sales and long-lived assets are attributed to the geographic regions based on the geographic locations of the end customer and the Company subsidiary, respectively.
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BUSINESS SEGMENTS
(Millions of Dollars) 2020 2019 2018
Net Sales
Tools & Storage $ 10,329.7  $ 10,062.1  $ 9,814.0 
Industrial 2,352.7  2,434.7  2,187.8 
Security 1,852.2  1,945.4  1,980.6 
Consolidated $ 14,534.6  $ 14,442.2  $ 13,982.4 
Segment Profit
Tools & Storage $ 1,841.7  $ 1,533.3  $ 1,393.1 
Industrial 225.6  334.1  319.8 
Security 108.7  126.6  169.3 
Segment Profit 2,176.0  1,994.0  1,882.2 
Corporate overhead (297.7) (229.5) (202.8)
Other, net (262.8) (249.1) (287.0)
(Loss) gain on sales of businesses (13.5) 17.0  (0.8)
Restructuring charges (83.0) (154.1) (160.3)
Loss on debt extinguishments (46.9) (17.9) — 
Interest income 18.0  53.9  68.7 
Interest expense (223.1) (284.3) (277.9)
Earnings before income taxes and equity interest $ 1,267.0  $ 1,130.0  $ 1,022.1 
Capital and Software Expenditures
Tools & Storage $ 225.6  $ 297.2  $ 353.7 
Industrial 101.6  89.6  95.8 
Security 20.9  37.9  42.6 
Consolidated $ 348.1  $ 424.7  $ 492.1 
Depreciation and Amortization
Tools & Storage $ 308.5  $ 327.8  $ 300.1 
Industrial 199.4  159.3  125.9 
Security 70.2  73.1  80.5 
Consolidated $ 578.1  $ 560.2  $ 506.5 
Segment Assets
Tools & Storage $ 14,294.9  $ 13,642.4  $ 13,122.6 
Industrial 5,621.4  4,207.0  3,620.5 
Security 3,493.5  3,448.6  3,413.6 
23,409.8  21,298.0  20,156.7 
Corporate assets 156.5  (701.4) (748.7)
Consolidated $ 23,566.3  $ 20,596.6  $ 19,408.0 

Corporate assets primarily consist of cash, equity method investment, deferred taxes, property, plant and equipment and right-of-use lease assets. The increase in Corporate assets at January 2, 2021 compared to December 28, 2019 and December 29, 2018 is due to the increase in the Company's cash position. Based on the nature of the Company's cash pooling arrangements, at times corporate-related cash accounts will be in a net liability position.

Sales to Lowe's were approximately 21% of the Tools & Storage segment net sales in 2020 and 2019, and 17% in 2018. Sales to The Home Depot were approximately 17%, 15%, and 14% of the Tools & Storage segment net sales in 2020, 2019 and 2018, respectively.

As described in Note A, Significant Accounting Policies, the Company recognizes revenue at a point in time from the sale of tangible products or over time depending on when the performance obligation is satisfied. For the years ended January 2, 2021, December 28, 2019, and December 29, 2018, the majority of the Company’s revenue was recognized at the time of sale. The
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following table provides the percent of total segment revenue recognized over time for the Industrial and Security segments for the years ended January 2, 2021, December 28, 2019 and December 29, 2018:
2020 2019 2018
Industrial 9.2  % 10.9  % 11.9  %
Security 44.4  % 45.8  % 44.9  %

The following table is a further disaggregation of the Industrial segment revenue for the years ended January 2, 2021, December 28, 2019 and December 29, 2018:
(Millions of Dollars) 2020 2019 2018
Engineered Fastening $ 1,717.8  $ 1,738.5  $ 1,766.6 
Infrastructure 634.9  696.2  421.2 
Industrial $ 2,352.7  $ 2,434.7  $ 2,187.8 

GEOGRAPHIC AREAS
 
(Millions of Dollars) 2020 2019 2018
Net Sales
United States $ 8,800.5  $ 8,472.1  $ 7,700.3 
Canada 687.0  609.9  628.3 
Other Americas 595.5  717.9  801.5 
France 581.3  610.2  627.8 
Other Europe 2,791.0  2,870.8  2,989.9 
Asia 1,079.3  1,161.3  1,234.6 
Consolidated $ 14,534.6  $ 14,442.2  $ 13,982.4 
Property, Plant & Equipment, net
United States $ 1,156.7  $ 1,046.8  $ 1,018.3 
Canada 25.5  27.4  25.5 
Other Americas 121.0  117.9  112.7 
France 54.9  57.3  63.9 
Other Europe 349.2  352.3  356.9 
Asia 346.5  357.8  337.9 
Consolidated $ 2,053.8  $ 1,959.5  $ 1,915.2 

Q. INCOME TAXES
Significant components of the Company’s deferred tax assets and liabilities at the end of each fiscal year were as follows:
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(Millions of Dollars) 2020 2019
Deferred tax liabilities:
Depreciation $ 148.9  $ 144.9 
Intangible assets 741.4  737.1 
Liability on undistributed foreign earnings 29.7  159.3 
Lease right-of-use asset 126.5  129.7 
Other 128.3  89.5 
Total deferred tax liabilities $ 1,174.8  $ 1,260.5 
Deferred tax assets:
Employee benefit plans $ 244.2  $ 235.4 
Basis differences in liabilities 89.7  82.0 
Operating loss, capital loss and tax credit carryforwards 808.7  1,100.3 
Lease liability 129.6  129.6 
Intangible assets 301.3  5.3 
Capitalized research and development costs 52.6  — 
Other 217.4  149.2 
Total deferred tax assets $ 1,843.5  $ 1,701.8 
Net Deferred Tax Asset before Valuation Allowance $ 668.7  $ 441.3 
Valuation Allowance $ (1,058.9) $ (1,065.0)
Net Deferred Tax Liability after Valuation Allowance $ (390.2) $ (623.7)
The increase in intangible deferred tax assets relates to the intra-entity asset transfer of certain intangible assets between two of the Company's foreign subsidiaries. The recognized deferred tax benefit represents the difference between the basis of the intellectual property for financial statement purposes and the basis of the intellectual property for tax purposes.
A valuation allowance is recorded on certain deferred tax assets if it has been determined it is more likely than not that all or a portion of these assets will not be realized. The Company recorded a valuation allowance of $1,058.9 million and $1,065.0 million on deferred tax assets existing as of January 2, 2021 and December 28, 2019, respectively. The valuation allowance in 2020 is primarily attributable to foreign and state net operating loss carryforwards, intangible assets, and foreign capital loss carryforwards. The valuation allowance in 2019 was primarily attributable to foreign and state net operating loss carryforwards and foreign capital loss carryforwards.
Beginning in 2022, the Tax Cuts and Jobs Act ("Act") eliminates the option to deduct research and development expenditures and requires taxpayers to amortize domestic expenditures over five years and foreign expenditures over fifteen years. While it is possible that Congress may modify or repeal this provision before it becomes effective, the Company has no assurance that these provisions will be modified or repealed. Therefore, based on current assumptions, this would decrease the Company's cash from operations beginning in 2022 and continue over the five year amortization period.
As of January 2, 2021, the Company has approximately $5.3 billion of unremitted foreign earnings and profits. Of the total amount, the Company has provided for deferred taxes of $29.7 million on approximately $2.2 billion, which is not indefinitely reinvested primarily due to the changes brought about by the Act. The Company otherwise continues to consider the remaining undistributed earnings of its foreign subsidiaries to be permanently reinvested based on its current plans for use outside of the U.S. and accordingly no taxes have been provided on such earnings. The cash that the Company’s non-U.S. subsidiaries hold for indefinite reinvestment is generally used to finance foreign operations and investments, including acquisitions. The income taxes applicable to such earnings are not readily determinable or practicable to calculate.
Net operating loss carryforwards of $3.2 billion as of January 2, 2021 are available to reduce future tax obligations of certain U.S. and foreign companies. The net operating loss carryforwards have various expiration dates beginning in 2021 with certain jurisdictions having indefinite carryforward periods. The foreign capital loss carryforwards of $38.8 million as of January 2, 2021 have indefinite carryforward periods.
The components of earnings before income taxes and equity interest consisted of the following: 
(Millions of Dollars) 2020 2019 2018
United States $ 181.2  $ 214.5  $ 444.1 
Foreign 1,085.8  915.5  578.0 
Earnings before income taxes and equity interest $ 1,267.0  $ 1,130.0  $ 1,022.1 
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Income tax expense (benefit) consisted of the following:
(Millions of Dollars) 2020 2019 2018
Current:
Federal $ 62.7  $ (23.7) $ 25.4 
Foreign 199.8  195.9  175.0 
State 20.6  6.5  24.8 
Total current $ 283.1  $ 178.7  $ 225.2 
Deferred:
Federal $ (29.4) $ 5.7  $ 29.7 
Foreign (208.8) (32.9) 132.7 
State (3.5) 9.3  28.7 
Total deferred (241.7) (17.9) 191.1 
Income taxes $ 41.4  $ 160.8  $ 416.3 
Net income taxes paid during 2020, 2019 and 2018 were $206.9 million, $250.1 million and $339.4 million, respectively. The 2020, 2019 and 2018 amounts include refunds of $90.2 million, $72.5 million and $43.7 million, respectively, primarily related to prior year overpayments and settlement of tax audits.
The reconciliation of the U.S. federal statutory income tax provision to Income taxes in the Consolidated Statements of Operations is as follows:
(Millions of Dollars) 2020 2019 2018
Tax at statutory rate $ 266.1  $ 237.3  $ 214.6 
State income taxes, net of federal benefits 13.0  22.1  24.7 
Foreign tax rate differential (41.9) (53.3) (33.2)
Uncertain tax benefits 20.3  (53.1) 4.5 
Change in valuation allowance (26.8) 10.5  5.1 
Change in deferred tax liabilities on undistributed foreign earnings (118.8) —  — 
Stock-based compensation (9.8) (24.1) (4.1)
U.S. Federal tax reform —  —  199.6 
Capital loss (40.4) —  — 
U.S. federal tax on foreign earnings (17.7) 4.1  2.7 
Intra-entity asset transfer of intellectual property (27.7) —  — 
Other 25.1  17.3  2.4 
Income taxes $ 41.4  $ 160.8  $ 416.3 
The Company conducts business globally and, as a result, files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course, the Company is subject to examinations by taxing authorities throughout the world. The Internal Revenue Service is currently examining the Company's consolidated U.S. income tax returns for the 2015 and 2016 tax years. With few exceptions, as of January 2, 2021, the Company is no longer subject to U.S. federal, state, local, or foreign examinations by tax authorities for years before 2012.
The Company’s liabilities for unrecognized tax benefits relate to U.S. and various foreign jurisdictions. The following table summarizes the activity related to the unrecognized tax benefits:
(Millions of Dollars) 2020 2019 2018
Balance at beginning of year $ 406.3  $ 406.3  $ 387.8 
Additions based on tax positions related to current year 29.1  48.6  28.3 
Additions based on tax positions related to prior years 35.8  78.5  103.0 
Reductions based on tax positions related to prior years (19.3) (91.1) (91.5)
Settlements (0.5) (0.3) (2.5)
Statute of limitations expirations (7.9) (35.7) (18.8)
Balance at end of year $ 443.5  $ 406.3  $ 406.3 
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The gross unrecognized tax benefits at January 2, 2021 and December 28, 2019 include $433.3 million and $398.2 million, respectively, of tax benefits that, if recognized, would impact the effective tax rate. The liability for potential penalties and interest related to unrecognized tax benefits increased by $2.3 million in 2020 and decreased by $4.3 million in 2019 and $15.8 million in 2018. The liability for potential penalties and interest totaled $50.1 million as of January 2, 2021, $47.8 million as of December 28, 2019, and $52.1 million as of December 29, 2018. The Company classifies all tax-related interest and penalties as income tax expense.

The Company considers many factors when evaluating and estimating its tax positions and the impact on income tax expense, which may require periodic adjustments, and which may not accurately anticipate actual outcomes. It is reasonably possible that the amount of the unrecognized benefit with respect to certain of the Company's unrecognized tax positions will significantly increase or decrease within the next twelve months. However, based on the uncertainties associated with finalizing audits with the relevant tax authorities including formal legal proceedings, it is not possible to reasonably estimate the impact of any such change.

R. COMMITMENTS AND GUARANTEES
COMMITMENTS — The Company has numerous assets, predominantly real estate, vehicles and equipment, under various lease arrangements. At inception of arrangements with vendors, the Company determines whether the contract is or contains a lease based on each party’s rights and obligations under the arrangement. If the lease arrangement also contains non-lease components, the lease and non-lease elements are separately accounted for in accordance with the appropriate accounting guidance for each item. From time to time, lease arrangements allow for, and the Company executes, the purchase of the underlying leased asset. Lease arrangements may also contain renewal options or early termination options. As part of its lease liability and right-of-use asset calculation, consideration is given to the likelihood of exercising any extension or termination options. The present value of the Company’s lease liability was calculated using a weighted-average incremental borrowing rate of approximately 3.6%. The Company determined its incremental borrowing rate based on interest rates from its debt issuances and taking into consideration adjustments for collateral, lease terms and foreign currency. As a result of acquiring right-of-use assets from new leases entered into during the year ended January 2, 2021, the Company's lease liability increased approximately $117.5 million. As of January 2, 2021, the Company recognized a lease liability of approximately $534.4 million and a right-of-use asset of approximately $522.8 million. The right-of-use asset is included within Other assets in the Consolidated Balance Sheets, while the lease liability is included within Accrued expenses and Other liabilities, as appropriate. Leases with expected durations of less than 12 months from inception (i.e. short-term leases) were excluded from the Company’s calculation of its lease liability and right-of-use asset, as permitted by ASC 842, Leases.

The Company is a party to leases for one of its major distribution centers and two of its office buildings in which the periodic rental payments vary based on interest rates (i.e. LIBOR). The leases qualify as operating leases for accounting purposes.

The following is a summary of the Company's total lease cost for the year ended January 2, 2021 and December 28, 2019:
(Millions of Dollars) 2020 2019
Operating lease cost
$ 155.4  $ 151.6 
Short-term lease cost 26.3  26.6 
Variable lease cost
7.0  8.5 
Sublease income
(0.8) (2.8)
Total lease cost
$ 187.9  $ 183.9 

During 2020 and 2019, the Company paid approximately $149.8 million and $154.4 million, respectively, relating to leases included in the measurement of its lease liability and right-of-use asset. The weighted-average remaining term for the Company's leases is approximately 7 years.

The following is a summary of the Company's future lease obligations on an undiscounted basis at January 2, 2021:

(Millions of Dollars) Total 2021 2022 2023 2024 2025 Thereafter
Lease obligations $ 599.3  $ 141.4  $ 109.6  $ 82.3  $ 68.3  $ 50.1  $ 147.6 

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In 2019, the Company completed many actions within the Margin Resiliency Program and one rooftop footprint initiative resulting in a sale-leaseback arrangement related to one of its distribution centers, which resulted in cash proceeds of $93.0 million, a pre-tax gain of $69.5 million and a twelve-year lease obligation.

The Company's rental expense, exclusive of sublease income, for operating leases was $177.6 million in 2018.

The following is a summary of the Company’s future marketing commitments at January 2, 2021:

(Millions of Dollars) Total 2021 2022 2023 2024 2025 Thereafter
Marketing commitments $ 39.4  $ 27.2  $ 11.8  $ 0.4  $ —  $ —  $ — 

GUARANTEES — The Company's financial guarantees at January 2, 2021 are as follows:

(Millions of Dollars) Term Maximum
Potential
Payment 		Carrying
Amount of
Liability
Guarantees on the residual values of leased properties One to five years $ 89.6  $ — 
Standby letters of credit Up to three years 162.3  — 
Commercial customer financing arrangements Up to six years 64.7  7.9 
Total $ 316.6  $ 7.9 

The Company has guaranteed a portion of the residual values of certain leased assets including the previously discussed leases for one of its major distribution centers and two of its office buildings. The lease guarantees are for an amount up to $89.6 million while the fair value of the underlying assets is estimated at $116.1 million. The related assets would be available to satisfy the guarantee obligations and therefore it is unlikely the Company will incur any future loss associated with these guarantees.

The Company has issued $162.3 million in standby letters of credit that guarantee future payments which may be required under certain insurance programs and in relation to certain environmental remediation activities described more fully in Note S, Contingencies.

The Company provides various limited and full recourse guarantees to financial institutions that provide financing to U.S. and Canadian Mac Tool distributors and franchisees for their initial purchase of the inventory and truck necessary to function as a distributor and franchisee. In addition, the Company provides limited and full recourse guarantees to financial institutions that extend credit to certain end retail customers of its U.S. Mac Tool distributors and franchisees. The gross amount guaranteed in these arrangements is $64.7 million and the $7.9 million carrying value of the guarantees issued is recorded in Other liabilities in the Consolidated Balance Sheets.

The Company provides warranties on certain products across its businesses. The types of product warranties offered generally range from one year to limited lifetime. There are also certain products with no warranty. Further, the Company sometimes incurs discretionary costs to service its products in connection with product performance issues. Historical warranty and service claim experience forms the basis for warranty obligations recognized. Adjustments are recorded to the warranty liability as new information becomes available.

The changes in the carrying amount of product warranties for the years ended January 2, 2021, December 28, 2019, and December 29, 2018:

(Millions of Dollars) 2020 2019 2018
Balance beginning of period $ 100.1  $ 102.1  $ 108.5 
Warranties and guarantees issued 128.5  128.1  110.4 
Warranty payments and currency (114.8) (130.1) (116.8)
Balance end of period $ 113.8  $ 100.1  $ 102.1 

S. CONTINGENCIES
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The Company is involved in various legal proceedings relating to environmental issues, employment, product liability, workers’ compensation claims and other matters. The Company periodically reviews the status of these proceedings with both inside and outside counsel, as well as an actuary for risk insurance. Management believes that the ultimate disposition of these matters will not have a material adverse effect on operations or financial condition taken as a whole.
On January 25, 2019, IPS Worldwide, LLC ("IPS"), a third-party provider of freight payment processing services for the Company, filed for Chapter 11 bankruptcy protection and listed the Company as an unsecured creditor. As of December 29, 2018, there were outstanding obligations of approximately $50.8 million owed to certain of the Company's freight carriers. Such amounts had previously been remitted to IPS through a third-party financing program for ultimate payment to these freight carriers. However, due to nonperformance of IPS with respect to processing these payments and the Company's obligation to its freight carriers, an incremental $50.8 million charge was recorded in the fourth quarter of 2018. This charge did not include any amounts that the Company will attempt to recover from insurance and/or through the bankruptcy proceedings, which could ultimately reduce the loss exposure recorded.
In the normal course of business, the Company is a party to administrative proceedings and litigation, before federal and state regulatory agencies, relating to environmental remediation with respect to claims involving the discharge of hazardous substances into the environment, generally at current and former manufacturing facilities. In addition, some of these claims assert that the Company is responsible for damages and liability, for remedial investigation and clean-up costs, with respect to sites that have never been owned or operated by the Company, but the Company has been identified as a potentially responsible party ("PRP").
In connection with the 2010 merger with Black & Decker, the Company assumed certain commitments and contingent liabilities. Black & Decker is a party to litigation and administrative proceedings with respect to claims involving the discharge of hazardous substances into the environment at current and former manufacturing facilities and has also been named as a PRP in certain administrative proceedings.
The Company, along with many other companies, has been named as a PRP in numerous administrative proceedings for the remediation of various waste sites, including 28 active Superfund sites. Current laws potentially impose joint and several liabilities upon each PRP. In assessing its potential liability at these sites, the Company has considered the following: whether responsibility is being disputed, the terms of existing agreements, experience at similar sites, and the Company’s volumetric contribution at these sites.
The Company’s policy is to accrue environmental investigatory and remediation costs for identified sites when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. If no amount in the range of probable loss is considered most likely, the minimum loss in the range is accrued. The amount of liability recorded is based on an evaluation of currently available facts with respect to each individual site and includes such factors as existing technology, presently enacted laws and regulations, and prior experience in remediation of contaminated sites. The liabilities recorded do not take into account any claims for recoveries from insurance or third parties. As assessments and remediation progress at individual sites, the amounts recorded are reviewed periodically and adjusted to reflect additional technical and legal information that becomes available. As of January 2, 2021 and December 28, 2019, the Company had reserves of $174.2 million and $213.8 million, respectively, for remediation activities associated with Company-owned properties, as well as for Superfund sites, for losses that are probable and estimable. Of the 2020 amount, $46.7 million is classified as current and $127.5 million as long-term which is expected to be paid over the estimated remediation period. As of January 2, 2021, the range of environmental remediation costs that is reasonably possible is $102.9 million to $245.3 million which is subject to change in the near term. The Company may be liable for environmental remediation of sites it no longer owns. Liabilities have been recorded on those sites in accordance with the Company's policy.
As of January 2, 2021, the Company has recorded $15.9 million in other assets related to funding received by the Environmental Protection Agency (“EPA”) and placed in a trust in accordance with the final settlement with the EPA, embodied in a Consent Decree approved by the United States District Court for the Central District of California on July 3, 2013. Per the Consent Decree, Emhart Industries, Inc. (a dissolved and liquidated former indirectly wholly-owned subsidiary of The Black & Decker Corporation) (“Emhart”) has agreed to be responsible for an interim remedy at a site located in Rialto, California and formerly operated by West Coast Loading Corporation (“WCLC”), a defunct company for which Emhart was alleged to be liable as a successor. The remedy will be funded by (i) the amounts received from the EPA as gathered from multiple parties, and, to the extent necessary, (ii) Emhart's affiliate. The interim remedy requires the construction of a water treatment facility and the filtering of ground water at or around the site for a period of approximately 30 years or more. As of January 2, 2021, the Company's net cash obligation associated with remediation activities, including WCLC assets, is $158.3 million.
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The EPA also asserted claims in federal court in Rhode Island against Black & Decker and Emhart related to environmental contamination found at the Centredale Manor Restoration Project Superfund Site ("Centredale"), located in North Providence, Rhode Island. The EPA discovered a variety of contaminants at the site, including but not limited to, dioxins, polychlorinated biphenyls, and pesticides. The EPA alleged that Black & Decker and Emhart are liable for site clean-up costs under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") as successors to the liability of Metro-Atlantic, Inc., a former operator at the site, and demanded reimbursement of the EPA’s costs related to this site. Black & Decker and Emhart contested the EPA's allegation that they are responsible for the contamination, and asserted contribution claims, counterclaims and cross-claims against a number of other PRPs, including the federal government as well as insurance carriers. The EPA released its Record of Decision ("ROD") in September 2012, which identified and described the EPA's selected remedial alternative for the site. Black & Decker and Emhart contested the EPA's selection of the remedial alternative set forth in the ROD on the grounds that the EPA's actions were arbitrary and capricious and otherwise not in accordance with law, and proposed other equally-protective, more cost-effective alternatives. On June 10, 2014, the EPA issued an Administrative Order under Sec. 106 of CERCLA, instructing Black & Decker and Emhart to perform the remediation of Centredale pursuant to the ROD. Black & Decker and Emhart disputed the factual, legal and scientific bases cited by the EPA for such an administrative order and provided the EPA with numerous good-faith bases for their declination to comply with the administrative order. Black & Decker and Emhart then vigorously litigated the issue of their liability for environmental conditions at the Centredale site, including completing trial on Phase 1 of the proceedings in late July 2015 and completing trial on Phase 2 of the proceedings in April 2017. Following the Phase I trial, the Court found that dioxin contamination at the Centredale site was not "divisible" and that Black & Decker and Emhart were jointly and severally liable for dioxin contamination at the site. Following the Phase 2 trial, the Court found that certain components of the EPA's selected remedy were arbitrary and capricious, and remanded the matter to the EPA while retaining jurisdiction over the ongoing remedy selection and implementation process. The Court also held in Phase 2 that Black & Decker and Emhart had sufficient cause for their declination to comply with the EPA's June 10, 2014 administrative order and that no associated civil penalties or fines were warranted. The United States filed a Motion for Reconsideration concerning the Court's Phase 2 rulings and appealed the ruling to the United States Court of Appeals for the First Circuit. Black & Decker and Emhart's Motion to Dismiss the Appeal was denied without prejudice for consideration with the merits. On July 9, 2018, a Consent Decree was lodged with the United States District Court documenting the terms of a settlement between the Company and the United States for reimbursement of EPA's past costs and remediation of environmental contamination found at the Centredale site. The terms of the Consent Decree were subject to public comment and Court approval. After a full hearing on March 19, 2019, the Court approved and entered the Consent Decree on April 8, 2019. The settlement resolves outstanding issues relating to Phase 1 and 2 of the litigation with the United States. The Company is complying with the terms of the settlement while several PRPs at the site have appealed the District Court's entry of the Consent Decree to the United States Court of Appeals for the First Circuit. Phase 3 of the litigation, is addressing the potential allocation of liability to other PRPs who may have contributed to contamination of the Centredale site with dioxins, polychlorinated biphenyls and other contaminants of concern. Based on the Company's estimated remediation and response cost obligations arising out of the settlement reached with the United States (including the EPA’s past costs as well as costs of additional investigation, remediation, and related costs such as EPA’s oversight costs), the Company has increased its reserve for this site. Accordingly, in 2018, a $77.7 million increase was recorded in Other, net in the Consolidated Statements of Operations. As of January 2, 2021, the Company has a remaining reserve of $74.2 million for this site.
The Company and approximately 47 other companies comprise the Lower Passaic Cooperating Parties Group (the “CPG”). The CPG members and other companies are parties to a May 2007 Administrative Settlement Agreement and Order on Consent (“AOC”) with the EPA to perform a remedial investigation/feasibility study (“RI/FS”) of the lower seventeen miles of the Lower Passaic River in New Jersey (the “River”). The Company’s potential liability stems from former operations in Newark, New Jersey. As an interim step related to the 2007 AOC, on June 18, 2012, the CPG members voluntarily entered into an AOC with the EPA for remediation actions focused solely at mile 10.9 of the River. The Company’s estimated costs related to the RI/FS and focused remediation action at mile 10.9, based on an interim allocation, are included in its environmental reserves. On April 11, 2014, the EPA issued a Focused Feasibility Study (“FFS”) and proposed plan which addressed various early action remediation alternatives for the lower 8.3 miles of the River. The EPA received public comment on the FFS and proposed plan (including comments from the CPG and other entities asserting that the FFS and proposed plan do not comply with CERCLA) which public comment period ended on August 20, 2014. The CPG submitted to the EPA a draft RI report in February 2015 and draft FS report in April 2015 for the entire lower seventeen miles of the River. On March 4, 2016, the EPA issued a Record of Decision ("ROD") selecting the remedy for the lower 8.3 miles of the River. The cleanup plan adopted by the EPA is now considered a final action for the lower 8.3 miles of the River and will include the removal of 3.5 million cubic yards of sediment, placement of a cap over the entire lower 8.3 miles of the River, and, according to the EPA, will cost approximately $1.4 billion and take 6 years to implement after the remedial design is completed. The Company and 105 other parties received a letter dated March 31, 2016 from the EPA notifying such parties of potential liability for the costs of the cleanup of the lower 8.3 miles of the River and a letter dated March 30, 2017 stating that the EPA had offered 20 of the parties (not including the Company) an early cash out settlement. In a letter dated May 17, 2017, the EPA stated that these 20 parties did not discharge any of the eight hazardous substances identified as the contaminants of concern in the lower 8.3 mile ROD. In the March 30,
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2017 letter, the EPA stated that other parties who did not discharge dioxins, furans or polychlorinated biphenyls (which are considered the contaminants of concern posing the greatest risk to human health or the environment) may also be eligible for cash out settlement, but expects those parties' allocation to be determined through a complex settlement analysis using a third-party allocator. The EPA subsequently clarified this statement to say that such parties would be eligible to be "funding parties" for the lower 8.3 mile remedial action with each party's share of the costs determined by the EPA based on the allocation process and the remaining parties would be "work parties" for the remedial action. The Company is participating in the allocation process. The allocator selected by the EPA issued a confidential financial report on December 28, 2020, which is under review by the EPA. The Company asserts that it did not discharge dioxins, furans or polychlorinated biphenyls and should be eligible to be a "funding party" for the lower 8.3 mile remedial action. On September 30, 2016, Occidental Chemical Corporation ("OCC") entered into an agreement with the EPA to perform the remedial design for the cleanup plan for the lower 8.3 miles of the River. The remedial design is expected to be substantially completed in May 2021. On June 30, 2018, OCC filed a complaint in the United States District Court for the District of New Jersey against over 100 companies, including the Company, seeking CERCLA cost recovery or contribution for past costs relating to various investigations and cleanups OCC has conducted or is conducting in connection with the River. According to the complaint, OCC has incurred or is incurring costs which include the estimated cost ($165 million) to complete the remedial design for the cleanup plan for the lower 8.3 miles of the River. OCC also seeks a declaratory judgment to hold the defendants liable for their proper shares of future response costs for OCC's ongoing activities in connection with the River. The Company and other defendants have answered the complaint and currently are engaged in discovery with OCC. On October 10, 2018, the EPA issued a letter directing the CPG to prepare a streamlined feasibility study for the upper 9 miles of the River based on an iterative approach using adaptive management strategies. The CPG submitted a revised draft Interim Remedy Feasibility Study to the EPA on December 4, 2020, which identifies various targeted dredge and cap alternatives with costs that range from $420 million to $468 million (net present value). The EPA approved the Interim Remedy Feasibility Study on December 11, 2020. The EPA announced that it intends to issue the Interim Remedy ROD in the Winter of 2020/2021. At this time, the Company cannot reasonably estimate its liability related to the litigation and remediation efforts, excluding the RI/FS and remediation actions at mile 10.9, as the RI/FS is ongoing, the ultimate remedial approach and associated cost for the upper portion of the River has not yet been determined, and the parties that will participate in funding the remediation and their respective allocations are not yet known. 
Per the terms of a Final Order and Judgment approved by the United States District Court for the Middle District of Florida on January 22, 1991, Emhart is responsible for a percentage of remedial costs arising out of the Kerr McGee Chemical Corporation Superfund Site located in Jacksonville, Florida. On March 15, 2017, the Company received formal notification from the EPA that the EPA had issued a ROD selecting the preferred alternative identified in the Proposed Cleanup Plan. As of January 2, 2021, the Company has reserved $24.7 million for this site.
The environmental liability for certain sites that have cash payments beyond the current year that are fixed or reliably determinable have been discounted using a rate of 0.1% to 1.8%, depending on the expected timing of disbursements. The discounted and undiscounted amount of the liability relative to these sites is $42.6 million and $45.9 million, respectively. The payments relative to these sites are expected to be $1.4 million in 2021, $2.9 million in 2022, $2.9 million in 2023, $3.1 million in 2024, $2.8 million in 2025, and $32.8 million thereafter.
The amount recorded for identified contingent liabilities is based on estimates. Amounts recorded are reviewed periodically and adjusted to reflect additional technical and legal information that becomes available. Actual costs to be incurred in future periods may vary from the estimates, given the inherent uncertainties in evaluating certain exposures. Subject to the imprecision in estimating future contingent liability costs, the Company does not expect that any sum it may have to pay in connection with these matters in excess of the amounts recorded will have a materially adverse effect on its financial position, results of operations or liquidity.

T. DIVESTITURES

On November 2, 2020, the Company sold its commercial electronic security businesses in five countries in Europe and emerging markets within the Security segment, which resulted in net proceeds of $60.9 million. The Company also sold a product line within Oil & Gas in the Industrial segment during the fourth quarter of 2020. As a result of these sales, the Company recognized a net pre-tax loss of $13.5 million in 2020, consisting of a $17.7 million loss on the sale of a product line within Oil & Gas partially offset by a $4.2 million gain on the sale of the commercial electronic security businesses. These divestitures allow the Company to invest in other areas of the Company that fit into its long-term growth strategy. These disposals do not qualify as discontinued operations and are included in the Company's Consolidated Statements of Operations for all periods presented through their respective dates of sale in 2020.

Following is the pre-tax income for these businesses for the years ended January 2, 2021, December 28, 2019, and December 29, 2018:
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(Millions of Dollars) 2020 2019 2018
Pre-tax income $ 4.1  $ 3.0  $ 4.0 

On May 30, 2019, the Company sold its Sargent & Greenleaf mechanical locks business within the Security segment, which resulted in net proceeds of $79.0 million and a pre-tax gain of $17.0 million. This divestiture did not qualify as a discontinued operation and is included in the Company's Consolidated Statements of Operations through the date of sale in 2019. Pre-tax income for this business was $4.6 million and $11.7 million for the years ended December 28, 2019 and December 29, 2018, respectively.
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SELECTED QUARTERLY FINANCIAL DATA (unaudited) 
  Quarter  
(Millions of Dollars, except per share amounts) First Second Third Fourth Year
2020
Net Sales $ 3,129.4  $ 3,147.4  $ 3,850.2  $ 4,407.6  $ 14,534.6 
Gross profit 1,023.1  1,012.7  1,376.3  1,555.8  4,967.9 
Selling, general and administrative (1)
748.5  732.0  738.9  870.2  3,089.6 
Net earnings 133.1  238.7  395.2  467.7  1,234.7 
Less: Net earnings attributable to non-controlling interest (0.1) 0.3  0.3  0.4  0.9 
Less: Preferred stock dividends —  4.7  9.4  9.3  23.4 
Net Earnings Attributable to Common Shareowners $ 133.2  $ 233.7  $ 385.5  $ 458.0  $ 1,210.4 
Earnings per share of common stock:
Basic $ 0.89  $ 1.52  $ 2.47  $ 2.92  $ 7.85 
Diluted $ 0.88  $ 1.52  $ 2.44  $ 2.88  $ 7.77 
2019
Net Sales $ 3,333.6  $ 3,761.3  $ 3,633.1  $ 3,714.2  $ 14,442.2 
Gross profit 1,105.6  1,299.8  1,239.5  1,160.6  4,805.5 
Selling, general and administrative (1)
778.9  782.3  756.1  723.7  3,041.0 
Net earnings 170.4  357.4  231.1  199.1  958.0 
Less: Net earnings attributable to non-controlling interest 0.5  1.1  0.6  —  2.2 
Net Earnings Attributable to Common Shareowners $ 169.9  $ 356.3  $ 230.5  $ 199.1  $ 955.8 
Earnings per share of common stock:
Basic $ 1.15  $ 2.41  $ 1.55  $ 1.34  $ 6.44 
Diluted $ 1.13  $ 2.37  $ 1.53  $ 1.32  $ 6.35 
(1) Includes provision for credit losses.

The 2020 year-to-date results above include $400 million of pre-tax acquisition-related and other charges, a $211 million tax benefit related to the pre-tax acquisition-related and other charges and a one-time tax benefit related to a supply chain reorganization, as well as $10 million of after-tax charges related to the Company's share of equity method investment earnings. The net impact of the above items and effect on diluted earnings per share by quarter was as follows:
 
Acquisition-Related Charges & Other    Diluted EPS Impact
• Q1 2020 —   $62 million loss ($50 million after-tax and equity interest)
  
$(0.32) per diluted share
• Q2 2020 —   $169 million loss ($13 million after-tax and equity interest)
  
$(0.08) per diluted share
• Q3 2020 —   $89 million loss ($71 million after-tax and equity interest)
  
$(0.45) per diluted share
• Q4 2020 —   $80 million loss ($65 million after-tax and equity interest)
  
$(0.41) per diluted share

The 2019 year-to-date results above include $363 million of pre-tax acquisition-related and other charges, a $78 million tax benefit of the pre-tax acquisition-related and other charges, as well as $24 million of after-tax charges related to the Company's share of equity method investment earnings. The net impact of the above items and effect on diluted earnings per share by quarter was as follows:
 
Acquisition-Related Charges & Other Diluted EPS Impact
• Q1 2019 —   $52 million loss ($43 million after-tax and equity interest)
$(0.29) per diluted share
• Q2 2019 —   $33 million loss ($44 million after-tax and equity interest)
$(0.29) per diluted share
• Q3 2019 —   $114 million loss ($91 million after-tax and equity interest)
$(0.60) per diluted share
• Q4 2019 —   $164 million loss ($131 million after-tax and equity interest)
$(0.86) per diluted share

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EXHIBIT INDEX
STANLEY BLACK & DECKER, INC.
EXHIBIT LIST

Some of the agreements included as exhibits to this Annual Report on Form 10-K (whether incorporated by reference to earlier filings or otherwise) may contain representations and warranties, recitals or other statements that appear to be statements of fact. These agreements are included solely to provide investors with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. Representations and warranties, recitals, and other common disclosure provisions have been included in the agreements solely for the benefit of the other parties to the applicable agreements and often are used as a means of allocating risk among the parties. Accordingly, such statements (i) should not be treated as categorical statements of fact; (ii) may be qualified by disclosures that were made to the other parties in connection with the negotiation of the applicable agreements, which disclosures are not necessarily reflected in the agreement or included as exhibits hereto; (iii) may apply standards of materiality in a way that is different from what may be viewed as material by or to investors in or lenders to the Company; and (iv) were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

Accordingly, representations and warranties, recitals or other disclosures contained in agreements may not describe the actual state of affairs as of the date they were made or at any other time and should not be relied on by any person other than the parties thereto in accordance with their terms. Additional information about the Company may be found in this Annual Report on Form 10-K and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.

3.1  (a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
3.2  (a)
4.1  (a)
4.2  (a)

122

(b)
(c)
(d)
(e)
(f)

(g)

(h)

4.3  (a)
4.4  (b)
4.5 
4.6 

4.7 

4.8 

4.9 

4.10 

123

4.11 

10.1  (a)
(b)
10.2  (a)
(b)
10.3 
10.4  (a)
(b)
10.5 
10.6 
10.7 
10.8 
10.9  (a)
(b)
10.10 
10.11 
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10.12 
The Stanley Works Non-Employee Directors’ Benefit Trust Agreement dated December 27, 1989 and amended as of January 1, 1991 by and between The Stanley Works and Fleet National Bank, as successor trustee (incorporated by reference to Exhibit (10)(xvii)(a) to the Company’s Annual Report on Form 10-K for year ended December 29, 1990). P
10.13  (a)
(b)
(c)
10.14  (a)
(b)
(c)
(d)
(e)
10.15  (a)
(b)
(c)
(d)
(e)
(f)
10.16 

125


10.17 
10.18 
10.19 
10.20 
10.21 
10.22 
10.23 
10.24  (a)
(b)
10.25 
10.26 
10.27 

10.28 
10.29 
21 
23 
24 
31.1  (a)
31.1  (b)
32.1 
32.2 
99.1 
Policy on Confidential Proxy Voting and Independent Tabulation and Inspection of Elections as adopted by The Board of Directors October 23, 1991 (incorporated by reference to Exhibit (28)(i) to the Quarterly Report on Form 10-Q for the quarter ended September 28, 1991). P
126

101  The following materials from Stanley Black & Decker Inc.'s Annual Report on Form 10-K for the year ended January 2, 2021, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Statements of Operations for the fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018; (ii) Consolidated Statements of Comprehensive Income for the fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018; (iii) Consolidated Balance Sheets at January 2, 2021 and December 28, 2019; (iv) Consolidated Statements of Cash Flows for the fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018; (v) Consolidated Statements of Changes in Shareowners' Equity for the fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018; and (v) Notes to Consolidated Financial Statements**.
104  The cover page of Stanley Black & Decker Inc.'s Annual Report on Form 10-K for the year ended January 2, 2021, formatted in iXBRL (included within Exhibit 101).

* Management contract or compensation plan or arrangement.
P Paper Filing
** Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part
of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended,
are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and
otherwise are not subject to liability under those sections.

