ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The financial and business analysis below provides information which the Company believes is relevant to an assessment and understanding of its consolidated financial position, results of operations and cash flows. This financial and business analysis should be read in conjunction with the Consolidated Financial Statements and related notes. All references to “ Notes ” in this Item 7 refer to the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. The following discussion also references a number of financial measures that are not defined under U.S. GAAP. Refer to the section titled "Certain Items Impacting Earnings and Non-GAAP Financial Measures" for additional information on such measures.
The following discussion and certain other sections of this Annual Report on Form 10-K contain statements reflecting the Company’s views about its future performance that constitute “forward-looking statements” under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry and markets in which the Company operates as well as management’s beliefs and assumptions. Any statements contained herein (including without limitation statements to the effect that the Company or its management “believes,” “expects,” “anticipates,” “plans” and similar expressions) that are not statements of historical fact should be considered forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. There are a number of important factors that could cause actual results to differ materially from those indicated by such forward-looking statements. These factors include, without limitation, those set forth, or referenced therein, below under the heading “Cautionary Statement Concerning Forward-Looking Statements.” The Company does not intend to update publicly any forward-looking statements whether as a result of new information, future events or otherwise.
Strategic Objectives
The Company is guided by its mission to build a world-class branded industrial company, by solving end users’ most pressing and complex challenges. The strategy to achieve this mission is anchored by three core imperatives: activating our brands with purpose, driving operational excellence, and accelerating innovation.
Activating our brands with purpose is rooted by the Company's brands standing for quality, safety and productivity. The Company is investing resources to continue to deepen connections with end users, with every product, solution and service aligned with their evolving needs.
Driving operational excellence is centered on continuous improvement to deliver stronger results, including more effective resource allocation with higher return on investment. The focus on driving annual net productivity will contribute to continued margin expansion and reinvestment into brand health and innovation.
Accelerating innovation is required to advance and expand the end-to-end workflow solutions that end users demand. The Company's platforming method enables faster speed to market and leverages modularity combined with specialization to deliver uncompromised productivity and value.
With a strengthened foundation and a more streamlined, focused organization, the Company is positioned to drive performance towards its long-term financial targets. The following targets, which are based on the tariff landscape as of January 2026, are expected to be reflected in the Company's 2028 financial results and assume that the Company's markets are growing by low-single digits and inflation approximates 2% per year.
• Mid-single digit organic revenue growth;
• 35% to 37% adjusted gross margins with mid to high-teens adjusted Earnings Before Interest, Taxes, Depreciation and Amortization margin ("adjusted EBITDA margin");
• Free cash flow approximating 100% of GAAP net income over a multi-year period;
• Cash Flow Return On Investment ("CFROI"), computed as cash from operations plus after-tax interest expense, divided by the two-point average of debt and equity, in the low-to-mid-teens by 2028 and greater than or equal to the mid-teens beyond 2028; and
• Solid investment grade credit rating.
In terms of capital allocation, the Company’s top priority is funding organic growth investments that drive long-term value. The Company also remains committed, over time, to maintaining a strong and growing dividend and has a preference toward opportunistic share repurchases. In the near-term, the Company intends to utilize the net proceeds from the pending CAM divestiture to reduce debt, as further discussed below.
Repurchases Of Securities Other Than Common Stock
In April 2021, the Board of Directors approved repurchases by the Company of its outstanding securities, other than its common stock, up to an aggregate amount of $3.0 billion (the “April 2021 Authorization”). Repurchases of $1.1 billion were made under the April 2021 Authorization. In October 2025, the Board of Directors terminated the April 2021 Authorization including any amounts remaining available for repurchase thereunder, and approved repurchases by the Company of its outstanding securities, other than its common stock, up to an aggregate amount of $3.0 billion. No repurchases have been executed pursuant to this authorization to date.
Refer to Note I, Capital Stock , for further discussion.
Pending Sale of Consolidated Aerospace Manufacturing ("CAM") Business
In December 2025, the Company announced that it had entered into a definitive agreement to sell its CAM business to Howmet Aerospace for $1.8 billion in cash. The sale is subject to regulatory approvals and other customary closing conditions and is expected to close in the first half of 2026. Cash proceeds, net of tax and fees, are expected to be in the range of $1.525 billion to $1.6 billion, which the Company expects to utilize to reduce debt. For the year ended January 3, 2026, net sales and segment profit for the Engineered Fastening segment included $413.9 million and $31.3 million, respectively, related to the CAM business. See below for further discussion of the Company's business segments and results.
Refer to Note S, Divestitures, for further discussion of the pending CAM divestiture.
Other Divestitures
On April 1, 2024, the Company sold its Infrastructure business comprised of the attachment and handheld hydraulic tools business to Epiroc AB for net proceeds of $728.5 million. The Company used the net proceeds to reduce debt in the second quarter of 2024.
The Company has also divested several businesses in recent years that allowed the Company to invest in other areas that fit into its long-term strategy.
Refer to Note S, Divestitures, for further discussion of the Company's divestitures.
Global Cost Reduction Program
In mid-2022, the Company launched a Global Cost Reduction Program comprised of a series of initiatives designed to generate targeted pre-tax run-rate cost savings of $2.0 billion by resizing the organization, reducing inventory, and transforming its supply chain with the ultimate objective of driving long-term growth, improving profitability and generating strong cash flow. The program has been completed as of the end of 2025 and has generated approximately $2.1 billion of pre-tax run-rate savings, exceeding its original cost savings target. These savings were partially redeployed to fund over $300 million of innovation and commercial investments through 2025 designed to accelerate organic growth.
The program included selling, general, and administrative ("SG&A") cost savings driven by simplifying the corporate structure, optimizing organizational spans and layers and reducing indirect spend as well as a supply chain transformation. The savings related to the supply chain transformation were driven by the following value streams:
• Material Productivity: Implemented capabilities to source in a more efficient and integrated manner across all of the Company’s businesses and leveraged contract manufacturing;
• Operational Excellence: Redesigned in-plant operations following footprint rationalization to deliver incremental efficiencies, simplified organizational design and inventory optimization leveraging a standard operating model and LEAN principles;
• Footprint Rationalization: Transformed the Company’s manufacturing and distribution network from sites built through years of acquisitions to a strategically focused supply chain, inclusive of site closures, transformations of existing sites into manufacturing centers of excellence and re-configuration of the distribution network; and
• Complexity Reduction: Reduced complexity through platforming products and implemented initiatives to drive a SKU reduction.
In addition, the Company has reduced inventory by over $2 billion since the end of the second quarter of 2022 and expects further working capital reductions to support free cash flow generation in 2026.
The cash investment required to achieve the pre-tax run-rate supply chain cost savings was approximately $0.6 billion. Of the total cash investment, approximately 30% related to capital expenditures.
The charges associated with the execution of the supply chain transformation are reflected in the Non-GAAP adjustments detailed below in "Results From Operations." Although the broader Global Cost Reduction Program has been completed, the Company expects to incur additional charges and make cash investments in 2026 relating to footprint actions to support the ongoing network transformation and reposition its supply chain, as necessary. The expected charges related to these actions are reflected in the Company's full year estimate of Non-GAAP adjustments detailed below in "2026 Planning Assumptions".
Driving Profitable Growth Through Core Franchises and Brand-Led Commercial Execution
The Company’s core franchises operate in markets which the Company believes possess attractive long-term growth characteristics, competitive structures where brand and innovation influence outcomes, and the ability to scale globally while generating strong cash flow. These franchises provide the foundation for sustained value creation through disciplined investment, operational execution, and customer focus.
• The Tools & Outdoor segment is a global growth platform anchored by leading brands, differentiated innovation, and broad channel reach. The segment offers a comprehensive portfolio of power tools, hand tools, outdoor products, accessories, storage, and digital solutions designed to improve productivity for professional and consumer end users. Global scale, innovation cadence, and brand strength are expected to support competitive positioning across regions and contribute to margin improvement over time. The Company’s priority global brands within the Tools & Outdoor segment include DEWALT®, CRAFTSMAN®, and STANLEY®, supported by a broader portfolio of complementary brands.
• The Engineered Fastening segment serves end markets with GDP-plus growth profiles. The segment provides highly engineered components and automation systems in the automotive, general industrial and aerospace markets. The business benefits from recurring revenue characteristics, durable customer relationships, and global scale, supporting attractive profitability and cash generation.
Management continues to invest in these core franchises to drive growth and returns. Priorities include product innovation, brand and commercial activation, and continued transformation of operations and supply chain capabilities to improve service levels, align inventory with demand, and enhance global cost competitiveness.
