STANLEY BLACK & DECKER, INC. (Form: 10-K, Received: 02/15/2017 16:25:28) (2024)

Notes to Consolidated Financial Statements

A.SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION— The Consolidated Financial Statements include the accounts of Stanley Black& Decker, Inc. and its majority-owned subsidiaries (collectively the “Company”) which require consolidation, after the elimination of intercompany accounts and transactions. The Company’s fiscal year ends on the Saturday nearest to December31. There were52 weeks in the fiscal year2016, 52 weeks in the fiscal year2015 and 53 weeks in the fiscal year2014.

During the first quarter of 2015, the Company combined the Construction & Do-It-Yourself ("CDIY") business with certain complementary elements of the Industrial and Automotive Repair ("IAR") and Healthcare businesses (formerly part of the Industrial and Security segments, respectively) to form one Tools & Storage business. The Company recast segment net sales and profit for all years presented to align with this change in organizational structure. There was no impact to the consolidated financial statements of the Company as a result of this change.

In December 2016, the Company announced the sale of the majority of its mechanical security businesses within the Security segment to Dormakaba for$725 million in cash. This pending divestiture includes the commercial hardware brands of Best Access, phi Precision and GMT, and is expected to close in the first quarter of 2017. In addition, the Company sold a small business within the Tools & Storage segment in January 2017. The operating results of these businesses have been reported within continuing operations in the Consolidated Financial Statements. In addition, the assets and liabilities expected to be included in these sales have been classified as held for sale on the Company's Consolidated Balance Sheets as of December 31, 2016. Refer toNote T, Divestitures, for further discussion.

During the fourth quarter of 2014, the Company classified the Security segment’s Spain and Italy operations as held for sale based on management's intention to sell these businesses. In July 2015, the Company completed the sale of these businesses. In 2014, the Company soldtwo small businesses within the Security and Industrial segments. The operating results of these businesses have been reported as discontinued operations in the Consolidated Financial Statements. Refer toNote T, Divestitures, for further discussion.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements. While management believes that the estimates and assumptions used in the preparation of the financial statements are appropriate, actual results could differ from these estimates. Certain amounts reported in the previous years have been reclassified to conform to the 2016 presentation.

FOREIGN CURRENCY— For foreign operations with functional currencies other than the U.S.dollar, asset and liability accounts are translated at current exchange rates, while income and expenses are translated using average exchange rates. Translation adjustments are reported in a separate component of shareowners’ equity and exchange gains and losses on transactions are included in earnings.

CASH EQUIVALENTS— Highly liquid investments with original maturities of three months or less are considered cash equivalents.

ACCOUNTS AND FINANCING RECEIVABLE— Trade receivables are stated at gross invoice amounts less discounts, other allowances and provisions for uncollectible accounts. Financing receivables are initially recorded at fair value, less impairments or provisions for credit losses. Interest income earned from financing receivables that are not delinquent is recorded on the effective interest method. The Company considers any financing receivable that has not been collected within 90days of original billing date as past-due or delinquent. Additionally, the Company considers the credit quality of all past-due or delinquent financing receivables as nonperforming.

ALLOWANCE FOR DOUBTFUL ACCOUNTS— The Company estimates its allowance for doubtful accounts using two methods. First, a specific reserve is established for individual accounts where information indicates the customers may have an inability to meet financial obligations. Second, a reserve is determined for all customers based on a range of percentages applied to aging categories. These percentages are based on historical collection and write-off experience. Actual write-offs are charged against the allowance when collection efforts have been unsuccessful.

INVENTORIES— U.S. inventories are primarily valued at the lower of Last-In First-Out (“LIFO”) cost or market because the Company believes it results in better matching of costs and revenues. Other inventories are primarily valued at the lower of

First-In, First-Out (“FIFO”) cost or market because LIFO is not permitted for statutory reporting outside the U.S.SeeNoteC, Inventories, for a quantification of the LIFO impact on inventory valuation.

Leasehold improvements are depreciated over the shorter of the estimated useful life or the term of the lease.

The Company reports depreciation and amortization of property, plant and equipment in cost of sales and selling, general and administrative expenses based on the nature of the underlying assets. Depreciation and amortization related to the production of inventory and delivery of services are recorded in cost of sales. Depreciation and amortization related to distribution center activities, selling and support functions are reported in selling, general and administrative expenses.