127

EXHIBIT 4.11
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
DESCRIPTION OF COMMON STOCK
The following is a description of the material terms of our common stock. It does not purport to be complete and is subject to and qualified in its entirety by our Restated Certificate of Incorporation, as amended (the “certificate of incorporation”), our Amended & Restated ByLaws, as amended (the “bylaws”), and the Connecticut Business Corporation Act (the “CBCA”). Copies of the certificate of incorporation and the bylaws have been filed with the Securities and Exchange Commission as Exhibits 3.1 (a) through (g) and 3.2, respectively, to our Annual Report on Form 10-K. The terms “Stanley Black & Decker, Inc.,” “we,” “our” and “us” refer to Stanley Black & Decker, Inc., a Connecticut corporation, and do not, unless otherwise specified, include its subsidiaries.
General
Each shareholder of record of our common stock is entitled to one vote for each share held on every matter properly submitted to the shareholders for their vote. Holders of our common stock do not have cumulative voting rights. After satisfaction of the dividend rights of holders of preferred stock, holders of common stock are entitled ratably to any dividend declared by the board of directors out of funds legally available for this purpose.
Upon our liquidation, dissolution or winding up, the holders of our common stock are entitled to receive ratably our net assets available, if any, after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock.
Holders of our common stock have no redemption or conversion rights, no sinking fund provisions and no preemptive right to subscribe for or purchase additional shares of any class of our capital stock.
The outstanding shares of our common stock are fully paid and nonassessable, and any shares of common stock and any shares of common stock issuable upon the exercise of common stock warrants or conversion or exchange of debt securities or preferred stock which are convertible into or exchangeable for our common stock, or in connection with the obligations of a holder of stock purchase contracts to purchase our common stock, when issued in accordance with their terms will be fully paid and nonassessable. The rights, preferences and privileges of holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.
Anti-Takeover Effects of Provisions of the Certificate of Incorporation, Bylaws and Other Agreements
The rights of our shareholders and related matters are governed by the CBCA, the certificate of incorporation and the bylaws. Provisions of the CBCA, the certificate of incorporation and the bylaws, which are summarized below, may discourage or make more difficult a takeover attempt that shareholders might consider in their best interest. These provisions may also adversely affect prevailing market prices for our common stock.
Board of Directors
The certificate of incorporation provides that the board of directors shall consist of not less than nine nor more than eighteen directors, the exact number to be fixed by the board of directors from time to time. At each annual meeting of the shareholders, each nominee for director shall stand for election to a one-year term expiring at the next annual
1


meeting of shareholders. Despite the expiration of a director’s term, such director shall continue to serve until either the director’s successor shall have been duly elected and qualified or there is a decrease in the number of directors. In no case will a decrease in the number of directors shorten the term of any incumbent director. Any vacancy on the board of directors may be filled by the board of directors, whether such vacancy occurs as a result of an increase in the number of directors or otherwise. The certificate of incorporation also provides that directors may be removed from office, but only for cause by the affirmative vote of at least a majority of the votes entitled to be cast thereon.
Shareholder Action by Written Consent; Special Meetings
Under the CBCA our shareholders may take action by written unanimous consent of holders of all of our shares in lieu of an annual or special meeting. Otherwise, shareholders will only be able to take action at an annual or special meeting called in accordance with the bylaws.
The bylaws provide that special meetings of shareholders may only be called by:
•    the chairman of the board;
•    the chief executive officer;
•    the secretary; or
•    the chairman of the board, the chief executive officer or the secretary upon the written request of the holders of not less than thirty-five percent (35%) of our outstanding voting stock.
In addition, the CBCA provides that a corporation with a class of voting stock registered under the Exchange Act shall hold a special meeting of shareholders if the holders of thirty-five percent (35%) of the votes entitled to be cast on any issue proposed to be considered demand such a meeting.
Advance Notice Requirements for Director Nominations and Other Proposals
Director Nominations. The bylaws contain advance notice procedures with regard to shareholder proposals related to the nomination of candidates for election as directors. These procedures provide that notice of shareholder proposals related to shareholder nominations for the election of directors must be received at our executive offices at least 90 days, but no more than 120 days before the first anniversary of the date on which the proxy statement for the preceding annual meeting was mailed; provided, however, that in the event the annual meeting is not within 30 days before or after such anniversary date, notice by the shareholder must be received not later than the close of business 10 days after the day on which notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever occurs first. Our bylaws require that all directors be shareholders of record.
A shareholder’s notice to our corporate secretary must be in proper written form and must set forth certain information including:
•    the name, and record addresses of the nominating shareholder, and any other person on whose behalf the nomination is being made, and the nominee;
•    the class or series and number of shares of our capital stock which are beneficially or of record owned by the nominating shareholder or such other person;
•    a description of all arrangements or understandings between the nominating shareholder or such other person and any nominee(s) in connection with the nomination;
2


•    any other information relating to the nominee that would be required to be disclosed in a proxy statement or other solicitations of proxies for election of directors or as otherwise required to be disclosed pursuant to the Exchange Act had the nominee been nominated by the board of directors;
•    a consent of the nominee to be named in the proxy statement and to serve if elected; and
•    a representation that the nominating shareholder intends to appear in person or by proxy at the meeting to make such nomination.
Other Proposals. In addition to the procedures for nominating directors, the bylaws also contain notice procedures for other shareholder proposals to be brought before an annual meeting. To be timely, we must receive shareholder proposals at least 90 days, but no more than 120 days before the first anniversary of the date on which the proxy statement for the preceding annual meeting was mailed; provided, however, that in the event the annual meeting is not within 30 days before or after such anniversary date, notice by the shareholder must be received not later than the close of business 10 days after the day on which notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever occurs first.
A shareholder’s notice to our corporate secretary must be in proper written form and must set forth, as to each matter that shareholder proposes to bring before the meeting:
•    a brief description of the business desired to be brought before the meeting and the reasons for conducting that business at the meeting;
•    the complete text of any resolutions to be presented;
•    the name and record address of that shareholder and any other person on whose behalf the proposal is made;
•    the class and series and number of shares of each class and series of our capital stock which are owned beneficially or of record by that shareholder or such other person;
•    a description of all arrangements or understandings between that shareholder and any such other person in connection with the proposal of that business and any material interest of that shareholder or such other person in that business; and
•    a representation that the shareholder intends to appear in person or by proxy at the meeting to bring that business before the meeting.
Antitakeover Legislation
We are subject to the provisions of Section 33-844 of the CBCA which prohibits a Connecticut corporation from engaging in a “business combination” with an “interested shareholder” for a period of five years after the date of the transaction in which the person became an interested shareholder, unless the business combination or the purchase of stock by which such person becomes an interested shareholder is approved by our board of directors, and by a majority of our non-employee directors, prior to the date on which the person becomes an interested shareholder. A “business combination” generally includes mergers, asset sales, some types of stock issuances and other transactions with, or resulting in a disproportionate financial benefit to, the interested shareholder. Subject to exceptions, an “interested shareholder” is a person who owns 10% or more of our voting power, or is an affiliate or associate of Stanley Black & Decker, Inc. and owned 10% or more of our voting power within the past five years.
3


Under our certificate of incorporation, the affirmative vote by the holders of 80% of our outstanding voting stock is required for the approval or authorization of any business combination involving an interested shareholder. This voting requirement does not apply if:
•    2/3 of our disinterested directors expressly approve the proposed business combination; or
•    The following conditions are satisfied:
•    The cash and fair market value of other consideration received on a per share basis by each shareholder is no less than the highest share price (or the equivalent value) paid by the interested shareholder in acquiring our capital stock; and
•    A proxy statement is mailed to all shareholders of the corporation for the purpose of soliciting shareholder approval of the business combination.
This 80% vote is required even if no vote or a lesser percentage is required by any applicable laws. Additionally, the affirmative vote of the holders of not less than 80% of our outstanding shares of capital stock is required to modify this section of our certificate of incorporation.
Notwithstanding the 80% vote required by our certificate of incorporation, we are also subject to Section 33-841 and Section 33-842 of the CBCA. These provisions generally require business combinations with an interested shareholder to be approved by the board of directors and then by the affirmative vote of at least:
•    the holders of 80% of the voting power of the outstanding shares of our voting stock; and
•    the holders of 2/3 of the voting power of the outstanding shares of our voting stock, excluding the voting stock held by the interested shareholder;
unless the consideration to be received by the shareholders meets certain price and other requirements set forth in Section 33-842 of the CBCA or unless the board of directors of the corporation has by resolution determined to exempt business combinations with that interested shareholder prior to the time that such shareholder became an interested shareholder.
We are also subject to Section 33-756(g) of the CBCA, generally requiring directors acting with respect to mergers, sales of assets and other specified transactions to consider, in determining what they reasonably believe to be in the best interests of the corporation, specified interests, including those of the corporation’s employees, customers, creditors and suppliers and any community in which any office or other facility of the corporation is located. Section 33-756(g) of the CBCA also allows a director to consider, in the discretion of such director, any other factors the director reasonably considers appropriate in determining what the director reasonably believes to be in the best interest of the corporation.
Limitation of Liability of Directors
The certificate of incorporation contains provisions permitted under the CBCA relating to the personal liability of directors. The provisions limit the personal liability to us or our shareholders of a director for monetary damages for breach of duty as a director to an amount that is not more than the compensation received by that director for serving us during the year of the violation to the extent permitted by applicable law, which permits such limitation provided that such violation must not involve a knowing and culpable violation of law, enable the director or an affiliate to receive an improper personal gain, show a lack of good faith and a conscious disregard for the director’s duty to the corporation, amount to an abdication of the director’s duty to the corporation, or create liability for an unlawful
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distribution. Our bylaws provide for the indemnification and reimbursement of, and advances of expenses to, any person that is made a party to an action by reason of the fact that he or she:
•    is or was our director, officer, employee or agent, or
•    served at our request as a director, officer, employee or agent of another corporation. Our bylaws provide for indemnification of directors and officers to the fullest extent permitted by Connecticut law.
Listing
Our common stock is listed on the New York Stock Exchange under the symbol “SWK.”
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Computershare Investor Services, LLC.
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DESCRIPTION OF THE 2019 CORPORATE UNITS
The following is a description of the material terms of our 7,500,000 equity units (the “Equity Units”) issued as 7,500,000 corporate units (the “Corporate Units”) on November 13, 2019, including the related purchase contracts (“purchase contracts”) and the 0% Series D Cumulative Perpetual Convertible Preferred Stock (the “convertible preferred stock”). It does not purport to be complete and is subject to and qualified in its entirety by our Certificate of Amendment to the Restated Certificate of Incorporation, dated November 13, 2019 (the “certificate of amendment”), and the Purchase Contract and Pledge Agreement, dated November 13, 2019 (the “purchase contract and pledge agreement”), among us, The Bank of New York Mellon Trust Company, National Association, as purchase contract agent (the “purchase contract agent”), and HSBC Bank USA, National Association (the “collateral agent”), as collateral agent, custodial agent and securities intermediary. Copies of the certificate of amendment and the purchase contract and pledge agreement have been filed with the Securities and Exchange Commission as Exhibits 3.1(g) and [●], respectively, to our Annual Report on Form 10-K. In this description, “we,” “us,” “our” or “the Company” refer only to Stanley Black & Decker, Inc. and any successor obligor, and not to any of its subsidiaries.
Description of the Equity Units
General
The Equity Units may be Corporate Units, Treasury Units or Cash Settled Units. The Equity Units initially consist of 7,500,000 Corporate Units, each with a stated amount of $100. Each Corporate Unit offered by us consist of:
(1)    a purchase contract under which:
•    the holder agreed to purchase from us on November 15, 2022, which we refer to as the “purchase contract settlement date,” and we agreed to sell to the holder, unless the purchase contract terminates prior to that date as described under “Description of the Purchase Contracts—Termination” or is settled early as described under “Description of the Purchase Contracts—Early Settlement” or “—Early Settlement Upon a Fundamental Change” below, for $100, a number of shares of our common stock equal to the applicable settlement rate described under “Description of the Purchase Contracts—Purchase of Common Stock,” “—Early Settlement” or “—Early Settlement Upon a Fundamental Change,” as the case may be, plus, in the case of an early settlement upon a fundamental change, an additional make-whole amount of shares as described under “—Early Settlement Upon a Fundamental Change—Calculation of Make-Whole Shares;” and
•    we agreed to pay to the holder quarterly contract adjustment payments at the rate of 5.25% of the stated amount of $100 per year, subject to our right to defer such contract adjustment payments, payable in cash, shares of our common stock or a combination thereof, at our election, unless we have previously irrevocably elected a contract adjustment payment method to apply; and
(2)    either:
•    a 1/10, or 10%, undivided beneficial ownership in one share of 0% Series D Cumulative Perpetual Convertible Preferred Stock, without par value, with a liquidation preference of $1,000 per share (the “convertible preferred stock”), issued by us; or
•    following a successful optional remarketing, the applicable ownership interest in a portfolio of U.S. Treasury securities, which we refer to as the “Treasury portfolio.”
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“Applicable ownership interest” means, with respect to a Corporate Unit and the U.S. Treasury securities in the Treasury portfolio, a 1/10, or 10%, undivided beneficial ownership interest in $1,000 face amount of U.S. Treasury securities (or principal or interest strips thereof) included in the Treasury portfolio that matures on or prior to the purchase contract settlement date.
The fair market value of the Corporate Units we issued were recorded in our financial statements based on an allocation between the purchase contracts and the convertible preferred stock in proportion to their respective fair market values at the time of issuance. Under the purchase contract and pledge agreement, holders were deemed to have agreed to allocate the entire purchase price to their convertible preferred stock.
As long as a unit is in the form of a Corporate Unit, any ownership interest in a share of convertible preferred stock or any applicable ownership interest in the Treasury portfolio forming a part of the Corporate Unit will be pledged to us through the collateral agent to secure a holders’ obligation to purchase our common stock under the related purchase contract.
Creating Treasury Units by Substituting a Treasury Security for Convertible Preferred Stock
Each holder of 10 Corporate Units may create, at any time other than (i) if we elect an optional remarketing, during the period from 5:00 p.m., New York City time, on the second business day immediately preceding the first day of any optional remarketing period until the settlement date of such remarketing or the date we announce that no successful optional remarketing has occurred during the optional remarketing period, (ii) following any successful remarketing and (iii) after 5:00 p.m., New York City time, on the second business day immediately preceding the first day of the final remarketing period (we refer to each such period as a “blackout period”), 10 Treasury Units by substituting for the share of convertible preferred stock that is a component of 10 Corporate Units a zero-coupon U.S. Treasury security with a principal amount of $1,000 that matures on or prior to November 15, 2022 (e.g., CUSIP No. 912803BA0), which we refer to as a “Treasury security.” This substitution would create 10 Treasury Units, and the related share of convertible preferred stock would be released to the holder and would be separately tradable from the Treasury Units. Because the convertible preferred stock is issued with a liquidation preference of $1,000 per share, holders of Corporate Units may make this substitution only in integral multiples of 10 Corporate Units.
Each Treasury Unit will consist of:
(1)    a purchase contract under which:
•    the holder will agree to purchase from us on the purchase contract settlement date, unless the purchase contract terminates prior to that date as described under “Description of the Purchase Contracts—Termination” or is settled early as described under “Description of the Purchase Contracts—Early Settlement” or “—Early Settlement Upon a Fundamental Change” below, for $100, a number of shares of our common stock equal to the applicable settlement rate, plus, in the case of an early settlement upon a fundamental change, an additional make-whole amount of shares; and
•    we will pay to the holder quarterly contract adjustment payments at the rate of 5.25% of the stated amount of $100 per year, subject to our right to defer such contract adjustment payments, payable in cash, shares of our common stock or a combination thereof, at our election, unless we have previously irrevocably elected a contract adjustment payment method to apply; and
(2)    a 1/10 undivided beneficial ownership interest in a Treasury security.
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The term “business day” means any day other than a Saturday or a Sunday or any other day on which banking institutions and trust companies in New York City, New York are authorized or required by law or executive order to remain closed.
To create 10 Treasury Units, a holder is required to:
•    deposit with the collateral agent a Treasury security, which must be purchased in the open market at the expense of the Corporate Unit holder, unless otherwise owned by the holder; and
•    transfer to the purchase contract agent 10 Corporate Units, accompanied by a notice stating that the holder of the Corporate Units has deposited the Treasury security with the collateral agent, and requesting that the purchase contract agent instruct the collateral agent in writing to release the related share of convertible preferred stock.
Promptly following receipt of written instructions from the purchase contract agent and receipt of the Treasury security, the collateral agent will release the related share of convertible preferred stock from the pledge and deliver it to the purchase contract agent on behalf of the holder, free and clear of our security interest. The purchase contract agent then will:
•    cancel the 10 Corporate Units;
•    transfer the related share of convertible preferred stock to the holder; and
•    deliver 10 Treasury Units to the holder.
The Treasury Unit holder’s beneficial ownership interest in the Treasury security will be pledged to us through the collateral agent to secure the holder’s obligation to purchase our common stock under the related purchase contracts. The share of convertible preferred stock thereafter will trade and be transferable separately from the Treasury Units.
Holders who create Treasury Units or recreate Corporate Units, as discussed below, will be responsible for any fees or expenses (including reasonable fees and expenses of counsel) payable to the collateral agent in connection with substitutions of collateral. See “Certain Provisions of the Purchase Contracts and the Purchase Contract and Pledge Agreement—Miscellaneous.”
Recreating Corporate Units from Treasury Units
Each holder of 10 Treasury Units will have the right, at any time other than during a blackout period, to substitute for the related Treasury security held by the collateral agent one share of convertible preferred stock for each such 10 Treasury Units. This substitution would recreate Corporate Units and the applicable Treasury security would be released to the holder. Because the convertible preferred stock is issued with a liquidation preference of $1,000 per share, holders of Treasury Units may make the substitution only in integral multiples of 10 Treasury Units.
To recreate 10 Corporate Units, a holder is required to:
•    deposit with the collateral agent one share of convertible preferred stock, which must be purchased in the open market at the expense of the Treasury Unit holder, unless otherwise owned by the holder; and
•    transfer to the purchase contract agent 10 Treasury Units, accompanied by a notice stating that the holder of the Treasury Units has deposited one share of convertible preferred stock with the collateral agent, and requesting that the purchase contract agent instruct the collateral agent in writing to release the related Treasury security.
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Promptly following receipt of written instructions from the purchase contract agent and receipt of the share of convertible preferred stock, the collateral agent will release the related Treasury security from the pledge and promptly instruct the securities intermediary to transfer such Treasury security to the purchase contract agent on behalf of the holder, free and clear of our security interest. The purchase contract agent then will:
•    cancel the 10 Treasury Units;
•    transfer the related Treasury security to the holder; and
•    deliver 10 Corporate Units to the holder.
The share of convertible preferred stock will be substituted for the Treasury security and will be pledged to us through the collateral agent to secure the holder’s obligation to purchase shares of our common stock under the related purchase contracts. The Treasury security thereafter will trade and be transferable separately from the Corporate Units.
Creating Cash Settled Units from Corporate Units
Each holder of 10 Corporate Units may create, only during the period after the date we give notice of the final remarketing period and prior to 5:00 p.m., New York City time, on the second business day immediately preceding the first day of the final remarketing period, Cash Settled Units by substituting for a share of convertible preferred stock that is a component of the Corporate Units $1,000 in cash. This substitution would create 10 Cash Settled Units, and the related share of convertible preferred stock would be released to the holder and would be separately tradable from the Cash Settled Units. Because the convertible preferred stock is issued with a liquidation preference of $1,000 per share, holders of Corporate Units may make this substitution only in integral multiples of 10 Corporate Units. Holders of Cash Settled Units do not have the right to recreate Corporate Units or create Treasury Units.
Each Cash Settled Unit will consist of:
(1)    a purchase contract under which:
•    the holder will agree to purchase from us on the purchase contract settlement date, unless the purchase contract terminates prior to that date as described under “Description of the Purchase Contracts—Termination” or is settled early as described under “—Early Settlement Upon a Fundamental Change” below, for $100, a number of shares of our common stock equal to the applicable settlement rate, plus, in the case of an early settlement upon a fundamental change, an additional make-whole amount of shares; and
•    we will pay to the holder the final quarterly contract adjustment payment due on the purchase contract settlement date (including any accrued and unpaid deferred contract adjustment payments and compounded contract adjustment payments thereon), payable in cash, shares of our common stock or a combination thereof, at our election, unless we have previously irrevocably elected a contract adjustment payment method to apply; and
(2)    $100 in cash.
To create 10 Cash Settled Units, a holder is required to:
•    deposit with the collateral agent $1,000 in cash; and
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•    transfer to the purchase contract agent 10 Corporate Units, accompanied by a notice stating that the holder of the Corporate Units has deposited $1,000 in cash with the collateral agent, and requesting that the purchase contract agent instruct the collateral agent in writing to release the related share of convertible preferred stock.
Promptly following receipt of written instructions from the purchase contract agent and receipt of cash, the collateral agent will release the related share of convertible preferred stock from the pledge and deliver it to the purchase contract agent on behalf of the holder, free and clear of our security interest. The purchase contract agent then will:
•    cancel the 10 Corporate Units;
•    transfer the related share of convertible preferred stock to the holder; and
•    deliver 10 Cash Settled Units to the holder.
The cash will be substituted for the share of convertible preferred stock and will be pledged to us through the collateral agent to secure the holder’s obligation to purchase shares of our common stock under the related purchase contract. Cash held as a component of the Cash Settled Unit will be held in a non-interest bearing account as set forth in the purchase contract and pledge agreement. The share of convertible preferred stock thereafter will trade separately from the Cash Settled Units.
Holders who create Cash Settled Units, as discussed below, will be responsible for any fees or expenses payable to the collateral agent (including reasonable fees and expenses of counsel) in connection with substitutions of collateral. See “Certain Provisions of the Purchase Contracts and the Purchase Contract and Pledge Agreement—Miscellaneous.”
Current Payments
Holders of Corporate Units and Treasury Units receive quarterly contract adjustment payments payable by us at the rate of 5.25% per year on the stated amount of $100 per Equity Unit until the earliest of the purchase contract settlement date, the fundamental change early settlement date (in the case of a fundamental change where the holder has elected to settle its purchase contracts early in connection with such fundamental change as described in “Description of the Purchase Contracts—Early Settlement Upon a Fundamental Change”) and the most recent quarterly payment date on or before an early settlement as described in “Description of the Purchase Contracts—Early Settlement.” Holders of Cash Settled Units will receive the final quarterly contract adjustment payment payable by us on the final contract adjustment payment date. Holders of Corporate Units do not receive any dividends on the convertible preferred stock attributable to such Corporate Units (but will receive distributions on the applicable ownership interest in the Treasury portfolio, if any, if the convertible preferred stock has been replaced by the Treasury portfolio) and the liquidation preference of the convertible preferred stock does not accrete. Any contract adjustment payments may be paid in cash, shares of our common stock or a combination thereof, at our election, as described herein, unless we have previously irrevocably elected a contract adjustment payment method to apply. There will be no distributions in respect of the Treasury securities that are a component of the Treasury Units or the cash that is a component of the Cash Settled Units. If the dividend rate on the convertible preferred stock has been increased in connection with a successful remarketing, the holders of the Treasury Units will receive quarterly dividend payments (when, as and if declared by our board of directors) on the shares of convertible preferred stock that were released to them when they created the Treasury Units as long as they continue to hold such shares.
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We are required to make all contract adjustment payments quarterly in arrears on February 15, May 15, August 15 and November 15 of each year (except where such date is not a business day, in which case contract adjustment payments will be payable as of the next subsequent business day, without adjustment), commencing on February 15, 2020.
We have the right to defer payment of quarterly contract adjustment payments as described under “Description of the Purchase Contracts—Contract Adjustment Payments.” Even if the dividend rate is increased in connection with a successful remarketing, and dividends therefore begin to accumulate on the convertible preferred stock, we are not obligated to declare or pay any such dividends on the convertible preferred stock, as described under “Description of the Convertible Preferred Stock—Dividends Following a Successful Remarketing.”
Listing
We have listed the Corporate Units on the New York Stock Exchange under the symbol “SWT.” Unless and until substitution has been made as described above, none of the convertible preferred stock component of a Corporate Unit, the Treasury security component of a Treasury Unit nor the cash component of a Cash Settled Unit will trade separately from Corporate Units, Treasury Units or Cash Settled Units. The convertible preferred stock component trades as a unit with the purchase contract component of the Corporate Units, the Treasury security component will trade as a unit with the purchase contract component of the Treasury Units and the cash component will trade as a unit with the purchase contract component of the Cash Settled Units. In addition, if Treasury Units, Cash Settled Units or shares of convertible preferred stock are separately traded to a sufficient extent that the applicable exchange listing requirements are met, we may, but have no obligation to, cause the Treasury Units, Cash Settled Units or convertible preferred stock to be listed on the exchange on which the Corporate Units are then listed, including, if applicable, the New York Stock Exchange.
Voting and Certain Other Rights
Holders of purchase contracts forming part of the Corporate Units, Treasury Units, or Cash Settled Units, in their capacities as such holders, have no voting or other rights in respect of our common stock. Holders of shares of convertible preferred stock, whether or not part of a Corporate Unit, have only the limited voting rights described in “Description of the Convertible Preferred Stock—Limited Voting Rights.”
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Description of the Purchase Contracts
Purchase of Common Stock
Each purchase contract that is a part of a Corporate Unit, a Treasury Unit or a Cash Settled Unit obligates its holder to purchase, and us to sell, on the purchase contract settlement date (unless the purchase contract terminates prior to that date as described under “—Termination” or is settled early at the holder’s option as described under “—Early Settlement” or “—Early Settlement Upon a Fundamental Change”), for $100 in cash, a number of shares of our common stock equal to the settlement rate (together with cash, if applicable, in lieu of any fractional shares of common stock in the manner described below). The number of shares of our common stock issuable upon settlement of each purchase contract on the purchase contract settlement date (which we call the “settlement rate”) will be rounded to the nearest ten-thousandth of a share and determined as follows, subject to adjustment as described under “—Anti-dilution Adjustments” below:
(1)    If the applicable market value of our common stock is less than or equal to $159.45, which we refer to as the “reference price,” the settlement rate will be 0.6272 shares of our common stock (which we refer to as the “maximum settlement rate”).
Accordingly, if the market price for our common stock decreases from the date of the prospectus supplement and during the market value averaging period (described below), the aggregate market value of the shares of common stock issued upon settlement of each purchase contract will be less than the stated amount of $100, assuming that the market price on the purchase contract settlement date is the same as the applicable market value of the common stock.
(2)    If the applicable market value of our common stock is greater than the reference price, the settlement rate will be a number of shares of our common stock equal to $100 divided by that applicable market value.
Accordingly, if the market price for the common stock increases from the date of the prospectus supplement and during the market value averaging period, the aggregate market value of the shares of common stock issued upon settlement of each purchase contract will be equal to the stated amount of $100, assuming that the market price of the common stock on the purchase contract settlement date is the same as the applicable market value of the common stock.
The reference price initially equaled the last reported sale price of our common stock on the New York Stock Exchange on November 7, 2019.
If a holder elects to settle their purchase contract early in the manner described under “—Early Settlement,” the number of shares of our common stock issuable upon settlement of such purchase contract will be equal to 85% of the settlement rate determined in the manner set forth above but over a 20 consecutive trading day period beginning on the trading day immediately following the day the holder exercises their early settlement right, which we refer to as the “early settlement averaging period.” If the holder elects to settle their purchase contract early upon a fundamental change, the number of shares of our common stock issuable upon settlement will be determined as described under “—Early Settlement Upon a Fundamental Change.”
The “applicable market value” of our common stock means the average of the daily VWAPs of our common stock during the market value averaging period.
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The “market value averaging period” means the 20 consecutive trading day period beginning on, and including, the 21st scheduled trading day immediately preceding the purchase contract settlement date.
The “daily VWAP” of our common stock means, for each relevant trading day, the per share volume weighted average price as displayed under the heading Bloomberg VWAP on Bloomberg page “SWK <EQUITY> AQR” (or its equivalent successor if such page is not available) in respect of the period from the scheduled open of trading on the relevant trading day until the scheduled close of trading on the relevant trading day (or if such VWAP is unavailable, the market price of one share of our common stock on such trading day determined, using a volume-weighted average method, by a nationally recognized independent investment banking firm retained for this purpose by us).
A “trading day” means (a) a day (i) on which the New York Stock Exchange, or, if our common stock is not then listed on the New York Stock Exchange, the principal exchange or quotation system on which our common stock is listed or admitted for trading, is scheduled to be open for business and (ii) on which there has not occurred or does not exist a market disruption event, or (b) if our common stock is not so listed or admitted for trading, a “trading day” means a business day.
A “market disruption event” means (i) a failure by the primary U.S. national or regional securities exchange or market on which our common stock is listed or admitted for trading to open for trading during its regular trading session or (ii) the occurrence or existence prior to 1:00 p.m., New York City time, on any scheduled trading day for our common stock for more than one half-hour period in the aggregate during regular trading hours of any suspension or limitation imposed on trading (by reason of movements in price exceeding limits permitted by the relevant stock exchange or otherwise) in our common stock or in any options contracts or futures contracts relating to our common stock.
If a market disruption event occurs on any scheduled trading day during the market value averaging period or any early settlement averaging period, we will notify investors on the calendar day on which such event occurs.
If 20 trading days for our common stock have not occurred during the period from, and including, the first day of the market value averaging period to, and including, the second scheduled trading day immediately prior to the purchase contract settlement date, all remaining trading days in the market value averaging period will be deemed to occur on that second scheduled trading day immediately prior to the purchase contract settlement date, and the daily VWAP of our common stock for each of those remaining trading days will be the daily VWAP of our common stock on that second scheduled trading day or, if such day is not a trading day, the closing price as of such day.
We will not issue any fractional shares of our common stock upon settlement of a purchase contract. Instead of a fractional share, the holder will receive an amount of cash equal to the percentage of a whole share represented by such fractional share multiplied by the closing price of our common stock on the trading day immediately preceding the purchase contract settlement date (or the trading day immediately preceding the relevant date for delivery of shares of our common stock, in the case of early settlement). If, however, a holder surrenders for settlement more than one purchase contract on the same date, then the number of shares of our common stock issuable pursuant to such purchase contracts will be computed based upon the aggregate number of purchase contracts surrendered on such date or, if the Equity Units are held in global book-entry form, based on such other aggregate number of purchase contracts being surrendered by the holder on the same date as DTC may otherwise request.
The “closing price” per share of our common stock means, on any date of determination, the closing sale price (or if no closing sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and the average ask prices) on that date as reported in composite transactions for the principal U.S. national or regional securities exchange on which our common stock is traded. If our common stock is not
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listed for trading on a U.S. national or regional securities exchange on the relevant date, the “closing price” will be the last quoted bid price for our common stock in the over-the-counter market on the relevant date as reported by OTC Markets Group Inc. or a similar organization. If our common stock is not so quoted, the “closing price” will be the average of the mid-point of the last bid and ask prices for our common stock on the relevant date from each of at least three nationally recognized independent investment banking firms selected by us for this purpose.
Unless:
•    a holder has settled the related purchase contracts early by delivery of cash to the purchase contract agent in the manner described under “—Early Settlement” or “—Early Settlement Upon a Fundamental Change”; or
•    an event described under “—Termination” has occurred,
then, on the purchase contract settlement date,
•    in the case of Corporate Units where there has been a successful remarketing, the portion of the proceeds from the final remarketing or the maturity of the Treasury portfolio from an earlier optional remarketing, as applicable, equal to $1,000 multiplied by the number of shares of the convertible preferred stock underlying the Corporate Units that were remarketed will automatically be applied to satisfy in full the holder’s obligations to purchase our common stock under the related purchase contracts and any excess proceeds will be delivered to the purchase contract agent for the benefit of the holders whose shares of convertible preferred stock were remarketed;
•    in the case of Corporate Units where there has not been a successful remarketing, each holder will be deemed to have automatically delivered to us on the purchase contract settlement date the ownership interests in the shares of convertible preferred stock that are a part of such Corporate Units (unless such holder shall have elected to settle the related purchase contracts in cash as described under “—Final Remarketing”) to satisfy in full the holder’s obligations to purchase our common stock under the related purchase contracts;
•    in the case of Treasury Units, the cash proceeds of the related Treasury securities, when paid at maturity, will automatically be applied to satisfy in full the holder’s obligation to purchase our common stock under the related purchase contracts and any excess proceeds will be delivered to the purchase contract agent for the benefit of the holders of the Treasury Units; and
•    in the case of Cash Settled Units, the cash component of such units will automatically be applied to satisfy in full the holder’s obligation to purchase our common stock under the related purchase contracts.
Our common stock will then be issued and delivered to the holder or the holder’s designee, promptly following presentation and surrender of the certificate evidencing the Corporate Units, the Treasury Units or the Cash Settled Units, if in certificated form, and payment by the holder of any transfer or similar taxes payable in connection with the issuance of our common stock to any person other than the holder.
Prior to the settlement of a purchase contract, the shares of our common stock underlying each purchase contract will not be outstanding, and the holder of a purchase contract will not have any voting rights, rights to dividends or other distributions or other rights of a holder of our common stock by virtue of holding such purchase contract.
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By purchasing a Corporate Unit, a Treasury Unit or a Cash Settled Unit, a holder was deemed to have, among other things:
•    irrevocably appointed the purchase contract agent as its attorney-in-fact to enter into and perform the purchase contract and the related purchase contract and pledge agreement in the name of and on behalf of such holder; and
•    agreed to be bound by the terms and provisions of the Corporate Units, Treasury Units and Cash Settled Units and perform its obligations under the related purchase contract and the purchase contract and pledge agreement.
In addition, each beneficial owner of an Equity Unit, by acceptance of the beneficial interest therein, was deemed to have agreed to treat itself as the owner of the related convertible preferred stock, applicable interest in the Treasury portfolio, Treasury securities or cash, as the case may be.
Remarketing
We will enter into a remarketing agreement with a nationally recognized investment banking firm, as remarketing agent. Pursuant to the remarketing agreement, remarketing of the convertible preferred stock underlying the Corporate Units and any separate shares of convertible preferred stock whose holders have elected to participate in the remarketing will be attempted as described below. We refer to each of an “optional remarketing” and the “final remarketing” (each as defined below) as a “remarketing.” No remarketing will occur if a termination event has occurred or, in the case of an optional remarketing, certain other events have occurred as described below.
As described under “Description of the Convertible Preferred Stock—Remarketing,” in connection with a successful remarketing, (i) the dividend rate on the convertible preferred stock may be increased as described below, (ii) the conversion rate of the convertible preferred stock may be increased as described below, (iii) the earliest redemption date may be changed to a later date as described below, (iv) we may elect for the fundamental change conversion right to apply and (v) if the dividend rate is increased, dividends will be payable quarterly in arrears, when, as and if declared by our board of directors, commencing on the February 15, May 15, August 15 or November 15 immediately following the remarketing settlement date, as selected by us, provided that the first such dividend payment date will not be earlier than February 15, 2023.
During any blackout period a holder does not have the right to:
•    settle a purchase contract early;
•    create Treasury Units;
•    create Cash Settled Units; or
•    recreate Corporate Units from Treasury Units.
We will use commercially reasonable efforts to ensure that a registration statement with regard to the full amount of the convertible preferred stock to be remarketed will be effective in a form that may be used by the remarketing agent in connection with the remarketing process (unless such registration statement is not required under the applicable laws and regulations that are in effect at that time or unless we conduct any remarketing in accordance with an exemption under the securities laws).
Optional Remarketing
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Unless a termination event has occurred, we may elect, at our option, to, on one or more occasions as specified herein, remarket the convertible preferred stock during a period (which we call the “optional remarketing window”) beginning on and including August 10, 2022 and ending on and including October 27, 2022. Any remarketing in the optional remarketing window will occur during a five-business day remarketing period (which we call an “optional remarketing period”) consisting of five sequential possible remarketing dates selected by us and will include shares of convertible preferred stock underlying Corporate Units and other shares of convertible preferred stock of holders that have elected to include those shares in the remarketing as described under “Description of the Convertible Preferred Stock—Remarketing of Shares That Are Not Included in Corporate Units.” We may attempt remarketings during multiple optional remarketing periods in the optional remarketing window so long as we give to the depositary 15 calendar days’ notice prior to the first day of any optional remarketing period as described below. We refer to a remarketing that occurs during the optional remarketing window as an “optional remarketing” and the date we price the convertible preferred stock offered in an optional remarketing as the “optional remarketing date.”
If we elect to conduct an optional remarketing, the remarketing agent will use its reasonable best efforts to obtain a price (i) for shares of convertible preferred stock that are components of Corporate Units, that results in proceeds of at least 100% of the Treasury portfolio purchase price described below and (ii) for shares of convertible preferred stock that are not part of Corporate Units, at least equal to the separate convertible preferred stock purchase price (as defined in “Description of the Convertible Preferred Stock—Remarketing of Shares That Are Not Included in Corporate Units”), which will be the same price, on a per share basis, as the shares of convertible preferred stock included as components of Corporate Units. To obtain that price, we may change the earliest redemption date to a later date as described under “Description of the Convertible Preferred Stock—Optional Redemption,” increase the dividend rate, increase the conversion rate on the convertible preferred stock and/or elect for the fundamental change conversion right to apply, as described under “Description of the Convertible Preferred Stock—Increased Dividend Rate and Increased Conversion Rate.” We will not decrease the conversion rate or the dividend rate in connection with a successful remarketing (and, therefore, in no event will the dividend rate be less than zero).
We will request that the depositary notify its participants holding Corporate Units, Treasury Units, and separate shares of convertible preferred stock of our election to conduct an optional remarketing no later than 15 calendar days prior to the date we begin the optional remarketing.
Following a successful optional remarketing of the convertible preferred stock, the remarketing agent will purchase the Treasury portfolio at the Treasury portfolio purchase price (as defined below), and deduct such price from the proceeds of the optional remarketing. Any remaining proceeds will be promptly remitted after the optional remarketing settlement date by the remarketing agent for the benefit of the holders whose shares of convertible preferred stock were remarketed.
We have the right to elect not to attempt or to postpone any optional remarketing in our absolute discretion on any day of the relevant optional remarketing period.
If we elect to conduct an optional remarketing and such remarketing is successful:
•    settlement of the remarketed convertible preferred stock will occur on the second business day following the optional remarketing date, or such other date we and the remarketing agent agree to (we refer to such settlement date as the “optional remarketing settlement date”);
•    if applicable, the dividend rate and/or conversion rate of all outstanding shares of convertible preferred stock (whether or not remarketed) will be increased on the optional remarketing settlement date;
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•    if applicable, the earliest redemption date will be changed to a later date, effective on the optional remarketing settlement date;
•    any terms of the remarketed convertible preferred stock modified by us (including whether the fundamental change conversion right applies) in accordance with the certificate of amendment creating the convertible preferred stock (the “certificate of amendment”) will become effective on the optional remarketing settlement date, if applicable;
•    if the dividend rate is increased, dividends will be payable quarterly, when, as and if declared by our board of directors;
•    a holder’s Corporate Units will consist of a purchase contract and the applicable ownership interest in the Treasury portfolio, as described above; and
•    a holder may no longer create Treasury Units or Cash Settled Units or recreate Corporate Units from Treasury Units.
If we do not elect to conduct an optional remarketing in the optional remarketing window, or no optional remarketing succeeds for any reason, the shares of convertible preferred stock will continue to be components of the Corporate Units or will continue to be held separately and the remarketing agent will use its reasonable best efforts to remarket the convertible preferred stock during the final remarketing period as described below.
For the purposes of a successful optional remarketing, “Treasury portfolio purchase price” means the lowest aggregate ask-side price quoted by a primary U.S. government securities dealer to the quotation agent selected by us between 9:00 a.m. and 4:00 p.m., New York City time, on the optional remarketing date for the purchase of the Treasury portfolio for settlement on the optional remarketing settlement date.
Following a successful optional remarketing, the remarketing agent will purchase, at the Treasury portfolio purchase price, the Treasury portfolio. If U.S. Treasury securities (or principal or interest strips thereof) that are to be included in the Treasury portfolio in connection with a successful optional remarketing have a yield that is less than zero, the Treasury portfolio will consist of an amount in cash equal to the aggregate principal amount at maturity of the U.S. Treasury securities described in the description of the Treasury portfolio under “Description of the Equity Units.” If the provisions set forth in this paragraph apply, references in this Description of the 2019 Corporate Units to a “Treasury security” and “U.S. Treasury securities (or principal or interest strips thereof)” in connection with the Treasury portfolio will, thereafter, be deemed to be references to such amount in cash. Neither we, the purchase contract agent, the collateral agent or anyone else will invest that cash.
The applicable ownership interests in the Treasury portfolio will be substituted for the shares of convertible preferred stock that are components of the Corporate Units and will be pledged to us through the collateral agent to secure the Corporate Unit holders’ obligations under the purchase contracts. On the purchase contract settlement date, a portion of the proceeds from the Treasury portfolio equal to $1,000 multiplied by the number of shares of convertible preferred stock that are components of the Corporate Units at the time of remarketing will automatically be applied to satisfy the Corporate Unit holders’ obligations to purchase our common stock under the purchase contracts. For the avoidance of doubt, any failure to apply proceeds as described above solely as a result of a failure by the U.S. government to pay the principal amount of or any interest on any Treasury security in the Treasury portfolio shall not constitute an event of default under a purchase contract. If, as a result of any such failure, there are insufficient proceeds from the Treasury portfolio to satisfy the Corporate Unit holders’ obligations to purchase common stock under the purchase contracts, we will delay settlement of the purchase contracts until such time as such proceeds are available.
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If we elect to remarket the convertible preferred stock during an optional remarketing period and a successful remarketing has not occurred on or prior to the last day of the optional remarketing period, we will cause a notice of the failed remarketing of the convertible preferred stock to be published before 9:00 a.m., New York City time, on the business day immediately following the last date of the optional remarketing period. This notice will be validly published by making a timely release to any appropriate news agency, including, without limitation, Bloomberg Business News and the Dow Jones News Service. We will similarly cause a notice of a successful remarketing of the convertible preferred stock to be published before 9:00 a.m., New York City time, on the business day immediately following the date of such successful remarketing.
Final Remarketing
Unless (i) a termination event has occurred or (ii) the Treasury portfolio has replaced the convertible preferred stock as a component of the Corporate Units as a result of a successful optional remarketing, the remarketing agent will remarket the shares of convertible preferred stock that are components of the Corporate Units and any separate shares of convertible preferred stock whose holders have elected to participate in the remarketing as described under “Description of the Convertible Preferred Stock—Remarketing of Shares That Are Not Included in Corporate Units,” during each day of the five business day period ending on November 11, 2022 (the second business day immediately preceding the purchase contract settlement date) until the remarketing is successful. We refer to such period as the “final remarketing period,” the remarketing during this period as the “final remarketing” and the date we price the convertible preferred stock offered in the final marketing as the “final remarketing date.”
The remarketing agent will use its reasonable best efforts to obtain, and the remarketing will be considered successful if the remarketing agent is able to obtain, a price that results in proceeds of at least $1,000 multiplied by the number of shares of convertible preferred stock being remarketed. To obtain that price, we may change the earliest redemption date to a later date, increase the dividend rate, increase the conversion rate of the convertible preferred stock and/or elect whether the fundamental change conversion right applies, as described under “Description of the Convertible Preferred Stock—Increased Dividend Rate and Increased Conversion Rate.” We will request that the depositary notify its participants holding Corporate Units, Treasury Units and separate shares of convertible preferred stock of the remarketing no later than October 20, 2022. In our notice of a final remarketing, we will set forth the dates of the final remarketing period, applicable procedures for holders of separate shares of convertible preferred stock to participate in the final remarketing, the applicable procedures for holders of Corporate Units to create Treasury Units or Cash Settled Units, if applicable, the applicable procedures for holders of Corporate Units to settle their purchase contracts early and any other applicable procedures, including the procedures that must be followed by a holder of an ownership interest in a share of convertible preferred stock that is a part of a Corporate Unit in the case of a failed final remarketing if such holder wishes not to have its ownership interests in shares of convertible preferred stock automatically delivered to us as described in this Description of the 2019 Corporate Units in satisfaction of its obligation under the related purchase contracts.
We have the right to postpone the final remarketing in our absolute discretion on any day prior to the last business day of the final remarketing period.
If the final remarketing is successful:
•    settlement of the remarketed convertible preferred stock will occur on the purchase contract settlement date;
•    if applicable, the dividend rate and/or conversion rate of all outstanding shares of convertible preferred stock (whether or not remarketed) will be increased, effective on the purchase contract settlement date;
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•    if applicable, the earliest redemption date will be changed to a later date, effective on the purchase contract settlement date;
•    any other modified terms of the convertible preferred stock (including whether the fundamental change conversion right applies) will take effect on the purchase contract settlement date in accordance with the terms of the certificate of amendment;
•    if the dividend rate is increased, dividends will be payable quarterly, when, as and if declared by our board of directors;
•    a portion of the proceeds from the remarketing equal to $1,000 multiplied by the number of shares of convertible preferred stock underlying Corporate Units that were remarketed will automatically be applied to satisfy in full the Corporate Unit holders’ obligations to purchase our common stock under the related purchase contracts on the purchase contract settlement date and any remaining proceed will be promptly remitted to the holder after the purchase contract settlement date; and
•    proceeds from the remarketing attributable to holders who have elected to participate in the remarketing will be remitted by the remarketing agent for the benefit of such holders on the purchase contract settlement date.
If (1) despite using its reasonable best efforts, the remarketing agent cannot remarket the related convertible preferred stock on or prior to the last day of the final remarketing period, at a price equal to or greater than $1,000 multiplied by the aggregate number of shares of convertible preferred stock to be remarketed or (2) the final remarketing has not occurred on or prior to the last day of the final remarketing period because a condition precedent to the remarketing has not been fulfilled, in each case resulting in a failed remarketing, the ownership interests in the shares of convertible preferred stock held as a part of Corporate Units will be automatically delivered to us, on the purchase contract settlement date, in full satisfaction of the Corporate Unit holder’s obligation to purchase our common stock under the related purchase contract, unless the holder has elected otherwise, as set forth under “Description of the Convertible Preferred Stock—Automatic Settlement Upon Failed Final Remarketing.”
If a successful remarketing has not occurred on or prior to the last day of the final remarketing period, we will cause a notice of the failed remarketing of the convertible preferred stock to be published before 9:00 a.m., New York City time, on the business day immediately following the last date of the final remarketing period. This notice will be validly published by making a timely release to any appropriate news agency, including, without limitation, Bloomberg Business News or the Dow Jones News Service.
Early Settlement
Subject to the conditions described below, a holder of Corporate Units or Treasury Units may elect to settle the related purchase contracts at any time prior to the close of business on the scheduled trading day immediately preceding the first day of the market value averaging period, other than during a blackout period. In the case of Corporate Units and Treasury Units, such early settlement may only be made in integral multiples of 10 purchase contracts.
In order to settle purchase contracts early, a holder of Equity Units must deliver to the purchase contract agent (1) a completed “Election to Settle Early” form, along with the Corporate Unit or Treasury Unit certificate, if they are in certificated form and (2) a cash payment in immediately available funds in an amount equal to:
•    $100 times the number of purchase contracts being settled; plus
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•    if the “early settlement date” (as defined below) for any purchase contract occurs during the period from the close of business on any contract adjustment payment record date to the opening of business on the related payment date, an amount equal to the contract adjustment payments payable on the payment date with respect to the purchase contracts being settled, unless we have elected to defer the contract adjustment payments payable on such date.
So long as you hold Equity Units as a beneficial interest in a global security certificate deposited with the depositary, procedures for early settlement will also be governed by standing arrangements between the depositary and the purchase contract agent.
The early settlement right is also subject to the condition that, if we determine that it is required under U.S. federal securities laws, we have a registration statement under the Securities Act in effect and an available prospectus covering the shares of common stock and other securities, if any, deliverable upon settlement of a purchase contract. We have agreed that, if required under U.S. federal securities laws, we will use our commercially reasonable efforts to (1) have a registration statement in effect covering those shares of common stock and other securities, if any, to be delivered in respect of the purchase contracts being settled and (2) provide a prospectus in connection therewith, in each case in a form that may be used in connection with the early settlement right (it being understood that if there is a material business transaction or development that has not yet been publicly disclosed, we will not be required to file such registration statement or provide such a prospectus, and the early settlement right will not be available, until we have publicly disclosed such transaction or development, provided that we will use our commercially reasonable efforts to make such disclosure as soon as it is commercially reasonable to do so).
Upon early settlement, except as described below in “—Early Settlement Upon a Fundamental Change,” we will issue, for each purchase contract being settled, 85% of the number of shares of our common stock that would be deliverable for each purchase contract as described in “—Purchase of Common Stock” above as if the “applicable market value” were the average of the daily VWAPs of our common stock during the early settlement averaging period.
We will cause the related shares of convertible preferred stock or applicable ownership interests in the Treasury portfolio or Treasury securities, as the case may be, underlying the Equity Units and securing such purchase contract to be released from the pledge under the purchase contract and pledge agreement, and delivered within two business days following the early settlement date, to the purchase contract agent on behalf of the holder, free and clear of our security interest. In addition, we will issue the number of shares of our common stock to be issued upon settlement of the purchase contract within two business days following the last day of the early settlement averaging period, to the purchase contract agent for delivery to the holder. Upon early settlement, the holder will be entitled to receive any accrued and unpaid contract adjustment payments (including any accrued and unpaid deferred contract adjustment payments and compounded contract adjustment payments thereon) to, but excluding, the quarterly payment date immediately preceding the early settlement date. The holder’s right to receive future contract adjustment payments will terminate (except for contract adjustment payments payable to the holders of record on the applicable record date), and no adjustment will be made to or for the holder on account of any amounts accrued in respect of contract adjustment payments since the most recent quarterly payment date.
If the purchase contract agent receives a completed “Election to Settle Early” form, along with the Corporate Unit or Treasury Unit certificate, if they are in certificated form, and payment of $100 for each purchase contract being settled prior to 5:00 p.m., New York City time, on any business day and all conditions to early settlement have been satisfied, then that day will be considered the “early settlement date.” If the purchase contract agent receives the foregoing on or after 5:00 p.m., New York City time, on any business day or at any time on a day that is not a business day, then the next business day will be considered the “early settlement date.”
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Early Settlement Upon a Fundamental Change
If a fundamental change (as defined below) occurs prior to the purchase contract settlement date, then, following the fundamental change, each holder of a purchase contract, subject to certain conditions described in this Description of the 2019 Corporate Units, will have the right to settle the purchase contract early on the fundamental change early settlement date (as defined below) at the settlement rate determined as if the applicable market value equaled the stock price (as defined below under “—Calculation of Make-Whole Shares”), plus an additional number of shares determined as set forth below (such additional number referred to as the “make-whole shares”). We refer to this right as the “fundamental change early settlement right.”
A “fundamental change” will be deemed to have occurred at the time after the Equity Units are originally issued if any of the following occurs:
(i)    any transaction or event (whether by means of a share exchange or tender offer applicable to our common stock, a liquidation, consolidation, recapitalization, reclassification, combination or merger of us or a sale, lease or other transfer of all or substantially all of our consolidated assets) or a series of related transactions or events occurs pursuant to which 50% or more of our outstanding common stock is exchanged for, converted into or constitutes solely the right to receive cash, securities or other property, more than 10% of which consists of cash, securities or other property that is not, or will not be upon consummation of such transaction, listed on a United States national or regional securities exchange for a period of 30 or more consecutive trading days; or
(ii)    our common stock ceases to be listed or quoted on a United States national or regional securities exchange for 30 or more consecutive trading days.
The fundamental change early settlement right is subject to the condition that at such time, if so required under U.S. federal securities laws, there is in effect a registration statement and an available prospectus covering shares of our common stock and other securities, if any, to be delivered pursuant to the purchase contracts being settled. We have agreed that, if required under U.S. federal securities laws, we will use our commercially reasonable efforts to (1) have a registration statement in effect covering our common stock and other securities, if any, to be delivered in respect of the purchase contracts being settled and (2) provide a prospectus in connection therewith, in each case in a form that may be used in connection with the early settlement upon a fundamental change (it being understood that if there is a material business transaction or development that has not yet been publicly disclosed, we will not be required to file such registration statement or provide such a prospectus, and the fundamental change early settlement right will not be available, until we have publicly disclosed such transaction or development, provided that we will use our commercially reasonable efforts to make such disclosure as soon as it is commercially reasonable to do so). The fundamental change early settlement date will be postponed by the number of days during the period on which no such registration statement is effective, except that the fundamental change early settlement date will not be postponed beyond the purchase contract settlement date. If, but for the exception contained in the immediately preceding sentence, the fundamental change early settlement date would occur on or after the purchase contract settlement date, we will deliver to any holder of purchase contracts on the purchase contract settlement date the applicable number of make-whole shares in addition to a number of shares equal to the settlement rate, determined as if the applicable market value were equal to the stock price (as defined below under “—Calculation of Make-Whole Shares”) in such fundamental change.
To the extent practicable, we will provide each holder of Equity Units with a notice of the anticipated effective date of a fundamental change at least 20 business days prior to such anticipated effective date, but in any event not later than the earlier of the effective date and two business days following our becoming aware of the occurrence of such
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fundamental change. In addition, we will provide each holder of Equity Units with a notice of a fundamental change within five business days after the effective date of the fundamental change. The notice will specify:
(1)    a date on which the fundamental change early settlement will occur (the “fundamental change early settlement date”), which shall be at least 10 business days after the effective date of such fundamental change but, subject to the foregoing, no later than the earlier of (x) 20 business days after the effective date of such fundamental change and (y) one business day prior to (i) the first day of the commencement of an optional remarketing period, or (ii) if we have not specified an optional remarketing period or the optional remarketing is not successful, the first day of the commencement of the final remarketing period or, if the final remarketing is not successful, the purchase contract settlement date;
(2)    the date by which holders must exercise the fundamental change early settlement right;
(3)    the applicable settlement rate and number of make-whole shares;
(4)    the amount and kind (per share of common stock) of the cash, securities and other consideration receivable by the holder upon settlement; and
(5)    the amount of accrued and unpaid contract adjustment payments (including any deferred contract adjustment payments and compounded contract adjustment payments thereon), if any, that will be paid upon settlement to holders exercising the fundamental change early settlement right. Notwithstanding the foregoing, if the final remarketing period begins less than 10 business days following the occurrence of a fundamental change, the notice will specify the purchase contract settlement date as the fundamental change early settlement date.
To exercise the fundamental change early settlement right, a holder must, no later than the second business day prior to the fundamental change early settlement date:
•    deliver to the purchase contract agent a completed “Election to Settle Early Following a Fundamental Change” form;
•    deliver to the purchase contract agent the certificate evidencing the holder’s Corporate Units or Treasury Units, if in certificated form; and
•    deliver to the purchase contract agent cash in immediately available funds equal to $100 times the number of purchase contracts being settled.
So long as Equity Units are held as a beneficial interest in a global security certificate deposited with the depositary, procedures for fundamental change early settlement will also be governed by standing arrangements between the depositary and the purchase contract agent.
If a holder exercises the fundamental change early settlement right, we will deliver to the holder on the fundamental change early settlement date for each purchase contract with respect to which they have elected fundamental change early settlement, a number of shares (or exchange property units, if applicable) equal to the settlement rate described above plus the additional make-whole shares, together with accrued and unpaid contract adjustment payments to the fundamental change early settlement date; provided that if a fundamental change early settlement date falls after a record date and on or prior to the corresponding contract adjustment payment date, we will pay the full amount of accrued and unpaid contract adjustment payments, if any, due on such contract adjustment payment date to the holder of record at the close of business on the corresponding record date.
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The holder will also receive on the fundamental change early settlement date the shares of convertible preferred stock or the applicable ownership interest in the Treasury portfolio or Treasury securities underlying the Corporate Units or Treasury Units, as the case may be, with respect to which such holder is effecting a fundamental change early settlement, which, in each case, shall have been released from the pledge under the purchase contract and pledge agreement and delivered to the purchase contract agent, on behalf of the holder, free and clear of our security interest. In the case of Corporate Units, if such holder has elected to settle the purchase contracts, such holder will also receive on the fundamental change early settlement date the aggregate number of shares of convertible preferred stock underlying the Corporate Units. If a holder does not elect to exercise the fundamental change early settlement right, its Corporate Units or Treasury Units will remain outstanding and subject to normal settlement on the purchase contract settlement date.
Holders of Corporate Units and Treasury Units may exercise the fundamental change early settlement right only in integral multiples of 10 purchase contracts.
The terms of the convertible preferred stock provide that if a fundamental change occurs on or after a successful remarketing, there will be no fundamental change conversion right. However, we may, in connection with a remarketing, nonetheless elect for the fundamental change conversion right to apply to the terms of the convertible preferred stock, but we are not obligated to do so. See “Conversion Rights—Adjusted Conversion Rate Upon a Fundamental Change.”
Calculation of Make-Whole Shares. The number of make-whole shares per purchase contract applicable to a fundamental change early settlement will be determined by reference to the table below, based on the date on which the fundamental change occurs or becomes effective (the “effective date”) and the “stock price” in the fundamental change, which will be:
•    in the case of a fundamental change described in clause (i) of the definition of fundamental change above where the holders of our common stock receive only cash in the fundamental change, the cash amount paid per share of our common stock; and
•    in all other cases, the average of the closing prices of our common stock for the 10 consecutive trading days immediately prior to but not including the effective date.
For purposes of this “Description of the Purchase Contracts” section, the stock prices set forth in the first row of the table (i.e., the column headers) will be adjusted upon the occurrence of certain events requiring anti-dilution adjustments to the maximum settlement rate in a manner inversely proportional to the adjustments to the maximum settlement rate. Each of the make-whole share amounts in the table will be subject to adjustment in the same manner and at the same time as the maximum settlement rate as set forth under “—Anti-dilution Adjustments.”
Effective Date $30.00  $60.00  $80.00  $100.00  $120.00  $159.45  $170.00  $180.00  $191.34  $200.00  $220.00  $240.00  $260.00  $280.00  $300.00  $350.00  $400.00 
November 13, 2019 0.4746 0.2165 0.1440 0.0933 0.0544 0.0000 0.0281 0.0518 0.0756 0.0694 0.0574 0.0477 0.0399 0.0336 0.0284 0.0189 0.0124
November 15, 2020 0.3196 0.1478 0.0998 0.0637 0.0327 0.0000 0.0125 0.0366 0.0609 0.0551 0.0440 0.0354 0.0288 0.0237 0.0197 0.0127 0.0083
November 15, 2021 0.1617 0.0754 0.0530 0.0355 0.0158 0.0000 0.0000 0.0217 0.0452 0.0391 0.0280 0.0204 0.0154 0.0120 0.0096 0.0061 0.0040
November 15, 2022 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
The actual stock price and effective date may not be set forth on the table, in which case:
•    if the actual stock price is between two stock prices on the table or the actual effective date is between two effective dates on the table, the amount of make-whole shares will be determined by a straight-line interpolation between the make-whole share amounts set forth for the two stock prices and the two effective dates on the table based on a 365-day year, as applicable;
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•    if the stock price exceeds $400.00 per share, subject to adjustment in the same manner as the stock prices in the table above, then the make-whole share amount will be zero; and
•    if the stock price is less than $30.00 per share, subject to adjustment in the same manner as the stock prices in the table above (the “minimum stock price”), then the make-whole share amount will be determined as if the stock price equaled the minimum stock price, using straight-line interpolation, as described above, if the actual effective date is between two effective dates on the table.
Contract Adjustment Payments
Contract adjustment payments in respect of Corporate Units, Treasury Units and Cash Settled Units will be payable in cash, shares of our common stock or a combination thereof, unless we have previously irrevocably elected a contract adjustment payment method to apply, at a rate per year of 5.25% of the stated amount of $100 per purchase contract. Contract adjustment payments payable for any period will be computed (1) for any full quarterly period on the basis of a 360-day year of twelve 30-day months and (2) for any period shorter than a full quarterly period, on the basis of a 30-day month and, for any period less than a month, on the basis of the actual number of days elapsed in a 30-day month. Contract adjustment payments will accrue from the date of original issuance of the Corporate Units to (but excluding) the earliest occurrence of a termination event, the purchase contract settlement date, the fundamental change early settlement date (if applicable) and the most recent quarterly payment date on or before any early settlement of the related purchase contracts (if applicable), and will be payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year, commencing on February 15, 2020 (we refer to each of these dates as a “contract adjustment payment date”).
Contract adjustment payments are payable to the holders of purchase contracts as they appear on the books and records of the purchase contract agent at the close of business on the relevant record dates, which are the first day of the month on which the relevant contract adjustment payment date falls (whether or not a business day) or if the Equity Units are held in global book-entry form, the record date will be the business day immediately preceding the applicable contract adjustment payment date. Contract adjustment payments are payable to such record holders notwithstanding the occurrence of any early settlement date or fundamental change early settlement date following a record date and on or prior to the open of business on the related payment date, except that holders will be required to pay us, in connection with any early settlement (other than in connection with a fundamental change), an equivalent payment as described under “—Early Settlement” above. These distributions are paid through the purchase contract agent, who distributes amounts received in respect of the contract adjustment payments for the benefit of the holders of the purchase contracts relating to the Corporate Units, Treasury Units and Cash Settled Units.
If any date on which contract adjustment payments are to be made is not a business day, then payment of the contract adjustment payments payable on that date will be made on the next succeeding day that is a business day and no interest or payment will be paid in respect of the delay, if any.
Our obligations with respect to contract adjustment payments are subordinated and junior in right of payment to our existing and future indebtedness. Upon certain events of our bankruptcy, insolvency or reorganization, holders of our Equity Units will have no claims against us or our estate for any accrued and unpaid (including any deferred) contract adjustment payments.
We may, at our option and upon prior written notice to the holders of the Equity Units and the purchase contract agent, defer the payment of contract adjustment payments on the related purchase contracts forming a part of the Equity Units until the purchase contract settlement date; provided, however, that in (x) an early settlement upon a fundamental change, we will pay deferred contract adjustment payments (including compounded contract
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adjustment payments thereon as described below) to, but excluding, the fundamental change early settlement date and (y) an early settlement other than upon a fundamental change, we will pay deferred contract adjustment payments (including compounded contract adjustment payments thereon as described below) to, but excluding, the quarterly contract adjustment payment date immediately preceding the early settlement date.
Deferred contract adjustment payments will accrue additional contract adjustment payments at the rate of 5.25% per year until paid, compounded quarterly, which is equal to the rate of total distributions on the Corporate Units (compounding on each succeeding payment date), to, but excluding, the date such deferred contract adjustment payments are made. We refer to these additional contract adjustment payments that accrue on deferred contract adjustment payments as “compounded contract adjustment payments.” We may pay any such deferred contract adjustment payments (including compounded contract adjustment payments thereon) on any scheduled contract adjustment payment date. If the purchase contracts are terminated (upon the occurrence of certain events of bankruptcy, insolvency or reorganization with respect to us), the right to receive contract adjustment payments and deferred contract adjustment payments (including compounded contract adjustment payments thereon) will also terminate.
If we exercise our option to defer the payment of contract adjustment payments, then, until the deferred contract adjustment payments (including compounded contract adjustment payments thereon) have been paid, we will not declare or pay any dividends or make any distributions on, or redeem, purchase or acquire, or make a liquidation payment with respect to, any shares of our capital stock (including the convertible preferred stock).
The restrictions listed above do not apply to:
•    purchases, redemptions or other acquisitions of our capital stock in connection with any employment contract, benefit plan or other similar arrangement with or for the benefit of employees, officers, directors, agents or consultants or a stock purchase or dividend reinvestment plan, or the satisfaction of our obligations pursuant to any contract or security outstanding on the date that the contract adjustment payment is deferred requiring us to purchase, redeem or acquire our capital stock;
•    any exchange, redemption or conversion of any class or series of our capital stock, or the capital stock of one of our subsidiaries, for any other class or series of our capital stock;
•    any purchase of, or payment of cash in lieu of, fractional interests in shares of our capital stock pursuant to the
conversion or exchange provisions of such capital stock or the securities being converted or exchanged;
•    any dividend or distribution in the form of stock, warrants, options or other rights where the dividend stock or stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks equally with or junior to such stock;
•    redemptions, exchanges or repurchases of, or with respect to, any rights outstanding under a shareholder rights plan outstanding on the date that the contract adjustment payment is deferred or the declaration or payment thereunder of a dividend or distribution of or with respect to rights in the future;
•    payments on any trust preferred securities, subordinated debentures, junior subordinated debentures or junior subordinated notes, or any guarantees of any of the foregoing, in each case, that rank equal in right of payment to the contract adjustment payments, so long as the amount of payments made on account of such securities or guarantees and the purchase contracts is paid on all such securities and
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guarantees and the purchase contracts then outstanding on a pro rata basis in proportion to the full payment to which each series of such securities, guarantees or purchase contracts is then entitled if paid in full; and
•    any payment of deferred interest or principal on, or repayment, redemption or repurchase of, parity or junior securities that, if not made, would cause us to breach the terms of the instrument governing such parity or junior securities.
Method of Payment of Contract Adjustment Payments
Subject to the limitations described below, we may elect to pay any contract adjustment payment (or any portion of any contract adjustment payment) on the Equity Units (whether or not for a current quarterly period or any prior quarterly period), determined in our sole discretion:
•    in cash;
•    by delivery of shares of our common stock; or
•    through any combination of cash and shares of our common stock.
We will make each contract adjustment payment in cash, except to the extent we elect, or have previously elected, to make all or any portion of such payment in shares of our common stock. To the extent we do not elect to defer such payment, unless we have previously irrevocably elected a contract adjustment payment method, we will give the holders of the Equity Units notice of any election with respect to any particular contract adjustment payment and the portion of such payment that will be made in cash and the portion that will be made in common stock no later than eight scheduled trading days prior to the payment date for such contract adjustment payment.
If we elect, or have previously irrevocably elected, to make any such contract adjustment payment, or any portion thereof, in shares of our common stock, such shares shall be valued for such purpose at the average of the daily VWAPs per share of our common stock over the five consecutive trading day period ending on the second trading day immediately preceding the applicable payment date (the “five-day average price”), multiplied by 97%.
Without the consent of any holders of purchase contracts, we may, by notice to such holders through the purchase contract agent, irrevocably elect whether we will pay contract adjustment payments in cash, shares of our common stock or a combination thereof (a “contract adjustment payment method”) and, if applicable, the amount or percentage of a contract adjustment payment to be paid in common stock that will apply to any contract adjustment payment following such notice (unless a contract adjustment payment method has previously been designated) and, subject to the foregoing, specify the effective time of such election (which, for the avoidance of doubt, may be at any time subsequent to the delivery of such notice). Our irrevocable election of a contract adjustment payment method as described herein may be made by us in our sole discretion.
No fractional shares of common stock will be delivered to the holders of the Equity Units in respect of contract adjustment payments. We will instead pay a cash adjustment to each holder that would otherwise be entitled to a fraction of a share of common stock based on (i) the five-day average price and (ii) the aggregate number of Equity Units held by such holder (or, if the Equity Units are held in global book-entry form, based on the applicable procedures of the depositary for determining such number of Equity Units).
To the extent a shelf registration statement is required in our reasonable judgment in connection with the issuance of or for resales of common stock issued as a contract adjustment payment, including contract adjustment payments paid in connection with a fundamental change early settlement, we will, to the extent such a registration statement is
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not currently filed and effective, use our commercially reasonable efforts to file and maintain the effectiveness of such a shelf registration statement until the earlier of such time as all such shares of common stock have been resold thereunder and such time as all such shares are freely tradable by non-affiliates of ours without registration. To the extent applicable, we will also use our commercially reasonable efforts to have the shares of common stock qualified or registered under applicable state securities laws, if required, and approved for listing on the New York Stock Exchange (or if our common stock is not listed on the New York Stock Exchange, on the principal other U.S. national or regional securities exchange on which our common stock is then listed).
Anti-dilution Adjustments
The maximum settlement rate is subject to the following adjustments:
(1) If we issue common stock as a dividend or distribution on our common stock to all or substantially all holders of our common stock, or if we effect a share split or share combination, the maximum settlement rate will be adjusted based on the following formula:
SR1 = SR0 x (OS1/OS0)
where,
SR0 =
the maximum settlement rate in effect immediately prior to the close of business on the record date for such dividend or distribution or immediately prior to the open of business on the effective date for such share split or share combination, as the case may be;
SR1 =
the maximum settlement rate in effect immediately after the close of business on such record date or such effective date, as the case may be;
OS0 =
the number of shares of our common stock outstanding immediately prior to the close of business on such record date or such effective date, as the case may be, in each case, prior to giving effect to such event; and
OS1 =
the number of shares of our common stock that would be outstanding immediately after, and solely as a result of, such event.
Any adjustment made pursuant to this paragraph (1) shall become effective as of the close of business on (x) the record date for such dividend or other distribution or (y) the effective date for such share split or share combination becomes effective, as applicable. If any dividend or distribution in this paragraph (1) is declared but not so paid or made, the new maximum settlement rate shall be readjusted, on the date that our board of directors determines not to pay or make such dividend or distribution, to the maximum settlement rate that would then be in effect if such dividend or distribution had not been declared.
(2) If we distribute to all holders of our common stock any rights, options or warrants entitling them for a period of not more than 45 calendar days after the date of distribution thereof to subscribe for or purchase our common stock, in any case at an exercise price per share of our common stock less than the closing price of our common stock on the business day immediately preceding the date of the time of announcement of such issuance, the maximum settlement rate will be increased based on the following formula:
SR1 = SR0 x (OS0 + X) / OS0 + Y)
where,
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SR0 =
the maximum settlement rate in effect immediately prior to the close of business on the record date for such distribution;
SR1 =
the maximum settlement rate in effect immediately after the close of business on such record date;
OS0 =
the number of shares of our common stock outstanding immediately prior to the close of business on the record date for such distribution;
X =
the total number of shares of our common stock issuable pursuant to such rights, options or warrants; and
Y =
the number of shares of our common stock equal to the quotient of (A) the aggregate price payable to exercise such rights, options or warrants divided by (B) the average of the closing prices of our common stock for the 10 consecutive trading days ending on, and including, the trading day immediately preceding date of announcement for the issuance of such rights, options or warrants.
If any right, option or warrant described in this paragraph (2) is not exercised or converted prior to the expiration of the exercisability or convertibility thereof (and as a result no additional shares of common stock are delivered or issued pursuant to such rights or warrants), the new maximum settlement rate shall be readjusted, as of the date of such expiration, to the maximum settlement rate that would then be in effect had the increase with respect to the issuance of such rights, options or warrants been made on the basis of delivery or issuance of only the number of shares of common stock actually delivered.
For purposes of this paragraph (2), in determining whether any rights, options or warrants entitle the holders to subscribe for or purchase shares of the common stock at a price per share of our common stock less than the closing price of our common stock on the business day immediately preceding the time of announcement of such issuance, and in determining the aggregate price payable to exercise such rights, options or warrants, there shall be taken into account any consideration received by us for such rights, options or warrants and any amount payable on exercise or conversion thereof, the value of such consideration, if other than cash, to be determined in good faith by our board of directors. Any increase made under this paragraph (2) will be made successively whenever any such rights, options or warrants are issued and shall become effective immediately after the close of business on the record date for such distribution.
(3) (a) If we distribute shares of capital stock, evidences of indebtedness or other assets or property of us to all holders of our common stock (excluding (i) any dividend, distribution, rights, warrants or options as to which an adjustment was effected pursuant to clause (1) or (2) above, (ii) any dividend or distribution paid exclusively in cash, and (iii) any spin-off to which the provisions in clause 3(b) below apply), the maximum settlement rate will be increased based on the following formula:
SR1 = SR0 x SP0 / (SP0 – FMV)
where,
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SR0 =
the maximum settlement rate in effect immediately prior to the close of business on the record date for such distribution;
SR1 =
the maximum settlement rate in effect immediately after the close of business on such record date;
SP0 =
the closing price of our common stock on the trading day immediately preceding the ex-dividend date for such distribution; and
FMV =
the fair market value (as determined in good faith by our board of directors), on the record date for such dividend or distribution, of the shares of capital stock, evidences of indebtedness, assets or property so distributed, expressed as an amount per share of our common stock.
Notwithstanding the foregoing, if “FMV” (as defined above) exceeds “SP0” (as defined above), in lieu of the foregoing increase, each holder of a purchase contract shall receive, for each purchase contract, at the same time and upon the same terms as holders of shares of our common stock, the amount of such distributed shares of capital stock, evidences of indebtedness or other assets or property that such holder would have received if such holder owned a number of shares of our common stock equal to the maximum settlement rate on the record date for such dividend or distribution.
(b) However, if we distribute to all holders of our common stock, capital stock of any class or series, or similar equity interest, of or relating to a subsidiary or other business unit, which we refer to as a “spin-off”, then the maximum settlement rate will instead be increased based on the following formula:
SR1 = SR0 x (FMV0 + MP0) / MP0
where,
SR0 =
the maximum settlement rate in effect immediately prior to the end of the valuation period (as defined below);
SR1 =
the maximum settlement rate in effect immediately after the end of the valuation period;
FMV0 =
the average of the closing price of the capital stock or similar equity interests distributed to holders of our common stock applicable to one share of our common stock over each of the 10 consecutive trading days commencing on, and including, the third trading day immediately following the ex-dividend date for such dividend or distribution with respect to our common stock on the New York Stock Exchange or such other U.S. national or regional exchange or market that is at that time the principal exchange or market for our common stock (the “valuation period”); and
MP0 =
the average of the closing price of our common stock over the valuation period.
The adjustment to the maximum settlement rate under this paragraph 3(b) will occur on the last day of the valuation period; provided that if a holder elects to early settle the purchase contracts, or the purchase contract settlement date occurs, in either case, during the valuation period, references with respect to 10 trading days shall be deemed replaced with such lesser number of trading days as have elapsed between the ex-dividend date of such spin-off and the date on which such holder elected its early settlement right, or the business day immediately preceding the purchase contract settlement date, as the case may be, in determining the maximum settlement rate.
If any dividend or distribution described in this paragraph (3) is declared but not so paid or made, the new maximum settlement rate shall be readjusted, as of the date our board of directors determines not to pay or make such dividend or distribution, to the maximum settlement rate that would then be in effect if such dividend or distribution had not been declared.
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(4) If any regular, quarterly cash dividend or distribution is made to all or substantially all holders of our common stock during any quarterly fiscal period exceeds $0.69 per share (the “reference dividend”), the maximum settlement rate will be increased based on the following formula:
SR1 = SR0 x [(SP0 – T) / (SP0 – C)]
SR0 =
the maximum settlement rate in effect immediately prior to the close of business on the record date for such distribution;
SR1 =
the maximum settlement rate in effect immediately after the close of business on such record date;
SP0 =
the closing price of our common stock on the record date for such distribution;
C =
the amount in cash per share we distribute to holders of our common stock; and
T =
the reference dividend; provided that if the dividend or distribution is not a regular quarterly cash dividend, the reference dividend will be deemed to be zero.
Notwithstanding the foregoing, if “C” (as defined above) exceeds “SP0” (as defined above), in lieu of the foregoing increase, each holder of a purchase contract shall receive, for each purchase contract, at the same time and upon the same terms as holders of shares of our common stock, the amount of distributed cash that such holder would have received if such holder owned a number of shares of our common stock equal to the maximum settlement rate on the record date for such cash dividend or distribution.
The reference dividend will be subject to an inversely proportional adjustment whenever the maximum settlement rate is adjusted, other than pursuant to this paragraph (4). For the avoidance of doubt, the reference dividend will be zero in the case of a cash dividend that is not a regular quarterly dividend.
If any dividend or distribution described in this paragraph (4) is declared but not so paid or made, the new maximum settlement rate shall be readjusted, as of the date our board of directors determines not to pay or make such dividend or distribution, to the maximum settlement rate that would then be in effect if such dividend or distribution had not been declared.
(5) If we or any of our subsidiaries makes a payment in respect of a tender offer or exchange offer for our common stock to the extent that the cash and value of any other consideration included in the payment per share of our common stock validly tendered or exchanged exceeds the closing price of a share of our common stock on the trading day next succeeding the last date on which tenders or exchanges may be made pursuant to such tender or exchange offer, the maximum settlement rate will be increased based on the following formula:
SR1 = SR0 x [(FMV + (SP1 x OS1)] / (SP1 –OS0)]
where,
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SR0 =
the maximum settlement rate in effect immediately prior to the close of business on the trading day on which such tender or exchange offer expires;
SR1 =
the maximum settlement rate in effect immediately after the close of business on the trading day immediately following the date such tender or exchange offer expires;
FMV =
the fair market value (as determined in good faith by our board of directors, whose good faith determination will be conclusive), at the close of business on the trading day immediately following the date such tender or exchange offer expires, of the aggregate value of all cash and any other consideration paid or payable for shares validly tendered or exchanged and not withdrawn as of the expiration date;
OS0 =
the number of shares of our common stock outstanding immediately prior to the last time tenders or exchanges may be made pursuant to such tender or exchange offer (prior to giving effect to the purchase or exchange of shares pursuant to such tender or exchange offer);
OS1 =
the number of shares of our common stock outstanding immediately after the last time tenders or exchanges may be made pursuant to such tender or exchange offer (after giving effect to the purchase or exchange of shares pursuant to such tender or exchange offer); and
SP1 =
the closing price of our common stock for the trading day next succeeding the date such tender or exchange offer expires.
The adjustment to the maximum settlement rate under the preceding paragraph (5) will occur at the close of business on the trading day on which such tender or exchange offer expires.
The term “ex-dividend date,” when used with respect to any issuance or distribution on our common stock or any other security, means the first date on which our common stock or such other security, as applicable, trades, regular way, on the principal U.S. securities exchange or quotation system on which our common stock or such other security, as applicable, is listed or quoted at that time, without the right to receive the issuance or distribution.
We currently do not have a shareholders rights plan with respect to our common stock. To the extent that we have a shareholders rights plan involving the issuance of share purchase rights or other similar rights to all or substantially all holders of our common stock in effect upon settlement of a purchase contract, a holder will receive, in addition to the common stock issuable upon settlement of any purchase contract, the related rights for the common stock under the shareholders rights plan, unless, prior to any settlement of a purchase contract, the rights have separated from the common stock, in which case the maximum settlement rate will be adjusted at the time of separation as if we made a distribution to all holders of our common stock as described in clause (3) above, subject to readjustment in the event of the expiration, termination or redemption of the rights under the shareholder rights plan.
For United States income tax purposes, holders may be treated as receiving a constructive distribution from us with respect to the purchase contract if (1) the maximum settlement rate is adjusted (or fails to be adjusted) and, as a result of the adjustment (or failure to adjust), their proportionate interest in our assets or earnings and profits is increased, and (2) the adjustment (or failure to adjust) is not made pursuant to a bona fide, reasonable anti-dilution formula. For example, if the maximum settlement rate is adjusted as a result of a distribution that is taxable to the holders of our common stock, such as a cash dividend, the holder will be deemed to have received a “constructive distribution” of our stock. Thus, under certain circumstances, an adjustment to the maximum settlement rate might give rise to a taxable dividend to the holder even though they will not receive any cash in connection with such adjustment. In addition, Non-U.S. Holders may, in certain circumstances, be deemed to have received a distribution subject to United States federal withholding tax.
In addition, we may increase the maximum settlement rate if our board of directors deems it advisable to avoid or diminish any income tax to holders of our common stock resulting from any dividend or distribution of shares (or
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rights to acquire shares) or from any event treated as a dividend or distribution for income tax purposes or for any other reasons.
Adjustments to the maximum settlement rate will be calculated to the nearest ten thousandth of a share. No adjustment to the maximum settlement rate will be required unless the adjustment would require an increase or decrease of at least one percent in the maximum settlement rate. If any adjustment is not required to be made because it would not change the maximum settlement rate by at least one percent, then the adjustment will be carried forward and taken into account in any subsequent adjustment. All adjustments will be made not later than the purchase contract settlement date, any early settlement date and the time at which we are required to determine the relevant settlement rate or amount of make-whole shares (if applicable) in connection with any settlement with respect to the purchase contracts.
No adjustment to the maximum settlement rate will be made if holders of Equity Units participate, as a result of holding the Equity Units and without having to settle the purchase contracts that form part of the Equity Units, in the transaction that would otherwise give rise to an adjustment as if they held a number of shares of our common stock equal to the maximum settlement rate, at the same time and upon the same terms as the holders of common stock participate in the transaction.
Except as described above, the maximum settlement rate will not be adjusted:
•    upon the issuance of any shares of our common stock pursuant to any present or future plan providing for the reinvestment of dividends or interest payable on our securities and the investment of additional optional amounts in shares of our common stock under any plan;
•    upon the issuance of options, restricted stock or other awards in connection with any employment contract, executive compensation plan, benefit plan or other similar arrangement with or for the benefit of any one or more employees, officers, directors, consultants or independent contractors or the exercise of such options or other awards;
•    upon the issuance of any shares of our common stock pursuant to any option, warrant, right or exercisable, exchangeable or convertible security outstanding as of the date the Equity Units were first issued;
•    for a change in the par value or no par value of the common stock;
•    for accumulated and unpaid contract adjustment payments.
We will, as promptly as practicable after the maximum settlement rate is adjusted, provide written notice of the adjustment to the holders of Equity Units.
If an adjustment is made to the maximum settlement rate, an adjustment also will be made to the reference price on an inversely proportional basis solely to determine which of the clauses of the definition of settlement rate will be applicable to determine the settlement rate with respect to the purchase contract settlement date, any early settlement date or any fundamental change early settlement date.
If any adjustment to the maximum settlement rate becomes effective, or any effective date, expiration time, ex-date or record date for any stock split or reverse stock split, tender or exchange offer, issuance, dividend or distribution (relating to a required maximum settlement rate adjustment) occurs, during the period beginning on, and including, (i) the open of business on a first trading day of the market value averaging period or (ii) in the case of the optional early settlement or fundamental change early settlement, the relevant early settlement date or the fundamental
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change early settlement date and, in each case, ending on, and including, the date on which we deliver shares of our common stock under the related purchase contract, we will make appropriate adjustments to the maximum settlement rate and/or the number of shares of our common stock deliverable upon settlement with respect to the purchase contract, in each case, consistent with the methodology used to determine the anti-dilution adjustments set forth above. If any adjustment to the maximum settlement rate becomes effective, or any effective date, expiration time, ex-date or record date for any stock split or reverse stock split, tender or exchange offer, issuance, dividend or distribution (relating to a required maximum settlement rate adjustment) occurs, during the period used to determine the “stock price” or any other averaging period hereunder, we will make appropriate adjustments to the applicable prices, consistent with the methodology used to determine the anti-dilution adjustments set forth above.
Reorganization Events
The following events are defined as “reorganization events”:
•    any recapitalization, reclassification or change of our common stock (other than changes resulting from a subdivision or combination);
•    any consolidation, merger or combination involving us;
•    any sale, lease or other transfer to another person of the consolidated assets of ours and our subsidiaries substantially as an entirety; or
•    any statutory exchange of our common stock;
in each case as a result of which our common stock would be converted into, or exchanged for, stock, other securities, other property or assets (including cash or any combination thereof) (“exchange property”).
Following the effective date of a reorganization event, the settlement rate shall be determined by reference to the value of an exchange property unit, and we will deliver, upon settlement of any purchase contract, a number of exchange property units equal to the number of shares of our common stock that we would otherwise be required to deliver. An “exchange property unit” is the kind and amount of exchange property receivable in such reorganization event (without any interest thereon, and without any right to dividends or distribution thereon which have a record date that is prior to the applicable settlement date) per share of our common stock by a holder of common stock that is not a person with which we are consolidated or into which we are merged or which merged into us or to which such sale or transfer was made, as the case may be (we refer to any such person as a “constituent person”), or an affiliate of a constituent person, to the extent such reorganization event provides for different treatment of common stock held by the constituent person and/or the affiliates of the constituent person, on the one hand, and non-affiliates of a constituent person, on the other hand. In the event holders of our common stock (other than any constituent person or affiliate thereof) have the opportunity to elect the form of consideration to be received in such transaction, the exchange property unit that holders of the Corporate Units or Treasury Units are entitled to receive will be deemed to be the weighted average of the types and amounts of consideration received by the holders of our common stock.
In the event of such a reorganization event, the person formed by such consolidation or surviving such merger or, if other than us, the person which acquires our assets and those of our subsidiaries substantially as an entirety will execute and deliver to the purchase contract agent an agreement providing that the holder of each Equity Unit that remains outstanding after the reorganization event (if any) will have the rights described in the preceding paragraph and expressly assuming all of our obligations under the purchase contracts, the purchase contract and pledge agreement, the convertible preferred stock and the remarketing agreement. Such supplemental agreement will
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provide for adjustments to the amount of any securities constituting all or a portion of an exchange property unit and/or adjustments to the maximum settlement rate, which, for events subsequent to the effective date of such reorganization event, will be as nearly equivalent as may be practicable, as determined by us in our sole commercially reasonable discretion, to the adjustments provided for under “—Anti-dilution Adjustments” above (it being understood that any such adjustment may be zero and that no such adjustments shall be required with respect to any portion of the exchange property that consists of cash). The provisions described in the preceding two paragraphs shall similarly apply to successive reorganization events.
In connection with any reorganization event, we will also adjust the reference dividend based on the number of shares of common stock comprising an exchange property unit and (if applicable) the value of any non-stock consideration comprising an exchange property unit. If an exchange property unit is composed solely of non-stock consideration, the reference dividend will be zero.
Termination
The purchase contract and pledge agreement provides that the purchase contracts and the obligations and rights of us and of the holders of Corporate Units, Treasury Units and Cash Settled Units thereunder, including the holders’ obligation and right to purchase and receive shares of our common stock and the right to receive accrued and unpaid contract adjustment payments (including deferred contract adjustment payments), will immediately and automatically terminate upon the occurrence of certain events of bankruptcy, insolvency or reorganization with respect to us.
Upon any such termination and receipt of written notice from the purchase contract agent of the same, the collateral agent will release the convertible preferred stock, the applicable ownership interest in the Treasury portfolio, Treasury securities or cash, as the case may be, from the pledge arrangement and transfer such convertible preferred stock, the applicable ownership interest in the Treasury portfolio, Treasury securities or cash to the purchase contract agent for distribution to the holders of Corporate Units, Treasury Units and Cash Settled Units. Upon any termination, however, such release and distribution may be subject to a delay. In the event that we become the subject of a case under the U.S. Bankruptcy Code, such delay may occur as a result of the automatic stay under Section 362 of the U.S. Bankruptcy Code or other relief sought by the collateral agent, the purchase contract agent or other party asserting an interest in the pledged securities or contending that such termination is not effective and may continue until such automatic stay has been lifted or efforts to obtain such other relief has been resolved against such party.
Moreover, claims arising out of the convertible preferred stock will be subject to the equitable jurisdiction and powers of the bankruptcy court.
Pledged Securities and Pledge
The shares of convertible preferred stock that are a component of the Corporate Units or, following a successful optional remarketing, the applicable ownership interests in the Treasury portfolio, that are a component of the Corporate Units or, if substituted, the Treasury securities that are a component of the Treasury Units or cash that is a component of the Cash Settled Units, collectively, the “pledged securities,” will be pledged to the collateral agent for our benefit pursuant to the purchase contract and pledge agreement to secure a holder’s obligation to purchase shares of our common stock under the related purchase contracts. The rights of the holders of the Corporate Units, Treasury Units and Cash Settled Units with respect to such pledged securities will be subject to our security interest therein. No holder of Corporate Units, Treasury Units or Cash Settled Units will be permitted to withdraw the
34