Investing in Brands to Drive Demand and Long-Term Value
The Company's portfolio of trusted, globally recognized brands is central to its commercial strategy, particularly within the Tools & Outdoor segment. Brand investment is focused on driving demand, supporting effective product commercialization, and strengthening customer loyalty across channels and geographies.
Brand spending is managed as part of an integrated commercial approach that connects innovation, marketing, sales execution, and customer insights. Investments are directed toward product launch support, in-market and promotional execution, retail and digital activation, sales force effectiveness, and selective partnerships that extend brand reach and relevance.
Select global sports and professional partnerships represent one element of this broader approach and are used to amplify brand visibility and engage priority end-user audiences. These partnerships are intended to reinforce brand positioning and support demand generation, rather than function as standalone marketing activities. The Company is proud to partner with globally-recognized organizations including the McLaren F1 Team, English Premier League, PGA Tour, and NASCAR.
Management remains focused on allocating brand and advertising spend with discipline, guided by data, performance insights, and return-oriented decision making. Looking forward, brand investment will continue to prioritize alignment with end-user insights, effective in-market execution, and the use of technology to strengthen engagement, supporting sustainable growth and long-term shareholder value.
Segments
The Company’s operations are classified into two reportable business segments: Tools & Outdoor and Engineered Fastening. In the first quarter of 2025, the Industrial segment was renamed “Engineered Fastening” as a result of a more focused portfolio following recent divestitures. The Engineered Fastening segment name change is to the name only and had no impact on the Company’s consolidated financial statements or segment results. Both reportable segments have significant international operations and are exposed to translational and transactional impacts from fluctuations in foreign currency exchange rates.
Tools & Outdoor
The Tools & Outdoor segment is comprised of the Power Tools Group ("PTG"), Hand Tools, Accessories & Storage ("HTAS"), and Outdoor Power Equipment ("Outdoor") product lines.
The PTG product line includes both professional and consumer products. Professional products, primarily under the DEWALT® brand, include professional grade corded and cordless electric power tools and equipment including drills, impact wrenches and drivers, grinders, saws, routers, sanders, and concrete prep and placement tools as well as pneumatic tools and fasteners including nail guns, nails, staplers and staples, and concrete and masonry anchors. DIY and tradesperson focused products include corded and cordless electric power tools sold primarily under the CRAFTSMAN® and STANLEY® brands, and consumer home products such as household power tools, hand-held vacuums, and small appliances primarily under the BLACK+DECKER® brand.
The HTAS product line sells hand tools, power tool accessories and storage products primarily under the DEWALT®, CRAFTSMAN® and STANLEY® brands. Hand tools include measuring, leveling and layout tools, planes, hammers, demolition tools, clamps, vises, knives, saws, chisels, material handling, 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, cabinets and engineered storage solution products.
The Outdoor product line 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, hand-held outdoor power equipment, garden tools, and parts and accessories to professionals and consumers primarily under the DEWALT®, CRAFTSMAN®, CUB CADET®, BLACK+DECKER®, and HUSTLER® brand names.
Engineered Fastening
The Engineered Fastening segment is comprised of the Engineered Fastening business and included the Infrastructure business prior to its sale in April 2024.
The Engineered Fastening business primarily sells highly engineered components such as fasteners, fittings and various engineered products, which are designed for specific applications 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.
RESULTS OF OPERATIONS
The following is a discussion and analysis of changes in the results of operations and financial condition for the year ended January 3, 2026 compared to the year ended December 28, 2024. The discussion and analysis of the year ended December 30, 2023 and changes in the results of operations and financial condition for the year ended December 28, 2024 compared to the year ended December 30, 2023, is omitted from this Form 10-K and can be found in "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 28, 2024, filed with the U.S. Securities and Exchange Commission ("SEC") on February 18, 2025.
The Company’s results represent continuing operations and include the results of the divested Infrastructure business within the Engineered Fastening segment through the date of sale in the second quarter of 2024, as the divestiture of this business did not qualify for discontinued operations. The pending divestiture of the CAM business did not qualify for discontinued operations and therefore, its results are included in the Company's continuing operations within the Engineered Fastening segment for all periods presented.
Certain Items Impacting Earnings and Non-GAAP Financial Measures
The Company has provided a discussion of its results both inclusive and exclusive of certain gains and charges. The results and measures, including gross profit, SG&A, Other, net, Income taxes, segment profit, and corporate overhead, on a basis excluding certain gains and charges, free cash flow, organic revenue and organic growth are Non-GAAP financial measures. These Non-GAAP financial measures are defined and reconciled to their most directly comparable GAAP financial measures below. The Company considers the use of Non-GAAP financial measures relevant to aid analysis and understanding of the Company’s results, business trends and outlook measures aside from the material impact of certain gains and charges and ensures appropriate comparability to operating results of prior periods. Supplemental Non-GAAP information should not be considered in isolation or as a substitute for the related GAAP financial measures. Non-GAAP financial measures presented herein may differ from similar measures used by other companies.
The Company provides expectations for the non-GAAP financial measures of full-year 2026 adjusted EPS, presented on a basis excluding certain gains and charges, as well as 2026 free cash flow. Forecasted full-year 2026 adjusted EPS is reconciled to forecasted full-year 2026 GAAP EPS under the section entitled "2026 Planning Assumptions" below. Consistent with past methodology, forecasted full-year 2026 GAAP EPS excludes the impacts of potential acquisitions and divestitures (unless otherwise noted), future regulatory changes or strategic shifts that could impact the Company's contingent liabilities or intangible assets, respectively, potential future cost actions in response to external factors that have not yet occurred, and any other items not specifically referenced under “2026 Planning Assumptions.” A reconciliation of forecasted 2026 free cash flow to its most directly comparable GAAP estimate is not available without unreasonable effort due to high variability and difficulty in predicting items that impact cash flow from operations, which could be material to the Company’s results in accordance with U.S. GAAP. The Company believes such a reconciliation would also imply a degree of precision that is inappropriate for this forward-looking measure.
The Company also provides multi-year strategic goals for the non-GAAP financial measures of adjusted gross margin and adjusted EBITDA margin, presented on a basis excluding certain gains and charges, as well as organic revenue growth, free cash flow, and CFROI. A reconciliation for these non-GAAP measures is not available without unreasonable effort due to the inherent difficulty of forecasting the timing and/or amount of various items that have not yet occurred, including the high variability and low visibility with respect to certain gains or charges that would generally be excluded from non-GAAP financial measures and which could be material to the Company’s results in accordance with U.S. GAAP. Additionally, estimating such GAAP measures and providing a meaningful reconciliation consistent with the Company’s accounting policies for future periods requires a level of precision that is unavailable for these future multi-year periods and cannot be accomplished without unreasonable effort. The Company believes such a reconciliation would also imply a degree of precision that is inappropriate for these forward-looking measures.
The Company’s operating results at the consolidated level as discussed below include and exclude certain gains and charges impacting gross profit, SG&A, Other, net, and Income taxes. The Company’s business segment results as discussed below include and exclude certain gains and charges impacting gross profit and SG&A. Corporate overhead as discussed below includes and excludes certain gains and charges. These amounts for 2025 and 2024 are as follows:
(Millions of Dollars)
GAAP
Non-GAAP Adjustments 2
Non-GAAP
Gross profit
Selling, general and administrative 1
Earnings from continuing operations before income taxes
Income taxes on continuing operations 3
Net earnings from continuing operations
Diluted earnings per share of common stock - Continuing operations
(Millions of Dollars)
GAAP
Non-GAAP Adjustments 2
Non-GAAP
Gross profit
Selling, general and administrative 1
Earnings from continuing operations before income taxes
Income taxes on continuing operations 3
Net earnings from continuing operations
Diluted earnings per share of common stock - Continuing operations
Includes provision for credit losses
Refer to table below for additional detail of the Non-GAAP adjustments
Income taxes attributable to Non-GAAP adjustments are determined by calculating income taxes on pre-tax earnings, both inclusive and exclusive of Non-GAAP adjustments, taking into consideration the nature of the Non-GAAP adjustments and the applicable statutory income tax rates.
Below is a summary of the pre-tax Non-GAAP adjustments for 2025 and 2024.
