STANLEY BLACK & DECKER, INC. The following discussion contains statements reflecting the Company's views about its future performance that constitute "forward-looking statements" under the Private Securities Litigation Act of 1995. There are a number of important factors that could cause actual results to differ materially from those indicated by such forward-looking statements. Please read the information under the caption entitled "Cautionary Statement under the Private Securities Litigation Reform Act of 1995."
Throughout this Management's Discussion and Analysis ("MD&A"), references to Notes refer to the "Notes To (Unaudited) Condensed Consolidated Financial Statements" in Part 1, Item 1 of this Form 10-Q, unless otherwise indicated.
BUSINESS OVERVIEW
Strategy
The Company is a diversified global 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. The
Company continues to execute a growth and acquisition strategy that involves
industry, geographic and customer diversification to foster sustainable revenue,
earnings and cash flow growth. The Company remains focused on delivering
above-market organic growth with margin expansion by leveraging its proven and
long-standing Stanley Black & Decker Operating Model ("SBD Operating Model")
which has continually evolved over the past 15 years as times have changed. At
the center of the SBD Operating Model is the concept of the interrelationship
between people and technology, which intersect and interact with the other key
elements: Performance Resiliency, Extreme Innovation, Operations Excellence and
Extraordinary Customer Experience. Each of these elements co-exists
synergistically with the others in a systems-based approach. The Company will
leverage the SBD Operating Model to continue making strides towards achieving
its vision of delivering top-quartile financial performance, becoming known as
one of the world's leading innovators and elevating its commitment to social
responsibility.
The Company's growth and acquisition strategy is interdependent with its social
responsibility strategy focused on workforce upskilling, product innovation, and
environmental preservation including mitigating the impacts of climate change.
These are core business issues that ensure the long-term viability of the
Company, its customers, suppliers, and communities. The Company has established
environmental, social and corporate governance ("ESG") targets embodied in its
2030 ESG strategy that include empowering 10 million makers and creators,
enhancing 500 million lives through purpose-driven product innovation, becoming
carbon-neutral, landfill-free across its operations, and reducing water use in
water stressed and scarce areas. The carbon neutrality target includes
third-party approved science-based targets to reduce absolute scope 1 and 2
greenhouse gas emissions by greater than 100% by 2030, and to reduce supply
chain emissions by 35%. The Company's ESG strategy considers all life-cycle
stages including material procurement from supply chain partners, product
design, manufacturing, distribution and transportation, product use, product
service and end-of-life. Refer to section "Human Capital Management " in Item 1
Business of the Company's Form 10-K for the year ended January 1, 2022 for
additional information regarding the Company's commitment to upskilling its
employees and improving diversity, equity and inclusion.
In terms of capital allocation, the Company remains committed, over time, to
returning approximately 50% of excess capital to shareholders through a strong
and growing dividend as well as opportunistically repurchasing shares. The
remaining capital (approximately 50%) will be deployed towards acquisitions.
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, onApril 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. 36
--------------------------------------------------------------------------------
Table of Contents
Pending Sale of Mechanical Access Solutions ("MAS")
InApril 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")
InDecember 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
OnDecember 1, 2021 , the Company acquired the remaining 80 percent ownership stake inMTD Holdings Inc. ("MTD"), a privately held global manufacturer of outdoor power equipment. The Company previously acquired a 20 percent interest in MTD inJanuary 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®. OnNovember 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") 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.
SegmentsThe Company's operations are classified into two reportable business segments: Tools & Outdoor and Industrial.