pledged securities related to such Corporate Units, Treasury Units or Cash Settled Units from the pledge arrangement except:
•    in the case of Corporate Units, to substitute a Treasury security or cash, as the case may be, for the related convertible preferred stock as provided for under “Description of the Equity Units—Creating Treasury Units by Substituting a Treasury Security for Convertible Preferred Stock” and “Description of the Equity Units—Creating Cash Settled Units”;
•    in the case of Treasury Units, to substitute convertible preferred stock for the related Treasury security, as provided for under “Description of the Equity Units—Recreating Corporate Units from Treasury Units”; and
•    upon any early settlement, cash settlement or termination of the related purchase contracts.
Subject to our security interest and the terms of the purchase contract and pledge agreement, each holder of Corporate Units, unless the Treasury portfolio has replaced the convertible preferred stock as a component of the Corporate Units, is entitled through the purchase contract agent and the collateral agent to all of the proportional rights and preferences of the related convertible preferred stock. Each holder of Treasury Units and each holder of Corporate Units, if the Treasury portfolio has replaced the convertible preferred stock as a component of the Corporate Units, will retain ownership of the related Treasury securities or the applicable ownership interests in the Treasury portfolio, as applicable, pledged in respect of the related purchase contracts. Each holder of Cash Settled Units will retain ownership of the related cash pledged in respect of the related purchase contracts. We will have no interest in the pledged securities other than our security interest.
Except as described in “Certain Provisions of the Purchase Contract and Pledge Agreement—General,” upon receipt of distributions on the pledged securities, the collateral agent will distribute such payments to the purchase contract agent, which in turn will distribute those payments, together with contract adjustment payments received from us, to the holders in whose names the Corporate Units, Treasury Units or Cash Settled Units are registered at the close of business on the record date preceding the date of such distribution.
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Certain Provisions of the Purchase Contract and Pledge Agreement
General
Except as described under “—Book-Entry System for Corporate Units, Treasury Units and Cash Settled Units” below, payments on the Corporate Units, Treasury Units and Cash Settled Units are payable, the purchase contracts will be settled and transfers of the Corporate Units, Treasury Units and Cash Settled Units are registrable at the offices or agency of the purchase contract agent in the Borough of Manhattan, The City of New York. In addition, if the Corporate Units, Treasury Units or Cash Settled Units do not remain in book-entry only form, we have the option to make payments on the Corporate Units, Treasury Units and Cash Settled Units by check mailed to the address of the person entitled thereto as shown on the security register or by a wire transfer to the account designated by the holder by a prior written notice.
Shares of our common stock will be delivered on the purchase contract settlement date (or earlier upon early settlement), or, if the purchase contracts have terminated, the related pledged securities will be delivered (potentially after a delay as a result of the imposition of the automatic stay under the U.S. Bankruptcy Code, see “Description of the Purchase Contracts—Termination”) at the offices or agency of the purchase contract agent upon presentation and surrender of the applicable Corporate Unit, Treasury Unit or Cash Settled Unit certificate, if in certificated form.
If Corporate Units, Treasury Units or Cash Settled Units are in certificated form and a holder fails to present and surrender the certificate evidencing the Corporate Units, Treasury Units or Cash Settled Units to the purchase contract agent on or prior to the purchase contract settlement date, the shares of our common stock issuable upon settlement of the related purchase contract will be registered in the name of the purchase contract agent. The shares of our common stock, together with any distributions, will be held by the purchase contract agent as agent for the benefit of the holder until the certificate is presented and surrendered or the holder provides satisfactory evidence that the certificate has been destroyed, lost or stolen, together with any indemnity or security that may be required by the purchase contract agent and us.
If the purchase contracts terminate prior to the purchase contract settlement date, the related pledged securities are transferred to the purchase contract agent for distribution to the holders, and a holder fails to present and surrender the certificate evidencing the holder’s Corporate Units, Treasury Units or Cash Settled Units, if in certificated form, to the purchase contract agent, the related pledged securities delivered to the purchase contract agent and payments on the pledged securities will be held by the purchase contract agent as agent for the benefit of the holder until the applicable certificate is presented, if in certificated form, or the holder provides the evidence and indemnity or security described above.
No service charge will be made for any registration of transfer or exchange of the Corporate Units, Treasury Units or Cash Settled Units, except for any tax or other governmental charge that may be imposed in connection therewith.
The purchase contract agent has no obligation to invest or to pay interest on any amounts held by the purchase contract agent pending payment to any holder.
Modification
The purchase contract and pledge agreement contains provisions permitting us, the purchase contract agent and the collateral agent, to modify the purchase contract and pledge agreement without the consent of the holders for any of the following purposes:
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•    to evidence the succession of another person to our obligations;
•    to add to the covenants for the benefit of holders or to surrender any of our rights or powers under those agreements;
•    to evidence and provide for the acceptance of appointment of a successor purchase contract agent or a successor collateral agent or securities intermediary;
•    to conform the provisions of the purchase contract and pledge agreement to the description contained in this Description of the 2019 Corporate Units;
•    irrevocably elect a contract adjustment payment method to apply;
•    to cure any ambiguity, defect, inconsistency or mistake; or
•    to make such other provisions in regard to matters or questions arising under the purchase contract and pledge agreement that do not adversely affect the interests of any holders of Equity Units in any material respect.
The purchase contract and pledge agreement contains provisions preventing us, the purchase contract agent and the collateral agent, subject to certain limited exceptions, from modifying the terms of the purchase contracts and the purchase contract and pledge agreement without the consent of the holders of not less than a majority of the outstanding purchase contracts. However, no modification may, without the consent of the holder of each outstanding purchase contract affected thereby:
•    subject to our right to defer contract adjustment payments, change any payment date;
•    change the place or currency or method of payment or reduce any contract adjustment payments;
•    impair the right to institute suit for the enforcement of a purchase contract or any contract adjustment payment or deferred contract adjustment payment (including compounded contract adjustment payments thereon);
•    except as described under “Description of the Purchase Contracts—Early Settlement” or “—Anti-dilution Adjustments,” reduce the number of shares of our common stock purchasable under a purchase contract, increase the purchase price of the shares of our common stock issuable on settlement of any purchase contract, change the purchase contract settlement date or the right to early settlement;
•    adversely affect the holder’s rights under a purchase contract in any material respect, provided that any amendment made solely to conform the provisions of the purchase contract and pledge agreement to the description contained in this Description of the 2019 Corporate Units will not be deemed to adversely affect the interests of the holders;
•    change the amount or type of collateral required to be pledged to secure a holder’s obligations under the purchase contract and pledge agreement, impair the right of the holder of any purchase contract to receive distributions on such collateral, or otherwise adversely affect the holder’s rights in or to such collateral;
•    reduce any contract adjustment payments or any deferred contract adjustment payments (including compounded contract adjustment payments); or
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•    reduce the above-stated percentage of outstanding purchase contracts whose holders’ consent is required for the modification or amendment of the provisions of the purchase contracts and the purchase contract and pledge agreement;
provided that if any amendment or proposal would adversely affect only the Corporate Units, only the Treasury Units or only the Cash Settled Units, then only the affected voting group of holders will be entitled to vote on such amendment or proposal, and such amendment or proposal will not be effective except with the consent of the holders of not less than a majority of such voting group or, if referred to in the immediately preceding eight bullets above, all of the holders of such voting group.
We are entitled to set any day as a record date for the purpose of determining the holders of outstanding Equity Units entitled to give or take any demand, direction, consent or other action under the Equity Units, in the manner and subject to the limitations provided in the purchase contract and pledge agreement. In certain circumstances, the purchase contract agent also will be entitled to set a record date for action by holders. If such a record date is set for any action to be taken by holders of particular Equity Units, such action may be taken only by persons who are holders of such Equity Units at the close of business on the record date.
No Consent to Assumption; Agreement by Purchasers
Each holder of a Corporate Unit, a Treasury Unit or a Cash Settled Unit will be deemed under the terms of the purchase contract and pledge agreement, by the purchase of such Corporate Unit, Treasury Unit or Cash Settled Unit, to have expressly withheld any consent to the assumption (i.e., affirmance) of the related purchase contracts by us, our receiver, liquidator or trustee in the event that we become the subject of a case under the U.S. Bankruptcy Code or other similar state or federal law providing for reorganization or liquidation.
Merger, Sale or Lease
We covenant in the purchase contract and pledge agreement that we will not merge or consolidate with any entity or sell, convey, transfer, assign or otherwise dispose of all or substantially all of our assets unless:
•    either we are the continuing corporation or the successor entity is an entity duly organized under the laws of the United States, any state thereof or the District of Columbia and treated as a corporation for U.S. federal income tax purposes and this other entity expressly assumes all of our obligations under the purchase contracts, the purchase contract and pledge agreement, the convertible preferred stock and the remarketing agreement by one or more supplemental agreements;
•    we are not, or such successor entity is not, immediately after such merger, consolidation, sale, conveyance, transfer, assignment or other disposition, in default of payment obligations under the purchase contracts, the purchase contract and pledge agreement, the convertible preferred stock or the remarketing agreement or in material default in the performance of any other obligations thereunder; and
•    an officer’s certificate and opinion of counsel is delivered to the purchase contract agent.
In case of any such consolidation, merger, sale, conveyance (other than by way of lease), transfer, assignment or other disposition, and upon any such assumption by the successor corporation or limited liability company, such successor corporation or limited liability company shall succeed to and be substituted for us, with the same effect as if it had been named in the purchase contract and pledge agreement as us and we shall be relieved of any further
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obligation under the purchase contract and pledge agreement and under the Corporate Units, Treasury Units and Cash Settled Units.
Title
We, the purchase contract agent and the collateral agent may treat the registered owner of any Corporate Units, Treasury Units or Cash Settled Units as the absolute owner of the Corporate Units, Treasury Units or Cash Settled Units for the purpose of making payment (subject to the record date provisions described above), settling the related purchase contracts and for all other purposes.
Replacement of Equity Unit Certificates
In the event that physical certificates have been issued, any mutilated Corporate Unit, Treasury Unit or Cash Settled Unit certificate will be replaced by us at the expense of the holder upon surrender of the certificate to the purchase contract agent. Corporate Unit, Treasury Unit or Cash Settled Unit certificates that become destroyed, lost or stolen will be replaced by us at the expense of the holder upon delivery to us and the purchase contract agent of evidence of their destruction, loss or theft satisfactory to us and the purchase contract agent. In the case of a destroyed, lost or stolen Corporate Unit, Treasury Unit or Cash Settled Unit certificate, an indemnity or security satisfactory to the purchase contract agent and us may be required at the expense of the holder before a replacement certificate will be issued.
Notwithstanding the foregoing, we will not be obligated to issue any Corporate Unit, Treasury Unit or Cash Settled Unit certificates on or after the business day immediately preceding the earliest of any early settlement date, any fundamental change early settlement date, the purchase contract settlement date or the date on which the purchase contracts have terminated. The purchase contract and pledge agreement will provide that, in lieu of the delivery of a replacement Corporate Unit, Treasury Unit or Cash Settled Unit certificate following any of these dates, the purchase contract agent, upon delivery of the evidence and indemnity or security described above, will deliver the shares of our common stock issuable pursuant to the purchase contracts included in the Corporate Units, Treasury Units or Cash Settled Units evidenced by the certificate, or, if the purchase contracts have terminated prior to the purchase contract settlement date, transfer the pledged securities included in the Corporate Units, Treasury Units or Cash Settled Units evidenced by the certificate.
Governing Law
The purchase contracts and the purchase contract and pledge agreement are governed by, and construed in accordance with, the laws of the State of New York.
Information Concerning the Purchase Contract Agent
The Bank of New York Mellon Trust Company, N.A. is the purchase contract agent. The purchase contract agent will act as the agent for the holders of Corporate Units, Treasury Units and Cash Settled Units. The purchase contract agent will not be obligated to take any discretionary action in connection with a default under the terms of the Corporate Units, the Treasury Units, the Cash Settled Units or the purchase contract and pledge agreement.
The purchase contract and pledge agreement contains provisions limiting the liability of and providing indemnification to the purchase contract agent. The purchase contract and pledge agreement also will contain provisions under which the purchase contract agent may resign or be replaced. Such resignation or replacement will be effective upon the appointment of a successor.
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Information Concerning the Collateral Agent
HSBC Bank USA, National Association is the collateral agent. The collateral agent will act solely as our agent and will not assume any obligation or relationship of agency or trust for or with any of the holders of the Corporate Units, the Treasury Units and the Cash Settled Units except for the obligations owed by a pledgee of property to the owner thereof under the purchase contract and pledge agreement and applicable law.
HSBC Bank USA, National Association and its affiliates maintain banking relationships with us and HSBC Bank USA, National Association is the collateral agent for our Equity Units issued in May, 2017, as well as the trustee for our 2052 Debentures.
The purchase contract and pledge agreement contains provisions limiting the liability of and providing indemnification to the collateral agent. The purchase contract and pledge agreement also will contain provisions under which the collateral agent may resign or be replaced. Such resignation or replacement will be effective upon the appointment of a successor.
Miscellaneous
The purchase contract and pledge agreement provide that we will pay all fees and expenses (including fees and expenses of counsel) related to the retention of the collateral agent and the purchase contract agent. Holders who elect to substitute the related pledged securities, thereby creating Treasury Units or Cash Settled Units or recreating Corporate Units, however, will be responsible for any fees or expenses (including fees and expenses of counsel) payable in connection with such substitution, as well as for any commissions, fees or other expenses incurred in acquiring the pledged securities to be substituted. We will not be responsible for any such fees or expenses.
Book-Entry System for Corporate Units, Treasury Units and Cash Settled Units
The Depository Trust Company, or DTC, which we refer to along with its successors in this capacity as the depositary, acts as securities depositary for the Corporate Units, Treasury Units and Cash Settled Units. The Corporate Units were and the Treasury Units and Cash Settled Units will be issued only as fully registered securities registered in the name of Cede & Co., the depositary’s nominee. One or more fully registered global security certificates, representing the total aggregate number of Corporate Units, Treasury Units and Cash Settled Units, was issued and deposited with the depositary or its custodian, bearing a legend regarding the restrictions on exchanges and registration of transfer referred to below.
The laws of some jurisdictions may require that some purchasers of securities take physical delivery of securities in certificated form. These laws may impair the ability to transfer beneficial interests in the Corporate Units, Treasury Units and Cash Settled Units so long as the Corporate Units, Treasury Units and Cash Settled Units are represented by global security certificates.
DTC advises that it is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a “clearing agency” registered pursuant to the provisions of Section 1A of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The depositary holds securities that its participants deposit with the depositary. The depositary also facilitates the settlement among participants of securities transactions, including transfers and pledges, in deposited securities through electronic computerized book-entry changes in participants’ accounts, thereby eliminating the need for physical movement of securities certificates. Direct participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. The depositary is a
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wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation, and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the depositary’s system is also available to others, including securities brokers and dealers, banks, trust companies and clearing corporations that clear transactions through or maintain a custodial relationship with a direct participant, either directly or indirectly. The rules applicable to the depositary and its participants are on file with the SEC.
We will issue the Corporate Units, the Treasury Units and Cash Settled Units in definitive certificated form if the depositary notifies us that it is unwilling or unable to continue as depositary or the depositary ceases to be a clearing agency registered under the Exchange Act and a successor depositary is not appointed by us within 90 calendar days. In addition, beneficial interests in a global security certificate may be exchanged for definitive certificated Corporate Units, Treasury Units or Cash Settled Units upon request by or on behalf of the depositary in accordance with customary procedures following the request of a beneficial owner seeking to exercise or enforce its rights under such Corporate Units, Treasury Units or Cash Settled Units. If we determine at any time that the Corporate Units, Treasury Units or Cash Settled Units shall no longer be represented by global security certificates, we will inform the depositary of such determination and the depositary will, in turn, notify participants of their right to withdraw their beneficial interest from the global security certificates, and if such participants elect to withdraw their beneficial interests, we will issue certificates in definitive form in exchange for such beneficial interests in the global security certificates. Any global Corporate Unit, Treasury Unit or Cash Settled Unit, or portion thereof that is exchangeable pursuant to this paragraph will be exchangeable for Corporate Unit, Treasury Unit or Cash Settled Unit certificates, as the case may be, registered in the names directed by the depositary. We expect that these instructions will be based upon directions received by the depositary from its participants with respect to ownership of beneficial interests in the global security certificates.
As long as the depositary or its nominee is the registered owner of the global security certificates, the depositary or its nominee, as the case may be, will be considered the sole owner and holder of the global security certificates and all Corporate Units, Treasury Units and Cash Settled Units represented by these certificates for all purposes under the Corporate Units, Treasury Units, Cash Settled Units and the purchase contract and pledge agreement. Except in the limited circumstances referred to above, owners of beneficial interests in global security certificates:
•    will not be entitled to have the Corporate Units, the Treasury Units or the Cash Settled Units represented by these global security certificates registered in their names, and
•    will not be considered to be owners or holders of the global security certificates or any Corporate Units, Treasury Units or Cash Settled Units represented by these certificates for any purpose under the Corporate Units, Treasury Units, Cash Settled Units or the purchase contract and pledge agreement.
All payments on the Corporate Units, Treasury Units and Cash Settled Units represented by the global security certificates and all transfers and deliveries of related convertible preferred stock, Treasury securities, cash and common stock will be made to the depositary or its nominee, as the case may be, as the holder of the securities.
Ownership of beneficial interests in the global security certificates is limited to participants or persons that may hold beneficial interests through institutions that have accounts with the depositary or its nominee. Ownership of beneficial interests in global security certificates are shown only on, and the transfer of those ownership interests are effected only through, records maintained by the depositary or its nominee, with respect to participants’ interests, or any participant, with respect to interests of persons held by the participant on their behalf. Procedures for settlement of purchase contracts on the purchase contract settlement date, or upon early settlement, will be governed by arrangements among the depositary, participants and persons that may hold beneficial interests through participants
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designed to permit settlement without the physical movement of certificates. Payments, transfers, deliveries, exchanges and other matters relating to beneficial interests in global security certificates may be subject to various policies and procedures adopted by the depositary from time to time. None of us, the purchase contract agent or any agent of us or the purchase contract agent will have any responsibility or liability for any aspect of the depositary’s or any participant’s records relating to, or for payments made on account of, beneficial interests in global security certificates, or for maintaining, supervising or reviewing any of the depositary’s records or any participant’s records relating to these beneficial ownership interests.
Although the depositary has agreed to the foregoing procedures in order to facilitate transfers of interest in the global security certificates among participants, the depositary is under no obligation to perform or continue to perform these procedures, and these procedures may be discontinued at any time. We will not have any responsibility for the performance by the depositary or its direct participants or indirect participants under the rules and procedures governing the depositary.
The information in this section concerning the depositary and its book-entry system has been obtained from sources that we believe to be reliable, but we have not attempted to verify the accuracy of this information.
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Description of the Convertible Preferred Stock
General
Under our Restated Certificate of Incorporation, as amended, our board of directors designated up to 750,000 shares of our authorized but unissued preferred stock as, and approved a certificate of amendment creating, a series of our preferred stock, designated as the 0% Series D Cumulative Perpetual Convertible Preferred Stock, which we refer to as the “convertible preferred stock.” We shall not (i) change any terms of the convertible preferred stock except as set forth in the certificate of amendment and (ii) issue any additional shares of the convertible preferred stock other than in accordance with the certificate of amendment.
We issued an aggregate of 750,000 shares of the convertible preferred stock.
Each Corporate Unit includes a 1/10, or 10%, undivided beneficial ownership interest in one share of convertible preferred stock with an initial $1,000 liquidation preference that corresponds to the stated amount of $100 per Corporate Unit.
We do not intend to list the convertible preferred stock that are not a part of Corporate Units on any securities exchange.
Ranking
The convertible preferred stock, with respect to dividend rights or rights upon our liquidation, winding-up or dissolution, ranks:
•    senior to all classes or series of our common stock, and if issued, our authorized Series A Junior Participating Preferred Stock, and to any other class or series of our capital stock expressly designated as ranking junior to the convertible preferred stock;
•    on parity with (a) our 0% Series C Cumulative Perpetual Convertible Preferred Stock and (b) any other class or series of our capital stock expressly designated as ranking on parity with the convertible preferred stock;
•    junior to any other class or series of our capital stock expressly designated as ranking senior to the convertible preferred stock; and
•    junior to our existing and future indebtedness and other liabilities (including trade payables).
The term “capital stock” does not include convertible or exchangeable debt securities, which, prior to conversion or exchange, will rank senior in right of payment to the convertible preferred stock.
In the case of our liquidation, dissolution or winding up, holders of the convertible preferred stock will not have the right to receive any payment or distribution unless all of our liabilities are first paid in full and the priority of any senior stock is satisfied.
The convertible preferred stock will be structurally subordinated to all debt, preferred stock and other liabilities of our subsidiaries, which means that creditors and preferred stockholders of our subsidiaries will be paid from the assets of such subsidiaries before holders of the convertible preferred stock would have any claims to those assets.
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No Dividends
The convertible preferred stock does not bear any dividends and the liquidation preference of the convertible preferred stock does not accrete.
Dividends Following a Successful Remarketing
In connection with a successful remarketing of the convertible preferred stock, the dividend rate on the convertible preferred stock may be increased as described under “—Increased Dividend Rate and Increased Conversion Rate” below. From and after the settlement date for such a remarketing in connection with which the dividend rate on the convertible preferred stock is increased (a “dividend increase remarketing”), cumulative dividends on the convertible preferred stock will be payable, when, as and if authorized by our board of directors and declared by us out of funds legally available for the payment of dividends, on the $1,000 liquidation preference per share of the convertible preferred stock, payable in cash, shares of our common stock, or a combination of cash and shares of our common stock, at our election, unless we have previously irrevocably elected a dividend payment method to apply.
If the dividend on the convertible preferred stock is so increased, dividends will accumulate from the remarketing settlement date or if dividends shall have been paid on the convertible preferred stock thereafter, from the most recent date of payment, and will be payable to investors quarterly in arrears on February 15, May 15, August 15 and November 15 of each year, each a “dividend payment date,” commencing no earlier than February 15, 2023, to the person whose name appears in our stock records at the close of business on the applicable record date, which will be the first day of the month on which the relevant dividend payment date falls (whether or not a business day) or, if the separate shares of the convertible preferred stock are held in global book-entry form, the record date will be the business day immediately preceding the applicable dividend payment date. We refer to each period beginning on and including a dividend payment date (or, if no dividends have been paid on the convertible preferred stock, the remarketing settlement date) to but excluding the next dividend payment date as a “dividend period.”
We will calculate dividends on the convertible preferred stock on the basis of a 360-day year of twelve 30-day months. Dollar amounts resulting from that calculation will be rounded to the nearest cent, with one-half cent being rounded upward. Dividends on the convertible preferred stock will cease to accumulate upon conversion, as described below.
If a dividend payment date falls on a date that is not a business day, such dividend payment date will be postponed to the next succeeding business day, provided that, if such business day falls in the next succeeding calendar month, the dividend payment date will be brought forward to the immediately preceding business day.
Dividends on the convertible preferred stock after a dividend increase remarketing will accumulate whether or not:
•    we have earnings;
•    there are funds legally available for the payment of those dividends; or
•    those dividends are authorized or declared.
So long as any shares of convertible preferred stock remain outstanding, except as described below, unless full cumulative dividends on the convertible preferred stock for all past dividend periods (including compounded dividends thereon) shall have been or contemporaneously are declared and paid or declared and a sum or number of shares of common stock sufficient for the payment thereof is set apart for payment, we will not:
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•    declare and pay or declare and set aside for payment of dividends, and we will not declare and make any distribution of cash or other property, directly or indirectly, on or with respect to any shares of our common stock or shares of any other class or series of our capital stock ranking, as to dividends, on parity with or junior to the convertible preferred stock (including our 0% Series C Cumulative Perpetual Convertible Preferred Stock), for any period;
•    redeem, purchase or otherwise acquire for any consideration, or make any other distribution of cash or other property, directly or indirectly, on or with respect to, or pay or make available any monies for a sinking fund for the redemption of, any common stock or shares of any other class or series of our capital stock ranking, as to dividends or upon liquidation, on parity with or junior to the convertible preferred stock (including our 0% Series C Cumulative Perpetual Convertible Preferred Stock); or
•    make any contract adjustment payments under the purchase contracts or any payment under any similar agreement providing for the issuance by us of capital stock on a forward basis.
The foregoing sentence, however, will not prohibit:
•    purchases, redemptions or other acquisitions of shares of capital stock ranking junior to the convertible preferred stock in connection with any employment contract, benefit plan or other similar arrangement with or for the benefit of current or former employees, officers, directors or consultants;
•    purchases of shares of our common stock pursuant to a contractually binding requirement to buy stock existing prior to the commencement of the first dividend period for which dividends are unpaid, including under a contractually binding stock repurchase plan;
•    the purchase of, or the payment of cash in lieu of, fractional interests in shares of capital stock ranking junior to the convertible preferred stock issued by us (i) in connection with a bona fide acquisition of a business or (ii) pursuant to the conversion or exchange provisions of such capital stock or securities convertible into or exchangeable for such capital stock;
•    any declaration of a dividend on our capital stock in connection with the implementation of a shareholders rights plan designed to protect us against unsolicited offers to acquire our capital stock, or the issuance of our capital stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto;
•    dividends or distributions payable solely in capital stock ranking junior to the convertible preferred stock, or warrants, options or rights to acquire such capital stock, other than any indebtedness or our capital stock ranking, as to dividends or upon liquidation, on parity with or senior to the convertible preferred stock, in each case, convertible into our capital stock ranking junior to the convertible preferred stock; or
•    the conversion into or exchange for other shares of any class or series of capital stock ranking junior to the convertible preferred stock.
We will not permit any of our subsidiaries to purchase or otherwise acquire for consideration any shares of our stock unless we could, under the above paragraph, purchase or otherwise acquire such shares at such time and in such manner. We refer to the provisions described in this paragraph and the above paragraph as the “dividend blocker provisions.”
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When we do not pay dividends in full (or do not set apart a sum sufficient to pay them in full) on the convertible preferred stock and the shares of any other class or series of capital stock ranking, as to dividends, on parity with the convertible preferred stock, we will declare any dividends upon the convertible preferred stock and each such other class or series of capital stock ranking, as to dividends, on parity with the convertible preferred stock pro rata, so that the amount of dividends declared per share of the convertible preferred stock and such other class or series of capital stock will in all cases bear to each other the same ratio that accumulated and unpaid dividends per share on the convertible preferred stock and such other class or series of capital stock (which will not include any accumulation in respect of unpaid dividends on such other class or series of capital stock for prior dividend periods if such other class or series of capital stock does not have a cumulative dividend) bear to each other.
Any accumulated and unpaid dividends will accumulate additional dividends at the then-current dividend rate until paid, compounded quarterly, to, but excluding, the payment date. We refer to these additional dividends that accumulate on accumulated and unpaid dividends as “compounded dividends” and the payments in respect thereof as “compounded dividend payments.”
Holders of shares of the convertible preferred stock are not entitled to any dividends in excess of the full cumulative dividends (including compounded dividends) on the convertible preferred stock as described above. Any dividend payment made on the convertible preferred stock will first be credited against the earliest accumulated but unpaid dividends due with respect to those shares which remain payable.
No dividend will be paid unless and until our board of directors, or an authorized committee of our board of directors, declares a dividend payable with respect to the convertible preferred stock. Our ability to declare and pay dividends and make other distributions with respect to our capital stock, including the convertible preferred stock, may be limited by the terms of any indentures, loan agreements or other financing arrangements that we enter into in the future. In addition, our ability to declare and pay dividends may be limited by applicable Connecticut law.
Method of Payment of Dividends
Subject to the limitations described below, we may pay any dividend (or any portion of any dividend) on the convertible preferred stock (whether or not for a current dividend period or any prior dividend period), determined in the sole discretion of our board of directors, or an authorized committee thereof:
•    in cash;
•    by delivery of shares of our common stock; or
•    through any combination of cash and shares of our common stock.
We will make each payment of a dividend on the convertible preferred stock in cash, except to the extent we elect, or have previously elected, to make all or any portion of such payment in shares of our common stock. Unless we have previously irrevocably elected a dividend payment method to apply, we will give the holders of the convertible preferred stock notice of any election with respect to any particular dividend payment, the portion of such payment that will be made in cash and the portion of such payment that will be made in common stock no later than eight scheduled trading days prior to the dividend payment date for such dividend.
If we elect, or have previously irrevocably elected, to make any such payment of a dividend, or any portion thereof, in shares of our common stock, such shares shall be valued for such purpose at the average of the daily VWAPs per share of our common stock over the five consecutive trading day period ending on the second trading day immediately preceding the applicable payment date (the “five-day average price”), multiplied by 97%.
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Without the consent of any holders of the convertible preferred stock, we may, by notice to such holders, irrevocably elect whether we will pay dividend payments in cash, shares of our common stock or a combination thereof (a “dividend payment method”) and, if applicable, the amount or percentage of a dividend payment to be paid in common stock that will apply to any dividend payment following such notice (unless a dividend payment method has previously been designated) and, subject to the foregoing, specify the effective time of such election (which, for the avoidance of doubt, may be at any time subsequent to the delivery of such notice). Our irrevocable election of a dividend payment method as described herein may be made by us in our sole discretion.
No fractional shares of common stock will be delivered to the holders of the convertible preferred stock in respect of dividends. We will instead pay a cash adjustment to each holder that would otherwise be entitled to a fraction of a share of common stock based on (i) the five-day average price and (ii) the aggregate number of shares of convertible preferred stock held by such holder (or, if the convertible preferred stock is held in global book-entry form, based on the applicable procedures of the depositary for determining such number of shares).
To the extent a shelf registration statement is required in our reasonable judgment in connection with the issuance of or for resales of common stock issued as payment of a dividend, we will, to the extent such a registration statement is not currently filed and effective, use our commercially reasonable efforts to file and maintain the effectiveness of such a shelf registration statement until the earlier of such time as all such shares of common stock have been resold thereunder and such time as all such shares are freely tradable by non-affiliates of ours without registration. To the extent applicable, we will also use our commercially reasonable efforts to have the shares of common stock qualified or registered under applicable state securities laws, if required, and approved for listing on the New York Stock Exchange (or if our common stock is not listed on the New York Stock Exchange, on the principal other U.S. national or regional securities exchange on which our common stock is then listed).
Any dividends paid in shares of our common stock will be subject to the listing standards of the New York Stock Exchange, if applicable.
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding up of our affairs, before any distribution or payment shall be made to holders of shares of our common stock or any other class or series of capital stock ranking, as to rights upon any voluntary or involuntary liquidation, dissolution or winding up of our affairs, junior to the convertible preferred stock, holders of shares of the convertible preferred stock are entitled to be paid out of our assets legally available for distribution to our stockholders, after payment of or provision for our debts and other liabilities, a liquidation preference of $1,000 per share of the convertible preferred stock, plus an amount equal to any accumulated and unpaid dividends (whether or not authorized or declared) (which will only accrue after a dividend increase remarketing) up to but excluding the date of payment, but subject to the prior payment in full of all our liabilities and the payment of our senior stock. If, upon our voluntary or involuntary liquidation, dissolution or winding up, our available assets are insufficient to pay the full amount of the liquidating distributions on all outstanding shares of the convertible preferred stock and the corresponding amounts payable on all shares of each other class or series of capital stock ranking, as to liquidation rights, on parity with the convertible preferred stock in the distribution of assets, then holders of shares of the convertible preferred stock and each such other class or series of capital stock ranking, as to voluntary or involuntary liquidation rights, on parity with the convertible preferred stock will share ratably in any distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled.
Holders of shares of the convertible preferred stock will be entitled to written notice of any event triggering the right to receive a distribution in connection with any voluntary or involuntary liquidation, dissolution or winding up of
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our affairs. After payment of the full amount of the liquidating distributions to which they are entitled, holders of shares of the convertible preferred stock will have no right or claim to any of our remaining assets. Our consolidation or merger with or into any other corporation, trust or other entity, or the voluntary sale, lease, transfer or conveyance of all or substantially all of our property or business, will not be deemed to constitute a liquidation, dissolution or winding up of our affairs.
No Maturity
The convertible preferred stock has no maturity date, but we are permitted to redeem the convertible preferred stock as described under “—Optional Redemption.” Accordingly, the convertible preferred stock will remain outstanding indefinitely unless a holder of shares of the convertible preferred stock decides, subject to satisfaction of the conditions described herein, to convert it, or we elect to redeem it. See “—Conversion Rights,” and “—Optional Redemption” below.
Optional Redemption
We do not have the right to redeem any shares of the convertible preferred stock before December 22, 2022. On or after December 22, 2022, we will have the option to redeem some or all the shares of the convertible preferred stock at a redemption price equal to 100% of the liquidation preference per share, plus any accumulated and unpaid dividends, if any (whether or not declared) (which will only accrue after a dividend increase remarketing) to, but excluding, the redemption date. The redemption price will be paid solely in cash. In connection with a successful remarketing of the convertible preferred stock, the earliest redemption date for the convertible preferred stock may be changed to a later date.
In the event of a redemption, we will request that the depositary notify its participants holding convertible preferred stock or, if the convertible preferred stock is in certificated form, send a written notice by first class mail to each holder of record of the convertible preferred stock at such holders registered address, not fewer than 25 scheduled trading days nor more than 90 calendar days prior to the redemption date, stating, among other things, the redemption price and, if we have not previously irrevocably elected a settlement method to apply, the settlement method of the convertible preferred stock if the holder elects to convert. In addition, we will (i) issue a press release containing such information and (ii) publish such information on our website. In no event will we give any notice of redemption prior to the earlier of a remarketing settlement date and the purchase contract settlement date.
If we give notice of redemption, then, by 12:00 p.m., New York City time, on the redemption date, to the extent funds are legally available, we shall, with respect to:
•    shares of the convertible preferred stock held by DTC or its nominees, deposit or cause to be deposited, irrevocably with DTC cash sufficient to pay the redemption price and will give DTC irrevocable instructions and authority to pay the redemption price to holders of such shares of the convertible preferred stock; and
•    shares of the convertible preferred stock held in certificated form, deposit or cause to be deposited, irrevocably with the paying agent cash sufficient to pay the redemption price and will give the paying agent irrevocable instructions and authority to pay the redemption price to holders of such shares of the convertible preferred stock upon surrender to the paying agent of their certificates evidencing their shares of the convertible preferred stock.
If on the redemption date DTC or the paying agent holds cash sufficient to pay the redemption price for the shares of the convertible preferred stock delivered for redemption in accordance with the terms of the certificate of
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amendment, dividends, if any, will cease to accumulate on those shares of the convertible preferred stock called for redemption and all rights of holders of such shares will terminate except for the right to receive the redemption price. Payment of the redemption price for the shares of the convertible preferred stock is conditioned upon book-entry transfer of or physical delivery of certificates representing the convertible preferred stock, together with necessary endorsements, to the paying agent, or to the paying agent’s account at DTC, at any time after delivery of the redemption notice. Payment of the redemption price for the convertible preferred stock will be made (i) if book-entry transfer of or physical delivery of the convertible preferred stock has been made by or on the redemption date, on the redemption date, or (ii) if book-entry transfer of or physical delivery of the convertible preferred stock has not been made by or on such date, at the time of book-entry transfer of or physical delivery of the convertible preferred stock.
If the redemption date falls after a dividend payment record date that occurs after a dividend increase remarketing and before the related dividend payment date, holders of the shares of convertible preferred stock at the close of business on that dividend payment record date will be entitled to receive the dividend payable on those shares on the corresponding dividend payment date. The redemption price payable on such redemption date will include only the liquidation preference, but will not include any amount in respect of dividends declared and payable on such corresponding dividend payment date.
In the case of any partial redemption, we will select the shares of convertible preferred stock to be redeemed on a pro rata basis, by lot or any other method that we, in our discretion, deem fair and appropriate.
We do not have the right to authorize, issue a press release or give notice of redemption unless (a) we have funds legally available for the payment of the aggregate redemption price and (b) prior to giving the notice, (i) all accumulated and unpaid dividends on the convertible preferred stock (whether or not declared) for dividend periods ended prior to the date of such notice of redemption shall have been or contemporaneously are declared and paid out of legally available funds and (ii) if the redemption date occurs following a record date that occurs after a dividend increase remarketing and prior to the related dividend payment date, a cash dividend for the related dividend period has been declared and sufficient funds legally available therefor have been set aside for payment of such dividend.
Limited Voting Rights
Holders of shares of the convertible preferred stock generally do not have any voting rights, except as set forth below and as required by law. In matters where holders of the convertible preferred stock are entitled to vote, each share of the convertible preferred stock shall be entitled to one vote.
Preferred Stock Directors
If at any time after a dividend increase remarketing, dividends on the convertible preferred stock have not been declared and paid in full for six or more dividend periods from and after such successful remarketing, whether or not consecutive (which we refer to as a “preferred dividend default”), holders of shares of the convertible preferred stock (voting together as a class with the holders of all other classes or series of preferred stock upon which like voting rights have been conferred and are exercisable (and with voting rights allocated pro rata based on the liquidation preference of the convertible preferred stock and each such other class or series of preferred stock)) will be entitled to vote for the election of two additional directors to serve on our board of directors (which we refer to as “preferred stock directors”), until all accumulated unpaid dividends with respect to the convertible preferred stock and any other class or series of preferred stock upon which like voting rights have been conferred and are exercisable have been paid or declared and a sum sufficient for payment is set aside for such payment. In such a case, the number of directors serving on our board of directors will be increased by two. The preferred stock
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directors will be elected by a plurality of the votes cast in the election to serve until the next annual meeting and each preferred stock director will serve until his successor is duly elected and qualifies or until the director’s right to hold the office terminates, whichever occurs earlier. The election will take place at:
•    a special meeting called by holders of at least 10% of the outstanding shares of the convertible preferred stock together with any other class or series of preferred stock upon which like voting rights have been conferred and are exercisable, if this request is received more than 90 calendar days before the date fixed for our next annual or special meeting of stockholders or, if we receive the request for a special meeting within 90 calendar days before the date fixed for our next annual or special meeting of stockholders, at our annual or special meeting of stockholders; and
•    each subsequent annual meeting (or special meeting held in its place) until all accumulated dividends on the convertible preferred stock and on any other class or series of preferred upon which like voting rights have been conferred and are exercisable have been paid in full for all past dividend periods and the dividend for the then current dividend period shall have been fully paid or declared and a sum sufficient for the payment thereof set aside for payment.
If and when all accumulated dividends on the convertible preferred stock and all other classes or series of preferred stock upon which like voting rights have been conferred and are exercisable shall have been paid in full or a sum sufficient for such payment in full is set aside for payment, holders of shares of the convertible preferred stock shall be divested of the voting rights set forth above (subject to re-vesting in the event of any subsequent preferred dividend defaults) and the term of office of such preferred stock directors so elected will terminate and the entire board of directors will be reduced accordingly. Each preferred stock director shall be entitled to one vote on any matter.
When a Supermajority Vote is Required
So long as any shares of the convertible preferred stock remain outstanding, we will not, without the consent or the affirmative vote of the holders of at least two-thirds of the outstanding shares of the convertible preferred stock together with each other class or series of preferred stock ranking on parity with the convertible preferred stock with respect to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up and upon which like voting rights have been conferred (voting as a single class):
•    authorize, create or issue, or increase the number of authorized or issued shares of, any class or series of stock ranking senior to the convertible preferred stock with respect to payment of dividends, or the distribution of assets upon the liquidation, dissolution or winding up of our affairs, or reclassify any of our authorized capital stock into any such shares, or create, authorize or issue any obligation or security convertible into or evidencing the right to purchase any such shares;
•    amend, alter or repeal the provisions of our certificate of incorporation so as to materially and adversely affect any right, preference, privilege or voting power of the convertible preferred stock; or
•    consummate a binding share exchange or reclassification involving the shares of convertible preferred stock or a merger or consolidation of us with another entity, unless either (i) the shares of convertible preferred stock remain outstanding and have rights, preferences, privileges and voting powers, taken as a whole, that are no less favorable to the holders thereof than the rights, preferences, privileges and voting powers of the convertible preferred stock immediately prior to such consummation, taken as a whole, or (ii) in the case of any such merger or consolidation with respect to which we are not the surviving or resulting entity, the shares of convertible preferred stock are converted into or exchanged
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for preference securities of the surviving or resulting entity or its ultimate parent, such surviving or resulting entity or ultimate parent is organized under the laws of the United States, any state thereof or the District of Columbia and treated as a corporation for U.S. federal income tax purposes, and such preference securities have rights, preferences, privileges and voting powers, taken as a whole, that are no less favorable to the holders thereof than the rights, preferences, privileges and voting powers of the convertible preferred stock immediately prior to such consummation, taken as a whole;
provided that the creation and issuance, or an increase in the authorized or issued amount, whether pursuant to pre-emptive or similar rights or otherwise, of any series of preferred stock (including the convertible preferred stock), ranking equally with and/or junior to the convertible preferred stock with respect to the payment of dividends (whether such dividends are cumulative or non-cumulative) and the distribution of assets upon our liquidation, dissolution and winding-up, shall not be deemed to adversely affect the rights, preferences, privileges or voting powers of the convertible preferred stock, and shall not require the affirmative vote or consent of the holders of the convertible preferred stock.
If any amendment, alteration, repeal, share exchange, reclassification, merger or consolidation specified above would adversely affect one or more but not all series of parity stock (including the convertible preferred stock for this purpose), then only the one or more series of parity stock adversely affected and entitled to vote, rather than all series of parity stock, shall vote as a class.
Without the consent of the holders of the convertible preferred stock, so long as such action does not adversely affect the special rights, preferences, privileges or voting powers of the convertible preferred stock, and limitations and restrictions thereof, we may amend, alter, supplement, or repeal any terms of the convertible preferred stock for the following purposes:
•    to cure any ambiguity, defect, inconsistency or mistake, or to correct or supplement any provision contained in the certificate of amendment establishing the terms of the convertible preferred stock that may be defective or inconsistent with any other provision contained in such certificate of amendment;
•    to make such other provisions in regard to matters or questions relating to the convertible preferred stock that is not inconsistent with the provisions of the certificate of amendment establishing the terms of the convertible preferred stock; or
•    to waive any of our rights with respect thereto;
provided that any such amendment, alteration, supplement or repeal of any terms of the convertible preferred stock effected in order to (1) conform the terms of the convertible preferred stock to the description contained in this Description of the 2019 Corporate Units, (2) implement the changes under “—Increased Dividend Rate and Increased Conversion Rate,” (3) change the earliest redemption date for the convertible preferred stock in connection with a successful remarketing, (4) irrevocably elect a settlement method or dividend payment method to apply or (5) elect for the fundamental change conversion right to apply after a successful remarketing (as well as any increase to any related table of additional shares to be added to the conversion rate, if any) shall be deemed not to adversely affect the special rights, preferences, privileges and voting powers, and limitations and restrictions thereof, of the convertible preferred stock.
Holders of shares of the convertible preferred stock are not entitled to vote with respect to any increase in the total number of authorized shares of our common stock or preferred stock, any increase in the number of authorized shares of the convertible preferred stock or the creation or issuance of any other class or series of capital stock, or any increase in the number of authorized shares of any other class or series of capital stock, in each case ranking on
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parity with or junior to the convertible preferred stock with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up, except as set forth above.
Holders of shares of the convertible preferred stock do not have any voting rights with respect to, and the consent of the holders of shares of the convertible preferred stock is not required for, the taking of any corporate action, including any merger or consolidation involving us or a sale of all or substantially all of our assets, regardless of the effect that such merger, consolidation or sale may have upon the powers, preferences, voting power or other rights or privileges of the convertible preferred stock, except as set forth above.
In addition, the voting provisions above will not apply if, at or prior to the time when the act with respect to which the vote would otherwise be required would occur, we have redeemed upon proper procedures all outstanding shares of the convertible preferred stock.
Conversion Rights
General
Holders of Corporate Units do not have the right to convert their ownership interests in the convertible preferred stock that are a part of such Corporate Units. Only shares of convertible preferred stock that are not a part of Corporate Units may be so converted. Holders of such separate shares of convertible preferred stock that are not a part of Corporate Units may convert their shares into common stock (or cash or a combination of cash and common stock, at our election, unless we have previously irrevocably elected a settlement method to apply) at their option prior to November 15, 2022 only upon the occurrence of a fundamental change if such fundamental change occurs prior to a successful remarketing. In order for a holder of Corporate Units to separate their convertible preferred stock from the purchase contracts in order to convert the convertible preferred stock in connection with a fundamental change prior to a successful remarketing, the holder must either (1) create Treasury Units or (2) settle the related purchase contracts early with separate cash, as described under “Description of the Purchase Contracts—Early Settlement Upon a Fundamental Change” above. If a fundamental change occurs prior to a successful remarketing, holders of separate shares of convertible preferred stock can convert such shares at any time from or after the effective date of such transaction until 35 trading days after such effective date.
On and after November 15, 2022, holders of shares of the convertible preferred stock may, at their option, at any time and from time to time, convert some or all of their outstanding shares of the convertible preferred stock.
The conversion rate will initially be 5.2263 shares of our common stock per share of convertible preferred stock, which is equivalent to an initial conversion price of approximately $191.34 per share of our common stock. Upon conversion of the convertible preferred stock, we will settle our obligations in the manner set forth under “—Settlement Upon Conversion.”
Upon settlement of a conversion of the convertible preferred stock and except as set forth in the immediately succeeding paragraph, a holder will not receive payment of accumulated and unpaid dividends, if any, as described under “—Dividends Following a Successful Remarketing” and we will not make any payments in respect of or adjust the conversion rate to account for accumulated and unpaid dividends to the conversion date except as provided under “—Adjusted Conversion Rate Upon a Fundamental Change.”
If a holder of shares of convertible preferred stock exercises its conversion rights, on and after the conversion date, those shares will cease to cumulate dividends (if any) as of the end of the day immediately preceding the conversion date. A holder of shares of convertible preferred stock on the record date for the payment of a dividend will receive that dividend notwithstanding a conversion of the convertible preferred stock following such record date to the
