UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)10-Q
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended OctoberApril 2, 20212022
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)
| | | | | | | | |
| CT | | 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 | 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 |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | | | | |
| 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
163,033,211150,964,631 shares of the registrant’s common stock were outstanding as of November 8, 2021.April 22, 2022.
EXPLANATORY NOTE
Stanley Black & Decker, Inc. (“the Company”) filed its Quarterly Report on Form 10-Q for the period ended October 2, 2021 with the U.S. Securities and Exchange Commission (“SEC”) on November 12, 2021 (the “Original Form 10-Q”). This Amendment No. 1 on Form 10-Q (this "Amendment" or "Form 10-Q/A") is being filed to restate certain information as of and for the periods ended October 2, 2021, July 3, 2021 and April 3, 2021, as well as the related comparative interim periods in 2020 (collectively, the "Affected Periods"), contained in the Company's previously issued unaudited interim consolidated financial statements (the “Restatement”).
The Company also filed an Amendment No. 1 on Form 10-K for the fiscal year ended January 2, 2021 ("Form 10-K/A") to restate certain information in the Company's previously issued consolidated financial statements for the fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018, as well as the summarized unaudited interim financial information for each of the quarters during the years ended January 2, 2021 and December 28, 2019.
Background of Restatement
Subsequent to the filing of the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2021, filed with the SEC on February 18, 2021, the Company received comments from the SEC Staff regarding its accounting for equity units issued in May 2017 and November 2019 (the “Equity Units”), which were comprised of forward stock purchase contracts and convertible preferred stock. Upon further reflection on the comments received from the SEC Staff and the nature of the Equity Units, the Company determined that errors were made in its original accounting conclusions related to: (a) accounting for the forward stock purchase contracts and convertible preferred stock as separate units of account, and (b) applying the treasury stock method to the shares associated with the forward stock purchase contracts for purposes of calculating diluted earnings per share.
Based on the Company's correspondence with the SEC Staff, the Company re-evaluated its accounting assessment and concluded that the Equity Units should be accounted for as one unit of account based on the economic linkage between the forward stock purchase contracts and convertible preferred stock as well as the Company’s assessment of the applicable accounting guidance relating to combining freestanding instruments. The Equity Units represent mandatorily convertible preferred stock. Accordingly, the shares associated with the combined instrument should be reflected in diluted earnings per share using the if-converted method.
On January 24, 2022, the Company's management and the audit committee of the Company's Board of Directors concluded that the previously issued financial statements during the Affected Periods should be restated. In this Amendment, the Company has restated its basic and diluted earnings per share, as applicable, and the related diluted earnings per share impacts disclosed in this Form 10-Q/A, as a result of accounting for the Equity Units as a combined instrument. The shares underlying the forward stock purchase contracts have been included in the denominator of the Company’s diluted earnings per share utilizing the if-converted method, which represents a correction of an error of previously applying the treasury stock method. The Company also corrected the classification of certain amounts in the consolidated balance sheets, statements of cash flows and statements of changes in shareowners' equity to reflect the forward stock purchase contracts and convertible preferred stock as one unit of account, which represents a correction of an error of previously accounting for the instruments as two units of account. The corrections have no impact on the Company’s net earnings, total assets, cash flows from operations or business segment information.
Internal Control Considerations
In connection with the Restatement, management has concluded that the Company had material weaknesses in its internal control over financial reporting as of October 2, 2021, related to its accounting for the Equity Units. For a discussion of management’s considerations of the Company’s disclosures controls and procedures, internal controls over financial reporting, and material weaknesses identified, refer to Controls and Procedures in Part I, Item 4.
Items Amended in this Amendment
This Amendment sets forth the Original Form 10-Q, as modified and superseded where necessary to reflect the Restatement and the related internal control considerations. Accordingly, the following items included in the Original Form 10-Q have been amended:
•Part I, Item 1, Condensed Consolidated Financial Statements
•Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations
•Part I, Item 4, Controls and Procedures
•Part II, Item 1A, Risk Factors
Additionally, in accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended, the Company is including with this Amendment currently dated certifications from its Chief Executive Officer and President and Chief Financial Officer. These certifications are filed or furnished, as applicable, as Exhibits 31(i)(a), 31(i)(b), 32(i) and 32(ii).
Except as described above, this Amendment does not amend, update or change any other disclosures in the Original Form 10-Q. In addition, the information contained in this Amendment does not reflect events occurring after the Original Form 10-Q and does not modify or update the disclosures therein, except to reflect the effects of the Restatement. This Amendment should be read in conjunction with the Company’s other filings with the SEC.
TABLE OF CONTENTS
PART I — FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
STANLEY BLACK & DECKER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
THREE AND NINE MONTHS ENDED OCTOBERAPRIL 2, 20212022 AND SEPTEMBER 26, 2020APRIL 3, 2021
(Unaudited, Millions of Dollars, Except Share and Per Share Amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| | Third Quarter | | Year-to-Date |
| | 2021 | | 2020 | | 2021 | | 2020 |
| (As Restated) (1) | | (As Restated) (1) | | (As Restated) (1) | | (As Restated) (1) |
| Net Sales | $ | 4,263.2 | | | $ | 3,850.2 | | | $ | 12,761.2 | | | $ | 10,127.0 | |
| Costs and Expenses | | | | | | | |
| Cost of sales | $ | 2,871.7 | | | $ | 2,473.9 | | | $ | 8,261.8 | | | $ | 6,714.9 | |
| Selling, general and administrative | 895.2 | | | 731.3 | | | 2,645.1 | | | 2,182.1 | |
| Provision for credit losses | 3.6 | | | 7.6 | | | 8.2 | | | 37.3 | |
| Other, net | 39.5 | | | 74.3 | | | 152.3 | | | 236.1 | |
| Loss on sales of businesses | — | | | — | | | 3.6 | | | — | |
| Restructuring charges | 5.8 | | | 42.8 | | | 22.1 | | | 74.6 | |
| Interest expense | 45.8 | | | 52.7 | | | 139.8 | | | 169.7 | |
| Interest income | (2.3) | | | (2.0) | | | (7.9) | | | (14.6) | |
| $ | 3,859.3 | | | $ | 3,380.6 | | | $ | 11,225.0 | | | $ | 9,400.1 | |
| Earnings before income taxes and equity interest | 403.9 | | | 469.6 | | | 1,536.2 | | | 726.9 | |
| Income taxes | (0.4) | | | 78.4 | | | 192.8 | | | (26.0) | |
| Net earnings before equity interest | $ | 404.3 | | | $ | 391.2 | | | $ | 1,343.4 | | | $ | 752.9 | |
| Share of net earnings of equity method investment | 9.8 | | | 4.0 | | | 16.0 | | | 14.1 | |
| Net earnings | $ | 414.1 | | | $ | 395.2 | | | $ | 1,359.4 | | | $ | 767.0 | |
| Less: Net (losses) earnings attributable to non-controlling interests | (0.1) | | | 0.3 | | | (1.7) | | | 0.5 | |
| Net earnings attributable to Stanley Black & Decker, Inc. | $ | 414.2 | | | $ | 394.9 | | | $ | 1,361.1 | | | $ | 766.5 | |
| Less: Preferred stock dividends and beneficial conversion feature | — | | | 9.4 | | | 14.2 | | | 14.8 | |
| Net Earnings Attributable to Common Shareowners | 414.2 | | | 385.5 | | | 1,346.9 | | | 751.7 | |
| Add: Contract adjustment payments accretion | 0.4 | | | 0.1 | | | 0.9 | | | 1.5 | |
| Net Earnings Attributable to Common Shareowners - Diluted | $ | 414.6 | | | $ | 385.6 | | | $ | 1,347.8 | | | $ | 753.2 | |
| Total Comprehensive Income Attributable to Common Shareowners | $ | 326.4 | | | $ | 465.0 | | | $ | 1,185.8 | | | $ | 675.2 | |
| Earnings per share of common stock: | | | | | | | |
| Basic | $ | 2.60 | | | $ | 2.47 | | | $ | 8.50 | | | $ | 4.90 | |
| Diluted | $ | 2.51 | | | $ | 2.37 | | | $ | 8.17 | | | $ | 4.65 | |
| Dividends per share of common stock | $ | 0.79 | | | $ | 0.70 | | | $ | 2.19 | | | $ | 2.08 | |
| Weighted-average shares outstanding (in thousands): | | | | | | | |
| Basic | 159,444 | | | 156,370 | | | 158,494 | | | 153,345 | |
| Diluted | 165,336 | | | 162,675 | | | 164,900 | | | 162,098 | |
(1) See Note A, Significant Accounting Policies - Restatement, for discussion regarding the impacts of the Restatement. | | | | | | | | | | | | | | | |
| | | | Year-to-Date |
| | | | | | 2022 | | 2021 |
| Net Sales | | | | | $ | 4,448.0 | | | $ | 3,720.8 | |
| Costs and Expenses | | | | | | | |
| Cost of sales | | | | | $ | 3,142.6 | | | $ | 2,333.0 | |
| Selling, general and administrative | | | | | 949.2 | | | 716.9 | |
| Provision for credit losses | | | | | 11.1 | | | 2.2 | |
| Other, net | | | | | 62.0 | | | 48.0 | |
| Loss on sale of business | | | | | — | | | 1.0 | |
| Restructuring charges | | | | | 52.7 | | | 1.8 | |
| Interest income | | | | | (2.8) | | | (2.9) | |
| Interest expense | | | | | 54.7 | | | 47.5 | |
| | | | | $ | 4,269.5 | | | $ | 3,147.5 | |
| Earnings from continuing operations before income taxes and equity interest | | | | | 178.5 | | | 573.3 | |
| Income taxes on continuing operations | | | | | 22.9 | | | 115.5 | |
| Net earnings from continuing operations before equity interest | | | | | 155.6 | | | 457.8 | |
| Share of net earnings of equity method investment | | | | | — | | | 1.8 | |
| Net earnings from continuing operations | | | | | 155.6 | | | 459.6 | |
| Less: Net earnings (losses) attributable to non-controlling interests | | | | | 0.1 | | | (0.6) | |
| Net earnings from continuing operations attributable to Stanley Black & Decker, Inc. | | | | | $ | 155.5 | | | $ | 460.2 | |
| Less: Preferred stock dividends and beneficial conversion feature | | | | | — | | | 9.4 | |
| Net Earnings from Continuing Operations Attributable to Common Shareowners | | | | | $ | 155.5 | | | $ | 450.8 | |
| Add: Contract adjustment payments accretion | | | | | 0.3 | | | 0.2 | |
| Net Earnings from Continuing Operations Attributable to Common Shareowners - Diluted | | | | | $ | 155.8 | | | $ | 451.0 | |
| Earnings from discontinued operations before income taxes | | | | | 22.2 | | | 31.1 | |
| Income taxes on discontinued operations | | | | | 2.4 | | | 3.9 | |
| Net earnings from discontinued operations | | | | | $ | 19.8 | | | $ | 27.2 | |
| Net Earnings Attributable to Common Shareowners - Diluted | | | | | $ | 175.6 | | | $ | 478.2 | |
| Net Earnings Attributable to Stanley Black & Decker, Inc. | | | | | $ | 175.3 | | | $ | 487.4 | |
| Total Comprehensive Income Attributable to Common Shareowners | | | | | $ | 147.6 | | | $ | 380.3 | |
| Basic earnings per share of common stock: | | | | | | | |
| Continuing operations | | | | | $ | 1.00 | | | $ | 2.86 | |
| Discontinued operations | | | | | $ | 0.13 | | | $ | 0.17 | |
| Total basic earnings per share of common stock | | | | | $ | 1.13 | | | $ | 3.04 | |
| Diluted earnings per share of common stock: | | | | | | | |
| Continuing operations | | | | | $ | 0.94 | | | $ | 2.74 | |
| Discontinued operations | | | | | $ | 0.12 | | | $ | 0.17 | |
| Total diluted earnings per share of common stock | | | | | $ | 1.06 | | | $ | 2.91 | |
See Notes to Unaudited Condensed Consolidated Financial Statements.
STANLEY BLACK & DECKER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
OCTOBERAPRIL 2, 20212022 AND JANUARY 2, 20211, 2022
(Unaudited, Millions of Dollars, Except Share and Per Share Amounts)
| | | October 2,
2021 | | January 2,
2021 | | | | | | | | | | |
| | (As Restated) (1) | | (As Restated) (1) | | April 2,
2022 | | January 1,
2022 |
| ASSETS | ASSETS | | | | ASSETS | | | |
| Current Assets | Current Assets | | Current Assets | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 292.7 | | | $ | 1,381.0 | | Cash and cash equivalents | $ | 165.8 | | | $ | 142.1 | |
| Accounts and notes receivable, net | Accounts and notes receivable, net | 1,989.0 | | | 1,512.2 | | Accounts and notes receivable, net | 1,842.0 | | | 1,481.7 | |
| Inventories, net | Inventories, net | 4,134.4 | | | 2,737.4 | | Inventories, net | 6,267.7 | | | 5,419.9 | |
| Current assets held for sale | | Current assets held for sale | 864.0 | | | 869.6 | |
| Prepaid expenses | Prepaid expenses | 419.3 | | | 370.7 | | Prepaid expenses | 495.3 | | | 507.0 | |
| Other current assets | Other current assets | 41.0 | | | 34.7 | | Other current assets | 101.4 | | | 106.1 | |
| Total Current Assets | Total Current Assets | 6,876.4 | | | 6,036.0 | | Total Current Assets | 9,736.2 | | | 8,526.4 | |
| Property, plant and equipment, net | Property, plant and equipment, net | 2,051.3 | | | 2,053.8 | | Property, plant and equipment, net | 2,365.6 | | | 2,336.8 | |
| Goodwill | Goodwill | 9,944.1 | | | 10,038.1 | | Goodwill | 8,597.0 | | | 8,590.7 | |
| Intangibles, net | 3,892.9 | | | 4,055.4 | | |
| Customer Relationships, net | | Customer Relationships, net | 1,955.2 | | | 2,000.0 | |
| Trade Names, net | | Trade Names, net | 2,672.3 | | | 2,681.8 | |
| Other intangible Assets, net | | Other intangible Assets, net | 12.8 | | | 13.2 | |
| Long-term assets held for sale | | Long-term assets held for sale | 2,628.5 | | | 2,635.8 | |
| Other assets | Other assets | 1,561.9 | | | 1,383.0 | | Other assets | 1,391.1 | | | 1,395.3 | |
| Total Assets | Total Assets | $ | 24,326.6 | | | $ | 23,566.3 | | Total Assets | $ | 29,358.7 | | | $ | 28,180.0 | |
| LIABILITIES AND SHAREOWNERS' EQUITY | LIABILITIES AND SHAREOWNERS' EQUITY | | | | LIABILITIES AND SHAREOWNERS' EQUITY | | | |
| Current Liabilities | Current Liabilities | | Current Liabilities | |
| Short-term borrowings | Short-term borrowings | $ | 152.2 | | | $ | 1.5 | | Short-term borrowings | $ | 5,086.4 | | | $ | 2,241.1 | |
| Current maturities of long-term debt | | Current maturities of long-term debt | 1.2 | | | 1.3 | |
| Accounts payable | Accounts payable | 3,055.7 | | | 2,446.4 | | Accounts payable | 3,367.7 | | | 3,423.6 | |
| Accrued expenses | Accrued expenses | 2,372.9 | | | 2,110.4 | | Accrued expenses | 2,036.2 | | | 2,641.0 | |
| Liabilities held for sale | | Liabilities held for sale | 463.5 | | | 460.4 | |
| Total Current Liabilities | Total Current Liabilities | 5,580.8 | | | 4,558.3 | | Total Current Liabilities | 10,955.0 | | | 8,767.4 | |
| Long-term debt | Long-term debt | 4,246.9 | | | 4,245.4 | | Long-term debt | 5,355.5 | | | 4,353.6 | |
| Deferred taxes | Deferred taxes | 560.7 | | | 568.0 | | Deferred taxes | 662.8 | | | 711.2 | |
| Post-retirement benefits | Post-retirement benefits | 573.3 | | | 642.6 | | Post-retirement benefits | 454.9 | | | 474.1 | |
| Long-term liabilities held for sale | | Long-term liabilities held for sale | 129.1 | | | 137.4 | |
| Other liabilities | Other liabilities | 2,046.7 | | | 2,485.6 | | Other liabilities | 2,446.6 | | | 2,143.9 | |
Commitments and Contingencies (Notes R and S) | Commitments and Contingencies (Notes R and S) | 0 | | 0 | Commitments and Contingencies (Notes R and S) | 0 | | 0 |
| Shareowners’ Equity | Shareowners’ Equity | | Shareowners’ Equity | |
| Stanley Black & Decker, Inc. Shareowners’ Equity | Stanley Black & Decker, Inc. Shareowners’ Equity | | Stanley Black & Decker, Inc. Shareowners’ Equity | |
Preferred stock, without par value: Authorized 10,000,000 shares in 2021 and 2020 Issued and outstanding 750,000 shares in 2021 and 1,500,000 shares in 2020 | 620.3 | | | 1,370.3 | | |
Common stock, par value $2.50 per share: Authorized 300,000,000 shares in 2021 and 2020 Issued 176,902,738 shares in 2021 and 2020 | 442.3 | | | 442.3 | | |
Preferred stock, without par value: Authorized 10,000,000 shares in 2022 and 2021 Issued and outstanding 750,000 shares in 2022 and 2021 | | Preferred stock, without par value: Authorized 10,000,000 shares in 2022 and 2021 Issued and outstanding 750,000 shares in 2022 and 2021 | 620.3 | | | 620.3 | |
Common stock, par value $2.50 per share: Authorized 300,000,000 shares in 2022 and 2021 Issued 176,902,738 shares in 2022 and 2021 | | Common stock, par value $2.50 per share: Authorized 300,000,000 shares in 2022 and 2021 Issued 176,902,738 shares in 2022 and 2021 | 442.3 | | | 442.3 | |
| Retained earnings | Retained earnings | 8,541.4 | | | 7,542.2 | | Retained earnings | 8,801.4 | | | 8,742.4 | |
| Additional paid in capital | Additional paid in capital | 4,977.4 | | | 4,967.8 | | Additional paid in capital | 4,705.5 | | | 4,999.2 | |
| Accumulated other comprehensive loss | Accumulated other comprehensive loss | (1,874.8) | | | (1,713.7) | | Accumulated other comprehensive loss | (1,873.3) | | | (1,845.6) | |
| | 12,706.6 | | | 12,608.9 | | | 12,696.2 | | | 12,958.6 | |
| Less: cost of common stock in treasury | (1,390.3) | | | (1,549.3) | | |
| Less: cost of common stock in treasury (25,964,890 shares in 2022 and 13,573,962 shares in 2021) | | Less: cost of common stock in treasury (25,964,890 shares in 2022 and 13,573,962 shares in 2021) | (3,343.4) | | | (1,368.1) | |
| Stanley Black & Decker, Inc. Shareowners’ Equity | Stanley Black & Decker, Inc. Shareowners’ Equity | 11,316.3 | | | 11,059.6 | | Stanley Black & Decker, Inc. Shareowners’ Equity | 9,352.8 | | | 11,590.5 | |
| Non-controlling interests | Non-controlling interests | 1.9 | | | 6.8 | | Non-controlling interests | 2.0 | | | 1.9 | |
| Total Shareowners’ Equity | Total Shareowners’ Equity | 11,318.2 | | | 11,066.4 | | Total Shareowners’ Equity | 9,354.8 | | | 11,592.4 | |
| Total Liabilities and Shareowners’ Equity | Total Liabilities and Shareowners’ Equity | $ | 24,326.6 | | | $ | 23,566.3 | | Total Liabilities and Shareowners’ Equity | $ | 29,358.7 | | | $ | 28,180.0 | |
(1) See Note A, Significant Accounting Policies - Restatement, for discussion regarding the impacts of the Restatement.
See Notes to Unaudited Condensed Consolidated Financial Statements.
STANLEY BLACK & DECKER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE AND NINE MONTHS ENDED OCTOBERAPRIL 2, 20212022 AND SEPTEMBER 26, 2020APRIL 3, 2021
(Unaudited, Millions of Dollars)
| | | Third Quarter | | Year-to-Date | | | | | | | | | | | |
| | | 2021 | | 2020 | | 2021 | | 2020 | | | Year-to-Date |
| | (As Restated) (1) | | | 2022 | | 2021 |
| OPERATING ACTIVITIES | OPERATING ACTIVITIES | | | | | | | | OPERATING ACTIVITIES | | | | |
| Net earnings | $ | 414.1 | | | $ | 395.2 | | | $ | 1,359.4 | | | $ | 767.0 | | |
| Adjustments to reconcile net earnings to cash provided by operating activities: | | |
| Net earnings from continuing operations | | Net earnings from continuing operations | | $ | 155.6 | | | $ | 459.6 | |
| Net earnings from discontinued operations | | Net earnings from discontinued operations | | 19.8 | | | 27.2 | |
| Adjustments to reconcile net earnings to cash used in operating activities: | | Adjustments to reconcile net earnings to cash used in operating activities: | | |
| Depreciation and amortization of property, plant and equipment | Depreciation and amortization of property, plant and equipment | 93.9 | | | 94.1 | | | 279.3 | | | 281.1 | | Depreciation and amortization of property, plant and equipment | | 92.0 | | | 93.5 | |
| Amortization of intangibles | Amortization of intangibles | 50.3 | | | 51.2 | | | 151.3 | | | 150.0 | | Amortization of intangibles | | 51.7 | | | 50.5 | |
| Loss on sales of businesses | — | | | — | | | 3.6 | | | — | | |
| Loss on sale of business | | Loss on sale of business | | — | | | 1.0 | |
| Share of net earnings of equity method investment | Share of net earnings of equity method investment | (9.8) | | | (4.0) | | | (16.0) | | | (14.1) | | Share of net earnings of equity method investment | | — | | | (1.8) | |
| Changes in working capital | Changes in working capital | (456.7) | | | 51.6 | | | (1,373.5) | | | (667.5) | | Changes in working capital | | (1,336.1) | | | (720.4) | |
| Changes in other assets and liabilities | Changes in other assets and liabilities | (87.2) | | | 89.1 | | | (112.9) | | | 83.7 | | Changes in other assets and liabilities | | (224.1) | | | (67.4) | |
| Cash provided by operating activities | 4.6 | | | 677.2 | | | 291.2 | | | 600.2 | | |
| Cash used in operating activities | | Cash used in operating activities | | (1,241.1) | | | (157.8) | |
| INVESTING ACTIVITIES | INVESTING ACTIVITIES | | INVESTING ACTIVITIES | | |
| Capital and software expenditures | Capital and software expenditures | (129.1) | | | (62.1) | | | (322.5) | | | (209.5) | | Capital and software expenditures | | (139.8) | | | (88.3) | |
| Proceeds from sales of assets | | Proceeds from sales of assets | | 9.0 | | | 1.3 | |
| Business acquisitions, net of cash acquired | Business acquisitions, net of cash acquired | (9.3) | | | 1.4 | | | (10.8) | | | (1,300.6) | | Business acquisitions, net of cash acquired | | (36.5) | | | (0.2) | |
| Purchases of investments | Purchases of investments | (3.5) | | | (1.0) | | | (14.5) | | | (14.6) | | Purchases of investments | | (0.1) | | | (7.0) | |
| Net investment hedge settlements | Net investment hedge settlements | (1.3) | | | — | | | (53.9) | | | 41.0 | | Net investment hedge settlements | | 4.7 | | | (52.6) | |
| Other | Other | 0.2 | | | (2.1) | | | 2.0 | | | (0.6) | | Other | | (0.7) | | | (1.1) | |
| Cash used in investing activities | Cash used in investing activities | (143.0) | | | (63.8) | | | (399.7) | | | (1,484.3) | | Cash used in investing activities | | (163.4) | | | (147.9) | |
| FINANCING ACTIVITIES | FINANCING ACTIVITIES | | FINANCING ACTIVITIES | | |
| Proceeds from debt issuances, net of fees | Proceeds from debt issuances, net of fees | — | | | — | | | — | | | 1,482.6 | | Proceeds from debt issuances, net of fees | | 994.8 | | | — | |
| Stock purchase contract fees | Stock purchase contract fees | (9.9) | | | (9.8) | | | (29.5) | | | (49.9) | | Stock purchase contract fees | | (9.8) | | | (9.8) | |
| Net short-term borrowings (repayments) | Net short-term borrowings (repayments) | 149.6 | | | (712.9) | | | 150.7 | | | (341.8) | | Net short-term borrowings (repayments) | | 2,844.8 | | | (0.7) | |
| Proceeds from issuances of common stock | Proceeds from issuances of common stock | 7.7 | | | 42.5 | | | 108.1 | | | 93.8 | | Proceeds from issuances of common stock | | 13.7 | | | 64.1 | |
| Proceeds from issuance of remarketed preferred stock | — | | | — | | | — | | | 750.0 | | |
| Purchases of common stock for treasury | Purchases of common stock for treasury | (2.8) | | | (1.9) | | | (20.1) | | | (11.2) | | Purchases of common stock for treasury | | (2,313.0) | | | (14.9) | |
| Redemption and conversion of preferred stock | — | | | — | | | (750.0) | | | — | | |
| Craftsman deferred purchase price | — | | | — | | | — | | | (250.0) | | |
| Craftsman contingent consideration | Craftsman contingent consideration | (7.6) | | | (6.0) | | | (21.5) | | | (39.0) | | Craftsman contingent consideration | | (9.8) | | | (7.0) | |
| Termination of interest rate swaps | Termination of interest rate swaps | — | | | — | | | — | | | (20.5) | | Termination of interest rate swaps | | 22.7 | | | — | |
| Cash dividends on common stock | Cash dividends on common stock | (126.0) | | | (109.6) | | | (347.7) | | | (321.0) | | Cash dividends on common stock | | (116.3) | | | (110.1) | |
| Cash dividends on preferred stock | Cash dividends on preferred stock | — | | | (9.4) | | | (18.9) | | | (9.4) | | Cash dividends on preferred stock | | — | | | (9.4) | |
| Other | Other | (3.2) | | | (3.1) | | | (11.6) | | | (10.1) | | Other | | (1.7) | | | (7.2) | |
| Cash provided by (used in) financing activities | Cash provided by (used in) financing activities | 7.8 | | | (810.2) | | | (940.5) | | | 1,273.5 | | Cash provided by (used in) financing activities | | 1,425.4 | | | (95.0) | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | Effect of exchange rate changes on cash, cash equivalents and restricted cash | (15.5) | | | 16.3 | | | (45.9) | | | (7.9) | | Effect of exchange rate changes on cash, cash equivalents and restricted cash | | 4.8 | | | (38.9) | |
| Change in cash, cash equivalents and restricted cash | Change in cash, cash equivalents and restricted cash | (146.1) | | | (180.5) | | | (1,094.9) | | | 381.5 | | Change in cash, cash equivalents and restricted cash | | 25.7 | | | (439.6) | |
| Cash, cash equivalents and restricted cash, beginning of period | Cash, cash equivalents and restricted cash, beginning of period | 449.5 | | | 876.6 | | | 1,398.3 | | | 314.6 | | Cash, cash equivalents and restricted cash, beginning of period | | 294.8 | | | 1,398.3 | |
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD | CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD | $ | 303.4 | | | $ | 696.1 | | | $ | 303.4 | | | $ | 696.1 | | CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD | | $ | 320.5 | | | $ | 958.7 | |
The following table provides a reconciliation of the cash, cash equivalents and restricted cash balances as of OctoberApril 2, 20212022 and January 2, 2021,1, 2022, as shown above:
| | | | | | | | | | | |
| October 2, 2021 | | January 2, 2021 |
| Cash and cash equivalents | $ | 292.7 | | | $ | 1,381.0 | |
| Restricted cash included in Other current assets | 10.7 | | | 17.3 | |
| Cash, cash equivalents and restricted cash | $ | 303.4 | | | $ | 1,398.3 | |
(1) See Note A, Significant Accounting Policies - Restatement, for discussion regarding the impacts of the Restatement. | | | | | | | | | | | |
| April 2, 2022 | | January 1, 2022 |
| Cash and cash equivalents | $ | 165.8 | | | $ | 142.1 | |
| Restricted cash included in Other current assets | 3.9 | | | 7.6 | |
| Cash and cash equivalents included in Current assets held for sale | 150.8 | | | 145.1 | |
| Cash, cash equivalents and restricted cash | $ | 320.5 | | | $ | 294.8 | |
See Notes to Unaudited Condensed Consolidated Financial Statements.