Tools & Outdoor
The Tools & Outdoor segment is comprised of thePower Tools Group ("PTG"), Hand Tools, Accessories & Storage ("HTAS"), and Outdoor Power Equipment ("Outdoor") businesses. Annual revenues in the Tools & Outdoor segment were$12.8 billion in 2021, representing 82% of the Company's total revenues. 37
--------------------------------------------------------------------------------
Table of Contents
The PTG business includes both professional and consumer products. Professional products include professional grade corded and cordless electric power tools and equipment including drills, impact wrenches and drivers, grinders, saws, routers and sanders, as well as pneumatic tools and fasteners including nail guns, nails, staplers and staples, concrete and masonry anchors. Consumer products include corded and cordless electric power tools sold primarily under the BLACK+DECKER® brand, and home products such as hand-held vacuums, paint tools and cleaning appliances. The HTAS business sells hand tools, power tool accessories and storage products. Hand tools include measuring, leveling and layout tools, planes, hammers, demolition tools, clamps, vises, knives, saws, chisels and industrial and automotive tools. Power tool accessories include drill bits, screwdriver bits, router bits, abrasives, saw blades and threading products. Storage products include tool boxes, sawhorses, medical cabinets and engineered storage solution products. The Outdoor business primarily sells corded and cordless electric lawn and garden products, including hedge trimmers, string trimmers, lawn mowers, pressure washers and related accessories, and gas powered lawn and garden products, including lawn tractors, zero turn ride on mowers, walk behind mowers, snow blowers, residential robotic mowers, utility terrain vehicles (UTVs), handheld outdoor power equipment, garden tools, and parts and accessories to professionals and consumers under the DEWALT®, CUB CADET®, BLACK+DECKER®, CRAFTSMAN®, TROY-BILT®, and HUSTLER® brand names.
Industrial
The Industrial segment is comprised of the Engineered Fastening and
Infrastructure businesses. Annual revenues in the Industrial segment were
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.
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 first quarters of 2022
and 2021 are as follows:
38--------------------------------------------------------------------------------
Table of Contents
First Quarter 2022
Acquisition-
Related Charges &
GAAP Other Non-GAAP
Gross profit $
1,305.4 $ 88.8
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
1 Includes provision for credit losses
The Acquisition-Related Charges and Other in the table above relate to the following:
•Charges reducing Gross profit primarily pertaining to inventory step-up charges and theRussia business closure; •Charges in SG&A primarily related to a voluntary retirement program, integration-related costs, and theRussia 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 Acquisition- Related Charges & GAAP Other Non-GAAP Gross profit $
1,387.8 $ 4.4
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
1 Includes provision for credit losses
The Acquisition-Related Charges and Other in the table above relate to the following:
•Charges reducing Gross profit pertaining to facility-related charges;
•Charges in SG&A primarily for functional transformation initiatives;
•Other charges included in Earnings from continuing operations before income
taxes and equity interest consisting of:
•$1.6 million in Other, net primarily related to deal transactions costs;
•$1.0 million net loss pertaining to a previously divested business; and
•$1.8 million of restructuring charges pertaining to severance and facility
closures;
•Income taxes on continuing operations include the tax effect on the above net
charges.
39-------------------------------------------------------------------------------- Table of Contents 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$4.448 billion in the first three months of 2022 compared to$3.721 billion in the first three months of 2021, representing an increase of 20%, primarily driven by a 23% increase from strategic outdoor power equipment acquisitions and a 5% increase from price realization, partially offset by a 6% and 2% decrease from volume and foreign currency, respectively. Volume was in line with expectations, but constrained by temporary electronic component supply challenges, which have continued to improve. Tools & Outdoor net sales increased 24% compared to the first three months of 2021 due to a 27% increase from the MTD and Excel acquisitions and a 5% increase in price, partially offset by a 6% decline in volume and a 2% decrease from foreign currency. Industrial net sales declined 2% compared to the first three months of 2021 as a 5% increase in price was more than offset by a 5% decline in volume and a 2% impact from foreign currency. Gross Profit: Gross profit was$1.305 billion , or 29.3% of net sales, in the first three months of 2022 compared to$1.388 billion , or 37.3% of net sales, in the first three months of 2021. Acquisition-related and other charges, which reduced gross profit, were$88.8 million for the three months endedApril 2, 2022 and$4.4 million for the three months endedApril 3, 2021 . Excluding these charges, gross profit was 31.3% of net sales for the three months endedApril 2, 2022 , compared to 37.4% for the three months endedApril 3, 2021 , as price realization was more than offset by commodity inflation, higher supply chain costs to serve demand and lower volumes. SG&A Expenses: SG&A, inclusive of the provision for credit losses, was$960.3 million , or 21.6% of net sales, in the first three months of 2022, compared to$719.1 million , or 19.3% of net sales, in the first three months of 2021. Within SG&A, acquisition-related and other charges totaled$78.9 million for the three months endedApril 2, 2022 and$15.0 million for the three months endedApril 3, 2021 . Excluding these charges, SG&A was 19.8% of net sales for the three months endedApril 2, 2022 , compared to 18.9% for the three months endedApril 3, 2021 , due to 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 margins may not be comparable. Other, net: Other, net amounted to$62.0 million and$48.0 million in the first three months of 2022 and 2021, respectively. Excluding acquisition-related and other charges of$1.0 million , Other, net totaled$61.0 million for the three months endedApril 2, 2022 . Excluding acquisition-related and other charges of$1.6 million , Other, net totaled$46.4 million for the three months endedApril 3, 2021 . The increase in 2022 compared to 2021 is driven by higher intangible asset amortization due to the MTD and Excel acquisitions.