(Millions of Dollars)
Supply Chain Transformation Costs:
Footprint Rationalization 1
Material Productivity & Operational Excellence
Voluntary retirement program 2
Other charges
Gross Profit
Supply Chain Transformation Costs:
Footprint Rationalization 1
Complexity Reduction & Operational Excellence 3
Transition services costs related to previously divested businesses
Voluntary retirement program 2
Other (gains) charges
Selling, general and administrative
Income related to providing transition services to previously divested businesses
Voluntary retirement program 2
Environmental charges 4
Deal-related costs and other 5
Other, net
Loss on sale of business
Asset impairment charges 6
Restructuring charges 7
Non-GAAP adjustments before income taxes
Footprint Rationalization costs primarily relate to site transformation and re-configuration costs of $35.4 million and $45.2 million in 2025 and 2024, respectively, as well as accelerated depreciation of manufacturing and distribution center equipment of $48.9 million in 2024. Facility exit costs related to site closures are reported in Restructuring charges.
In June 2025, the Company implemented a voluntary retirement program (“VRP”) to right-size the Company’s corporate and support functions to align with a more focused portfolio following recent divestitures and more streamlined operations as part of the supply chain transformation. The costs associated with the VRP relate to separation benefits provided to eligible employees who voluntarily retired from the Company.
Complexity Reduction & Operational Excellence costs in 2025 primarily relate to third-party consulting fees to provide expertise in identifying business model changes and quantifying related cost savings opportunities within the Company’s Engineered Fastening business, developing a detailed program and related governance, and assisting the Company with the implementation of actions necessary to achieve the identified objectives.
The $143.2 million pre-tax environmental charges in 2024 related primarily to a reserve adjustment for the non-active Centredale Superfund site as a result of regulatory changes and revisions to remediation alternatives.
Deal-related costs and other in 2025 include an $8.1 million gain on sale of a distribution center as part of the supply chain transformation and a $14.3 million gain related to a favorable patent infringement settlement, partially offset by deal costs associated with the announced divestiture of the CAM business.
Asset impairment charges in 2025 include: (a) $108.4 million driven by updates to the Company’s brand prioritization strategy impacting the Lenox, Troy-Bilt, and Irwin trade names, (b) $43.9 million related to the write-down of certain minority investments pertaining to legacy corporate ventures, (c) $17.1 million related to the write-down of assets due to the planned exit of certain Outdoor product lines, and (d) $20.1 million related to a small business in the Tools & Outdoor segment. Asset impairment charges in 2024 include: (a) $41.0 million related to the Lenox trade name, (b) $25.5 million related to the Infrastructure business, and (c) $5.9 million related to a small business in the Engineered Fastening segment.
Refer to “Restructuring Activities” below for further discussion.
Below is a summary of the Company’s operating results at the consolidated level, followed by an overview of business segment performance. Organic growth is utilized to describe the Company's results excluding the impacts of foreign currency fluctuations, acquisitions during their initial 12 months of ownership, divestitures, and transfers of product lines between segments.
Consolidated Results
Net Sales: Net sales were $15.130 billion in 2025 compared to $15.366 billion in 2024, representing a decrease of 2%, as a 3% increase in price was more than offset by a 4% decrease in volume and a 1% decrease from the Infrastructure divestiture. Tools & Outdoor net sales decreased 1% compared to 2024 as a 3% increase in price and a 1% increase from foreign currency were more than offset by a 5% decrease in volume. Engineered Fastening net sales decreased 4% compared to 2024 as a 2% increase in volume, a 1% increase in price, and a 1% increase from foreign currency were more than offset by a 5% decrease from the Infrastructure divestiture and a 3% decrease from a product line transfer to Tools & Outdoor.
Cost of Sales and Gross Profit: The Company reported cost of sales of $10.542 billion in 2025 compared to $10.851 billion in 2024. The year-over-year decrease in cost of sales was primarily driven by lower volume and supply chain transformation efficiencies, partially offset by tariff costs and inflation. Gross profit, defined as sales less cost of sales, was $4.588 billion, or 30.3% of net sales, in 2025 compared to $4.514 billion, or 29.4% of net sales, in 2024. Non-GAAP adjustments, which increased cost of sales and reduced gross profit, were $50.6 million, or 0.4% of net sales, in 2025 and $88.8 million, or 0.6% of net sales in 2024. Excluding these adjustments, gross profit was 30.7% of net sales in 2025 compared to 30.0% of net sales in 2024. The year-over-year changes in gross profit as a percent of sales and adjusted gross profit as a percent of sales were primarily due to benefits from pricing strategies and supply chain cost transformation efficiencies partially offset by tariffs, lower volume and inflation.
Selling, general and administrative: SG&A, inclusive of the provision for credit losses, were $3.333 billion, or 22.0% of net sales, in 2025 compared to $3.333 billion, or 21.7% of net sales, in 2024. Within SG&A, Non-GAAP adjustments totaled $86.6 million, or 0.5% of net of sales, in 2025 and $81.3 million, or 0.5% of net sales in 2024. Excluding these adjustments, SG&A was 21.5% of net sales in 2025 compared to 21.2% in 2024. The year-over-year changes in SG&A as a percent of sales and adjusted SG&A as a percent of sales were driven by strategic growth investments, which were partially offset by disciplined and targeted cost management.
Distribution center costs (i.e. warehousing and fulfillment facility and associated labor costs) are classified within SG&A. This classification may differ from other companies who may report such expenses within cost of sales. Due to diversity in practice, to the extent the classification of these distribution costs differs from other companies, the Company’s gross margins may not be comparable. Such distribution costs classified in SG&A amounted to $522.5 million in 2025 and $534.4 million in 2024.
Other, net: Other, net totaled $240.7 million in 2025 compared to $448.8 million in 2024. The year-over-year decrease is primarily driven by a $142.3 million environmental remediation reserve adjustment related to the Centredale site and write-downs on certain investments in 2024, as well as lower intangible asset amortization in 2025. Excluding Non-GAAP
adjustments, Other, net, totaled $260.6 million in 2025 compared to $325.2 million in 2024. The year-over-year decrease in Other, net, excluding Non-GAAP adjustments, is primarily driven by lower intangible asset amortization, environmental remediation expenses, and pension costs in 2025, and write-downs on certain investments in 2024.
Loss on Sales of Businesses: During 2025, the Company reported a pre-tax loss of $0.3 million primarily related to the divestiture of a small business in the Engineered Fastening segment.
Asset Impairment Charges : During 2025, the Company recorded pre-tax, non-cash impairment charges of $189.5 million, comprised of $108.4 million driven by updates to the Company’s brand prioritization strategy impacting the Lenox, Troy-Bilt, and Irwin trade names, $43.9 million related to the write-down of certain minority investments pertaining to legacy corporate ventures, $17.1 million related to the write-down of assets due to the planned exit of certain Outdoor product lines, and $20.1 million related to a small business in the Tools & Outdoor segment. During 2024, the Company recorded pre-tax, non-cash impairment charges of $72.4 million, comprised of $41.0 million related to the Lenox trade name, $25.5 million related to the Infrastructure business, and $5.9 million related to a small business in the Engineered Fastening segment. Refer to Note E, Goodwill and Intangible Assets , for additional information on the trade name impairments. Refer to Note L, Fair Value Measurements , for additional information on the minority investment write-downs. Refer to Note S, Divestitures , for additional information on the 2024 divestiture of the Infrastructure business.
Interest, net: Net interest expense in 2025 was $317.9 million compared to $319.5 million in 2024. The year-over-year decrease was driven by higher interest income, partially offset by higher interest expense due to higher commercial paper balances.
Income Taxes : The Company's effective tax rate on continuing operations was 3.8% in 2025 and (18.7)% in 2024. Excluding the tax effect on Non-GAAP adjustments, the effective tax rate in 2025 on continuing operations was 12.8%. This effective tax rate differs from the U.S. statutory tax rate primarily due to tax benefits associated with partial realignment of the Company's legal structure, remeasurement of uncertain tax positions, and tax credits, partially offset by withholding taxes, deferred tax assets for which a tax benefit is not recognized, U.S. tax on foreign earnings, and non-deductible expenses.
Excluding the tax effect on Non-GAAP adjustments, the effective tax rate in 2024 on continuing operations was 6.7%. This effective tax rate differs from the U.S. statutory tax rate primarily due to tax benefits associated with partial realignment of the Company's legal structure, remeasurement of uncertain tax positions, the recognition of previously unrecognized foreign deferred tax assets, state income taxes, and tax credits, partially offset by non-deductible expenses, U.S. tax on foreign earnings, withholding taxes, and losses for which a tax benefit is not recognized.
On December 20, 2021, the Organization for Economic Cooperation and Development ("OECD") published a proposal for the establishment of a global minimum tax rate of 15% (“Pillar Two"). The Pillar Two rules provide a template that jurisdictions can translate into domestic law, to assist with the implementation within an agreed upon timeframe and in a coordinated manner. Certain countries in which the Company operates have enacted legislation effective January 1, 2024, while other jurisdictions are in various stages of implementation.