STANLEY BLACK & DECKER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
THREE AND NINE MONTHS ENDED OCTOBERAPRIL 2, 20212022 AND SEPTEMBER 26, 2020APRIL 3, 2021
(Unaudited, Millions of Dollars, Except Share and Per Share Amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred
Stock | | Common
Stock | | Additional
Paid In
Capital | | Retained
Earnings | | Accumulated
Other
Comprehensive
Loss | | Treasury
Stock | | Non-
Controlling
Interests | | Shareowners’
Equity |
| (As Restated) (1) | | | | (As Restated) (1) | | (As Restated) (1) | | | | | | | | |
| Balance January 2, 2021 | $ | 1,370.3 | | | $ | 442.3 | | | $ | 4,967.8 | | | $ | 7,542.2 | | | $ | (1,713.7) | | | $ | (1,549.3) | | | $ | 6.8 | | | $ | 11,066.4 | |
| Net earnings (loss) | — | | | — | | | — | | | 487.4 | | | — | | | — | | | (0.6) | | | 486.8 | |
| Other comprehensive loss | — | | | — | | | — | | | — | | | (97.7) | | | — | | | — | | | (97.7) | |
| Cash dividends declared — $0.70 per common share | — | | | — | | | — | | | (110.1) | | | — | | | — | | | — | | | (110.1) | |
| Cash dividends declared — $50.00 per annum per preferred share | — | | | — | | | — | | | (9.4) | | | — | | | — | | | — | | | (9.4) | |
| Issuance of common stock (848,275 shares) | — | | | — | | | (12.7) | | | — | | | — | | | 76.8 | | | — | | | 64.1 | |
| Repurchase of common stock (80,310 shares) | — | | | — | | | — | | | — | | | — | | | (14.9) | | | — | | | (14.9) | |
| Non-controlling interest buyout | — | | | — | | | (2.8) | | | — | | | — | | | — | | | (3.2) | | | (6.0) | |
| Stock-based compensation related | — | | | — | | | 25.6 | | | — | | | — | | | — | | | — | | | 25.6 | |
| Balance April 3, 2021 | $ | 1,370.3 | | | $ | 442.3 | | | $ | 4,977.9 | | | $ | 7,910.1 | | | $ | (1,811.4) | | | $ | (1,487.4) | | | $ | 3.0 | | | $ | 11,404.8 | |
| Net earnings (loss) | — | | | — | | | — | | | 459.5 | | | — | | | — | | | (1.0) | | | 458.5 | |
| Other comprehensive income | — | | | — | | | — | | | — | | | 24.4 | | | — | | | — | | | 24.4 | |
| Cash dividends declared — $0.70 per common share | — | | | — | | | — | | | (111.6) | | | — | | | — | | | — | | | (111.6) | |
| Cash dividends declared — $50.00 per annum per preferred share | — | | | — | | | — | | | (4.8) | | | — | | | — | | | — | | | (4.8) | |
| Issuance of common stock (305,153 shares) | — | | | — | | | 8.1 | | | — | | | — | | | 28.2 | | | — | | | 36.3 | |
| Repurchase of common stock (355,751 shares) | — | | | — | | | 72.2 | | | — | | | — | | | (74.6) | | | — | | | (2.4) | |
| Redemption and conversion of preferred stock (1,469,055 shares) | (750.0) | | | — | | | (137.3) | | | — | | | — | | | 137.3 | | | — | | | (750.0) | |
| Stock-based compensation related | — | | | — | | | 30.8 | | | — | | | — | | | — | | | — | | | 30.8 | |
| Balance July 3, 2021 | $ | 620.3 | | | $ | 442.3 | | | $ | 4,951.7 | | | $ | 8,253.2 | | | $ | (1,787.0) | | | $ | (1,396.5) | | | $ | 2.0 | | | $ | 11,086.0 | |
| Net earnings (loss) | — | | | — | | | — | | | 414.2 | | | — | | | — | | | (0.1) | | | 414.1 | |
| Other comprehensive loss | — | | | — | | | — | | | — | | | (87.8) | | | — | | | — | | | (87.8) | |
| Cash dividends declared — $0.79 per common share | — | | | — | | | — | | | (126.0) | | | — | | | — | | | — | | | (126.0) | |
| Issuance of common stock (96,462 shares) | — | | | — | | | (1.3) | | | — | | | — | | | 9.0 | | | — | | | 7.7 | |
| Repurchase of common stock (14,153 shares) | — | | | — | | | — | | | — | | | — | | | (2.8) | | | — | | | (2.8) | |
| Stock-based compensation related | — | | | — | | | 27.0 | | | — | | | — | | | — | | | — | | | 27.0 | |
| Balance October 2, 2021 | $ | 620.3 | | | $ | 442.3 | | | $ | 4,977.4 | | | $ | 8,541.4 | | | $ | (1,874.8) | | | $ | (1,390.3) | | | $ | 1.9 | | | $ | 11,318.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred
Stock | | Common
Stock | | Additional
Paid In
Capital | | Retained
Earnings | | Accumulated
Other
Comprehensive
Loss | | Treasury
Stock | | Non-
Controlling
Interests | | Shareowners’
Equity |
| Balance January 1, 2022 | $ | 620.3 | | | $ | 442.3 | | | $ | 4,999.2 | | | $ | 8,742.4 | | | $ | (1,845.6) | | | $ | (1,368.1) | | | $ | 1.9 | | | $ | 11,592.4 | |
| Net earnings | — | | | — | | | — | | | 175.3 | | | — | | | — | | | 0.1 | | | 175.4 | |
| Other comprehensive loss | — | | | — | | | — | | | — | | | (27.7) | | | — | | | — | | | (27.7) | |
| Cash dividends declared — $0.79 per common share | — | | | — | | | — | | | (116.3) | | | — | | | — | | | — | | | (116.3) | |
| Issuance of common stock (338,897 shares) | — | | | — | | | (24.0) | | | — | | | — | | | 37.7 | | | — | | | 13.7 | |
| Repurchase of common stock (12,729,825 shares) | — | | | — | | | (300.0) | | | — | | | — | | | (2,013.0) | | | — | | | (2,313.0) | |
| Stock-based compensation related | — | | | — | | | 30.3 | | | — | | | — | | | — | | | — | | | 30.3 | |
| Balance April 2, 2022 | $ | 620.3 | | | $ | 442.3 | | | $ | 4,705.5 | | | $ | 8,801.4 | | | $ | (1,873.3) | | | $ | (3,343.4) | | | $ | 2.0 | | | $ | 9,354.8 | |
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| Preferred
Stock | | Common
Stock | | Additional
Paid In
Capital | | Retained
Earnings | | Accumulated
Other
Comprehensive
Loss | | ESOP | | Treasury
Stock | | Non-
Controlling
Interests | | Shareowners’
Equity |
| (As Restated) (1) | | | | (As Restated) (1) | | (As Restated) (1) | | | | | | (As Restated) (1) | | | | (As Restated) (1) |
| Balance December 28, 2019 | $ | 1,230.0 | | | $ | 442.3 | | | $ | 4,767.6 | | | $ | 6,768.1 | | | $ | (1,884.6) | | | $ | (2.3) | | | $ | (2,184.8) | | | $ | 5.9 | | | $ | 9,142.2 | |
| Net earnings (loss) | — | | | — | | | — | | | 133.2 | | | — | | | — | | | — | | | (0.1) | | | 133.1 | |
| Other comprehensive loss | — | | | — | | | — | | | — | | | (258.8) | | | — | | | — | | | — | | | (258.8) | |
| Cash dividends declared — $0.69 per common share | — | | | — | | | — | | | (105.6) | | | — | | | — | | | — | | | — | | | (105.6) | |
| Issuance of common stock (744,339 shares) | — | | | — | | | (20.5) | | | — | | | — | | | — | | | 65.1 | | | — | | | 44.6 | |
| Repurchase of common stock (125,294 shares) | — | | | — | | | 10.0 | | | — | | | — | | | — | | | (19.0) | | | — | | | (9.0) | |
| Stock-based compensation related | — | | | — | | | 15.4 | | | — | | | — | | | — | | | — | | | — | | | 15.4 | |
| ESOP | — | | | — | | | — | | | — | | | — | | | 2.3 | | | — | | | — | | | 2.3 | |
| Adoption of ASU 2016-13 | — | | | — | | | — | | | (3.8) | | | — | | | — | | | — | | | — | | | (3.8) | |
| Beneficial conversion feature | 0.5 | | | — | | | — | | | (0.5) | | | — | | | — | | | — | | | — | | | — | |
| Other | — | | | — | | | (1.2) | | | — | | | — | | | — | | | — | | | — | | | (1.2) | |
| Balance March 28, 2020 | $ | 1,230.5 | | | $ | 442.3 | | | $ | 4,771.3 | | | $ | 6,791.4 | | | $ | (2,143.4) | | | $ | — | | | $ | (2,138.7) | | | $ | 5.8 | | | $ | 8,959.2 | |
| Net earnings | — | | | — | | | — | | | 238.4 | | | — | | | — | | | — | | | 0.3 | | | 238.7 | |
| Other comprehensive income | — | | | — | | | — | | | — | | | 102.8 | | | — | | | — | | | — | | | 102.8 | |
| Cash dividends declared — $0.69 per common share | — | | | — | | | — | | | (105.8) | | | — | | | — | | | — | | | — | | | (105.8) | |
| Cash dividends declared — $50.00 per annum per preferred share | — | | | — | | | — | | | (4.7) | | | — | | | — | | | — | | | — | | | (4.7) | |
| Issuance of common stock (74,356 shares) | — | | | — | | | 0.2 | | | — | | | — | | | — | | | 6.5 | | | — | | | 6.7 | |
| Repurchase of common stock (4,227 shares) | — | | | — | | | — | | | — | | | — | | | — | | | (0.3) | | | — | | | (0.3) | |
| Conversion of original Series C Preferred Stock (5,463,750 shares) | (610.4) | | | — | | | 113.2 | | | — | | | — | | | — | | | 492.6 | | | — | | | (4.6) | |
| Issuance of remarketed Series C Preferred Stock | 750.0 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 750.0 | |
| Stock-based compensation related | — | | | — | | | 21.2 | | | — | | | — | | | — | | | — | | | — | | | 21.2 | |
| Beneficial conversion feature | 0.2 | | | — | | | — | | | (0.2) | | | — | | | — | | | — | | | — | | | — | |
| Other | — | | | — | | | 2.4 | | | — | | | — | | | — | | | — | | | — | | | 2.4 | |
| Balance June 27, 2020 | $ | 1,370.3 | | | $ | 442.3 | | | $ | 4,908.3 | | | $ | 6,919.1 | | | $ | (2,040.6) | | | $ | — | | | $ | (1,639.9) | | | $ | 6.1 | | | $ | 9,965.6 | |
| Net earnings | — | | | — | | | — | | | 394.9 | | | — | | | — | | | — | | | 0.3 | | | 395.2 | |
| Other comprehensive income | — | | | — | | | — | | | — | | | 79.5 | | | — | | | — | | | — | | | 79.5 | |
| Cash dividends declared — $0.70 per common share | — | | | — | | | — | | | (109.6) | | | — | | | — | | | — | | | — | | | (109.6) | |
| Cash dividends declared — $50.00 per annum per preferred share | — | | | — | | | — | | | (9.4) | | | — | | | — | | | — | | | — | | | (9.4) | |
| Issuance of common stock (529,998 shares) | — | | | — | | | (5.3) | | | — | | | — | | | — | | | 47.8 | | | — | | | 42.5 | |
| Repurchase of common stock (15,403 shares) | — | | | — | | | — | | | — | | | — | | | — | | | (1.9) | | | — | | | (1.9) | |
| Stock-based compensation related | — | | | — | | | 17.9 | | | — | | | — | | | — | | | — | | | — | | | 17.9 | |
| Other | $ | — | | | $ | — | | | $ | (0.5) | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (0.5) | |
| Balance September 26, 2020 | $ | 1,370.3 | | | $ | 442.3 | | | $ | 4,920.4 | | | $ | 7,195.0 | | | $ | (1,961.1) | | | $ | — | | | $ | (1,594.0) | | | $ | 6.4 | | | $ | 10,379.3 | |
(1) See Note A, Significant Accounting Policies - Restatement, for discussion regarding the impacts of the Restatement. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred
Stock | | Common
Stock | | Additional
Paid In
Capital | | Retained
Earnings | | Accumulated
Other
Comprehensive
Loss | | Treasury
Stock | | Non-
Controlling
Interests | | Shareowners’
Equity |
| Balance January 2, 2021 | $ | 1,370.3 | | | $ | 442.3 | | | $ | 4,967.8 | | | $ | 7,542.2 | | | $ | (1,713.7) | | | $ | (1,549.3) | | | $ | 6.8 | | | $ | 11,066.4 | |
| Net earnings (loss) | — | | | — | | | — | | | 487.4 | | | — | | | — | | | (0.6) | | | 486.8 | |
| Other comprehensive loss | — | | | — | | | — | | | — | | | (97.7) | | | — | | | — | | | (97.7) | |
| Cash dividends declared — $0.70 per share | — | | | — | | | — | | | (110.1) | | | — | | | — | | | — | | | (110.1) | |
| Cash dividends declared - $50.00 per annum per preferred share | — | | | — | | | — | | | (9.4) | | | — | | | — | | | — | | | (9.4) | |
| Issuance of common stock (848,275 shares) | — | | | — | | | (12.7) | | | — | | | — | | | 76.8 | | | — | | | 64.1 | |
| Repurchase of common stock (80,310 shares) | — | | | — | | | — | | | — | | | — | | | (14.9) | | | — | | | (14.9) | |
| Non-controlling interest buyout | — | | | — | | | (2.8) | | | — | | | — | | | — | | | (3.2) | | | (6.0) | |
| Stock-based compensation related | — | | | — | | | 25.6 | | | — | | | — | | | — | | | — | | | 25.6 | |
| Balance April 3, 2021 | $ | 1,370.3 | | | $ | 442.3 | | | $ | 4,977.9 | | | $ | 7,910.1 | | | $ | (1,811.4) | | | $ | (1,487.4) | | | $ | 3.0 | | | $ | 11,404.8 | |
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See Notes to Unaudited Condensed Consolidated Financial Statements.
STANLEY BLACK & DECKER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED(UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBERAPRIL 2, 20212022
A. SIGNIFICANT ACCOUNTING POLICIES
Restatement
Stanley Black & Decker, Inc. (“the Company”) filed its Annual Report on Form 10-K for the fiscal year ended January 2, 2021 with the U.S. Securities and Exchange Commission (“SEC”) on February 18, 2021 (the “Original Form 10-K”). Subsequent to the filing of the Original Form 10-K, the Company received comments from the SEC Staff regarding its accounting for equity units issued in May 2017 and November 2019 (the “Equity Units”), which were comprised of forward stock purchase contracts and convertible preferred stock. Upon further reflection on the comments received from the SEC Staff and the nature of the Equity Units, the Company determined that errors were made in its original accounting conclusions related to: (a) accounting for the forward stock purchase contracts and convertible preferred stock as separate units of account, and (b) applying the treasury stock method to the shares associated with the forward stock purchase contracts for purposes of calculating diluted earnings per share.
Based on the Company's correspondence with the SEC Staff, the Company re-evaluated its accounting assessment and concluded that the Equity Units should be accounted for as one unit of account based on the economic linkage between the forward stock purchase contracts and convertible preferred stock as well as the combination criteria outlined in Accounting Standards Codification ("ASC") 815, Derivatives. The Equity Units represent mandatorily convertible preferred stock. Accordingly, the shares associated with the combined instrument should be reflected in diluted earnings per share using the if-converted method pursuant to paragraph 260-10-45-40 of ASC 260, Earnings Per Share. Further, the Company originally recognized Preferred stock equal to the amount of gross proceeds received from the issuances of the Equity Units and recognized a liability for the Contract Adjustment Payments with a corresponding reduction to Additional paid in capital. Upon correction of the unit of account, the net proceeds received have been attributed to Preferred stock and the liability for Contract Adjustment Payments, resulting in no net change to the liability for Contract Adjustment Payments. Refer to Note J, Equity Arrangements (as Restated), for further discussion.
The Company previously corrected its diluted earnings per share for the quarter-to-date and year-to-date periods ending October 2, 2021 in its third quarter 2021 Quarterly Report on Form 10-Q, filed with the SEC on November 12, 2021 (the “Original Form 10-Q”). In this Form 10-Q/A, the Company has restated certain information contained in its previously issued unaudited interim consolidated financial statements for the periods ended October 2, 2021, July 3, 2021 and April 3, 2021, as well as the related comparative interim periods in 2020 (collectively, the "Affected Periods"), to correct the errors in its original accounting for the Equity Units, as discussed above (the "Restatement"). The Company has restated its basic and diluted earnings per share, as applicable, as presented in Note C, Earnings Per Share (as Restated), and the related diluted earnings per share impacts disclosed herein, as a result of accounting for the Equity Units as a combined instrument. The shares underlying the forward stock purchase contracts have been included in the denominator of the Company's diluted earnings per share utilizing the if-converted method, which represents a correction of an error of previously applying the treasury stock method to the quarter-to-date and year-to-date periods ended July 3, 2021 and April 3, 2021, as well as the comparative interim periods in 2020, and the quarter-to-date and year-to-date periods ended September 26, 2020. The Company has also corrected the classification of certain amounts in the consolidated balance sheets, statements of cash flows and statements of changes in shareowners' equity to reflect the forward stock purchase contracts and convertible preferred stock as one unit of account, which represents a correction of an error of previously accounting for the instruments as two units of account. The corrections have no impact on the Company's net earnings, total assets, cash flows from operations or business segment information.
The following tables present the impact of the restatement on the Company's previously reported results of operations and comprehensive income, as applicable, for the quarter-to-date and year-to-date periods ended October 2, 2021, July 3, 2021, April 3, 2021, September 26, 2020, June 27, 2020 and March 28, 2020.
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| Quarter-To-Date October 2, 2021 | | Year-To-Date October 2, 2021 |
| (Millions of Dollars, except per share amounts | As Previously Reported | | Restatement Impacts | | As Restated | | As Previously Reported | | Restatement Impacts | | As Restated |
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| Total Comprehensive Income Attributable to Common Shareowners | $ | 326.8 | | | $ | (0.4) | | | $ | 326.4 | | | $ | 1,186.7 | | | $ | (0.9) | | | $ | 1,185.8 | |
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| Quarter-To-Date July 3, 2021 | | Year-To-Date July 3, 2021 |
| (Millions of Dollars, except per share amounts | As Previously Reported | | Restatement Impacts | | As Restated | | As Previously Reported | | Restatement Impacts | | As Restated |
| Net Earnings Attributable to Common Shareowners | $ | 454.7 | | | $ | — | | | $ | 454.7 | | | $ | 932.7 | | | $ | — | | | $ | 932.7 | |
| Add: Contract adjustment payments accretion | — | | | 0.3 | | | 0.3 | | | — | | | 0.5 | | | 0.5 | |
| Net Earnings Attributable to Common Shareowners - Diluted | $ | 454.7 | | | $ | 0.3 | | | $ | 455.0 | | | $ | 932.7 | | | $ | 0.5 | | | $ | 933.2 | |
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| Earnings per share of common stock: | | | | | | | | | | | |
| Basic | $ | 2.87 | | | $ | — | | | $ | 2.87 | | | $ | 5.90 | | | $ | — | | | $ | 5.90 | |
| Diluted | $ | 2.81 | | | $ | (0.06) | | | $ | 2.75 | | | $ | 5.80 | | | $ | (0.13) | | | $ | 5.67 | |
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| Weighted-average shares outstanding (in thousands): | | | | | | | | | | | |
| Basic | 158,644 | | | — | | | 158,644 | | | 158,081 | | | — | | | 158,081 | |
| Diluted | 161,571 | | | 3,615 | | | 165,186 | | | 160,861 | | | 3,872 | | | 164,733 | |
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| Quarter-To-Date April 3, 2021 |
| (Millions of Dollars, except per share amounts | As Previously Reported | | Restatement Impacts | | As Restated |
| Net Earnings Attributable to Common Shareowners | $ | 478.0 | | | $ | — | | | $ | 478.0 | |
| Add: Contract adjustment payments accretion | $ | — | | | $ | 0.2 | | | $ | 0.2 | |
| Net Earnings Attributable to Common Shareowners - Diluted | $ | 478.0 | | | $ | 0.2 | | | $ | 478.2 | |
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| Earnings per share of common stock: | | | | | |
| Basic | $ | 3.04 | | | $ | — | | | $ | 3.04 | |
| Diluted | $ | 2.98 | | | $ | (0.07) | | | $ | 2.91 | |
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| Weighted-average shares outstanding (in thousands): | | | | | |
| Basic | 157,490 | | | — | | | 157,490 | |
| Diluted | 160,220 | | | 4,129 | | | 164,349 | |
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| Quarter-To-Date September 26, 2020 | | Year-To-Date September 26, 2020 |
| (Millions of Dollars, except per share amounts | As Previously Reported | | Restatement Impacts | | As Restated | | As Previously Reported | | Restatement Impacts | | As Restated |
| Net Earnings Attributable to Common Shareowners | $ | 385.5 | | | $ | — | | | $ | 385.5 | | | $ | 752.4 | | | $ | (0.7) | | | $ | 751.7 | |
| Add: Contract adjustment payments accretion | — | | | 0.1 | | | 0.1 | | | — | | | 1.5 | | | 1.5 | |
| Net Earnings Attributable to Common Shareowners - Diluted | $ | 385.5 | | | $ | 0.1 | | | $ | 385.6 | | | $ | 752.4 | | | $ | 0.8 | | | $ | 753.2 | |
| Total Comprehensive Income Attributable to Common Shareowners | $ | 465.0 | | | — | | | $ | 465.0 | | | $ | 675.9 | | | (0.7) | | | $ | 675.2 | |
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| Earnings per share of common stock: | | | | | | | | | | | |
| Basic | $ | 2.47 | | | $ | — | | | $ | 2.47 | | | $ | 4.91 | | | $ | (0.01) | | | $ | 4.90 | |
| Diluted | $ | 2.44 | | | $ | (0.07) | | | $ | 2.37 | | | $ | 4.86 | | | $ | (0.21) | | | $ | 4.65 | |
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| Weighted-average shares outstanding (in thousands): | | | | | | | | | | | |
| Basic | 156,370 | | | — | | | 156,370 | | | 153,345 | | | — | | | 153,345 | |
| Diluted | 157,971 | | | 4,704 | | | 162,675 | | | 154,759 | | | 7,339 | | | 162,098 | |
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| Quarter-To-Date June 27, 2020 | | Year-To-Date June 27, 2020 |
| (Millions of Dollars, except per share amounts | As Previously Reported | | Restatement Impacts | | As Restated | | As Previously Reported | | Restatement Impacts | | As Restated |
| Net Earnings Attributable to Common Shareowners | $ | 233.7 | | | $ | (0.2) | | | $ | 233.5 | | | $ | 366.9 | | | $ | (0.7) | | | $ | 366.2 | |
| Add: Contract adjustment payments accretion | — | | | 0.5 | | | 0.5 | | | — | | | 1.4 | | | 1.4 | |
| Net Earnings Attributable to Common Shareowners - Diluted | $ | 233.7 | | | $ | 0.3 | | | $ | 234.0 | | | $ | 366.9 | | | $ | 0.7 | | | $ | 367.6 | |
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| Earnings per share of common stock: | | | | | | | | | | | |
| Basic | $ | 1.52 | | | $ | — | | | $ | 1.52 | | | $ | 2.41 | | | $ | — | | | $ | 2.41 | |
| Diluted | $ | 1.52 | | | $ | (0.07) | | | $ | 1.45 | | | $ | 2.39 | | | $ | (0.12) | | | $ | 2.27 | |
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| Weighted-average shares outstanding (in thousands): | | | | | | | | | | | |
| Basic | 153,330 | | | — | | | 153,330 | | | 152,011 | | | — | | | 152,011 | |
| Diluted | 154,154 | | | 7,436 | | | 161,590 | | | 153,290 | | | 8,657 | | | 161,947 | |
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| Quarter-To-Date March 28, 2020 |
| (Millions of Dollars, except per share amounts | As Previously Reported | | Restatement Impacts | | As Restated |
| Net Earnings Attributable to Common Shareowners | $ | 133.2 | | | $ | (0.5) | | | $ | 132.7 | |
| Add: Contract adjustment payments accretion | — | | | 0.9 | | | 0.9 | |
| Net Earnings Attributable to Common Shareowners - Diluted | $ | 133.2 | | | $ | 0.4 | | | $ | 133.6 | |
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| Earnings per share of common stock: | | | | | |
| Basic | $ | 0.89 | | | $ | (0.01) | | | $ | 0.88 | |
| Diluted | $ | 0.88 | | | $ | (0.05) | | | $ | 0.83 | |
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| Weighted-average shares outstanding (in thousands): | | | | | |
| Basic | 150,330 | | | — | | | 150,330 | |
| Diluted | 151,903 | | | 9,878 | | | 161,781 | |
The tables below present the impact of the restatement on the classification of amounts within certain equity accounts as of October 2, 2021, July 3, 2021, April 3, 2021, September 26, 2020, June 27, 2020 and March 28, 2020. The values as previously reported were derived from the Company's Original Form 10-Q. Refer to the Company's Form 10-K/A for the year ended January 2, 2021, for impacts of the restatement on the consolidated balance sheet as of January 2, 2021.
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| October 2, 2021 |
| (Millions of Dollars) | As Previously Reported | | Restatement Impacts | | As Restated |
| Preferred stock, without par value | $ | 750.0 | | | $ | (129.7) | | | $ | 620.3 | |
| Retained earnings | $ | 8,546.8 | | | $ | (5.4) | | | $ | 8,541.4 | |
| Additional paid in capital | $ | 4,842.3 | | | $ | 135.1 | | | $ | 4,977.4 | |
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| Total Shareowners’ Equity | $ | 11,318.2 | | | $ | — | | | $ | 11,318.2 | |
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| July 3, 2021 |
| (Millions of Dollars) | As Previously Reported | | Restatement Impacts | | As Restated |
| Preferred stock, without par value | $ | 750.0 | | | $ | (129.7) | | | $ | 620.3 | |
| Retained earnings | $ | 8,258.6 | | | $ | (5.4) | | | $ | 8,253.2 | |
| Additional paid in capital | $ | 4,816.6 | | | $ | 135.1 | | | $ | 4,951.7 | |
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| Total Shareowners’ Equity | $ | 11,086.0 | | | $ | — | | | $ | 11,086.0 | |
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| April 3, 2021 |
| (Millions of Dollars) | As Previously Reported | | Restatement Impacts | | As Restated |
| Preferred stock, without par value | $ | 1,500.0 | | | $ | (129.7) | | | $ | 1,370.3 | |
| Retained earnings | $ | 7,915.5 | | | $ | (5.4) | | | $ | 7,910.1 | |
| Additional paid in capital | $ | 4,842.8 | | | $ | 135.1 | | | $ | 4,977.9 | |
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| Total Shareowners’ Equity | $ | 11,404.8 | | | $ | — | | | $ | 11,404.8 | |
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| September 26, 2020 |
| (Millions of Dollars) | As Previously Reported | | Restatement Impacts | | As Restated |
| Preferred stock, without par value | $ | 1,500.0 | | | $ | (129.7) | | | $ | 1,370.3 | |
| Retained earnings | $ | 7,200.4 | | | $ | (5.4) | | | $ | 7,195.0 | |
| Additional paid in capital | $ | 4,785.3 | | | $ | 135.1 | | | $ | 4,920.4 | |
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| Total Shareowners’ Equity | $ | 10,379.3 | | | $ | — | | | $ | 10,379.3 | |
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| June 27, 2020 |
| (Millions of Dollars) | As Previously Reported | | Restatement Impacts | | As Restated |
| Preferred stock, without par value | $ | 1,500.0 | | | $ | (129.7) | | | $ | 1,370.3 | |
| Retained earnings | $ | 6,924.5 | | | $ | (5.4) | | | $ | 6,919.1 | |
| Additional paid in capital | $ | 4,773.2 | | | $ | 135.1 | | | $ | 4,908.3 | |
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| Total Shareowners’ Equity | $ | 9,965.6 | | | $ | — | | | $ | 9,965.6 | |
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| March 28, 2020 |
| (Millions of Dollars) | As Previously Reported | | Restatement Impacts | | As Restated |
| Preferred stock, without par value | $ | 1,500.0 | | | $ | (269.5) | | | $ | 1,230.5 | |
| Retained earnings | $ | 6,796.6 | | | $ | (5.2) | | | $ | 6,791.4 | |
| Additional paid in capital | $ | 4,496.6 | | | $ | 274.7 | | | $ | 4,771.3 | |
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| Total Shareowners’ Equity | $ | 8,959.2 | | | $ | — | | | $ | 8,959.2 | |
The following tables present the impact of the restatement on the Company's previously reported consolidated statements of cash flows for the year-to-date period ended September 26, 2020, and the quarter-to-date and year-to-date periods ended June 27, 2020. The consolidated statements of cash flows for the remaining Affected Periods were not impacted by the restatement.
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| Year-to-Date September 26, 2020 |
| (Millions of Dollars) | As Previously Reported | | Restatement Impacts | | As Restated |
| Proceeds from issuance of remarketed preferred stock | $ | — | | | $ | 750.0 | | | $ | 750.0 | |
| Proceeds from issuances of common stock | $ | 843.8 | | | $ | (750.0) | | | $ | 93.8 | |
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| Cash provided by financing activities | $ | 1,273.5 | | | $ | — | | | $ | 1,273.5 | |
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| Quarter-to-Date June 27, 2020 | | Year-to-Date June 27, 2020 |
| (Millions of Dollars) | As Previously Reported | | Restatement Impacts | | As Restated | | As Previously Reported | | Restatement Impacts | | As Restated |
| Proceeds from issuance of remarketed preferred stock | $ | — | | | $ | 750.0 | | | $ | 750.0 | | | $ | — | | | $ | 750.0 | | | $ | 750.0 | |
| Proceeds from issuances of common stock | $ | 756.7 | | | $ | (750.0) | | | $ | 6.7 | | | $ | 801.3 | | | $ | (750.0) | | | $ | 51.3 | |
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| Cash (used in) provided by financing activities | $ | (391.5) | | | $ | — | | | $ | (391.5) | | | $ | 2,083.7 | | | $ | — | | | $ | 2,083.7 | |
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (hereinafter referred to as “generally accepted accounting principles”) for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations for the interim periods have been included and are of a normal, recurring nature. Operating results for the three and nine months ended OctoberApril 2, 20212022 are not necessarily indicative of the results that may be expected for a full fiscal year. For further information, refer to the consolidated financial statements and footnotes included in the Company'sStanley Black & Decker, Inc.’s (the “Company”) Form 10-K/A10-K for the year ended January 2, 2021,1, 2022, and subsequent related filings with the SEC.Securities and Exchange Commission ("SEC").
In February 2020,December 2021, the Company acquired Consolidated Aerospace Manufacturing, LLC (“CAM”), an industry-leading manufacturer of specialty fasteners and components for the aerospace and defense markets. The CAM acquisition was accounted for as a business combination using the acquisition method of accounting and the results subsequent to the date of acquisition are included in the Company's Industrial segment.
On August 16, 2021, the Company agreed to acquire the remaining 80 percent ownership stake in MTD Holdings Inc. ("MTD"), a privately held global manufacturer of outdoor power equipment, for $1.6 billion in cash.equipment. The Company previously acquired a 20 percent interest in MTD in January 2019 for $234 million in cash. The2019. Prior to closing on the remaining 80 percent ownership stake, the Company is applyingapplied the equity method of accounting to the 20% investment in MTD. Upon closingIn November 2021, the Company acquired Excel Industries ("Excel"), a leading designer and manufacturer of the remaining 80 percent ownership stake, the acquisition will bepremium commercial and residential turf-care equipment. These acquisitions are being accounted for as a business combinationcombinations using the acquisition method of accounting and consolidated intothe results subsequent to the dates of acquisition are included in the Company's Tools & StorageOutdoor segment. The transaction is subject to customary closing conditions, including regulatory approvals, and is expected to close in the fourth quarter of 2021.
In November 2020,April 2022, the Company soldannounced that it had reached a definitive agreement for the sale of its Mechanical Access Solutions ("MAS") business, the automatic doors business. In December 2021, the Company announced it reached a definitive agreement for the sale of its Convergent Security Solutions ("CSS") business comprising of the commercial electronic operations in 5 countries in Europesecurity and emerging markets withinhealthcare businesses. Based on management's commitment to sell these businesses, the assets and liabilities related to MAS and CSS were classified as held for sale on the Company's Condensed Consolidated Balance Sheets as of April 2, 2022 and January 1, 2022.
The MAS and CSS divestitures represent a single plan to exit the Security segment. In October 2020,segment and are considered a strategic shift that will have a major effect on the Company sold a product line in Oil & Gas within the Industrial segment.Company’s operations and financial results. The operating results of these businessesMAS and CSS have been reported as discontinued operations in the consolidated financial statements through the datesstatements. Amounts previously reported have been reclassified to conform to this presentation in accordance with Accounting Standard Codification ("ASC") 205, Presentation of sale in 2020.Financial Statements ("ASC 205"), to allow for meaningful comparison of continuing operations.
Refer to Note F, Acquisitions and Investments, (as Restated), and Note T, Divestitures, for further discussion of these transactions.
The preparation of financial statements in conformity with generally accepted accounting principles 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.
Accounts And Notes Receivable, Net
Trade receivables are stated at gross invoice Certain 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 industriesreported in which its businesses operate and typically range from 30-90 days globally. Additionally, the Company considers the credit 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. 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 effortsprevious years have been unsuccessful.
Financial Instruments
Derivative financial instruments are employedreclassified 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 in 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,conform 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 ASC 606, Revenue from Contracts with Customers ("ASC 606"). For its customer contracts, 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 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 sales agreement involves multiple performance obligations, each obligation is separately identified (including equipment lease obligations) 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, as appropriate, in the consolidated balance sheet 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 sheet.
Refer to Note D, Accounts and Notes Receivable, Net, for further discussion.2022 presentation.
B. NEW ACCOUNTING STANDARDS
NEW ACCOUNTING STANDARDS ADOPTED — In January 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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. The Company adopted this guidance in the first quarter of 2021 and it did not 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 adopted this standard in the first quarter of 2021 and it did not have a material impact on the Company’s consolidated financial statements.
RECENTLY ISSUED ACCOUNTING STANDARDS NOT YET ADOPTED — In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The new standard improves the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency. The new standard requires an entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers. The ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The standard should be applied prospectively to business combinations occurring on or after the effective date of the amendments. The Company is currently evaluatingelected to early adopt this guidance to determinestandard in the impactfirst quarter of 2022 and it maydid not have a material impact on its consolidated financial statements.