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dividend payment date. However, convertible preferred stock surrendered for conversion after the close of business on any record date for the payment of dividends declared and before the opening of business on the dividend payment date relating to that record date must be accompanied by a payment in cash of an amount equal to the dividend payable in respect of those shares for the dividend period in which the shares are converted; provided that no such payment need be made:
•    if we have specified a redemption date that is after a dividend payment record date and on or prior to the corresponding dividend payment date; or
•    if we have specified a fundamental change conversion deadline (as defined below) that is after a dividend payment record date and on or prior to the corresponding dividend payment date.
In case any shares of convertible preferred stock are to be redeemed, the right to convert those shares of the convertible preferred stock will terminate at 5:00 p.m., New York City time, on the business day immediately preceding the redemption date, unless we default in the payment of the redemption price of those shares of convertible preferred stock.
Adjusted Conversion Rate Upon a Fundamental Change
If a fundamental change (as defined in “Description of the Purchase Contracts—Early Settlement Upon a Fundamental Change” above) occurs prior to a successful remarketing, a holder may elect to convert separate shares of convertible preferred stock in connection with such fundamental change (such right of conversion, the “fundamental change conversion right”). If the stock price (as defined in “Description of the Purchase Contracts—Early Settlement Upon a Fundamental Change—Calculation of Make-Whole Shares” above) is less than $191.34 (which we refer to as the “conversion price,” and which initially equals the conversion price of the convertible preferred stock), any such conversion in connection with such fundamental change will be at an adjusted conversion rate that will be equal to the $1,000 liquidation preference plus all accumulated and unpaid dividends, if any, to, but excluding such fundamental change settlement date described below (unless the conversion date for a share of convertible preferred stock occurs after the record date for the payment of declared dividends and prior to the related dividend payment date, in which case the conversion rate calculation for such share will not include accumulated and unpaid dividends that will be paid to holders of record on such record date) divided by the average of the closing prices of our common stock for the five consecutive trading days ending on the second business day prior to the fundamental change settlement date (or, in the case of a fundamental change described in clause (i) of the definition of fundamental change where the holders of our common stock receive only cash in the fundamental change, the cash amount paid per share of our common stock) (the “fundamental change settlement price”). Notwithstanding the foregoing, in no event will the conversion rate exceed 12.5431 shares of common stock per share of convertible preferred stock (subject to adjustment as set forth under “—Conversion Rate Adjustments” and increase as set forth under “—Increased Dividend Rate and Increased Conversion Rate”), which is equal to the $1,000 liquidation preference divided by 50% of $159.45 (the closing price of our common stock on the pricing date of this offering, which closing price we refer to as the “initial price”).
However, on and after a successful remarketing, there will be no fundamental change conversion right. We may, in connection with a remarketing, nonetheless elect for the fundamental change conversion right to apply to the terms of the convertible preferred stock, but we are not obligated to do so.
The initial price will be adjusted as of any date on which the conversion rate of the convertible preferred stock is adjusted. The adjusted initial price will equal the initial price applicable immediately prior to such adjustment multiplied by a fraction, the numerator of which is the conversion rate immediately prior to the adjustment giving
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rise to the stock price adjustment and the denominator of which is the conversion rate as so adjusted. The conversion price as of any time is equal to $1,000 divided by the conversion rate as of such time.
A conversion of the convertible preferred stock will be deemed for these purposes to be “in connection with” such a fundamental change (regardless of the stock price) if the conversion date occurs from, and including, the effective date of such fundamental change to, and including, the date we specified in the fundamental change company notice as the last date on which a holder of the convertible preferred stock may exercise the fundamental change conversion right for that fundamental change, which we refer to as the “fundamental change conversion deadline.” The fundamental change conversion deadline will be a date no less than 20 business days nor more than 35 business days after the effective date of such fundamental change, provided that if any purchase contracts are outstanding at the time we give the fundamental change company notice, such date shall not be less than 10 business days following the fundamental change early settlement date we specify for the purchase contracts as described under “Description of the Purchase Contracts—Early Settlement Upon a Fundamental Change.”
To the extent practicable, we will provide each holder of convertible preferred stock with a notice of the anticipated effective date of a fundamental change (to the extent such anticipated effective date is expected to occur prior to a successful remarketing unless the fundamental change conversion right also applies after a remarketing as described in this Description of the 2019 Corporate Units) at least 20 business days prior to such anticipated effective date, but in any event not later than two business days following our becoming aware of the occurrence of such fundamental change. In addition, if such fundamental change occurs prior to a successful remarketing unless the fundamental change conversion right also applies after a remarketing as described in this Description of the 2019 Corporate Units, we will send a notice to holders of a fundamental change within five business days after the effective date of such fundamental change (the “fundamental change company notice”). Such fundamental change company notice will state:
•    the events constituting the fundamental change;
•    the effective date of the fundamental change;
•    the name and address of the paying agent and the conversion agent;
•    the conversion rate and any adjustment to the conversion rate that will result from the fundamental change, or if the stock price is less than the conversion price, the formula for determination of the conversion rate;
•    the procedures that the holder of the convertible preferred stock must follow to exercise the fundamental change conversion right;
•    the fundamental change conversion deadline;
•    unless we have previously irrevocably elected a settlement method to apply, the settlement method for all conversions in exercise of the fundamental change conversion right, including, in the case of combination settlement, the amount of cash per share of convertible preferred stock we will pay in settlement of any such conversions; and
•    if the stock price is less than the conversion price, the date on which all conversions in exercise of the fundamental change conversion right will be settled (the “fundamental change settlement date”), which will be the second business day immediately following the fundamental change conversion deadline.
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To exercise the fundamental change conversion right, a holder of a separate share of convertible preferred stock must deliver, on or before the close of business on the fundamental change conversion deadline, the convertible preferred stock to be converted, duly endorsed for transfer, together with a written conversion notice completed, to our conversion agent. The conversion notice will state:
•    the relevant fundamental change conversion date; and
•    the number of shares of the convertible preferred stock to be converted pursuant to the fundamental change conversion right.
If the convertible preferred stock is held in global form, the conversion notice must comply with applicable DTC procedures.
If the stock price is greater than or equal to the conversion price, the convertible preferred stock as to which the fundamental change conversion right has been properly exercised will be converted into cash, shares of our common stock or a combination thereof at our election, unless we have previously irrevocably elected a settlement method to apply, in accordance with “—Settlement Upon Conversion” below. If the stock price is less than the conversion price, then notwithstanding anything to the contrary, we can elect, unless we have previously irrevocably elected a settlement method to apply, to settle conversions in connection with a valid exercise of the fundamental change conversion right through cash settlement, combination settlement or physical settlement, as follows:
•    ·    any such conversions will settle on the fundamental change settlement date;
•    ·    if we have validly elected physical settlement, we will deliver, in respect of each share of the convertible preferred stock, a number of shares of common stock (and cash in lieu of any fractional shares) equal to the conversion rate described above;
•    if we have validly elected cash settlement, we will deliver an amount of cash per share of convertible preferred stock equal to the conversion rate described above multiplied by the fundamental change settlement price; and
•    if we have validly elected combination settlement, we will deliver, in addition to the amount of cash per share of convertible preferred stock specified in the fundamental change company notice, a number of shares of common stock (and cash in lieu of any fractional shares) equal to a fraction, the numerator of which is (i) the conversion rate described above multiplied by the fundamental change settlement price minus (ii) the amount of cash per share specified in the fundamental change company notice, and the denominator of which is the fundamental change settlement price.
If the holders of our common stock receive only cash in a reorganization event, then notwithstanding the foregoing, for all conversions in connection with a fundamental change that occur after the effective date of such transaction where the relevant stock price is less than the conversion price, the consideration due upon conversion of each such share of convertible preferred stock shall be solely cash in an amount equal to the conversion rate as modified by this “—Adjusted Conversion Rate Upon a Fundamental Change,” multiplied by the fundamental change settlement price for such transaction.
We will, to the extent applicable, comply with listing standards of the New York Stock Exchange in connection with the issuance of our common stock upon any exercise of the fundamental change conversion right.
Conversion Procedures
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Holders of shares of the convertible preferred stock represented by a beneficial interest in a global security may convert their shares by complying with the depositary’s procedures and, if required, by paying any dividends as described in this Description of the 2019 Corporate Units. Holders of shares of the convertible preferred stock in certificated form may convert some or all of their shares by surrendering to us at our principal office or at the office of our conversion agent, as may be designated by our board of directors or a committee of our board of directors, the certificate or certificates, if any, for the shares of the convertible preferred stock to be converted, accompanied by a written notice stating that the holder of shares of the convertible preferred stock elects to convert all or a specified whole number of those shares in accordance with the provisions described in this Description of the 2019 Corporate Units and specifying the name or names in which the holder of shares of the convertible preferred stock wishes the certificate or certificates, if any, for the shares of our common stock to be issued. If the notice specifies a name or names other than the name of the holder of shares of the convertible preferred stock, the notice will be accompanied by payment of all transfer taxes payable upon the issuance of shares of our common stock in that name or names. Other than such transfer taxes, we will pay any documentary, stamp or similar issue or transfer taxes that may be payable in respect of any issuance or delivery of shares of our common stock upon conversion of shares of the convertible preferred stock. The date on which the foregoing procedures have been complied with will be deemed the “conversion date” with respect to a share of the convertible preferred stock.
As promptly as practicable after the conversion date with respect to any shares of the convertible preferred stock, we will reflect in our stock records the cancellation of the convertible preferred stock that is being converted and the issuance of such number of validly issued, fully paid and non-assessable shares of our common stock to which the holders of such shares of the convertible preferred stock are entitled as a result of the conversion, if any, as of such conversion date (in the case of any physical settlement) or the final day of the observation period (in the case of a combination settlement). In addition, if the common stock to be issued upon conversion is certificated, promptly after the issuance of the common stock certificate (or, if the convertible preferred stock is certificated, promptly after, and in any case, no later than (x) two business days after the surrender of the certificates representing the shares that are converted (in the case of physical settlement) and (y) two business days after the later of the surrender of the certificates representing the shares that are converted and the final day of the observation period (in the case of combination settlement)) we will deliver or cause to be delivered (i) certificates representing the number of validly issued, fully paid and non-assessable shares of our common stock to which the holders of such shares of the convertible preferred stock, or the transferee of the holder of such shares of the convertible preferred stock, will be entitled and (ii) if the convertible preferred stock is then certificated and if less than the full number of shares of the convertible preferred stock represented by the surrendered certificate or certificates, if any, or specified in the notice, are being converted, a new certificate or certificates, of like tenor, for the number of shares represented by the surrendered certificate or certificates, less the number of shares being converted. This conversion will be deemed to have been made at the close of business on the conversion date so that the rights of the holder of shares of the convertible preferred stock as to the shares being converted will cease, except for the right to receive the shares of our common stock.
Holders of shares of the convertible preferred stock are not eligible to exercise any rights of a holder of shares of our common stock until they have converted their shares of the convertible preferred stock into shares of our common stock, if any. If more than one share of the convertible preferred stock is surrendered for conversion by the same stockholder at the same time, the number of whole shares of our common stock issuable upon conversion of those shares of the convertible preferred stock will be computed on the basis of the total number of shares of the convertible preferred stock so surrendered.
We will at all times reserve and keep available, free from preemptive rights, out of our authorized but unissued shares of capital stock, for issuance upon the conversion of shares of the convertible preferred stock, a number of authorized but unissued shares of our common stock that will from time to time be sufficient to permit the
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conversion of all outstanding shares of the convertible preferred stock (assuming, for such purposes, that physical settlement is applicable to all conversions).
Before the delivery of any securities upon conversion of shares of the convertible preferred stock, we will comply with all applicable federal and state laws and regulations. All shares of our common stock delivered upon conversion of shares of the convertible preferred stock, if any, will, upon delivery, be duly and validly issued, fully paid and non-assessable, free of all liens and charges and not subject to any preemptive rights.
Settlement Upon Conversion
To satisfy our obligations upon a conversion, we may elect to pay or deliver, as the case may be, solely shares of our common stock, together with cash in lieu of fractional shares (“physical settlement”), solely cash (“cash settlement”) or a combination of cash and our common stock (“combination settlement”). We refer to each of these elections as a “settlement method.”
We will use the same settlement method for all conversions with the same conversion date, but we will not have any obligation to use the same settlement method with respect to conversions occurring on different conversion dates, except that we will use the same settlement method for (x) all conversions following our delivery of a notice of redemption to holders of the convertible preferred stock to, and including, the related redemption date, regardless of the conversion date and (y) all conversions in connection with a fundamental change. If we elect a settlement method (if we have not previously irrevocably elected a settlement method to apply), we will inform holders so converting through the conversion agent of such settlement method we have selected no later than the second business day immediately following the related conversion date; provided that (x) in the case of any conversions of convertible preferred stock called for redemption, we will elect our settlement method in the redemption notice (or, if we have previously irrevocably elected a settlement method, restate such election) and (y) in the case of a conversion in connection with a fundamental change, we will elect our settlement method in the fundamental change company notice (or, if we have previously irrevocably elected a settlement method, restate such election). If we elect or are deemed to have elected combination settlement, but we do not timely notify converting holders of the specified dollar amount per $1,000 liquidation preference of convertible preferred stock, such specified dollar amount will be deemed to be $1,000. If we do not timely provide notice electing a settlement method in respect of any conversion of the convertible preferred stock, we will be deemed to have elected combination settlement and the specified dollar amount per $1,000 liquidation preference of convertible preferred stock will be equal to $1,000.
Settlement amounts will be computed as follows:
•    if we elect physical settlement, we will deliver to the converting holder a number of shares of our common stock equal to the number of shares of convertible preferred stock to be converted multiplied by the applicable conversion rate;
•    if we elect cash settlement, we will deliver to the converting holder, in respect of each $1,000 liquidation preference of the convertible preferred stock being converted, cash in an amount equal to the sum of the daily conversion values for each of the 20 consecutive trading days during the related observation period; and
•    if we elect or are deemed to have elected combination settlement, we will deliver to the converting holder in respect of each $1,000 liquidation preference of the convertible preferred stock being converted a “settlement amount” equal to the sum of the daily settlement amounts for each of the 20 consecutive trading days during the related observation period.
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The “daily settlement amount,” for each of the 20 consecutive trading days during the observation period, will consist of:
•    cash equal to the lesser of (i) a dollar amount per share of the convertible preferred stock to be received upon conversion as specified by us in the notice regarding our chosen settlement method (the “specified dollar amount”), if any, divided by 20 (such quotient being referred to as the “daily measurement value”) and (ii) the daily conversion value for such trading day; and
•    to the extent the daily conversion value for such trading day exceeds the daily measurement value, a number of shares equal to (i) the difference between such daily conversion value and the daily measurement value, divided by (ii) the daily VWAP for such trading day.
“Daily conversion value” means, for each of the 20 consecutive trading days during the observation period, one-twentieth of the product of (i) the applicable conversion rate and (ii) the daily VWAP of our common stock on such trading day.
“Observation period” means, with respect to any share of convertible preferred stock being converted, the 20 consecutive trading day period beginning on and including the second trading day after the conversion date for such share of convertible preferred stock, provided that if the relevant conversion date occurs on or after the date of our issuance of a notice of redemption with respect to the convertible preferred stock as described under “—Redemption” and prior to the relevant redemption date, the observation period shall be the 20 consecutive trading days beginning on, and including, the 21st scheduled trading day immediately preceding such redemption date.
If we elect physical settlement in respect of a conversion, we will deliver the settlement amount to converting holders on the second trading day following the conversion date, but such holders will be deemed to be the owners of the shares of our common stock included in the settlement amount as of the close of business on the conversion date. If we elect cash settlement or if we elect or are deemed to have elected combination settlement, we will pay or deliver, as the case may be, the settlement amount to converting holders on the second trading day following the final trading day of the relevant observation period and such holders will be deemed to be the owners of any of the shares of our common stock included in the settlement amount on the last trading day of the relevant observation period.
Without the consent of any holder of the convertible preferred stock, we may, by notice to the holders through the conversion agent, irrevocably elect a settlement method (and, if applicable, a specified dollar amount) to apply to any conversion following such notice (unless a settlement method has previously been designated) and, subject to the foregoing, specify the effective time of such election (which, for the avoidance of doubt, may be at any time subsequent to the delivery of such notice) provided that we may make such election (i) solely for conversions in connection with a fundamental change, (ii) solely for conversions other than in connection with a fundamental change, or (iii) for both conversions in connection with a fundamental change and for such other conversions, in which case we may elect the same or different settlement method (and, if applicable, the same or different specified dollar amount) for conversions in connection with a fundamental change and for such other conversions. Our irrevocable election of a settlement method as described herein may be made by us in our sole discretion.
We will not issue fractional shares upon conversion of the convertible preferred stock. Instead, we will pay cash in lieu of fractional shares based on the daily VWAP of our common stock on the relevant conversion date (in the case of physical settlement) or based on the daily VWAP of our common stock on the last trading day of the relevant observation period (in the case of combination settlement).
Recapitalizations, Reclassifications and Changes of Our Common Stock
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In the case of any reorganization event, at and after the effective time of such reorganization event, the conversion rate shall be determined by reference to the value of an exchange property unit, and we will deliver, upon settlement of any conversion of convertible preferred stock, a number of exchange property units equal to the number of shares of our common stock that we would otherwise be required to deliver. However, at and after the effective time of the reorganization event, (i) we will, subject to our ability to irrevocably elect a settlement method, continue to have the right to determine the form of consideration to be paid or delivered, as the case may be, upon conversion, as set forth under “—Conversion Rights—Settlement Upon Conversion” and (ii)(x) any amount payable in cash upon conversion as set forth under “—Conversion Rights—Settlement Upon Conversion” will continue to be payable in cash, (y) any shares of our common stock that we would have been required to deliver upon conversion as set forth under “—Conversion Rights—Settlement Upon Conversion” will instead be deliverable in the amount and type of exchange property that a holder of that number of shares of our common stock would have received in such transaction and (z) the daily VWAP and fundamental change settlement price will be calculated based on the value of an exchange property unit that a holder of one share of our common stock would have received in such transaction. In the event holders of our common stock (other than any constituent person or affiliate thereof) have the opportunity to elect the form of consideration to be received in such transaction, the exchange property unit that holders of the convertible preferred stock are entitled to receive will be deemed to be the weighted average of the types and amounts of consideration received by the holders of our common stock. We will notify holders of the weighted average as soon as practicable after such determination is made. If the holders receive only cash in such transaction, then notwithstanding anything herein to the contrary for all conversions that occur after the effective date of such transaction (other than conversions in connection with a fundamental change prior to a successful remarketing where the relevant stock price is less than the conversion price) (i) the consideration due upon conversion of each share of convertible preferred stock shall be solely cash in an amount equal to the conversion rate in effect on the conversion date, multiplied by the price paid per share of common stock in such transaction and (ii) we will satisfy our conversion obligation by paying cash to converting holders on the second scheduled trading day immediately following the conversion date. In addition, we will amend the certificate of amendment (1) to provide for anti-dilution and other adjustments that are as nearly equivalent as possible to the adjustments described under “—Conversion Rate Adjustments” below, (2) in the case of any transaction that results in the common equity of any entity other than us (or, for the avoidance of doubt, our successor in such transaction) being included as exchange property, (a) by replacing references to “us” or “our” (and similar references) in the definitions of “fundamental change” with references to that other entity and (b) by causing the dividend blocker provisions to apply to that other entity, with its equity securities being deemed stock ranking junior to the convertible preferred stock for this purpose and (3) to include such additional provisions to protect the interests of the holders of convertible preferred stock as our board of directors reasonably considers necessary by reason of the foregoing. We will not become party to any such transaction unless its terms are consistent with the foregoing.
In connection with any adjustment to the conversion rate described below, we will also adjust the initial dividend threshold (as defined under “—Conversion Rate Adjustments”) based on the number of shares of common stock comprising the exchange property and (if applicable) the value of any non-stock consideration comprising the exchange property. If the exchange property is composed solely of non-stock consideration, the initial dividend threshold will be zero.
The provisions described in the preceding two paragraphs shall similarly apply to successive reorganization events. To the extent the preceding two paragraphs apply to an event or occurrence, the provisions of “—Conversion Rate Adjustments” shall not apply to such event or occurrence.
Conversion Rate Adjustments
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The applicable conversion rate shall be adjusted from time to time for any of the following events that occur following the original issue date of the convertible preferred stock:
(1)    If we issue common stock as a dividend or distribution on our common stock to all or substantially all holders of our common stock, or if we effect a share split or share combination, the conversion rate will be adjusted based on the following formula:
CR1 =
CR0
x
  OS1
  OS0
where:
CR0 = the conversion rate in effect immediately prior to the ex-dividend date for such dividend or distribution, or the effective date of such share split or share combination;
CR1 = the new conversion rate in effect immediately on and after the ex-dividend date for such dividend or distribution, or the effective date of such share split or share combination;
OS0 = the number of shares of our common stock outstanding immediately prior to the ex-dividend date, or the effective date of such share split or share combination; and
OS1 = the number of shares of our common stock outstanding immediately after giving effect to such dividend or distribution, or the effective date of such share split or share combination.
Any adjustment made pursuant to this clause (1) shall become effective as of the open of business on (x) the ex-dividend date for such dividend or other distribution or (y) the date on which such split or combination becomes effective, as applicable. If any dividend or distribution described in this clause (1) is declared but not so paid or made, the new conversion rate shall be readjusted to the conversion rate that would then be in effect if such dividend or distribution had not been declared.
(2)    If we distribute to all holders of our common stock any rights, warrants or options entitling them for a period of not more than 45 calendar days after the date of distribution thereof to subscribe for or purchase our common stock, in any case at an exercise price per share of our common stock less than the closing price of our common stock on the business day immediately preceding the time of announcement of such issuance, the conversion rate will be increased based on the following formula:
CR1 =
CR0
x
  OS1 + X
  OS0 + Y
where:
CR0 = the conversion rate in effect immediately prior to the ex-dividend date for such distribution;
CR1 = the new conversion rate in effect immediately on and after the ex-dividend date for such distribution;
OS0 = the number of shares of our common stock outstanding immediately prior to the ex-dividend date for such distribution;
X = the aggregate number of shares of our common stock issuable pursuant to such rights, warrants or options; and
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Y = the number of shares of our common stock equal to the quotient of (A) the aggregate price payable to exercise all such rights, warrants or options and (B) the average of the closing prices of our common stock for the 10 consecutive trading days ending on the trading day immediately preceding the date of announcement for the issuance of such rights, warrants or options.
For purposes of this clause (2), in determining whether any rights, warrants or options entitle the holders to subscribe for or purchase our common stock at less than the closing price of our common stock on the business day immediately preceding the time of announcement of such issuance, and in determining the aggregate exercise or conversion price payable for such common stock, there shall be taken into account any consideration received by us for such rights, warrants or options and any amount payable on exercise or conversion thereof, with the value of such consideration, if other than cash, to be determined by us. Any increase made under this clause (2) will be made successively whenever any such rights, options or warrants are issued and shall become effective immediately after the open of business on the ex-dividend date for such issuance. If any right, warrant or option described in this clause (2) is not exercised or converted prior to the expiration of the exercisability or convertibility thereof, the new conversion rate shall be readjusted to the conversion rate that would then be in effect if such right, warrant or option had not been so issued.
(3)(a)    If we distribute shares of capital stock, evidences of indebtedness or other assets or property of us to all holders of our common stock, excluding:
(A)    dividends, distributions, rights, warrants or options as to which an adjustment was effected in clause (1) or (2) above;
(B)    dividends or distributions paid exclusively in cash; and
(C)    spin-offs described below in this clause (3),
then the conversion rate will be increased based on the following formula:
CR1 =
CR0
x
  SP0
  SP0 – FMV
where
CR0 = the conversion rate in effect immediately prior to the ex-dividend date for such distribution;
CR1 = the new conversion rate in effect immediately on and after the ex-dividend date for such distribution;
SP0 = the closing price of our common stock on the trading day immediately preceding the ex-dividend date for such distribution; and
FMV = the fair market value (as determined in good faith by us) of the shares of capital stock, evidences of indebtedness, assets or property distributed with respect to each outstanding share of our common stock on the earlier of the record date and the ex-dividend date for such distribution.
An adjustment to the conversion rate made pursuant to the immediately preceding paragraph shall become effective as of the open of business on the ex-dividend date for such distribution.
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Notwithstanding the foregoing, if “FMV” (as defined above) is equal to or greater than “SP0” (as defined above), in lieu of the foregoing increase, each holder of convertible preferred stock shall receive, in respect of each share of convertible preferred stock, at the same time and upon the same terms as holders of our common stock and without having to convert its shares of convertible preferred stock, the amount and kind of our capital stock, evidences of indebtedness or other assets or property of ours that such holder would have received if such holder owned a number of shares of common stock equal to the conversion rate in effect on the ex-dividend date for the distribution.
(b) However, if we distribute to all holders of our common stock, capital stock of any class or series, or similar equity interest, of or relating to a subsidiary or other business unit (which we refer to as a “spin-off”), the conversion rate in effect immediately following the 10th trading day immediately following, and including, the effective date of the spin-off will be increased based on the following formula:
  FMV0
  +
CR1 =
CR0
x
  MP0
  MP0
where:
CR0 = the conversion rate in effect on the 10th trading day immediately following, and including the effective date of the spin-off;
CR1 = the new conversion rate immediately after the 10th trading day immediately following (and including) the effective date of the spin-off;
FMV0 = the average of the closing prices of the capital stock or similar equity interest distributed to holders of our common stock applicable to one share of our common stock over the first 10 consecutive trading days after (and including) the effective date of the spin-off (the “valuation period”); and
MP0 = the average of the closing prices of our common stock over the valuation period.
The increase to the conversion rate under the preceding paragraph will occur at the close of business on the last trading day of the valuation period; provided that (x) in respect of any conversion of convertible preferred stock for which physical settlement is applicable, if the relevant conversion date occurs during the valuation period, the reference to “10” in the preceding paragraph shall be deemed replaced with such lesser number of trading days as have elapsed between the ex-dividend date for such spin-off and such conversion date in determining the conversion rate and (y) in respect of any conversion of convertible preferred stock for which cash settlement or combination settlement is applicable, for any trading day that falls within the relevant observation period for such conversion and within the valuation period, the reference to “10” in the preceding paragraph shall be deemed replaced with such lesser number of trading days as have elapsed between the ex-dividend date for such spin-off and such trading day in determining the conversion rate as of such trading day. In addition, if the ex-dividend date for such spin-off is after the 10th trading day immediately preceding, and including, the end of any observation period in respect of a conversion of convertible preferred stock, references to “10” or “10th” in the preceding paragraph and this paragraph shall be deemed to be replaced, solely in respect of that conversion, with such lesser number of trading days as have elapsed from, and including, the ex-dividend date for such spin-off to, and including, the last trading day of such observation period.
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If any such dividend or distribution described in this clause (3) is declared but not paid or made, the new conversion rate shall be readjusted to be the conversion rate that would then be in effect if such dividend or distribution had not been declared.
(4)     If any cash dividend or distribution is made to all or substantially all holders of our common stock, other than a regular, quarterly cash dividend that does not exceed $0.69 per share (the “initial dividend threshold”), the conversion rate will be adjusted based on the following formula:
SP0 -
CR1 =
CR0
x IDT
SP0 -
     C
where,
CR0 = the conversion rate in effect immediately prior to the ex-dividend date for such dividend or distribution;
CR1 = the conversion rate in effect immediately after the ex-dividend date for such dividend or distribution;
SP0 = the closing price of our common stock on the trading day immediately preceding the ex-dividend date for such distribution;
C = the amount in cash per share we distribute to holders of our common stock; and
IDT = the initial dividend threshold; provided that if the dividend or distribution is not a regular quarterly cash dividend, the initial dividend threshold will be deemed to be zero.
Any increase to the conversion rate made pursuant to this clause (4) shall become effective as of the open of business on the ex-dividend date for such dividend or distribution. If any such dividend or distribution is not so paid or made, the new conversion rate shall be readjusted to the conversion rate that would be in effect if such dividend or distribution had not been declared.
Notwithstanding the foregoing, if “C” (as defined above) is equal to or greater than “SP0” (as defined above), in lieu of the foregoing increase, each holder of convertible preferred stock shall receive, for each share of convertible preferred stock, at the same time and upon the same terms as holders of shares of our common stock and without having to convert its shares of convertible preferred stock, the amount of cash that such holder would have received if such holder owned a number of shares of our common stock equal to the conversion rate on the ex-dividend date for such cash dividend or distribution.
The initial dividend threshold is subject to adjustment in a manner inversely proportional to adjustments to the conversion rate, provided that no adjustment will be made to the initial dividend threshold for any adjustment made to the conversion rate under this clause (4).
(5)     If we or any of our subsidiaries make a payment in respect of a tender offer or exchange offer for our common stock to the extent that the cash and value of any other consideration included in the payment per share of our common stock exceeds the closing price of a share of our common stock on the trading day next succeeding the last date on which tenders or exchanges may be made pursuant to such tender or exchange offer, the conversion rate will be increased based on the following formula:
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  AC+
  (SP1 x
CR1 =
CR0
x
  OS1)
  OS0x
  SP1
where:
CR0 = the conversion rate in effect on the trading day on which such tender or exchange offer expires;
CR1 = the conversion rate in effect on the trading day immediately following the date such tender or exchange offer expires;
AC = the aggregate value of all cash and any other consideration (as determined in good faith by us) paid or payable for our common stock purchased in such tender or exchange offer;
OS0 = the number of shares of our common stock outstanding immediately prior to the date such tender or exchange offer expires (prior to giving effect to the purchase or exchange of shares pursuant to such tender or exchange offer);
OS1 = the number of shares of our common stock outstanding immediately after the date such tender or exchange offer expires (after giving effect to the purchase or exchange of shares pursuant to such tender or exchange offer); and
SP1 = the closing price of our common stock for the trading day next succeeding the date such tender or exchange offer expires.
If the application of the foregoing formula would result in a decrease in the conversion rate, no adjustment to the conversion rate will be made.
Any adjustment to the conversion rate made pursuant to this clause (5) shall become effective at the close of business on the trading day immediately following the date such tender offer or exchange offer expires. If we or one of our subsidiaries is obligated to purchase our common stock pursuant to any such tender or exchange offer but is permanently prevented by applicable law from effecting any such purchase or all such purchases are rescinded, the new conversion rate shall be readjusted to be the conversion rate that would be in effect if such tender or exchange offer had not been made.
If we have in effect a rights plan while any convertible preferred stock remains outstanding, holders of convertible preferred stock will receive, upon a conversion of convertible preferred stock, in addition to shares of our common stock, if any, rights under our shareholder rights agreement unless, prior to conversion, the rights have expired, terminated or been redeemed or unless the rights have separated from our common stock. If the rights provided for in the rights plan adopted by us have separated from our common stock in accordance with the provisions of the applicable shareholder rights agreement so that holders of convertible preferred stock would not be entitled to receive any rights in respect of our common stock, if any, delivered upon conversion of convertible preferred stock, the conversion rate will be adjusted at the time of separation as if we had distributed to all holders of our common stock capital stock, evidences of indebtedness or other assets or property pursuant to clause (3) above, subject to readjustment upon the subsequent expiration, termination or redemption of the rights.
Notwithstanding the foregoing, if a conversion rate adjustment becomes effective on any ex-dividend date as described above, and a holder that has converted its shares of the convertible preferred stock on or after such ex-
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dividend date and on or prior to the related record date would be treated as the record holder of our common stock as of the related conversion date based on an adjusted conversion rate for such ex-dividend date, then, notwithstanding the foregoing conversion rate adjustment provisions, the conversion rate adjustment relating to such ex-dividend date will not be made for such converting holder. Instead, such holder will be treated as if such holder were the record owner of our common stock on an unadjusted basis and participate in the related dividend, distribution or other event giving rise to such adjustment.
In addition to the adjustments pursuant to paragraphs (1) through (5) above, we may increase the conversion rate in order to avoid or diminish any income tax to holders of our common stock resulting from any dividend or distribution of capital stock (or rights to acquire our common stock) or from any event treated as such for income tax purposes. We may also, from time to time, to the extent permitted by applicable law, increase the conversion rate by any amount for any period of at least 20 business days if we have determined that such increase would be in our best interests. If we make such determination, it will be conclusive and we will mail to holders of the convertible preferred stock a notice of the increased conversion rate and the period during which it will be in effect at least 15 calendar days prior to the date the increased conversion rate takes effect in accordance with applicable law.
No adjustment to the conversion rate will be made if holders of the convertible preferred stock, as a result of holding the convertible preferred stock and without conversion thereof, are entitled to participate at the same time as our common stock holders participate in any of the transactions described above as if such holders of the convertible preferred stock held a number shares of our common stock equal to the conversion rate, multiplied by the number of shares of convertible preferred stock held by such holder, without having to convert their convertible preferred stock.
As used in this section and in “Description of the Purchase Contracts—Anti-dilution Adjustments” above, “record date” means, with respect to any dividend, distribution or other transaction or event in which the holders of our common stock (or other applicable security) have the right to receive any cash, securities or other property or in which our common stock (or such other security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of holders of our common stock (or such other security) entitled to receive such cash, securities or other property (whether such date is fixed by our board of directors or a duly authorized committee thereof, statute, contract or otherwise).
The conversion rate will not be adjusted except as specifically set forth in this “Conversion Rate Adjustments” and in “—Conversion Rights—Adjusted Conversion Rate Upon a Fundamental Change.” Without limiting the foregoing, the conversion rate will not be adjusted for:
•    the issuance of our common stock pursuant to any present or future plan providing for the reinvestment of dividends or interest payable on securities of ours and the investment of additional optional amounts in shares of our common stock under any plan;
•    the issuance of our common stock or options or rights to purchase those shares pursuant to any present or future employee, director, trustee or consultant benefit plan, employee agreement or arrangement or program of ours;
•    the issuance of our common stock pursuant to any option, warrant, right, or exercisable, exchangeable or convertible security outstanding as of the date the convertible preferred stock was first issued;
•    a change in the par value of our common stock;
•    accumulated and unpaid dividends, if any; and
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•    the issuance of limited partnership units by us and the issuance of our common stock or the payment of cash upon redemption thereof.
All required calculations will be made to the nearest cent or 1/10,000th of a share, as the case may be. We will not be required to make an adjustment to the conversion rate unless the adjustment would require a change of at least 1% in the conversion rate. However, we will carry forward any adjustments that are less than 1% of the conversion rate and make such carried-forward adjustments (x) when all such carried-forward adjustments aggregate to a change of at least 1% in the conversion rate and (y) regardless of whether the aggregate adjustment is less than 1% (i) on the effective date for any fundamental change, (ii) on the conversion date in respect of any shares of convertible preferred stock for which physical settlement applies and (iii) on each trading day of any observation period in respect of any conversion of convertible preferred stock for which cash settlement or combination settlement applies.
In the event of an adjustment to the conversion rate, holders of Corporate Units and convertible preferred stock may, in certain circumstances, be deemed to have received a distribution subject to U.S. federal income tax as a dividend. In addition, non-U.S. holders of Corporate Units and convertible preferred stock may, in certain circumstances, be deemed to have received a distribution subject to U.S. federal withholding tax requirements.
Adjustments of Prices
Whenever any provision of the certificate of amendment requires us to calculate the closing prices, the daily VWAPs, the daily conversion values or the daily settlement amounts over a span of multiple days (including any observation period, the five-day average price and the “stock price” and “fundamental change settlement price” (if applicable) for purposes of this “Description of the Convertible Preferred Stock” section), we will make appropriate adjustments to each to account for any adjustment to the conversion rate that becomes effective, or any event requiring an adjustment to the conversion rate where the ex-dividend date of the event occurs, at any time during the period when the closing prices, the daily VWAPs, the daily conversion values or the daily settlement amounts are to be calculated.
Transfer Agent, Registrar, Paying Agent, Conversion Agent
The registrar and transfer agent for the convertible preferred stock is Computershare Trust Company, N.A. The paying agent and conversion agent for the convertible preferred stock is The Bank of New York Mellon, Trust Company, N.A.
Remarketing
The convertible preferred stock will be remarketed as described under “Description of the Purchase Contracts—Remarketing.”
In connection with a successful remarketing:
•    the dividend rate and/or conversion rate of all outstanding shares of convertible preferred stock (whether or not remarketed) may be increased as described below, the earliest redemption date may be changed to a later date and we may elect for the fundamental change conversion right to apply; and
•    if the dividend rate is increased, dividends will be payable quarterly, when, as and if declared by our board of directors, as described herein.
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In order to remarket the convertible preferred stock, our board of directors may, in consultation with the remarketing agent, increase the dividend rate, increase the conversion rate of the convertible preferred stock, change the earliest redemption date to a later date and/or elect for the fundamental change conversion right to apply to the terms of the convertible preferred stock in order to produce the required price in the remarketing.
Remarketing of Shares That Are Not Included in Corporate Units
At any time prior to a remarketing, other than during a blackout period, holders of convertible preferred stock that do not underlie Corporate Units may elect to have their shares of convertible preferred stock remarketed in such remarketing in the same manner as shares of convertible preferred stock that underlie Corporate Units by delivering their shares along with a notice of this election to the custodial agent. The custodial agent will hold the shares of convertible preferred stock in an account separate from the collateral account in which the pledged securities will be held. Holders of shares of convertible preferred stock electing to have their shares remarketed will also have the right to withdraw their election at any time prior to 5:00 p.m., New York City time, on the second business day immediately preceding an optional remarketing period or the final remarketing period, as applicable. The “remarketing price per share of convertible preferred stock” means, for each share of convertible preferred stock, an amount in cash equal to the quotient of the Treasury portfolio purchase price divided by the number of shares of convertible preferred stock included in such remarketing that are held as components of Corporate Units. For purposes of determining the proceeds that the remarketing agent will seek to obtain for the convertible preferred stock in an optional remarketing, the “separate convertible preferred stock purchase price” means the amount in cash equal to the product of (A) the remarketing price per share of convertible preferred stock and (B) the number of shares of convertible preferred stock included in such remarketing that are not part of Corporate Units, which will be the same price on a per share basis, as shares of convertible preferred stock remarketed as Corporate Units. In the event of a successful remarketing, proceeds from the remarketing attributable to holders of separate shares of convertible preferred stock that elected to have their shares remarketed will be remitted by the remarketing agent for the benefit of such holders on the optional remarketing settlement date (in the case of any optional remarketing) or on the purchase contract settlement date (in the case of the final remarketing).
Increased Dividend Rate and Increased Conversion Rate
In the case of a successful remarketing, the dividend rate on the convertible preferred stock may be increased (in which case holders of the convertible preferred stock would be entitled to receive cumulative dividends on their shares when, as and if declared by our board of directors out of funds legally available for the payment of dividends) and/or the conversion rate of the convertible preferred stock may be increased. The increased dividend rate and/or increased conversion rate will become effective on the settlement date of the remarketing (the “remarketing settlement date”), which will be, in the case of a successful optional remarketing, the second business day following the optional remarketing date (or such other date as we and the remarketing agent agree upon) and, in the case of the final remarketing period, the purchase contract settlement date. If the dividend rate and/or the conversion rate is increased pursuant to a successful optional remarketing, the increased rate(s) will be the dividend rate and/or conversion rate determined by our board of directors, after consultation with the remarketing agent, as the rate(s) the convertible preferred stock should bear in order for the net remarketing proceeds of such convertible preferred stock to have an aggregate market value on the optional remarketing date of at least 100% of the aggregate of the Treasury portfolio purchase price plus the separate convertible preferred stock purchase price, if any. If the dividend rate and/or the conversion rate is increased pursuant to a successful final remarketing, the increased rate(s) will be the dividend rate and/or conversion rate determined by our board of directors, after consultation with the remarketing agent, as the rate(s) the convertible preferred stock should bear in order for the net remarketing proceeds to equal at least $1,000 multiplied by the number of shares of convertible preferred stock being remarketed. We will not
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decrease the conversion rate or the dividend rate in connection with a successful remarketing (and, therefore, in no event will the dividend rate be less than zero).
If the convertible preferred stock is not successfully remarketed, neither the dividend rate nor the conversion rate will be increased (and, for the avoidance of doubt, the convertible preferred stock will continue to not bear any dividends).
The remarketing agent is not obligated to purchase any shares of convertible preferred stock that would otherwise remain unsold in the remarketing. None of us, the remarketing agent or any agent of us or the remarketing agent will be obligated in any case to provide funds to make payment upon tender of convertible preferred stock for remarketing.
Automatic Settlement Upon Failed Final Remarketing
If the convertible preferred stock has not been successfully remarketed on or prior to the last day of the final remarketing period, all ownership interests in shares of convertible preferred stock held as part of Corporate Units will be delivered to us on the purchase contract settlement date in full satisfaction of the Corporate Unit holders’ obligations to purchase our common stock under the related purchase contracts on the purchase contract settlement date, unless the holder separately cash settles purchase contracts as described below.
The ownership interest in convertible preferred stock underlying a Corporate Unit will be automatically delivered to us thereby satisfying such holder’s obligations to us under the related purchase contracts in full, unless, prior to 5:00 p.m., New York City time, on the second business day immediately prior to the purchase contract settlement date, the holder provides written notice of an intention to settle the related purchase contracts with separate cash and on or prior to the business day immediately preceding the purchase contract settlement date delivers to the securities intermediary $1,000 in cash per 10 purchase contracts. Holders of Corporate Units may settle their purchase contracts with separate cash only in integral multiples of 10 Corporate Units.
Payment
So long as any separate shares of convertible preferred stock are registered in the name of DTC, as depository for the convertible preferred stock as described herein under “Book-Entry Issuance—The Depository Trust Company,” or DTC’s nominee, payments on the convertible preferred stock will be made as described therein.
Form
So long as any separate shares of convertible preferred stock are registered in the name of DTC, as depository for the convertible preferred stock as described herein under “Book-Entry Issuance—The Depository Trust Company,” or DTC’s nominee, transfers and exchanges of beneficial interests in the separate shares of convertible preferred stock will be made as described therein.
Certain Trading Characteristics
After a dividend increase remarketing, the convertible preferred stock is expected to trade at a price that takes into account the value, if any, of accumulated but unpaid dividends (except for declared dividends accrued after a record date and prior to a dividend payment date, which dividends will be payable to the holders as of the record date, as described above); thus, purchasers will not pay, and sellers will not receive, accumulated and unpaid dividends with respect to the convertible preferred stock that is not included in the trading price thereof.
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Title
We and any agent of ours will treat the person or entity in whose name securities are registered as the absolute owner of those securities for the purpose of making payments and for all other purposes irrespective of notice to the contrary.
Book-Entry Issuance—The Depository Trust Company
The shares of convertible preferred stock that form a part of the Corporate Units were issued in fully registered form and are evidenced by one or more global securities held in certificated form in the name of the purchase contract agent. The shares of convertible preferred stock that do not form a part of the Corporate Units are evidenced by one or more global securities registered in the name of DTC’s nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. Such global securities will be deposited with the transfer agent as custodian for DTC. See “Certain Provisions of the Purchase Contract and Pledge Agreement—Book-Entry System for Corporate Units, Treasury Units and Cash Settled Units” for a description of DTC.
Purchases of the convertible preferred stock under the DTC system must be made by or through direct participants, which will receive a credit for the convertible preferred stock on DTC’s records. The ownership interest of each actual purchaser of each share of convertible preferred stock (“beneficial owner”) is in turn to be recorded on the direct and indirect participants’ records. Beneficial owners will not receive written confirmation from DTC of their purchases, but beneficial owners are expected to receive written confirmations providing details of the transactions, as well as periodic statements of their holdings, from the direct or indirect participant through which they purchased the convertible preferred stock. Transfers of ownership interests on the convertible preferred stock are to be accomplished by entries made on the books of direct and indirect participants acting on behalf of beneficial owners. Beneficial owners will not receive certificates representing their ownership interests in convertible preferred stock, except in the event that use of the book-entry system for the convertible preferred stock is discontinued.
To facilitate subsequent transfers, all convertible preferred stock deposited by direct participants with DTC are registered in the name of DTC’s nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of the convertible preferred stock with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual beneficial owners of the convertible preferred stock; DTC’s records reflect only the identity of the direct participants to whose accounts the shares of convertible preferred stock are credited, which may or may not be the beneficial owners. The direct and indirect participants will remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to direct participants, by direct participants to indirect participants, and by direct participants and indirect participants to beneficial owners, are governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Notices will be sent to DTC.
Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the convertible preferred stock unless authorized by a direct participant in accordance with DTC’s procedures. Under its usual procedures, DTC mails an omnibus proxy to us as soon as possible after the record date. The omnibus proxy assigns the voting or consenting rights of Cede & Co. to those direct participants to whose accounts the shares of convertible preferred stock are credited on the record date. We believe that these arrangements will enable the beneficial owners to exercise rights equivalent in substance to the rights that can be directly exercised by a registered holder of the convertible preferred stock.
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Payments of dividends on the convertible preferred stock, if any, will be made to Cede & Co. (or such other nominee of DTC).
DTC’s practice is to credit direct participants’ accounts upon DTC’s receipt of funds and corresponding detail information from us or the transfer agent, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by participants to beneficial owners will be governed by standing instructions and customary practices and will be the responsibility of each participant and not of DTC or us, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of dividends to Cede & Co. (or other such nominee of DTC) is our responsibility. Disbursement of such payments to direct participants will be the responsibility of DTC, and disbursement of such payments to the beneficial owners is the responsibility of direct and indirect participants.
A beneficial owner will not be entitled to receive physical delivery of the convertible preferred stock. Accordingly, each beneficial owner must rely on the procedures of DTC to exercise any rights under the convertible preferred stock.
DTC may discontinue providing its services as securities depository with respect to the convertible preferred stock at any time by giving us or the transfer agent reasonable notice. In the event no successor securities depository is obtained, certificates for the convertible preferred stock will be printed and delivered.
The information in this section concerning DTC’s book-entry system has been obtained from sources that we believe to be reliable, but neither we nor the underwriters take any responsibility for the accuracy of this information.
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EXHIBIT 10.6


