Dear
Shareholders

This year, Stanley Black & Decker is celebrating its 175th anniversary. Founded in 1843, in the wake of the First Industrial Revolution, our Company has prospered through the ebbs and flows and the triumphs and tragedies of recent world history. For 175 years we have navigated through the challenges and opportunities afforded by the relentless social and technological advances of the Second and Third Industrial Revolutions and we are now in the midst of the Fourth. The pace of technological change that is occurring today is breathtaking and unprecedented. Moreover, it is accelerating as the rapidly plummeting cost of data storage, increases in communications bandwidth and the impact of Moore’s law on computing power all combine to drive the digital revolution.

In fact, technological change is now advancing at an exponentially increasing rate to a point where society’s relatively linear ability to absorb the change is beginning to become overwhelmed. It is all moving so fast that individuals, businesses, governments and society are having a difficult time keeping up, and there are entire institutions and growing numbers of people that are getting left behind. It’s tough to keep pace — to keep individual skills, business models, social and economic policies, and regulations and laws current and relevant.

James M. Loree President & Chief Executive Officer

To use corporations as a case in point, the average life span for a Fortune 500 company has declined to 15 years today from 67 in the 1920s. And the vast majority of companies that comprised the Fortune 500 list in 1955 have disappeared in one form or another. New, emerging companies are leveraging the power of technology and their new brands and business models to completely upend legacy businesses that have been successful for generations. It’s an exciting time, full of opportunity albeit one that is also fraught with risk.

So, let’s rewind to 1843. When Frederick T. Stanley founded the original Stanley Bolt Manufactory in New Britain, Connecticut, which was later incorporated as Stanley Works, I’m sure he could not have anticipated that the Company would grow to a $13 billion revenue global industrial with a $26 billion market capitalization and approximately 58,000 employees across the globe. But it did. It’s a remarkable feat when you think about it, and even more so when you consider that approximately 80% of the revenue growth and 90% of the market value creation has occurred since the year 2000 in just 10% of the Company’s history as measured in years. The Company has seized the opportunity and enjoyed this monumental recent growth spurt just as the challenges cited above have increasingly become more pronounced.

What we discovered when we analyzed the causal factors for our success is that the foundational attributes that defined our Company’s culture all the way back to inception, have not only stayed with us but have become amplified over the years. These four cultural traits are (1) bold breaks the mold, (2) we cut through challenges, (3) reliable to the core and (4) we join forces. Said another way, we strive to be bold and agile while at the same time thoughtful, disciplined and collaborative.

This special combination of attributes is a powerful blend for tackling the challenges of the day, just as it has been effective for 175 years. Last year, we launched a project to define our Company’s purpose — For Those Who Make The World,TM which was extracted from a comprehensive review of our history. We empower the makers and creators, those who are doing the work of creating and shaping the world around us. We produce the hardest working, most innovative tools, products and services for the world’s hardest working people. It’s this deep sense of place, building and creation that underpins our values and operating model, and we have rededicated ourselves to our Purpose in all that we do. There is a subtle essence of humility embedded in this as we dedicate ourselves and our Company to support the true heroes of the world, the makers and creators.

Purpose has begun to transcend our enterprise and our business strategies. In Engineered Fastening, we are working to penetrate the electric vehicle marketplace, and our Security business has a renewed and relentless focus on making the world a safer place and, of course, tools are at the heart of “making the world.” We are approaching innovation with a new, exponential framework that deploys contemporary organizational techniques to commercialize innovations that are both sustainable and provide a societal benefit. We have amplified our efforts to advance diversity and inclusion and have launched five Employee Resource Groups across the company over the last two years, including our Women’s Network, our African Ancestry group and our most recent one, Pride & Allies, in support of the LGBT+ community. We are also engaging in new dialogues and activities with our employees and communities. And we have increased our commitment to sustainability with new strategies and goals, including pledges to become carbon positive by 2030 and to stand up for human rights and equality.

As our message for our 175th anniversary says, Times Change. Our Purpose Hasn’t. And we empower our teams to live and drive our purpose for our Company, our shareholders, our employees and society. It is a fulfilling challenge to meet and one we are passionate about.

Stanley Black & Decker. For Those Who Make The World. Since 1843.