Loss on Sale of Business: During the first quarter of 2021, the Company reported
a pre-tax loss of
Interest, net: Net interest expense was$51.9 million in the first quarter of 2022 compared to$44.6 million in the first quarter of 2021. The year-over-year increase was primarily driven by higherU.S. interest rates and higher average balances relating to the Company's commercial paper borrowings, as well as the$2.25 billion credit facility and$1.0 billion issuance of debt in the first quarter of 2022. Income Taxes: The Company recognized income tax expense of$22.9 million for the three months endedApril 2, 2022 , resulting in an effective tax rate of 12.8%. Excluding the impacts of the acquisition-related and other charges, the effective tax rate was 13.2% for the three months endedApril 2, 2022 . These effective tax rates differ from theU.S. statutory tax rate primarily due to a benefit associated with the Company's supply chain reorganization, tax on foreign earnings and the re-measurement of uncertain tax position reserves. The Company recognized income tax expense of$115.5 million for the three months endedApril 3, 2021 , resulting in an effective tax rate of 20.1%. Excluding the impacts of the acquisition-related and other charges, the effective tax rate was 20.3% for the three months endedApril 3, 2021 . These effective tax rates differ from theU.S. statutory tax rate primarily due to tax on foreign earnings, the re-measurement of uncertain tax position reserves, and the tax benefit of equity-based compensation.
Business Segment Results
40--------------------------------------------------------------------------------
Table of Contents
The Company's reportable segments are aggregations of businesses that have similar products, services and end markets, among other factors. The Company utilizes segment profit which is defined as net sales minus cost of sales and SG&A inclusive of the provision for credit losses (aside from corporate overhead expense), and segment profit as a percentage of net sales to assess the profitability of each segment.
The Company's operations are classified into two reportable business segments: Tools & Outdoor and Industrial.
Tools & Outdoor:
Year-to-Date
(Millions of Dollars) 2022 2021
Net sales $ 3,801.2 $ 3,062.9
Segment profit $ 378.5 $ 644.7
% of Net sales 10.0 % 21.0 %
Tools & Outdoor net sales increased $738.3 million , or 24%, in the first three
months of 2022 compared to the first three months of 2021, primarily driven by a
27% increase from the MTD and Excel acquisitions and a 5% increase in price,
partially offset by lower 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 commodity
inflation and 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 three months of 2022 was $378.5 million , or 10.0%
of net sales, compared to $644.7 million , or 21.0% of net sales, in the first
three months of 2021. Excluding acquisition-related and other charges of $153.7
million and $4.2 million for the three months ended April 2, 2022 and April 3,
2021 , respectively, segment profit was 14.0% of net sales in the first three
months of 2022 and 21.2% in the first three months of 2021, as the initial
benefit from price realization was more than offset by inflation, higher supply
chain costs, growth investments and lower volume.