FORM OF CHANGE IN CONTROL SEVERANCE AGREEMENT1


THIS AGREEMENT (the “Agreement”), dated [DATE] is made by and between Stanley Black & Decker, Inc., a Connecticut corporation (the “Company”), and [EXECUTIVE] (the “Executive”).
WHEREAS, the Board recognizes that, as is the case with many publicly held corporations, the possibility of a Change in Control exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its shareowners; and
WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company’s management, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows:
1.Defined Terms. The definitions of capitalized terms used in this Agreement are provided in the last Section hereof.
2.Term of Agreement. The Term of this Agreement shall commence on the date hereof and shall continue in effect through the second anniversary hereof; provided, however, that commencing on [DATE] and each [DATE] thereafter, the Term shall automatically be extended for one additional year unless, not later than ninety (90) calendar days prior to such [DATE], the Company or the Executive shall have given notice not to extend the Term; and further provided, however, that if a Change in Control shall have occurred during the Term, the Term shall expire no earlier than twenty-four (24) months beyond the month in which such Change in Control occurred.
3.Company’s Covenants Summarized. In order to induce the Executive to remain in the employ of the Company and in consideration of the Executive’s covenants set forth in Section 4 hereof, the Company agrees, under the conditions described herein, to pay the Executive the Severance Payments and the other payments and benefits described herein. Except as provided in Section 10.1 hereof, no Severance Payments shall be payable under this Agreement unless there shall have been (or, under the terms of the second sentence of Section 6.1 hereof, there shall be deemed to have been) a termination of the Executive’s employment with the Company following a Change in Control and during the Term. This Agreement shall not be construed as creating an express or implied contract of employment and,
1 Form of Change in Control Severance Agreement for John. H. Wyatt and Jaime A. Ramirez