James M. Loree President & Chief Executive Officer

2017: Strong Financial Performance

The Stanley Black & Decker team delivered above-market organic growth, fueled by innovation and strong commercial execution, seamless acquisition integrations, and financial success. This resulted in a strong year of value creation for our shareholders, where the Company delivered 50% total shareholder return in 2017.

Our 2017 financial results included 12% total revenue growth, with 7% organic growth and a 7% contribution from acquisitions, record earnings per share* and operating margin rate,* and strong free cash flow conversion.* In addition, 2017 highlights included:

  • Outperforming our peer group and the overall S&P 500, with SWK’s share price up 48% for the year versus 18% for our peers and 19% for the S&P 500
  • Reshaping our portfolio by completing the divestiture of our Mechanical Security business in February, and closing the acquisitions of Newell Tools and the Craftsman brand in March 2017, adding three iconic brands to our portfolio
  • Reaching agreement to purchase the industrial business of Nelson Fastener Systems in December 2017 for $440 million

Growth was once again the engine behind our operating results, with all businesses delivering organic growth and most of the portfolio experiencing share gains.

Tools & Storage generated an impressive 9% organic growth rate, with every region and business unit delivering increases, including 9% growth in North America, Europe and Emerging Markets. Total revenue growth was 19% including contributions from the Newell Tools and Craftsman brand acquisitions.

Our organic growth was driven by innovation — both a steady stream of core innovations and our recently commercialized breakthrough innovation, FLEXVOLT. In addition, we saw continued success with mid-price-point product launches in Emerging Markets, strong commercial execution around the globe and benefits from our aggressive, global efforts in the e-commerce channel.

Turning to Industrial organic growth, Engineered Fastening was up 4%, led by strong automotive systems sales supporting our customers’ new model launches, automotive fastener growth that was 430 basis points in excess of light vehicle production, and industrial vertical growth in all geographies. Oil & Gas (+8%) experienced higher project and inspection activity within North America, and Hydraulics (+20%) became the most recent business to demonstrate the power of applying SFS 2.0 Commercial Excellence principles.

Excluding the impact from the Mechanical Security divestiture, growth within Security was 4%, which included organic growth of 1%, as continued improvements in field execution and targeted commercial wins were supplemented by our strategy to execute small bolt-on acquisitions to bolster the recurring revenue portfolio. The business remains focused on continuing the growth momentum and returning to margin expansion in 2018 and beyond.

Our overall operating margin rate* rose to a record 14.8%, up 40 basis points versus 2016, supported by record operating margin levels in Tools & Storage and Industrial. We demonstrated the ability to deliver meaningful operating leverage through robust productivity and cost control, while offsetting commodity inflation and continuing to make targeted investments to support future growth.

Free cash flow conversion was approximately 100%* which supported our 50th consecutive annual dividend increase and a series of strategic acquisitions. Our cash flow return on investment remained strong at 13.8%, which is in line with our long-term targets.

These 2017 results show the power of our strategy, SFS 2.0 operating system and our value creation model — a year where the teams delivered strong organic growth with margin expansion, and successful acquisition integrations — which fueled mid-teens earnings per share* growth.

2017 Summary of Results

Total revenues were

$12.7 billion

+12% versus prior year
Organic growth of

7% and 7%

growth from acquisitions
Operating margin rate increased to

14.8%*

+40 basis points versus prior year
Earnings per share increased

14%*

to a record $7.45*
Free cash flow conversion was

~100%*

enabling our 50th consecutive annual dividend increase
Working capital turns were

8.9x

excluding the impact of recent acquisitions, flat versus last year’s record levels
Cash flow return on investment was

13.8%

in line with our long-term financial objective

… all powered by SFS 2.0

* Excluding M&A related charges, net gain on divestitures and one-time tax charge, as applicable | Free cash flow conversion excludes net gain on divestitures

Our 22/22 Vision

$22 Billion in
Revenues

Build Upon

World Class
Franchises

Deliver Top-Quartile

Total Shareholder
Return

: Our Operating System

Our Value Creation Model

World Class Brands
Attractive Growth Platforms
Scalable, Defensible Franchises
Differentiable Through Innovation