The Company assesses its long-lived assets for impairment when indicators that the carrying amounts may not be recoverable are present. In assessing long-lived assets for impairment, the Company groups its long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are generated (“asset group”) and estimates the undiscounted future cash flows that are directly associated with, and expected to be generated from, the use of and eventual disposition of the asset group. If the carrying value is greater than the undiscounted cash flows, an impairment loss must be determined and the asset group is written down to fair value. The impairment loss is quantified by comparing the carrying amount of the asset group to the estimated fair value, which is determined using weighted-average discounted cash flows that consider various possible outcomes for the disposition of the asset group.

GOODWILL AND INTANGIBLE ASSETS— Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. Intangible assets acquired are recorded at estimated fair value. Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are tested for impairment annually during the third quarter, and at any time when events suggest an impairment more likely than not has occurred. To assess goodwill for impairment, the Company, depending on relevant facts and circ*mstances, performs either a qualitative assessment, as permitted by ASU 2011-08, "Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment," or a quantitative analysis utilizing a discounted cash flow valuation model.

In performing a qualitative assessment, the Company first assesses relevant 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 the two-step quantitative goodwill impairment test. The Company identifies and considers the significance of relevant key factors, events, and circ*mstances that could affect the fair value of each reporting unit. These factors include external factors such as macroeconomic, industry, and market conditions, as well as entity-specific factors, such as actual and planned financial performance. The Company also considers changes in each reporting unit's fair value and carrying amount since the most recent date a fair value measurement was performed. In performing a quantitative analysis, the Company determines the fair value of a reporting unit using management’s assumptions about future cash flows based on long-range strategic plans. This approach incorporates many assumptions including discount rates, future growth rates and expected profitability. In the event the carrying amount of a reporting unit exceeded its fair value, an impairment loss would be recognized to the extent the carrying amount of the reporting unit’s goodwill exceeded the implied fair value of the goodwill.

Indefinite-lived intangible assets are tested for impairment utilizing either a qualitative assessment or a quantitative analysis. For the qualitative assessments, the Company identifies and considers relevant key factors, events, and circ*mstances to determine whether it is necessary to perform a quantitative impairment test. The key factors considered include macroeconomic, industry, and market conditions, as well as the asset's actual and forecasted results. For the quantitative impairment tests, the Company compares the carrying amounts to the current fair market values, usually determined by the estimated cost to lease the assets from third parties. Intangible assets with definite lives are amortized over their estimated useful lives generally using an accelerated method. Under this accelerated method, intangible assets are amortized reflecting the pattern over which the economic benefits of the intangible assets are consumed. Definite-lived intangible assets are also evaluated for impairment when impairment indicators are present. If the carrying amount exceeds the total undiscounted future

cash flows, a discounted cash flow analysis is performed to determine the fair value of the asset. If the carrying amount of the asset was to exceed the fair value, it would be written down to fair value. No significant goodwill or other intangible asset impairments were recorded during 2016, 2015 or 2014, with the exception of the goodwill and intangible assets related to the Security segment's Spain & Italy operations, which were classified as held for sale in the fourth quarter of 2014 and subsequently sold in 2015. Refer toNote T, Divestitures,for further discussion.

FINANCIAL INSTRUMENTS— Derivative financial instruments are employed to manage risks, including foreign currency, interest rate exposures and commodity prices and are not used for trading or speculative purposes. The Company recognizes all derivative instruments, such as interest rate swap agreements, foreign currency options, commodity contracts and foreign exchange contracts, in the Consolidated Balance Sheets at fair value. Changes in the fair value of derivatives are recognized periodically either in earnings or in shareowners’ equity as a component of other comprehensive income (loss), depending on whether the derivative financial instrument is undesignated or qualifies for hedge accounting, and if so, whether it represents a fair value, cash flow, or net investment hedge. Changes in the fair value of derivatives accounted for as fair value hedges are recorded in earnings in the same caption as the changes in the fair value of the hedged items. Gains and losses on derivatives designated as cash flow hedges, to the extent they are effective, are recorded in other comprehensive income (loss), and subsequently reclassified to earnings to offset the impact of the hedged items when they occur.

In the event it becomes probable the forecasted transaction to which a cash flow hedge relates will not occur, the derivative would be terminated and the amount in other comprehensive income would generally be recognized in earnings. Changes in the fair value of derivatives used as hedges of the net investment in foreign operations, to the extent they are effective, are reported in other comprehensive income (loss) and are deferred until the subsidiary is sold. Changes in the fair value of derivatives designated as hedges under ASC 815, “Derivatives and Hedging”, including any portion that is considered ineffective, are reported in earnings in the same caption where the hedged items are recognized. Changes in the fair value of derivatives not designated as hedges under ASC 815 are reported in earnings in Other-net. Refer toNoteI, Derivative Financial Instruments,for further discussion.