Industrial:
Year-to-Date
(Millions of Dollars) 2022 2021
Net sales $ 646.6 $ 657.7
Segment profit $ 41.3 $ 99.8
% of Net sales 6.4 % 15.2 %
Industrial net sales decreased $11.1 million , or 2%, in the first three months
of 2022 compared to the first three months of 2021, as a 5% increase in price
was more than offset by a 5% decline in volume and 2% from unfavorable currency
impacts. Engineered Fastening organic revenues were down 1% as general
industrial fastener growth was primarily offset by a market driven decline in
automotive. Infrastructure organic revenues were up 4%, as 13% growth in
Attachment Tools was partially offset by lower pipeline project activity in Oil
& Gas.
Industrial segment profit for the first three months of 2022 totaled $41.3
million , or 6.4% of net sales, compared to $99.8 million , or 15.2% of net sales,
in the corresponding 2021 period. Excluding acquisition-related and other
charges of $3.5 million and $3.6 million for the three months ended April 2,
2022 and April 3, 2021 , respectively, segment profit amounted to 6.9% of net
sales in the first three months of 2022 compared to 15.7% in the first three
months of 2021 as the initial benefit from price realization was more than
offset by commodity inflation and lower volume in higher-margin automotive and
aerospace fasteners.
Corporate Overhead
Corporate Overhead includes the corporate overhead element of SG&A, which is not
allocated to the business segments. Corporate Overhead amounted to $74.7 million
in 2022 compared to $75.8 million in 2021. Excluding acquisition-related and
other charges of $10.5 million for the three months ended April 2, 2022 and
$11.6 million for the three months ended April 3, 2021 , the corporate overhead
element of SG&A was $64.2 million for the three months ended April 2, 2022 and
April 3, 2021 .
41--------------------------------------------------------------------------------
Table of Contents
RESTRUCTURING ACTIVITIES
A summary of the restructuring reserve activity fromJanuary 1, 2022 toApril 2, 2022 is as follows: January 1, April 2, (Millions of Dollars) 2022 Net Additions Usage Currency 2022 Severance and related costs$ 28.2 $ 51.1$ (22.8) $ 0.6 $ 57.1 Facility closures and asset impairments 3.5 1.6 (2.5) 0.1 2.7 Total$ 31.7 $ 52.7$ (25.3) $ 0.7 $ 59.8 For the three months endedApril 2, 2022 , the Company recognized net restructuring charges of$52.7 million , primarily related to severance and related costs. The Company expects to achieve annual net cost savings of approximately$137 million by the end of 2022 related to the restructuring costs incurred during the three months endedApril 2, 2022 . The majority of the$59.8 million of reserves remaining as ofApril 2, 2022 is expected to be utilized within the next 12 months.
Segments: The
The anticipated annual net cost savings of approximately
42--------------------------------------------------------------------------------
Table of Contents
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, theRussia 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 used in operations were$1.241 billion in the first quarter of 2021 compared to$157.8 million in the corresponding period of 2021. The year-over-year change was mainly attributable to higher inventory levels to meet demand within the Tools & Outdoor segment, coupled with longer lead times related to the global supply chain, and to a lesser extent, lower earnings. Free Cash Flow: Free cash flow, as defined in the table below, was an outflow of$1.381 billion in the first quarter of 2022 compared to$246.1 million in the corresponding period of 2021. The year-over-year decrease in free cash flow was primarily due to increased inventory investments to support the strong demand outlook. This inventory level is planned to decline sequentially [beginning in the back half of 2022]. Management considers free cash flow an important indicator of its liquidity, as well as its ability to fund future growth and provide dividends to shareowners, and is useful information for investors. Free cash flow does not include deductions for mandatory debt service, other borrowing activity, discretionary dividends on the Company's common and preferred stock and business acquisitions, among other items. Year-to-Date (Millions of Dollars) 2022
2021
Net cash used in operating activities$ (1,241.1) $
(157.8)
Less: capital and software expenditures (139.8) (88.3) Free cash flow$ (1,380.9) $ (246.1) Investing Activities: Cash flows used in investing activities totaled$163.4 million in the first quarter of 2022 primarily due to capital and software expenditures of$139.8 million and purchase price adjustment payments for previously acquired businesses of$36.5 million . Cash flows used in investing activities totaled$147.9 million in the first three months of 2021, primarily due to capital and software expenditures of$88.3 million and net investment hedge settlements of$52.6 million . Financing Activities: Cash flows provided by financing activities totaled$1.425 billion in the first quarter of 2022 primarily driven by net short-term borrowings of$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$110.1 million , partially offset by proceeds from issuances of common stock of$64.1 million . 43 -------------------------------------------------------------------------------- Table of Contents Credit Ratings & Liquidity: The Company maintains strong investment grade credit ratings from the majorU.S. rating agencies on its senior unsecured debt (S&P A, Fitch A-, Moody's Baa1), as well as its commercial paper program (S&P A-1, Fitch F1, Moody's P-2). There were no changes to any of the Company's credit ratings during the first quarter of 2022. Failure to maintain strong investment grade credit rating levels could adversely affect the Company's cost of funds, liquidity and access to capital markets, but would not have an adverse effect on the Company's ability to access its existing committed credit facilities.