except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company.
4.The Executive’s Covenants. The Executive agrees that, subject to the terms and conditions of this Agreement, in the event of a Potential Change in Control during the Term, the Executive will remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the date of such Potential Change in Control, (ii) the date of a Change in Control, (iii) the date of termination by the Executive of the Executive’s employment for Good Reason or by reason of death, Disability or Retirement, or (iv) the termination by the Company of the Executive’s employment for any reason.
5.Compensation Other Than Severance Payments.
5.1    Following a Change in Control and during the Term, during any period that the Executive fails to perform the Executive’s full-time duties with the Company as a result of incapacity due to physical or mental illness, the Company shall pay the Executive’s full salary to the Executive at the rate in effect at the commencement of any such period, together with all compensation and benefits payable to the Executive under the terms of any compensation or benefit plan, program or arrangement maintained by the Company during such period (other than any disability plan), until the Executive’s employment is terminated by the Company for Disability.
5.2    If the Executive’s employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay the Executive’s full salary to the Executive through the Date of Termination at the rate in effect immediately prior to the Date of Termination or, if higher, the rate in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, together with all compensation and benefits payable to the Executive through the Date of Termination under the terms of the Company’s compensation and benefit plans, programs or arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason.
5.3    If the Executive’s employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay to the Executive the Executive’s normal post-termination compensation and benefits as such payments become due. Such post-termination compensation and benefits shall be determined under, and paid in accordance with, the Company’s retirement, insurance and other compensation or benefit plans, programs and arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the occurrence of the first event or circumstance constituting Good Reason.
6.Severance Payments.
6.1    If the Executive incurs a “separation from service” (within the meaning of section 409A) following a Change in Control and during the Term, other than (A) by the Company for Cause, (B) by reason of death or Disability, or (C) by the Executive without Good Reason, then
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the Company shall pay the Executive the amounts, and provide the Executive the benefits, described in this Section 6.1 (“Severance Payments”), in addition to any payments and benefits to which the Executive is entitled under Section 5 hereof. For purposes of this Agreement, the Executive shall be deemed to have incurred a separation from service following a Change in Control by the Company without Cause or by the Executive with Good Reason, if (i) the Executive’s employment is terminated by the Company without Cause prior to a Change in Control (whether or not a Change in Control occurs) and such termination was at the request or direction of a Person who has entered into an agreement with the Company the consummation of which would constitute a Change in Control, (ii) the Executive terminates his employment for Good Reason prior to a Change in Control (whether or not a Change in Control occurs) and the circumstance or event which constitutes Good Reason occurs at the request or direction of such Person, or (iii) the Executive’s employment is terminated by the Company without Cause or by the Executive for Good Reason and such termination or the circumstance or event which constitutes Good Reason is otherwise in connection with or in anticipation of a Change in Control (whether or not a Change in Control occurs). For purposes of Section 5 and 6 of this Agreement, no payment that would otherwise be made and no benefit that would otherwise be provided upon a termination of employment will be made or provided unless and until such termination of employment is also a “separation from service,” as determined in accordance with section 409A.
(A)    In lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any severance benefit otherwise payable to the Executive, the Company shall pay to the Executive a lump sum severance payment, in cash, equal to two and one-half times the sum of (i) the Executive’s base salary as in effect immediately prior to the Date of Termination or, if higher, in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, and (ii) the average annual bonus earned by the Executive pursuant to any annual bonus or incentive plan maintained by the Company in respect of the three fiscal years ending immediately prior to the fiscal year in which occurs the Date of Termination or, if higher, immediately prior to the fiscal year in which occurs the first event or circumstance constituting Good Reason.
(B)    For the thirty (30) month period immediately following the Date of Termination, the Company shall arrange to provide the Executive and his dependents life, disability, accident and health insurance benefits substantially similar to those provided to the Executive and his dependents immediately prior to the Date of Termination or, if more favorable to the Executive, those provided to the Executive and his dependents immediately prior to the first occurrence of an event or circumstance constituting Good Reason, at no greater after tax cost to the Executive than the after tax cost to the Executive immediately prior to such date or occurrence; provided, however, that, unless the Executive consents to a different method, such health insurance benefits shall be provided through a third-party insurer. Benefits otherwise receivable by the Executive pursuant to this Section 6.1(B) shall be reduced to the extent benefits of the same type are received by or made available to the Executive during the thirty (30) month period following the Executive’s termination of employment (and any such benefits received by or made available to the Executive shall be reported to the Company by the Executive);
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provided, however, that the Company shall promptly reimburse the Executive for the excess, if any, of the after tax cost of such benefits to the Executive over such cost immediately prior to the Date of Termination or, if more favorable to the Executive, the first occurrence of an event or circumstance constituting Good Reason.
(C)    In addition to the benefits to which the Executive is entitled under the DC Pension Plan, the Company shall pay the Executive a lump sum amount, in cash, equal to the sum of (i) the amount that would have been contributed thereto by the Company on the Executive’s behalf during the thirty (30) months immediately following the Date of Termination, determined (x) as if the Executive made the maximum permissible contributions thereto during such period, (y) as if the Executive earned compensation during such period at a rate equal to the Executive’s compensation (as defined in the DC Pension Plan) during the twelve (12) months immediately preceding the Date of Termination or, if higher, during the twelve months immediately prior to the first occurrence of an event or circumstance constituting Good Reason, and (z) without regard to any amendment to the DC Pension Plan made subsequent to a Change in Control and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of benefits thereunder, and (ii) the excess, if any, of (x) the Executive’s account balance under the DC Pension Plan as of the Date of Termination over (y) the portion of such account balance that is nonforfeitable under the terms of the DC Pension Plan. The payments provided in this Section 6.1(C) are in addition to any payment the Executive would otherwise receive under the applicable DC Plan and are not intended to offset or reduce any payment under such DC Plan.
(D)    If the Executive would have become entitled to benefits under the Company’s post-retirement health care or life insurance plans, as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, had the Executive’s employment terminated at any time during the period of thirty (30) months after the Date of Termination, the Company shall provide such post-retirement health care and/or life insurance benefits to the Executive and the Executive’s dependents commencing on the later of (i) the date on which such coverage would have first become available and (ii) the date on which benefits described in subsection (B) of this Section 6.1 terminate.
(E)    The Company shall provide the Executive with third-party outplacement services suitable to the Executive’s position for the period following the Executive’s Date of Termination and ending on December 31 of the second calendar year following such Date of Termination or, if earlier, until the first acceptance by the Executive of an offer of employment, provided, however, that in no case shall the Company be required to pay in excess of $50,000 over such period in providing outplacement services and that all reimbursements hereunder shall be paid to the Executive within thirty (30) calendar days following the date on which the Executive submits the invoice but no later than December 31 of the third year following the year of the Executive’s Date of Termination.
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(F)    For the thirty (30) month period immediately following the Date of Termination or until the Executive becomes eligible for substantially similar benefits from a new employer, whichever occurs earlier, the Company shall continue to provide the Executive with all perquisites provided by the Company immediately prior to the Date of Termination or, if more favorable to the Executive, immediately prior to the first occurrence of an event or circumstance constituting Good Reason (including, without limitation, automobile, financial planning, annual physical and executive whole life insurance).
6.2 (A)        Notwithstanding any other provisions in this Agreement, if any of the payments or benefits received or to be received by the Executive (including any payment or benefits received in connection with a Change in Control or the Executive’s termination of employment, whether pursuant to the terms of this Agreement or any other plan, program, arrangement or agreement) (all such payments and benefits, being hereinafter referred to as the “Total Payments”) would be subject (in whole or part), to the Excise Tax, then, after taking into account any reduction in the Total Payments provided by reason of section 280G of the Code in such other plan, program, arrangement or agreement, the Company will reduce the Total Payments to the extent necessary so that no portion of the Total Payments is subject to the Excise Tax (but in no event to less than zero); provided, however, that the Total Payments will only be reduced if (i) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state, municipal and local income taxes on such reduced Total Payments and after taking into account the phase out, if any, of itemized deductions and personal exemptions attributable to such reduced Total Payments), is greater than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state, municipal and local income taxes on such Total Payments and the amount of Excise Tax to which the Executive would be subject in respect of such unreduced Total Payments and after taking into account the phase out, if any, of itemized deductions and personal exemptions attributable to such unreduced Total Payments).
(B)    In the case of a reduction in the Total Payments, the Total Payments will be reduced in the following order: (i) payments that are payable in cash that are valued at full value under Treasury Regulation Section 1.280G-1, Q&A 24(a) will be reduced (if necessary, to zero), with amounts that are payable last reduced first; (ii) payments and benefits due in respect of any equity valued at full value under Treasury Regulation Section 1.280G-1, Q&A 24(a), with the highest values reduced first (as such values are determined under Treasury Regulation Section 1.280G-1, Q&A 24) will next be reduced; (iii) payments that are payable in cash that are valued at less than full value under Treasury Regulation Section 1.280G-1, Q&A 24, with amounts that are payable last reduced first, will next be reduced; (iv) payments and benefits due in respect of any equity valued at less than full value under Treasury Regulation Section 1.280G-1, Q&A 24, with the highest values reduced first (as such values are determined under Treasury Regulation Section 1.280G-1, Q&A 24) will next be reduced; and (v) all other non-cash benefits not otherwise described in clauses (ii) or (iv) will be next reduced pro-rata. Any reductions made pursuant to each of clauses (i)-(v) above will be made in the following manner: first, a pro-rata reduction of cash payment and payments and benefits due in
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respect of any equity not subject to section 409A, and second, a pro-rata reduction of cash payments and payments and benefits due in respect of any equity subject to section 409A as deferred compensation.
(C)    For purposes of determining whether and the extent to which the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax: (i) no portion of the Total Payments the receipt or enjoyment of which the Executive shall have waived at such time and in such manner as not to constitute a “payment” within the meaning of section 280G(b) of the Code will be taken into account; (ii) no portion of the Total Payments will be taken into account which, in the opinion of tax counsel (“Tax Counsel”) reasonably acceptable to the Executive and selected by the accounting firm which was, immediately prior to the Change in Control, the Company’s independent auditor (the “Auditor”), does not constitute a “parachute payment” within the meaning of section 280G(b)(2) of the Code (including by reason of section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no portion of such Total Payments will be taken into account which, in the opinion of Tax Counsel, constitutes reasonable compensation for services actually rendered, within the meaning of section 280G(b)(4)(B) of the Code, in excess of the Base Amount allocable to such reasonable compensation; and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code.
(D)    All determinations required by this Section 6.2 (or requested by either the Executive or the Company in connection with this Section 6.2) will be at the expense of the Company. The fact that the Executive’s right to payments or benefits may be reduced by reason of the limitations contained in this Section 6.2 will not of itself limit or otherwise affect any other rights of the Executive under this Agreement. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments.
6.3    Subject to Section 6.4, the payments provided in subsections (A) and (C) of Section 6.1 hereof shall be made not later than the fifth (5th) business day following the Date of Termination. At the time that payments are made under this Agreement, the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations including, without limitation, any opinions or other advice the Company has received from Tax Counsel, the Auditor or other advisors or consultants (and any such opinions or advice which are in writing shall be attached to the statement).
6.4    (A)    Notwithstanding any provisions of this Agreement to the contrary, if the Executive is a “specified employee” (within the meaning of section 409A and determined pursuant to procedures adopted by the Company) at the time of his separation from service and if any portion of the payments or benefits to be received by the Executive upon separation from service would be considered deferred compensation under section 409A, amounts that would otherwise be payable pursuant to this Agreement during the six-month period immediately
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following the Executive’s separation from service (the “Delayed Payments”) and benefits that would otherwise be provided pursuant to this Agreement (the “Delayed Benefits”) during the six-month period immediately following the Executive’s separation from service (such period, the “Delay Period”) shall instead be paid or made available on the earlier of (i) the first (1st) business day of the seventh month following the date of the Executive’s separation from service or (ii) Executive’s death (the applicable date, the “Permissible Payment Date”). The Company shall also reimburse the Executive for the after-tax cost incurred by the Executive in independently obtaining any Delayed Benefits (the “Additional Delayed Payments”).
(B)    With respect to any amount of expenses eligible for reimbursement under Sections 6.1 (B), (D) and (F), such expenses shall be reimbursed by the Company within thirty (30) calendar days following the date on which the Company receives the applicable invoice from the Executive but in no event later than December 31 of the year following the year in which the Executive incurs the related expenses; provided, that with respect to reimbursement relating to the Additional Delayed Payments, such reimbursement shall be made on the Permissible Payment Date. In no event shall the reimbursements or in-kind benefits to be provided by the Company in one taxable year affect the amount of reimbursements or in-kind benefits to be provided in any other taxable year, nor shall the Executive’s right to reimbursement or in-kind benefits be subject to liquidation or exchange for another benefit.
(C)    For purposes of section 409A, the Executive’s right to receive any “installment” payments pursuant to this Agreement shall be treated as a right to receive a series of separate and distinct payments.
6.5    The Company shall deposit the estimated Delayed Payments and estimated Additional Delayed Payments into an irrevocable grantor trust (for purposes of this Section 6, the “Grantor Trust”) not later than the fifth (5th) business day following the occurrence of a Potential Change in Control. The Company shall deposit additional amounts into the Grantor Trust on a monthly basis equal to the interest accrued on the Delayed Payments (and any earlier interest payments) at the United States 5-year Treasury Rate plus 2%, and the amount held in the Grantor Trust shall be paid to the Executive (in accordance with the terms of the Grantor Trust) on the Permissible Payment Date.
6.6    The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive in disputing in good faith any issue hereunder relating to the termination of the Executive’s employment or in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement. Such payments shall be made within five (5) business days (but in any event no later than December 31 of the year following the year in which the Executive incurs the expenses) after delivery of the Executive’s written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require, provided that (i) the amount of such legal fees and expenses that the Company is obligated to pay in any given calendar year shall not affect the legal fees and expenses that the Company is obligated to pay in any other calendar year, (ii) the Executive’s right to have the Company pay such legal fees and expenses may not be liquidated or exchanged for any other benefit, and (iii) the Executive shall not be entitled to reimbursement unless he has submitted an invoice for such fees and
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expenses at least ten (10) business days before the end of the calendar year next following the calendar year in which such fees and expenses were incurred. The Company shall also pay all legal fees and expenses incurred by the Executive in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit hereunder. Payment pursuant to the preceding sentence will be made within fifteen (15) business days after delivery of the Executive’s written request for payment but in no event later than the end of the calendar year following the calendar year in which the taxes that are the subject of the audit or proceeding are remitted to the taxing authority, or where as a result of the audit or proceeding no taxes are remitted, the end of the calendar year in which the audit is completed or there is a final and nonappealable settlement or other resolution of the matter.
7.Termination Procedures and Compensation During Dispute.
7.1    Notice of Termination. After a Change in Control and during the Term, any purported termination of the Executive’s employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 11 hereof. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive’s counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail.
7.2    Date of Termination. “Date of Termination,” with respect to any purported termination of the Executive’s employment after a Change in Control and during the Term, shall mean (i) if the Executive incurs a separation from service due to Disability, thirty (30) calendar days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive’s duties during such thirty (30) calendar day period), and (ii) if the Executive incurs a separation from service for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall be the thirtieth (30th) calendar day after Notice of Termination is given (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) calendar days nor more than sixty (60) calendar days, respectively, from the date such Notice of Termination is given).
8.No Mitigation. The Company agrees that, if the Executive’s employment with the Company terminates during the Term, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 6 hereof. Further, except as specifically provided in Sections 6.1(B) and 6.1(F) hereof, no payment or benefit provided for in this Agreement shall be reduced by any
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compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise.
9.Restrictive Covenants.
9.1    The Executive agrees that restrictions on his activities during and after his employment are necessary to protect the goodwill, Confidential Information and other legitimate interests of the Company and its Subsidiaries, and that the agreed restrictions set forth below will not deprive the Executive of the ability to earn a livelihood:
(A)    While the Executive is in the employment of the Company and, if the Executive is entitled to benefits under Section 6.1 hereof upon termination of employment, for a period of twenty-four (24) months after such termination of employment (the “Non-Competition Period”), the Executive shall not, without the express written consent of the Company, in the United States of America, directly or indirectly (i) enter into the employ of or render any services to any person, firm or corporation engaged in any Competitive Business; (ii) engage in any Competitive Business for his own account or (iii) become interested in any Competitive Business as an individual, partner, shareholder, creditor, director, officer, principal, agent, employee, consultant, advisor or in any other relationship or capacity; provided, however, that nothing contained in this Section shall be deemed to prohibit the Executive from acquiring, solely as an investment through market purchases, securities of any corporation which are registered under Section 12 of the Exchange Act and which are publicly traded so long as he is not part of any group in control of such corporation.
(B)    The Executive agrees that during the Non-Competition Period or in connection with any termination of employment pursuant to which the Executive is entitled to benefits under Section 6.1, the Executive will not, either directly or through any agent or employee, Solicit any employee of the Company or any of its Subsidiaries to terminate his or her relationship with the Company or any of its Subsidiaries or to apply for or accept employment with any enterprise competitive with the business of the Company, or Solicit any customer, supplier, licensee or vendor of the Company or any of its Subsidiaries to terminate or materially modify its relationship with them, or, in the case of a customer, to conduct with any person any business or activity which such customer conducts or could conduct with the Company or any of its Subsidiaries.
(C)    The Executive acknowledges that the Company and its Subsidiaries continually develop Confidential Information, that the Executive may develop Confidential Information for the Company or its Subsidiaries and that the Executive may learn of Confidential Information during the course of his employment under this Agreement. The Executive will comply with the policies and procedures of the Company and its Subsidiaries for protecting Confidential Information and shall never disclose to any person (except as required by applicable law or legal process or for the proper performance of his duties and responsibilities to the Company and its Subsidiaries, or in connection with any litigation between the Company and the Executive (provided that the
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Company shall be afforded a reasonable opportunity in each case to obtain a protective order)), or use for his own benefit or gain, any Confidential Information obtained by the Executive incident to his employment or other association with the Company or any of its Subsidiaries. The Executive understands that this restriction shall continue to apply after his employment terminates, regardless of the reason for such termination. All documents, records, tapes and other media of every kind and description relating to the business, present or otherwise, of the Company or its Subsidiaries and any copies, in whole or in part, thereof (the “Documents”), whether or not prepared by the Executive, shall be the sole and exclusive property of the Company and its Subsidiaries. The Executive shall safeguard all Documents and shall surrender to the Company at the time his employment terminates, or at such earlier time or times as the Board or its designee may specify, all Documents then in the Executive’s possession or control.
(D)    Without limiting the foregoing, it is understood that the Company shall not be obligated to make any of the payments or to provide for any of the benefits specified in Section 6.1, and shall be entitled to recoup the pro rata portion of any such payments and of the value of any such benefits previously provided to the Executive in the event of a material breach by the Executive of the provisions of this Section 9 (such pro ration to be determined as a fraction, the numerator of which is the number of days from such breach to the second anniversary of the date on which the Executive terminates employment and the denominator of which is 730), which breach continues without having been cured within fifteen (15) calendar days after written notice to the Executive specifying the breach in reasonable detail.
10.Successors; Binding Agreement.
10.1    In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.
10.2    This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive’s estate.
11.Notices. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed, if to the Executive, to the address inserted below the Executive’s signature on the final page hereof and, if to the Company, to the address set forth below, or to such other
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address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt:
To the Company:    Stanley Black & Decker, Inc.
1000 Stanley Drive
New Britain, Connecticut 06053
Attention: Corporate Secretary

12.Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or of any lack of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement supersedes any other agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof which have been made by either party; provided, however, that (1) this Agreement shall supersede any agreement setting forth the terms and conditions of the Executive’s employment with the Company only in the event that the Executive’s employment with the Company is terminated on or following a Change in Control (or deemed to have been so terminated), by the Company other than for Cause or by the Executive for Good Reason and (2) to the extent this Agreement does not supersede any agreement referred to in clause (1), it shall not result in any duplication of benefits to the Executive. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Connecticut, without regard to its conflicts of law principles. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law and any additional withholding to which the Executive has agreed. The obligations of the Company and the Executive under this Agreement which by their nature may require either partial or total performance after the expiration of the Term (including, without limitation, those under Sections 6 and 7 hereof) shall survive such expiration. To the extent applicable, it is intended that the compensation arrangements under this Agreement be in full compliance with section 409A. This Agreement shall be construed in a manner to give effect to such intention.
13.Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
14.Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.
15.Settlement of Disputes. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial
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by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Board a decision of the Board within sixty (60) calendar days after notification by the Board that the Executive’s claim has been denied. Notwithstanding the above, in the event of any dispute, any decision by the Board hereunder shall be subject to a de novo review by a court of competent jurisdiction.
Notwithstanding any provision of this Agreement to the contrary, the Executive shall be entitled to seek specific performance of the Executive’s right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement.
16.Definitions. For purposes of this Agreement, the following terms shall have the meanings indicated below:
(A)    “Additional Delayed Payments” shall have the meaning set forth in Section 6.4 hereof.
(B)    “Affiliate” shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act.

(C)    “Auditor” shall have the meaning set forth in Section 6.2 hereof.

(D)    “Base Amount” shall have the meaning set forth in section 280G(b)(3) of the Code.

(E)    “Beneficial Owner” shall have the meaning set forth in Rule 13d-3 under the Exchange Act.

(F)    “Board” shall mean the Board of Directors of the Company.

(G)    “Cause” for termination by the Company of the Executive’s employment shall mean (i) the willful and continued failure by the Executive to substantially perform the Executive’s duties with the Company (other than any such failure resulting from the Executive’s incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 7.1 hereof) that has not been cured within thirty (30) calendar days after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive’s duties, or (ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, (x) no act, or failure to act, on the Executive’s part shall be deemed
12


“willful” unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive’s act, or failure to act, was in the best interest of the Company and (y) in the event of a dispute concerning the application of this provision, no claim by the Company that Cause exists shall be given effect unless the Company establishes to the Board by clear and convincing evidence that Cause exists.
(H)    A “Change in Control” shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:

(I)    any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates) representing 25% or more of the combined voting power of the Company’s then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (i) of paragraph (III) below; or
(II)    the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company’s shareowners was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or;
(III)    there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation or other entity, other than (i) a merger or consolidation which results in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 50% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Company or its Affiliates) representing 25% or more of the combined voting power of the Company’s then outstanding securities; or
(IV)    the shareowners of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by the Company of all or substantially all of the
13


Company’s assets to an entity, at least 50% of the combined voting power of the voting securities of which are owned by shareowners of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale.
(I)    “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.
(J)    “Company” shall mean Stanley Black & Decker, Inc., and, except in determining under Section 15(G) hereof whether or not any Change in Control of the Company has occurred, shall include any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise.
(K)    “Competitive Business” shall mean any line of business that is substantially the same as any line of any operating business engaged in by the Company during the term of this Agreement and which at the termination of the Executive’s employment the Company was engaged in or conducting and which during the fiscal year of the Company next preceding the date as of which the determination of competitive status is to be made constituted at least 5% of the gross sales of the Company and its Subsidiaries. The Executive may, without being deemed in violation of this section, become a partner or employee of, or otherwise acquire an interest in, a stock or business brokerage firm, consulting or advisory firm, investment banking firm or similar organization which, as part of its business, trades or invests in securities of Competitive Businesses or which represents or acts as agent or advisor for Competitive Businesses, but only on condition that the Executive shall not personally render any services in connection with such Competitive Business either directly to such Competitive Business or other persons or to his firm in connection therewith.
(L)    “Confidential Information” means any and all information of the Company and its Subsidiaries that is not generally known by others with whom they compete or do business, or with whom they plan to compete or do business and any and all information not readily available to the public, which, if disclosed by the Company or its Subsidiaries could reasonably be of benefit to such person or business in competing with or doing business with the Company. Confidential Information includes without limitation such information relating to (1) the development, research, testing, manufacturing, store operational processes, marketing and financial activities, including costs, profits and sales, of the Company and its Subsidiaries, (2) the products and all formulas therefor, (3) the costs, sources of supply, financial performance and strategic plans of the Company and its Subsidiaries, (4) the identity and special needs of the customers and suppliers of the Company and its Subsidiaries and (5) the people and organizations with whom the Company and its Subsidiaries have business relationships and those relationships. Confidential Information also includes comparable information that the Company or any of its Subsidiaries have received belonging to others or which was received by the Company or any of its Subsidiaries with an agreement by the Company that it would not be disclosed. Confidential Information does not include information which (i) is or becomes available to the public generally (other than as a
14


result of a disclosure by the Executive), (ii) was within the Executive’s possession prior to the date hereof or prior to its being furnished to the Executive by or on behalf of the Company, provided that the source of such information was not bound by a confidentiality agreement with or other contractual, legal or fiduciary obligation of confidentiality to the Company or any other party with respect to such information, (iii) becomes available to the Executive on a non-confidential basis from a source other than the Company, provided that such source is not bound by a confidentiality agreement with or other contractual, legal or fiduciary obligation of confidentiality to the Company or any other party with respect to such information, or (iv) was independently developed the Executive without reference to the Confidential Information.
(M)    “DC Pension Plan” shall mean any tax-qualified, supplemental or excess defined contribution plan maintained by the Company and any other defined contribution plan or agreement entered into between the Executive and the Company which is designed to provide the executive with supplemental retirement benefits.
(N)    “Date of Termination” shall have the meaning set forth in Section 7.2 hereof.
(O)    “Delayed Benefits” shall have the meaning set forth in Section 6.4 hereof.
(P)    “Delayed Payments” shall have the meaning set forth in Section 6.4 hereof.
(Q)    “Delay Period” shall have the meaning set forth in Section 6.4 hereof.

(R)    “Disability” shall be deemed the reason for the termination by the Company of the Executive’s employment, if, as a result of the Executive’s incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive’s duties with the Company for a period of six (6) consecutive months, the Company shall have given the Executive a Notice of Termination for Disability, and, within thirty (30) calendar days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive’s duties.
(S)    “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.
(T)    “Excise Tax” shall mean any excise tax imposed under section 4999 of the Code.

(U)    “Executive” shall mean the individual named in the first paragraph of this Agreement.
(V)    “Good Reason” for termination by the Executive of the Executive’s employment shall mean the occurrence (without the Executive’s express written consent
15


which specifically references this Agreement) after any Change in Control, or prior to a Change in Control under the circumstances described in clauses (ii) and (iii) of the second sentence of Section 6.1 hereof (treating all references in paragraphs (I) through (VII) below to a “Change in Control” as references to a “Potential Change in Control”), of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described in paragraph (I), (V), (VI) or (VII) below, such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof:
(I)    the assignment to the Executive of any duties inconsistent with the Executive’s status as a senior executive officer of the Company or a substantial adverse alteration in the nature or status of the Executive’s responsibilities from those in effect immediately prior to the Change in Control including, without limitation, if the Executive was, immediately prior to the Change in Control, an executive officer of a public company, the Executive ceasing to be an executive officer of a public company;
(II)    a reduction by the Company in the Executive’s annual base salary as in effect on the date hereof or as the same may be increased from time to time except for across-the-board salary reductions similarly affecting all senior executives of the Company and all senior executives of any Person in control of the Company;
(III)    the relocation of the Executive’s principal place of employment to a location more than thirty-five (35) miles from the Executive’s principal place of employment immediately prior to the Change in Control or the Company’s requiring the Executive to be based anywhere other than such principal place of employment (or permitted relocation thereof) except for required travel on the Company’s business to an extent substantially consistent with the Executive’s present business travel obligations;
(IV)    the failure by the Company to pay to the Executive any portion of the Executive’s current compensation or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) calendar days of the date such compensation is due;
(V)    the failure by the Company to continue in effect any compensation plan in which the Executive participates immediately prior to the Change in Control which is material to the Executive’s total compensation, including but not limited to the Company’s 2009 Long-Term Incentive Plan and Management Incentive Compensation Plan or any substitute plans adopted prior to the Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Executive’s participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the
16


amount or timing of payment of benefits provided and the level of the Executive’s participation relative to other participants, as existed immediately prior to the Change in Control;
(VI)    the failure by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company’s pension, savings, life insurance, medical, health and accident, or disability plans in which the Executive was participating immediately prior to the Change in Control (except for across the board changes similarly affecting all senior executives of the Company and all senior executives of any Person in control of the Company), the taking of any other action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control, or the failure by the Company to provide the Executive with the number of paid vacation days to which the Executive is entitled on the basis of years of service with the Company in accordance with the Company’s normal vacation policy in effect at the time of the Change in Control;
(VII)    any purported termination of the Executive’s employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 7.1 hereof; for purposes of this Agreement, no such purported termination shall be effective. The Executive’s right to terminate the Executive’s employment for Good Reason shall not be affected by the Executive’s incapacity due to physical or mental illness; or
(VIII)    breach by the Company of Section 10.1 hereof.
The Executive’s continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder.
For purposes of any determination regarding the existence of Good Reason in connection with a termination of employment other than as described in the second sentence of Section 6.1 hereof, any claim by the Executive that Good Reason exists shall be presumed to be correct unless the Company establishes to the Board by clear and convincing evidence that Good Reason does not exist.
(W)    “Grantor Trust” shall have the meaning set forth in Section 6.5 hereof.
(X)    “Notice of Termination” shall have the meaning set forth in Section 7.1 hereof.
(Y)    “Permissible Payment Date” shall have the meaning set forth in Section 6.4 hereof.
(Z)    “Person” shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall
17


not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareowners of the Company in substantially the same proportions as their ownership of stock of the Company.
(AA)    “Potential Change in Control” shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:
(I)    the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control;
(II)    the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control;
(III)    any Person becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 15% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Company’s then outstanding securities (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates); or
(IV)    the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred.
(BB)    “Retirement” shall be deemed the reason for the termination by the Executive of the Executive’s employment if such employment is terminated in accordance with the Company’s retirement policy, including early retirement, generally applicable to its salaried employees.
(CC)    “section 409A” shall mean section 409A of the Code and any proposed, temporary or final regulation, or any other guidance, promulgated with respect to section 409A by the U.S. Department of Treasury or the Internal Revenue Service.
(DD)    “Severance Payments” shall have the meaning set forth in Section 6.1 hereof.
(EE)    “Solicit” means any direct or indirect communication of any kind whatsoever (other than non-targeted general advertisements), regardless of by whom initiated, inviting, advising, encouraging or requesting any person or entity, in any manner, with respect to any action.
(FF)    “Subsidiary” means any corporation or other business organization of which the securities having a majority of the normal voting power in electing the board of
18


directors or similar governing body of such entity are, at the time of determination, owned by the Company directly or indirectly through one or more Subsidiaries.
(GG)    “Tax Counsel” shall have the meaning set forth in Section 6.2 hereof.
(HH)    “Term” shall mean the period of time described in Section 2 hereof (including any extension, continuation or termination described therein).

(II)    “Total Payments” shall mean those payments so described in Section 6.2 hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

STANLEY BLACK & DECKER, INC.
By:
EXECUTIVE








19


EXHIBIT 10.7

As Amended through October 1, 2020
STANLEY BLACK & DECKER, INC.
Deferred Compensation Plan For
Non-Employee Directors (the “Plan”)

1.Eligibility. Each member of the Board of Directors of Stanley Black & Decker, Inc. (the “Corporation”) who is not an employee of the Corporation or any of its subsidiaries is eligible to participate in the Plan.
2.Participation. (a) Time of Election. Prior to the beginning of any calendar year, commencing with calendar year 1981, each eligible Director may elect to participate in the Plan by directing that all or any part of the compensation (including fees payable for services as chairman or a member of a committee of the Board) which otherwise would have been payable currently for services as a Director during such calendar year and succeeding calendar years shall be credited to a deferred compensation account (the “Director's account”). Any person who shall become a Director during any calendar year, and who was not a Director of the Corporation prior to the beginning of such calendar year, may elect, within 30 days of the date the Director becomes eligible to participate in the Plan, to defer payment of all or any part of the Director's compensation for the remainder of such calendar year following the election and for succeeding calendar years.
(a)Form and Duration of Election. An election to participate in the Plan shall be made by written notice executed by the Director and filed with the Secretary of the Corporation. Such election shall continue until the Director terminates such election by written notice filed with the Secretary of the Corporation. Any such termination shall become effective as of the end of the calendar year in which such notice is given and only with respect to fees payable for services as a Director thereafter. Amounts credited to the Director's account prior to the effective date of termination shall not be affected by such termination and shall be distributed only in accordance with the terms of the Plan. Notwithstanding the foregoing, a Director may cancel his or her election due to a medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 6 months, provided that the cancellation occurs by the later of the end of the Director’s taxable year or the 15th day of the third month following the date on which the Director incurs such impairment.
(b)Adjustment of Amount to be Deferred. Prior to the beginning of any calendar year, a Director participating in the Plan may file another written notice with the Secretary of the Corporation electing to change the amount of compensation to be credited to the Director's account for services as a Director commencing with such calendar year. Amounts credited to the Director's account prior to the effective date of such change shall not be affected by such change and shall be distributed only in accordance with the terms of the Plan.

(c)Renewal. A Director who has terminated his election, or a newly elected Director who failed to make an initial election to participate may thereafter file an election to participate for the calendar year subsequent to the filing of such election and succeeding calendar years.
3.The Director's Account. All compensation which a Director has elected to defer under the Plan shall be credited to the Director's account, either in cash or in shares of the Corporation's Common Stock, as elected by the Director (valued at the mean between the highest and lowest sales prices of the Common Stock reported on the applicable exchange as of the trading day used to determine the amount(s) to be so credited). The Director shall not have any interest in the cash or Common Stock until distributed in accordance with the Plan.
Cash amounts credited to the Director's account shall accrue interest commencing on the date such fees would otherwise have been paid, at a rate for each calendar quarter fixed by the Treasurer of the Corporation at the commencement of each such calendar quarter based upon the yield for five-year U.S. Treasury Notes as reported for the last business day of the preceding calendar quarter. Interest so determined shall be compounded at the end of each calendar quarter and credited to the Director's account. Amounts credited to the Director's account shall continue to accrue interest until distributed in accordance with the Plan.
Shares credited to the Director's account shall accrue amounts equivalent to cash or stock dividends. Such amounts shall accrue interest or amounts equivalent to dividends in the same manner as other amounts which may be credited to a Director's account.
4.Distribution from Accounts. (a) Form of Election. An election made pursuant to paragraph 2(b) to participate in the Plan shall also include a Director’s election with respect to the distribution of the amount of cash and shares credited to the Director's account with respect to such election. A Director may elect to receive such amount in one lump-sum payment or in a number of approximately equal installments (not to exceed 10 installments) as set forth in the applicable election form. The lump-sum payment or the first installment shall be paid on the payment date specified in the election form, which date shall fall within the first twelve months following the date on which the Director separates from service. Each payment shall be considered a “separate payment” and not of a series of payments for purposes of Section 409A (as defined in paragraph 9). The first payment shall be made on the date specified in the applicable election form and any subsequent installments shall be paid on the first business day of each succeeding calendar year during the installment period until the entire amount credited to the Director's account shall have been paid. If shares have been credited to the Director's account, cash payment will be made with the final installment for any fraction of a share credited to the Director's account.
(a)Adjustment of Method of Distribution. Once made, an election may not be changed either in amount or method of payment if the effect of such change is to accelerate the distribution of cash and shares credited to the Director's account, provided that a Director may make a subsequent election to delay a distribution or to change the method of distribution with respect to previously deferred amounts by filing a written notice changing the election with the Secretary of the Corporation as long as such election (i) will not take effect
2

until at least twelve months after the date on which the election is made; (ii) defers the distribution with respect to which such election is made (other than an election made on account of “disability,” “death” or an “unforeseeable emergency,” each within the meaning of Section 409A) for a period of not less than five years from the date such distribution would otherwise have been paid; and (iii) is made not less than twelve months before the date the distribution is scheduled to be paid. Notwithstanding the foregoing, the Corporation may, in its sole discretion, authorize the acceleration of a payment in accordance with paragraphs (j)(4)(ii) through (xiv) of Treasury Regulation §1.409A-3.
5.Distribution on Death. If a Director should die before all amounts credited to the Director's account shall have been paid in accordance with the election referred to in paragraph 4, the balance in such account shall be paid as soon as administratively practicable, but in no event later than 60 days, following the date of the Director’s death (a) to the beneficiary designated in writing by the Director or (b) to the Director’s estate in the event that the designated beneficiary has predeceased the Director or no beneficiary designation has been made by the Director.
6.Miscellaneous. (a) The right of a Director to receive any amount in the Director's account shall not be transferable or assignable by the Director, except by will or by the laws of descent and distribution, and no part of such amount shall be subject to attachment or other legal process.
(a)The Corporation shall not be required to reserve or otherwise set aside funds or shares of Common Stock for the payment of its obligations hereunder. The Corporation shall make available as and when required a sufficient number of shares of Common Stock to meet the needs of the Plan, either by the issuance of treasury shares, new shares of Common Stock of the Corporation, or the purchase of shares of Common Stock on the open market or through private purchases, as the Corporation may determine. To the extent that registration of such shares under the Securities Act of 1933 shall be required prior to their resale, the Corporation undertakes to either file a registration statement relating to such shares or include such shares in another registration statement to be filed within a reasonable time.
(b)The Corporate Governance Committee of the Board of Directors shall administer and interpret the Plan and make all determinations deemed necessary or desirable for the Plan's implementation.
(c)The Board of Directors may at any time amend or terminate the Plan. No amendment or termination (other than an amendment or termination as necessary to comply with Section 409A) shall impair the rights of a Director with respect to amounts then in the Director's account.
(d)Each Director participating in the Plan will receive an annual statement indicating the amount of cash and number of shares credited to the Director's account as of the end of the preceding calendar year.
3

(e)If adjustments are made to outstanding shares of Common Stock or to the capital structure of the Corporation as a result of stock dividends, stock splits or combinations, recapitalizations, mergers, consolidations, exchange offers, issuer tender offers, extraordinary cash dividends, or similar events or transactions, an appropriate adjustment will also be made in the number of shares credited to the Director's account.
7.Definition of Change in Control. For purposes of this Plan, a “Change in Control of the Corporation” shall mean a “change in the ownership” or the “effective control” of the Corporation or a “change in the ownership of a substantial portion of the Corporation’s assets” (each within the meaning of Section 409A).
8.Accelerated Payment Following a Change in Control. Notwithstanding any of the preceding provisions of this Plan, as soon as possible following any Change in Control of the Corporation, but in no event later than 30 days following such Change in Control, a lump-sum payment shall be made, in cash, of the entire account hereunder of any current or former Director. For purposes of calculating the amount of such payment, any shares of the Corporation's common stock credited to, or accrued in, any Director's account shall be valued at the higher of (i) the closing price of such shares as reported on the applicable exchange on the date preceding and nearest the date the Change in Control occurred and (ii) the highest per share price for the common stock of the Corporation actually paid in connection with such Change in Control.
9.Section 409A. Reference to “Section 409A” is to section 409A of the Internal Revenue Code of 1986, as amended, and any proposed, temporary or final regulations, or any other guidance, promulgated with respect to section 409A by the U.S. Department of Treasury or the Internal Revenue Service. The Plan is intended to provide for the deferral of compensation in full compliance with Section 409A. The Plan shall be construed in a manner to give effect to such intention. Notwithstanding any other provision of this Plan, if payment of benefits under this Plan to a Director who is a “Specified Employee” (as defined below) would be deemed to be on account of his separation from service under Section 409A, no payments shall be made to such Specified Employee within six months after such Specified Employee’s separation from service (or, if earlier, the date of his death). Any amounts subject to delayed payment under the preceding sentence shall be paid on the first business day after the expiration of such six-month period, together with any earnings accrued in the Director’s account on such amounts during such six-month period. For purposes of this Plan, the term “Specified Employee” shall mean a Specified Employee of the Corporation or any affiliate, as defined in Treasury Regulations Section 1.409A-1(i).
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EXHIBIT 10.17


STANLEY BLACK & DECKER, INC.
RESTRICTED STOCK UNIT PLAN
FOR NON-EMPLOYEE DIRECTORS

as Amended and Restated through October 1, 2020

ARTICLE I

PURPOSE
The purpose of the Plan is to provide non-employee directors of the Company with compensation tied to the value of the Company’s Common Stock thereby motivating such directors to perform their duties and responsibilities to the best of their professional ability and to further align the interests of such directors with the interests of the Company and its shareholders.

ARTICLE II

DEFINITIONS

As used in the Plan, the following terms shall have the meanings specified in this Article 2, except to the extent provided otherwise in an applicable Award Certificate.

2.1    Adjustment Event: a stock split, reverse stock split, combination or exchange of shares, recapitalization, subdivision, merger, consolidation, reclassification, reorganization, spin- off or other distribution of stock or property of the Company, partial or complete liquidation of the Company or any similar transaction affecting the outstanding Common Stock or the capitalization of the Company; provided that, when used with respect to in-kind dividends credited to a Participant’s Dividend Equivalent Account, the term Adjustment Event shall relate to the property subject to such in-kind dividend.