On January 5, 2026, the OECD published a package introducing new safe harbors and a side-by-side system (“SbS”) in relation to the Pillar Two global minimum tax rules. If enacted into law in each of the jurisdictions in which the Company operates following the indicated timeline, the SbS system would generally be expected to exempt the Company from the application of two of the three Pillar Two top-up taxes starting in 2026.
The Company has performed an assessment of the potential impact to its income taxes as a result of Pillar Two. The assessment of the potential impact is based on the most recent tax filings, country-by-country reporting, and financial statements of affected subsidiaries. Based on results of the assessment, the Company believes it can avail itself of the transitional safe harbor rules in most jurisdictions in which the Company operates. There are, however, a limited number of jurisdictions where the transitional safe harbor relief does not apply. The Pillar Two tax impact from these jurisdictions is immaterial to the Company's 2025 income tax provision. The Company continues to assess the potential impact of Pillar Two, including the SbS system, and monitor developments in legislation, regulation, and interpretive guidance in these areas.
On July 4, 2025, the U.S. government enacted the One Big Beautiful Bill Act (“OBBBA”), which includes a broad range of tax reform provisions affecting businesses, including extending and modifying certain Tax Cuts & Jobs Act provisions and accelerating the phase-out of certain Inflation Reduction Act incentives. The OBBBA includes provisions modifying net interest deduction limitations, expensing of U.S.-based research and development expenses, and tax depreciation methods, as well as international tax provisions modifying global intangible low-taxed income (GILTI), foreign-derived intangible income (FDII), base erosion and anti-abuse tax (BEAT), and foreign tax credits. The Company evaluated the impacts of the OBBBA and concluded that it did not have a material impact on the Company’s consolidated financial statements in 2025 and does not
expect a material impact to future income tax provisions. The Company will continue to assess the potential impact of the OBBBA and monitor developments in legislation, regulation, and interpretive guidance in this area.
Business Segment Results
The Company’s reportable segments represent businesses that have similar products, services and end markets, among other factors. The Company utilizes segment profit which is defined as net sales minus cost of sales and SG&A inclusive of the provision for credit losses (aside from corporate overhead expense), and segment profit as a percentage of net sales to assess the profitability of each segment.
The Company’s operations are classified into two reportable business segments: Tools & Outdoor and Engineered Fastening.
Tools & Outdoor:
(Millions of Dollars)
Net sales
Segment profit
% of Net sales
Tools & Outdoor net sales decreased $146.0 million, or 1%, in 2025 compared to 2024 as a 3% increase in price and a 1% increase from foreign currency were more than offset by a 5% decrease in volume. Organic revenue decreased 2% driven by a soft market backdrop and mid-year tariff related promotional reductions, partially offset by strategic pricing initiatives and growth in DEWALT®. Total revenue decreased 2% in North America, increased 3% in Europe, and decreased 3% in the rest of the world. Excluding the impact from foreign currency, organic revenue decreased 2%, 1%, and 2% in North America, Europe, and the rest of the world, respectively.
Tools & Outdoor segment profit amounted to $1.329 billion, or 10.1% of net sales, in 2025 compared to $1.197 billion, or 9.0% of net sales, in 2024. Excluding Non-GAAP adjustments, which primarily related to a voluntary retirement program in 2025 and footprint actions associated with the supply chain transformation in both periods, of $81.6 million, or 0.6% of net sales, and $143.1 million, or 1.1% of net sales in 2025 and 2024, respectively, segment profit amounted to 10.7% of net sales in 2025 and 10.1% of net sales in 2024. The year-over-year changes in segment profit as a percent of sales and adjusted segment profit as a percent of sales were primarily driven by higher pricing and supply chain transformation efficiencies.
Engineered Fastening:
(Millions of Dollars)
Net sales
Segment profit
% of Net sales
Engineered Fastening net sales decreased $89.3 million, or 4%, in 2025 compared to 2024, as a 2% increase in volume, a 1% increase in price, and a 1% increase from foreign currency were more than offset by a 5% decrease from the Infrastructure divestiture and a 3% decrease from a product line transfer to Tools & Outdoor. Engineered Fastening organic revenues increased 3% driven by strength in aerospace, partially offset by declines in industrial and automotive.
Engineered Fastening segment profit totaled $197.0 million, or 10.0% of net sales, in 2025 compared to $254.9 million, or 12.4% of net sales, in 2024. Excluding Non-GAAP adjustments of $29.3 million, or 1.5% of net sales in 2025, which related to a voluntary retirement program and costs associated with the supply chain transformation, and $3.6 million, or 0.1% of net sales in 2024, segment profit amounted to 11.5% of net sales in 2025 compared to 12.5% of net sales in 2024. The year-over-year changes in segment profit as a percent of sales and adjusted segment profit as a percent of sales were primarily due to lower volume in the higher-margin automotive business.
Corporate Overhead:
The corporate overhead element of SG&A, which is not allocated to the business segments for purposes of determining segment profit, consists of the costs associated with the executive management team and expenses related to centralized functions that benefit the entire Company but are not directly attributable to the business segments, such as legal and corporate finance functions, as well as expenses for the world headquarters facility.
Corporate Overhead amounted to $270.4 million in 2025 compared to $270.6 million in 2024. Excluding Non-GAAP adjustments of $26.3 million in 2025 and $23.4 million in 2024, which primarily consisted of a voluntary retirement program in 2025 and transition services costs related to previously divested businesses in both periods, the Corporate Overhead element of SG&A was $244.1 million in 2025 compared to $247.2 million 2024.
RESTRUCTURING ACTIVITIES
A summary of the restructuring reserve activity from December 28, 2024 to January 3, 2026 is as follows:
(Millions of Dollars)
December 28, 2024
Net Additions
Usage
Currency
January 3, 2026
Severance and related costs
Facility closures and other
Total
During 2025, the Company recognized net restructuring charges of approximately $89 million, primarily driven by severance costs and certain related pension charges associated with reorganizations of the Company’s corporate and support functions and supply chain resources, as well as facility exit costs related to footprint actions associated with the supply chain transformation. The Company expects to achieve annual net cost savings of approximately $188 million by the end of 2026 related to the restructuring costs incurred during 2025. The majority of the $48 million of reserves remaining as of January 3, 2026 is expected to be utilized within the next twelve months.
During 2024, the Company recognized net restructuring charges of approximately $100 million, primarily related to severance and facility closures associated with the supply chain transformation. The Company estimates that these actions resulted in net cost savings of approximately $129 million in 2025.
Segments: The $89 million of net restructuring charges in 2025 includes: $71 million pertaining to the Tools & Outdoor segment; $5 million pertaining to the Engineered Fastening segment; and $13 million pertaining to Corporate.
The anticipated annual net cost savings of approximately $188 million related to the 2025 restructuring actions include: $168 million in the Tools & Outdoor segment; $9 million in the Engineered Fastening segment; and $11 million in Corporate.
TARIFF POLICY IMPLICATIONS
In response to the United States’ policy actions in 2025 and potential policy changes in the future, the Company is continuing to execute its plan with the objective to safeguard gross margins and position the business for success with a focus on achieving its long-term financial objectives.
The Company's guiding principles and actions executed in response to tariffs include:
• Serving its end users and customers during a dynamic period;
• Minimizing cost increases through supply chain moves with a focus on leveraging the Company’s North American footprint and reducing China production for the United States by the end of 2026 or early 2027;
• Implementing price increases in 2025 with a long-term perspective and to protect cash flow; and
• Continuing to proactively engage with the U.S. administration.
Refer to "2026 Planning Assumptions" below for more information.
2026 PLANNING ASSUMPTIONS
This discussion of certain planning assumptions is intended to provide broad insight into the Company's near-term earnings and cash flow generation prospects. The Company's planning assumptions for 2026 are for diluted earnings per share on a GAAP basis to be $3.15 to $4.35 and for diluted earnings per share excluding Non-GAAP adjustments to be $4.90 to $5.70, which reflects year-over-year growth of 42% and 13%, respectively, at the midpoint of each range. The Company is targeting free cash flow to be in the range of $700 to $900 million, reflecting an increase of 16% at the midpoint. These underlying planning assumptions include results of the CAM business for the first half of 2026 and the tariff landscape as of January 2026.
The difference between the planning assumptions for 2026 diluted earnings per share on a GAAP basis and diluted earnings per share excluding Non-GAAP adjustments is approximately $1.35 to $1.75, consisting primarily of charges related to footprint actions and other cost actions.