Cash and cash equivalents totaled
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$287 million atApril 2, 2022 . The Act permits aU.S. company to elect to pay the net tax liability interest-free over a period of up to eight years. The Company has considered the implications of paying the required one-time transition tax and believes it will not have a material impact on its liquidity.
The Company has a
The Company has a five-year$2.5 billion committed credit facility (the "5-Year Credit Agreement"). Borrowings under the 5-Year Credit Agreement may be made inU.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 ofSeptember 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 ofApril 2, 2022 andJanuary 1, 2022 , the Company had not drawn on its five-year committed credit facility. The Company has a 364-Day$1.0 billion committed credit facility (the "364-Day Credit Agreement"). Borrowings under the 364-Day Credit Agreement may be made inU.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 ofSeptember 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 ofApril 2, 2022 andJanuary 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 inU.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 ofNovember 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 ofApril 2, 2022 andJanuary 1, 2022 , the Company had not drawn on its Second 364-Day Credit Agreement. InJanuary 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 inU.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 ofJanuary 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 ofApril 2, 2022 , the Company had$2.3 billion outstanding on its Third 364-Day Credit Agreement. InFebruary 2022 , the Company issued$500.0 million of senior unsecured term notes maturingFebruary 24, 2025 ("2025 Term Notes") and$500.0 million of senior unsecured term notes maturingMay 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 44 -------------------------------------------------------------------------------- Table of Contents 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. InNovember 2019 , the Company issued 7,500,000 Equity Units with a total notional value of$750 million ("2019 Equity Units"). Each unit has a stated amount of$100 and initially consists of a three-year forward stock purchase contract ("2022 Purchase Contracts") for the purchase of a variable number of shares of common stock, onNovember 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 inDecember 2019 . The Company also used$19 million of the proceeds to enter into capped call transactions utilized to hedge potential economic dilution. On and afterNovember 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 afterDecember 22, 2022 , the Company may elect to redeem for cash, all or any portion of the outstanding shares of the Series D Preferred Stock at a redemption price equal to 100% of the liquidation preference, plus any accumulated and unpaid dividends. If the Company calls the Series D Preferred Stock for redemption, holders may convert their shares immediately preceding the redemption date. Upon a successful remarketing of the Series D Preferred Stock (the "Remarketed Series D Preferred Stock"), the Company will receive additional cash proceeds of$750 million and issue shares of Remarketed Series D Preferred Stock. The Company pays the holders of the 2022 Purchase Contracts quarterly contract adjustment payments, which commencedFebruary 15, 2020 . As ofApril 2, 2022 , the present value of the contract adjustment payments was approximately$29 million . InMarch 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. InFebruary 2022 , the Company amended the settlement date toApril 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.
45--------------------------------------------------------------------------------
Table of Contents
OTHER MATTERS
Critical Accounting Estimates: There have been no significant changes in the Company's critical accounting estimates during the first quarter of 2022.
Refer to the "Other Matters" section of Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Form 10-K for the year endedJanuary 1, 2022 for a discussion of the Company's critical accounting estimates.
© Edgar Online, source