In May 2021, the FASB issued ASU 2021-04, Earnings per share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Equity (Subtopic 815-40). The new standard clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The standard should be applied prospectively. The Company is currently evaluatingadopted this guidance to determinestandard in the impactfirst quarter of 2022 and it maydid not have a material impact on its consolidated financial statements.
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 evaluatingadopted this guidancestandard in the first quarter of 2022, using the modified retrospective method, which has no impact to determineprior periods. In accordance with the impact itstandard, the Company increased weighted-average shares outstanding used to calculate diluted earnings per share for the three months ended April 2, 2022 by 4.1 million shares, as required by the use of the if-converted method for convertible instruments that may have on its consolidated financial statements.be settled in cash or shares. See
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), to clarify the scope of Topic 848 and provide explicit guidance to help companies applying optional expedients and exceptions. This ASU is effective immediately for all entities that have applied optional expedients and exceptions. The Company applied certain optional expedients and exceptions as needed to comply with regulatory and tax authorities for the transition to alternative reference rates. The Company's adoption of this standard did not have a material impact on its consolidated financial statements.
RECENTLY ISSUED ACCOUNTING STANDARDS NOT YET ADOPTED — In March 2022, the FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The new standard eliminates the recognition and measurement guidance for troubled debt restructurings (TDRs) for creditors that have adopted ASC 326 and requires public entities to present gross write-offs by year of origination in their vintage disclosures. The ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The standard should be applied prospectively, and it allows for a modified retrospective transition method resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. The Company is currently evaluating these standardsthis guidance to determine whetherthe impact it will apply the optional expedients and exceptions.may have on its consolidated financial statements.
In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method. The new standard expands and clarifies the use of the portfolio layer method for fair value hedges of interest rate risk. The new standard allows non-prepayable financial assets to also be included in a closed portfolio hedged using the portfolio layer method. The ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The new guidance on hedging multiple layers in a closed portfolio should be applied prospectively and the guidance on the accounting for fair value basis adjustments should be applied on a modified retrospective basis. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.
C. EARNINGS PER SHARE (as Restated)
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 three and nine months ended OctoberApril 2, 20212022 and September 26, 2020:April 3, 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter | | Year-to-Date |
| 2021 | | 2020 | | 2021 | | 2020 |
| (As Restated) | | (As Restated) | | (As Restated) | | (As Restated) |
| Numerator (in millions): | | | | | | | |
| Net Earnings Attributable to Common Shareowners | $ | 414.2 | | | $ | 385.5 | | | $ | 1,346.9 | | | $ | 751.7 | |
| Add: Contract adjustment payments accretion | $ | 0.4 | | | $ | 0.1 | | | $ | 0.9 | | | $ | 1.5 | |
| Net Earnings Attributable to Common Shareowners - Diluted | $ | 414.6 | | | $ | 385.6 | | | $ | 1,347.8 | | | $ | 753.2 | |
| | | | | | | |
| Denominator (in thousands): | | | | | | | |
| Basic weighted-average shares outstanding | 159,444 | | | 156,370 | | | 158,494 | | | 153,345 | |
| Dilutive effect of stock contracts and awards | 5,892 | | | 6,305 | | | 6,406 | | | 8,753 | |
| Diluted weighted-average shares outstanding | 165,336 | | | 162,675 | | | 164,900 | | | 162,098 | |
| Earnings per share of common stock: | | | | | | | |
| Basic | $ | 2.60 | | | $ | 2.47 | | | $ | 8.50 | | | $ | 4.90 | |
| Diluted | $ | 2.51 | | | $ | 2.37 | | | $ | 8.17 | | | $ | 4.65 | |
| | | | | | | | | | | | | | | |
| | | Year-to-Date |
| | | | | 2022 | | 2021 |
| Numerator (in millions): | | | | | | | |
| Net Earnings from Continuing Operations Attributable to Common Shareowners | | | | | $ | 155.5 | | | $ | 450.8 | |
| Add: Contract adjustment payments accretion | | | | | 0.3 | | | 0.2 | |
| Net Earnings from Continuing Operations Attributable to Common Shareowners - Diluted | | | | | $ | 155.8 | | | $ | 451.0 | |
| Net earnings from discontinued operations | | | | | 19.8 | | | 27.2 | |
| Net Earnings Attributable to Common Shareowners - Diluted | | | | | $ | 175.6 | | | $ | 478.2 | |
| | | | | | | | | | | | | | | |
| | | Year-to-Date |
| | | | | 2022 | | 2021 |
| Denominator (in thousands): | | | | | | | |
| Basic weighted-average shares outstanding | | | | | 155,433 | | | 157,490 | |
| Dilutive effect of stock contracts and awards | | | | | 9,980 | | | 6,859 | |
| Diluted weighted-average shares outstanding | | | | | 165,413 | | | 164,349 | |
| | | | | | | | | | | | | | | |
| Earnings per share of common stock: | | | |
| Basic earnings per share of common stock: | | | | | | | |
| Continuing operations | | | | | $ | 1.00 | | | $ | 2.86 | |
| Discontinued operations | | | | | $ | 0.13 | | | $ | 0.17 | |
| Total basic earnings per share of common stock | | | | | $ | 1.13 | | | $ | 3.04 | |
| | | | | | | |
| Diluted earnings per share of common stock: | | | | | | | |
| Continuing operations | | | | | $ | 0.94 | | | $ | 2.74 | |
| Discontinued operations | | | | | $ | 0.12 | | | $ | 0.17 | |
| Total dilutive earnings per share of common stock | | | | | $ | 1.06 | | | $ | 2.91 | |
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):
| | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter | | Year-to-Date |
| 2021 | | 2020 | | 2021 | | 2020 |
| Number of stock options | 1,042 | | | 2,059 | | | 948 | | | 2,947 | |
| | | | | | | | | | | | | | | |
| | | Year-to-Date |
| | | | | 2022 | | 2021 |
| Number of stock options | | | | | 2,545 | | | 1,096 | |
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 shares associated with the forward stock purchase contracts component of the 2019 Equity Units have been reflected in diluted earnings per share using the if-converted method.
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 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 OctoberApril 2, 2021,2022, due to customary anti-dilution provisions, the conversion rate was 5.2301,5.2362, equivalent to a conversion price of approximately $191.20 $190.98
per share of common stock. The Series D Preferred Stock is excluded fromUpon the denominatoradoption of 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), in the diluted earnings per share calculation on the basis that the Series D Preferred Stock will be settled in cash except to the extent that the conversion value exceeds its liquidation preference. Therefore, before any redemption or conversion,first quarter of 2022, the common shares that would be required to settle the applicable conversion value in excess of the liquidation preferenceSeries D Preferred Stock totaling 4.1 million are included in the denominator of diluted earnings per share in periods in which they are dilutive.using the if-converted method.
In May 2017, the Company issued 7,500,000 Equity Units with a total notional value of $750.0 million ("(“2017 Equity Units"Units”). Each unit had a stated amount of $100 and initially consisted of a three-year forward stock purchase contract (“(“2020 Purchase Contracts”) for the purchase of a variable number of shares of common stock, on May 15, 2020, for a price of $100, and a 10% beneficial ownership interest in one share of 0% Series C Cumulative Perpetual Convertible Preferred Stock, without par, with a liquidation preference of $1,000 per share (“(“Series C Preferred Stock”).
As further discussed in Note A, Significant Accounting Policies - Restatement, the shares associated with the forward stock purchase contracts component of the 2019 Equity Units and 2017 Equity Units have been reflected in diluted earnings per share using the if-converted method pursuant to paragraph 260-10-45-40 of ASC 260, Earnings Per Share.
In May 2020, the Company successfully remarketed the Series C Preferred Stock (the "Remarketed“Remarketed Series C Preferred Stock"Stock”) resulting in cash proceeds of $750.0$750.0 million. Upon completion of the remarketing, the holders of the 2017 Equity Units received 5,463,750 common shares and the Company issued 750,000 shares of Remarketed Series C Preferred Stock, without par, with a liquidation preference of $1,000 per share. Holders of the Remarketed Series C Preferred Stock were 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). Beginning on May 15, 2020, the holders had the option to convert the Remarketed Series C Preferred Stock into common stock. At the election of the Company, upon conversion, the Company may deliver cash, common stock, or a combination thereof. 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 Remarketed Series C Preferred Stock, which was equivalent to a conversion price of approximately $148.47 per share of common stock.
OnIn April 28, 2021, the Company informed holders that it would redeem all outstanding shares of the Remarketed Series C Preferred Stock on June 3, 2021 (the “Redemption Date”) at $1,002.50 per share in cash (the “Redemption Price”), which was equal to 100% of the liquidation preference of a share of Remarketed Series C Preferred Stock, plus accumulated and unpaid dividends to, but excluding, the Redemption Date. If a holder elected to convert its shares of Remarketed Series C Preferred Stock prior to the Redemption Date, the Company elected a combination settlement with a specified cashcash amount of $1,000 per share. In June 2021, the Company redeemed the Remarketed Series C Preferred Stock and settled all conversions, paying $750 million in cash and issuing 1,469,055 common shares. The conversion rate used was 6.7548 (equivalent to a conversion price set at $148.04 per common share). Prior to the Redemption Date, the Remarketed Series C Preferred Stock was excluded from the denominator of the diluted earnings per share calculation on the basis that the Remarketed Series C Preferred Stock would be settled in cash except to the extent that the conversion value exceeded 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 were included in the denominator of diluted earnings per share in periods in which they were dilutive.
Refer to Note J, Equity Arrangements (as Restated), for further discussion of the above transactions.
D. ACCOUNTS AND NOTES RECEIVABLE, NET
| | (Millions of Dollars) | (Millions of Dollars) | October 2, 2021 | | January 2, 2021 | (Millions of Dollars) | April 2, 2022 | | January 1, 2022 |
| Trade accounts receivable | Trade accounts receivable | $ | 1,816.0 | | | $ | 1,345.7 | | Trade accounts receivable | $ | 1,773.1 | | | $ | 1,398.2 | |
| Trade notes receivable | Trade notes receivable | 150.7 | | | 156.1 | | Trade notes receivable | 71.6 | | | 75.3 | |
| Other accounts receivable | Other accounts receivable | 161.4 | | | 151.5 | | Other accounts receivable | 105.1 | | | 104.1 | |
| Gross accounts and notes receivable | Gross accounts and notes receivable | $ | 2,128.1 | | | $ | 1,653.3 | | Gross accounts and notes receivable | $ | 1,949.8 | | | $ | 1,577.6 | |
| Allowance for credit losses | Allowance for credit losses | (139.1) | | | (141.1) | | Allowance for credit losses | (107.8) | | | (95.9) | |
| Accounts and notes receivable, net | Accounts and notes receivable, net | $ | 1,989.0 | | | $ | 1,512.2 | | Accounts and notes receivable, net | $ | 1,842.0 | | | $ | 1,481.7 | |
| Long-term receivables, net | $ | 138.0 | | | $ | 139.9 | | |
Trade receivables are dispersed among a large number of retailers, distributors and industrial accounts in many countries. Adequate reserves have been established to cover expectedanticipated credit losses. Long-term receivables, net, of $138.0 million and $139.9 million at October 2, 2021 and January 2, 2021, respectively, are reported within Other assets in the Condensed Consolidated Balance Sheets. The Company's financing receivables are predominantly related to certain security equipment sales-type leases with commercial businesses. As of October 2, 2021, the current portion of financing receivables within Trade notes receivable approximated $73.1 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 is recorded on the effective interest method.
The changes in the allowance for credit losses for the three and nine months ended OctoberApril 2, 20212022 and September 26, 2020April 3, 2021 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| (Millions of Dollars) | | Balance
July 3, 2021 | | Cumulative Effect Adjustment
(a) | | Charged To Costs and Expenses | | Charged To Other Accounts
(b) | | Deductions
(c) | | Balance
October 2, 2021 |
| Accounts receivable | | $ | 126.4 | | | $ | — | | | $ | 3.4 | | | $ | (2.6) | | | $ | (3.1) | | | $ | 124.1 | |
| Notes receivable | | 14.8 | | | — | | | 0.2 | | | — | | | — | | | 15.0 | |
| Total | | $ | 141.2 | | | $ | — | | | $ | 3.6 | | | $ | (2.6) | | | $ | (3.1) | | | $ | 139.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Millions of Dollars) | | Balance
January 2, 2021 | | Cumulative Effect Adjustment
(a) | | Charged To Costs and Expenses | | Charged To Other Accounts
(b) | | Deductions
(c) | | Balance
October 2, 2021 |
| Accounts receivable | | $ | 126.7 | | | $ | — | | | $ | 7.6 | | | $ | (1.8) | | | $ | (8.4) | | | $ | 124.1 | |
| Notes receivable | | 14.4 | | | — | | | 0.6 | | | — | | | — | | | 15.0 | |
| Total | | $ | 141.1 | | | $ | — | | | $ | 8.2 | | | $ | (1.8) | | | $ | (8.4) | | | $ | 139.1 | |
| | | | | | | | | | | | | | |
| (Millions of Dollars) | | April 2, 2022 | | April 3, 2021 |
| Beginning Balance | | $ | 95.9 | | | 106.2 |
| Charged To Costs and Expenses | | 11.1 | | 2.2 |
| Other, including recoveries and deductions (a) | | 0.8 | | 0.9 |
| Balance end of period | | $ | 107.8 | | | 109.3 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Millions of Dollars) | | Balance
June 27, 2020 | | Cumulative Effect Adjustment (a) | | Charged To Costs and Expenses | | Charged To Other Accounts
(b) | | Deductions (c) | | Balance
September 26, 2020 |
| Accounts receivable | | 122.9 | | | — | | | 7.6 | | | 2.3 | | | (9.4) | | | 123.4 | |
| Notes receivable | | 13.6 | | | — | | | — | | | 0.3 | | | — | | | 13.9 | |
| Total | | $ | 136.5 | | | $ | — | | | $ | 7.6 | | | $ | 2.6 | | | $ | (9.4) | | | $ | 137.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Millions of Dollars) | | Balance
December 28 2019 | | Cumulative Effect Adjustment (a) | | Charged To Costs and Expenses | | Charged To Other Accounts
(b) | | Deductions (c) | | Balance
September 26, 2020 |
| Accounts receivable | | $ | 99.3 | | | $ | 2.9 | | | $ | 37.3 | | | $ | (0.5) | | | $ | (15.6) | | | $ | 123.4 | |
| Notes receivable | | $ | 13.1 | | | $ | 0.9 | | | $ | — | | | $ | 0.2 | | | $ | (0.3) | | | $ | 13.9 | |
| Total | | $ | 112.4 | | | $ | 3.8 | | | $ | 37.3 | | | $ | (0.3) | | | $ | (15.9) | | | $ | 137.3 | |
(a) Represents the cumulative-effect adjustment to opening retained earnings due to the adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), in the first quarter of 2020.
(b) Amounts represent charge-offs less recoveries, the impacts of foreign currency translation, acquisitions and net transfers to/from other accounts.
(c) Amounts represent charge-offs
The Company's payment terms are generally consistent with the industries in which their businesses operate and typically range from 30-90 days globally. 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 recoveries of accounts previously charged-off.than one year. Any significant financing components for contracts greater than one year are included in revenue over time.
The following is a summary ofAt April 2, 2022 and January 1, 2022, the expected timing of receipt of paymentsIndustrial segment operating lease receivable was $18.8 million and $21.2 million, respectively, from customers on an undiscounted basis as of October 2, 2021 relatingleasing equipment to the Company’s lease receivables:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Millions of Dollars) | | Total | | Within 1 Year | | 2 Years | | 3 Years | | 4 Years | | 5 Years | | Thereafter |
| Financing receivables | | $ | 199.2 | | | $ | 73.1 | | | $ | 54.3 | | | $ | 37.7 | | | $ | 21.6 | | | $ | 10.8 | | | $ | 1.7 | |
| Operating leases | | $ | 28.3 | | | $ | 26.5 | | | $ | 0.9 | | | $ | 0.5 | | | $ | 0.3 | | | $ | 0.1 | | | $ | — | |
The following is a summary ofcustomers. Net sales from operating lease revenue were $12.7 million and sales-type lease profit$19.6 million for the three and nine months ended OctoberApril 2, 2022 and April 3, 2021, and September 26, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Third Quarter | | Year-to-Date |
| (Millions of Dollars) | | 2021 | | 2020 | | 2021 | | 2020 |
| Sales-type lease revenue | | $ | 27.8 | | | $ | 28.2 | | | $ | 93.8 | | | $ | 82.0 | |
| Lease interest revenue | | 3.2 | | | 3.3 | | | 9.9 | | | 9.4 | |
| Operating lease revenue | | 21.5 | | | 30.4 | | | 61.6 | | | 101.9 | |
| Total lease revenue | | $ | 52.5 | | | $ | 61.9 | | | $ | 165.3 | | | $ | 193.3 | |
| Sales-type lease profit | | $ | 11.0 | | | $ | 11.2 | | | $ | 37.3 | | | $ | 32.6 | |
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 sheet 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 OctoberApril 2, 2021,2022, 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 OctoberApril 2, 20212022 and January 2, 2021,1, 2022, net receivables of approximately $86.4 million and $100.0 million, and $86.8 million of net receivablesrespectively, were derecognized, respectively. For the three and nine months ended October 2, 2021, proceedsderecognized. Proceeds from transfers of receivables to the Purchaser totaled $114.1$82.3 million and $296.8$63.4 million for the three months ended April 2, 2022 and April 3, 2021, respectively, and payments to the Purchaser totaled $114.1$95.9 million and $283.6 million, respectively. For the three and nine months ended September 26, 2020, proceeds from transfers of receivables to the Purchaser totaled $49.8 million and $127.8 million, respectively, and payments to the Purchaser totaled $31.7 million and $184.1$85.9 million, respectively. The program resulted in a pre-tax loss of $0.5$0.4 million and $1.3$0.4 million for the three and nine months ended OctoberApril 2, 2022 and April 3, 2021, respectively, which included service fees of $0.2 million and $0.6 million, respectively. The program resulted in a pre-tax loss of $0.3 million and $1.3 million for the three and nine months ended September 26, 2020, respectively, which included service fees of $0.1 million and $0.4 million, respectively.both periods. All cash flows under the program are reported as a component of changes in working capitalaccounts receivable within operating activities in the Condensed Consolidated Statements of Cash Flows since all the cash from the Purchaser is received upon the initial sale of the receivable.
As of OctoberApril 2, 20212022 and January 2, 2021,1, 2022, the Company's deferred revenue totaled $195.5$118.8 million and $207.6$117.1 million, respectively, of which $95.8$37.3 million and $108.7$35.0 million, respectively, was classified as current within Accrued expenses in the Condensed Consolidated Balance Sheets.current. Revenue recognized for the ninethree months ended OctoberApril 2, 20212022 and September 26, 2020April 3, 2021 that was previously deferred as of January 1, 2022 and January 2, 2021 and December 28, 2019 totaled $91.2$5.9 million and $90.8$6.8 million, respectively.
As of October 2, 2021, approximately $1.133 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 five years. This amount excludes any of the Company's contracts with an original expected duration of one year or less.
E. INVENTORIES
The components of Inventories, net at OctoberApril 2, 20212022 and January 2, 20211, 2022 are as follows:
| | (Millions of Dollars) | (Millions of Dollars) | October 2, 2021 | | January 2, 2021 | (Millions of Dollars) | April 2, 2022 | | January 1, 2022 |
| Finished products | Finished products | $ | 2,777.4 | | | $ | 1,922.5 | | Finished products | $ | 4,022.8 | | | $ | 3,486.2 | |
| Work in process | Work in process | 350.3 | | | 222.3 | | Work in process | 428.9 | | | 394.8 | |
| Raw materials | Raw materials | 1,006.7 | | | 592.6 | | Raw materials | 1,816.0 | | | 1,538.9 | |
| Total | Total | $ | 4,134.4 | | | $ | 2,737.4 | | Total | $ | 6,267.7 | | | $ | 5,419.9 | |
F. ACQUISITIONS AND INVESTMENTS
2021 ACQUISITIONS
MTD
F. ACQUISITIONS AND INVESTMENTS (as Restated)
PENDING ACQUISITIONS
On August 16,December 1, 2021, the Company agreed to acquireacquired the remaining 80 percent ownership stake in MTD, a privately held global manufacturer of outdoor power equipment, for $1.6$1.5 billion, in cash. net of cash acquired. The Company previously acquired a 20 percent interest in MTD in January 2019 for $234 million. The Company’s pre-existing 20 percent equity investment in MTD was remeasured at fair value of $295.1 million in cash. With over $2.5 billionas of revenue in the last twelve months, transaction date based on the purchase price for the remaining 80 percent ownership, which was calculated using an EBITDA-based formula. As a result, the Company recorded a $68.0 million gain on investment during the fourth quarter of 2021.
MTD designs, manufactures and distributes lawn tractors, zero turn ride on mowers, walk behind mowers, snow blowers, residential robotic mowers, handheld outdoor power equipment and garden tools for both residential and professional consumers under well-known brands like Cub Cadet® and Troy-Bilt®. The Company expects theThis combination of businesses will create a global leader in the $25 billion and growing outdoor category, with strong brands and growth opportunities. Upon closing of the remaining 80 percent ownership stake, the acquisition will be accounted for as a business combination using the acquisition method of accounting and consolidated into the Company's Tools & Storage segment. The transaction is subject to customary closing conditions, including regulatory approvals, and is expected to close in the fourth quarter of 2021.
On September 12, 2021, the Company reached an agreement to acquire Excel Industries ("Excel") for $375 million in cash. Excel is a leading designer and manufacturer of premium commercial and residential turf-care equipment under the brands of Hustler Turf Equipment and BigDog Mower Co. The Company believes this is a strategically important bolt-on acquisition as it builds an outdoor products leader. The acquisition will be accounted for as a business combination using the acquisition method of accounting and consolidated into the Company's Tools & Storage segment. The transaction is subject to customary closing conditions, including regulatory approvals, and is expected to close in the fourth quarter of 2021.
2020 ACQUISITIONS
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 consisted 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 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 was remote and released the remaining $55.3 million contingent consideration liability to the Consolidated Statements of Operations in Other, net. As of October 2, 2021, the Company continues to consider the achievement of certain production levels based on Boeing’s future forecast as remote.
CAM is an industry-leading manufacturer of specialty fasteners and components for the aerospace and defense markets. The acquisition further diversified the Company's presence in the industrial markets and expanded its portfolio of specialty fasteners in the aerospace and defense markets. The results of CAMMTD subsequent to the date of acquisition are included in the Company's IndustrialTools & Outdoor segment.
The CAMMTD acquisition wasis 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 | $ | 35.8111.6 | |
| Accounts receivable, net | 48.3276.4 | |
| Inventories, net | 124.3900.7 | |
| Prepaid expenses and other assets | 2.697.7 | |
| Property, plant and equipment | 127.9222.8 | |
| Trade names | 25.0390.0 | |
| Customer relationships | 565.0450.0 | |
| Other assets | 37.8 | |
| Accounts payable | (25.9)(394.4) | |
| Accrued expenses | (26.9)(258.7) | |
| Deferred revenue | (0.9) | |
| Long-term debt | (110.9) | |
| Deferred taxes | (16.3)(195.6) | |
| Other liabilities | (0.3)(68.4) | |
| Total identifiable net assets | $ | 859.51,458.1 | |
| Goodwill | 632.3 | |
Contingent consideration | (155.3)478.6 | |
Total consideration paid | $ | 1,336.51,936.7 | |
The weighted-average useful life assigned to the definite-lived intangible assets was 20is 15 years.
Goodwill wasis 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$0.6 million of goodwill will be deductible for tax purposes.
The acquisition accounting for CAMMTD is complete. Thepreliminary in certain respects. During the measurement period, the Company expects to record adjustments recorded in 2021 did not have a material impactrelating to the finalization of intangible assets, inventory and property, plant and equipment valuations, working capital accounts, and opening balance sheet contingencies, amongst others.
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.
Excel
On November 12, 2021, the Company acquired Excel Industries ("Excel") for $373.6 million, net of cash acquired and an estimated working capital adjustment. Excel is a leading designer and manufacturer of premium commercial and residential turf-care equipment under the brands of Hustler Turf Equipment and BigDog Mower Co. The results of Excel subsequent to the date of acquisition are included in the Company's consolidated financial statements.Tools & Outdoor segment.
The Company believes this is a strategically important bolt-on acquisition as it builds an outdoor products leader. The Excel acquisition is being accounted for as a business combination, 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 value of identifiable net assets acquired, which includes $37.2 million of working capital, $48.7 million of deferred tax liabilities, and $203.5 million of intangible assets, is $200.4 million. The related goodwill is $173.2 million. The amount allocated to intangible assets includes $158.0 million for customer relationships. The weighted-average useful life assigned to the intangible assets is 14 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 $0.6 million of goodwill will be deductible for tax purposes.
The acquisition accounting for Excel is preliminary in certain respects. During the measurement period, the Company expects to record adjustments relating to the finalization of intangible and inventory valuations, working capital accounts, and opening balance sheet contingencies, amongst others.
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 Acquisition2021 Acquisitions
During 2020,2021, the Company completed 1 smaller acquisitiontwo other acquisitions for $27.9a total purchase price of $207.7 million, net of cash acquired. The estimated acquisition date value of the identifiable net assets acquired is $13.3$51.6 million which includes $14.8 million of customer relationships.and working capital is $36.7 million. The related goodwill is $14.6$156.1 million. The useful life assigned to the customer relationships is 8 years. The results of this acquisitionthese acquisitions subsequent to the datedates of acquisition are included in the Company's SecurityTools & Outdoor segment.
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 $44.7 million of goodwill will be deductible for tax purposes.
The acquisition accounting for this acquisitionthese acquisitions is substantially complete withpreliminary in certain respects. During the exception of certainmeasurement period, the Company expects to record adjustments relating to working capital accounts, various opening balance sheet contingencies and various income tax matters, and will be completed within the measurement period. These adjustments are not expected to have a material impact on the Company’s
consolidated financial statements.amongst others.
ACTUAL AND PRO-FORMA IMPACT OF THE ACQUISITIONS
Actual Impact from AcquisitionsAcquisition
The Company did not complete any material acquisitions in the first nine monthsquarter of 2021.2022. As such, there was an immaterialno impact from new acquisitions on the Company's Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended OctoberApril 2, 2021.2022.
Pro-forma Impact from Acquisitions
The following table presents supplemental pro-forma information as if the 20202021 acquisitions had occurred on December 30, 2018.29, 2019. 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 December 30, 2018.the aforementioned date. In addition, the pro-forma consolidated results do not purport to project the future results of the Company.
| | | Third Quarter | | Year-to-Date | |
| | | 2020 | | 2020 | | | | | | | | | | | | | |
| (Millions of Dollars, except per share amounts) | (Millions of Dollars, except per share amounts) | | | (As Restated) | | (As Restated) | (Millions of Dollars, except per share amounts) | | | First Quarter 2022 | | First Quarter 2021 |
| Net sales | Net sales | | | $ | 3,854.2 | | | $ | 10,185.0 | | Net sales | | | $ | 4,448.0 | | | $ | 4,594.8 | |
| Net earnings attributable to common shareowners - Diluted | | | $ | 392.6 | | | $ | 792.5 | | |
| Diluted earnings per share | | | $ | 2.41 | | | $ | 4.89 | | |
| Net earnings from continuing operations attributable to common shareowners - Diluted | | Net earnings from continuing operations attributable to common shareowners - Diluted | | | $ | 242.9 | | | $ | 475.8 | |
| Diluted earnings per share of common stock - Continuing operations | | Diluted earnings per share of common stock - Continuing operations | | | $ | 1.47 | | | $ | 2.90 | |
20202022 Pro-forma Results
The 2022 pro-forma results were calculated by combining the actual results of Stanley Black & Decker for the three months ended April 2, 2022, inclusive of the results of MTD and Excel, with the following adjustment:
•Because the 2021 acquisitions were assumed to occur on December 29, 2019, there were no acquisition-related costs or inventory step-up charges factored into the 2022 pro-forma period, as such expenses would have occurred in the first year following the assumed acquisition date.
2021 Pro-forma Results
The 20202021 pro-forma results were calculated by combining the results of Stanley Black & Decker with the stand-alone results of the 20202021 acquisitions for their respective pre-acquisition period. Accordingly, the following adjustments wereadjustment was 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, 2019January 2, 2021 to the acquisition date of CAM and from December 29, 2019 to September 26, 2020 for the other 2020 acquisition.
•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 period, as such expenses would have occurred in the first year following the assumed acquisition date.April 3, 2021.
INVESTMENTS
On January 2, 2019, the Company acquired a 20 percent interest in MTD for $234 million in cash. The Company is applying the equity method of accounting to the 20% investment in MTD. During 20212022 and 2020,2021, 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 Condensed 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.