The net interest paid or received on interest rate swaps is recognized as interest expense. Gains and losses resulting from the early termination of interest rate swap agreements are deferred and amortized as adjustments to interest expense over the remaining period of the debt originally covered by the terminated swap.

REVENUE RECOGNITION— General:The majority of the Company’s revenues result from the sale of tangible products, where revenue is recognized when the earnings process is complete, collectability is reasonably assured, and the risks and rewards of ownership have transferred to the customer, which generally occurs upon shipment of the finished product, but sometimes is upon delivery to customer facilities.

Provisions for customer volume rebates, product returns, discounts and allowances are recorded as a reduction of revenue in the same period the related sales are recorded. Consideration given to customers for cooperative advertising is recognized as a reduction of revenue except to the extent that there is an identifiable benefit and evidence of the fair value of the advertising, in which case the expense is classified as Selling, general, and administrative expense.

Multiple Element Arrangements:Approximatelyeight percent of the Company’s revenues are generated from multiple element arrangements, primarily in the Security segment. When a sales agreement involves multiple elements, deliverables are separately identified and consideration is allocated based on their relative selling price in accordance with ASC605-25, “Revenue Recognition— Multiple-Element Arrangements.”

Sales of security monitoring systems may have multiple elements, including equipment, installation and monitoring services. For these arrangements, the Company assesses its revenue arrangements to determine the appropriate units of accounting, with each deliverable provided under the arrangement considered a separate unit of accounting. Amounts assigned to each unit of accounting are based on an allocation of total arrangement consideration using a hierarchy of estimated selling price for the deliverables. The selling price used for each deliverable will be based on Vendor Specific Objective Evidence (“VSOE”) if available, Third Party Evidence (“TPE”) if VSOE is not available, or estimated selling price if neither VSOE nor TPE is available. Revenue recognized for equipment and installation is limited to the lesser of their allocated amounts under the estimated selling price hierarchy or the non-contingent up-front consideration received at the time of installation, since collection of future amounts under the arrangement with the customer is contingent upon the delivery of monitoring services.

The Company’s contract sales for the installation of security intruder systems and other construction-related projects are recorded under the percentage-of-completion method. Profits recognized on security contracts in process are based upon estimated contract revenue and related total cost of the project at completion. The extent of progress toward completion is generally measured using input methods based on labor metrics. Revisions to these estimates as contracts progress have the effect of increasing or decreasing profits each period. Provisions for anticipated losses are made in the period in which they become determinable. For certain short duration and less complex installation contracts, revenue is recognized upon contract

completion and customer acceptance. The revenues for monitoring and monitoring-related services are recognized as services are rendered over the contractual period.

Customer billings for services not yet rendered are deferred and recognized as revenue as the services are rendered. The associated deferred revenue is included in Accrued expenses or Other liabilities on the Consolidated Balance Sheets, as appropriate.

COST OF SALES AND SELLING, GENERAL& ADMINISTRATIVE— Cost of sales includes the cost of products and services provided reflecting costs of manufacturing and preparing the product for sale. These costs include expenses to acquire and manufacture products to the point that they are allocable to be sold to customers and costs to perform services pertaining to service revenues (e.g. installation of security systems, automatic doors, and security monitoring costs). Cost of sales is primarily comprised of inbound freight, direct materials, direct labor as well as overhead which includes indirect labor and facility and equipment costs. Cost of sales also includes quality control, procurement and material receiving costs as well as internal transfer costs. SG&A costs include the cost of selling products as well as administrative function costs. These expenses generally represent the cost of selling and distributing the products once they are available for sale and primarily include salaries and commissions of the Company’s sales force, distribution costs, notably salaries and facility costs, as well as administrative expenses for certain support functions and related overhead.

ADVERTISING COSTS— Television advertising is expensed the first time the advertisem*nt airs, whereas other advertising is expensed as incurred. Advertising costs are classified in SG&A and amounted to$124.1 million in2016,$101.7 million in2015, and$121.5 million in2014. Expense pertaining to cooperative advertising with customers reported as a reduction of Net Sales was$232.5 million in2016,$211.9 million in2015, and$206.5 million in2014. Cooperative advertising with customers classified as SG&A expense amounted to$6.6 million in2016,$6.4 million in2015, and$6.2 million in2014.