2.2    Award: a cash-settled, restricted stock unit representing the right, subject to the timing of payment, distribution, adjustment and other provisions of the Plan, to receive the future cash value of one share of Common Stock and the amount credited under the related Dividend Equivalent Account as of the date of settlement.

2.3    Award Certificate: a written certificate evidencing each Award to a Participant under the Plan and setting forth certain of the terms and conditions applicable thereto, which certificate shall be in a form approved by the Committee from time to time.

2.4    Beneficiary: the Person(s) designated in accordance with Article 8 below.

2.5    Board: the Board of Directors of the Company.

    

2.6    Committee: the Corporate Governance Committee of the Board or, if there is no such committee, the Board, provided that no Participant shall be permitted to act in the capacity of a director with respect to any matters pertaining directly to any of such Participant’s Awards.
2.7    Common Stock: the common stock of the Company, par value $2.50 per share, subject to adjustment pursuant to Article 7.

2.8    Company: Stanley Black & Decker, Inc., a Connecticut corporation.

2.9    Dividend Equivalent Account: a notional account established on the books and records of the Company to record any dividend equivalent amounts accrued and payable in respect of any outstanding Awards and any earnings or losses on such dividend equivalent amounts.

2.10    Effective Date: April 26, 2004.

2.11    Grant Date: with respect to an Award, the date as of which such Award is granted to a Participant and set forth in the Award Certificate evidencing such Award.

2.12    Initial Deferral Election Rule: a Participant’s initial election with respect to any Award must be made by the end of the year before the calendar year in which the Grant Date of such Award occurs and such election must specify a Settlement Date and Settlement Method; provided, however, a new Participant in the Plan may make an initial election with respect to an Award within 30 days after such Participant becomes eligible to participate for the first time in the Plan.

2.13    Market Value: the average of the high and low price on the applicable exchange for a share of Common Stock on the day as of which Market Value is to be determined.

2.14    Participant: a non-employee director of the Company who is granted an Award under the Plan.

2.15    Person: any natural person, firm, partnership, limited liability company, association, corporation, company, trust, business trust, governmental authority or other entity.

2.16    Plan: Stanley Black & Decker, Inc. Restricted Stock Unit Plan for Non-Employee Directors, as set forth herein and as the same may be amended and in effect from time to time.

2.17    Secretary: the individual holding the position of corporate secretary of the Company from time to time or his or her delegate.

2.18    Section 409A: section 409A of the Internal Revenue Code of 1986, as amended, and any proposed, temporary or final regulations, or any other guidance, promulgated with respect to section 409A by the U.S. Department of Treasury or the Internal Revenue Service.

2.19    Subsequent Deferral Election Rule: a subsequent election to delay a Settlement Date or change a Settlement Method of an Award applicable to a Participant’s previously filed election (i) may not take effect until at least twelve months after the date on which the election is
    2

made; (ii) must require that the settlement with respect to which such election is made (other than an election made on account of “disability,” “death” or an “unforeseeable emergency” each within the meaning of Section 409A) be deferred for a period of not less than five years from the date such settlement would otherwise have been made; and (iii) must be made not less than twelve months before the Settlement Date of an Award applicable to such previously filed election.

2.20    Termination Date: the date on which a Participant ceases to serve as a director of the Company for any reason.

ARTICLE III

ELIGIBILITY AND PARTICIPATION

Non-employee directors of the Company who are selected by the Committee to receive an Award shall become Participants in the Plan. Selection for participation in the Plan shall not entitle any Participant to continue to serve as a director of the Company for any period or to receive or be eligible to receive any subsequent or additional Awards.

ARTICLE IV

TERMS OF AWARDS

4.1    Grant of Awards.

The Committee may grant Awards to eligible non-employee directors described in Article 3 at such times, in such amounts and subject to such terms and conditions not inconsistent with the Plan as it shall determine. Each Award shall be evidenced by an Award Certificate.

4.2    Vesting of Awards.

Each Award shall be fully vested and nonforfeitable immediately upon grant to a Participant.

4.3    Dividend Equivalent Rights.

(i)    Cash Dividends. In the event that the Company declares and pays a cash dividend in respect of the Common Stock as of a record date occurring after the Grant Date of an Award and prior to the satisfaction of such Award as provided in Article 4.4, the Company shall credit an amount to the Participant’s Dividend Equivalent Account, as of the payment date for such dividend, equal to the product of (i) the cash dividend amount per share of Common Stock declared and paid, multiplied by (ii) the number of Awards held by such Participant. Cash amounts credited from time to time to a Participant’s Dividend Equivalent Account shall be deemed to earn interest, compounded quarterly, at an annual rate equal to the rate of interest applicable from time to time under the Company’s Deferred Compensation Plan for Non- Employee Directors for the period from the date such cash amount is credited to the Participant’s
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Dividend Equivalent Account to the date of distribution of such amount, as so adjusted, in accordance with Article 5.

(ii)    Dividends In Kind. In the event that the Company declares and pays a dividend in kind in respect of the Common Stock as of a record date occurring after the Grant Date of an Award and prior to the satisfaction of such Award as provided in Article 4.4, the Company shall credit an amount to each Participant’s Dividend Equivalent Account, as of the payment date for such dividend, equal to the product of (i) the then-current fair market value, as determined by the Committee in its sole discretion, assigned to the property paid in kind in respect of one share of Common Stock, multiplied by (ii) the number of Awards held by such Participant. Amounts credited from time to time to a Participant’s Dividend Equivalent Account in respect of in-kind dividends shall be adjusted from time to time to reflect changes in the fair market value of, or Adjustment Events with respect to, the property subject to such in kind dividend, as determined by the Company, during the period from the date such amount is credited to the Participant’s Dividend Equivalent Account to the date of distribution, as so adjusted, in accordance with Article 5.

4.4    Elections with respect to Method and Timing of Settlement. Pursuant to the Initial Deferral Election Rule, a Participant may elect for an Award to be settled in one of the following methods (each, a “Settlement Method”): (i) in one lump sum payment, which payment shall be made within twelve months following such Participant’s Termination Date on the Settlement Date elected by the Participant, or (ii) in a number of approximately equal annual installments (not to exceed 10 installments), with the first installment to be paid within twelve months following such Participant’s Termination Date on the Settlement Date elected by the Participant and each subsequent installment to be paid on the first business day of each succeeding calendar year during the installment period. Each payment shall be considered a “separate payment” and not of a series of payments for purposes of Section 409A. The term “Settlement Date” means the date (day and month) elected by the Participant to receive or begin receiving payments in settlement of his or her Award[s], provided, however, that in the event such day and month fall on a weekend or holiday, the Settlement Date shall mean the first business day following such date.

Election of the Settlement Method and Settlement Date shall be made in writing, on such form as may be approved from time to time by the Secretary.

4.5    Modification of Settlement Elections. A Participant may elect to change the Settlement Date and/or Settlement Method then in effect with respect to all or a designated portion of his or her Awards to another Settlement Date and/or Settlement Method permitted under Section 4.4 by filing an election with the Secretary, in such form as the Secretary may prescribe from time to time, subject to the Subsequent Deferral Election Rule and otherwise in accordance with any procedures specified by the Committee from time to time. Notwithstanding the foregoing, the Company may, in its sole discretion, authorize the acceleration of the settlement of an Award in accordance with paragraphs (j)(4)(ii) through (xiv) of Treasury Regulation §1.409A-3.


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ARTICLE V

SETTLEMENT OF AWARDS

5.1    Settlement. In the case of an Award payable in one lump sum, on the Settlement Date, the Company shall pay to the Participant, in full settlement of such Award, an amount, in cash, equal to the sum, determined as of the applicable date, of (i) the Market Value of a share of Common Stock plus (ii) the aggregate amount then credited to the portion of the Participant’s Dividend Equivalent Account corresponding to such Award. In the case of an Award payable in installments, on the Settlement Date applicable to such Award and on each subsequent installment payment date, the Company shall pay to the Participant, in partial settlement of such Award, the applicable installment amount, in cash. The amount of each installment shall be based on the Market Value of a share of Common Stock, plus the aggregate amount credited to the portion of the Participant’s Dividend Equivalent Account corresponding to such Award, in each case, as of the applicable date, and shall be determined by multiplying such amount by a fraction, the numerator of which shall be one and the denominator of which shall be the number of annual installments (including the current installment) remaining to be paid.

5.2    Settlement on Death or Change in Control. If a Participant should die before all Awards have been paid in accordance with Section 5.1, the balance of such Awards shall be paid to the Participant’s Beneficiary in a lump sum payment as of the first business day of the calendar year following the year of the Participant’s death. Notwithstanding anything herein to the contrary, upon a “change in the ownership” or the “effective control” of the Company or a “change in the ownership of a substantial portion of the Company’s assets” (each within the meaning of Section 409A), the balance of a Participant’s Awards shall be paid to the Participant in a lump sum payment within 30 days following such change in control.

ARTICLE VI

ADMINISTRATION

6.1    Authority of the Committee. The Committee shall be responsible for the administration and interpretation of the Plan and all Award Certificates. Subject to any guidelines established for the Committee, as approved in writing by the Board, the Committee shall have full discretionary authority to exercise its duties and powers under the Plan and the Award Certificates, including with respect to the administration and interpretation of the Plan and the Award Certificates. Subject to the terms of the Plan and the Award Certificates, the Committee is authorized to prescribe, amend and rescind rules and regulations relating to the administration and interpretation of the Plan and the Award Certificates, to provide for conditions and assurances deemed necessary or advisable to protect the interests of the Company, and to make all other determinations necessary or advisable for the administration and interpretation of the Plan and the Award Certificates or to carry out its or their provisions and purposes. All determinations, calculations, interpretations and other actions made or taken by the Committee pursuant to the provisions of the Plan or any Award Certificate or otherwise in connection with the administration, operation or interpretation thereof shall be final, binding and conclusive for all purposes and upon all persons and shall be made in the sole and absolute discretion of the Committee.
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6.2    Delegation by the Committee; Authority of the Board. The Committee may appoint in writing such person or persons as it may deem necessary or desirable to carry out any of the duties or responsibilities of the Committee hereunder and may delegate to such person or persons in writing such duties, and confer upon such person or persons in writing, such powers, discretionary or otherwise, as the Committee may deem appropriate. The Committee may employ one or more persons to render advice with regard to any of the duties or responsibilities of the Committee under the Plan. Any and all rights, duties and responsibilities of the Committee hereunder may be exercised by the Board in lieu of the Committee, in the Board’s discretion.

6.3    Reliance. The Committee shall be entitled to rely upon all determinations, certificates and reports made by any financial officer of the Company or any actuary or independent public accountant and upon all opinions of law given by any counsel selected by it (who may be counsel to the Company), and shall be fully protected in respect of any act done or omitted to be done or any determination made in good faith in reliance upon any such determination, certificate, report or opinion. No member of the Committee shall be liable for any act done or omitted to be done or determination made in the performance of its duties under this Plan or for any act done or omitted to be done by any agent or representative of such Committee so long as such person acted in good faith.

6.4    Indemnification. Each person who is or shall have been a member of the Committee or otherwise delegated any administrative duties or responsibilities hereunder shall be indemnified and held harmless by the Company to the fullest extent permitted by law from and against any and all losses, costs, liabilities and expenses (including any related attorneys’ fees and advances thereof) in connection with, based upon or arising or resulting from any claim, action, suit or proceeding to which such person may be made a party or in which such person may be involved by reason of any action taken or failure to act under or in connection with the Plan and from and against any and all amounts paid by such person in settlement thereof, with the Company’s approval, or paid by such person in satisfaction of any judgment in any such action, suit or proceeding against him, provided that such person shall give the Company an opportunity, at its own expense, to defend the same before such person undertakes to defend it on his own behalf. The foregoing right of indemnification shall not be exclusive and shall be independent of any other rights of indemnification to which such persons may be entitled under the Company’s Certificate of Incorporation or By-laws, by contract, as a matter of law or otherwise.

ARTICLE VII

ADJUSTMENTS IN CAPITALIZATION

In the event of any change in the number, class or type of shares of Common Stock outstanding or other change in the capitalization of the Company by reason of an Adjustment Event, the Committee shall make such adjustments as it determines are appropriate to the number of shares of Common Stock and/or the class or type of shares of capital stock covered by the Awards. In the event of any adjustment made pursuant to this Article 7, references herein and in any applicable Award Certificate will be deemed to refer to such different class or type of shares of common stock or other equity securities.
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ARTICLE VII

GENERAL PROVISIONS

8.1    Right to Payment Unsecured. The right of a Participant to receive payments under the Plan shall be only that of an unsecured creditor against the assets of the Company and payments under the Plan shall be made solely from the assets of the Company. No Participant shall have any right to any specific assets of the Company by virtue of the Plan, any Award Certificate or any Award hereunder or thereunder.

8.2    Nontransferability of Awards. Neither Awards granted under the Plan nor interests in Dividend Equivalent Accounts may be transferred, sold, assigned, pledged, encumbered, hypothecated, alienated or otherwise disposed of, other than by will or by the laws of descent and distribution upon the death of the Participant.

8.3    Amendment or Termination. The Plan and any outstanding Award Certificate may be amended, modified or terminated by the Board at any time or from time to time, provided that no such amendment, modification or termination (other than an amendment, modification or termination as necessary to comply with Section 409A) shall, without the consent of the affected Participant, materially and adversely affect the rights of such Participant in respect of outstanding Awards held at the time of such amendment, modification or termination, as determined by the Committee. Notwithstanding the foregoing, the Board may amend the Plan and any Award Certificate to the extent necessary to comply with applicable securities laws, without the consent of the affected Participant.

8.4    Limitation on Participants’ Rights. The Plan shall not be construed as conferring upon any Participant any legal right to continue to serve as a director of the Company.

8.5    Facility of Payments. In the event that the Committee shall find that any Participant to whom any benefit is payable under the Plan is unable to care for his or her affairs because of illness, accident or otherwise, the Committee may direct that any benefit due shall be paid to the duly appointed legal representative of such Participant, or if there is no duly appointed legal representative, to the Participant’s spouse or child of majority age, and the payment of any such benefits shall be in complete discharge of the liabilities of the Company under the Plan.

8.6    Beneficiary Designation. Each Participant may from time to time name any Beneficiary or Beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid. Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Secretary (which form may be the form used generally for other benefit plan purposes) and will be effective only when filed by the Participant in writing with the Secretary during his or her lifetime. In the absence of any such designation, or in the event the designated beneficiary shall have predeceased the Participant, the Participant’s Beneficiary shall be deemed to be to the Participant’s surviving spouse, if any, or otherwise his or her estate.

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8.7    Rights as a Stockholder. A Participant shall not have any rights of a stockholder with respect to any Award, including any in-kind dividend amount credited to his or her Dividend Equivalent Account, including, but not limited to, the right of a stockholder to vote or receive dividends, except for the right to receive dividend equivalent amounts pursuant to Section 4.3.

8.8    No Limitation on Compensation. Nothing in the Plan shall be construed as limiting the right of the Company to establish other plans, or to pay compensation to its directors in cash or property, in a manner that is not expressly authorized under the Plan.

8.9    Requirements of Law. The granting of Awards and the satisfaction thereof shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or, as may be appropriate or required, as determined by the Committee.

8.10    Section 409. The Plan is intended to provide for the deferral of compensation in full compliance with Section 409A. The Plan shall be construed in a manner to give effect to such intention.

8.11    Limited Transition Relief through December 31, 2008. Notwithstanding anything herein to the contrary, pursuant to the transition relief provided under Q&A 19(c) of IRS Notice 2005-1, as amplified by the proposed regulations under Section 409A, and as further amended by IRS Notice 2006-79 and IRS Notice 2007-86, a Participant (i) may designate the Settlement Date and Settlement Method of an Award to the extent not previously so elected and/or (ii) may make a new election to change the Settlement Method and Settlement Date of an Award in a previously filed election, in each case, no later than December 31, 2008. A Participant who chooses not to file a new election as provided in clause (ii) shall continue to participate in the Plan pursuant to his or her prior elections, which shall be administered in accordance with Section 409A. Any changes to elections made after December 31, 2008 will be subject to the Subsequent Deferral Election Rule.

8.12    Notices. Each Participant shall be responsible for furnishing the Secretary with the current and proper address for the mailing of notices and delivery of agreements or other property. Any notices required or permitted to be given shall be deemed given by the Company if directed to the Participant to whom addressed at such address and mailed by regular United States mail, first-class and prepaid. If any item mailed by the Company to such address is returned as undeliverable to the addressee, mailing will be suspended until the Participant furnishes the proper address.

8.13    Severability of Provisions. If any provision of this Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and this Plan shall be construed and enforced as if such provision had not been included.

8.14    Applicable Law. This Plan and all Award Certificates in all respects shall be construed and interpreted in accordance with the laws of the State of Connecticut, without regard to the principles of conflicts of law thereof.

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8.15    Number and Gender. To the extent appropriate in the context, each term used in this Plan in either the singular or the plural shall include the singular and the plural, and pronouns stated in either the masculine, feminine or neuter gender shall include the masculine, feminine and neuter.

8.16    Headings and Captions. Headings and captions in this Plan are inserted for convenience of reference only and the Plan is not to be construed by the interpretation thereof.
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EXHIBIT 10.28

IMAGEA051.JPG

Pradheepa Raman
Chief Talent Innovation Officer
Stanley Black & Decker
1000 Stanley Drive, New Britain, CT 06053




February 24, 2020

Graham Robinson


Dear Graham,

I am pleased to offer you the position of SVP & President, Industrial at Stanley Black & Decker, Inc. We anticipate you will be designated as an Executive Officer, subject to board approval. This is a full time, salaried exempt position, based in New Britain, CT. You will report directly to Jim Loree, CEO. Your annual base salary will be $500,000, paid monthly.

TARGETED START DATE: Your anticipated start date is April 6, 2020. The finalization of your start date will be determined once the contingencies in this offer have been satisfactorily met.

SIGN-ON BONUS: On joining the Company, you will receive a one-time sign-on bonus of $400,000, subject to applicable taxes and withholdings. The sign-on bonus will be delivered over two years: $250,000 upon hire and
$150,000 by April 30, 2021. If within two years of each bonus payment you voluntarily terminate your employment, or your employment is terminated by the Company for violation of Company rules, or misconduct, you shall repay to the company the full gross amount of this signing bonus at the time of such termination.

ANNUAL BONUS INCENTIVE: You will participate in the Corporate Management Incentive Compensation Program (MICP) Level 1A per the terms and conditions of the plan. Your target bonus is 75% of your base salary with a 150% maximum of your base salary, payable in the spring following each MICP plan year. You will receive a full year 2020 MICP bonus to the extent earned based upon business performance in relation to the Industrial Plan metrics. MICP participants are required to sign and return a restrictive covenant agreement, which is attached to this offer letter.

LONG-TERM INCENTIVES:

As part of your annual compensation package, you will be eligible to participate in the Annual Equity Award Program and Long-Term Performance Award Program (LTPAP).

Annual Equity Grant: Equity grants are typically made in December of each year. For your 2020 December grant, your target will be approximately $805,000 of fair value at the grant date, expected to be comprised of a mix of Stock Options and Restricted Stock Units (RSUs). Specific grant levels are subject to annual review by the Board of Directors. These grants will typically vest in 25% increments over four years.

Long-Term Performance Award: LTPAP grants are typically made in February of each year and are payable in shares. This Program is intended to provide financial rewards for specified full-time members of the Stanley Black & Decker executive team, provided specific corporate goals are achieved during the Program's three-year measurement period. Because you will be starting in April 2020, this grant will be delivered in cash as opposed to shares within 30 days of your start date. Your target will be 100% of your base salary with a 200% maximum of your base salary, payable in cash for the 2020-2022 cycle after the completion of the three-year performance period to the extent the performance goals are achieved.

One-Time Equity Incentives: In addition to the standard equity grants received in December, you will also receive two one-time grants within 90 days of your start date. The first will have a fair value of $1,000,000

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and will vest 50% per year and the second will have a fair value of $1,500,000 and will vest 1/3 per year over 3 years.

RELOCATION: You will be eligible for the Guaranteed Buy Out Relocation Policy as described in the enclosed materials. As part of this program, you will receive a moving allowance of one month's new salary up to maximum of $5,000 to cover incidental moving expenses once you have moved. To be eligible for any relocation benefit you must first sign the Relocation Expense Agreement, which can be found on the last page of the enclosed Relocation Policy. No relocation benefit will be provided until the Company has received your signed Relocation Expense Agreement.

BENEFITS: You are eligible for 4 weeks of Paid Time Off (PTO). PTO is subject to the terms of the corporate policy. You will be eligible to enroll for medical, dental, vision, flexible spending accounts, group legal, disability and life insurance coverage effective on the first of the month following your date of hire. A benefits guide is enclosed with this offer letter.

The Stanley Black & Decker Retirement Account Plan will become effective on the first of the month following your date of hire. The plan provides a competitive retirement benefit and has two components. The Retirement Account Plan offers a 401K savings vehicle for you to save on a pre-tax basis with a Company match of 50% on employee pre-tax contributions up to 7% of your pay and a competitive investment fund line-up. In addition, the Retirement Account Plan provides a Core allocation to an account for you regardless of your own contributions. Stanley Black & Decker will make a Core.allocation to your account of 2%, 4% or 6% of your pay based on your age (2% to age 39, 4% ages 40-54, and 6% age 55 and above).

PERQUISITES: You will be eligible for the following perquisites as described in the enclosed Executive Compensation Booklet.

Stanley Black & Decker (SBD)_Home Security System: You are eligible for an SBD home security system with a reimbursement value (installation and equipment) up to $30,000, which will include monthly monitoring, preventative maintenance and repair costs.

SBD Company Products: You are eligible to receive up to $5,000 per year in SBD Company products (at standard cost).

Executive Life Insurance Program: Death benefit of 3X base salary and retirement cash funding if at the time of termination, you have 10 years of service and are age 55 or older.

Executive Long-Term Disability Insurance: Monthly LTD Benefit for qualifying disabilities equal to up to 60% of Monthly Earnings (a maximum of $35,000 monthly)

Executive Physical Program: An annual comprehensive medical examination and appropriate screening with an annual allowance up to $5,000.

Executive Financial and Estate Planning Program: Financial planning services with a professional of your choice with an annual allowance up to $15,000.

STOCK OWNERSHIP, CHANGE IN CONTROL, AND SEPARATION: As an Executive Officer, you will be subject to the attached Stock Ownership Guidelines. The ownership target of Company stock is three times your base salary.

Shortly after you join the Company, subject to board approval, we expect to execute a Change in Control agreement that will provide you with a 2.5x total cash benefit (base salary + average 3-year bonus) upon a double trigger event (i.e., Change in Control and involuntary termination).

In the event the Company terminates your employment involuntarily, in the absence of your violation of Company rules or misconduct, you will be entitled to one year of base salary as severance during which time life, health and welfare benefits shall continue as if you were actively employed, whereas disability coverage, as well as certain voluntary and retirement benefits, will cease upon termination. In addition, you would receive a pro-rated annual bonus payout, to the extent earned in relation to the performance metrics, based on the number of complete months of your active service during the year of any such involuntary termination without cause.

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OTHER: Please be aware that your employment at Stanley Black & Decker will be strictly on an "at-will" basis and as such is terminable by either the Company or you at any time and for any reason. Stanley Black & Decker does not recognize any contract of employment in the U.S. unless it is reduced to writing and signed by an Officer of Stanley Black & Decker. Specific terms and conditions of the various benefits are governed by program documents and policies, which are subject to periodic update.

Commencing employment is contingent upon successful:

1.Submission of completed Pre-Employment forms, including the Invention and Confidentiality Agreement;
2.Pre-employment drug screen;
3.Background check;
4.Evidence of your authorization to legally work in the U.S. in accordance with Immigration and Naturalization Act (Form 1-9);
5.Return of the signed MICP Restrictive Covenant Agreement
6.Return of the signed Made in the USA Acknowledgement Agreement


We are delighted that you will be joining Stanley Black & Decker! There's a lot of exciting work to be done and we know that you'll make a great contribution to our success. If you have any questions, please do not hesitate to call me at ___________________.


Sincerely,

Pradheepa Raman
Chief Talent Innovation Officer

I, ______________________________________________hereby accept the offer of employment as presented above on this (print name)
________day of ___________ 2020. I understand that this letter sets forth the entire agreement between myself and Stanley Black & Decker, Inc. regarding my offer of employment, including the sections pertaining to the Sign-On Bonus and Relocation payments which state I shall repay the Company the full gross amount of such payments if, within two years of the date I commence work for Stanley Black & Decker, or the receipt of such bonus where later, I voluntarily terminate my employment, or my employment is terminated by the Company for violation of Company rules, or misconduct and fully supersedes any other agreements, understandings, or promises from any representative of the Company.
Signature: ________________________________

Enclosures:
Benefits Guide
Restrictive Covenant
Made in the USA Acknowledgement Form
Executive Compensation Booklet
Stock Ownership Guidelines
GBO Relocation

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EXHIBIT 10.29


FORM OF CHANGE IN CONTROL SEVERANCE AGREEMENT1


THIS AGREEMENT (the “Agreement”), dated [DATE] is made by and between Stanley Black & Decker, Inc., a Connecticut corporation (the “Company”), and Robert Blackburn. (the “Executive”).
WHEREAS, the Board recognizes that, as is the case with many publicly held corporations, the possibility of a Change in Control exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its shareowners; and
WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company’s management, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows:
1.Defined Terms. The definitions of capitalized terms used in this Agreement are provided in the last Section hereof.
2.Term of Agreement. The Term of this Agreement shall commence on the date hereof and shall continue in effect through the first anniversary hereof; provided, however, that commencing on [DATE] and each [DATE] thereafter, the Term shall automatically be extended for one additional year unless, not later than ninety (90) calendar days prior to such [DATE], the Company or the Executive shall have given notice not to extend the Term; and further provided, however, that if a Change in Control shall have occurred during the Term, the Term shall expire no earlier than twenty-four (24) months beyond the month in which such Change in Control occurred.
3.Company’s Covenants Summarized. In order to induce the Executive to remain in the employ of the Company and in consideration of the Executive’s covenants set forth in Section 4 hereof, the Company agrees, under the conditions described herein, to pay the Executive the Severance Payments and the other payments and benefits described herein. Except as provided in Section 10.1 hereof, no Severance Payments shall be payable under this Agreement unless there shall have been (or, under the terms of the second sentence of Section 6.1 hereof, there shall be deemed to have been) a termination of the Executive’s employment with the Company following a Change in Control and during the Term. This Agreement shall not be construed as creating an express or implied contract of employment and,
1 Form of Change in Control Severance Agreement for all other executive officers.


except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company.
4.The Executive’s Covenants. The Executive agrees that, subject to the terms and conditions of this Agreement, in the event of a Potential Change in Control during the Term, the Executive will remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the date of such Potential Change in Control, (ii) the date of a Change in Control, (iii) the date of termination by the Executive of the Executive’s employment for Good Reason or by reason of death, Disability or Retirement, or (iv) the termination by the Company of the Executive’s employment for any reason.
5.Compensation Other Than Severance Payments.
5.1    Following a Change in Control and during the Term, during any period that the Executive fails to perform the Executive’s full-time duties with the Company as a result of incapacity due to physical or mental illness, the Company shall pay the Executive’s full salary to the Executive at the rate in effect at the commencement of any such period, together with all compensation and benefits payable to the Executive under the terms of any compensation or benefit plan, program or arrangement maintained by the Company during such period (other than any disability plan), until the Executive’s employment is terminated by the Company for Disability.
5.2    If the Executive’s employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay the Executive’s full salary to the Executive through the Date of Termination at the rate in effect immediately prior to the Date of Termination or, if higher, the rate in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, together with all compensation and benefits payable to the Executive through the Date of Termination under the terms of the Company’s compensation and benefit plans, programs or arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason.
5.3    If the Executive’s employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay to the Executive the Executive’s normal post-termination compensation and benefits as such payments become due. Such post-termination compensation and benefits shall be determined under, and paid in accordance with, the Company’s retirement, insurance and other compensation or benefit plans, programs and arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the occurrence of the first event or circumstance constituting Good Reason. Notwithstanding anything herein to the contrary and for the avoidance of doubt, “normal post-termination compensation and benefits” shall not include disability insurance coverage after the Executive’s termination of employment with the Company.
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6.Severance Payments.
6.1    If the Executive incurs a “separation from service” (within the meaning of section 409A) following a Change in Control and during the Term, other than (A) by the Company for Cause, (B) by reason of death or Disability, or (C) by the Executive without Good Reason, then the Company shall pay the Executive the amounts, and provide the Executive the benefits described in this Section 6.1 (“Severance Payments”), in addition to any payments and benefits to which the Executive is entitled under Section 5 hereof. For purposes of this Agreement, the Executive shall be deemed to have incurred a separation from service following a Change in Control by the Company without Cause or by the Executive with Good Reason, if (i) the Executive’s employment is terminated by the Company without Cause prior to a Change in Control (whether or not a Change in Control occurs) and such termination was at the request or direction of a Person who has entered into an agreement with the Company the consummation of which would constitute a Change in Control, (ii) the Executive terminates his employment for Good Reason prior to a Change in Control (whether or not a Change in Control occurs) and the circumstance or event which constitutes Good Reason occurs at the request or direction of such Person, or (iii) the Executive’s employment is terminated by the Company without Cause or by the Executive for Good Reason and such termination or the circumstance or event which constitutes Good Reason is otherwise in connection with or in anticipation of a Change in Control (whether or not a Change in Control occurs). For purposes of Sections 5 and 6 of this Agreement, no payment that would otherwise be made and no benefit that would otherwise be provided upon a termination of employment will be made or provided unless and until such termination of employment is also a “separation from service,” as determined in accordance with section 409A.
(A)    In lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any severance benefit otherwise payable to the Executive, the Company shall pay to the Executive a lump sum severance payment, in cash, equal to two and one-half times the sum of (i) the Executive’s base salary as in effect immediately prior to the Date of Termination or, if higher, in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, and (ii) the average annual bonus earned by the Executive pursuant to any annual bonus or incentive plan maintained by the Company in respect of the three fiscal years ending immediately prior to the fiscal year in which occurs the Date of Termination or, if higher, immediately prior to the fiscal year in which occurs the first event or circumstance constituting Good Reason.
(B)    For the thirty (30) month period immediately following the Date of Termination, the Company provide, or shall arrange to provide, to the Executive and his dependents life, accident and health insurance benefits substantially similar to those provided to the Executive and his dependents immediately prior to the Date of Termination or, if more favorable to the Executive, those provided to the Executive and his dependents immediately prior to the first occurrence of an event or circumstance constituting Good Reason, at no greater cost to the Executive than the cost to the Executive immediately prior to such date or occurrence. Benefits otherwise receivable by the Executive pursuant to this Section 6.1(B) shall be reduced to the extent benefits of the
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same type are received by or made available to the Executive during the thirty (30) month period following the Executive’s termination of employment, such as pursuant to the benefit plans of a subsequent employer (and any such benefits received by or made available to the Executive shall be reported to the Company by the Executive); provided, however, that the Company shall promptly reimburse the Executive for the excess, if any, of the cost of such benefits to the Executive over such cost immediately prior to the Date of Termination or, if more favorable to the Executive, the first occurrence of an event or circumstance constituting Good Reason.
(C)    In addition to the benefits to which the Executive is entitled under the DC Pension Plan, the Company shall pay the Executive a lump sum amount, in cash, equal to the sum of (i) the amount that would have been contributed thereto by the Company on the Executive’s behalf during the thirty (30) months immediately following the Date of Termination, determined (x) as if the Executive made the maximum permissible contributions thereto during such period, (y) as if the Executive earned compensation during such period at a rate equal to the Executive’s compensation (as defined in the DC Pension Plan) during the twelve (12) months immediately preceding the Date of Termination or, if higher, during the twelve months immediately prior to the first occurrence of an event or circumstance constituting Good Reason, and (z) without regard to any amendment to the DC Pension Plan made subsequent to a Change in Control and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of benefits thereunder, and (ii) the excess, if any, of (x) the Executive’s account balance under the DC Pension Plan as of the Date of Termination over (y) the portion of such account balance that is nonforfeitable under the terms of the DC Pension Plan. The payments provided in this Section 6.1(C) are in addition to any payment the Executive would otherwise receive under the applicable DC Plan and are not intended to offset or reduce any payment under such DC Plan.
(D)    If the Executive would have become entitled to benefits under the Company’s post-retirement health care or life insurance plans, as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, had the Executive’s employment terminated at any time during the period of thirty (30) months after the Date of Termination, the Company shall provide such post-retirement health care and/or life insurance benefits to the Executive and the Executive’s dependents commencing on the later of (i) the date on which such coverage would have first become available and (ii) the date on which benefits described in subsection (B) of this Section 6.1 terminate.
(E)    The Company shall provide the Executive with third-party outplacement services suitable to the Executive’s position for the period following the Executive’s Date of Termination and ending on December 31 of the second year following such Date of Termination or, if earlier, until the first acceptance by the Executive of an offer of employment, provided, however, that in no case shall the Company be required to pay in excess of $50,000 over such period in providing outplacement services and that all
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reimbursements hereunder shall be paid to the Executive within thirty (30) calendar days following the date on which the Executive submits the invoice but no later than December 31 of the third calendar year following the year of the Executive’s Date of Termination.
(F)    For the thirty (30) month period immediately following the Date of Termination or until the Executive becomes eligible for substantially similar benefits from a new employer, whichever occurs earlier, the Company shall continue to provide the Executive with all perquisites provided by the Company immediately prior to the Date of Termination or, if more favorable to the Executive, immediately prior to the first occurrence of an event or circumstance constituting Good Reason (including, without limitation, automobile, financial planning, annual physical and executive whole life insurance).
6.2    (A)    Notwithstanding any other provisions in this Agreement, if any of the payments or benefits received or to be received by the Executive (including any payment or benefits received in connection with a Change in Control or the Executive’s termination of employment, whether pursuant to the terms of this Agreement or any other plan, program, arrangement or agreement) (all such payments and benefits, being hereinafter referred to as the “Total Payments”) would be subject (in whole or part), to the Excise Tax, then, after taking into account any reduction in the Total Payments provided by reason of section 280G of the Code in such other plan, program, arrangement or agreement, the Company will reduce the Total Payments to the extent necessary so that no portion of the Total Payments is subject to the Excise Tax (but in no event to less than zero); provided, however, that the Total Payments will only be reduced if (i) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state, municipal and local income taxes on such reduced Total Payments and after taking into account the phase out, if any, of itemized deductions and personal exemptions attributable to such reduced Total Payments), is greater than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state, municipal and local income taxes on such Total Payments and the amount of Excise Tax to which the Executive would be subject in respect of such unreduced Total Payments and after taking into account the phase out, if any, of itemized deductions and personal exemptions attributable to such unreduced Total Payments).
(B)    In the case of a reduction in the Total Payments, the Total Payments will be reduced in the following order: (i) payments that are payable in cash that are valued at full value under Treasury Regulation Section 1.280G-1, Q&A 24(a) will be reduced (if necessary, to zero), with amounts that are payable last reduced first; (ii) payments and benefits due in respect of any equity valued at full value under Treasury Regulation Section 1.280G-1, Q&A 24(a), with the highest values reduced first (as such values are determined under Treasury Regulation Section 1.280G-1, Q&A 24) will next be reduced; (iii) payments that are payable in cash that are valued at less than full value under Treasury Regulation Section 1.280G-1, Q&A 24, with amounts that are payable last reduced first, will next be reduced; (iv) payments and benefits due in respect of any equity valued at less than full value under Treasury Regulation Section 1.280G-1, Q&A
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24, with the highest values reduced first (as such values are determined under Treasury Regulation Section 1.280G-1, Q&A 24) will next be reduced; and (v) all other non-cash benefits not otherwise described in clauses (ii) or (iv) will be next reduced pro-rata. Any reductions made pursuant to each of clauses (i)-(v) above will be made in the following manner: first, a pro-rata reduction of cash payment and payments and benefits due in respect of any equity not subject to section 409A, and second, a pro-rata reduction of cash payments and payments and benefits due in respect of any equity subject to section 409A as deferred compensation.
(C)    For purposes of determining whether and the extent to which the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax: (i) no portion of the Total Payments the receipt or enjoyment of which the Executive shall have waived at such time and in such manner as not to constitute a “payment” within the meaning of section 280G(b) of the Code will be taken into account; (ii) no portion of the Total Payments will be taken into account which, in the opinion of tax counsel (“Tax Counsel”) reasonably acceptable to the Executive and selected by the accounting firm which was, immediately prior to the Change in Control, the Company’s independent auditor (the “Auditor”), does not constitute a “parachute payment” within the meaning of section 280G(b)(2) of the Code (including by reason of section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no portion of such Total Payments will be taken into account which, in the opinion of Tax Counsel, constitutes reasonable compensation for services actually rendered, within the meaning of section 280G(b)(4)(B) of the Code, in excess of the Base Amount allocable to such reasonable compensation; and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code.
(D)    All determinations required by this Section 6.2 (or requested by either the Executive or the Company in connection with this Section 6.2) will be at the expense of the Company. The fact that the Executive’s right to payments or benefits may be reduced by reason of the limitations contained in this Section 6.2 will not of itself limit or otherwise affect any other rights of the Executive under this Agreement. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments.
6.3    Subject to Section 6.4, the payments provided in subsections (A) and (C) of Section 6.1 hereof shall be made not later than the fifth (5th) business day following the Date of Termination; provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Company in accordance with Section 6.2 hereof, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest on the unpaid remainder (or on all such payments to the extent the Company fails to make such payments when due) at 120% of the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) calendar day after the Date of Termination. In the
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event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall be payable by the Executive to the Company on the fifth (5th) business day after demand by the Company (together with interest at 120% of the rate provided in section 1274(b)(2)(B) of the Code). At the time that payments are made under this Agreement, the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations including, without limitation, any opinions or other advice the Company has received from Tax Counsel, the Auditor or other advisors or consultants (and any such opinions or advice which are in writing shall be attached to the statement).
6.4    (A)    Notwithstanding any provisions of this Agreement to the contrary, if the Executive is a “specified employee” (within the meaning of section 409A and determined pursuant to procedures adopted by the Company) at the time of his separation from service and if any portion of the payments or benefits to be received by the Executive upon separation from service would be considered deferred compensation under section 409A, amounts that would otherwise be payable pursuant to this Agreement during the six-month period immediately following the Executive’s separation from service (the “Delayed Payments”) and benefits that would otherwise be provided pursuant to this Agreement (the “Delayed Benefits”) during the six-month period immediately following the Executive’s separation from service (such period, the “Delay Period”) shall instead be paid or made available on the earlier of (i) the first (1st) business day of the seventh month following the date of the Executive’s separation from service or (ii) Executive’s death (the applicable date, the “Permissible Payment Date”). The Company shall also reimburse the Executive for the cost incurred by the Executive in independently obtaining any Delayed Benefits (the “Additional Delayed Payments”).
(B)    With respect to any amount of expenses eligible for reimbursement under Sections 6.1 (B), (D) and (F), such expenses shall be reimbursed by the Company within thirty (30) calendar days following the date on which the Company receives the applicable invoice from the Executive but in no event later than December 31 of the year following the year in which the Executive incurs the related expenses; provided, that with respect to reimbursement relating to the Additional Delayed Payments, such reimbursement shall be made on the Permissible Payment Date. In no event shall the reimbursements or in-kind benefits to be provided by the Company in one taxable year affect the amount of reimbursements or in-kind benefits to be provided in any other taxable year, nor shall the Executive’s right to reimbursement or in-kind benefits be subject to liquidation or exchange for another benefit.
(C)    For purposes of section 409A, the Executive’s right to receive any “installment” payments pursuant to this Agreement shall be treated as a right to receive a series of separate and distinct payments.
6.5    The Company shall deposit the estimated Delayed Payments and estimated Additional Delayed Payments into an irrevocable grantor trust (for purposes of this Section 6, the “Grantor Trust”) not later than the fifth (5th) business day following the occurrence of a Potential Change in Control. The Company shall deposit additional amounts into the Grantor Trust on a monthly basis equal to the interest accrued on the Delayed Payments (and any earlier interest
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payments) at the United States 5-year Treasury Rate plus 2%, and the amount held in the Grantor Trust shall be paid to the Executive (in accordance with the terms of the Grantor Trust) on the Permissible Payment Date.
6.6    The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive in disputing in good faith any issue hereunder relating to the termination of the Executive’s employment or in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement. Such payments shall be made within five (5) business days (but in any event no later than December 31 of the year following the year in which the Executive incurs the expenses) after delivery of the Executive’s written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require, provided that (i) the amount of such legal fees and expenses that the Company is obligated to pay in any given calendar year shall not affect the legal fees and expenses that the Company is obligated to pay in any other calendar year, (ii) the Executive’s right to have the Company pay such legal fees and expenses may not be liquidated or exchanged for any other benefit, and (iii) the Executive shall not be entitled to reimbursement unless he has submitted an invoice for such fees and expenses at least ten (10) business days before the end of the calendar year next following the calendar year in which such fees and expenses were incurred. The Company shall also pay all legal fees and expenses incurred by the Executive in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit hereunder. Payment pursuant to the preceding sentence will be made within fifteen (15) business days after delivery of the Executive’s written request for payment but in no event later than the end of the calendar year following the calendar year in which the taxes that are the subject of the audit or proceeding are remitted to the taxing authority, or where as a result of the audit or proceeding no taxes are remitted, the end of the calendar year in which the audit is completed or there is a final and nonappealable settlement or other resolution of the matter.
7.Termination Procedures and Compensation During Dispute.
7.1    Notice of Termination. After a Change in Control and during the Term, any purported termination of the Executive’s employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 11 hereof. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive’s counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail.
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7.2    Date of Termination. “Date of Termination,” with respect to any purported termination of the Executive’s employment after a Change in Control and during the Term, shall mean (i) if the Executive incurs a separation from service due to Disability, thirty (30) calendar days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive’s duties during such thirty (30) calendar day period), and (ii) if the Executive incurs a separation from service for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall be the thirtieth (30th) calendar day after the Notice of Termination is given (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) calendar days nor more than sixty (60) calendar days, respectively, from the date such Notice of Termination is given).
8.No Mitigation. The Company agrees that, if the Executive’s employment with the Company terminates during the Term, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 6 hereof. Further, except as specifically provided in Sections 6.1(B) and 6.1(F) hereof, no payment or benefit provided for in this Agreement shall be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise.
9.Restrictive Covenants.
9.1    The Executive agrees that restrictions on his activities during and after his employment are necessary to protect the goodwill, Confidential Information and other legitimate interests of the Company and its Subsidiaries, and that the agreed restrictions set forth below will not deprive the Executive of the ability to earn a livelihood:
(A)    While the Executive is in the employment of the Company and, if the Executive is entitled to benefits under Section 6.1 hereof upon termination of employment, for a period of twenty-four (24) months after such termination of employment (the “Non-Competition Period”), the Executive shall not, without the express written consent of the Company, in the United States of America, directly or indirectly (i) enter into the employ of or render any services to any person, firm or corporation engaged in any Competitive Business; (ii) engage in any Competitive Business for his own account or (iii) become interested in any Competitive Business as an individual, partner, shareholder, creditor, director, officer, principal, agent, employee, consultant, advisor or in any other relationship or capacity; provided, however, that nothing contained in this Section shall be deemed to prohibit the Executive from acquiring, solely as an investment through market purchases, securities of any corporation which are registered under Section 12 of the Exchange Act and which are publicly traded so long as he is not part of any group in control of such corporation.
(B)    The Executive agrees that during the Non-Competition Period or in connection with any termination of employment pursuant to which the Executive is entitled to benefits under Section 6.1, the Executive will not, either directly or through
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any agent or employee, Solicit any employee of the Company or any of its Subsidiaries to terminate his or her relationship with the Company or any of its Subsidiaries or to apply for or accept employment with any enterprise competitive with the business of the Company, or Solicit any customer, supplier, licensee or vendor of the Company or any of its Subsidiaries to terminate or materially modify its relationship with them, or, in the case of a customer, to conduct with any person any business or activity which such customer conducts or could conduct with the Company or any of its Subsidiaries.
(C)    The Executive acknowledges that the Company and its Subsidiaries continually develop Confidential Information, that the Executive may develop Confidential Information for the Company or its Subsidiaries and that the Executive may learn of Confidential Information during the course of his employment under this Agreement. The Executive will comply with the policies and procedures of the Company and its Subsidiaries for protecting Confidential Information and shall never disclose to any person (except as required by applicable law or legal process or for the proper performance of his duties and responsibilities to the Company and its Subsidiaries, or in connection with any litigation between the Company and the Executive (provided that the Company shall be afforded a reasonable opportunity in each case to obtain a protective order)), or use for his own benefit or gain, any Confidential Information obtained by the Executive incident to his employment or other association with the Company or any of its Subsidiaries. The Executive understands that this restriction shall continue to apply after his employment terminates, regardless of the reason for such termination. All documents, records, tapes and other media of every kind and description relating to the business, present or otherwise, of the Company or its Subsidiaries and any copies, in whole or in part, thereof (the “Documents”), whether or not prepared by the Executive, shall be the sole and exclusive property of the Company and its Subsidiaries. The Executive shall safeguard all Documents and shall surrender to the Company at the time his employment terminates, or at such earlier time or times as the Board or its designee may specify, all Documents then in the Executive’s possession or control.
(D)    Without limiting the foregoing, it is understood that the Company shall not be obligated to make any of the payments or to provide for any of the benefits specified in Sections 6.1 and 6.2 hereof, and shall be entitled to recoup the pro rata portion of any such payments and of the value of any such benefits previously provided to the Executive in the event of a material breach by the Executive of the provisions of this Section 9 (such pro ration to be determined as a fraction, the numerator of which is the number of days from such breach to the second anniversary of the date on which the Executive terminates employment and the denominator of which is 730), which breach continues without having been cured within fifteen (15) calendar days after written notice to the Executive specifying the breach in reasonable detail.
10.Successors; Binding Agreement.
10.1    In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger,
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consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.
10.2    This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive’s estate.
11.Notices. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed, if to the Executive, to the address inserted below the Executive’s signature on the final page hereof and, if to the Company, to the address set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt:
To the Company:    Stanley Black & Decker, Inc.
                1000 Stanley Drive
                New Britain, Connecticut 06053
                Attention: Corporate Secretary

12.Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board; provided that, nothing in this Agreement shall prohibit the Company from amending this Agreement in a manner that does not materially or adversely affect the rights of the Executive hereunder. No waiver by either party hereto at any time of any breach by the other party hereto of, or of any lack of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement supersedes any other agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof which have been made by either party; provided, however, that (1) this Agreement shall supersede any agreement setting forth the terms and conditions of the Executive’s employment with the Company only in the event that the Executive’s employment with the Company is terminated on or following a Change in Control (or deemed to have been so terminated), by the Company other than for Cause or by the Executive for Good Reason and (2) to the extent this Agreement does not supersede any agreement referred to in clause (1), it shall not result in any duplication of benefits to the Executive. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Connecticut, without regard to its conflicts of law principles. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any
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payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law and any additional withholding to which the Executive has agreed. The obligations of the Company and the Executive under this Agreement which by their nature may require either partial or total performance after the expiration of the Term (including, without limitation, those under Sections 6 and 7 hereof) shall survive such expiration. To the extent applicable, it is intended that the compensation arrangements under this Agreement be in full compliance with section 409A. This Agreement shall be construed in a manner to give effect to such intention.
13.Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
14.Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.
15.Settlement of Disputes. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Board a decision of the Board within sixty (60) calendar days after notification by the Board that the Executive’s claim has been denied. Notwithstanding the above, in the event of any dispute, any decision by the Board hereunder shall be subject to a de novo review by a court of competent jurisdiction.
Notwithstanding any provision of this Agreement to the contrary, the Executive shall be entitled to seek specific performance of the Executive’s right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement.
16.Definitions. For purposes of this Agreement, the following terms shall have the meanings indicated below:
(A)    “Additional Delayed Payments” shall have the meaning set forth in Section 6.4 hereof.
(B)    “Affiliate” shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act.
(C)    “Auditor” shall have the meaning set forth in Section 6.2 hereof.
(D)    “Base Amount” shall have the meaning set forth in section 280G(b)(3) of the Code.
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(E)    “Beneficial Owner” shall have the meaning set forth in Rule 13d-3 under the Exchange Act.
(F)    “Board” shall mean the Board of Directors of the Company.
(G)    “Cause” for termination by the Company of the Executive’s employment shall mean (i) the willful and continued failure by the Executive to substantially perform the Executive’s duties with the Company (other than any such failure resulting from the Executive’s incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 7.1 hereof) that has not been cured within thirty (30) calendar days after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive’s duties, or (ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, (x) no act, or failure to act, on the Executive’s part shall be deemed “willful” unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive’s act, or failure to act, was in the best interest of the Company and (y) in the event of a dispute concerning the application of this provision, no claim by the Company that Cause exists shall be given effect unless the Company establishes to the Board by clear and convincing evidence that Cause exists.
(H)    A “Change in Control” shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:
(I)    any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates) representing 25% or more of the combined voting power of the Company’s then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (i) of paragraph (III) below; or
(II)    the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company’s shareowners was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or;
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(III)    there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation or other entity, other than (i) a merger or consolidation which results in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 50% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Company or its Affiliates) representing 25% or more of the combined voting power of the Company’s then outstanding securities; or
(IV)    the shareowners of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least 50% of the combined voting power of the voting securities of which are owned by shareowners of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale.
(I)    “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.
(J)    “Company” shall mean Stanley Black & Decker, Inc., and, except in determining under Section 15(G) hereof whether or not any Change in Control of the Company has occurred, shall include any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise.