G. GOODWILL
Changes in the carrying amount of goodwill by segment are as follows:
| | (Millions of Dollars) | (Millions of Dollars) | Tools & Storage | | Industrial | | Security | | Total | (Millions of Dollars) | Tools & Outdoor | | Industrial | | Total |
| Balance January 2, 2021 | $ | 5,247.7 | | | $ | 2,646.5 | | | $ | 2,143.9 | | | $ | 10,038.1 | | |
| Balance January 1, 2022 | | Balance January 1, 2022 | $ | 5,973.7 | | | $ | 2,617.0 | | | $ | 8,590.7 | |
| Acquisitions | Acquisitions | 4.4 | | | (0.5) | | | 5.2 | | | 9.1 | | Acquisitions | 40.1 | | | — | | | 40.1 | |
| Foreign currency translation | Foreign currency translation | (41.2) | | | (19.5) | | | (42.4) | | | (103.1) | | Foreign currency translation | (25.8) | | | (8.0) | | | (33.8) | |
| Balance October 2, 2021 | $ | 5,210.9 | | | $ | 2,626.5 | | | $ | 2,106.7 | | | $ | 9,944.1 | | |
| Balance April 2, 2022 | | Balance April 2, 2022 | $ | 5,988.0 | | | $ | 2,609.0 | | | $ | 8,597.0 | |
H. LONG-TERM DEBT AND FINANCING ARRANGEMENTS
Long-term debt and financing arrangements at OctoberApril 2, 20212022 and January 2, 20211, 2022 are as follows:
| | | October 2, 2021 | | January 2, 2021 | | April 2, 2022 | | January 1, 2022 |
| (Millions of Dollars) | (Millions of Dollars) | Interest Rate | | Original Notional | | Unamortized Discount | | Unamortized Gain/(Loss) Terminated Swaps 1 | | Purchase Accounting FV Adjustment | | Deferred Financing Fees | | Carrying Value | | Carrying Value | (Millions of Dollars) | Interest Rate | Original Notional | Unamortized Discount | Unamortized Gain/(Loss) Terminated Swaps 1 | Purchase Accounting FV Adjustment | Deferred Financing Fees | Carrying Value | | Carrying Value |
| Notes payable due 2025 | | Notes payable due 2025 | 2.30% | $ | 500.0 | | $ | (0.7) | | $ | — | | $ | — | | $ | (1.2) | | $ | 498.1 | | | $ | — | |
| Notes payable due 2026 | | Notes payable due 2026 | 3.40% | 500.0 | | (0.4) | | — | | — | | (1.7) | | 497.9 | | | 497.8 | |
| Notes payable due 2026 | | Notes payable due 2026 | 3.42% | 25.0 | | — | | — | | 1.6 | | — | | 26.6 | | | 24.9 | |
| Notes payable due 2026 | Notes payable due 2026 | 3.40% | | $ | 500.0 | | | $ | (0.5) | | | $ | — | | | $ | — | | | $ | (1.9) | | | $ | 497.6 | | | $ | 497.2 | | Notes payable due 2026 | 1.84% | 28.5 | | — | | — | | 0.8 | | (0.1) | | 29.2 | | | 28.4 | |
| Notes payable due 2028 | Notes payable due 2028 | 7.05% | | 150.0 | | | — | | | 7.4 | | | 7.1 | | | — | | | 164.5 | | | 166.1 | | Notes payable due 2028 | 7.05% | 150.0 | | — | | 6.8 | | 6.6 | | — | | 163.4 | | | 163.9 | |
| Notes payable due 2028 | Notes payable due 2028 | 4.25% | | 500.0 | | | (0.3) | | | — | | | — | | | (3.1) | | | 496.6 | | | 496.2 | | Notes payable due 2028 | 4.25% | 500.0 | | (0.3) | | — | | — | | (2.9) | | 496.8 | | | 496.8 | |
| Notes payable due 2028 | | Notes payable due 2028 | 3.52% | 50.0 | | 0 | 4.3 | | (0.2) | | 54.1 | | | 49.9 | |
| Notes payable due 2030 | Notes payable due 2030 | 2.30% | | 750.0 | | | (2.1) | | | — | | | — | | | (4.4) | | | 743.5 | | | 742.9 | | Notes payable due 2030 | 2.30% | 750.0 | | (2.0) | | — | | — | | (4.1) | | 743.9 | | | 743.7 | |
| Notes payable due 2032 | | Notes payable due 2032 | 3.00% | 500.0 | | (0.9) | | — | | — | | (2.3) | | 496.8 | | | — | |
| Notes payable due 2040 | Notes payable due 2040 | 5.20% | | 400.0 | | | (0.2) | | | (27.9) | | | — | | | (2.6) | | | 369.3 | | | 368.1 | | Notes payable due 2040 | 5.20% | 400.0 | | (0.2) | | (27.2) | | — | | (2.5) | | 370.1 | | | 369.7 | |
| Notes payable due 2048 | Notes payable due 2048 | 4.85% | | 500.0 | | | (0.5) | | | — | | | — | | | (5.0) | | | 494.5 | | | 494.3 | | Notes payable due 2048 | 4.85% | 500.0 | | (0.5) | | — | | — | | (4.9) | | 494.6 | | | 494.6 | |
| Notes payable due 2050 | Notes payable due 2050 | 2.75% | | 750.0 | | | (1.9) | | | — | | | — | | | (8.1) | | | 740.0 | | | 739.9 | | Notes payable due 2050 | 2.75% | 750.0 | | (1.9) | | — | | — | | (8.0) | | 740.1 | | | 740.0 | |
| Notes payable due 2060 (junior subordinated) | Notes payable due 2060 (junior subordinated) | 4.00% | | 750.0 | | | — | | | — | | | — | | | (9.1) | | | 740.9 | | | 740.7 | | Notes payable due 2060 (junior subordinated) | 4.00% | 750.0 | | — | | — | | — | | (9.0) | | 741.0 | | | 740.9 | |
Long-term debt2 | | | $ | 4,300.0 | | | $ | (5.5) | | | $ | (20.5) | | | $ | 7.1 | | | $ | (34.2) | | | $ | 4,246.9 | | | $ | 4,245.4 | | |
| Other, payable in varying amounts 2022 through 2027 | | Other, payable in varying amounts 2022 through 2027 | 3.47%-4.31% | 4.3 | | — | | — | | — | | (0.2) | | 4.1 | | | 4.3 | |
| Total Long-term debt, including current maturities | | Total Long-term debt, including current maturities | | $ | 5,407.8 | | $ | (6.9) | | $ | (20.4) | | $ | 13.3 | | $ | (37.1) | | $ | 5,356.7 | | | $ | 4,354.9 | |
| Less: Current maturities of long-term debt | | Less: Current maturities of long-term debt | | (1.2) | | | (1.3) | |
| Long-term debt | | Long-term debt | | $ | 5,355.5 | | | $ | 4,353.6 | |
1Unamortized gain/(loss) associated with interest rate swaps are more fully discussed in Note I, Financial Instruments.
2
There are no current maturities
In February 2022, the Company issued $500.0 million of long-termsenior unsecured term notes maturing February 24, 2025 ("2025 Term Notes") and $500.0 million of senior unsecured term notes maturing May 15, 2032 (“2032 Term Notes”). The 2025 Term Notes will accrue interest at a fixed rate of 2.3% per annum and the 2032 Term Notes at a fixed rate of 3.0% per annum, with interest payable semi-annually in arrears, and rank equally in right of payment with all of the Company's existing and future unsecured unsubordinated debt. The Company received total net proceeds from this offering of approximately $994.8 million, net of approximately $5.2 million of underwriting expenses and other fees associated with the transaction. The Company used the net proceeds from the offering for general corporate purposes, including repayment of indebtedness under the commercial paper facilities.
In October 2021, theThe Company increased itshas a $3.5 billion commercial paper program from $3.0 billion to $3.5 billion, which includes Euro denominated borrowings in addition to U.S. Dollars. As of OctoberApril 2, 2021,2022 and January 1, 2022, the Company had $147.0 millioncommercial paper borrowings outstanding of borrowings outstanding. As of January 2, 2021, there were no borrowings outstanding.$2.8 billion and $2.2 billion, respectively.
In September 2021, theThe Company amended and restated its existing five-year $2.0 billion committed credit facility with the concurrent execution ofhas a new five-year $2.5 billion committed credit facility (the “5-Year Credit Agreement”). Borrowings under the 5-Year Credit Agreement may be made in U.S. Dollars, Euros or Pounds Sterling. A sub-limit amount of $814.3 million is designated for swing line advances which may be drawn in Euros pursuant to the terms of the 5-Year Credit Agreement. Borrowings bear interest at a floating rate plus an applicable margin dependent upon the denomination of the borrowing and specific terms of the 5-Year Credit Agreement. The Company must repay all advances under the 5-Year Credit Agreement by the earlier of September 8, 2026 or upon termination. The 5-Year Credit Agreement is designated to be a liquidity back-stop for the Company's $3.5 billion U.S. Dollar and Euro commercial paper program. As of OctoberApril 2, 2021,2022, and January 2, 2021,1, 2022, the Company had not drawn on its five-year committed credit facility.
In September 2021, theThe Company terminated its 364-Day $1.0 billion credit facility and concurrently executedhas a new 364-Day $1.0 billion committed credit facility (the "364-Day Credit Agreement"). Borrowings under the 364-Day Credit Agreement may be made in U.S. Dollars or Euros and bear interest at a floating rate plus an applicable margin dependent upon the denomination of the borrowing and pursuant to the terms of the 364-Day Credit Agreement. The Company must repay all advances under the 364-Day Credit Agreement by the earlier of September 7, 2022 or upon termination. The
Company may, however, convert all advances outstanding upon termination into a term loan that shall be repaid in full no later than the first anniversary of the termination date provided that the Company, among other things, pays a fee to the administrative agent for the account of each lender. The 364-Day Credit Agreement serves as part of the liquidity back-stop for the Company’s $3.5 billion U.S. Dollar and Euro commercial paper program. As of April 2, 2022, and January 1, 2022, the Company had not drawn on its 364-Day Credit Agreement.
The Company has a second 364-Day $1.0 billion committed credit facility (the "Second 364-Day Credit Agreement"). Borrowings under the Second 364-Day Credit Agreement may be made in U.S. Dollars and Euros and bear interest at a base rate plus an applicable margin determined at the time of borrowing. The Company must repay all advances under the Second 364-Day Credit Agreement by the earlier of November 15, 2022 or upon termination. The Company may, however, convert all advances outstanding upon termination into a term loan that shall be repaid in full no later than the first anniversary of the termination date provided that the Company, among other things, pays a fee to the administrativeadministrative agent for the account of each lender. The 364-Day Credit Agreement serves as part of the liquidity back-stop for the Company’s $3.5 billion U.S. Dollar and Euro commercial paper program. As of OctoberApril 2, 2021,2022 and January 2, 2021,1, 2022, the Company had not drawn on its Second 364-Day committed credit facilityCredit Agreement.
In January 2022, the Company executed a third 364-Day $2.5 billion committed credit facility (the "Third 364-Day Credit Agreement"). Borrowings under the Third 364-Day Credit Agreement shall be made in U.S. Dollars and bear interest at a base rate plus an applicable margin determined at the time of the borrowing. The Company must repay all advances under the Third 364-Day Credit Agreement by the earlier of January 25, 2023 or upon termination. The Company may, however, convert all advances outstanding upon termination into a term loan that shall be repaid in full no later than the first anniversary of the termination date provided that the Company, among other things, pays a fee to the administrative agent for the account of each lender. As of April 2, 2022, the Company had $2.3 billion outstanding on its Third 364-Day Credit Agreement.
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, Derivatives and Hedging, 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 Condensed Consolidated Balance Sheets at OctoberApril 2, 20212022 and January 2, 20211, 2022 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Millions of Dollars) | Balance Sheet
Classification | | October 2, 2021 | | January 2, 2021 | | Balance Sheet
Classification | | October 2, 2021 | | January 2, 2021 |
| Derivatives designated as hedging instruments: | | | | | | | | | | | |
| Interest Rate Contracts Cash Flow | Other current assets | | $ | — | | | $ | — | | | Accrued expenses | | $ | 60.6 | | | $ | 90.9 | |
| Foreign Exchange Contracts Cash Flow | Other current assets | | 17.8 | | | — | | | Accrued expenses | | 0.9 | | | 23.7 | |
| LT other assets | | 0.4 | | | — | | | LT other liabilities | | — | | | — | |
| Net Investment Hedge | Other current assets | | 2.3 | | | 3.5 | | | Accrued expenses | | 0.5 | | | 55.1 | |
| LT other assets | | 0.4 | | | — | | | LT other liabilities | | — | | | 5.7 | |
| Total designated as hedging | | | $ | 20.9 | | | $ | 3.5 | | | | | $ | 62.0 | | | $ | 175.4 | |
| Derivatives not designated as hedging instruments: | | | | | | | | | | | |
| Foreign Exchange Contracts | Other current assets | | $ | 8.7 | | | $ | 10.5 | | | Accrued expenses | | $ | 7.2 | | | $ | 15.6 | |
| Total | | | $ | 29.6 | | | $ | 14.0 | | | | | $ | 69.2 | | | $ | 191.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Millions of Dollars) | Balance Sheet
Classification | | April 2, 2022 | | January 1, 2022 | | Balance Sheet
Classification | | April 2, 2022 | | January 1, 2022 |
| Derivatives designated as hedging instruments: | | | | | | | | | | | |
| Interest Rate Contracts Cash Flow | Other current assets | | $ | — | | | $ | 1.2 | | | Accrued expenses | | $ | — | | | $ | 1.9 | |
| Foreign Exchange Contracts Cash Flow | Other current assets | | 17.1 | | | 18.3 | | | Accrued expenses | | 1.0 | | | 0.8 | |
| Net Investment Hedge | Other current assets | | 2.9 | | | 2.5 | | | Accrued expenses | | — | | | — | |
| LT other assets | | — | | | 3.3 | | | LT other liabilities | | — | | | — | |
| Total designated as hedging | | | $ | 20.0 | | | $ | 25.3 | | | | | $ | 1.0 | | | $ | 2.7 | |
| Derivatives not designated as hedging instruments: | | | | | | | | | | | |
| Foreign Exchange Contracts | Other current assets | | $ | 9.9 | | | $ | 7.8 | | | Accrued expenses | | $ | 10.8 | | | $ | 6.0 | |
| Total | | | $ | 29.9 | | | $ | 33.1 | | | | | $ | 11.8 | | | $ | 8.7 | |
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 October
April 2, 20212022 and January 2, 2021,1, 2022, there were no assets that had been posted as collateral related to the above mentioned financial instruments.
During the ninethree months ended OctoberApril 2, 20212022 and September 26, 2020,April 3, 2021, cash flows related to derivatives, including those that are separately discussed below, resulted in net cash paidreceived of $99.4$36.6 million and net cash receivedpaid of $33.7$71.7 million, respectively.
CASH FLOW HEDGES
There were after-tax mark-to-market losses of $46.6$30.8 million and $103.0$49.8 million as of OctoberApril 2, 20212022 and January 2, 2021,1, 2022, respectively, reported for cash flow hedge effectiveness in Accumulated other comprehensive income (loss).loss. An after-tax gain of $5.3$8.6 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 income (loss)loss during the periods in which the underlying hedged transactions affected earnings for the three and nine months ended OctoberApril 2, 20212022 and September 26, 2020:April 3, 2021:
| | | Third Quarter 2021 | | Year-to-Date 2022 |
| (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 | |
| (Millions of Dollars) | | (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 | Interest Rate Contracts | | $ | 2.9 | | | Interest expense | | $ | (0.8) | | | $ | — | | Interest Rate Contracts | | $ | 23.4 | | | Interest expense | | $ | (1.2) | | | $ | — | |
| Foreign Exchange Contracts | Foreign Exchange Contracts | | $ | 11.0 | | | Cost of sales | | $ | (9.9) | | | $ | — | | Foreign Exchange Contracts | | $ | 6.5 | | | Cost of sales | | $ | 6.1 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year-to-Date 2021 |
| (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 | | $ | 52.4 | | | Interest expense | | $ | (1.1) | | | $ | — | |
| Foreign Exchange Contracts | | $ | 4.3 | | | Cost of sales | | $ | (3.8) | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year-to-Date 2021 |
| (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 | | $ | 30.3 | | | Interest expense | | $ | (2.9) | | | $ | — | |
| Foreign Exchange Contracts | | $ | 19.2 | | | Cost of sales | | $ | (21.3) | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Third Quarter 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 | | $ | 1.9 | | | Interest expense | | $ | (4.3) | | | $ | — | |
| Foreign Exchange Contracts | | $ | (5.3) | | | Cost of sales | | $ | 5.9 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year-to-Date 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 | | $ | (92.1) | | | Interest expense | | $ | (13.5) | | | $ | — | |
| Foreign Exchange Contracts | | $ | 10.1 | | | Cost of sales | | $ | 12.5 | | | $ | — | |
A summary of the pre-tax effect of cash flow hedge accounting on the Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended OctoberApril 2, 20212022 and September 26, 2020April 3, 2021 is as follows:
| | | Third Quarter 2021 | | Year-to-Date 2021 | | | Year-to-Date 2022 |
| (Millions of Dollars) | (Millions of Dollars) | | Cost of Sales | | Interest Expense | | Cost of Sales | | Interest Expense | (Millions of Dollars) | | | Cost of Sales | | Interest Expense |
| Total amount in the Consolidated Statements of Operations and Comprehensive Income in which the effects of the cash flow hedges are recorded | | $ | 2,871.7 | | | $ | 45.8 | | | $ | 8,261.8 | | | $ | 139.8 | | |
| Total amount in the Consolidated Statements of Operations and Comprehensive Income (Loss) in which the effects of the cash flow hedges are recorded | | Total amount in the Consolidated Statements of Operations and Comprehensive Income (Loss) in which the effects of the cash flow hedges are recorded | | | $ | 3,142.6 | | | $ | 54.7 | |
| Gain (loss) on cash flow hedging relationships: | Gain (loss) on cash flow hedging relationships: | | Gain (loss) on cash flow hedging relationships: | | | |
| Foreign Exchange Contracts: | Foreign Exchange Contracts: | | Foreign Exchange Contracts: | | | |
| Hedged Items | Hedged Items | | $ | 9.9 | | | $ | — | | | $ | 21.3 | | | $ | — | | Hedged Items | | | $ | (6.1) | | | $ | — | |
| Gain (loss) reclassified from OCI into Income | Gain (loss) reclassified from OCI into Income | | $ | (9.9) | | | $ | — | | | $ | (21.3) | | | $ | — | | Gain (loss) reclassified from OCI into Income | | | $ | 6.1 | | | $ | — | |
| Interest Rate Swap Agreements: | Interest Rate Swap Agreements: | | Interest Rate Swap Agreements: | | | |
Gain (loss) reclassified from OCI into Income 1 | Gain (loss) reclassified from OCI into Income 1 | | $ | — | | | $ | (0.8) | | | $ | — | | | $ | (2.9) | | Gain (loss) reclassified from OCI into Income 1 | | | $ | — | | | $ | (1.2) | |
| | | Third Quarter 2020 | | Year-to-Date 2020 | | | Year-to-Date 2021 |
| (Millions of Dollars) | (Millions of Dollars) | | Cost of Sales | | Interest Expense | | Cost of Sales | | Interest Expense | (Millions of Dollars) | | | Cost of Sales | | Interest Expense |
| Total amount in the Consolidated Statements of Operations and Comprehensive Income in which the effects of the cash flow hedges are recorded | | $ | 2,473.9 | | | $ | 52.7 | | | $ | 6,714.9 | | | $ | 169.7 | | |
| Total amount in the Consolidated Statements of Operations and Comprehensive Income (Loss) in which the effects of the cash flow hedges are recorded | | Total amount in the Consolidated Statements of Operations and Comprehensive Income (Loss) in which the effects of the cash flow hedges are recorded | | | $ | 2,333.0 | | | $ | 47.5 | |
| Gain (loss) on cash flow hedging relationships: | Gain (loss) on cash flow hedging relationships: | | Gain (loss) on cash flow hedging relationships: | | | |
| Foreign Exchange Contracts: | Foreign Exchange Contracts: | | Foreign Exchange Contracts: | | | |
| Hedged Items | Hedged Items | | $ | (5.9) | | | $ | — | | | $ | (12.5) | | | $ | — | | Hedged Items | | | $ | 3.8 | | | $ | — | |
| Gain (loss) reclassified from OCI into Income | Gain (loss) reclassified from OCI into Income | | $ | 5.9 | | | $ | — | | | $ | 12.5 | | | $ | — | | Gain (loss) reclassified from OCI into Income | | | $ | (3.8) | | | $ | — | |
| Interest Rate Swap Agreements: | Interest Rate Swap Agreements: | | Interest Rate Swap Agreements: | | | |
Gain (loss) reclassified from OCI into Income 1 | Gain (loss) reclassified from OCI into Income 1 | | $ | — | | | $ | (4.3) | | | $ | — | | | $ | (13.5) | | Gain (loss) reclassified from OCI into Income 1 | | | $ | — | | | $ | (1.1) | |
1 Inclusive of the gain/loss amortization on terminated derivative financial instruments.
An after-tax gain of $2.5 million and loss of $5.3$2.9 million and after-tax gain of $1.1 million waswere reclassified from Accumulated other comprehensive Income (Loss)loss into earnings (inclusive of the gain/loss amortization on terminated derivative instruments) for the three months ended OctoberApril 2, 2022 and April 3, 2021, and September 26, 2020, respectively. An after-tax loss of $13.5 million and $0.6 million was reclassified from Accumulated other comprehensive Income (Loss) into earnings (inclusive of the gain/loss amortization on terminated derivative instruments) for the nine months ended October 2, 2021 and September 26, 2020, respectively, 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-debt proportions.
During the first quarter of 2020,2021, the Company entered into forward starting interest rate swaps totaling $1.0 billion$400.0 million to offset the expected variability on future interest rate payments associated with debt instruments expected to be issued in the future. TheseDuring 2022, these swaps were terminated during the first quarter of 2020 resulting in a lossgain of $20.5$22.7 million which wasis recorded in Accumulated other comprehensive income (loss)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 financing activities in the Condensed Consolidated Statements of Cash Flows. As
The Company has no outstanding forward starting swaps designated as cash flow hedges as of OctoberApril 2, 20212022, and January 2, 2021, the Company had $400.0 million outstanding in forward starting swaps designated as cash flow hedges.hedges as of January 1, 2022.
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 income (loss)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 OctoberApril 2, 20212022 and January 2, 2021,1, 2022, the notional value of forward currency contracts outstanding was $522.5$434.3 million and $595.8$512.1 million, respectively, maturing on various dates through 2022.
In October 2021, the Company entered into forward currency contracts with notional values totaling $165.0 million maturing on various dates in 2022.
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. There were no outstanding purchased option contracts as of October 2, 2021 or January 2, 2021.
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 the fair value of the swaps and the offsetting changes in fair value related to the underlying notes were recognized in earnings. As of OctoberApril 2, 20212022 and January 2, 2021,1, 2022, the Company did not have any active fair value interest rate swaps.
A summary of the pre-tax effect of fair value hedge accounting on the Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended OctoberApril 2, 20212022 and September 26, 2020April 3, 2021 is as follows:
| (Millions of Dollars) | (Millions of Dollars) | | Third Quarter 2021
Interest Expense | | Year-to-Date 2021
Interest Expense | (Millions of Dollars) | | Year-to-Date 2022
Interest Expense | | Year-to-Date 2021
Interest Expense |
| Total amount in the Consolidated Statements of Operations and Comprehensive Income in which the effects of the fair value hedges are recorded | | $ | 45.8 | | | $ | 139.8 | | |
| Total amount in the Consolidated Statements of Operations and Comprehensive Income (Loss) in which the effects of the fair value hedges are recorded | | Total amount in the Consolidated Statements of Operations and Comprehensive Income (Loss) in which the effects of the fair value hedges are recorded | | $ | 54.7 | | | $ | 47.5 | |
| Amortization of gain on terminated swaps | Amortization of gain on terminated swaps | | $ | (0.1) | | | $ | (0.3) | | Amortization of gain on terminated swaps | | $ | (0.1) | | | $ | (0.1) | |
| | | | | | | | | | | |
| (Millions of Dollars) | Third Quarter 2020
Interest Expense | | Year-to-Date 2020
Interest Expense |
| Total amount in the Consolidated Statements of Operations and Comprehensive Income in which the effects of the fair value hedges are recorded | $ | 52.7 | | | $ | 169.7 | |
| Amortization of gain on terminated swaps | $ | (0.8) | | | $ | (2.4) | |
A summary of the amounts recorded in the Condensed Consolidated Balance Sheets related to cumulative basis adjustments for fair value hedges as of OctoberApril 2, 20212022 and January 2, 20211, 2022 is as follows:
| | | October 2, 2021 | | April 2, 2022 |
(Millions of Dollars) | (Millions of Dollars) | | Carrying Amount of Hedged Liability (1) | | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liability | (Millions of Dollars) | | Carrying Amount of Hedged Liability (1) | | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liability |
| | Current Maturities of Long-Term Debt | | Current Maturities of Long-Term Debt | | $ | — | | | Terminated Swaps | | $ | — | |
| Long-Term Debt | Long-Term Debt | | $ | 4,246.9 | | | Terminated Swaps | | $ | (20.5) | | Long-Term Debt | | $ | 533.5 | | | Terminated Swaps | | $ | (20.4) | |
| | | January 2, 2021 | | January 1, 2022 |
(Millions of Dollars) | (Millions of Dollars) | | Carrying Amount of Hedged Liability (1) | | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liability | (Millions of Dollars) | | Carrying Amount of Hedged Liability (1) | | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liability |
| | Current Maturities of Long-Term Debt | | Current Maturities of Long-Term Debt | | $ | — | | | Terminated Swaps | | $ | — | |
| Long-Term Debt | Long-Term Debt | | $ | 4,245.4 | | | Terminated Swaps | | $ | (20.8) | | Long-Term Debt | | $ | 533.6 | | | Terminated Swaps | | $ | (20.4) | |
(1) Represents hedged items no longer designated in qualifying fair value hedging relationships.
NET INVESTMENT HEDGES
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 income (loss)loss were gains of $75.7$71.7 million and $72.8$71.8 million at OctoberApril 2, 20212022 and January 2, 2021,1, 2022, respectively.
As of OctoberApril 2, 2021,2022 and January 1, 2022, the Company had a foreign exchange contract with a notional value of $75.0 million maturing in 20212022 hedging a portion of its Taiwan dollar denominated net investments andinvestments. As of January 1, 2022, the Company had a cross currency swap with a notional value of $100.0 million maturing in 2023that was hedging a portion of its Japanese yen denominated net investments. Asinvestments and was scheduled to mature in 2023. During 2022, this swap was terminated resulting in a gain 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. The Company had no Euro denominated commercial paper designated as a net investment hedge as of October 2, 2021 and January 2, 2021.$4.0 million.
Maturing foreign exchange contracts resulted in net cash paidreceived of $53.9$4.7 million and net cash receivedpaid of $41.0$52.6 million for the ninethree months ended OctoberApril 2, 20212022 and September 26, 2020,April 3, 2021, respectively.
Gains and losses on net investment hedges remain in Accumulated other comprehensive (loss) income (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 earnings in Other, net.
The pre-tax gain or loss from fair value changes for the three
and nine months ended
OctoberApril 2,
20212022 and
September 26, 2020April 3, 2021 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Third Quarter 2021 |
| (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 | | $ | (0.4) | | | $ | 0.3 | | | Other, net | | $ | 0.4 | | | $ | 0.4 | |
| Cross Currency Swap | | $ | (0.2) | | | $ | 6.0 | | | Other, net | | $ | 0.8 | | | $ | 0.8 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year-to-Date 2021 |
| (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 | | $ | (1.4) | | | $ | 1.1 | | | Other, net | | $ | 1.1 | | | $ | 1.1 | |
| Cross Currency Swap | | $ | 9.1 | | | $ | 19.9 | | | Other, net | | $ | 2.9 | | | $ | 2.9 | |
| | | | | | | | | | |
| | | Third Quarter 2020 | | Year-to-Date 2022 |
| (Millions of Dollars) | (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 | (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 | Forward Contracts | | $ | 0.3 | | | $ | — | | | Other, net | | $ | — | | | $ | — | | Forward Contracts | | $ | 2.8 | | | $ | 0.6 | | | Other, net | | $ | 0.5 | | | $ | 0.5 | |
| Cross Currency Swap | Cross Currency Swap | | $ | (19.0) | | | $ | 14.0 | | | Other, net | | $ | 4.1 | | | $ | 4.1 | | Cross Currency Swap | | $ | (0.8) | | | $ | 2.5 | | | Other, net | | $ | 1.5 | | | $ | 1.5 | |
| | Non-derivative designated as Net Investment Hedge | Non-derivative designated as Net Investment Hedge | | $ | (13.1) | | | $ | — | | | Other, net | | $ | — | | | $ | — | | Non-derivative designated as Net Investment Hedge | | $ | (0.1) | | | $ | — | | | Other, net | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year-to-Date 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 | | $ | 0.4 | | | $ | — | | | Other, net | | $ | — | | | $ | — | |
| Cross Currency Swap | | $ | 22.3 | | | $ | 48.9 | | | Other, net | | $ | 13.7 | | | $ | 13.7 | |
| Non-derivative designated as Net Investment Hedge | | $ | (8.5) | | | $ | — | | | Other, net | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year-to-Date 2021 |
| (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 | | $ | (0.4) | | | $ | 0.8 | | | Other, net | | $ | — | | | $ | — | |
| Cross Currency Swap | | $ | 8.1 | | | $ | 7.4 | | | Other, net | | $ | 1.3 | | | $ | 1.3 | |
| Non-derivative designated as Net Investment Hedge | | $ | — | | | $ | — | | | Other, net | | $ | — | | | $ | — | |
UNDESIGNATED HEDGES
Foreign Exchange Contracts: 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 is to minimize the impact of foreign currency fluctuations on operating results. The total notional amount of the forward contracts outstanding at OctoberApril 2, 20212022 and January 2, 20211, 2022 was $1.1 billion and $1.3$1.2 billion, maturing on various dates through 2021.2022. The gain (loss) recorded in income from changes in the fair value related to derivatives not designated as hedging instruments under ASC 815 for the three and nine months ended OctoberApril 2, 20212022 and September 26, 2020April 3, 2021 are as follows:
| | (Millions of Dollars) | (Millions of Dollars) | Income Statement Classification | | Third Quarter
2021 | | Year-to-Date
2021 | | Third Quarter
2020 | | Year-to-Date
2020 | (Millions of Dollars) | Income Statement Classification | | | Year-to-Date
2022 | | | Year-to-Date
2021 |
| Foreign Exchange Contracts | Foreign Exchange Contracts | Other, net | | $ | 3.4 | | | $ | (20.1) | | | $ | (9.0) | | | $ | (2.6) | | Foreign Exchange Contracts | Other, net | | | $ | 0.9 | | | | $ | (16.1) | |
J. EQUITY ARRANGEMENTS (as Restated)
In March 2022, the Company executed an accelerated share repurchase ("ASR") with a notional amount of $2.0 billion, which was funded through borrowings under one of its existing 364-Day committed credit facilities. The ASR terms provide for an initial delivery of 85% of the total notional share equivalent at execution, or 10,756,770 shares. The final delivery of the remaining shares under the ASR is expected to be completed by the end of the second quarter of 2022. The total amount of shares to be ultimately delivered will be determined at the end of the calculation period based on the volume weighted average price ("VWAP") of the Company's stock (inclusive of a VWAP discount) during that period. In the event that the Company's stock price increases significantly during the calculation period, the Company may be required to settle the transaction by delivering common shares or may elect to make a cash payment. In February 2022, the Company also executed open market share repurchases for a total of 1,888,601 shares of common stock for $300.0 million.
In March 2015, the Company entered into a forward share purchase contract with a financial institution counterparty for 3,645,510 shares of common stock. The contract obligates the Company to pay $350.0 million, plus an additional amount related to the forward component of the contract, bycontract. In February 2022, the Company amended the settlement date to April 2022,2023, 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.
2019 Equity Units and Capped Call Transactions
In conjunction with the issuance of the 2019 Equity Units in November 2019, as further discussed inNote C, Earnings Per Share (as Restated), the Company received approximately $734.5 million in cash proceeds, net of offering expenses and underwriting costs and commissions. The proceeds were attributed to the issuance of 750,000 shares of Series D Preferred Stock for $620.3 million and $114.2 million for the present value of the quarterly payments to holders of the 2022 Purchase Contracts ("Contract
Adjustment Payments"), as discussed further below. The proceeds were used, together with cash on hand, to redeem the 2052 Junior Subordinated Debentureslong-term borrowings in December 2019. 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.
The 2019 Equity Units are accounted for as one unit of account based on the economic linkage between the 2022 Purchase Contracts and Series D Preferred Stock, as well as the combination criteria outlined in ASC 815. The 2019 Equity Units represent mandatorily 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 will 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.
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.
The 2022 Purchase Contracts obligate the holders to purchase, on November 15, 2022, for a price of $100 per share 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 OctoberApril 2, 2021,2022, due to the customary anti-dilution provisions, the maximum settlement rate was 0.6276,0.6284, equivalent to a reference price of $159.33.$159.13. 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 per share divided by the applicable market value. Upon a successful remarketing of the Series D Preferred Stock (the "Remarketed Series D Preferred Stock"), the Company will receive additional cash proceeds of $750 million and issue shares of Remarketed Series D Preferred Stock.
The Company pays Contract Adjustment Payments to the holders of the 2022 Purchase Contracts 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 the Series D Preferred Stock 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 OctoberApril 2, 2021,2022, the present value of the Contract Adjustment Payments was $47.8$28.8 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 3 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 had an initial lower strike price of $191.34, which corresponded to the minimum 5.2263 settlement rate of the Series D Preferred Stock, and an upper strike price of $207.29, which was approximately 30% higher than the closing price of the Company's common stock on November 7, 2019. As of OctoberApril 2, 2021,2022, due to the customary anti-dilution provisions, the capped call transactions were at an adjusted lower strike price of $191.20$190.98 and an adjusted upper strike price of $207.13.
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 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 $207.13,$206.89, the upper strike price of the capped call as of OctoberApril 2, 2021.2022.
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 OctoberApril 2, 20212022 was $19.2$3.1 million.