FINANCIAL CONDITION
Liquidity, Sources and Uses of Capital: The Company’s primary sources of liquidity are cash flows generated from operations and available lines of credit under various credit facilities.
Operating Activities: Cash flows provided by operations were $971.2 million in 2025 compared to $1,106.9 million in 2024 as higher earnings were more than offset by changes in working capital.
Free Cash Flow: Free cash flow, as defined in the table below, was $687.9 million in 2025 and $753.0 million in 2024. The year-over-year changes in free cash flow are due to the same factors discussed above in operating activities, as well as lower planned capital expenditures in 2025. Management considers free cash flow an important indicator of its liquidity and capital efficiency, 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 stock and business acquisitions, among other items.
(Millions of Dollars)
Net cash provided by operating activities
Less: capital and software expenditures
Free cash flow
Investing Activities: Cash flows used in investing activities totaled $261.5 million in 2025 primarily due to capital and software expenditures of $283.3 million.
Cash flows provided by investing activities in 2024 totaled $394.2 million, primarily due to net proceeds from sales of businesses of $735.6 million, partially offset by capital and software expenditures of $353.9 million.
Financing Activities: Cash flows used in financing activities totaled $794.4 million in 2025 primarily driven by payments on long term debt of $850.5 million and cash dividend payments on common stock of $500.6 million, partially offset by net short-term commercial paper borrowings of $572.9 million.
Cash flows used in financing activities totaled $1.557 billion in 2024 primarily driven by net repayments of short-term commercial paper borrowings of $1.057 billion and cash dividend payments on common stock of $491.2 million.
Fluctuations in foreign currency rates positively impacted cash by $79.3 million in 2025 due to the weakening of the U.S. dollar against other currencies. Fluctuations in foreign currency rates negatively impacted cash by $106.2 million in 2024 due to the strengthening of the U.S. dollar against other currencies.
Refer to Note G, Long-Term Debt and Financing Arrangements , and Note I, Capital Stock , for further discussion regarding the Company's debt and equity arrangements.
Credit Ratings and Liquidity:
The Company maintains investment grade credit ratings from the major U.S. rating agencies on its senior unsecured debt (S&P BBB+, Fitch BBB+, Moody's Baa3), as well as its commercial paper program (S&P A-2, Fitch F2, Moody's P-3). In the third quarter of 2025, S&P downgraded the Company's senior unsecured debt credit rating from A- to BBB+. Failure to maintain investment grade rating levels could adversely affect the Company’s cost of funds, liquidity, and access to capital markets, but would not have an adverse effect on the Company’s ability to access its existing committed credit facilities.
Cash and cash equivalents totaled $280.1 million and $290.5 million as of January 3, 2026 and December 28, 2024, respectively, which was primarily held 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 $2 million at January 3, 2026. The Act permits a U.S. company to elect to pay the net tax liability interest-free over a period of up to eight years. See the "Contractual Obligations" table below for the estimated amounts due by period.
In August 2025, the Company redeemed its $350 million 6.272% notes at par prior to maturity. The redemption was funded through the issuance of commercial paper at a lower prevailing interest rate. The Company recognized a pre-tax loss of $0.3 million from the redemption related to the write-off of unamortized deferred financing fees.
The Company has a $3.5 billion commercial paper program which includes Euro denominated borrowings in addition to U.S. Dollars. As of January 3, 2026, the Company had $605.6 million of borrowings outstanding, of which $555.6 million in Euro denominated commercial paper was designated as a net investment hedge. As of December 28, 2024, the Company had no commercial paper borrowings outstanding. Refer to Note H, Financial Instruments , for further discussion.
In June 2024, the Company amended and restated its existing five-year $2.5 billion committed credit facility with the concurrent execution of a new five year $2.25 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 of an amount equal to the Euro equivalent of $800.0 million is designated for swing line advances. 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 June 28, 2029 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. In June 2025, the 5-Year Credit Agreement was amended to include the covenants listed below. As of January 3, 2026 and December 28, 2024, the Company had not drawn on its five-year committed credit facility.
In June 2025, the Company terminated its 364-Day $1.25 billion committed credit facility ("the 2024 Syndicated 364-Day Credit Agreement") dated June 2024. There were no outstanding borrowings under the 2024 Syndicated 364-Day Credit Agreement upon termination and as of December 28, 2024. Contemporaneously, the Company entered into a new $1.25 billion syndicated 364-Day Credit Agreement (the "2025 Syndicated 364-Day Credit Agreement") which is a revolving credit loan. The borrowings under the 2025 Syndicated 364-Day Credit Agreement may be made in U.S. Dollars or Euros and bear interest at a floating rate plus an applicable margin dependent upon the denomination of the borrowing and pursuant to the terms of the 2025 Syndicated 364-Day Credit Agreement. The Company must repay all advances under the 2025 Syndicated 364-Day Credit Agreement by the earlier of June 22, 2026 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 2025 Syndicated 364-Day Credit Agreement serves as part of the liquidity back-stop for the Company’s $3.5 billion U.S. Dollar and Euro commercial paper program. As of January 3, 2026, the Company had not drawn on its 2025 Syndicated 364-Day Credit Agreement.
The 5-Year Credit Agreement and the 2025 Syndicated 364-Day Credit Agreement, as described above, contain customary affirmative and negative covenants, including but not limited to, maintenance of an interest coverage ratio. The interest coverage ratio tested for covenant compliance compares adjusted Earnings Before Interest, Taxes, Depreciation and Amortization to adjusted net Interest Expense ("Adjusted EBITDA"/"Adjusted Net Interest Expense"). The Company must maintain, for each period of four consecutive fiscal quarters of the Company, an interest coverage ratio of not less than 3.50 to 1.00, provided that the Company is only required to maintain an interest coverage ratio of not less than 2.50 to 1.00 for any four fiscal quarter period ending on or before the end of the Company’s second fiscal quarter of 2026. For purposes of calculating the Company’s compliance with the interest coverage ratio, the Company is permitted to increase EBITDA by an amount equal to the Applicable Adjustment Addbacks (as defined in the 2025 Syndicated 364-Day Credit Agreement), provided that the sum of the Applicable Adjustment Addbacks incurred in any four consecutive fiscal quarter periods ending on or before the end of the Company's second fiscal quarter of 2026 shall not exceed $250,000,000 in aggregate.
In addition, the Company has other short-term lines of credit that are primarily uncommitted, with numerous banks, aggregating to $299.8 million, of which approximately $216.1 million was available at January 3, 2026, and approximately $83.7 million of the short-term credit lines were utilized primarily pertaining to outstanding letters of credit for which there are no required or reported debt balances. Short-term arrangements are reviewed annually for renewal.
At January 3, 2026, the aggregate amount of short-term and long-term committed and uncommitted lines of credit was approximately $3.8 billion. The weighted-average interest rates on U.S. dollar denominated short-term borrowings for the years ended January 3, 2026 and December 28, 2024 were 4.6% and 5.6%, respectively. The weighted-average interest rates on Euro denominated short-term borrowings for the years ended January 3, 2026 and December 28, 2024 were 2.3% and 3.9%, respectively.
In March 2015, the Company entered into a forward share purchase contract with a financial institution counterparty for 3,645,510 shares of common stock. The contract obligates the Company to pay $350 million, plus an additional amount related
to the forward component of the contract. In September 2025, the Company amended the settlement date to June 2028, or earlier at the Company's option.
Refer to Note G, Long-Term Debt and Financing Arrangements , and Note I, Capital Stock , for further discussion regarding the Company's debt and equity arrangements.
Contractual Obligations: The following table summarizes the Company’s significant contractual and other obligations that impact its liquidity:
Payments Due by Period
(Millions of Dollars)
Total
Thereafter
Long-term debt (a)
Interest payments on long-term debt (b)
Short-term borrowings
Lease obligations
Inventory purchase commitments (c)
Deferred compensation
Marketing commitments
Forward stock purchase contract (d)
Pension funding obligations (e)
U.S. income tax (f)
Supplier agreements (g)
Derivatives (h)
Total contractual cash obligations
(a) Future payments on long-term debt encompass all payments related to aggregate debt maturities, excluding certain fair value adjustments included in long-term debt, as discussed further in Note G, Long-Term Debt and Financing Arrangements.
(b) Future interest payments on long-term debt reflect the applicable interest rate in effect at January 3, 2026 .
(c) Inventory purchase commitments primarily consist of open purchase orders to purchase raw materials, components, and sourced products.