(K)    “Competitive Business” shall mean any line of business that is substantially the same as any line of any operating business engaged in by the Company during the term of this Agreement and which at the termination of the Executive’s employment the Company was engaged in or conducting and which during the fiscal year of the Company next preceding the date as of which the determination of competitive status is to be made constituted at least 5% of the gross sales of the Company and its Subsidiaries. The Executive may, without being deemed in violation of this section, become a partner or employee of, or otherwise acquire an interest in, a stock or business brokerage firm, consulting or advisory firm, investment banking firm or similar organization which, as part of its business, trades or invests in securities of Competitive Businesses or which represents or acts as agent or advisor for Competitive Businesses, but only on condition that the Executive shall not personally render any services in
14


connection with such Competitive Business either directly to such Competitive Business or other persons or to his firm in connection therewith.
(L)    “Confidential Information” means any and all information of the Company and its Subsidiaries that is not generally known by others with whom they compete or do business, or with whom they plan to compete or do business and any and all information not readily available to the public, which, if disclosed by the Company or its Subsidiaries could reasonably be of benefit to such person or business in competing with or doing business with the Company. Confidential Information includes without limitation such information relating to (1) the development, research, testing, manufacturing, store operational processes, marketing and financial activities, including costs, profits and sales, of the Company and its Subsidiaries, (2) the products and all formulas therefor, (3) the costs, sources of supply, financial performance and strategic plans of the Company and its Subsidiaries, (4) the identity and special needs of the customers and suppliers of the Company and its Subsidiaries and (5) the people and organizations with whom the Company and its Subsidiaries have business relationships and those relationships. Confidential Information also includes comparable information that the Company or any of its Subsidiaries have received belonging to others or which was received by the Company or any of its Subsidiaries with an agreement by the Company that it would not be disclosed. Confidential Information does not include information which (i) is or becomes available to the public generally (other than as a result of a disclosure by the Executive), (ii) was within the Executive’s possession prior to the date hereof or prior to its being furnished to the Executive by or on behalf of the Company, provided that the source of such information was not bound by a confidentiality agreement with or other contractual, legal or fiduciary obligation of confidentiality to the Company or any other party with respect to such information, (iii) becomes available to the Executive on a non-confidential basis from a source other than the Company, provided that such source is not bound by a confidentiality agreement with or other contractual, legal or fiduciary obligation of confidentiality to the Company or any other party with respect to such information, or (iv) was independently developed the Executive without reference to the Confidential Information.
(M)     “DC Pension Plan” shall mean any tax-qualified, supplemental or excess defined contribution plan maintained by the Company and any other defined contribution plan or agreement entered into between the Executive and the Company which is designed to provide the executive with supplemental retirement benefits.
(N)    “Date of Termination” shall have the meaning set forth in Section 7.2 hereof.
(O)    “Delayed Benefits” shall have the meaning set forth in Section 6.4 hereof.
(P)    “Delayed Payments” shall have the meaning set forth in Section 6.4 hereof.
(Q)    “Delay Period” shall have the meaning set forth in Section 6.4 hereof.
15


(R)    “Disability” shall be deemed the reason for the termination by the Company of the Executive’s employment, if, as a result of the Executive’s incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive’s duties with the Company for a period of six (6) consecutive months, the Company shall have given the Executive a Notice of Termination for Disability, and, within thirty (30) calendar days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive’s duties.
(S)    “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.
(T)    “Excise Tax” shall mean any excise tax imposed under section 4999 of the Code.
(U)    “Executive” shall mean the individual named in the first paragraph of this Agreement.
(V)    “Good Reason” for termination by the Executive of the Executive’s employment shall mean the occurrence (without the Executive’s express written consent which specifically references this Agreement) after any Change in Control, or prior to a Change in Control under the circumstances described in clauses (ii) and (iii) of the second sentence of Section 6.1 hereof (treating all references in paragraphs (I) through (VII) below to a “Change in Control” as references to a “Potential Change in Control”), of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described in paragraph (I), (V), (VI) or (VII) below, such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof:
(I)    the assignment to the Executive of any duties inconsistent with the Executive’s status as a senior executive officer of the Company or a substantial adverse alteration in the nature or status of the Executive’s responsibilities from those in effect immediately prior to the Change in Control including, without limitation, if the Executive was, immediately prior to the Change in Control, an executive officer of a public company, the Executive ceasing to be an executive officer of a public company;
(II)    a reduction by the Company in the Executive’s annual base salary as in effect on the date hereof or as the same may be increased from time to time except for across-the-board salary reductions similarly affecting all senior executives of the Company and all senior executives of any Person in control of the Company;
(III)    the relocation of the Executive’s principal place of employment to a location more than thirty-five (35) miles from the Executive’s principal place of employment immediately prior to the Change in Control or the Company’s
16


requiring the Executive to be based anywhere other than such principal place of employment (or permitted relocation thereof) except for required travel on the Company’s business to an extent substantially consistent with the Executive’s present business travel obligations;
(IV)    the failure by the Company to pay to the Executive any portion of the Executive’s current compensation or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) calendar days of the date such compensation is due;
(V)    the failure by the Company to continue in effect any compensation plan in which the Executive participates immediately prior to the Change in Control which is material to the Executive’s total compensation, including but not limited to the Company’s 2013 Long-Term Incentive Plan and Management Incentive Compensation Plan or any substitute plans adopted prior to the Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Executive’s participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount or timing of payment of benefits provided and the level of the Executive’s participation relative to other participants, as existed immediately prior to the Change in Control;
(VI)    the failure by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company’s pension, savings, life insurance, medical, health and accident, or disability plans in which the Executive was participating immediately prior to the Change in Control (except for across the board changes similarly affecting all senior executives of the Company and all senior executives of any Person in control of the Company), the taking of any other action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control, or the failure by the Company to provide the Executive with the number of “paid time off” days to which the Executive is entitled on the basis of years of service with the Company in accordance with the Company’s normal “paid time off” policy in effect at the time of the Change in Control;
(VII)    any purported termination of the Executive’s employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 7.1 hereof; for purposes of this Agreement, no such purported termination shall be effective. The Executive’s right to terminate the Executive’s employment for Good Reason shall not be affected by the Executive’s incapacity due to physical or mental illness; or
17


(VIII)    a material breach by the Company of any agreement with the Executive, including this Agreement (including, for the avoidance of doubt, Section 10.1 hereunder).
The Executive’s continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder.
For purposes of any determination regarding the existence of Good Reason in connection with a termination of employment other than as described in the second sentence of Section 6.1 hereof, any claim by the Executive that Good Reason exists shall be presumed to be correct unless the Company establishes to the Board by clear and convincing evidence that Good Reason does not exist.
(W)    “Grantor Trust” shall have the meaning set forth in Section 6.5 hereof.
(X)    “Notice of Termination” shall have the meaning set forth in Section 7.1 hereof.
(Y)    “Permissible Payment Date” shall have the meaning set forth in Section 6.4 hereof.
(Z)    “Person” shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareowners of the Company in substantially the same proportions as their ownership of stock of the Company.
(AA)    “Potential Change in Control” shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:
(I)    the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control;
(II)    the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control;
(III)    any Person becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 15% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Company’s then outstanding securities (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates); or
18


(IV)    the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred.
(BB)    “Retirement” shall be deemed the reason for the termination by the Executive of the Executive’s employment if such employment is terminated in accordance with the Company’s retirement policy, including early retirement, generally applicable to its salaried employees.
(CC)    “section 409A” shall mean section 409A of the Code and any proposed, temporary or final regulation, or any other guidance, promulgated with respect to section 409A by the U.S. Department of Treasury or the Internal Revenue Service.
(DD)    “Severance Payments” shall have the meaning set forth in Section 6.1 hereof.
(EE)    “Solicit” means any direct or indirect communication of any kind whatsoever (other than non-targeted general advertisements), regardless of by whom initiated, inviting, advising, encouraging or requesting any person or entity, in any manner, with respect to any action.
(FF)    “Subsidiary” means any corporation or other business organization of which the securities having a majority of the normal voting power in electing the board of directors or similar governing body of such entity are, at the time of determination, owned by the Company directly or indirectly through one or more Subsidiaries.
(GG)    “Tax Counsel” shall have the meaning set forth in Section 6.2 hereof.
(HH)    “Term” shall mean the period of time described in Section 2 hereof (including any extension, continuation or termination described therein).
(II)    “Total Payments” shall mean those payments so described in Section 6.2 hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

STANLEY BLACK & DECKER, INC.
By:
Name:
EXECUTIVE


19


EXHIBIT 21

SUBSIDIARIES OF STANLEY BLACK & DECKER, INC.

The following is a list of all active subsidiaries of Stanley Black & Decker, Inc. as of January 2, 2021.

Corporate Name Jurisdiction of Incorporation/ Organization
Domestic Subsidiaries United States
3xLogic, Inc. Delaware
3xLogic Indiana, LLC Delaware
3xLogic Florida, LLC Delaware
3-V Fastener Co., Inc. California
8 Commerce Drive, LLC California
AeroFit LLC Connecticut
AeroScout (US) LLC Delaware
AeroScout LLC Delaware
ASIA FASTENING (US), INC. Delaware
B&D Holdings, Inc. Maryland
BDK FAUCET HOLDINGS INC. Delaware
Bagley Road, LLC Ohio
BLACK & DECKER (IRELAND) INC. Delaware
BLACK & DECKER (U.S.) INC. Maryland
BLACK & DECKER DE PANAMA LLC Maryland
BLACK & DECKER FUNDING CORPORATION Delaware
BLACK & DECKER GROUP, LLC Delaware
BLACK & DECKER HEALTHCARE MANAGEMENT INC. Maryland
BLACK & DECKER HOLDINGS, LLC Delaware
BLACK & DECKER INC. Delaware
BLACK & DECKER INDIA INC. Maryland
BLACK & DECKER INVESTMENT COMPANY, LLC Delaware
BLACK & DECKER INVESTMENTS (AUSTRALIA) LIMITED Maryland
BLACK & DECKER INVESTMENTS LLC Maryland
BLACK & DECKER MEXFIN LLC Delaware
BLACK & DECKER PUERTO RICO INC. Delaware
BLACK & DECKER SHELBYVILLE, LLC Kentucky
Bristol Industries, LLC Delaware
Bostitch-Holding, L.L.C. Delaware
Bulldog Barrels, LLC Pennsylvania
Consolidated Areospace Manufacturing, LLC Delaware
CAM International Holdings, Inc. Delaware
CPE Acquisition Co. Delaware
CRC-EVANS INTERNATIONAL HOLDINGS, LLC Delaware
CRC-Evans International, LLC Delaware
CRC-Evans Pipeline International, Inc. Delaware
CRC-EVANS WELDING SERVICES, INC. Delaware
Clarke Security Services Incorporated Illinois
DEVILBISS AIR POWER COMPANY Delaware
DIYZ, LLC Delaware
DADO, Inc. F/K/A SBDLINQ Delaware
Doncasters US Holdings Inc. Delaware
The EAP Acquisition Co., LLC Delaware
E.A. Patten Co., LLC Connecticut
EMHART HARTTUNG INC. Delaware
    

Corporate Name Jurisdiction of Incorporation/ Organization
Domestic Subsidiaries (continued) United States
EMHART TEKNOLOGIES LLC Delaware
Hardware City Associates Limited Partnership Connecticut
I.D.L. Techni-Edge, LLC Delaware
INFASTECH DECORAH, LLC Delaware
Infologix - DDMS, Inc. Delaware
InfoLogix Systems Corporation Delaware
Infologix, Inc. Delaware
JRB Attachments, LLC Delaware
JAFFORD LLC Maryland
JennCo1, Inc. Delaware
Jewel Attachments, LLC Delaware
Kodiak Mfg. Inc. Tennessee
Microalloying International, LLC Delaware
Moeller Manufacturing & Supply, LLC California
Nelson Stud Welding International, LLC Delaware
Nelson Stud Welding Inc. Delaware
New FEP Co., LLC Connecticut
NEWFREY LLC Delaware
Pacom Systems (North America) Inc. Delaware
Paladin Brands Group, Inc. Delaware
Paladin Brands Holdings, Inc. Delaware
Paladin Brands International Holdings, Inc. Delaware
Pengo Corporation Delaware
PIH U.S., LLC Delaware
PORTER-CABLE ARGENTINA, LLC Minnesota
P&B Re Holdings, LLC Delaware
Prikos & Becker, LLC Delaware
QRP, Inc. Delaware
RIGHTCO II, LLC Delaware
SureHand, Inc. f.k.a. SBD Aura, Inc. Delaware
SBD CAYMAN LLC Delaware
SBD Insurance, Inc. Connecticut
SBD MDGP Partnership Holdings LLC Delaware
SBD Property Holdings, LLC Delaware
SBD Scala, Inc. Delaware
SBD UK Canada Holdings, Inc. Delaware
SecurityCo Solutions, Inc. Delaware
Sonitrol Security Systems of Buffalo, Inc. New York
Speciality Bar Products Company Pennsylvania
Spiegelberg Manaufacturing Inc. Ohio
SPIRALOCK CORPORATION Michigan
Stanley Access Technologies LLC Delaware
Stanley Atlantic Inc. Delaware
Stanley Black & Decker Asia Holdings, LLC Delaware
Stanley Black & Decker Cayman Holdings, Inc. Delaware
Stanley Black & Decker Chile, L.L.C. Delaware
Stanley Black & Decker Finance 1 LLC Delaware
Stanley Black & Decker Finance 2 LLC Delaware
Stanley Canada Holdings, L.L.C. Delaware
Stanley Convergent Security Solutions, Inc. Delaware
Stanley Fastening Systems, L.P. Delaware
    

Corporate Name Jurisdiction of Incorporation/ Organization
Domestic Subsidiaries (continued) United States
Stanley Housing Fund, Inc. Delaware
Stanley Industrial & Automotive, LLC Delaware
Stanley Inspection US, L.L.C. Alabama
Stanley Inspection, L.L.C. Delaware
Stanley Infrastructure, LLC f/k/a International Equipment Solutions ("IES") Delaware
Stanley International Holdings, Inc. Delaware
Stanley Logistics, L.L.C. Delaware
Stanley Pipeline Inspection, L.L.C. Delaware
Stanley Safety Corporation, LLC Delaware
Stanley Security Federal Systems LLC Delaware
Stanley Security Solutions, Inc. Indiana
Sweepster Attachments, LLC Delaware
THE BLACK & DECKER CORPORATION Maryland
The Farmington River Power Company Connecticut
The Ferry Cap & Set Screw Company Ohio
TOG Holdings Inc. Delaware
TOG Manufacturing Company Inc. Massachusetts
TSI MONITORING LLC Nevada
TSI SALES & INSTALLATION LLC Nevada
Voss Industries, Inc. Ohio
Zag USA, Inc. Delaware
International Subsidiaries
PIPELINE EQUIPMENT AND SERVICES SARL Algeria
BLACK & DECKER ARGENTINA S.A. Argentina
Stanley Black & Decker Australia Pty Ltd. Australia
BLACK & DECKER FINANCE (AUSTRALIA) LTD. Australia
BLACK & DECKER HOLDINGS (AUSTRALIA) PTY. LTD. Australia
BLACK & DECKER NO. 4 PTY. LTD. Australia
Pacom Systems Pty Limited Australia
Powers Fasteners Australasia Pty Limited Australia
Powers Rawl Pty. Ltd. Australia
Rawl Australasia Pty. Ltd. Australia
Rawlplug Unit Trust Australia
Stanley Security Solutions Australia Pty Ltd Australia
Stanley Black & Decker Holdings Australia Pty Ltd Australia
The Stanley Works Pty. Ltd. Australia
Black & Decker Distribution Pty. Ltd Australia
Stanley Black & Decker Austria GmbH Austria
Stanley Black & Decker (Barbados) SRL Barbados
Black & Decker Limited BV Belgium
CONNEXCENTER SA Belgium
Facom Belgie BVBA Belgium
Stanley Black & Decker Belgium BV Belgium
Stanley Black & Decker Latin American Holding BV Belgium
Stanley Black & Decker Logistics BV Belgium
Stanley Europe BV Belgium
Stanley Security Belgium BV Belgium
Stanley Security Europe BV Belgium
BLACK & DECKER DO BRASIL LTDA. Brazil
    

Corporate Name Jurisdiction of Incorporation/ Organization
International Subsidiaries (continued)
CRC-Evans PIH Servios De Tubulao do Brasil Ltda Brazil
Irwin Industrial Tool Ferramentas do Brasil Ltda. Brazil
M. HART DO BRASIL LTDA. Brazil
BDB Ferramentas do Brasil Ltda Brazil
REFAL INDUSTRIA E COMERCIO DE REBITES E REBITADEIRAS LTDA. Brazil
3xLogic Holdings, Inc. Canada
CAMACC Systems Inc. Canada
CWS Industries (Mfg.) Corp. Canada
Mac Tools Canada Inc. Canada
Nelson Stud Welding Canada, Inc. Canada
First National AlarmCap. Trust Canada
First National AlarmCap LP/Premiere Societe en Commandite Nationale Alarmcap Canada
CRC-EVANS CANADA LTD. Canada
Stanley CLP3 Canada
STANLEY BLACK & DECKER CANADA CORPORATION Canada
Stanley Technical Services Ltd. Canada
XMARK Corporation Canada
Sonitrol Distribution Canada, Inc. Canada
WINTECH CORPORATION LIMITED Cayman Islands
Besco Investment Group Co. Ltd. Cayman Islands
JOINTECH CORPORATION, LTD. Cayman Islands
SBD Manufacturing, Distribution & Global Purchasing Holdings L.P. Cayman Islands
SBD Cayman Finance LLC Cayman Islands
MAQUINAS y HERRAMIENTAS BLACK & DECKER de CHILE S.A. Chile
3xLOGIC Dalian Technology Company Limited China
BLACK & DECKER (SUZHOU) PRECISION MANUFACTURING CO., LTD. China
BLACK & DECKER (SUZHOU) POWER TOOLS CO., LTD. China
BLACK & DECKER SSC CO., LTD. China
BLACK & DECKER (SUZHOU) CO., LTD. China
Newell Rubbermaid Products (Shenzhen) Co. Ltd. China
GUANGZHOU EMHART FASTENING SYSTEM CO., LTD. China
INFASTECH FASTENING SYSTEMS (WUXI) LIMITED China
Hefei INTACA Science & Technology Development Co., Ltd. China
INFASTECH (SHENZHEN) LIMITED China
Jiangsu Guoqiang Tools Co., Ltd. China
Powers Shanghai Trading Ltd. China
Nelson Stud Welding (Tianjin) Company Ltd. China
Shanghai Emhart Fastening System Co., Ltd. China
Stanley Black & Decker Precision Manufacturing (Shenzhen) Co., Ltd. China
The Stanley Works (Shanghai) Co., Ltd. China
The Stanley Works (Shanghai) Management Co., Ltd. China
Stanley Works (Wendeng) Tools Co., Ltd. China
The Stanley Works (Zhongshan) Tool Co., Ltd. China
The Stanley Works (Langfang) Fastening Systems Co., Ltd. China
Yong Ru Plastics Industry (Suzhou) Co., Ltd China
Stanley Black & Decker Colombia Services S.A.S. Colombia
Black & Decker de Colombia S.A.S. Colombia
BLACK AND DECKER DE COSTA RICA LIMITADA Costa Rica
STANLEY BLACK AND DECKER CYPRUS ONE HOLDINGS LTD Cyprus
STANLEY BLACK AND DECKER CYPRUS INTERNATIONAL HOLDINGS LTD Cyprus
Stanley Black & Decker Czech Republic s.r.o. Czech Republic
    

Corporate Name Jurisdiction of Incorporation/ Organization
International Subsidiaries (continued)
Black & Decker (Czech) s.r.o. Czech Republic
TUCKER S.R.O. Czech Republic
EMHART HARTTUNG A/S Denmark
Stanley Security Denmark ApS Denmark
BLACK & DECKER DEL ECUADOR S.A. Ecuador
Stanley Black & Decker Finland Oy Finland
Stanley Security Oy Finland
Stanley Engineered Fastening France SAS France
BGI Distribution SAS France
BLACK & DECKER FINANCE SAS France
Dubuis et Cie SAS France
Facom Holding SAS France
Novia SWK SAS France
Nelson Soudage de Goujons SAS France
Pro One Finance SAS France
SOCIETE MINIERE ET COMMERCIALE SAS France
STANLEY BLACK & DECKER FRANCE SAS France
Stanley Black & Decker France Services SAS France
Stanley Black & Decker Manufacturing SAS France
Stanley Healthcare Solutions France Sàrl France
Stanley Security France SAS France
Stanley Tools SAS France
Stanley Feinwerktechnik GmbH Germany
Stanley Engineered Fastening Industrial Deutschland GmbH Germany
B.B.W. BAYRISCHE BOHRERWERKE GmbH Germany
BLACK & DECKER INTERNATIONAL HOLDINGS B.V. & CO. KG Germany
Horst Sprenger GmbH recycling-tools Germany
Nelson Bolzenschweiß-Technik GmbH & Co. KG Germany
Nelson Bolzenschweiß-Technik GmbH Verwaltungs GmbH Germany
Stanley Black & Decker Deutschland GmbH Germany
Stanley Grundstuecksverwaltungs GmbH Germany
TUCKER GmbH Germany
STANLEY BLACK & DECKER (HELLAS) EPE Greece
BD Xiamen (Hong Kong) Limited Hong Kong
Spiralock Global Ventures, Limited Hong Kong
BLACK & DECKER HONG KONG LIMITED Hong Kong
AVDEL HOLDINGS (HONG KONG) LIMITED Hong Kong
BDC INTERNATIONAL LIMITED Hong Kong
BD Precision (Hong Kong) Limited Hong Kong
BD Suzhou (Hong Kong) Limited Hong Kong
BD Suzhou Power Tools (Hong Kong) Limited Hong Kong
Stanley Black & Decker Limited Hong Kong
Niscayah Investments Limited Hong Kong
Niscayah Asia Limited Hong Kong
INFASTECH COMPANY LIMITED Hong Kong
INFASTECH (CHINA) LIMITED Hong Kong
HANGTECH LIMITED Hong Kong
EMHART GUANGZHOU (HONG KONG) LIMITED Hong Kong
STANLEY BLACK & DECKER HUNGARY KORALTOLT FELELOSSEGU TARSASAG Hungary
Nelson Stud Welding India Private Limited India
Stanley Works (India) Private Limited India
    

Corporate Name Jurisdiction of Incorporation/ Organization
International Subsidiaries (continued)
Stanley Black & Decker India Private Limited India
Stanley Engineered Fastening India Private Limited India
PT STANLEY BLACK & DECKER Indonesia
Stanley Black & Decker International Finance 3 Unlimited Company Ireland
SBD European Investment Unlimited Company Ireland
SBD European Security Investment Unlimited Company Ireland
Gamrie Designated Activity Company Ireland
Baltimore Financial Services Company Unlimited Company Ireland
Belco Investments Company Unlimited Company Ireland
Black & Decker International Finance 1 Unlimited Company Ireland
Black & Decker International Finance 3 Designated Activity Company Ireland
Chesapeake Falls Holdings Company Unlimited Company Ireland
Panalok Limited Ireland
Stanley Black & Decker International Finance 2 Unlimited Company Ireland
Stanley Black & Decker International Finance 4 Unlimited Company Ireland
Stanley Black & Decker International Finance 5 Unlimited Company Ireland
Stanley Black & Decker Latin American Investment Unlimited Company Ireland
Stanley Black & Decker Finance Unlimited Company Ireland
Stanley Black & Decker Ireland Unlimited Company Ireland
The Stanley Works Israel Ltd. Israel
AeroScout Ltd. Israel
Stanley Engineered Fastening Italy S.r.l. Italy
DeWALT INDUSTRIAL TOOLS S.p.A. Italy
Stanley Black & Decker Italia S.r.l. Italy
SWK Utensilerie S.r.l. Italy
Stanley Black & Decker Italy Production S.r.l. Italy
NIPPON POP RIVETS & FASTENERS, LTD. Japan
INFASTECH (KOREA) LIMITED Korea, Republic of
BLACK & DECKER (OVERSEAS) GmbH Liechtenstein
BLACK & DECKER ASIA MANUFACTURING HOLDINGS 1 S.à.r.l. Luxembourg
BLACK & DECKER ASIA MANUFACTURING HOLDINGS 2 S.à.r.l. Luxembourg
BLACK & DECKER GLOBAL HOLDINGS S.à.r.l. Luxembourg
BLACK & DECKER INTERNATIONAL HOLDINGS S.A.R.L. Luxembourg
BLACK & DECKER LUXEMBOURG S.A.R.L. Luxembourg
BLACK & DECKER TRANSASIA S.à.r.l. Luxembourg
CHESAPEAKE INVESTMENTS COMPANY S.A.R.L. Luxembourg
SBD European Security Holdings S.à r.l. Luxembourg
SBD MDGP Partnership Holdings S.à r.l. Luxembourg
SBD Niscayah S.à r.l. Luxembourg
Stanley Black & Decker Holdings S.à r.l. Luxembourg
Stanley Black & Decker Partnership Japan Luxembourg
Stanley Black & Decker Partnership Japan Holdings S.à r.l. Luxembourg
Black & Decker International Finance 3 Designated Activity Company Luxembourg
BLACK & DECKER MACAO COMMERCIAL OFFSHORE LIMITED Macao
Infastech Holdings (Malaysia) Sdn Bhd Malaysia
BLACK & DECKER ASIA PACIFIC (MALAYSIA) SDN. BHD. Malaysia
CRC-Evans Pipeline International Sdn.Bhd. Malaysia
Infastech (Laubuan) Limited Malaysia
Infastech (Malaysia) Sdn Bhd Malaysia
Stanley Security Malaysia Sdn. Bhd. Malaysia
INFASTECH CAMCAR MALAYSIA SDN BHD Malaysia
    

Corporate Name Jurisdiction of Incorporation/ Organization
International Subsidiaries (continued)
Stanley Works (Malaysia) SDN BHD Malaysia
Infastech (Mauritius) Limited Mauritius
Nelson Stud Welding Holdings, Inc. Mauritius
Herramientas Stanley S.A. de C.V. Mexico
GRUPO BLACK & DECKER MEXICO, S. DE R.L. DE C.V. Mexico
DEWALT INDUSTRIAL TOOLS, S.A. DE C.V. Mexico
Nelson Fastener Systems de Mexico SA de CV Mexico
BLACK & DECKER DE REYNOSA, S. DE R.L. DE C.V. Mexico
BLACK AND DECKER, S.A. de C.V. Mexico
Stanley-Bostitch Servicios S. de R.L. de C.V. Mexico
Stanley-Bostitch, S.A. de C.V. Mexico
Stanley Black & Decker de Monterrey, S. de R.L. de C.V. Mexico
STANLEY BLACK & DECKER MOROCCO SARL Morocco
BLACK & DECKER FAR EAST HOLDINGS B.V. Netherlands
Black & Decker Hardware Holdings B.V. Netherlands
BLACK & DECKER HOLDINGS B.V. Netherlands
Chiro Tools Holdings B.V. Netherlands
CRC-Evans B.V. Netherlands
NSW Fabristeel Netherlands B.V. Netherlands
Stanley European Holdings B.V. Netherlands
Stanley European Holdings II B.V. Netherlands
Stanley Israel Investments B.V. Netherlands
Stanley Works Holdings B.V. Netherlands
Stanley Engineered Fastening Benelux B.V. Netherlands
INTERFAST B.V. Netherlands
Stanley Black & Decker Asian Holdings B.V. Netherlands
Stanley Black & Decker Netherlands B.V. Netherlands
Stanley Security Alarmcentrale B.V. Netherlands
Stanley Security Nederland B.V. Netherlands
Stanley Security B.V. Netherlands
Stanley Black & Decker NZ Limited New Zealand
Stanley Black & Decker Norway AS Norway
Stanley Security Holding AS Norway
Stanley Security AS Norway
PIH Services ME LLC Oman
POWERS FASTENERS INC.(Panama) Panama
Stanley Black & Decker CCA, S. de R.L. Panama
BLACK & DECKER DEL PERU S.A. Peru
Stanley Black & Decker Polska Sp. z o.o. Poland
STANLEY ENGINEERED FASTENING EASTERN EUROPE SP.Z O.O. Poland
Stanley Fastening Systems Poland Sp. z o.o. Poland
PIH Services ME Ltd. Qatar
Stanley Black & Decker Romania SRL Romania
Stanley Black & Decker Limited Liability Company Russian Federation
Onglin International Limited Samoa
Infastehc (Singapore) Pte. Ltd Singapore
INFASTECH INTELLECTUAL PROPERTIES PTE. LTD. Singapore
INFASTECH RECEIVABLES COMPANY PTE. LTD. Singapore
BLACK & DECKER ASIA PACIFIC PTE. LTD. Singapore
Aeroscout (Singapore) Pte. Ltd. Singapore
Stanley Works Asia Pacific Pte. Ltd. Singapore
    

Corporate Name Jurisdiction of Incorporation/ Organization
International Subsidiaries (continued)
VISIOCOM INTERNATIONAL PTE LTD Singapore
Stanley Black & Decker Slovakia s.r.o. Slovakia
Pacom Systems España, S.L. Spain
STANLEY BLACK & DECKER IBERICA, S.L. Spain
Stanley Engineered Fastening Spain, S.L.U. Spain
Stanley Black & Decker Sweden AB Sweden
Pacom Group AB Sweden
Niscayah Group AB Sweden
Niscayah Teknik AB Sweden
SBD Holding AB Sweden
Stanley Security Sverige AB Sweden
Stanley Works (Europe) GmbH Switzerland
Stanley Chiro International Ltd Taiwan
Stanley Fastening Systems Investment (Taiwan) Co. Taiwan
Fastener Jamher Taiwan Inc. Taiwan
Besco Pneumatic Corporation Taiwan
Black & Decker (Thailand) Limited Thailand
EMHART TEKNOLOGIES (THAILAND) LTD. Thailand
Stanley Works Limited Thailand
Stanley Black & Decker Turkey Alet Uretim, Sanayi ve Ticaret Limited Sirketi Turkey
Stanley Black & Decker Middle East Trading FZE United Arab Emirates
Stanley Black & Decker MEA FZE United Arab Emirates
Alkhaja Pimex LLC United Arab Emirates
Aven Tools Limited United Kingdom
Avdel Holding Limited United Kingdom
Avdel UK Limited United Kingdom
Bandhart United Kingdom
Bandhart Overseas United Kingdom
Black & Decker International Finance (UK) Limited United Kingdom
Black & Decker Europe United Kingdom
Black & Decker International United Kingdom
Black & Decker Finance United Kingdom
Stanley Black & Decker UK Limited United Kingdom
Black & Decker International Finance Holdings (UK) Limited United Kingdom
Black & Decker United Kingdom
Dewalt Industrial Power Tool Company Ltd. United Kingdom
ELU Power Tools Ltd United Kingdom
CRC-Evans Offshore Limited United Kingdom
Contract Fire Systems Ltd United Kingdom
PIH Holdings Limited United Kingdom
PIH Services Limited United Kingdom
Pipeline Induction Heat Limited United Kingdom
Niscayah Holdings Limited United Kingdom
Emhart International Limited United Kingdom
Emhart International Holdings Limited United Kingdom
Stanley Security Solutions - Europe Limited United Kingdom
SWK (UK) Limited United Kingdom
SWK (U.K.) Holding Limited United Kingdom
Universal Inspection Systems Limited United Kingdom
Tucker Fasteners Limited United Kingdom
The Stanley Works Limited United Kingdom
    

Corporate Name Jurisdiction of Incorporation/ Organization
International Subsidiaries (continued)
Stanley Security Solutions (NI) Limited United Kingdom
Stanley UK Acquisition Company Limited United Kingdom
Stanley U.K. Holding Ltd. United Kingdom
Stanley UK Services Limited United Kingdom
Stanley Black & Decker International Finance 1 Limited United Kingdom
Stanley Black & Decker International Finance 2 Limited United Kingdom
Stanley Black & Decker International Finance 3 Limited United Kingdom
Stanley Black & Decker International Finance 4 Limited United Kingdom
Stanley Black & Decker International Finance L.P. United Kingdom
Stanley Black & Decker Finance Limited United Kingdom
Stanley Black & Decker UK Group Limited United Kingdom
Christie Intruder Alarms Limited United Kingdom
Southern Monitoring Services Limited United Kingdom
INFASTECH/TRI-STAR LIMITED Virgin Islands, British
BESCO INVESTMENT HOLDINGS Ltd. Virgin Islands, British
PIH Services ME Ltd. Virgin Islands, British
Stanley Works China Investments Limited Virgin Islands, British



    

EXHIBIT 23


Consent of Independent Registered Public Accounting Firm


We consent to the incorporation by reference in the following Registration Statements:

•Registration Statement (Form S-8 No. 2-93025)
•Registration Statement (Form S-8 No. 2-96778)
•Registration Statement (Form S-8 No. 2-97283)
•Registration Statement (Form S-8 No. 33-16669)
•Registration Statement (Form S-8 No. 033-30629)
•Registration Statement (Form S-8 No. 033-30623)
•Registration Statement (Form S-8 No. 033-41611)
•Registration Statement (Form S-8 No. 33-62575)
•Registration Statement (Form S-8 No. 33-55663)
•Registration Statement (Form S-8 No. 333-42346)
•Registration Statement (Form S-8 No. 333-42582)
•Registration Statement (Form S-8 No. 333-64326)
•Registration Statement (Form S-8 No. 333-162956)
•Registration Statement (Form S-4 No. 333-163509)
•Registration Statement (Form S-8 No. 333-165454)
•Registration Statement (Form S-8 No. 333-179699)
•Registration Statement (Form S-8 No. 033-39553)
•Registration Statement (Form S-8 No. 333-62567)
•Registration Statement (Form S-8 No. 333-190267)
•Registration Statement (Form S-8 No. 033-62565)
•Registration Statement (Form S-8 No. 333-219984)
•Registration Statement (Form S-3 No. 333-221127)
•Registration Statement (Form S-8 No. 333-226272)
•Registration Statement (Form S-8 No. 333-234684)
•Registration Statement (Form S-3 No. 333-249689)

of our reports dated February 18, 2021 with respect to the consolidated financial statements and schedule of Stanley Black & Decker, Inc. and the effectiveness of internal control over financial reporting of Stanley Black & Decker, Inc. included in this Annual Report (Form 10-K) of Stanley Black & Decker, Inc. for the year ended January 2, 2021.



/s/ Ernst & Young, LLP
Hartford, Connecticut
February 18, 2021




EXHIBIT 24

POWER OF ATTORNEY

        We, the undersigned officers and directors of Stanley Black & Decker, Inc., a Connecticut corporation (the "Corporation"), hereby severally constitute Janet M. Link and Yun Jung Choi our true and lawful attorneys with full power of substitution, to sign for us and in our names in the capacities indicated below, the Annual Report on Form 10-K for the year ended January 2, 2021 of the Corporation filed herewith (the "Form 10-K"), and any and all amendments thereof, and generally to do all such things in our name and on our behalf in our capacities as officers and directors to enable the Corporation to comply with the annual filing requirements under the Securities Act of 1934, as amended, including, all requirements of the Securities and Exchange Commission, and all requirements of any other applicable law or regulation, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or any of them, to such Form 10-K and any and all amendments thereto.
Signature    Title    Date  
/s/ James M. Loree    President and Chief Executive Officer, Director    February 18, 2021   
James M. Loree      
/s/ Andrea J. Ayers    Director    February 18, 2021   
Andrea J. Ayers      
/s/ George W. Buckley    Director    February 18, 2021   
George W. Buckley      
/s/ Patrick D. Campbell    Director February 18, 2021   
Patrick D. Campbell      
/s/ Carlos M. Cardoso    Director    February 18, 2021   
Carlos M. Cardoso      
/s/ Robert B. Coutts    Director    February 18, 2021   
Robert B. Coutts      
/s/ Debra A. Crew    Director    February 18, 2021   
Debra A. Crew      
/s/ Michael D. Hankin    Director    February 18, 2021   
Michael D. Hankin      
/s/ Dmitri L. Stockton    Director    February 18, 2021
Dmitri L. Stockton      
/s/ Irving Tan Director February 18, 2021
Irving Tan



EXHIBIT 31.1(a)
CERTIFICATIONS
I, James M. Loree, certify that:
1. I have reviewed this Annual Report on Form 10-K of Stanley Black & Decker, Inc. and subsidiaries;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
/s/ James M. Loree
Date: February 18, 2021 James M. Loree
  President and Chief Executive Officer




EXHIBIT 31.1(b)
CERTIFICATIONS
I, Donald Allan Jr., certify that:
1. I have reviewed this Annual Report on Form 10-K of Stanley Black & Decker, Inc. and subsidiaries;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
/s/ Donald Allan Jr.
Date: February 18, 2021 Donald Allan Jr.
  Executive Vice President and Chief Financial Officer




EXHIBIT 32.1
STANLEY BLACK & DECKER, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Stanley Black & Decker, Inc. (the “Company”) on Form 10-K for the period ending January 2, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James M. Loree, President and Chief Executive Officer, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
/s/ James M. Loree
James M. Loree
President and Chief Executive Officer
February 18, 2021




EXHIBIT 32.2
STANLEY BLACK & DECKER, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Stanley Black & Decker, Inc. (the “Company”) on Form 10-K for the period ending January 2, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Donald Allan Jr., Executive Vice President and Chief Financial Officer, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
/s/ Donald Allan Jr.
Donald Allan Jr.
Executive Vice President and Chief Financial Officer
February 18, 2021