2017 Equity Units and Capped Call Transactions
In conjunction with the issuance of the 2017 Equity Units in May 2017, as further discussed in Note C, Earnings Per Share (as Restated), the Company received approximately $727.5 million in cash proceeds, net of offering expenses and underwriting costs and commissions. The proceeds were attributed to the issuance of 750,000 shares of Series C Preferred Stock for $605.0 million, $117.1 million for the present value of the Contract Adjustment Payments, and a beneficial conversion feature of $5.4 million. 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.
The 2017 Equity Units are accounted for as one unit of account based on the economic linkage between the 2020 Purchase Contracts and the Series C Preferred Stock, as well as the combination criteria outlined in ASC 815. The 2017 Equity Units represent mandatorily 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 had no maturity date and remained outstanding unless converted by holders or redeemed by the Company. Holders of shares of the convertible preferred stock generally had no voting rights. The Series C Preferred Stock was pledged as collateral to support holders’ purchase obligations under the 2020 Purchase Contracts.
As discussed further in Note C, Earnings Per Share (as Restated), the Company successfully remarketed the Series C Preferred Stock in May 2020. Subsequent to the remarketing, holders of the Remarketed Series C Preferred Stock were 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 were 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 Remarketed Series C Preferred Stock reduced net earnings for purposes of calculating earnings per share.
The Company did not have the right to redeem the Remarketed Series C Preferred Stock prior to May 15, 2021. On April 28, 2021, the Company informed holders that it would redeem all outstanding shares of the Remarketed Series C Preferred Stock on June 3, 2021 (the “Redemption Date”) at $1,002.50 per share in cash (the “Redemption Price”), which was equal to 100% of the liquidation preference of a share of Remarketed Series C Preferred Stock, plus accumulated and unpaid dividends to, but excluding, the Redemption Date. If a holder elected to convert its shares of Remarketed Series C Preferred Stock prior to the Redemption Date, the Company elected a combination settlement with a specified cashcash amount of $1,000 per share. In June 2021, the Company redeemed the Remarketed Series C Preferred Stock and settled all conversions, paying $750 million in cash and issuing 1,469,055 common shares. The conversion rate used was 6.7548 (equivalent to a conversion price set at $148.04 per
common share).
The Company generated cash proceeds of $750.0$750.0 million, from the successful remarketing of the Series C Preferred Stock. Upon completion of the remarketing in May 2020, the holders of the 2017 Equity Units received 5,463,750 common shares using the maximum settlement rate of 0.7285 (equivalent to a reference price of $137.26 per common share), and the Company issued 750,000 shares of Remarketed Series C Preferred Stock.Stock.
The Company paid Contract Adjustment Payments to the holders of the 2020 Purchase Contracts 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 the Series C Preferred Stock at inception. As each quarterly Contract Adjustment Payment was made, the related liability was reduced and the difference between the cash payments 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 3 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 convertible 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 premium 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 a 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.
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.
During the second quarter of 2021, the Company net-share settled the remaining capped call options on its common stock and received 344,004 shares using an average reference price of $209.80 per common share.
K. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following tables summarize the changes in the balances for each component of Accumulated other comprehensive loss:
| | (Millions of Dollars) | (Millions of Dollars) | | Currency translation adjustment and other | | Unrealized (losses) gains on cash flow hedges, net of tax | | Unrealized gains (losses) on net investment hedges, net of tax | | Pension (losses) gains, net of tax | | Total | (Millions of Dollars) | | Currency translation adjustment and other | | Unrealized (losses) gains on cash flow hedges, net of tax | | Unrealized gains (losses) on net investment hedges, net of tax | | Pension (losses) gains, net of tax | | Total |
| Balance - January 2, 2021 | | $ | (1,235.3) | | | $ | (103.0) | | | $ | 72.8 | | | $ | (448.2) | | | $ | (1,713.7) | | |
| Balance - January 1, 2022 | | Balance - January 1, 2022 | | $ | (1,543.0) | | | $ | (49.8) | | | $ | 71.8 | | | $ | (324.6) | | | $ | (1,845.6) | |
| Other comprehensive (loss) income before reclassifications | Other comprehensive (loss) income before reclassifications | | (239.7) | | | 42.9 | | | 5.9 | | | 6.6 | | | (184.3) | | Other comprehensive (loss) income before reclassifications | | (55.8) | | | 21.5 | | | (1.6) | | | 6.6 | | | (29.3) | |
| Reclassification adjustments to earnings | Reclassification adjustments to earnings | | — | | | 13.5 | | | (3.0) | | | 12.7 | | | 23.2 | | Reclassification adjustments to earnings | | — | | | (2.5) | | | 1.5 | | | 2.6 | | | 1.6 | |
| Net other comprehensive (loss) income | Net other comprehensive (loss) income | | (239.7) | | | 56.4 | | | 2.9 | | | 19.3 | | | (161.1) | | Net other comprehensive (loss) income | | (55.8) | | | 19.0 | | | (0.1) | | | 9.2 | | | (27.7) | |
| Balance - October 2, 2021 | | $ | (1,475.0) | | | $ | (46.6) | | | $ | 75.7 | | | $ | (428.9) | | | $ | (1,874.8) | | |
| Balance - April 2, 2022 | | Balance - April 2, 2022 | | $ | (1,598.8) | | | $ | (30.8) | | | $ | 71.7 | | | $ | (315.4) | | | $ | (1,873.3) | |
| | (Millions of Dollars) | (Millions of Dollars) | | Currency translation adjustment and other | | Unrealized (losses) gains on cash flow hedges, net of tax | | Unrealized gains (losses) on net investment hedges, net of tax | | Pension (losses) gains, net of tax | | Total | (Millions of Dollars) | | Currency translation adjustment and other | | Unrealized (losses) gains on cash flow hedges, net of tax | | Unrealized gains (losses) on net investment hedges, net of tax | | Pension (losses) gains, net of tax | | Total |
| Balance - December 28, 2019 | | $ | (1,517.2) | | | $ | (54.2) | | | $ | 97.3 | | | $ | (410.5) | | | $ | (1,884.6) | | |
| Balance - January 2, 2021 | | Balance - January 2, 2021 | | $ | (1,235.3) | | | $ | (103.0) | | | $ | 72.8 | | | $ | (448.2) | | | $ | (1,713.7) | |
| Other comprehensive (loss) income before reclassifications | Other comprehensive (loss) income before reclassifications | | (29.2) | | | (61.7) | | | 10.3 | | | 3.0 | | | (77.6) | | Other comprehensive (loss) income before reclassifications | | (154.2) | | | 43.8 | | | 5.9 | | | 0.5 | | | (104.0) | |
| Reclassification adjustments to earnings | Reclassification adjustments to earnings | | — | | | 0.6 | | | (10.4) | | | 10.9 | | | 1.1 | | Reclassification adjustments to earnings | | — | | | 2.9 | | | (1.0) | | | 4.4 | | | 6.3 | |
| Net other comprehensive (loss) income | Net other comprehensive (loss) income | | (29.2) | | | (61.1) | | | (0.1) | | | 13.9 | | | (76.5) | | Net other comprehensive (loss) income | | (154.2) | | | 46.7 | | | 4.9 | | | 4.9 | | | (97.7) | |
| Balance - September 26, 2020 | | $ | (1,546.4) | | | $ | (115.3) | | | $ | 97.2 | | | $ | (396.6) | | | $ | (1,961.1) | | |
| Balance -April 3, 2021 | | Balance -April 3, 2021 | | $ | (1,389.5) | | | $ | (56.3) | | | $ | 77.7 | | | $ | (443.3) | | | $ | (1,811.4) | |
The Company uses the portfolio method for releasing the stranded tax effects from Accumulated other comprehensive loss. The reclassifications out of Accumulated other comprehensive loss for the ninethree months ended OctoberApril 2, 20212022 and September 26, 2020April 3, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | |
| (Millions of Dollars) | | 2021 | | 2020 | | Affected line item in Consolidated Statements of Operations And Comprehensive Income |
| Realized (losses) gains on cash flow hedges | | $ | (21.3) | | | $ | 12.5 | | | Cost of sales |
| Realized losses on cash flow hedges | | (2.9) | | | (13.5) | | | Interest expense |
| Total before taxes | | $ | (24.2) | | | $ | (1.0) | | | |
| Tax effect | | 10.7 | | | 0.4 | | | Income taxes |
| Realized losses on cash flow hedges, net of tax | | $ | (13.5) | | | $ | (0.6) | | | |
| | | | | | |
| Realized gains on net investment hedges | | $ | 4.0 | | | $ | 13.7 | | | Other, net |
| Tax effect | | (1.0) | | | (3.3) | | | Income taxes |
| Realized gains on net investment hedges, net of tax | | $ | 3.0 | | | $ | 10.4 | | | |
| | | | | | |
| Amortization of defined benefit pension items: | | | | | | |
| Actuarial losses and prior service costs / credits | | $ | (17.0) | | | $ | (14.5) | | | Other, net |
| Settlement gain | | 0.2 | | | — | | | Other, net |
| Total before taxes | | $ | (16.8) | | | $ | (14.5) | | | |
| Tax effect | | 4.1 | | | 3.6 | | | Income taxes |
| Amortization of defined benefit pension items, net of tax | | $ | (12.7) | | | $ | (10.9) | | | |
| | | | | | | | | | | | | | | | | | | | |
| (Millions of Dollars) | | 2022 | | 2021 | | Affected line item in Consolidated Statements of Operations And Comprehensive Income (Loss) |
| Realized gains (losses) on cash flow hedges | | $ | 6.1 | | | $ | (3.8) | | | Cost of sales |
| Realized losses on cash flow hedges | | (1.2) | | | (1.1) | | | Interest expense |
| Total before taxes | | $ | 4.9 | | | $ | (4.9) | | | |
| Tax effect | | (2.4) | | | 2.0 | | | Income taxes |
| Realized gains (losses) on cash flow hedges, net of tax | | $ | 2.5 | | | $ | (2.9) | | | |
| | | | | | |
| Realized (losses) gains on net investment hedges | | $ | (2.0) | | | $ | 1.3 | | | Other, net |
| Tax effect | | 0.5 | | | (0.3) | | | Income taxes |
| Realized (losses) gains on net investment hedges, net of tax | | $ | (1.5) | | | $ | 1.0 | | | |
| | | | | | |
| Amortization of defined benefit pension items: | | | | | | |
| Actuarial losses and prior service costs / credits | | $ | (3.5) | | | $ | (5.7) | | | Other, net |
| Settlement loss | | — | | | (0.1) | | | Other, net |
| Total before taxes | | $ | (3.5) | | | $ | (5.8) | | | |
| Tax effect | | 0.9 | | | 1.4 | | | Income taxes |
| Amortization of defined benefit pension items, net of tax | | $ | (2.6) | | | $ | (4.4) | | | |
L. NET PERIODIC BENEFIT COST — DEFINED BENEFIT PLANS
Following are the components of net periodic pension (benefit) expense for the three and nine months ended OctoberApril 2, 20212022 and September 26, 2020:April 3, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Third Quarter |
| | Pension Benefits | | Other Benefits |
| | U.S. Plans | | Non-U.S. Plans | | All Plans |
| (Millions of Dollars) | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
| Service cost | $ | 1.7 | | | $ | 1.7 | | | $ | 4.3 | | | $ | 4.0 | | | $ | 0.2 | | | $ | 0.2 | |
| Interest cost | 5.7 | | | 8.8 | | | 4.2 | | | 5.7 | | | 0.2 | | | 0.3 | |
| Expected return on plan assets | (13.8) | | | (14.7) | | | (10.0) | | | (10.4) | | | — | | | — | |
| Amortization of prior service cost (credit) | 0.3 | | | 0.3 | | | (0.2) | | | (0.1) | | | (0.2) | | | (0.3) | |
| Amortization of net loss | 2.3 | | | 2.1 | | | 3.4 | | | 2.9 | | | — | | | — | |
| Special termination benefit | — | | | — | | | — | | | — | | | — | | | 0.1 | |
| Settlement / curtailment (gain) loss | — | | | — | | | (0.3) | | | 0.3 | | | — | | | — | |
| Net periodic pension (benefit) expense | $ | (3.8) | | | $ | (1.8) | | | $ | 1.4 | | | $ | 2.4 | | | $ | 0.2 | | | $ | 0.3 | |
| | | | Year-to-Date | | Year-to-Date |
| | Pension Benefits | | Other Benefits | | Pension Benefits | | Other Benefits |
| | U.S. Plans | | Non-U.S. Plans | | All Plans | | U.S. Plans | | Non-U.S. Plans | | All Plans |
| (Millions of Dollars) | (Millions of Dollars) | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | (Millions of Dollars) | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
| Service cost | Service cost | $ | 4.9 | | | $ | 5.1 | | | $ | 13.3 | | | $ | 11.9 | | | $ | 0.3 | | | $ | 0.5 | | Service cost | $ | 1.6 | | | $ | 1.3 | | | $ | 3.9 | | | $ | 4.2 | | | $ | 0.1 | | | $ | 0.1 | |
| Interest cost | Interest cost | 17.2 | | | 26.5 | | | 12.8 | | | 16.7 | | | 0.7 | | | 1.1 | | Interest cost | 8.0 | | | 5.7 | | | 6.0 | | | 4.2 | | | 0.2 | | | 0.2 | |
| Expected return on plan assets | Expected return on plan assets | (41.2) | | | (44.1) | | | (30.2) | | | (30.6) | | | — | | | — | | Expected return on plan assets | (15.1) | | | (13.7) | | | (10.2) | | | (9.9) | | | — | | | — | |
| Amortization of prior service cost (credit) | Amortization of prior service cost (credit) | 0.9 | | | 0.8 | | | (0.6) | | | (0.5) | | | (0.5) | | | (1.0) | | Amortization of prior service cost (credit) | 0.2 | | | 0.3 | | | (0.2) | | | (0.2) | | | — | | | (0.2) | |
| Amortization of net loss | 6.8 | | | 6.4 | | | 10.4 | | | 8.6 | | | — | | | 0.2 | | |
| Special termination benefit | — | | | — | | | — | | | — | | | — | | | 16.1 | | |
| Settlement / curtailment (gain) loss | — | | | — | | | (0.2) | | | 0.6 | | | — | | | — | | |
| Amortization of net loss (gain) | | Amortization of net loss (gain) | 1.5 | | | 2.3 | | | 2.1 | | | 3.5 | | | (0.1) | | | — | |
| Settlement / curtailment loss | | Settlement / curtailment loss | — | | | — | | | — | | | 0.1 | | | — | | | — | |
| Net periodic pension (benefit) expense | Net periodic pension (benefit) expense | $ | (11.4) | | | $ | (5.3) | | | $ | 5.5 | | | $ | 6.7 | | | $ | 0.5 | | | $ | 16.9 | | Net periodic pension (benefit) expense | $ | (3.8) | | | $ | (4.1) | | | $ | 1.6 | | | $ | 1.9 | | | $ | 0.2 | | | $ | 0.1 | |
The components of net periodic benefit cost other than the service cost component are included in Other, net in the Consolidated Statements of Operations and Comprehensive Income.
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) | (Millions of Dollars) | Total
Carrying
Value | | Level 1 | | Level 2 | | Level 3 | (Millions of Dollars) | Total
Carrying
Value | | Level 1 | | Level 2 | | Level 3 |
| October 2, 2021 | | | | | | | | |
| April 2, 2022 | | April 2, 2022 | | | | | | | |
| Money market fund | Money market fund | $ | 29.7 | | | $ | 29.7 | | | $ | — | | | $ | — | | Money market fund | $ | 12.7 | | | $ | 12.7 | | | $ | — | | | $ | — | |
| Equity Security | Equity Security | $ | 18.6 | | | $ | 18.6 | | | $ | — | | | $ | — | | Equity Security | $ | 7.7 | | | $ | 7.7 | | | 0 | | $ | — | |
| Deferred compensation plan investments | | Deferred compensation plan investments | $ | 23.7 | | | $ | 23.7 | | | $ | — | | | $ | — | |
| Derivative assets | Derivative assets | $ | 29.6 | | | $ | — | | | $ | 29.6 | | | $ | — | | Derivative assets | $ | 29.9 | | | $ | — | | | $ | 29.9 | | | $ | — | |
| Derivative liabilities | Derivative liabilities | $ | 69.2 | | | $ | — | | | $ | 69.2 | | | $ | — | | Derivative liabilities | $ | 11.8 | | | $ | — | | | $ | 11.8 | | | $ | — | |
| | Contingent consideration liability | Contingent consideration liability | $ | 189.3 | | | $ | — | | | $ | — | | | $ | 189.3 | | Contingent consideration liability | $ | 289.3 | | | $ | — | | | $ | — | | | $ | 289.3 | |
| January 2, 2021 | | |
| January 1, 2022 | | January 1, 2022 | |
| Money market fund | Money market fund | $ | 10.3 | | | $ | 10.3 | | | $ | — | | | $ | — | | Money market fund | $ | 11.0 | | | $ | 11.0 | | | $ | — | | | $ | — | |
| Equity Security | | Equity Security | $ | 13.8 | | | $ | 13.8 | | | $ | — | | | $ | — | |
| Deferred compensation plan investments | | Deferred compensation plan investments | $ | 26.2 | | | $ | 26.2 | | | $ | — | | | $ | — | |
| Derivative assets | Derivative assets | $ | 14.0 | | | $ | — | | | $ | 14.0 | | | $ | — | | Derivative assets | $ | 33.1 | | | $ | — | | | $ | 33.1 | | | $ | — | |
| Derivative liabilities | Derivative liabilities | $ | 191.0 | | | $ | — | | | $ | 191.0 | | | $ | — | | Derivative liabilities | $ | 8.7 | | | $ | — | | | $ | 8.7 | | | $ | — | |
| Contingent consideration liability | Contingent consideration liability | $ | 187.0 | | | $ | — | | | $ | — | | | $ | 187.0 | | Contingent consideration liability | $ | 288.6 | | | $ | — | | | $ | — | | | $ | 288.6 | |
|
The following table provides information about the Company's financial assets and liabilities not carried at fair value:
| | | | October 2, 2021 | | January 2, 2021 | | April 2, 2022 | | January 1, 2022 |
| (Millions of Dollars) | (Millions of Dollars) | Carrying
Value | | Fair
Value | | Carrying
Value | | Fair
Value | (Millions of Dollars) | Carrying
Value | | Fair
Value | | Carrying
Value | | Fair
Value |
| Other investments | Other investments | $ | 11.2 | | | $ | 11.7 | | | $ | 13.3 | | | $ | 13.9 | | Other investments | $ | 9.3 | | | $ | 9.5 | | | $ | 11.2 | | | $ | 11.6 | |
| Long-term debt | Long-term debt | $ | 4,246.9 | | | $ | 4,828.7 | | | $ | 4,245.4 | | | $ | 4,934.5 | | Long-term debt | $ | 5,356.7 | | | $ | 5,401.5 | | | $ | 4,354.9 | | | $ | 4,850.2 | |
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 equity security is considered a Level 1 instrument and is recorded at its quoted market price. The deferred compensation plan investments are considered Level 1 instruments and are recorded at their quoted market price. 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 OctoberApril 2, 20212022 and January 2, 2021.1, 2022. The fair values of the derivative financial instruments in the table above are based on current settlement values.
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 ninethree months ended OctoberApril 2, 2021,2022, the Company paid approximately $21.5$9.8 million for royalties owed. 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 $189.3289.3 million and $187.0$288.6 million as of OctoberApril 2, 20212022 and January 2, 2021,1, 2022, respectively.Adjustments to the contingent consideration liability, with the exception of cash payments, are recorded in SG&A in the Consolidated Statements of Operations and Comprehensive Income.Income (Loss). A 100 basis point reduction in the discount rate would result in an increase to the liability of approximately $10.1 million $7.0 million as of OctoberApril 2, 2021.2022.
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 liabilities discussed above, including estimated future sales projections, can materially impact the Company’s results from operations.
The Company had no significant non-recurring fair value measurements, nor any other financial assets or liabilities measured using Level 3 inputs, during the first ninethree months of 20212022 or 2020.2021.
Refer to Note I, Financial Instruments, for more details regarding derivative financial instruments, Note R, 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 long-term debt.
N. OTHER COSTS AND EXPENSES
Other, net is primarily comprised of intangible asset amortization expense, currency-related gains or losses, environmental remediation expense, acquisition-related transaction and consulting costs, and certain pension gains or losses. During the three and nine months ended October 2, 2021, Other, net included charges of $8.1 million and $10.2 million, respectively, primarily related to acquisition-relatedAcquisition-related transaction and consulting costs. Duringcosts of $1.0 million and $1.6 million, respectively, were included in Other, net during the three and nine months ended September 26, 2020, Other, net included charges of $3.2 millionApril 2, 2022 and $41.9 million, respectively, primarily related to acquisition-related transaction costs and a special termination benefit charge associated with the voluntary retirement program.
During the first nine months of 2020, the Company recognized a pre-tax charge of approximately $165.0 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.April 3, 2021, respectively.
O. RESTRUCTURING CHARGES
A summary of the restructuring reserve activity from January 1, 2022 to April 2, 2021 to October 2, 20212022 is as follows:
| | (Millions of Dollars) | (Millions of Dollars) | January 2,
2021 | | Net Additions | | Usage | | Currency | | October 2,
2021 | (Millions of Dollars) | January 1,
2022 | | Net Additions | | Usage | | Currency | | April 2,
2022 |
| Severance and related costs | Severance and related costs | $ | 87.5 | | | $ | 5.9 | | | $ | (49.9) | | | $ | 2.0 | | | $ | 45.5 | | Severance and related costs | $ | 28.2 | | | $ | 51.1 | | | $ | (22.8) | | | $ | 0.6 | | | $ | 57.1 | |
| Facility closures and asset impairments | Facility closures and asset impairments | 2.7 | | | 16.2 | | | (15.3) | | | — | | | 3.6 | | Facility closures and asset impairments | 3.5 | | | 1.6 | | | (2.5) | | | 0.1 | | | 2.7 | |
| Total | Total | $ | 90.2 | | | $ | 22.1 | | | $ | (65.2) | | | $ | 2.0 | | | $ | 49.1 | | Total | $ | 31.7 | | | $ | 52.7 | | | $ | (25.3) | | | $ | 0.7 | | | $ | 59.8 | |
For the three and nine months ended OctoberApril 2, 2021,2022, the Company recognized net restructuring charges of $5.8$52.7 million, and $22.1 million, respectively, primarily related to severance and facility-relatedrelated costs. The majority of the $49.1$59.8 million of reserves remaining as of OctoberApril 2, 20212022 is expected to be utilized within the next 12 months.
Segments: The $22 million of net restructuring charges for the nine months ended October 2, 2021 includes: $7 million pertaining to the Tools & Storage segment; $2 million pertaining to the Industrial segment; $9 million pertaining to the Security segment; and $4 million pertaining to Corporate.
The $6$53 million of net restructuring charges for the three months ended OctoberApril 2, 20212022 includes: $1$43 million of net reversals pertaining toin the Tools & StorageOutdoor segment; $5$8 million pertaining toin the SecurityIndustrial segment; and $2 million pertaining toin Corporate.
P. INCOME TAXES
On March 11, 2021, the American Rescue Plan Act of 2021 (the “ARPA”) was enacted. The ARPA, among other things, includes provisions to expand the IRC Section 162(m) disallowance for deduction of certain compensation paid by publicly held corporations, provide a 100% COBRA subsidy, temporarily increase the income exclusion for dependent care assistance, and to extend and modify the employee retention credit and the Families First Coronavirus Response Act paid leave credit. 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 ARPA and CARES Act did not have a material impact on the Company's consolidated financial statements in the first nine months of 2021. The Company continues to evaluate the potential impact the ARPA and CARES Act may have on its operations and consolidated financial statements in future periods.
The Company recognized a net income tax benefit of $0.4 million and income tax expense of $192.8$22.9 million for the three and nine months ended OctoberApril 2, 2021, respectively,2022, resulting in an effective tax ratesrate of (0.1)% and 12.6%12.8%. Excluding the impacts of the acquisition-related and other charges, the effective tax rates were 2.0% and 13.3%rate was 13.2% for the three and nine months ended OctoberApril 2, 2021, respectively.2022. These effective tax rates differ from the U.S. statutory tax rate primarily due to a benefit associated with the Company'sCompany’s supply chain reorganization, tax on foreign earnings and the re-measurement of uncertain tax
position reserves, the re-measurement of the deferred tax assets and liabilities due to foreign corporate income tax rate changes, and the tax benefit of equity-based compensation.
reserves. The Company recognized income tax expense of $78.4 million and a net tax benefit of $26.0$115.5 million for the three and nine months ended September 26, 2020, respectively,April 3, 2021, resulting in effective tax ratesrate of 16.7% and (3.6)%20.1%. Excluding the one-time benefit of $118.8 million recorded in the second quarter of 2020 to reverse a deferred tax liability previously established related to certain unremitted earnings of foreign subsidiaries not permanently reinvested as a result of initiating a supply chain reorganization, and the impacts of the acquisition-related and other charges, the effective tax rates were 17.8% and 16.0%rate was 20.3% for the three and nine months ended September 26, 2020, respectively.April 3, 2021. These effective tax rates differ from the U.S. statutory tax rate primarily due to tax on foreign earnings, the re-measurement of uncertain tax position reserves, an intra-entity transfer of certain intellectual property rights, and the tax benefit of equity-based compensation.
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.
Q. BUSINESS SEGMENTS AND GEOGRAPHIC AREAS
The Company'sCompany’s operations are classified into 32 reportable business segments, which also represent its operating segments: Tools & Storage, IndustrialOutdoor and Security.
The Tools & StorageOutdoor segment is comprised of the Power Tools Group ("PTG"), Hand Tools, Accessories & Storage ("HTAS"), and Outdoor Products GroupPower Equipment ("OPG"Outdoor") businesses. The PTG business includes both professional and consumer products. Professional products include professional grade corded and cordless electric power tools and equipment including drills, impact wrenches and drivers, grinders, saws, routers and sanders, as well as pneumatic tools and fasteners including nail guns, nails, staplers and staples, concrete and masonry anchors. Consumer products include corded and cordless electric power tools sold primarily under the BLACK+DECKER® brand, and home products such as hand-held vacuums, paint tools and cleaning appliances. The HTAS business sells hand tools, power tool accessories and storage products. Hand tools include measuring, leveling and layout tools, planes, hammers, demolition tools, clamps, vises, knives, saws, chisels and industrial and automotive tools. Power tool accessories include drill bits, screwdriver bits, router bits, abrasives, saw blades and threading products. Storage products include tool boxes, sawhorses, medical cabinets and engineered storage solution products. The OPGOutdoor business primarily sells corded and cordless electric lawn and garden products, including hedge trimmers, string trimmers, lawn mowers, pressure washers and related accessories, and gas powered lawn and garden products, including lawn tractors, zero turn ride on mowers, walk behind mowers, snow blowers, residential robotic mowers, utility terrain vehicles (UTVs), handheld outdoor power equipment, garden tools, and parts and accessories to professionals and consumers under the DEWALT®, CUB CADET®, BLACK+DECKER®, CRAFTSMAN®, TROY-BILT®, and DEWALT®HUSTLER® brand names.
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. 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. 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.
| | | | | | | | | | | | | | | | | | | | | | | |
| | Third Quarter | | Year-to-Date |
| (Millions of Dollars) | 2021 | | 2020 | | 2021 | | 2020 |
| NET SALES | | | | | | | |
| Tools & Storage | $ | 3,185.9 | | | $ | 2,804.1 | | | $ | 9,445.3 | | | $ | 7,072.1 | |
| Industrial | 593.5 | | | 586.6 | | | 1,853.4 | | | 1,694.8 | |
| Security | 483.8 | | | 459.5 | | | 1,462.5 | | | 1,360.1 | |
| Total | $ | 4,263.2 | | | $ | 3,850.2 | | | $ | 12,761.2 | | | $ | 10,127.0 | |
| SEGMENT PROFIT | | | | | | | |
| Tools & Storage | $ | 485.8 | | | $ | 597.1 | | | $ | 1,772.2 | | | $ | 1,177.0 | |
| Industrial | 43.8 | | | 63.8 | | | 207.4 | | | 136.7 | |
| Security | 39.6 | | | 39.3 | | | 111.1 | | | 69.4 | |
| Segment profit | 569.2 | | | 700.2 | | | 2,090.7 | | | 1,383.1 | |
| Corporate overhead | (76.5) | | | (62.8) | | | (244.6) | | | (190.4) | |
| Other, net | (39.5) | | | (74.3) | | | (152.3) | | | (236.1) | |
| Loss on sales of businesses | — | | | — | | | (3.6) | | | — | |
| Restructuring charges | (5.8) | | | (42.8) | | | (22.1) | | | (74.6) | |
| Interest expense | (45.8) | | | (52.7) | | | (139.8) | | | (169.7) | |
| Interest income | 2.3 | | | 2.0 | | | 7.9 | | | 14.6 | |
| Earnings before income taxes and equity interest | $ | 403.9 | | | $ | 469.6 | | | $ | 1,536.2 | | | $ | 726.9 | |
| | | | | | | | | | | | | | | |
| | | | Year-to-Date |
| (Millions of Dollars) | | | | | 2022 | | 2021 |
| Net Sales | | | | | | | |
| Tools & Outdoor | | | | | $ | 3,801.2 | | | $ | 3,062.9 | |
| Industrial | | | | | 646.6 | | | 657.7 | |
| Other | | | | | 0.2 | | | 0.2 | |
| Consolidated | | | | | $ | 4,448.0 | | | $ | 3,720.8 | |
| Segment Profit | | | | | | | |
| Tools & Outdoor | | | | | $ | 378.5 | | | $ | 644.7 | |
| Industrial | | | | | 41.3 | | | 99.8 | |
| Segment Profit | | | | | 419.8 | | | 744.5 | |
| Corporate Overhead | | | | | (74.7) | | | (75.8) | |
| Other, net | | | | | (62.0) | | | (48.0) | |
| Loss on sale of business | | | | | — | | | (1.0) | |
| Restructuring charges | | | | | (52.7) | | | (1.8) | |
| Interest income | | | | | 2.8 | | | 2.9 | |
| Interest expense | | | | | (54.7) | | | (47.5) | |
| Earnings from continuing operations before income taxes and equity interest | | | | | $ | 178.5 | | | $ | 573.3 | |
Corporate Overhead includes the corporate overhead element of SG&A, which is not allocated to the business segments.
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 three and nine months ended OctoberApril 2, 20212022 and September 26, 2020,April 3, 2021, the majority of the Company’s revenue was recognized at the time of sale. The following table provides the percent of total segment revenue recognized over time for the Industrial and Security segmentssegment for the three and nine months ended OctoberApril 2, 2022 and April 3, 2021 was 5.9% and September 26, 2020:5.7%, respectively.
| | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter | | Year-to-Date |
| 2021 | | 2020 | | 2021 | | 2020 |
| Industrial | 6.4 | % | | 8.0 | % | | 5.4 | % | | 10.0 | % |
| Security | 52.7 | % | | 49.7 | % | | 51.4 | % | | 49.1 | % |
The decrease in the percent of Industrial segment revenue recognized over time relates to volume declines within Oil & Gas, which is the primary product line with revenue recognized over time within the Industrial segment.
