SUSTAINING ADVANTAGE BOLD. AGILE. ENDURING. Annual Report 2019 2019YEARINREVIEW.STANLEYBLACKANDDECKER.COM FOR THOSE WHO MAKE THE WORLD™ WE ARE BOLD AND AGILE, YET THOUGHTFUL AND DISCIPLINED WE ARE BOLD TO BREAK THE MOLD COURAGE & INNOVATION WE ARE RELIABLE TO THE CORE INTEGRITY & ACCOUNTABILITY WE CUT THROUGH CHALLENGES AGILITY & PERFORMANCE WE JOIN FORCES FOR SUSTAINABILITY INCLUSIVITY & COLLABORATION OUR VALUES AND BEHAVIORS ALIGNED WITH PURPOSE 2 Dear Shareholders: 2019, for the second consecutive year, was characterized by extreme volatility and uncertainty regarding large external factors such as tarifs, dollar strength and cost infation, which in this case, had the potential to negatively impact our operations by $445 million of operating proft. Further, although U.S. consumer (ex-automotive) and construction markets were generally supportive, the majority of end markets outside the U.S. slowed during the year and, by the second half, most global industrial markets were in recessionary territory. Despite the obstacles, once again Stanley Black & Decker rose to the occasion and delivered a respectable fnancial performance under the circumstances. James M. Loree Throughout the year, our team also remained focused on our long-term aspirational vision President & Chief Executive Ofcer by continuing the pursuit of the three objectives of (1) continuing to deliver top-quartile fnancial performance, (2) becoming known as one of the world’s great innovative companies and (3) elevating our commitment to social responsibility. This alignment, along with our purpose —For Those Who Make the World—provide the overarching framework for “winning in the 2020s,” which is exactly what we intend to do. The new decade is upon us and with it comes a host of new challenges, with the most signifcant one of them all being something called VUCA, a term which emanated from a military college in the U.S. in response to the onset of the post-Cold War era. VUCA stands for volatility, uncertainty, complexity and ambiguity. While, in that period, VUCA described the backdrop for the formation of a new world order, this time I believe it describes what leaders of all institutions will have to consider as we devise strategies and tactics to thrive in what can now be called the new world disorder of the 2020s. It’s an exciting world, full of disruptive risks and opportunities, with the accelerating pace of technological change always pushing the limits of what individuals and institutions can absorb. This new world has given rise to new axes of competition, neatly characterized by Boston Consulting Group’s Henderson Institute. Three that we fnd most relevant are: (1) competing on the rate of learning; (2) competing on resilience; and (3) leveraging ecosystems. In 2019, we put much thought into what it will take to win in this environment, and we were perhaps blessed by having to deal with the unusually volatile conditions we faced in 2018 and 2019. For structural reasons, our recent external challenges may have been more pronounced than encountered by most diversifed global industrials. Ironically, we feel fortunate that we experienced them and endured through them, as we have now emerged with the ftness and mindset to take on the challenges of the 2020s. FINANCIAL PERFORMANCE VISIT THE 2019 YEAR IN REVIEW WEBSITE Stanley Black & Decker reported a solid 2019, overcoming approximately $445 million in external headwinds related to tarifs, foreign exchange and commodity infation. With Visit 2019yearinreview. our performance-focused organization, we continued to generate above-market organic stanleyblackanddecker.com growth of 3%, low single-digit adjusted EPS growth and robust free cash fow in a to view exciting aspects of the dynamic operating environment. Stanley Black & Decker story, Full-year revenue totaled $14.4 billion, a 3% increase from the prior year. Our full-year explore our fnancials, review our operating margin rate was 13.5%,* relatively consistent with the prior year despite the sustainable practices, and read intense, externally driven cost pressures. Diluted EPS* was $8.40, up 3% over the prior about our businesses and our year. Free cash fow was $1.1 billion, representing a conversion rate of 113% of net income. plans for growth. Our strong free cash fow profle supported our 52nd annual dividend increase, a series of strategic acquisitions and a modest amount of deleveraging, in line with our strong *Excludes M&A related and other charges STANLEY BLACK AND DECKER 2019 ANNUAL REPORT 1 investment credit grade targets. Our cash fow return on investment grew to 14%, in line with our long-term objectives. Tools & Storage achieved an impressive 5% organic growth rate in 2019, with North America (+7%) and Europe (+4%) leading the