(d) In March 2015, the Company entered into a forward share purchase contract with a financial institution counterparty which obligates the Company to pay $350 million, plus an additional amount related to the forward component of the contract. In September 2025, the Company amended the settlement date to June 2028 or earlier at the Company's option. See Note I, Capital Stock, for further discussion.
(e) This amount principally represents contributions either required by regulations or laws or, with respect to unfunded plans, necessary to fund current benefits. The Company has not presented estimated pension and post-retirement funding beyond 2026 as funding can vary significantly from year to year based upon changes in the fair value of the plan assets, actuarial assumptions, and curtailment/settlement actions.
(f) Income tax liability for the one-time deemed repatriation tax on unremitted foreign earnings and profits.
(g) Supplier agreements with long-term minimum material purchase requirements and freight forwarding arrangements.
(h) Future cash flows on derivative instruments reflect the fair value and accrued interest as of January 3, 2026. The ultimate cash flows on these instruments will differ, perhaps significantly, based on applicable market interest and foreign currency rates at their maturity.
To the extent the Company can reliably determine when payments will occur, the related amounts will be included in the table above. However, due to the high degree of uncertainty regarding the timing of potential future cash flows associated with the contingent consideration liability related to the Craftsman acquisition and the unrecognized tax liabilities of $110 million and $406 million, respectively, at January 3, 2026, the Company is unable to make a reliable estimate of when (if at all) these amounts may be paid. Refer to Note L, Fair Value Measurements, and Note P, Income Taxes, for further discussion.
Payments of the above contractual and other obligations (with the exception of payments related to debt principal, the forward stock purchase contract, and tax obligations) will typically generate a cash tax benefit such that the net cash outflow will be lower than the gross amounts summarized above.
Other Significant Commercial Commitments:
Amount of Commitment Expirations Per Period
(Millions of Dollars)
Total
Thereafter
U.S. lines of credit
Short-term borrowings, long-term debt and lines of credit are explained in detail within Note G, Long-Term Debt and Financing Arrangements .
MARKET RISK
Market risk is the potential economic loss that may result from adverse changes in the fair value of financial instruments, currencies, commodities and other items traded in global markets. The Company is exposed to market risk from changes in foreign currency exchange rates, interest rates, stock prices, bond prices and commodity prices, amongst others.
Exposure to foreign currency risk results because the Company, through its global businesses, enters into transactions and makes investments denominated in multiple currencies. The Company’s predominant currency exposures are related to the Euro, Canadian Dollar, British Pound, Australian Dollar, Brazilian Real, Chinese Renminbi and the Taiwan Dollar. Certain cross-currency trade flows arising from both trade and affiliate sales and purchases are consolidated and netted prior to obtaining risk protection through the use of various derivative financial instruments which may include: purchased basket options, purchased options, collars, cross-currency swaps and currency forwards. The Company is thus able to capitalize on its global positioning by taking advantage of naturally offsetting exposures and portfolio efficiencies to reduce the cost of purchasing derivative protection. At times, the Company also enters into foreign exchange derivative contracts to reduce the earnings and cash flow impacts of non-functional currency denominated receivables and payables, primarily for affiliate transactions. Gains and losses from these hedging instruments offset the gains or losses on the underlying net exposures. Management determines the nature and extent of currency hedging activities, and in certain cases, may elect to allow certain currency exposures to remain un-hedged. The Company may also enter into cross-currency swaps and forward contracts to hedge the net investments in certain subsidiaries and match the cash flows of operations to debt service requirements. Management estimates the foreign currency impact from its derivative financial instruments outstanding at the end of 2025 would have been an incremental pre-tax of approximately $27 million based on a hypothetical 10% movement in all net derivative currency positions. The Company follows risk management policies in executing derivative financial instrument transactions, and does not use such instruments for speculative purposes. The Company generally does not hedge the translation of its non-U.S. dollar earnings in foreign subsidiaries, but may choose to do so in certain instances in future periods.
As mentioned above, the Company routinely has cross-border trade and affiliate flows that cause an impact on earnings from foreign exchange rate movements. The Company is also exposed to currency fluctuation volatility from the translation of foreign earnings into U.S. dollars and the economic impact of foreign currency volatility on monetary assets held in foreign currencies. It is more difficult to quantify the transactional effects from currency fluctuations than the translational effects. Aside from the use of derivative instruments, which may be used to mitigate some of the exposure, transactional effects can potentially be influenced by actions the Company may take. For example, if an exposure occurs from a European entity sourcing product from a U.S. supplier it may be possible to change to a European supplier. Management estimates the combined translational and transactional impact, on pre-tax earnings, of a 10% overall movement in exchange rates is approximately $196 million. In 2025, translational and transactional foreign currency fluctuations negatively impacted pre-tax earnings from continuing operations by approximately $13 million.
The Company’s exposure to interest rate risk results from its outstanding debt and derivative obligations, short-term investments, and derivative financial instruments employed in the management of its debt portfolio. The debt portfolio including both trade and affiliate debt, is managed to achieve capital structure targets and reduce the overall cost of borrowing by leveraging, as appropriate, a combination of fixed and floating rate debt as well as interest rate swaps and cross-currency swaps.
The Company’s primary exposure to interest rate risk comes from its commercial paper program in which the pricing is partially based on short-term U.S. interest rates. The Company has a $3.5 billion commercial paper program which includes Euro denominated borrowings in addition to U.S. Dollars. The impact of a hypothetical 10% increase in the average interest rate of the Company’s average commercial paper borrowings outstanding during 2025 would have been an incremental pre-tax loss of approximately $4 million. As of January 3, 2026, the Company had $605.6 million of commercial paper borrowings outstanding.
The Company has exposure to commodity prices in many businesses, particularly brass, nickel, resin, aluminum, copper, zinc, steel, and energy used in the production of finished goods. Generally, commodity price exposures are not hedged with
derivative financial instruments, but instead are actively managed through customer product and service pricing actions, procurement-driven cost reduction initiatives and other productivity improvement projects.
The Company has $124.4 million of liabilities as of January 3, 2026 pertaining to unfunded defined contribution plans for certain U.S. employees for which there is mark-to-market exposure.
The assets held by the Company’s defined benefit plans are exposed to fluctuations in the market value of securities, primarily global stocks and fixed-income securities. The Company employs diversified asset allocations to help mitigate this risk. The Company's investment strategy for pension assets focuses on a liability-matching approach with gradual de-risking taking place over a period of many years to effectively manage portfolio risk. The Company utilizes the current funded status to transition the portfolio toward investments that better match the duration and cash flow attributes of the underlying liabilities. In 2025 and 2024, investment gains resulted in an increase of $112 million and $15 million to pension plan assets, respectively. The funded status percentage (total plan assets divided by total projected benefit obligation) of all global pension plans was 90% in 2025 and 2024. The Company expects funding obligations on its defined benefit plans to be approximately $29 million in 2026. Management has worked to minimize this exposure by freezing and terminating defined benefit plans where appropriate. Refer to Note K, Employee Plans, for further discussion regarding the Company's pension plans.
The Company has access to financial resources and borrowing capabilities around the world. There are no inst ruments within the debt structure that would accelerate payment requirements solely due to a change in credit rating.
The Company’s existing credit facilities and sources of liquidity, including expected operating cash flows, are considered more than adequate to conduct business as normal. The Company believes that its strong financial position, expected operating cash flows, committed long-term credit facilities and borrowing capacity, and ability to access equity markets, provide the financial flexibility necessary to continue its record of annual dividend payments, to invest in the routine needs of its businesses, and to fund other initiatives encompassed by its business strategy and maintain its strong investment grade credit ratings.
CRITICAL ACCOUNTING ESTIMATES — Preparation of the Company’s Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Significant accounting policies used in the preparation of the Consolidated Financial Statements are described in Note A, Significant Accounting Policies . Management believes the most complex and sensitive judgments, because of their significance to the Consolidated Financial Statements, result primarily from the need to make estimates about the effects of matters with inherent uncertainty. The most significant areas involving management estimates are described below. Actual results in these areas could differ from management’s estimates.
GOODWILL AND INTANGIBLE ASSETS — The Company acquires businesses in purchase transactions that result in the recognition of goodwill and intangible assets. The determination of the value of intangible assets requires management to make estimates and assumptions. In accordance with Accounting Standards Codification ("ASC") 350-20, Goodwill , acquired goodwill and indefinite-lived intangible assets are not amortized but are subject to impairment testing at least annually or when an event occurs or circumstances change that indicate it is more likely than not an impairment exists. Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. At January 3, 2026, the Company reported $7.288 billion of goodwill, $2.256 billion of indefinite-lived trade names and $831.2 million of net definite-lived intangibles.