The following table is a further disaggregation of the Industrial segment revenue for the three and nine months ended OctoberApril 2, 20212022 and September 26, 2020:April 3, 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter | | Year-to-Date |
| (Millions of Dollars) | 2021 | | 2020 | | 2021 | | 2020 |
| Engineered Fastening | $ | 435.7 | | | $ | 436.0 | | | $ | 1,389.0 | | | $ | 1,212.4 | |
| Infrastructure | 157.8 | | | 150.6 | | | 464.4 | | | 482.4 | |
| Industrial | $ | 593.5 | | | $ | 586.6 | | | $ | 1,853.4 | | | $ | 1,694.8 | |
| | | | | | | | | | | | | | | |
| | | Year-to-Date |
| (Millions of Dollars) | | | | | 2022 | | 2021 |
| Engineered Fastening | | | | | $ | 480.1 | | | $ | 496.8 | |
| Infrastructure | | | | | 166.5 | | | 160.9 | |
| Industrial | | | | | $ | 646.6 | | | $ | 657.7 | |
The following table is a summary of total assets by segment as of OctoberApril 2, 20212022 and January 2, 2021:1, 2022:
| | (Millions of Dollars) | (Millions of Dollars) | October 2, 2021 | | January 2, 2021 | (Millions of Dollars) | April 2, 2022 | | January 1, 2022 |
| Tools & Storage | $ | 15,676.0 | | | $ | 14,294.9 | | |
| Tools & Outdoor | | Tools & Outdoor | $ | 20,522.5 | | | $ | 19,537.9 | |
| Industrial | Industrial | 5,678.3 | | | 5,621.4 | | Industrial | 5,639.0 | | | 5,627.8 | |
| Security | 3,571.0 | | | 3,493.5 | | |
| | 24,925.3 | | | 23,409.8 | | | 26,161.5 | | | 25,165.7 | |
| Corporate | (598.7) | | | 156.5 | | |
| Assets held for sale | | Assets held for sale | 3,492.5 | | | 3,505.4 | |
| Corporate assets | | Corporate assets | (295.3) | | | (491.1) | |
| Consolidated | Consolidated | $ | 24,326.6 | | | $ | 23,566.3 | | Consolidated | $ | 29,358.7 | | | $ | 28,180.0 | |
Corporate assets primarily consist of cash, equity method investment, deferred taxes, property, plant and equipment, and right-of-use lease assets. Based on the nature of the Company's cash pooling arrangements, at times the corporate-related cash accounts will be in a net liability position.
GEOGRAPHIC AREAS
The following table is a summary of net sales by geographic area for the three and nine months ended OctoberApril 2, 20212022 and September 26, 2020:April 3, 2021:
| | | Third Quarter | | Year-to-Date | | | Year-to-Date |
| (Millions of Dollars) | (Millions of Dollars) | 2021 | | 2020 | | 2021 | | 2020 | (Millions of Dollars) | | 2022 | | 2021 |
| United States | United States | $ | 2,530.6 | | | $ | 2,336.2 | | | $ | 7,381.1 | | | $ | 6,182.2 | | United States | | $ | 2,744.5 | | | $ | 2,132.0 | |
| Canada | Canada | 208.9 | | | 185.1 | | | 631.7 | | | 470.8 | | Canada | | 236.6 | | | 186.3 | |
| Other Americas | Other Americas | 227.1 | | | 168.6 | | | 638.4 | | | 388.8 | | Other Americas | | 198.3 | | | 197.1 | |
| France | France | 159.7 | | | 148.9 | | | 534.9 | | | 389.5 | | France | | 140.0 | | | 135.1 | |
| Other Europe | Other Europe | 814.8 | | | 722.3 | | | 2,591.1 | | | 1,953.5 | | Other Europe | | 773.5 | | | 738.1 | |
| Asia | Asia | 322.1 | | | 289.1 | | | 984.0 | | | 742.2 | | Asia | | 355.1 | | | 332.2 | |
| Consolidated | Consolidated | $ | 4,263.2 | | | $ | 3,850.2 | | | $ | 12,761.2 | | | $ | 10,127.0 | | Consolidated | | $ | 4,448.0 | | | $ | 3,720.8 | |
R. CONTINGENCIES
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.
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 2829 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 OctoberApril 2, 20212022 and January 2, 2021,1, 2022, the Company had reserves of $154.7$156.6 million and $174.2$159.1 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 2021 amount, $48.02022 amount, $49.6 million is classified as current and $106.7$107.0 million as long-termlong-term which is expected to be paid over the estimated remediation period. As of OctoberApril 2, 2021,2022, the range of environmental remediation costs that is reasonably possiblepossible is $89.2$92.6 million to $225.1$226.0 million which isis 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 OctoberApril 2, 2021,2022, the Company has recorded $16.1recorded $16.2 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 OctoberApril 2, 2021,2022, the Company's net cash obligation associated with remediation activities, including WCLC assets, is $138.6$140.4 million.
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 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. 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. The District Court's entry of the Consent Decree was appealed by several PRPs at the site to the United States Court of Appeals for the First Circuit. The District Court's actions were affirmed by the First Circuit on February 17, 2021. 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. As of OctoberApril 2, 2021,2022, the Company has a remaining reserve of $61.1$54.5 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 17 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 17 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 8eight hazardous substances identified as the contaminants of concern in the lower 8.3 mile ROD. In the March 30, 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 allocation 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. The Company participated in the allocation process. The allocator selected by the EPA issued a confidential allocation report on December 28, 2020, which was reviewed by the EPA. As a result of the allocation process, on February 11, 2022, the EPA and certain parties (including the Company) reached an agreement in principle, subject to the negotiation and court entry of a consent decree, concerning a cash-out settlement for remediation of the entire 17-mile Lower Passaic River. 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 the fourth quarter of 2022. 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 February 24, 2021, the Company and other defendants filed a third party complaint against the Passaic Valley Sewerage Commissioners and NaN municipalities to require those entities to pay their equitable share of response costs. 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 revisedrevised 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, 2020.2020. The EPA issued the Interim Remedy Proposed Plan on April 14, 2021, selecting an alternative that the EPA estimates will cost $441 million (net present value). The CPG continues to conduct work to complete the RI/FS for the entire 17-mile River. The EPA issued the Interim Remedy ROD on September 28, 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 OCC litigation is pending, the EPA settlement process is ongoing 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 OctoberApril 2, 2021,2022, the Company has reserved $22.2 million for this site.
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.
S. 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 contractThe following 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 purchasesummary of the underlying leased asset. Lease arrangements may also contain renewal options or early termination options. As part of itsCompany's right-of-use-assets and lease liabilities:
| | | | | | | | | | | |
| (Millions of Dollars) | April 2, 2022 | | January 1, 2022 |
| Right-of-use assets | $420.1 | | $426.0 |
| Lease liabilities | $430.5 | | $439.1 |
| Weighted-average incremental borrowing rate | 3.4% | | 3.5% |
| Weighted-average remaining term | 6 years | | 6 years |
liability
Right-of-use assets are included within Other assets in the Condensed Consolidated Balance Sheets, while lease liabilities are included within Accrued expenses 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 approximatOther liabilitiesely 3.5%., as appropriate. The Company determineddetermines 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 nine months ended October 2, 2021, the Company's lease liability increased approximately $58.6 million. As of October 2, 2021, the Company recognized a lease liability of approximately $471.7 million and a right-of-use asset of approximately $461.6 million. The right-of-use asset is included within Other assets in the Condensed 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 1 of its major distribution centers and 2 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 three and nine months ended October 2, 2021 and September 26, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Third Quarter | | Year-to-Date |
| (Millions of Dollars) | | 2021 | | 2020 | | 2021 | | 2020 |
| Operating lease cost | | $ | 39.8 | | | $ | 38.8 | | | $ | 117.3 | | | $ | 113.7 | |
| Short-term lease cost | | 6.4 | | | 6.2 | | | 17.9 | | | 19.0 | |
| Variable lease cost | | 1.1 | | | 1.6 | | | 4.4 | | | 5.4 | |
| Sublease income | | (0.5) | | | (0.3) | | | (1.5) | | | (0.7) | |
| Total lease cost | | $ | 46.8 | | | $ | 46.3 | | | $ | 138.1 | | | $ | 137.4 | |
During the three and nine months ended October 2, 2021, the Company paid approximately $33.9 million and $110.5 million, respectively, relating to leases included in the measurement of its lease liability and right-of-use asset. During the three and nine months ended September 26, 2020, the Company paid approximately $37.1 million and $116.1 million, respectively, relating to leases included in the measurement of its lease liability and right-of-use asset. As of October 2, 2021, the weighted-average remaining term for the Company's leases is approximately 6 years.
The following is a summary of the Company's future lease obligations on an undiscounted basis at October 2, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Millions of Dollars) | Total | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter |
| Lease obligations | $ | 524.9 | | | $ | 36.6 | | | $ | 120.2 | | | $ | 91.5 | | | $ | 74.5 | | | $ | 53.4 | | | $ | 148.7 | |
GUARANTEES — The Company’s financial guarantees at OctoberApril 2, 20212022 are as follows:
| | (Millions of Dollars) | (Millions of Dollars) | Term | | Maximum
Potential
Payment | | Carrying
Amount of
Liability | (Millions of Dollars) | Term | | Maximum
Potential
Payment | | Carrying
Amount of
Liability |
| Guarantees on the residual values of leased assets | Guarantees on the residual values of leased assets | One to four years | | $ | 89.6 | | | $ | — | | Guarantees on the residual values of leased assets | One to five years | | $ | 89.6 | | | $ | — | |
| Standby letters of credit | Standby letters of credit | Up to three years | | 167.6 | | | — | | Standby letters of credit | Up to three years | | 165.7 | | | — | |
| Commercial customer financing arrangements | Commercial customer financing arrangements | Up to six years | | 67.4 | | | 8.4 | | Commercial customer financing arrangements | Up to six years | | 69.5 | | | 8.7 | |
| Total | Total | | $ | 324.6 | | | $ | 8.4 | | Total | | $ | 324.8 | | | $ | 8.7 | |
The Company has guaranteed a portion of the residual values of certain leased assets including the previously discussed leases for 1 of its major distribution centers and 2 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 $116.2$119.0 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 $167.6$165.7 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 R, 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 trucks 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 $67.4$69.5 million and the $8.4$8.7 million carrying value of the guarantees issued is recorded in Other liabilities in the Condensed 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 ninethree months ended OctoberApril 2, 20212022 and September 26, 2020April 3, 2021 are as follows:
| | (Millions of Dollars) | (Millions of Dollars) | 2021 | | 2020 | (Millions of Dollars) | 2022 | | 2021 |
| Balance beginning of period | Balance beginning of period | $ | 113.8 | | | $ | 100.1 | | Balance beginning of period | $ | 134.5 | | | $ | 107.9 | |
| Warranties and guarantees issued | Warranties and guarantees issued | 110.3 | | | 94.1 | | Warranties and guarantees issued | 39.6 | | | 36.3 | |
| | Warranty payments and currency | Warranty payments and currency | (119.7) | | | (84.5) | | Warranty payments and currency | (38.0) | | | (41.3) | |
| Balance end of period | Balance end of period | $ | 104.4 | | | $ | 109.7 | | Balance end of period | $ | 136.1 | | | $ | 102.9 | |
Product warranties totaling $5.2 million and $5.7 million were reclassified to held for sale as of April 2, 2022 and April 3, 2021, respectively.
T. DIVESTITURES
On November 2, 2020,PENDING DIVESTITURES
Mechanical Access Solutions business
In April 2022, the Company sold its commercial electronic security businesses in 5 countries in Europe and emerging markets within the Security segment, which resulted in net proceeds of $60.9 million. The Company also soldannounced that it had reached 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 ondefinitive agreement for the sale of a product line within Oil & Gas partially offset by a $4.2its remaining Security assets to Allegion plc for $900 million gainin cash. The proposed transaction includes the Company's Mechanical Access Solutions ("MAS") business comprising of the automatic doors business. As of April 2, 2022 and January 2, 2022, the assets and liabilities related to MAS were classified as held for sale on the Company's Condensed Consolidated Balance Sheets. The sale is subject to regulatory approval and other customary closing conditions, and is expected to close mid-year.
As part of the purchase and sale agreement, the Company will perform transition services relating to certain administrative functions for Purchaser primarily for a period of two years or less, pending integration of these functions into their pre-existing business processes.
Commercial Electronic Security and Healthcare businesses
In December 2021, the Company announced that it had reached a definitive agreement for the sale of most of its Security assets to Securitas AB ("Purchaser") for approximately $3.2 billion in cash. The proposed transaction includes the Company's Convergent Security Solutions ("CSS") business comprising of the commercial electronic security and healthcare businesses. During the first quarter of 2021, the Company recognized a pre-tax loss of $1.0 million asAs a result, of the finalizationassets and liabilities related to CSS were classified as held for sale on the Company's Condensed Consolidated Balance Sheets. The sale is subject to regulatory approvals and other customary closing conditions, and the Company's current expectation is the transaction will close mid-year.
As part of the purchase priceand sale agreement, the Company will perform transition services relating to certain administrative functions for Purchaser primarily for a period of one year or less, pending integration of these functions into their pre-existing business processes. A portion of the commercial electronic security divestiture.$3.2 billion received at closing reimburses the Company for transition service costs expected to be incurred.
The MAS and CSS divestitures represent a single plan to exit the Security segment and are considered a strategic shift that will have a major effect on the Company’s operations and financial results. As such, the operating results of the MAS and CSS are reported as discontinued operations. Amounts previously reported have been reclassified to conform to this presentation to allow for meaningful comparison of continuing operations. 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
Summarized operating results of discontinued operations are presented in the following table for the three months ended April 2, 2022 and April 3, 2021:
| | | | | | | | | | | |
| Year-to-Date |
| (Millions of Dollars) | 2022 | | 2021 |
| Net Sales | $ | 488.3 | | | $ | 476.3 | |
| Cost of sales | 312.6 | | | 299.8 | |
Selling, general, and administrative(1) | 138.2 | | | 133.7 | |
| Other, net and restructuring charges | 15.3 | | | 11.7 | |
| Earnings from discontinued operations before income taxes | $ | 22.2 | | | $ | 31.1 | |
| Income taxes on discontinued operations | 2.4 | | | 3.9 | |
| Net earnings from discontinued operations | $ | 19.8 | | | $ | 27.2 | |
(1) Includes provision for credit losses.
The following table presents the significant non-cash items and capital expenditures for the discontinued operations with respect to MAS and CSS that are included in the Company'sCondensed Consolidated Statements of Operations and Comprehensive Income through the dates of sale in 2020. Pre-tax incomeCash Flows (in millions) for these businesses totaled $1.6 million and $2.7 million during the three and nine months ended September 26, 2020, respectively.April 2, 2022 and April 3, 2021:
| | | | | | | | | | | |
| Year-to-Date |
| (Millions of Dollars) | 2022 | | 2021 |
| Depreciation and amortization | $ | 1.3 | | | $ | 16.6 | |
| Capital expenditures | $ | 4.0 | | | $ | 4.9 | |
| Stock-based compensation | $ | 9.3 | | | $ | 2.0 | |
The carrying amounts of the assets and liabilities that were aggregated in assets held for sale and liabilities held for sale as of April 2, 2022 and January 1, 2022 are presented in the following table:
| | | | | | | | | | | |
| (Millions of Dollars) | April 2, 2022 | | January 1, 2022 |
| Cash and cash equivalents | $ | 150.8 | | | $ | 145.1 | |
| Accounts and notes receivable, net | 495.7 | | | 513.9 | |
| Inventories, net | 170.5 | | | 169.4 | |
| Other current assets | 47.0 | | | 41.2 | |
| Property, plant and equipment, net | 90.9 | | | 84.3 | |
| Goodwill and other intangibles, net | 2,250.6 | | | 2,270.2 | |
| Other assets | 287.0 | | | 281.3 | |
| Total assets | $ | 3,492.5 | | | $ | 3,505.4 | |
| | | |
| Accounts payable and accrued expenses | $ | 463.5 | | | $ | 460.4 | |
| Other long-term liabilities | 129.1 | | | 137.4 | |
| Total liabilities | $ | 592.6 | | | $ | 597.8 | |
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains statements reflecting the Company's views about its future performance that constitute “forward-looking statements” under the Private Securities Litigation Act of 1995. There are a number of important factors that could cause actual results to differ materially from those indicated by such forward-looking statements. Please read the information under the caption entitled “Cautionary Statement under the Private Securities Litigation Reform Act of 1995."
Throughout this Management's Discussion and Analysis (“MD&A”), references to Notes refer to the "Notes To Unaudited(Unaudited) Condensed Consolidated Financial Statements" in Part 1, Item 1 of this Form 10-Q/A,10-Q, unless otherwise indicated.
Restatement
As discussed in the Explanatory Note to this Quarterly Report on Form 10-Q/A and Note A, Significant Accounting Policies - Restatement, the Company has restated certain information contained in its previously issued unaudited interim consolidated financial statements for the periods ended October 2, 2021, July 3, 2021 and April 3, 2021, as well as the related comparative interim periods in 2020 (collectively, the "Affected Periods"), to correct the errors in its original accounting for the Equity Units. The restatement relates to the correction of basic and diluted earnings per share, as applicable, and the classification of certain amounts in the consolidated balance sheets, statements of cash flows and statements of changes in shareowners’ equity. The corrections have no impact on the Company’s net earnings, total assets, cash flows from operations or business segment information. Furthermore, any forward-looking statements herein are as of the Original Form 10-Q for the period ended October 2, 2021, filed with the SEC on November 12, 2021. Refer to Note A, Significant Accounting Policies - Restatement, for further discussion regarding the restatement impacts. In addition, for further information regarding the matters leading to the restatement and related findings with respect to the Company’s internal control over financial reporting, refer to Item 4. Controls and Procedures in Part I of this Quarterly Report on Form 10-Q/A.
BUSINESS OVERVIEW
Strategy
The Company is a diversified global industrial provider of hand tools, power tools, outdoor products and related accessories, engineered fastening systems and products, and services and equipment for oil & gas and infrastructure applications, commercial electronic security and monitoring systems, healthcare solutions, and automatic doors.applications. The Company continues to execute a growth and acquisition strategy over the long-term that involves industry, geographic and customer diversification to foster sustainable revenue, earnings and cash flow growth. The Company remains focused on delivering above-market organic growth with margin expansion by leveraging its proven and long-standing Stanley Black & Decker Operating Model (“SBD Operating Model”) which has continually evolved over the past 15 years as times have changed. At the center of the SBD Operating Model is the concept of the interrelationship between people and technology, which intersect and interact with the other key elements: Performance Resiliency, Extreme Innovation, Operations Excellence and Extraordinary Customer Experience. Each of these elements co-exists synergistically with the others in a systems-based approach. The Company will leverage the SBD Operating Model to continue making strides towards achieving its vision of delivering top-quartile financial performance, becoming known as one of the world’s leading innovators and elevating its commitment to social responsibility.
The Company’s growth and acquisition strategy is interdependent with its social responsibility (ESG) strategy focused on workforce upskilling, product innovation, and environmental preservation including mitigating the impacts of climate change. These are core business issues that ensure the long-term viability of the Company, its customers, suppliers, and communities. The Company has established environmental, social and corporate governance ("ESG") targets embodied in its 2030 Corporate Social Responsibility (“CSR”)ESG strategy that include upskillingempowering 10 million makers and creators, enhancing 500 million lives through purpose drivenpurpose-driven product innovation, becoming carbon-positive,carbon-neutral, landfill-free across its operations, and reducing water use in water stressed and scarce areas. The carbon positiveneutrality 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 CSRESG strategy considers all life-cycle stages including material procurement from supply chain partners, product design, manufacturing, distribution and transportation, product use, product service and end-of-life. Refer to section "Human Capital Management" in Item 1 Business of the Company’s Form 10-K/A10-K for the year ended January 2, 20211, 2022 for additional information regarding the Company's commitment to upskilling its employees and improving diversity, equity and inclusion.
In terms of capital allocation, the Company remains committed, over time, to returning approximately 50% of free cash flowexcess capital to shareholders through a strong and growing dividend as well as opportunistically repurchasing shares. The remaining free cash flowcapital (approximately 50%) will be deployed towards acquisitions.
Share Repurchases And Other Securities
During the first quarter of 2022, the Company repurchased 12,645,371 shares of common stock for approximately $2.3 billion through a combination of an accelerated share repurchase ("ASR") and open market share repurchases. The ASR terms provide for an initial delivery of 85% of the total notional share equivalent at execution, or 10,756,770 shares. The final delivery of the remaining shares under the ASR is expected to be completed by the end of the second quarter of 2022. The Company plans to complete the remaining share repurchases of its planned $4 billion share repurchase program in 2023. Refer to Note J, Equity Arrangements, for further discussion.
In addition, on April 23, 2021, the Board of Directors approved repurchases by the Company of its outstanding securities other than common stock up to an aggregate amount of $3.0 billion. No repurchases have been executed pursuant to this authorization to date.
Pending Sale of Mechanical Access Solutions ("MAS")
In April 2022, the Company announced that it had reached a definitive agreement for the sale of its automatic doors business to Allegion plc for $900 million in cash. The sale is subject to regulatory approval and other customary closing conditions, and is expected to close mid-year.
Pending Sale of Convergent Security Solutions ("CSS")
In December 2021, the Company announced that it had reached a definitive agreement for the sale of most of its Security assets to Securitas AB for $3.2 billion in cash. The proposed transaction includes the Company's CSS business comprising of commercial electronic security and healthcare businesses. The transaction does not include the Company's automatic doors business. The sale is subject to regulatory approvals and other customary closing conditions, and the Company's current expectation is the transaction will close mid-year.
Net proceeds from the sale of MAS and CSS are expected to be used to fund debt reduction and to contribute to the Company's previously announced share repurchase program. The use of net proceeds towards a planned share repurchase program is consistent with the Company's long-term capital allocation strategy focused on value maximization.
Acquisitions
On December 1, 2021, the Company acquired the remaining 80 percent ownership stake in MTD Holdings Inc. ("MTD"), a privately held global manufacturer of outdoor power equipment. The Company previously acquired a 20 percent interest in MTD in January 2019. With over $2.6 billion of revenue in 2021, MTD designs, manufactures and distributes lawn tractors, zero turn ride on mowers, walk behind mowers, snow blowers, residential robotic mowers, handheld outdoor power equipment and garden tools for both residential and professional consumers under well-known brands like Cub Cadet® and Troy-Bilt®.
On November 12, 2021, the Company acquired Excel Industries ("Excel"). Excel is a leading designer and manufacturer of premium commercial and residential turf-care equipment under the brands of Hustler Turf Equipment® and BigDog Mower Co®. The Company believes this is a strategically important bolt-on acquisition that bolsters the presence in the independent dealer network.
The Company expects the combination of MTD, Excel and its existing outdoor strategic business unit in Tools & Outdoor will create a global leader in the $25 billion and growing outdoor category, with strong brands and growth opportunities. As part of the integration of these businesses, the Company plans to design, develop and manufacture battery and electric-powered solutions for professional and residential users. This will position the combined businesses to be a leader as preferences shift from gas powered equipment toward electrified solutions in outdoor power equipment.
Refer to Note F, Acquisitions and Investments, for further discussion.
COVID-19 Pandemic
The novel coronavirus (COVID-19)("COVID-19") outbreak has adversely affected the Company's workforce and operations, as well as the operations of its customers, distributors, suppliers and contractors. The COVID-19 pandemic has also resulted in significant volatility and uncertainty in the markets in which the Company operates. To successfully navigate through this unprecedented period, the Company has remained focused on the following key priorities:
•Ensuring the health and safety of its employees and supply chain partners;
•Maintaining business continuity and financial strength and stability;
•Serving its customers as they provide essential products and services to the world; and
•Doing its part to mitigate the impact of the virus across the globe.
To respond to the volatile and uncertain environment, the Company implemented a comprehensive cost reduction and efficiency program in 2020, which delivered approximately $625 million of net savings across 2021 and 2020. Cost actions executed under the program included headcount reductions, furloughs, reduced employee work schedules, a voluntary retirement program, and footprint rationalizations. The Company took steps in 2020 to make some of the cost actions permanent while certain employees were returned to full-time status. This ensured the sustainability of the cost reduction program into 2021 while providing more employment stability for the Company's remaining associates.
Acquisitions
On February 24, 2020, the Company acquired Consolidated Aerospace Manufacturing, LLC ("CAM"), an industry-leading manufacturer of specialty fasteners and components for the aerospace and defense markets. The acquisition further diversified the Company's presence in the industrial markets and expanded its portfolio of specialty fasteners in the aerospace and defense markets.
Pending Acquisitions
On August 16, 2021, the Company agreed to acquire the remaining 80 percent ownership stake in MTD Holdings, Inc. ("MTD"), a privately held global manufacturer of outdoor power equipment, for $1.6 billion in cash. The Company previously acquired a 20 percent interest in MTD in January 2019 for $234 million in cash. With over $2.5 billion of revenue in the last twelve months, MTD designs, manufactures and distributes lawn tractors, zero turn mowers, walk behind mowers, snow blowers, residential robotic mowers, handheld outdoor power equipment and garden tools for both residential and professional consumers under well-known brands like Cub Cadet® and Troy-Bilt®. The Company expects the combination of businesses will create a global leader in the $25 billion and growing outdoor category, with strong brands and growth opportunities. Upon closing of the remaining 80 percent ownership stake, the acquisition will be accounted for as a business combination using the acquisition method of accounting and consolidated into the Company's Tools & Storage segment. The transaction is subject to customary closing conditions, including regulatory approvals, and is expected to close in the fourth quarter of 2021.
On September 12, 2021, the Company reached an agreement to acquire Excel Industries ("Excel") for $375 million in cash. Excel is a leading designer and manufacturer of premium commercial and residential turf-care equipment under the brands of Hustler Turf Equipment and BigDog Mower Co. The Company believes this is a strategically important bolt-on acquisition as it builds an outdoor products leader. The acquisition will be accounted for as a business combination using the acquisition method of accounting and consolidated into the Company's Tools & Storage segment. The transaction is subject to customary closing conditions, including regulatory approvals, and is expected to close in the fourth quarter of 2021.
Refer to Note F, Acquisitions and Investments, for further discussion.
Segments
The Company'sCompany’s operations are classified into threetwo reportable business segments, which also represent its operating segments: Tools & Storage, IndustrialOutdoor and Security.Industrial.
Tools & Storage
The Tools & StorageOutdoor segment is comprised of the Power Tools Group ("PTG"), Hand Tools, Accessories & Storage ("HTAS"), and Outdoor Products GroupPower Equipment ("OPG"Outdoor") businesses. Annual revenues in the Tools & StorageOutdoor segment were $10.3$12.8 billion in 2020,2021, representing 71%82% of the Company’s total revenues.
The PTG business includes both professional and consumer products. Professional products include professional grade corded and cordless electric power tools and equipment including drills, impact wrenches and drivers, grinders, saws, routers and sanders, as well as pneumatic tools and fasteners including nail guns, nails, staplers and staples, concrete and masonry anchors. Consumer products include corded and cordless electric power tools sold primarily under the BLACK+DECKER® brand, and home products such as hand-held vacuums, paint tools and cleaning appliances.
The HTAS business sells hand tools, power tool accessories and storage products. Hand tools include measuring, leveling and layout tools, planes, hammers, demolition tools, clamps, vises, knives, saws, chisels and industrial and automotive tools. Power tool accessories include drill bits, screwdriver bits, router bits, abrasives, saw blades and threading products. Storage products include tool boxes, sawhorses, medical cabinets and engineered storage solution products.
The OPGOutdoor business primarily sells corded and cordless electric lawn and garden products, including hedge trimmers, string trimmers, lawn mowers, pressure washers and related accessories, and gas powered lawn and garden products, including lawn tractors, zero turn ride on mowers, walk behind mowers, snow blowers, residential robotic mowers, utility terrain vehicles (UTVs), handheld outdoor power equipment, garden tools, and parts and accessories to professionals and consumers under the DEWALT®, CUB CADET®, BLACK+DECKER®, CRAFTSMAN®, TROY-BILT®, and DEWALT®HUSTLER® brand names.
Industrial
The Industrial segment is comprised of the Engineered Fastening and Infrastructure businesses. Annual revenues in the Industrial segment were $2.3$2.5 billion in 2020,2021, representing 16% of the Company’s total revenues.
The Engineered Fastening business primarily sells highly engineered components such as fasteners, fittings and various engineered products, which are designed for specific application across multiple verticals. The product lines include externally threaded fasteners, blind rivets and tools, blind inserts and tools, drawn arc weld studs and systems, engineered plastic and mechanical fasteners, self-piercing riveting systems, precision nut running systems, micro fasteners, high-strength structural fasteners, axel swage, latches, heat shields, pins, and couplings.
The Infrastructure business consists of the Attachment Tools and Oil & Gas product lines. Attachment Tools sells hydraulic tools and high quality, performance-driven heavy equipment attachment tools for off-highway applications. Oil & Gas sells and rents custom pipe handling, joint welding and coating equipment used in the construction of large and small diameter pipelines and provides pipeline inspection services.
Security
The Security segment is comprised of the Convergent Security Solutions ("CSS") and Mechanical Access Solutions ("MAS") businesses. Annual revenues in the Security segment were $1.9 billion in 2020, representing 13% of the Company’s total revenues.
The CSS business designs, supplies and installs commercial electronic security systems and provides electronic security services, including alarm monitoring, video surveillance, fire alarm monitoring, systems integration and system maintenance. Purchasers of these systems typically contract for ongoing security systems monitoring and maintenance at the time of initial equipment installation. The business also sells healthcare solutions, which include asset tracking, infant protection, pediatric protection, patient protection, wander management, fall management, and emergency call products. The MAS business primarily sells automatic doors.
RESULTS OF OPERATIONS
The Company’s results represent continuing operations and exclude the commercial electronic security, healthcare, and automatic doors businesses, unless specifically noted. These divestitures represent a single plan to exit the Security segment and are considered a strategic shift that will have a major effect on the Company's operations and financial results. Therefore, the operating results of these businesses have been classified as discontinued operations.
Certain Items Impacting Earnings
The Company has provided a discussion of its results both inclusive and exclusive of acquisition-related and other charges. Organic growth is also utilized to describe results aside from the impacts of foreign currency fluctuations, acquisitions during their initial 12 months of ownership, and divestitures. The results and measures, including gross profit, selling, general, and administrative ("SG&A"), Other, net, and segment profit, on a basis excluding acquisition-related and other charges, and organic growth are Non-GAAP financial measures. The Company considers the use of Non-GAAP financial measures relevant to aid analysis and understanding of the Company’s results and business trends aside from the material impact of these items and ensures appropriate comparability to operating results of prior periods.
The Company’s operating results at the consolidated level as discussed below include and exclude acquisition-related and other charges impacting gross profit, SG&A, and Other, net. The Company’s business segment results as discussed below include and exclude acquisition-related and other charges impacting gross profit and SG&A. These amounts for the third quarterfirst quarters of 2022 and year-to-date periods of 2021 and 2020 are as follows:
Third Quarter and Year-To-Date 2021 | | | | | | | | | | | | | | | | | | | | | | | |
| | | GAAP | | Acquisition- Related Charges & Other | | Non-GAAP |
| Gross profit | | $ | 1,305.4 | | | $ | 88.8 | | | $ | 1,394.2 | |
| Selling, general and administrative1 | | 960.3 | | | (78.9) | | | 881.4 | |
| Operating profit | | 345.1 | | | 167.7 | | | 512.8 | |
| Earnings from continuing operations before income taxes and equity interest | | 178.5 | | | 221.4 | | | 399.9 | |
| Income taxes on continuing operations | | 22.9 | | | 29.8 | | | 52.7 | |
| Net Earnings from Continuing Operations Attributable to Common Shareowners - Diluted | | 155.8 | | | 191.6 | | | 347.4 | |
| Diluted earnings per share of common stock - Continuing operations | | $ | 0.94 | | | $ | 1.16 | | | $ | 2.10 | |
| 1 | Includes provision for credit losses | | | | | | |
The Company reported approximately $43 millionAcquisition-Related Charges and $116 million in pre-tax chargesOther in the third quarter and year-to-date 2021 periods, respectively, which were comprised oftable above relate to the following:
•$5 million and $12 million for the third quarter and year-to-date 2021 periods, respectively,Charges reducing Gross Profitprofit primarily pertaining to inventory step-up charges and the Russia business closure;
•Charges in SG&A primarily related to a voluntary retirement program, integration-related costs, and the Russia business closure;
•Other charges included in Earnings from continuing operations before income taxes and equity interest consisting of:
◦$1.0 million in Other, net primarily related to deal transaction costs; and
◦$52.7 million of restructuring charges pertaining to severance and related costs;
•Income taxes on continuing operations include the tax effect on the above net charges.