SALES TAXES— Sales and value added taxes collected from customers and remitted to governmental authorities are excluded from Net Sales reported in the Consolidated Statements of Operations.

SHIPPING AND HANDLING COSTS— The Company generally does not bill customers for freight. Shipping and handling costs associated with inbound freight are reported in Cost of sales. Shipping costs associated with outbound freight are reported as a reduction of Net Sales and amounted to$184.0 million,$183.0 million, and$226.2 million in2016,2015, and2014, respectively. Distribution costs are classified as SG&A and amounted to$235.6 million,$229.3 million and$243.2 million in2016,2015 and2014, respectively.

STOCK-BASED COMPENSATION— Compensation cost relating to stock-based compensation grants is recognized on a straight-line basis over the vesting period, which is generallyfour years. The expense for stock options and restricted stock units awarded to retirement eligible employees (those aged55 and over, and with10 or more years of service) is recognized on the grant date, or (if later) by the date they become retirement-eligible.

POSTRETIREMENT DEFINED BENEFIT PLAN— The Company uses the corridor approach to determine expense recognition for each defined benefit pension and other postretirement plan. The corridor approach defers actuarial gains and losses resulting from variances between actual and expected results (based on economic estimates or actuarial assumptions) and amortizes them over future periods. For pension plans, these unrecognized gains and losses are amortized when the net gains and losses exceed 10% of the greater of the market-related value of plan assets or the projected benefit obligation at the beginning of the year. For other postretirement benefits, amortization occurs when the net gains and losses exceed 10% of the accumulated postretirement benefit obligation at the beginning of the year. For ongoing, active plans, the amount in excess of the corridor is amortized on a straight-line basis over the average remaining service period for active plan participants. For plans with primarily inactive participants, the amount in excess of the corridor is amortized on a straight-line basis over the average remaining life expectancy of inactive plan participants.

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 carry forwards. In the event that it is determined that an asset is not more likely that 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 on continuing operations in the Consolidated Statements of Operations.

The Company is subject to income tax in a number of locations, including many 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 twelvemonths. These changes may be the result of settlements of ongoing audits or final decisions in transfer pricing matters. 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.

EARNINGS PER SHARE— Basic earnings per share equals net earnings attributable to Stanley Black& Decker, Inc., less earnings allocated to restricted stock units with non-forfeitable dividend rights (if applicable), divided by weighted-average shares outstanding during the year. Diluted earnings per share include the impact of common stock equivalents using the treasury stock method when the effect is dilutive.

NEW ACCOUNTING STANDARDS—In January 2017, the Financial Accounting Standards Boards ("FASB") issued Accounting Standards Update ("ASU") 2017-04,Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The new standard simplifies the subsequent measurement of goodwill by eliminating the second step of the goodwill impairment test. This ASU will be applied prospectively and is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019.

In January 2017, the FASB issued ASU 2017-01,Business Combinations (Topic 805): Clarifying the Definition of a Business. The new standard narrows the definition of a business and provides a framework for evaluation. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.

In October 2016, the FASB issued ASU 2016-16,Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. The new standard eliminates the exception to the principle in ASC 740, for all intra-entity sales of assets other than inventory, to be deferred, until the transferred asset is sold to a third party or otherwise recovered through use. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15,Statement of Cash Flows (Topic 230). The objective of this update is to provide additional guidance and reduce diversity in practice when classifying certain transactions within the statement of cash flows. In November 2016, the FASB issued ASU 2016-18,Statement of Cash Flows (Topic 230): Restricted Cash. The new standard requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. These standards are effective for financial statements issued for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13,Financial Instruments - Credit Losses (Topic 326). The new standard amends guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09,Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The objective of this update is to simplify several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2016, including interim periods

within those fiscal years. The Company will adopt this guidance in the first quarter of 2017 and does not expect it to have a material impact on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02,Leases (Topic 842)". The objective of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those annual periods and is to be applied utilizing a modified retrospective approach. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01,Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The main objective of this update is to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. The new guidance addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements.

In November 2015, the FASB issued ASU 2015-17,Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. The objective of this update is to simplify the presentation of deferred income taxes by requiring all deferred tax assets and liabilities to be classified as noncurrent in the statement of financial position. The amendments in this update do not affect the current requirement to offset deferred tax assets and liabilities for each tax-paying component within a tax jurisdiction. This ASU is effective for annual periods beginning after December 15, 2016, including interim periods within those annual periods, and can be applied either prospectively or retrospectively. Early adoption is permitted. The Company elected to early adopt the ASU in the fourth quarter of 2016 on a prospective basis. Prior periods were not retrospectively adjusted.