Management tests goodwill for impairment at the reporting unit level. A reporting unit is an operating segment as defined in ASC 280, Segment Reporting , or one level below an operating segment (component level) as determined by the availability of discrete financial information that is regularly reviewed by operating segment management or an aggregate of component levels of an operating segment having similar economic characteristics. If the carrying value of a reporting unit (including the value of goodwill) is greater than its estimated fair value, an impairment charge would be recorded for the amount that the carrying amount of the reporting unit exceeded its fair value.
As required by the Company’s policy, goodwill was tested for impairment in the third quarter of 2025. In accordance with Accounting Standards Update ("ASU") 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment , companies are permitted to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test. Impairment tests are completed separately with respect to the goodwill of each of the Company’s reporting units. For its annual impairment testing performed in the third quarter of 2025, the Company applied a quantitative test for each of its reporting units using a discounted cash flow valuation model. Based on the results of the Company’s annual impairment testing, it was determined that the fair value of each of its reporting units was substantially in excess of its carrying amount.
With respect to the quantitative tests, the key assumptions applied to the cash flow projections include a discount rate of 10% and a perpetual growth rate of 3% for both reporting units. In addition, near-term cash flow projections for both reporting units included cumulative annual revenue growth rates in the mid-single digits (ranging from approximately 3% to 5%) and Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") margin rates in the mid to high-teens (ranging from approximately 15% to 19%), which are consistent with the Company's overall long-term financial targets as further discussed in "Strategic Objectives" in Item 7 . These assumptions contemplated business, market and overall economic conditions. Management performed sensitivity analyses on the estimated fair values from the discounted cash flow valuation models utilizing more conservative assumptions that reflect reasonably likely future changes in the discount rate and perpetual growth rate. The discount rate was increased by 250 basis points with no impairment indicated. The perpetual growth rate was decreased by 300 basis points with no impairment indicated.
When a portion of a reporting unit is classified as held for sale, the Company allocates goodwill to the disposal group based on the relative fair values of the business to be disposed of and the portion of the reporting unit that will be retained. The Company then performs a goodwill impairment test on the remaining reporting unit. As of January 3, 2026, the Company classified the CAM business, which is included in the Engineered Fastening reporting unit, as held for sale and allocated a portion of the goodwill of the Engineered Fastening reporting unit to CAM. The Company then performed a goodwill impairment test on the remaining reporting unit after the allocation of goodwill to CAM, which did not result in impairment.
The Company also tested its indefinite-lived trade names for impairment during the third quarter of 2025 utilizing a discounted cash flow model. The key assumptions used included discount rates, royalty rates, and perpetual growth rates applied to the projected sales. With the exception of the Lenox, Troy-Bilt, and Irwin trade names discussed below, the Company determined that the fair values of its indefinite-lived trade names exceeded their respective carrying amounts.
During 2025, in conjunction with its annual long-term strategic planning, the Company updated its brand prioritization and investment strategy to transition targeted product categories to its priority global brands, while leveraging certain of its complementary brands on more focused product categories and regions where those brands hold more meaningful market positions and value to end users. As a result of these strategic decisions, the Company recognized a $108.4 million pre-tax, non-cash impairment charge related to the Lenox, Troy-Bilt, and Irwin trade names in the third quarter of 2025. Subsequent to this impairment charge, the carrying value of the Lenox, Troy-Bilt, and Irwin trade names totaled $119.6 million. In the third quarter of 2024, the Company recognized a $41.0 million pre-tax, non-cash impairment charge related to the Lenox trade name. The Lenox, Troy-Bilt, and Irwin trade names, which the Company intends to continue utilizing indefinitely in a more focused manner as described above, represented approximately 5% of 2025 net sales for the Tools & Outdoor segment.
In the event that future operating results of any of the Company's reporting units or indefinite-lived trade names do not meet current expectations, management, based upon conditions at the time, would consider taking restructuring or other strategic actions, as necessary, to maximize revenue growth and profitability. A thorough analysis of all the facts and circumstances existi ng at that time would need to be performed to determine if recording an impairment loss would be appropriate.
DEFINED BENEFIT OBLIGATIONS — T he valuation of pension and other postretirement benefits costs and obligations is dependent on various assumptions. These assumptions, which are updated annually, include discount rates, expected return on plan assets, future salary increase rates, and health care cost trend rates. The Company considers current market conditions, including interest rates, to establish these assumptions. Discount rates are developed considering the yields available on high-quality fixed income investments with maturities corresponding to the duration of the related benefit obligations. The Company’s weighted-average discount rates used to determine benefit obligations at January 3, 2026 for the United States and international pension plans were 5.27% and 5.11%, respectively. The Company’s weighted-average discount rates used to determine benefit obligations at December 28, 2024 for the United States and international pension plans were 5.55% and 5.04%, respectively. As discussed further in Note K, Employee Benefit Plans , the Company develops the expected return on plan assets considering various factors, which include its targeted asset allocation percentages, historic returns, and expected future returns. The Company’s expected rate of return assumptions for the United States and international pension plans were 6.72% and 6.37%, respecti vely, at January 3, 2026. The Company will use a 6.55% weighted-average expected rate of return assumption to determine the 2026 net periodic cost. A 25 basis point reduction in the expected rate of return assumption would increase 2026 net periodic cost by approximately $4 million on a pre-tax basis.
The Company believes that the assumptions used are appropriate; however, differences in actual experience or changes in the assumptions may materially affect the Company’s financial position or results of operations. To the extent that actual (newly measured) results differ from the actuarial assumptions, the difference is recognized in accumulated other comprehensive loss, and, if in excess of a specified corridor, amortized over future periods. The expected return on plan assets is determined using the expected rate of return and the fair value of plan assets. Accordingly, market fluctuations in the fair value of plan assets can affect the net periodic benefit cost in the following yea r. The projected benefit obligation for defined benefit plans exceeded the fair value of plan assets by $221 million at January 3, 2026. A 25 basis point reduction in the discount rate would have
increased the projected benefit obligation by approximately $44 million a t January 3, 2026. The primary Black & Decker U.S. pension and post-employment benefit plans were curtailed in late 2010, as well as the only material Black & Decker international plan, and in their place the Company implemented defined contribution benefit plans. The vast majority of the projected benefit obligation pertains to plans that have been frozen; the remaining defined benefit plans that are not frozen are predominantly small domestic union plans and those that are statutorily mandated in certain international jurisdictions. The Company recognized approximately $43 million of defined benefit plan expense in 2025, which may fluctuate in future years depending upon various factors including future discount rates and actual returns on plan assets.
Additional information regarding the Company's pension plans is available in Note K, Employee Benefit Plans.
ENVIRONMENTAL — The Company incurs costs related to environmental issues as a result of various laws and regulations governing current operations as well as the remediation of previously contaminated sites. The Company’s policy is to accrue environmental investigatory and remediation costs for identified sites when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. The amount of liability recorded is based on an evaluation of currently available facts with respect to each individual site and includes such factors as existing technology, presently enacted laws and regulations, and prior experience in remediation of contaminated sites. The liabilities recorded do not take into account any claims for recoveries from insurance or third parties. As assessments and remediation progress at individual sites, the amounts recorded are reviewed periodically and adjusted to reflect additional technical and legal information that becomes available.
As of January 3, 2026, the Company had reserves of $259 million for remediation activities associated with Company-owned properties as well as for Superfund sites, for losses that are probable and estimable. As of January 3, 2026, the range of environmental remediation costs that is reasonably possible is $179 million to $396 million which is subject to change in the near term. The Company may be liable for environmental remediation of sites it no longer owns. Liabilities have been recorded on those sites in accordance with this policy.
Additional information regarding environmental matters is available in Note R, Contingencies.
INCOME TAXES — The Company accounts for income taxes under the asset and liability method in accordance with ASC 740, Income Taxes , which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using the enacted tax rates in effect for the year in which the differences are expected to reverse. Any changes in tax rates on deferred tax assets and liabilities are recognized in income in the period that includes the enactment date.
The Company records net deferred tax assets to the extent that it is more likely than not that these assets will be realized. In making this determination, management considers all available positive and negative evidence, including future reversals of existing temporary differences, estimates of future taxable income, tax-planning strategies, and the realizability of net operating loss carryforwards. In the event that it is determined that an asset is not more likely than not to be realized, a valuation allowance is recorded against the asset. Valuation allowances related to deferred tax assets can be impacted by changes to tax laws, changes to statutory tax rates and future taxable income levels. In the event the Company were to determine that it would not be able to realize all or a portion of its deferred tax assets in the future, the unrealizable amount would be charged to earnings in the period in which that determination is made. Conversely, if the Company were to determine that it would be able to realize deferred tax assets in the future in excess of the net carrying amounts, it would decrease the recorded valuation allowance through a favorable adjustment to earnings in the period that the determination was made.