First Quarter 2021
| | | | | | | | | | | | | | | | | | | | | | | |
| | | GAAP | | Acquisition- Related Charges & Other | | Non-GAAP |
| Gross profit | | $ | 1,387.8 | | | $ | 4.4 | | | $ | 1,392.2 | |
| Selling, general and administrative1 | | 719.1 | | | (15.0) | | | 704.1 | |
| Operating profit | | 668.7 | | | 19.4 | | | 688.1 | |
| Earnings from continuing operations before income taxes and equity interest | | 573.3 | | | 23.8 | | | 597.1 | |
| Income taxes on continuing operations | | 115.5 | | | 6.0 | | | 121.5 | |
| Share of net earnings of equity method investment | | 1.8 | | | 0.2 | | | 2.0 | |
| Net Earnings from Continuing Operations Attributable to Common Shareowners - Diluted | | 451.0 | | | 18.0 | | | 469.0 | |
| Diluted earnings per share of common stock - Continuing operations | | $ | 2.74 | | | $ | 0.11 | | | $ | 2.85 | |
| 1 | Includes provision for credit losses | | | | | | |
The Acquisition-Related Charges and Other in the table above relate to the following:
•Charges reducing Gross profit pertaining to facility-related charges;
•$24 million and $68 million for the third quarter and year-to-date 2021 periods, respectively,Charges in SG&A primarily for functional transformation initiatives;
•$8 millionOther charges included in Earnings from continuing operations before income taxes and $10equity interest consisting of:
◦$1.6 million for the third quarter and year-to-date 2021 periods, respectively, in Other, net primarily related to deal transactiontransactions costs;
•◦$41.0 million net loss for the year-to-date 2021 period pertaining to a previously divested businesses;business; and
•◦$61.8 million and $22 million for the third quarter and year-to-date 2021 periods, respectively, in Restructuringof restructuring charges pertaining to severance and facility closures.closures;
The•Income taxes on continuing operations include the tax effect on the above charges during the third quarter and year-to-date periods of 2021 was approximately $10 million and $28 million, respectively. In addition, the Company's share of MTD's net earnings included an after-tax charge for the year-to-date 2021 period of $11 million related primarily to a one-time retroactive duty on imports of a specific component.
The above items resulted in net after-tax charges of approximately $33 million, or $0.20 per diluted share, and $99 million, or $0.61 per diluted share, respectively, for the third quarter and year-to-date 2021 periods.
Third Quarter and Year-To-Date 2020
The Company reported approximately $89 million and $320 million in net pre-tax charges in the third quarter and year-to-date 2020 periods, respectively, which were comprised of the following:charges.
•$7 million and $59 million for the third quarter and year-to-date 2020 periods, respectively, reducing Gross Profit pertaining to a cost reduction program and inventory step-up charges;
•$36 million and $145 million for the third quarter and year-to-date 2020 periods, respectively, in SG&A primarily for a cost reduction program, Security business transformation and margin resiliency initiatives;Table of Contents•$3 million and $41 million for the third quarter and year-to-date 2020 periods, respectively, in Other, net primarily related to a cost reduction program and deal transaction costs; and
•$43 million and $75 million for the third quarter and year-to-date 2020 periods, respectively, in Restructuring charges pertaining to severance and facility closures.
The tax effect on the above charges during the third quarter and year-to-date periods of 2020 was approximately $21 million and $75 million, respectively. The Company also recorded a one-time tax benefit of $119 million in the second quarter of 2020 associated with a supply chain reorganization. In addition, the Company's share of MTD's net earnings included an after-tax charge during the third quarter and year-to-date 2020 periods of $3 million and $7 million, respectively, related primarily to restructuring charges.
The above items resulted in net after-tax charges of approximately $71 million, or $0.44 per diluted share, and $134 million, or $0.83 per diluted share, respectively, for the third quarter and year-to-date 2020 periods.
Below is a summary of the Company’s operating results at the consolidated level, followed by an overview of business segment performance.
Consolidated Results
Net Sales: Net sales were $4.263$4.448 billion in the third quarterfirst three months of 20212022 compared to $3.850$3.721 billion in the third quarterfirst three months of 2020,2021, representing an increase of 11%20%, primarily driven by an 8%a 23% increase in volume, 2%from strategic outdoor power equipment acquisitions and a 5% increase infrom price and favorable foreign currency impacts of 1%. Tools & Storage net sales increased 14% compared to the third quarter of 2020 due to an 11% increase in volume, 2% increase in price and favorable currency impacts of 1%. Industrial net sales increased 1% compared to the third quarter of 2020 primarily due to a 2% increase in price and favorable currency impacts of 1%,realization, partially offset by a 1%6% and 2% decrease from both volume and an Oilforeign currency, respectively. Volume was in line with expectations, but constrained by temporary electronic component supply challenges, which have continued to improve. Tools & Gas product line divestiture. NetOutdoor net sales in the Security segment increased 5%24% compared to the third quarterfirst three months of 2020 driven2021 due to a 27% increase from the MTD and Excel acquisitions and a 5% increase in price, partially offset by increaseda 6% decline in volume of 7%, favorable impactsand a 2% decrease from foreign currencycurrency. Industrial net sales declined 2% compared to the first three months of 1% and 1% increases from both2021 as a 5% increase in price and acquisitions, partiallywas more than offset by a 5% decline from divestitures.
Net sales were $12.761 billion in the first nine months of 2021 compared to $10.127 billion in the first nine months of 2020, representing an increase of 26%, driven by a 22% increase in volume 2% increase in price and favorable foreign currency impacts of 3%, partially offset by a 1% decline related to divestitures. Tools & Storage net sales increased 34% compared to the first nine months of 2020 due to a 29% increase in volume, favorable foreign currency impacts of 3% and a 2% increase in price. Industrial net sales increased 9% compared to the first nine months of 2020 primarily due to increased volume of 6%, favorable currency impacts of 2%, a 1% increase in price and a 1% increase related to the CAM acquisition, partially offset by a 1% decrease from an Oil & Gas product line divestiture. Net sales in the Security segment increased 8% compared to the first nine months of 2020 driven by a 6% increase in volume, favorable impactsimpact from foreign currency of 4% and a 1% increase due to both price and acquisitions, partially offset by a 4% decline from divestitures.currency.
Gross Profit: Gross profit was $1.392$1.305 billion, or 32.6%29.3% of net sales, in the third quarterfirst three months of 20212022 compared to $1.376$1.388 billion, or 35.7%37.3% of net sales, in the third quarterfirst three months of 2020.2021. Acquisition-related and other charges, which reduced gross profit, were $5.0$88.8 million for the three months ended OctoberApril 2, 20212022 and $7.0$4.4 million for the three months ended September 26, 2020.April 3, 2021. Excluding these charges, gross profit was 32.8%31.3% of net sales for the three months ended OctoberApril 2, 2021,2022, compared to 35.9%37.4% for the three months ended September 26, 2020,April 3, 2021, as volume, price productivity and mix benefits from innovation wererealization was more than offset by accelerated commodity transportationinflation, higher supply chain costs to serve demand and labor inflation required to meet strong demand.lower volumes.
Gross profit was $4.499 billion, or 35.3% of net sales, in the first nine months of 2021 compared to $3.412 billion, or 33.7% of net sales, in the first nine months of 2020. Acquisition-related and other charges, which reduced gross profit, were $12.3 million for the nine months ended October 2, 2021 and $58.7 million for the nine months ended September 26, 2020. Excluding these charges, gross profit was 35.4% of net sales for the nine months ended October 2, 2021, compared to 34.3% for the nine months ended September 26, 2020. The year-over-year change was primarily driven by volume, price, productivity and mix benefits from innovation, and savings from the 2020 cost reduction program, partially offset by accelerated commodity, transportation and labor inflation required to meet strong demand.
SG&A Expenses: SG&A, inclusive of the provision for credit losses, was $898.8$960.3 million, or 21.1%21.6% of net sales, in the third quarterfirst three months of 2021,2022, compared to $738.9$719.1 million, or 19.2%19.3% of net sales, in the third quarterfirst three months of 2020.2021. Within SG&A, acquisition-related and other charges totaled $15.9$78.9 million for the three months ended OctoberApril 2, 20212022 and $36.0$15.0 million for the three months ended September 26, 2020.April 3, 2021. Excluding these charges, SG&A was 20.5%19.8% of net sales for the three months ended OctoberApril 2, 2021,2022, compared to 18.3%18.9% for the three months ended September 26, 2020, as growth investment was deployed across the businesses.
SG&A, inclusive of the provision for credit losses, was $2.653 billion, or 20.8% of net sales, in the first nine months ofApril 3, 2021, compareddue to $2.219 billion, or 21.9% of net sales, in the first nine months of 2020. Within SG&A, acquisition-related and other charges totaled $59.5 million for the nine months ended October 2, 2021 and $145.0 million for the nine months ended September 26, 2020. Excluding these charges, SG&A was 20.3% of net sales for the nine months ended October 2, 2021, compared to 20.5% for the nine months ended September 26, 2020. The year-over-year change was primarily driven by savings from the 2020 cost reduction program partially offset by growth investments deployed across the businesses.
Distribution center costs (i.e. warehousing and fulfillment facility and associated labor costs) are classified within SG&A. This classification may differ from other companies who may report such expenses within cost of sales. Due to diversity in practice, to the extent the classification of these distribution costs differs from other companies, the Company’s gross profitmargins may not be comparable.
Corporate Overhead: The corporate overhead element of SG&A, which is not allocated to the business segments, is comprised of world headquarters facility expense, cost for the executive management team and expenses pertaining to certain centralized functions that benefit the entire Company but are not directly attributable to the businesses, such as legal and corporate finance functions. Corporate overhead amounted to $76.5 million, or 1.8% of net sales, in the third quarter of 2021 compared to $62.8 million, or 1.6% of net sales, in the third quarter of 2020. Excluding acquisition-related and other charges of $6.4 million for the three months ended October 2, 2021 and $17.9 million for the three months ended September 26, 2020, the corporate overhead element of SG&A was 1.6% and 1.2%, in the third quarter of 2021 and 2020, respectively. The increase in 2021 compared to 2020 was primarily due to higher employee-related costs.
On a year-to-date basis, the corporate overhead element of SG&A amounted to $244.6 million, or 1.9% of net sales, in 2021 compared to $190.4 million, or 1.9% of net sales, in 2020. Excluding acquisition-related and other charges of $25.5 million for the nine months ended October 2, 2021 and $49.7 million for the nine months ended September 26, 2020, the corporate overhead element of SG&A was 1.7% and 1.4%, in the first nine months of 2021 and 2020, respectively. The year-over-year change was primarily due to higher employee-related costs.
Other, net: Other, net amounted to $39.5$62.0 million and $74.3$48.0 million in the third quarterfirst three months of 20212022 and 2020,2021, respectively. Excluding acquisition-related and other charges of $8.1$1.0 million, and $3.2 million in the third quarter of 2021 and 2020, respectively, Other, net totaled $31.4$61.0 million and $71.1 million, respectively, during these periods. The year-over-year change was primarily due to appreciation of Stanley Ventures' investments.
Other, net amounted to $152.3 million and $236.1 million infor the first ninethree months of 2021 and 2020, respectively.ended April 2, 2022. Excluding acquisition-related and other charges of $10.2$1.6 million, and $41.9 million in the first nine months of 2021 and 2020, respectively, Other, net totaled $142.1$46.4 million and $194.2 million, respectively, during these periods.for the three months ended April 3, 2021. The year-over-year change was primarilyincrease in 2022 compared to 2021 is driven by higher intangible asset amortization due to appreciation of Stanley Ventures' investments.the MTD and Excel acquisitions.
Loss on Sale of BusinessesBusiness: TheDuring the first quarter of 2021, the Company reported a pre-tax loss on divestitures of $3.6$1.0 million for nine months ended October 2, 2021.related to a previously divested business.
Interest, net: Net interest expense was $43.5$51.9 million in the thirdfirst quarter of 20212022 compared to $50.7$44.6 million in the thirdfirst quarter of 2020. On a year-to-date basis, net interest expense was $131.9 million in 2021 compared to $155.1 million in 2020.2021. The year-over-year decrease for both periodsincrease was primarily driven by lowerhigher U.S. interest rates and lowerhigher average balances relating to the Company's commercial paper borrowings. On a year-to-date basis,borrowings, as well as the decrease was partially offset by lower interest income due to a decline$2.25 billion credit facility and $1.0 billion issuance of debt in rates.the first quarter of 2022.
Income Taxes: The Company recognized a net income tax benefit of $0.4 million and income tax expense of $192.8$22.9 million for the three and nine months ended OctoberApril 2, 2021, respectively,2022, resulting in an effective tax ratesrate of (0.1)% and 12.6%12.8%. Excluding the impacts of the acquisition-related and other charges, the effective tax rates were 2.0% and 13.3%rate was 13.2% for the three and nine months ended OctoberApril 2, 2021, respectively.2022. These effective tax rates differ from the U.S. statutory tax rate primarily due to a benefit associated with the Company'sCompany’s supply chain reorganization, tax on foreign earnings and the re-measurement of uncertain tax position reserves, the re-measurement of the deferred tax assets and liabilities due to foreign corporate income tax rate changes, and the tax benefit of equity-based compensation.
reserves. The Company recognized income tax expense of $78.4 million and a net tax benefit of $26.0$115.5 million for the three and nine months ended September 26, 2020, respectively,April 3, 2021, resulting in an effective tax ratesrate of 16.7% and (3.6)%20.1%. Excluding the one-time benefit of $118.8 million recorded in the second quarter of 2020 to reverse a deferred tax liability previously established related to certain unremitted earnings of foreign subsidiaries not permanently reinvested as a result of initiating a supply chain reorganization, and the impacts of the acquisition-related and other charges, the effective tax rates were 17.8% and 16.0%rate was 20.3% for the three and nine months ended September 26, 2020, respectively.April 3, 2021. These effective tax rates differ from the U.S. statutory tax rate primarily due to tax on foreign earnings, the re-measurement of uncertain tax position reserves, an intra-entity transfer of certain intellectual property rights, and the tax benefit of equity-based compensation.
Business Segment Results
The Company’s reportable segments are aggregations of businesses that have similar products, services and end markets, among other factors. The Company utilizes segment profit which is defined as net sales minus cost of sales and SG&A inclusive of the provision for credit losses (aside from corporate overhead expense), and segment profit as a percentage of net sales to assess the profitability of each segment.
The Company'sCompany’s operations are classified into threetwo reportable business segments, which also represent its operating segments: Tools & Storage, IndustrialOutdoor and Security.Industrial.
Tools & Storage:Outdoor:
| | | Third Quarter | | Year-to-Date | | | Year-to-Date |
| (Millions of Dollars) | (Millions of Dollars) | 2021 | | 2020 | | 2021 | | 2020 | (Millions of Dollars) | | 2022 | | 2021 |
| Net sales | Net sales | $ | 3,185.9 | | | $ | 2,804.1 | | | $ | 9,445.3 | | | $ | 7,072.1 | | Net sales | | $ | 3,801.2 | | | $ | 3,062.9 | |
| Segment profit | Segment profit | $ | 485.8 | | | $ | 597.1 | | | $ | 1,772.2 | | | $ | 1,177.0 | | Segment profit | | $ | 378.5 | | | $ | 644.7 | |
| % of Net sales | % of Net sales | 15.2 | % | | 21.3 | % | | 18.8 | % | | 16.6 | % | % of Net sales | | 10.0 | % | | 21.0 | % |
Tools & StorageOutdoor net sales increased $381.8$738.3 million, or 14%, in the third quarter of 2021 compared to the third quarter of 2020. Sales volume increased by 11%, while price and foreign currency increased sales by 2% and 1%, respectively. All regions delivered organic growth with growth in North America, Europe and emerging markets of 9%, 20% and 28%, respectively. Demand was robust across all markets as the secular shifts related to the reconnection with the home and garden and
eCommerce were amplified by the Company's industry-leading innovation and strong professional demand. North America reflected retail growth as well as consistently strong commercial and industrial channels. Point-of-sale demand remained at robust levels in U.S. retail and channel inventory ended below historical levels. Europe experienced growth across all major geographies and the commercial, retail brick and mortar, and eCommerce channels. Emerging markets growth was pervasive across all regions and was led by strong professional demand.
Tools & Storage net sales increased $2,373.2 million, or 34%24%, in the first ninethree months of 20212022 compared to the first ninethree months of 2020. Sales volume increased by 29%, while foreign currency and price increased sales by 3% and 2%, respectively. All regions saw organic growth and share gain with organic growth in North America, Europe and emerging markets of 25%, 41% and 56%, respectively. The year-over-year change was2021, primarily driven by a 27% increase from the same factors that impacted the third quarter of 2021, as discussed above.
Segment profit for the third quarter of 2021 was $485.8 million, or 15.2% of net sales, compared to $597.1 million, or 21.3% of net sales,MTD and Excel acquisitions and a 5% increase in the third quarter of 2020. Excluding acquisition-related and other charges of $14.2 million and $5.6 million for the three months ended October 2, 2021 and September 26, 2020, respectively, segment profit was 15.7% of net sales in the third quarter of 2021 and 21.5% in the third quarter of 2020, as volume, price, productivity and benefits from innovation were more thanpartially offset by accelerating transit costslower volume of 6% and 2% from unfavorable currency impacts. Organic growth from pricing improved 60 basis points versus the fourth quarter as the Company implemented new global price increases in response to meet strong demand, commodity inflation and new growth investments.higher costs to serve. Regional organic revenue was relatively in line with the anticipated supply-constrained performance with emerging markets at 5% and Europe at 2%, and North America at a 3% decline. Sales from outdoor acquisitions were modestly impacted by a later start to the merchandising season due to colder weather, and are expected to be recovered in the second and third quarter.
Segment profit for the first ninethree months of 20212022 was $1.772 billion,$378.5 million, or 18.8%10.0% of net sales, compared to $1.177 billion,$644.7 million, or 16.6%21.0% of net sales, in the first ninethree months of 2020.2021. Excluding acquisition-related and other charges of $27.6$153.7 million and $37.1$4.2 million for the ninethree months ended OctoberApril 2, 20212022 and September 26, 2020,April 3, 2021, respectively, segment profit was 19.1%14.0% of net sales in the first ninethree months of 2022 and 21.2% in the first three months of 2021, and 17.2% inas the first nine months of 2020. The year-over-year changeinitial benefit from price realization was primarily driven by volume, price, productivity and mix benefits from innovation, and savings from the 2020 cost reduction program, partiallymore than offset by accelerating transitinflation, higher supply chain costs, to meet strong demand, commodity inflationgrowth investments and new growth investments.lower volume.
Industrial:
| | | Third Quarter | | Year-to-Date | | | Year-to-Date |
| (Millions of Dollars) | (Millions of Dollars) | 2021 | | 2020 | | 2021 | | 2020 | (Millions of Dollars) | | 2022 | | 2021 |
| Net sales | Net sales | $ | 593.5 | | | $ | 586.6 | | | $ | 1,853.4 | | | $ | 1,694.8 | | Net sales | | $ | 646.6 | | | $ | 657.7 | |
| Segment profit | Segment profit | $ | 43.8 | | | $ | 63.8 | | | $ | 207.4 | | | $ | 136.7 | | Segment profit | | $ | 41.3 | | | $ | 99.8 | |
| % of Net sales | % of Net sales | 7.4 | % | | 10.9 | % | | 11.2 | % | | 8.1 | % | % of Net sales | | 6.4 | % | | 15.2 | % |
Industrial net sales increased $6.9decreased $11.1 million, or 1%2%, in the third quarterfirst three months of 20212022 compared to the third quarterfirst three months of 2020, primarily due to2021, as a 2%5% increase in price and favorable currency impacts of 1%, partiallywas more than offset by a 1% decrease from both5% decline in volume and an Oil & Gas product line divestiture.2% from unfavorable currency impacts. Engineered Fastening organic growth wasrevenues were down 1% as strong general industrial fastener growth was primarily offset by market-driven aerospace declines and lower automotive OEM production resulting from the global semiconductor shortage.a market driven decline in automotive. Infrastructure organic revenues were up 7%4%, as 16% organic13% growth in Attachment Tools was partially offset by lower pipeline project activity in Oil & Gas.
On a year-to-date basis, Industrial net sales increased $158.6 million, or 9%, in the first nine months of 2021 compared to the first nine months of 2020, as increases of 6% from volume, 2% from favorable currency and 1% from both price and acquisitions were partially offset by a 1% decline related to an Oil & Gas product line divestiture. Engineered Fastening organic revenues increased 10% as strong automotive and general industrial markets were partially offset by market-driven aerospace declines and lower automotive OEM production resulting from the global semiconductor shortage. Infrastructure organic revenues decreased 2% as growth in Attachment Tools was more than offset by lower pipeline project activity in Oil & Gas.
Industrial segment profit for the third quarterfirst three months of 20212022 totaled $43.8$41.3 million, or 7.4%6.4% of net sales, compared to $63.8$99.8 million, or 10.9%15.2% of net sales, in the corresponding 20202021 period. Excluding acquisition-related and other charges of $3.2$3.5 million and $8.4$3.6 million for the three months ended OctoberApril 2, 20212022 and September 26, 2020,April 3, 2021, respectively, segment profit amounted to 7.9%6.9% of net sales in the third quarterfirst three months of 2022 compared to 15.7% in the first three months of 2021 compared to 12.3% in the third quarter of 2020 as the benefitsinitial benefit from price and productivity wererealization was more than offset by commodity inflation growth investments and lower volume declines in higher-margin automotive and aerospace fasteners.
Year-to-date segment profit forCorporate Overhead
Corporate Overhead includes the first nine monthscorporate overhead element of 2021 totaled $207.4SG&A, which is not allocated to the business segments. Corporate Overhead amounted to $74.7 million or 11.2% of net sales,in 2022 compared to $136.7$75.8 million or 8.1% of net sales, in the corresponding 2020 period.2021. Excluding acquisition-related and other charges of $9.8 million and $59.4$10.5 million for the ninethree months ended OctoberApril 2, 2022 and $11.6 million for the three months ended April 3, 2021, the corporate overhead element of SG&A was $64.2 million for the three months ended April 2, 2022 and September 26, 2020, respectively, segment profit amounted to 11.7% of net sales in the first nine months of 2021 compared to 11.6% in the first nine months of 2020. The year-over-year change was primarily driven by volume, price, productivity and benefits from the 2020 cost savings program partially offset by commodity inflation, growth investments and unfavorable mix.April 3, 2021.
Security:
| | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter | | Year-to-Date |
| (Millions of Dollars) | 2021 | | 2020 | | 2021 | | 2020 |
| Net sales | $ | 483.8 | | | $ | 459.5 | | | $ | 1,462.5 | | | $ | 1,360.1 | |
| Segment profit | $ | 39.6 | | | $ | 39.3 | | | $ | 111.1 | | | $ | 69.4 | |
| % of Net sales | 8.2 | % | | 8.6 | % | | 7.6 | % | | 5.1 | % |
Security net sales increased $24.3 million, or 5%, in the third quarter of 2021 compared to the third quarter of 2020, as an increase of 7% from volume, favorable impacts from foreign currency of 1% and 1% increases from both price and acquisitions were partially offset by a 5% decline from divestitures. North America organic growth was 12% driven by strong backlog conversion in commercial electronic security and growth within automatic doors and healthcare. Europe was positive organically led by data-driven product solutions in France which is one of the new Health and Safety growth opportunities.
On a year-to-date basis, net sales increased $102.4 million, or 8%, in the first nine months of 2021 compared to the first nine months of 2020, as an increase of 6% from volume, favorable impacts from foreign currency of 4% and a 1% increase from both price and acquisitions was partially offset by a 4% decline from divestitures. North America and Europe organic revenues increased 9% and 5%, respectively, primarily due to the same factors that impacted the third quarter of 2021, as discussed above.
Security segment profit for the third quarter of 2021 was $39.6 million, or 8.2% of net sales, compared to $39.3 million, or 8.6% of net sales, in the corresponding 2020 period. Excluding acquisition-related and other charges of $5.0 million and $11.1 million for the three months ended October 2, 2021 and September 26, 2020, respectively, segment profit amounted to 9.2% of net sales in the third quarter of 2021 compared to 11.0% in the third quarter of 2020, as price and volume gains were more than offset by higher labor costs, pandemic-related inefficiencies and growth investments.
Year-to-date segment profit for the first nine months of 2021 was $111.1 million, or 7.6% of net sales, compared to $69.4 million, or 5.1% of net sales, in the corresponding 2020 period. Excluding acquisition-related and other charges of $16.8 million and $57.5 million for the nine months ended October 2, 2021 and September 26, 2020, respectively, segment profit amounted to 8.7% and 9.3% of net sales in the first nine months of 2021 and 2020, respectively. The year-over-year decrease was primarily driven by the factors discussed above that impacted the third quarter of 2021.
RESTRUCTURING ACTIVITIES
A summary of the restructuring reserve activity from January 1, 2022 to April 2, 2021 to October 2, 20212022 is as follows:
| | (Millions of Dollars) | (Millions of Dollars) | January 2,
2021 | | Net Additions | | Usage | | Currency | | October 2,
2021 | (Millions of Dollars) | January 1,
2022 | | Net Additions | | Usage | | Currency | | April 2,
2022 |
| Severance and related costs | Severance and related costs | $ | 87.5 | | | $ | 5.9 | | | $ | (49.9) | | | $ | 2.0 | | | $ | 45.5 | | Severance and related costs | $ | 28.2 | | | $ | 51.1 | | | $ | (22.8) | | | $ | 0.6 | | | $ | 57.1 | |
| Facility closures and asset impairments | Facility closures and asset impairments | 2.7 | | | 16.2 | | | (15.3) | | | — | | | 3.6 | | Facility closures and asset impairments | 3.5 | | | 1.6 | | | (2.5) | | | 0.1 | | | 2.7 | |
| Total | Total | $ | 90.2 | | | $ | 22.1 | | | $ | (65.2) | | | $ | 2.0 | | | $ | 49.1 | | Total | $ | 31.7 | | | $ | 52.7 | | | $ | (25.3) | | | $ | 0.7 | | | $ | 59.8 | |
For the three and nine months ended OctoberApril 2, 2021,2022, the Company recognized net restructuring charges of $5.8$52.7 million, and $22.1 million, respectively, primarily related to severance and facility-relatedrelated costs. The Company expects to achieve annual net cost savings of approximately $31$137 million by the end of 2022 related to the restructuring costs incurred during the ninethree months ended OctoberApril 2, 2021.2022. The majority of the $49.1$59.8 million of reserves remaining as of OctoberApril 2, 20212022 is expected to be utilized within the next 12 months.
Segments: The $22 million of net restructuring charges for the nine months ended October 2, 2021 includes: $7 million pertaining to the Tools & Storage segment; $2 million pertaining to the Industrial segment; $9 million pertaining to the Security segment; and $4 million relating to Corporate.
The $6$53 million of net restructuring charges for the three months ended OctoberApril 2, 20212022 includes: $1$43 million of net reversals pertaining toin the Tools & StorageOutdoor segment; $5$8 million pertaining toin the SecurityIndustrial segment; and $2 million relating toin Corporate.
The anticipated annual net cost savings of approximately $31$53 million related to the 20212022 restructuring actions include: $7$110 million in the Tools & StorageOutdoor segment; $10$14 million in the Industrial segment; $13 million in the Security segment; and $1$13 million in Corporate.
2022 OUTLOOK
This outlook discussion is intended to provide broad insight into the Company's near-term earnings and cash flow generation prospects. For the full year 2022, the Company projects mid-twenties total revenue growth year-over-year. The Company is revising its 2022 diluted earnings per share outlook to $7.20 - $8.30 on a diluted GAAP basis, from $10.10 to $10.70, and on an adjusted diluted EPS basis to $9.50 to $10.50 from $12.00 to $12.50. Free cash flow is expected to be approximately $1.0 billion to $1.5 billion as the Company focuses on serving its customers while leveraging the SBD Operating Model to drive working capital efficiency. Through the first quarter, $2.3 billion of the planned $4 billion share repurchase was initiated and the Company expects completion of the total program in 2023. The Company remains focused on disciplined capital allocation which aims to balance share repurchase activity with its commitment to dividends and strong investment grade credit ratings.
The Company has changed the following assumptions for 2022 from its prior outlook: MAS divestiture will approximate $0.30 of dilution to earnings per share; Russia business closure will approximate $0.15 of dilution to earnings per share; an incremental $600 million in commodity and transit inflation will approximate $3.50 of incremental dilution to earnings per share; and incremental pricing actions, first quarter out performance and other will approximate $1.70 of incremental accretion per diluted share.
The difference between the 2022 diluted earnings per share outlook and the diluted earnings per share range, excluding charges, is $2.20 - $2.30, consisting of acquisition-related and other charges. These forecasted charges primarily relate to restructuring expenses, a voluntary retirement program, the Russia business closure, integration costs and non-cash inventory step-up charges.
FINANCIAL CONDITION
Liquidity, Sources and Uses of Capital: The Company’s primary sources of liquidity are cash flows generated from operations and available lines of credit under various credit facilities.
Operating Activities: Cash flows provided byused in operations were $4.6 million$1.241 billion in the thirdfirst quarter of 2021 compared to $677.2$157.8 million in the corresponding period of 2020. Year-to-date cash flows provided by operations were $291.2 million compared to $600.2 million in the corresponding period of 2020.2021. The year-over-year change was mainly attributable to higher inventory balanceslevels to support strongmeet demand inwithin the Tools & Outdoor segment, coupled with longer lead times related to the global supply chain, and Storage segment.to a lesser extent, lower earnings.
Free Cash Flow: Free cash flow, as defined in the table below, was an outflow of $124.5 million$1.381 billion in the thirdfirst quarter of 20212022 compared to an inflow of $615.1$246.1 million in the corresponding period of 2020. On a year-to-date basis,2021. The year-over-year decrease in free cash flow was an outflow of $31.3 million in 2021 compared to an inflow of $390.7 million in 2020. Free cash flow decreased in both periodsprimarily due to higherincreased inventory balancesinvestments to support the strong demand outlook. This inventory level is planned to decline sequentially [beginning in the Tools and Storage segment and higher capital expenditures as discussed below.back half of 2022]. Management considers free cash flow an important indicator of its liquidity, as well as its ability to fund future growth and provide dividends to shareowners, and is useful information for investors. Free cash flow does not include deductions for mandatory debt service, other borrowing activity, discretionary dividends on the Company’s common and preferred stock and business acquisitions, among other items.
| | | | Third Quarter | | Year-to-Date | | | | Year-to-Date |
| (Millions of Dollars) | (Millions of Dollars) | 2021 | | 2020 | | 2021 | | 2020 | (Millions of Dollars) | | | 2022 | | 2021 |
| Net cash provided by operating activities | $ | 4.6 | | | $ | 677.2 | | | $ | 291.2 | | | $ | 600.2 | | |
| Net cash used in operating activities | | Net cash used in operating activities | | | $ | (1,241.1) | | | $ | (157.8) | |
| Less: capital and software expenditures | Less: capital and software expenditures | (129.1) | | | (62.1) | | | (322.5) | | | (209.5) | | Less: capital and software expenditures | | | (139.8) | | | (88.3) | |
| Free cash flow | Free cash flow | $ | (124.5) | | | $ | 615.1 | | | $ | (31.3) | | | $ | 390.7 | | Free cash flow | | | $ | (1,380.9) | | | $ | (246.1) | |
Investing Activities: Cash flows used in investing activities totaled $143.0$163.4 million and $63.8 million duringin the thirdfirst quarter of 2021 and 2020, respectively,2022 primarily due to capital and software expenditures of $129.1$139.8 million and $62.1 million, respectively.