In September 2015, the FASB issued ASU 2015-16,Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. This update requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The ASU requires that the acquirer record, in the financial statements of the period in which adjustments to provisional amounts are determined, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. This ASU is effective prospectively for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years, with early adoption permitted.The Company adopted this standard in the first quarter of 2016 and it did not have an impact on its consolidated financial statements.

In August 2015, the FASB issued ASU 2015-15,Interest - Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line of Credit Arrangements. This ASU provides additional guidance to ASU 2015-03, discussed further below, which did not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. ASU 2015-15 noted that the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The Company adopted this standard in the first quarter of 2016.

In July 2015, the FASB issued ASU 2015-11,Inventory (Topic 330): Simplifying the Measurement of Inventory. This ASU changes the measurement principle for certain inventory methods from the lower of cost or market to the lower of cost and net realizable value. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This ASU does not apply to inventory that is measured using Last-in First-out ("LIFO") or the retail inventory method. The provisions of ASU 2015-11 are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company does not expect this guidance to have a significant impact on its consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03,Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The new standard requires that all costs incurred to issue debt be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. The standard also indicates that debt issuance costs do not meet the definition of an asset because they provide no future economic benefit. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The Company adopted this standard in the first quarter of 2016 on a retrospective basis. Refer toNoteH, Long-Term Debt and Financing Arrangements, for further discussion.

In February 2015, the FASB issued ASU 2015-02,Consolidation (Topic 810): Amendments to the Consolidation Analysis. The new standard amends the consolidation guidance in ASC 810 and significantly changes the consolidation analysis required under current generally accepted accounting principles. This ASU is effective for fiscal years, and interim periods within those fiscal

years, beginning after December 15, 2015. The Company adopted this standard in the first quarter of 2016 and it did not have an impact on its consolidated financial statements.

In January 2015, the FASB issued ASU 2015-01,Income Statement - Extraordinary and Unusual Items (Subtopic 225-20). Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items, which eliminates from GAAP the concept of extraordinary items stating that the concept causes uncertainty because it is unclear when an item should be considered both unusual and infrequent and that users do not find the classification and presentation necessary to identify those events and transactions. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted provided the guidance is applied from the beginning of the fiscal year of adoption. The Company adopted this standard in 2016 and it did not have an impact on its consolidated financial statements.

In August 2014, the FASB issued ASU 2014-15,Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which requires management of a company to evaluate whether there is substantial doubt about the company’s ability to continue as a going concern. This ASU is effective for the annual reporting periods ending after December 15, 2016, and for interim and annual reporting periods thereafter, with early adoption permitted. The Company adopted this standard and it had no impact on its consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09,Revenue from Contracts with Customers (Topic 606). The new revenue recognition standard outlines a comprehensive model for companies to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The new model provides a five-step analysis in determining when and how revenue is recognized. The core principle of the new guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB affirmed its proposal to defer the effective date of the standard to annual reporting periods (and interim reporting periods within those years) beginning after December 15, 2017. Entities are permitted to apply the new revenue standard early, but not before the original effective date of annual periods beginning after December 15, 2016. The standard shall be applied retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. In March, April, May and December 2016, the FASB clarified the implementation guidance on principal versus agent, identifying performance obligations, licensing, collectability and made technical corrections on various topics. The Company expects to apply the full retrospective method of adoption starting with the first interim period after December 15, 2017. Based on the Company’s preliminary assessment, the anticipated impacts to the financial statements are primarily related to classification of outbound freight on the income statement and presentation of returns reserve.

In April 2014, the FASB issued ASU 2014-08,Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments contained in this update change the criteria for reporting discontinued operations and enhance the reporting requirements for discontinued operations. Under the revised standard, a discontinued operation must represent a strategic shift that has or will have a major effect on an entity's operations and financial results. Examples could include a disposal of a major line of business, a major geographical area, a major equity method investment, or other major parts of an entity. The revised standard will also allow an entity to have certain continuing cash flows or involvement with the component after the disposal. Additionally, the standard requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. This ASU was effective for reporting periods beginning after December 15, 2014 with early adoption permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issue. The Company adopted this standard in the first quarter of 2015.