way. Our team has exhibited excellent commercial execution, leveraging a formidable array of growth catalysts to continue gaining share despite slowing international and industrial end markets. Current catalysts consist of the CRAFTSMAN brand rollout, e-commerce and core and breakthrough innovation, including DEWALT FLEXVOLT, ATOMIC and XTREME. In Industrial, we achieved 11% total revenue growth primarily from the Nelson Fastener and IES Attachments acquisitions. Industrial organic growth (−3%) was challenged by weak automotive and general industrial end markets. However, we are continuing to leverage our operating model to gain share and achieve above-market growth, best signifed by our automotive fastener penetration gains, which accounted for 360 bps growth above global light vehicle production levels. Security demonstrated forward progress in 2019 with 1% organic growth and 20 basis points of operating margin rate* improvement. While it would seem to be a modest improvement, behind the scenes we are achieving cost efciencies while investing in business model transformation and other initiatives directed at achieving consistent organic growth with operating margin improvement. We are encouraged by the progress, as we exited the year with signifcant organic growth momentum (+4% in the fourth quarter) that we believe can continue into 2020 and beyond. *Excludes M&A related and other charges DRIVING PERFORMANCE AND INNOVATION IN A DYNAMIC WORLD Our successful, long-standing Stanley Fulfllment Operating System (now known as SFS 2.0) has continuously evolved over the last 15 years and has served as the EVOLVING OUR OPERATING MODEL 2 framework for our businesses to focus their priorities and allocate resources in order to sustain fnancial performance. In light of the rapidly moving dynamics of the new VUCA world, including the acceleration of technological change, geopolitical instability and the changing nature of work, this past year we decided to contemporize SFS 2.0 for the 2020s. 2019 SUMMARY OF RESULTS The result is the new SBD Operating Model, which is being introduced across the Company as this report is being issued. It is an evolution of SFS 2.0, designed to propel the Company forward, addressing both the new axes of competition, as well as updating classic execution best practices with a renewed energy and focus on TOTAL REVENUES WERE relevant themes for the current decade. At the center of the model is the concept of the interrelationship between people and technology. The remaining four categories are: $14.4B Performance Resiliency; Extreme Innovation; Operations Excellence; and Extraordinary Customer Experience. Each of these elements co-exists synergistically with the others +3% Versus Prior Year in a systems-based approach. People and Technology ORGANIC GROWTH OF This pillar emphasizes our belief that the right combination of digitally profcient people applying technology such as artifcial intelligence, machine learning, advanced 3% analytics, IoT and others in focused ways can be an enormous source of value creation and sustainability for the corporation. It also brings to light the changing nature of work and the talent and skillsets required for individuals and institutions to thrive in the future. With technology infltrating the workplace at an increasingly rapid pace, we believe that OPERATING MARGIN the winners in the 2020s will invest heavily in reskilling, upskilling and lifelong learning, with an emphasis on the places where people and technology intersect. 13.5%* In other words, technology can make humans more powerful and productive if, Overcoming $445 Million in and only if, humans know how to apply the technology to maximum advantage. We External Headwinds have created plans and programs, as well as a new leadership model to ensure our people have the right skills, tools and mindsets to thrive in this era. The ability of our employees to embrace technology, learn and relearn new skills and take advantage of the opportunities presented in this new world will be critical to our success. FREE CASH FLOW CONVERSION WAS Performance Resiliency 113% If there is one thing the last two years have reinforced, it’s the criticality of resiliency. We think of performance resiliency as the agility, fexibility and adaptability to sustain strong performance regardless of operating environment conditions. That is causing us to plan for the unexpected and anticipate exogenous volatility as the new normal. CASH FLOW RETURN Technology, applied to our key processes, products and business models, will be a ON INVESTMENT key enabler for value creation and performance resiliency as we execute sustainable, ongoing transformation across the enterprise. ~14% Extreme Innovation Stanley Black & Decker has a strong heritage