Strong, Innovation-Driven Businesses In Diverse, Global Markets

  • Outsized, Capital-Efficient Organic Growth
  • Attractive, Expandable Operating Margin Rate
  • Outstanding Free Cash Flow Conversion

Investor-Friendly Capital Allocation

~1/2

M&A

~1/2

Return Cash
To Shareholders

Long-Term Financial
Objectives

  • 4%–6% Organic Growth
  • 10%–12% Total Revenue Growth
  • 10%–12% EPS Growth**
    (Including Acquisitions)
  • FCF ≥ Net Income
  • 10+ Working Capital Turns

World Class Branded Franchises With Sustainable Strategic Characteristics That Create Exceptional Shareholder Value

**7%-9% excluding acquisitions | Excludes M&A related charges

Continuing to Deliver Top-Quartile Performance

SFS 2.0 differentiates our performance and supports our day-to-day execution. Digital Excellence, Breakthrough Innovation, Commercial Excellence, Core SFS and Functional Transformation work in concert to sustain above-market organic growth, support margin expansion and deliver strong free cash flow generation.

Our well-established value creation model has produced strong shareholder returns. It starts with our world class brands, attractive growth platforms, and scalable and defensible franchises. Importantly, it leverages the power of SFS 2.0 — enabling the achievement of the Company’s long-term financial objectives.

We also employ an investor-friendly capital allocation approach. Our historical practice, which we intend to continue, has been to return 50% of our capital to shareholders in the form of dividends and/or opportunistic share repurchases, with the remaining 50% earmarked for acquisitions to further strengthen our business portfolio and fuel growth.

Our strategy, value creation model and operating system have shown a level of consistency through the past decade plus, but have also grown and evolved as times have changed.

Growth Catalysts: 2018 and Beyond

Leveraging SFS 2.0, we are executing on a series of growth catalysts that we believe will sustain our above-market growth potential for the foreseeable future.

FLEXVOLT, our recent breakthrough innovation initiative, represents the fastest adoption for a new product launch in DEWALT’s history. It is powered by a flexible battery system that delivers 60 or 120 volts for high power tools and three times the runtime when the 60-volt battery is used within our 20-volt power tool system. This innovative product launch was a high growth driver in 2017, and is also stimulating incremental demand for our 20-volt cordless offerings. We will continue to expand this system in the future with the ultimate goal of eliminating the need for cords on jobsites and thus making a dramatic and positive impact on worker safety and efficiency.

The Craftsman transaction gives Stanley Black & Decker the rights to develop, manufacture and sell Craftsman-branded products in non-Sears Holdings channels. In 2017, we successfully pursued retail partnerships with a major home center, a formidable co-op hardware retailer and the leading e-commerce player. We focused on developing 2018 commercial plans, designing an impressive and comprehensive product portfolio, adding capacity and preparing the supply chain to support our second-half rollout. We are working with passion and excitement to enable this iconic brand with its proud and beloved history to soon reclaim its rightful place in American homes, garages, factories and automotive shops.

To support the overall growth in the tools business and the rollout of the Craftsman brand, we continue to expand our US manufacturing footprint. Stanley Black & Decker has been a proud US manufacturer for 175 years and in fact has added more than 1,200 jobs in the US over the past three years. Looking ahead, we expect to add 1.5 million square feet of new manufacturing and distribution capacity in 2018, which will support our goal to increase US tools production to 50% of our total US tools volume over the next three years.

The Newell Tools acquisition integration continues to proceed on or ahead of plan, which makes us confident that we will achieve our targeted $80–$90 million in cost synergies. We are now turning our attention to capturing the revenue synergies from the Lenox and Irwin brands by leveraging these products within our global customer base and bringing new offerings to enhance organic growth within Tools & Storage.

In December, we reached an agreement to purchase the industrial business of Nelson Fastener Systems. This bolt-on transaction will enhance Engineered Fastening’s presence in general industrial end markets, expand its portfolio of highly engineered fastening solutions, and deliver cost synergies.

We continue to be encouraged by the prospects for value creation within the M&A pipeline. Our focus remains on strengthening the core through bolt-on transactions within Tools & Storage, Industrial and Security, as well as pursuing adjacency opportunities that possess sound industrial logic and fit with our value creation model.