Trade receivables are dispersed among a large number of retailers, distributors and industrial accounts in many countries. Adequate reserves have been established to cover anticipated credit losses. Long-term trade financing receivables of$180.9 million and$182.1 million atDecember31, 2016 andJanuary2, 2016, respectively, are reported within Other Assets in the

Consolidated Balance Sheets. Financing receivables and long-term financing receivables are predominantly related to certain security equipment leases with commercial businesses. Generally, the Company retains legal title to any equipment leases and bears the right to repossess such equipment in an event of default. All financing receivables are interest bearing and the Company has not classified any financing receivables as held-for-sale. Interest income earned from financing receivables that are not delinquent is recorded on the effective interest method. The Company considers any financing receivable that has not been collected within 90days of original billing date as past-due or delinquent. Additionally, the Company considers the credit quality of all past-due or delinquent financing receivables as nonperforming.

The Company has an accounts receivable sale program that expires on January5, 2018. According to the terms of that program the Company is required to sell certain of its trade accounts receivables at fair value to a wholly owned, consolidated, bankruptcy-remote special purpose subsidiary (“BRS”). The BRS, in turn, must sell such receivables to a third-party financial institution (“Purchaser”) for cash and a deferred purchase price receivable. The Purchaser’s maximum cash investment in the receivables at any time is$100.0 million. The purpose of the program is to provide liquidity to the Company. The Company accounts for these transfers as sales under ASC 860 “Transfers and Servicing.” Receivables are derecognized from the Company’s Consolidated Balance Sheets when the BRS sells those receivables to the Purchaser. The Company has no retained interests in the transferred receivables, other than collection and administrative responsibilities and its right to the deferred purchase price receivable. AtDecember31, 2016, the Company did not record a servicing asset or liability related to its retained responsibility, based on its assessment of the servicing fee, market values for similar transactions and its cost of servicing the receivables sold.

AtDecember31, 2016 andJanuary2, 2016,$100.5 million and$100.4 million, respectively, of net receivables were derecognized. Gross receivables sold amounted to$1,832.9 million ($1,548.3 million, net) for the year endedDecember31, 2016 and$1,580.4 million ($1,373.5 million, net) for the year endedJanuary2, 2016. These sales resulted in a pre-tax loss of$4.8 million and$3.9 million, respectively, for the years endedDecember31, 2016 andJanuary2, 2016, respectively. These pre-tax losses include servicing fees of$0.9 million and$0.6 million, respectively, for the years endedDecember31, 2016 andJanuary2, 2016. Proceeds from transfers of receivables to the Purchaser totaled$1,500.8 million and$1,350.4 million for the years endedDecember31, 2016 andJanuary2, 2016, respectively. Collections of previously sold receivables, including deferred purchase price receivables, and all fees, which are settled one month in arrears, resulted in payments to the Purchaser of$1,500.8 million and$1,350.4 million for the years endedDecember31, 2016 andJanuary2, 2016, respectively.

The Company’s risk of loss following the sale of the receivables is limited to the deferred purchase price receivable, which was$83.2 million atDecember31, 2016 and$41.1 million atJanuary2, 2016. The deferred purchase price receivable will be repaid in cash as receivables are collected, generally within30 days, and as such the carrying value of the receivable recorded approximates fair value. Delinquencies and credit losses on receivables sold were$0.1 million and$0.3 million for the years endedDecember31, 2016 andJanuary2, 2016, respectively. Cash inflows related to the deferred purchase price receivable totaled$514.3 million and$416.9 million for the years endedDecember31, 2016 andJanuary2, 2016, respectively. All cash flows under the program are reported as a component of changes in accounts receivable within operating activities in the Consolidated Statements of Cash Flows since all the cash from the Purchaser is either: 1) received upon the initial sale of the receivable; or 2) from the ultimate collection of the underlying receivables and the underlying receivables are not subject to significant risks, other than credit risk, given their short-term nature.

Net inventories in the amount of$662.8 million atDecember31, 2016 and$651.0 million atJanuary2, 2016 were valued at the lower of LIFO cost or market. If the LIFO method had not been used, inventories would have been$11.3 million higher than reported atDecember31, 2016 and$26.7 million higher than reported atJanuary2, 2016.

Depreciation and amortization expense associated with property, plant and equipment was as follows:

The amounts above are inclusive of depreciation and amortization expense for discontinued operations amounting to$2.7 million in 2014.