The Company records uncertain tax positions in accordance with ASC 740, which requires a two-step process. First, management determines whether it is more likely than not that a tax position will be sustained based on the technical merits of the position and second, for those tax positions that meet the more likely than not threshold, management recognizes the largest amount of the tax benefit that is greater than 50 percent likely to be realized upon ultimate settlement with the related taxing authority. The Company maintains an accounting policy of recording interest and penalties on uncertain tax positions as a component of Income taxes in the Consolidated Statements of Operations.
The Company is subject to income tax in a number of locations, including U.S. federal, state and foreign jurisdictions. Significant judgment is required when calculating the worldwide provision for income taxes. Many factors are considered when evaluating and estimating the Company's tax positions and tax benefits, which may require periodic adjustments, and which may not accurately anticipate actual outcomes. It is reasonably possible that the amount of the unrecognized benefit with respect to certain of the Company's unrecognized tax positions will significantly increase or decrease within the next twelve months. These changes may be the result of settlements of ongoing audits, litigation, or other proceedings with taxing authorities. The Company periodically assesses its liabilities and contingencies for all tax years still subject to audit based on the most current available information, which involves inherent uncertainty.
Additional information regarding income taxes is available in Note P, Income Taxes.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
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, but not limited to, any goals, projections, guidance or planning assumptions or scenarios regarding earnings, EPS, income, revenue, margins, or margin expansion, costs and cost savings/reductions, sales, sales growth, organic growth, profitability, cash flow, leverage ratios, debt reduction or other financial items; any statements of the plans, strategies, investments and objectives of management for future operations, including expectations around the Company's productivity and efficiency goals and future operational strategies following completion of the Company's transformation; future market share gain, shareholder returns, any statements concerning innovation initiatives and proposed new products, services or developments and brand prioritization strategies; any statements regarding future economic conditions or performance; any statements concerning future dividends or share repurchases; any statements of beliefs, plans, intentions or expectations; any statements and assumptions or scenarios regarding possible tariff and tariff impact projections and related mitigation plans (including price actions, supply chain adjustments) and expected timing and benefits related to such plans; any statements concerning the consummation of the CAM sale transaction, the Company’s ability to maximize value for shareholders through active portfolio management and the impact of the transaction to fund debt reduction and support the Company’s capital allocation strategy and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include, among others, the words “may,” “will,” “estimate,” “intend,” “could,” “project,” “plan,” “continue,” “believe,” “expect,” “anticipate,” “run-rate,” “annualized,” “forecast,” “commit,” “goal,” “target,” “design,” “on-track,” “position or positioning,” “guidance,” “aim,” “looking forward,” “multi-year” or any other similar words.
Although the Company believes that the expectations reflected in any of its forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of its forward-looking statements. The Company's future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, such as those disclosed or incorporated by reference in the Company's filings with the Securities and Exchange Commission.
Important factors that could cause the Company's actual results, performance and achievements, or industry results to differ materially from estimates or projections contained in its forward-looking statements include, among others, the following: (i) successfully developing, marketing and achieving sales from new products and services and the continued acceptance of current products and services as well as successful execution of, and realization of expected benefits from, the Company’s brand prioritization and investment strategy, including potential licensing initiatives and related restructuring efforts, and its ability to estimate and mitigate negative consequences from the same including, but not limited to, reduced ability to generate sales; (ii) macroeconomic factors, including global and regional business conditions, commodity availability and prices, inflation and deflation, interest rate volatility, currency exchange rates, and uncertainties in the global financial markets; (iii) laws, regulations and governmental policies affecting the Company's activities in the countries where it does business or sources supply inputs, including those related to taxation, data privacy, anti-bribery, anti-, government contracts, and trade controls, including but not limited to, tariffs, import and export controls, raw material and rare earth related controls and other monetary and non-monetary trade regulations or ; (iv) the Company’s ability to predict the timing and extent of any trade related regulations (or any court rulings in response thereto), clearances, restrictions, including but not limited to, trade , tariffs, raw material and rare earth related controls, as well as its ability to assess the impact to its business of, and mitigate or respond to, such macroeconomic or trade, tariff and raw material and rare earth import/export control changes or policies (including, but not limited to, the Company’s ability to predict and respond to court rulings in response thereto, or to obtain price increases from its customers and complete supply chain adjustments within anticipated time frames and ability to obtain rare earth related supply clearances); (v) the economic, political, cultural and legal environment in the U.S., Europe, and the emerging markets in which the Company generates sales, particularly Latin America and China; (vi) realizing the anticipated benefits of mergers, acquisitions, joint ventures, strategic or and the costs associated with such transactions; (vii) pricing pressure and other changes within competitive markets; (viii) availability and price of raw materials, rare earth materials, component parts, freight, energy, labor and sourced finished goods; (ix) the impact that the tightened credit markets may have on the Company or its customers or suppliers; (x) the extent to which the Company has to write off accounts receivable, inventory or other assets or experiences supply chain in connection with filings by customers or suppliers; (xi) the Company's ability to identify and effectively execute productivity and cost reductions, including complexity reduction through platforming products and SKU reduction initiatives, and other manufacturing and administrative reorganization actions; (xii) potential business, supply chain and distribution , including those related to physical security , information technology or cyber-attacks, epidemics, natural or pandemics, sanctions, political , war or terrorism, including the between Russia and Ukraine, and Israel and Hamas and tensions or in South Korea, China, Taiwan and the Middle East; (xiii) the continued consolidation of customers, particularly in consumer channels, and the Company’s continued reliance on significant customers; (xiv) managing franchisee relationships; (xv) the impact of weather conditions and climate change and risks related to the transition to a lower-carbon economy, such as the Company's ability to adopt new
technology, meet market-driven demands for carbon neutral and renewable energy technology, or to comply with changes in environmental regulations or requirements, which may be more stringent and complex, impacting its reporting processes and manufacturing facilities and business operations as well as remediation plans and costs relating to any of its current or former locations or other sites; (xvi) maintaining or improving production rates in the Company's manufacturing facilities (including leveraging its North American footprint in connection with tariff mitigation), responding to significant changes in customer preferences or expectations, product demand and fulfilling demand for new and existing products, and learning, adapting and integrating new technologies into products, services and processes; (xvii) changes in the competitive landscape in the Company's markets; (xviii) the Company's non-U.S. operations, including sales to non-U.S. customers; (xix) the Company’s ability to predict the extent or timing of, and impact from demand changes within domestic or world-wide markets associated with construction, homebuilding and remodeling, aerospace, outdoor, engineered fastening, automotive and other markets which the Company serves; (xx) potential adverse developments in new or pending litigation and/or government investigations; (xxi) the incurrence of debt and changes in the Company's ability to obtain debt on commercially reasonable terms and at competitive rates; (xxii) substantial pension and other post-retirement obligations; (xxiii) potential regulatory liabilities, including environmental, privacy, data , workers compensation and product liabilities; (xxiv) attracting, developing and retaining senior management and other key employees, managing a workforce in many jurisdictions, labor , work or other labor ; (xxv) the Company's ability to keep abreast with the pace of technological change; (xxvi) changes in accounting estimates; (xxvii) the Company’s ability to protect its intellectual property rights and to maintain its public reputation and the of its brands; (xxviii) or publicity, including on social media, whether or not accurate, concerning the Company’s brands, products, culture, key employees or suppliers, or initiatives, and the Company's handling of divergent stakeholder expectations regarding the same; and (xxix) the to consummate, or a in the consummation of, the CAM sale transaction for various reasons (including but not limited to to receive, or in receiving, required regulatory approvals and meet customary conditions), and to realize the expected benefits of the Company’s value creation, debt reduction and capital allocation strategy.
Additional factors that could cause actual results to differ materially from forward-looking statements are set forth in this Annual Report on Form 10-K, including under the headings “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in the Consolidated Financial Statements and the related Notes, and other filings with the Securities and Exchange Commission.
Forward-looking statements in this Annual Report on Form 10-K speak only as of the date hereof, and forward-looking statements in documents that are incorporated by reference herein speak only as of the date of those documents. The Company does not undertake any obligation or intention to update or revise any forward-looking statements, whether as a result of future events or circumstances, new information or otherwise, except as required by law.