In addition, we continue to invest in additional opportunities aligned with our SFS 2.0 operating system. We are optimistic that we will be able to commercialize these Breakthrough Innovation, Commercial Excellence and Digital Excellence programs to generate additional growth prospects in the future.

 

Strategic
Framework

Continue Organic
Growth Momentum

  • UTILIZE SFS 2.0 as a catalyst
  • MIX into higher growth, higher margin businesses
  • INCREASE relative weighting of emerging markets (goal = 20%+)

Be Selective and Operate in Markets Where:

  • BUILD is meaningful
  • VALUE proposition is definable and sustainable through innovation
  • GLOBAL cost leadership is achievable

Pursue Acquisitive Growth

  • BRAND upon global Tools platform
  • EXPAND Industrial platform / diversify Engineered Fastening and Infrastructure
  • CONSOLIDATE Commercial Electronic Security industry

2017 Global Presence

% 2017 Revenues

Becoming Recognized as One of the World’s Most Innovative Companies

We are building a culture in which we strive to become known as one of the world’s great innovative companies. Our opportunity is to embrace this environment of rapid innovation and digital transformation to deliver disruptive innovation to the market. In 2017, we increased our R&D expenditures by $48 million, a 23% increase versus 2016 and a total two-year increase of 34%.

We now have ten breakthrough innovation teams covering all businesses and multiple worldwide locations focused on developing innovations that each have the potential to deliver greater than $100 million in annual revenues. These teams are separated from the day-to-day organization to remain focused on the pulse of what our customers want and need, and are working with leading universities and venture companies to advance breakthrough technologies. We are encouraged by the prototypes that have been generated by the teams and look forward to successfully commercializing the most promising opportunities in the coming years.

Our Digital Accelerator team in Atlanta has now grown to approximately 100 employees. This team of world class technology talent has been successful in demonstrating the value of their skillsets to the Company’s core operations by infusing digital capabilities into our products, processes and business models. The collaboration of our Digital Accelerator team across the Company has been so successful that approximately half of the original employees in the Digital Accelerator now report directly into our businesses. We expect to continue to grow our digital team and will add more experts that specialize in applying emerging technologies such as artificial intelligence, machine learning, robotics and advanced data science.

Our innovation and digital initiatives that impact manufacturing, or Industry 4.0, are becoming increasingly important in today’s operating environment. We continue to make good progress in our three “lighthouse” manufacturing facilities, applying the latest in robotics, manufacturing execution systems (MES), 3-D printing, innovation labs and maker spaces to drive the next wave of flexibility, cost efficiency and quality improvement. We recently announced the creation of an Advanced Manufacturing Center of Excellence, or Manufactory 4.0, in Hartford, Connecticut. Our Manufactory 4.0 will be the epicenter for the latest technologies and processes and accelerate the adoption and scaling of new technologies across our manufacturing footprint.

Industry 4.0 is a key enabler for our “make where we sell” strategy. This strategy makes good business sense as it shortens the supply chain, lowers the environmental impact, mitigates currency exposure, and is a cost effective alternative after including the improvements in efficiency and advances in technology. Additionally, recent expansions of tool production in the US and the UK have shown that our end users generally prefer to buy products made locally.

Certain of our potentially disruptive breakthrough innovations do not have a natural commercialization pathway within our existing business models or would be constrained from successfully scaling with the speed required for success if incubated within our core organization. We have seen this first-hand with some of our promising innovations and digital products. To address this, we have created an Exponential Organization, located in Silicon Valley, with a heightened priority on innovations that have the potential to provide a significant societal impact. This organization will work closely with our Chief Technology Officer, Stanley Ventures, the Digital Accelerator, and our core businesses to incubate and advance these types of innovations.

We are encouraged by the actions taken in 2017 to enhance our growth culture and work toward becoming recognized as one of the world’s great innovators. We are making investments to ensure that we stay abreast of the fast-evolving digital and technology landscape to position the Company to disrupt ourselves before others do.