E.ACQUISITIONS

PENDING ACQUISITIONS

On January 5, 2017, the Company announced that it had entered into a definitive agreement to purchase the Craftsman brand from Sears Holdings, which provides the Company with the rights to develop, manufacture and sell Craftsman-branded products in non-Sears Holdings channels. The agreement consists of a$525 million cash payment at closing,$250 million at the end of year three, and future payments to Sears Holdings of between2.5% and3.5% on new Stanley Black & Decker sales of Craftsman products through year 15. After year 15, Sears Holdings will have a perpetual license to continue selling in Sears-related channels in exchange for a3% royalty payment to the Company. The Craftsman results will be consolidated into the Company's Tools & Storage segment. The transaction, which is expected to be accounted for as a business combination, is expected to close during 2017 subject to customary closing conditions, including regulatory approvals.

On October 12, 2016, the Company announced that it had entered into a definitive agreement to acquire the Tools business of Newell Brands ("Newell Tools"), which includes the industrial cutting, hand tool and power tool accessory brands Irwin® and Lenox®, for$1.95 billion in cash. Newell Tools will be consolidated into the Tools & Storage segment and will enhance the Company’s position within the global tools & storage industry and broaden its product offerings and solutions to customers and end-users, particularly within power tool accessories. The transaction is subject to customary closing conditions and is expected to close in the first quarter of 2017.

2016 ACQUISITIONS

During 2016, the Company completedfive small acquisitions for a total purchase price of$59.3 million, net of cash acquired, which are being integrated into the Company’s Tools & Storage and Security segments. The total purchase price for the acquisitions was allocated to the assets and liabilities assumed based on their estimated fair values. The purchase accounting for these acquisitions is substantially complete with the exception of certain minor items and will be completed within the measurement period.

2015 ACQUISITIONS

The Company completedtwo small acquisitions for a total purchase price of$17.2 million, net of cash acquired, which have been consolidated into the Company's Security segment.

ACTUAL AND PRO-FORMA IMPACT FROM ACQUISITIONS

As noted above, the Company completedfive small acquisitions in 2016 andtwo small acquisitions in 2015, which did not have a significant impact on the Company's Consolidated Statements of Operations for the years ended December 31, 2016 or January 2, 2016. The Company did not complete any acquisitions during 2014.

As previously discussed, the assets and liabilities expected to be included in the sales of the mechanical security businesses within the Security segment and the small business within the Tools & Storage segment have been classified as held for sale on the Company's Consolidated Balance Sheets as of December 31, 2016. As a result, in accordance with ASC 350, "Intangibles - Goodwill and Other," a portion of the goodwill associated with the Security and Tools & Storage segments was allocated to these businesses. The amounts allocated were based on the relative fair values of the businesses to be sold and the portions of the reporting units that were retained. Accordingly, goodwill for the Security and Tools & Storage segments was reduced by$297.1 million and$5.7 million, respectively, and classified within Assets held for sale on the Consolidated Balance Sheets as of December 31, 2016.

As required by the Company's policy, goodwill and indefinite-lived trade names were tested for impairment in the third quarter of2016. The Company assessed the fair value of its Infrastructure reporting unit utilizing a discounted cash flow valuation model as had been done in previous years and determined that the fair value exceeded the respective carrying amount. The key assumptions used were the discount rate and perpetual growth rate applied to cash flow projections. Also inherent in the discounted cash flow valuation were near-term revenue growth rates over the next five years. These assumptions contemplated business, market and overall economicconditions.

For the remaining four reporting units, the Company determined qualitatively that it was not more likely than not that goodwill was impaired, and thus, the quantitative goodwill impairment test was not required. In making this determination, the Company considered the significant excess of fair value over carrying amount as calculated in the most recent quantitative analysis performed in conjunction with the 2015 annual impairment test, each reporting unit's 2016 performance compared to prior year and their respective industries, analyst multiples and other positive qualitative information, all of which indicated that it is more likely than not that the fair values of the four reporting units were greater than the respective carrying amounts. Based on this evaluation of internal and external qualitative factors, the Company concluded that the quantitative goodwill impairment test was not required for these four reporting units.

The fair values of the Company's indefinite-lived trade names were assessed using both qualitative assessments, which considered relevant key external and internal factors, and quantitative analyses, which utilized discounted cash flow valuation models taking into consideration appropriate discount rates, royalty rates and perpetual growth rates applied to projected sales. Based on the results of this testing, the Company determined that the fair values of each of its indefinite-lived trade names exceeded their respective carrying amounts.