Year-to-date cashpurchase price adjustment payments for previously acquired businesses of $36.5 million. Cash flows used in investing activities totaled $399.7$147.9 million in the first three months of 2021, primarily due to capital and software expenditures of $322.5$88.3 million and net investment hedge settlements of $53.9$52.6 million. Cash flows used in investing activities totaled $1.484 billion in the first nine months of 2020, primarily due to the CAM acquisition of $1.301 billion, net of cash acquired, and capital and software expenditures of $209.5 million.
Capital expenditures increased in both periods due to current year growth investments as well as planned lower capital expenditures levels during 2020 in response to the uncertainty around the long-term impact of the COVID-19 pandemic on the Company's business.
Financing Activities: Cash flows provided by financing activities totaled $7.8 million$1.425 billion in the thirdfirst quarter of 20212022 primarily driven by net short-term borrowings under the Company's commercial paper program of $149.6$2.845 billion and proceeds from debt issuances, net of fees, of $994.8 million, partially offset by share repurchases of $2.313 billion and cash dividend payments on common stock of $116.3 million. Cash flows used in financing activities totaled $95.0 million in the first three months of 2021 primarily driven by cash dividend payments on common stock of $126.0 million. Cash flows used in financing activities totaled $810.2 million in the third quarter of 2020 primarily driven by net payments on short-term borrowings under the Company's commercial paper program of $712.9 million and cash dividend payments on common stock of $109.6 million.
Year-to-date cash flows used in financing activities totaled $940.5 million in the first nine months of 2021 primarily driven by the redemption and conversion of the Remarketed Series C Preferred Stock for $750.0 million and cash dividend payments on common stock of $347.7$110.1 million, partially offset by net short-term borrowings under the Company's commercial paper program of $150.7 million and proceeds from issuances of common stock of $108.1$64.1 million. Cash flows provided by financing activities totaled $1.274 billion in the first nine months of 2020 primarily driven by net proceeds from debt issuances of $1.483 billion, proceeds generated from the remarketing of the Series C Preferred Stock of $750 million and proceeds of $93.8 million from issuances of common stock, partially offset by net short-term borrowings under the Company's commercial paper program of $341.8 million, cash dividend payments of $321.0 million and the Craftsman deferred purchase price payment of $250.0 million.
Credit Ratings & Liquidity:
The Company maintains strong investment grade credit ratings from the major U.S. rating agencies on its senior unsecured debt (S&P A, Fitch A-, Moody's Baa1), andas well as its commercial paper program (S&P A-1, Fitch F1, Moody's P-2). There were no changes to any of the Company's credit ratings during the first nine monthsquarter of 2021, however, S&P and Fitch revised their outlook to 'stable' from 'negative' in the first half of the year as a result of the Company's strong performance during the COVID-19 pandemic.2022. Failure to maintain strong investment grade credit rating levels could adversely affect the Company’s cost of funds, liquidity and access to capital markets, but would not have an adverse effect on the Company’s ability to access its existing committed credit facilities.
Cash and cash equivalents totaled $293$165.8 million and $142.1 million as of OctoberApril 2, 2021, comprised of $71 million2022 and January 1, 2022, respectively, which was primarily held in the U.S. and $222 million in foreign jurisdictions. As of January 2, 2021, cash and cash equivalents totaled $1.381 billion, comprised of $1.119 billion in the U.S. and $262 million in foreign jurisdictions.
As a result of the Tax Cuts and Jobs Act (the “Act”), the Company's tax liability related to the one-time transition tax associated with unremitted foreign earnings and profits totaled $290$287 million at OctoberApril 2, 2021.2022. The Act permits a U.S. company to elect to pay the net tax liability interest-free over a period of up to eight years. The Company has considered the implications of paying the required one-time transition tax and believes it will not have a material impact on its liquidity.
In October 2021, theThe Company increased thehas a $3.5 billion commercial paper program from $3.0 billion to $3.5 billion, which includes Euro denominated borrowings in addition to U.S. Dollars. As of OctoberApril 2, 2021,2022 and January 1, 2022, the Company had $147.0 millionborrowings outstanding of borrowings outstanding. As of January 2, 2021, the Company had no borrowings outstanding.$2.8 billion and $2.2 billion, respectively.
In September 2021, theThe Company amended and restated its existing five-year $2.0 billion committed credit facility with the concurrent execution ofhas a new five-year $2.5 billion committed credit facility (the “5-Year Credit Agreement”). Borrowings under the 5-Year Credit Agreement may be made in U.S. Dollars, Euros or Pounds Sterling. A sub-limit amount of $814.3 million is designated for swing line advances which may be drawn in Euros pursuant to the terms of the 5-Year Credit Agreement. Borrowings bear interest at a floating rate plus an applicable margin dependent upon the denomination of the borrowing and specific terms of thethe 5-Year Credit Agreement. The Company must repay all advances under the 5-Year Credit Agreement by the earlier of September 8, 2026 or upon termination. The 5-Year Credit Agreement is designated to be a liquidity back-stop for the Company's $3.5 billion U.S. Dollar and Euro commercial paper program. As of OctoberApril 2, 2021,2022 and January 2, 2021,1, 2022, the Company had not drawn on its five-year committed credit facility.
In September 2021, theThe Company terminated its 364-Day $1.0 billion credit facility and concurrently executedhas a new 364-Day $1.0 billion committed credit facility (the "364-Day Credit Agreement"). Borrowings under the 364-Day Credit Agreement may be made in U.S. Dollars or Euros and bear interest at a floating rate plus an applicable margin dependent upon the denomination of the borrowing and pursuant to the terms of the 364-Day Credit Agreement. The Company must repay all advances under the 364-Day Credit Agreement by the earlier of September 7, 2022 or upon termination. The Company may, however, convert all advances outstanding upon termination into a term loan that shall be repaid in full no later than the first anniversary of the termination date provided that the Company, among other things, pays a fee to the administrative agent for the account of each lender. The 364-Day Credit Agreement serves as part of the liquidity back-stop for the Company’s $3.5 billion U.S. Dollar and Euro commercial paper program previously discussed. program. As of OctoberApril 2, 2021,2022 and January 2, 2021,1, 2022, the Company had not drawn on its 364-Day committed credit facility.
The Company has a second 364-Day $1.0 billion committed credit facility (the "Second 364-Day Credit Agreement"). Borrowings under the Second 364-Day Credit Agreement may be made in U.S. Dollars and Euros and bear interest at a base rate plus an applicable margin determined at the time of the borrowing. The Company must repay all advances under the Second 364-Day Credit Agreement by the earlier of November 15, 2022 or upon termination. The Company may, however, convert all advances outstanding upon termination into a term loan that shall be repaid in full no later than the first anniversary of the termination date provided that the Company, among other things, pays a fee to the administrative agent for the account of each lender. As of April 2, 2022 and January 1, 2022, the Company had not drawn on its Second 364-Day Credit Agreement.
In January 2022, the Company executed a third 364-Day $2.5 billion committed credit facility (the "Third 364-Day Credit Agreement"). Borrowings under the Third 364-Day Credit Agreement shall be made in U.S. Dollars and bear interest at a base rate plus an applicable margin determined at the time of the borrowing. The Company must repay all advances under the Third 364-Day Credit Agreement by the earlier of January 25, 2023 or upon termination. The Company may, however, convert all advances outstanding upon termination into a term loan that shall be repaid in full no later than the first anniversary of the termination date provided that the Company, among other things, pays a fee to the administrative agent for the account of each lender. As of April 2, 2022, the Company had $2.3 billion outstanding on its Third 364-Day Credit Agreement.
In February 2022, the Company issued $500.0 million of senior unsecured term notes maturing February 24, 2025 ("2025 Term Notes") and $500.0 million of senior unsecured term notes maturing May 15, 2032 (“2032 Term Notes”). The 2025 Term Notes will accrue interest at a fixed rate of 2.3% per annum and the 2032 Term Notes at a fixed rate of 3.0% per annum, with interest payable semi-annually in arrears, and rank equally in right of payment with all of the Company's existing and future unsecured
unsubordinated debt. The Company received total net proceeds from this offering of approximately $991.9 million, net of approximately $8.1 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 indebtedness under the commercial paper facilities.
In November 2019, the Company issued 7,500,000 Equity Units with a total notional value of $750 million ("2019 Equity Units"). Each unit has a stated amount of $100 and initially consistedconsists of a three-year forward stock purchase contract ("2022 Purchase Contracts") for the purchase of a variable number of shares of common stock, on November 15, 2022, for a price of $100, and a 10% beneficial ownership interest in one share of 0% Series D Cumulative Perpetual Convertible Preferred Stock, without par, with a liquidation preference of $1,000 per share ("Series D Preferred Stock"). The Company received approximately $735 million in cash proceeds from the 2019 Equity Units, net of offering expenses and underwriting costs and commissions, and issued 750,000 shares of Series D Preferred Stock. The proceeds were used, together with cash on hand, to redeem the 2052 Junior Subordinated Debentures in December 2019. The Company also used $19 million of the proceeds to enter into capped call transactions utilized to hedge potential economic dilution. On and after November 15, 2022, the Series D Preferred Stock may be converted into common stock at the option of the holder. At the election of the Company, upon conversion, the Company may deliver cash, common stock, or a combination thereof. On or after December 22, 2022, the Company may elect to redeem for cash, all or any portion of the outstanding shares of the Series D Preferred Stock at a redemption price equal to 100% of the liquidation preference, plus any accumulated and unpaid dividends. If the Company calls the Series D Preferred Stock for redemption, holders may convert their shares immediately preceding the redemption date. Upon a successful remarketing of the Series D Preferred Stock (the "Remarketed Series D Preferred Stock"), the Company will
receive additional cash proceeds of $750 million and issue shares of the Remarketed Series D Preferred Stock. The Company pays the holders of the 2022 Purchase Contracts quarterly contract adjustment payments, which commenced February 15, 2020. As of OctoberApril 2, 2021,2022, the present value of the contract adjustment payments was approximately $48 million.
In March 2018, the Company purchased from a financial institution “at-the-money” capped call options with an approximate term of three years, on 3.2 million shares of its common stock (subject to customary anti-dilution adjustments) for an aggregate premium of $57 million. In February 2020, the Company net-share settled 0.6 million of the 3.2 million capped call options on its common stock and received 61,767 shares using an average reference price of $162.26 per common share. On June 9, 2020, the Company amended the 2018 capped call options to align with and offset the potential economic dilution associated with the common shares issuable upon conversion of the Remarketed Series C Preferred Stock, as further discussed below. Subsequent to the amendment, the capped call options had an initial lower strike price of $148.34 and an upper strike price of $165.00, which was approximately 30% higher than the closing price of the Company's common stock on June 9, 2020. During the second quarter of 2021, the Company net-share settled the remaining capped call options on its common stock and received 344,004 shares using an average reference price of $209.80 per common share.
In May 2017, the Company issued 7,500,000 Equity Units with a total notional value of $750 million ("2017 Equity Units"). Each unit had a stated amount of $100 and initially consisted of a three-year forward stock purchase contract ("2020 Purchase Contracts") for the purchase of a variable number of shares of common stock, on May 15, 2020, for a price of $100, and a 10% beneficial ownership interest in one share of 0% Series C Cumulative Perpetual Convertible Preferred Stock, without par, with a liquidation preference of $1,000 per share ("Series C Preferred Stock"). The Company received approximately $727 million in cash proceeds from the 2017 Equity Units, net of offering expenses and underwriting costs and commissions, and issued 750,000 shares of Series C Preferred Stock. The proceeds were used for general corporate purposes, including repayment of short-term borrowings. The Company also used $25 million of the proceeds to enter into capped call transactions utilized to hedge potential economic dilution.
In May 2020, the Company generated cash proceeds of $750 million from the successful remarketing of the Series C Preferred Stock (the "Remarketed Series C Preferred Stock"), as described more fully in Note J, Equity Arrangements.Upon completion of the remarketing, the holders of the 2017 Equity Units received 5,463,750 common shares and the Company issued 750,000 shares of Remarketed Series C Preferred Stock. Holders of the Remarketed Series C Preferred Stock are entitled to receive cumulative dividends, if declared by the Board of Directors, at an initial fixed rate equal to 5.0% per annum of the $1,000 per share liquidation preference (equivalent to $50.00 per annum per share). In connection with the remarketing, the conversion rate was reset to 6.7352 shares of the Company's common stock, which was equivalent to a conversion price of approximately $148.47 per share. Beginning on May 15, 2020, the holders have the option to convert the Remarketed Series C Preferred Stock into common stock. At the election of the Company, upon conversion, the Company may deliver cash, common stock, or a combination thereof. The Company did not have the right to redeem the Series C Preferred Stock prior to May 15, 2021. On April 28, 2021, the Company informed holders that it would redeem all outstanding shares of the Remarketed Series C Preferred Stock on June 3, 2021 (the “Redemption Date”) at $1,002.50 per share in cash (the “Redemption Price”), which was equal to 100% of the liquidation preference of a share of Remarketed Series C Preferred Stock, plus accumulated and unpaid dividends to, but excluding, the Redemption Date. If a holder elected to convert its shares of Remarketed Series C Preferred Stock prior to the Redemption Date, the Company elected a combination settlement with a specified cash amount of $1,000 per share. In June 2021, the Company redeemed the Remarketed Series C Preferred Stock and settled all conversions, paying $750 million in cash and issuing 1,469,055 common shares.29 million.
In March 2015, the Company entered into a forward share purchase contract with a financial institution counterparty for 3,645,510 shares of common stock. The contract obligates the Company to pay $350.0$350 million, plus an additional amount related to the forward component of the contract, bycontract. In February 2022, the Company amended the settlement date to April 2022,2023, or earlier at the Company's option.
Refer to Note H, Long-Term Debt and Financing Arrangements, and Note J, Equity Arrangements, for further discussion of the Company's financing arrangements.
OTHER MATTERS
Critical Accounting Estimates: There have been no significant changes in the Company’s critical accounting estimates during the thirdfirst quarter of 2021.2022.
Refer to the “Other Matters” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Form 10-K/A10-K for the year ended January 2, 20211, 2022 for a discussion of the Company’s critical accounting estimates.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no significant change in the Company’s exposure to market risk during the thirdfirst quarter of 2021.2022. Refer to the Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Form 10-K/A10-K for the year ended January 2, 20211, 2022 for further discussion.
ITEM 4. CONTROLS AND PROCEDURES
Material Weaknesses in Internal Control OverUnder the supervision and with the participation of management, including the Company’s Chief Executive Officer and its President and Chief Financial Reporting
The management of Stanley Black & Decker, Inc. (the "Company") is responsible for establishing and maintaining adequate internal control over financial reporting, as that term is defined under Rules 13a-15(f) and 15d-15(f)Officer, the Company has, pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Under the supervision and with the participation of management, including the Chief Executive Officer and the President and Chief Financial Officer, the Company has assessed, evaluated the effectiveness of its internal control over financial reporting as of the end of the period covered by this report based upon the criteria set forth by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission in Internal Control — Integrated Framework (2013 Framework). Based on that assessment, the Chief Executive Officer and the President and Chief Financial Officer concluded that the Company's internal control over financial reporting was not effective to provide reasonable assurance regarding the reliability of its financial reporting and the preparation of its financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America as of October 2, 2021 due to the material weaknesses in internal control described below.
A material weakness, as defined in Rule 12b-2 under the Exchange Act, is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.
As discussed in the Explanatory Note to this Quarterly Report on Form 10-Q/A and Note A, Significant Accounting Policies - Restatement, of the Notes to Consolidated Financial Statements in Item 8, the Company determined that errors were made in its original accounting conclusions related to equity units issued in May 2017 and November 2019 (the “Equity Units”). The Company determined the errors were the result of the following deficiencies in internal control over financial reporting:
1.The design of its control to consider all the relevant authoritative accounting guidance for financial instruments with debt- and equity-like features; and
2.The design of its control to consider financial instruments with debt- and equity-like features in the calculation of earnings per share.
The Company assessed whether there was a reasonable possibility that a material misstatement would not have been prevented or detected on a timely basis as a result of the above control deficiencies. The first control deficiency could result in a determination that there are two units of account in which the forward stock purchase contracts, when evaluated separately as freestanding instruments, would be precluded from equity classification. As a result, the asset or liability related to the forward stock purchase contracts would be subject to mark-to-market accounting, which would be significantly influenced by factors outside of the Company’s control, including fluctuations in its share price. The second control deficiency resulted in material errors in the calculation of diluted earnings per share previously disclosed in the Company’s historical financial statements. Based on these factors, the Company concluded that the deficiencies noted above each rise to the level of a material weakness.
Remediation of Material Weaknesses
The Company acknowledges that its management is responsible for establishing and maintaining adequate internal control over financial reporting and assessing the effectiveness of its internal controls. The Company is committed to maintaining a strong internal control environment and implementing measures to ensure that the control deficiencies identified above are remediated as soon as possible. Management is in the process of implementing its remediation plan, which includes steps to design and implement new controls and expand education and training related to the accounting considerations for complex financing
transactions. The Company will consider the material weakness remediated after the applicable controls operate for a sufficient period of time, and management has concluded, through testing, that the controls are operating effectively.
Evaluation of Disclosure Controls and Procedures
The Company’s management 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.
As required by Rules 13a-15(b) of the Exchange Act, the Company’s management assessed the effectiveness of its internal control over financial reporting as of October 2, 2021 based upon the criteria set forth by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission in Internal Control — Integrated Framework (2013 Framework). Based upon its original evaluation, as previously disclosed in its Quarterly Report on Form 10-Q for the period ended October 2, 2021 filed with the Securities and Exchange Commission (“SEC”) on November 12, 2021, the Company’s Chief Executive Officer and its President and Chief Financial Officer concluded that, as of October 2, 2021, the Company’s disclosure controls and procedures were effective as of October 2, 2021. Subsequently, and as a result(as defined under Rule 13a-15(e) of the material weaknesses identified in internal control over financial reporting,Exchange Act). Based upon that evaluation, the Company’s Chief Executive Officer and its President and Chief Financial Officer have concluded that, itsas of April 2, 2022, the Company’s disclosure controls and procedures were not effective asare effective.
Remediation of October 2,Material Weakness
To address the previously reported material weakness in internal control over financial reporting described in Part II, Item 9A of the Company's 2021 to ensure that information required to be disclosed byForm 10-K, the Company in reports filed or submitted underenhanced and revised the Exchange Act is reported accurately.design of existing controls and procedures to properly account for financial instruments with debt- and equity-like features, including the impact to the calculation of earnings per share. During the first quarter of fiscal 2022, the Company successfully completed the testing necessary to conclude that the material weakness has been remediated.
Changes in Internal Control Over Financial Reporting
Except for the changes related to the Company's remediation efforts described above, there has been no change in the Company’s internal control over financial reporting that occurred during the first quarter of 2022 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
CAUTIONARY STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
This document contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including any projections or guidance of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include, among others, the words “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect,” “anticipate” or any other similar words.
Except with respect to statements in this Quarterly Report on Form 10-Q/A revised or provided to reflect the effects of the Restatement, forward-looking statements herein are as of the Original Form 10-Q, filed with the SEC on November 12, 2021, unless specifically stated to be made as of a different date, and the Company has not updated forward-looking statements or information to reflect events occurring after the Original Form 10-Q.
Although the Company believes that the expectations reflected in any of its forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of its forward-looking statements. The Company's future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, such as those disclosed or incorporated by reference in the Company's filings with the Securities and Exchange Commission.
Important factors that could cause the Company's actual results, performance and achievements, or industry results to differ materially from estimates or projections contained in its forward-looking statements include, among others, the following: (i) successfully developing, marketing and achieving sales from new products and services and the continued acceptance of current products and services; (ii) macroeconomic factors, including global and regional business conditions (such as Brexit), commodity prices, inflation and deflation, and currency exchange rates; (iii) laws, regulations and governmental policies affecting the Company's activities in the countries where it does business, including those related to tariffs, taxation, data privacy, anti-bribery, anti-corruption, government contracts and trade controls such as section 301 tariffs and section 232 steel and aluminum tariffs; (iv) the economic, political, cultural and legal environment of emerging markets, particularly Latin America, Russia, China and Turkey; (v) realizing the anticipated benefits of mergers, acquisitions, joint ventures, strategic alliances or divestitures; (vi) pricing pressure and other changes within competitive markets; (vii) availability and price of raw materials, component parts, freight, energy, labor and sourced finished goods; (viii) the impact the tightened credit markets and change to LIBOR and other benchmark rates may have on the Company or its customers or suppliers; (ix) the extent to which the Company has to write off accounts receivable or assets or experiences supply chain disruptions in connection with bankruptcy filings by customers or suppliers; (x) the Company's ability to identify and effectively execute productivity improvements and cost reductions; (xi) potential business and distribution disruptions, including those related to physical security threats, information technology or cyber-attacks, epidemics, pandemics, sanctions, political unrest, war, terrorism or natural disasters; (xii) the continued consolidation of customers, particularly in consumer channels and the Company’s continued reliance on significant customers; (xiii) managing franchisee relationships; (xiv) the impact of poor weather conditions and climate change; (xv) maintaining or improving production rates in the Company's manufacturing facilities, responding to significant changes in customer preferences, product demand and fulfilling demand for new and existing products, and learning, adapting and integrating new technologies into products, services and processes; (xvi) changes in the competitive landscape in the Company's markets; (xvii) the Company's non-U.S. operations, including sales to non-U.S. customers; (xviii) the impact from demand changes within world-wide markets associated with homebuilding and remodeling; (xix) potential adverse developments in new or pending litigation and/or government investigations; (xx) the incurrence of debt and changes in the Company's ability to obtain debt on commercially reasonable terms and at competitive rates; (xxi) substantial pension and other postretirement benefit obligations; (xxii) potential regulatory liabilities, including environmental, privacy, data breach, workers compensation and product liabilities; (xxiii) attracting and retaining key employees, managing a workforce in many jurisdictions, work stoppages or other labor disruptions; (xxiv) the Company's ability to keep abreast with the pace of technological change; (xxv) changes in accounting estimates; (xxvi) the Company’s ability to protect its intellectual property rights and associated reputational impacts; (xxvii) the continued adverse effects of the COVID-19 pandemic and an indeterminate recovery period; and (xxviii) the possibility that the Company does not achieve the intended financial benefits from the acquisition of MTD.MTD; (xxix) the failure to consummate, or a delay in the consummation of, the Security sale transactions for various reasons (including but not limited to failure to receive, or delay in receiving, required regulatory approvals and meet customary closing conditions); (xxx) the failure to undertake or complete, or a delay in the timing of, the share repurchase program; and (xxxi) failure to realize the expected benefits of the Company's capital allocation strategy and share repurchase program.
Additional factors that could cause actual results to differ materially from forward-looking statements are set forth in the Annual Report on Form 10-K/A10-K and in this Quarterly Report on Form 10-Q/A,10-Q, including under the heading “Risk Factors,”
“Management’s “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in the Condensed Consolidated Financial Statements and the related Notes.
Forward-looking statements in this Quarterly Report on Form 10-Q/A10-Q speak only as of the date hereof, and forward-looking statements in documents attached that are incorporated by reference speak only as of the date of those documents. The Company does not undertake any obligation to update or release any revisions to any forward-looking statement or to report any events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as required by law.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has identified that certain expenses it incurred in previous years constituted undisclosed perquisites. The Company has voluntarily disclosed this information to the U.S. Securities and Exchange Commission ("SEC") and is cooperating with the SEC’s investigation of this matter.
For the named executive officers in fiscal year 2021, the Company has calculated the amount of the undisclosed perquisites to be approximately $204,000 in 2020 and approximately $335,000 in 2019. These amounts relate principally to use of corporate aircraft and have been included in the Company’s proxy statement for its 2022 annual shareholders meeting.
The Company is committed to upholding the highest standards of corporate governance and is continuously focused on ensuring the effectiveness of its policies, procedures, and controls. The Company is in the process, with the assistance of professional advisors, of reviewing and further enhancing relevant policies, procedures, and controls.
Currently the Company does not believe that this matter will have a material impact on its financial condition or results of operations, although it is possible that a loss related to this matter may be incurred. Given the ongoing nature of this matter, management cannot predict the duration, scope, or outcome of the SEC’s investigation or estimate the potential magnitude of any such loss or range of loss, or the cost of the ongoing SEC investigation. Any determination that the Company’s expense and perquisite reporting practices were not in compliance with existing laws or regulations could result in the imposition of fines, civil or criminal penalties, equitable remedies, including disgorgement, injunctive relief, or other sanctions against the Company. The Company also may become a party to litigation or other legal proceedings over these matters.
In the normal course of business, the Company is involved in various lawsuits and claims, including product liability, environmental, intellectual property, contract and commercial, advertising, employment 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 1A. RISK FACTORS
There have been no material changes to the risk factors except as disclosed in the Company’s Form 10-K/A10-K for the year ended January 2, 20211, 2022 filed with the Securities and Exchange Commission on January 31,February 22, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
The following table provides information about the Company’s purchases of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act during the three months ended OctoberApril 2, 2021:2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | 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) |
| July 4 - August 7 | 11,538 | | | $ | 203.44 | | | — | | | 20,000,000 | |
| August 8 - September 4 | 233 | | | 197.47 | | | — | | | 20,000,000 | |
| September 5 - October 2 | 2,378 | | | 181.53 | | | — | | | 20,000,000 | |
| Total | 14,149 | | | $ | 199.66 | | | — | | | 20,000,000 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | 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 | | (In Millions) Maximum Number Of Shares That May Yet Be Purchased Under The Program (b) |
| January 2 - February 5 | — | | | $ | — | | | — | | | 20 | |
| February 6 - March 5 | 12,681,866 | | | 154.82 | | | 10,756,770 | | | 7 | |
| March 6 - April 2 | 47,851 | | | 145.10 | | | — | | | 7 | |
| Total | 12,729,717 | | | $ | 154.79 | | | 10,756,770 | | | 7 | |
(a)The sharesShares of common stock in this column totaling 36,495 and 47,851 for the months ended March 5, 2022 and April 2, 2022, respectively, 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. Shares in this column totaling 1,888,601 for the month ended March 5, 2022 were open market share repurchases.
(b)On April 23, 2021,February 16, 2022, the Board of Directors terminated the previous repurchase program (the "April 2021 Program") and approved a new repurchase program of up to the greater of (i) 20.0 million shares of the Company'sCompany’s common stock; and (ii) the number of shares of the Company’s common stock andin the aggregate that can be purchased for an amount up to $2.5 billion (the "February 2022 Program"). On April 21, 2022, the Board terminated the previouslyFebruary 2022 Program and approved repurchase program. As of October 2, 2021, the authorized shares available for repurchase under thea new program totaled 20.0 million shares. Theshare repurchase program of up to 20 million shares of the Company’s common stock (the “April 2022
Program”). The April 2022 Program does not have an expiration date. InThe Company may repurchase shares under the second quarterApril 2022 Program through open market purchases, privately negotiated transactions or share repurchase programs, including one or more accelerated share repurchase programs (under which an initial payment for the entire repurchase amount may be made at the inception of 2021,the program). Such repurchases may be funded from cash on hand, short-term borrowings or other sources of cash at the Company’s discretion, and the Company net-share settled capped call options and received 344,004 shares. This transaction was completedis under no obligation to repurchase any shares pursuant to the previously approved repurchase program. The currently authorized shares available for repurchase under the April 2022 Program do not include (i) approximately 3.6 million shares reserved and authorized for purchase under the Company’s previously approved repurchase program in place prior to the April 2022 Program relating to a forward share purchase contract entered into in March 2015.2015; or (ii) the shares reserved and authorized for repurchase under the February 2022 Program relating to the remaining shares to be delivered pursuant to the ASR (defined below) in the second quarter of 2022. In March 2022, the Company executed an accelerated share repurchase ("ASR") with a notional amount of $2.0 billion, which was funded through borrowings under one of its existing 364-Day committed credit facilities. The ASR terms provide for an initial delivery of 85% of the total notional share equivalent at execution, or approximately 10.8 million shares. The final delivery of the remaining shares under the ASR is expected to be completed by the end of the second quarter of 2022. The total amount of shares to be ultimately delivered will be determined at the end of the calculation period based on the volume weighted average price ("VWAP") of the Company's stock (inclusive of a VWAP discount) during that period. In the event that the Company's stock price increases significantly during the calculation period, the Company may be required to settle the transaction by delivering common shares or may elect to make a cash payment. Refer to Note J, Equity Arrangements, of the Notes to Unaudited(Unaudited) Condensed Consolidated Financial Statements in Part I, Item 1 for further discussion.
ITEM 6. EXHIBITS
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| (4.1) | |
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| (4.2) | |
| |
| (4.3) | |
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| (10.1) | |
| |
| (10.2) | Amended and Restated Five Year CreditUnderwriting Agreement, madedated as of September 8, 2021 amongFebruary 22, 2022, between Stanley Black & Decker, Inc. and BofA Securities, Inc., the initial lenders named thereinCitigroup Global Markets Inc., J.P. Morgan Securities LLC and Citibank, N.A. as administrative agent for the lenders (incorporatedWells Fargo Securities, LLC. (incorporated by reference to Exhibit 10.21.1 to the Company’s Current Report on Form 8-K filed on September 14, 2021)February 24, 2022). |
| |
| (11) | Statement re-computation of per share earnings (the information required to be presented in this exhibit appears in Note C to the Company’s Unaudited(Unaudited) Condensed Consolidated Financial Statements set forth in this Quarterly Report on Form 10-Q/A)10-Q). |
| |
| (31)(i)(a) | |
| |
| (i)(b) | |
| |
| (32)(i) | |
| |
| (ii) | |
| |
| (101) | The following materials from Stanley Black & Decker Inc.'s Quarterly Report on Form 10-Q/A10-Q for the quarter ended OctoberApril 2, 2021,2022, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended OctoberApril 2, 20212022 and September 26, 2020;April 3, 2021; (ii) Condensed Consolidated Balance Sheets at OctoberApril 2, 20212022 and January 2, 2021;1, 2022; (iii) Condensed Consolidated Statements of Cash Flows for the three and nine months ended OctoberApril 2, 20212022 and September 26, 2020;April 3, 2021; (iv) Consolidated Statements of Changes in Shareowners' Equity for the three and nine months ended OctoberApril 2, 20212022 and September 26, 2020;April 3, 2021; and (v) Notes to Unaudited(Unaudited) Condensed Consolidated Financial Statements**. |
| |
| (104) | The cover page of Stanley Black & Decker Inc.'s Quarterly Report on Form 10-Q/A10-Q for the quarter ended OctoberApril 2, 2021,2022, formatted in iXBRL (included within Exhibit 101 attachments). |
| | | | | |
| ** | 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. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | | | | |
| | STANLEY BLACK & DECKER, INC. |
| | | |
| Date: | January 31,April 28, 2022 | By: | | /s/ DONALD ALLAN, JR. |
| | | | Donald Allan, Jr. |
| | | | President and Chief Financial Officer |