Focusing on Three Key Strategic Imperatives

Continuing to deliver top‑quartile

Performance

Becoming recognized as one of the world’s most

Innovative Companies

Elevating our commitment to corporate social

Responsibility

Elevating Our Commitment to Corporate Social Responsibility

At Stanley Black & Decker, we have long been committed to improving the communities in which our employees live and work, with a keen focus on environmental health and safety. Last year, as part of our 22/22 Vision and activating on our broader purpose in society, we began elevating our already strong commitment to corporate social responsibility. We are encouraged by our progress as the Company has been recognized on a number of notable lists, including Forbes’ America’s Best Employers for Diversity (#67), Barron’s 100 Most Sustainable Companies (#30), Fortune’s Most Admired Companies, Dow Jones Sustainability Index (7th consecutive year) and Mogul’s Top 100 Innovators in Diversity & Inclusion (#4) and their Top 100 Companies for Millennial Women (#1). For us, corporate social responsibility describes our organization’s continual focus on how our business can be a force for good — creating value beyond profits, including environmental and social value, and generating a positive impact for shareholders, the environment and greater society.

As part of this effort, we reevaluated our existing sustainability and philanthropic work with the goal of becoming a leading purpose-driven company. We want to be recognized for our work to inspire makers and innovators to create a more sustainable world, in line with the United Nation’s 2030 Sustainable Development Goals. In this regard, we recently established a specific Corporate Social Responsibility Strategy, which is focused in three key areas:

Empower Makers: Empower Makers and Creators to Thrive in a Changing World

Industrial and technological innovations are rapidly changing the nature of work and jobs. Globally 10 million jobs in manufacturing remain unfilled due to gaps in skills. Stanley Black & Decker is uniquely positioned to help close this gap. We recognize that our own workers, as well as those in the communities where we live and work, will require education, learning, upskilling and experience to ensure they can thrive in this new context. We are committed to helping employees and people of the world gain the skills and expertise needed to secure jobs and revitalize communities.

Innovate with Purpose: Innovate Our Products to Improve Lives

Global sustainable development challenges remain profound, with one in five people living in extreme poverty and 40% of the global population affected by water scarcity serving as jarring examples. We make products and services that help create and shape the world, and have the ability to partner even more broadly to create new solutions to meet global societal needs. Matching social impact to our business also inspires our employees and presents new and exciting commercial opportunities. Through our work, we will improve the positive societal impacts of our products across their lifecycle, including design, use, and end of life.

Create a More Sustainable World: Positively Impact the Environment

Demand for already constrained resources continues to rise as does the economic impact of environmental degradation. Climate change will potentially cost the global economy $12 trillion by 2050. This represents a debilitating threat to society as well as a business risk for the private sector. Our sustainability initiative no longer simply seeks to reduce negative impact, but to positively impact the environment across our footprint. Through our ECOSMARTTM program, Stanley Black & Decker has made considerable contributions, but to keep pace with changing dynamics, we are raising our ambitions and working towards positive environmental impacts across our operations.

We believe our commitment to corporate social responsibility will provide considerable benefits, including positioning Stanley Black & Decker to continue to deliver top-quartile financial performance.

In Closing

As I reflect upon 2017, my first full year as Chief Executive Officer and my 19th with Stanley Black & Decker, I am humbled to have the privilege and responsibility of leading this great Company forward. I am pleased that we have laid the groundwork for an inspiring and fulfilling future during these exciting times. We enter 2018 positioned well for another successful year, one in which we celebrate our 175th anniversary while executing on a myriad of compelling growth and value creation opportunities.

Our deep and agile leadership team along with our entire employee base remain committed to delivering above-market organic growth with operating leverage, continuing to successfully integrate our recent acquisitions, and generating strong free cash flow. Purpose has energized our people as we pursue our 22/22 vision to become a great human-centered industrial company while delivering $22 billion of revenue by 2022 with margin expansion. To achieve this vision, we know that we need to continue to execute, evolve and change. In this regard, we will focus on becoming known as one of the world’s leading innovators, continuing to achieve top-quartile performance and elevating our commitment to corporate social responsibility. We will leverage our strong sense of history and place, our growing talent base, our Stanley Fulfillment System and the power of the platform we have built in order to propel the Company successfully into the future.

James M. Loree President & Chief Executive Officer

Celebrating 175 Years

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