During the fourth quarter of 2016, in connection with its quarterly forecasting cycle, the Company updated the forecasted operating results for each of its businesses based on the most recent financial results and best estimates of future operations. The updated forecasts reflected an expected decline in near-term revenue growth and profitability for the Infrastructure reporting unit within the Industrial segment, primarily due to ongoing difficult market conditions in the oil & gas industry, mainly related to project delays as a result of continued geopolitical challenges and a cyclical slowdown in offshore pipeline activity, as well as a slower than expected recovery in the scrap steel market. Accordingly, in connection with the preparation of the Consolidated Financial Statements for the year ended December 31, 2016, the Company performed an updated impairment analysis with respect to the Infrastructure reporting unit, which included approximately$269 million of goodwill at year-end. Based on this analysis, which included revised assumptions of near-term revenue growth and profitability levels, it was determined that the fair value of the Infrastructure reporting unit exceeded its carrying value by14%. Therefore, management

concluded it was not more likely than not that an impairment had occurred. Management is confident in the long-term viability and success of the Infrastructure reporting unit based on the strong long-term growth prospects of the markets and geographies served, the Company's continued commitment to, and investments in, organic growth initiatives (including solid progress being made with respect to Breakthrough Innovation projects under the SFS 2.0 program), and Infrastructure's leading market position in its respective industries.

In the event that future operating results of any of the Company's reporting units do not meet current expectations, management, based upon conditions at the time, would consider taking restructuring or other actions as necessary to maximize revenue growth and profitability. A thorough analysis of all the facts and circ*mstances existing at that time would need to be performed to determine if recording an impairment loss would be appropriate.

INTANGIBLE ASSETS— Intangible assets atDecember31, 2016 andJanuary2, 2016 were as follows:

Total indefinite-lived trade names are$1,508.5 million atDecember31, 2016 and$1,577.8 million atJanuary2, 2016. The year-over-year decrease is due to a reclassification of$65.2 million to Assets held for sale relating to the previously discussed pending sale of the majority of the Company's mechanical security businesses within the Security segment and currency fluctuations. In addition, net definite-lived intangible assets totaling$31.8 million were reclassified to Assets held for sale as of December 31, 2016.

Aggregate intangible assets amortization expense by segment was as follows:

The 2014 amounts above are inclusive of amortization expense for discontinued operations amounting to$2.9 million.

Future amortization expense in each of the next five years amounts to$125.7 million for2017,$116.3 million for2018,$107.9 million for2019,$90.1 million for2020,$81.8 million for2021 and$269.2 million thereafter.

⁽¹⁾Unamortized gain/loss associated with interest rate swaps are more fully discussed inNote I, Derivative Financial Instruments⁽²⁾See full discussion on 2018 Notes Payable below.

Aggregate annual principal maturities of long-term debt for each of the years from 2017 to 2021 are$5.7 million,$982.3 million,$6.5 million,$3.0 million,$401.7 million, respectively, and$2,454.6 million thereafter. These maturities represent the principal amounts to be paid and accordingly exclude the remaining$12.2 million of unamortized fair value adjustments made in purchase accounting, which increased the Black& Decker note payable due 2028, as well as a loss of$1.2 million pertaining to unamortized termination gain/loss on interest rate swaps and unamortized discount on the notes as described inNoteI, Derivative Financial Instrumentsand$41.7 million of unamortized deferred financing fees. Interest paid during2016,2015 and 2014 amounted to$176.6 million,$161.5 million and$166.4 million, respectively.

In the first quarter of 2016, the Company adopted ASU 2015-03, "Interest - Imputation of Interest (Subtopic 835-30); Simplifying the Presentation of Debt Issuance Costs." ASU 2015-03 requires debt issuance costs related to recognized debt liabilities to be presented in the balance sheet as a direct deduction from the debt liability rather than an asset. Accordingly, at December 31, 2016, approximately$41.7 million of deferred debt costs were presented as a direct deduction within Long-Term

Debt on the Company's Consolidated Balance Sheets. Furthermore, the Company reclassified approximately$45.0 million of deferred debt issuance costs from Other Assets to Long-Term Debt as of January 2, 2016.

In December 2013, the Company issued$400.0 million aggregate principal amount of5.75% fixed-to-floating rate junior subordinated debentures maturing December 15, 2053 (“2053 Junior Subordinated Debentures”). The 2053 Junior Subordinated Debentures bears interest at a fixed rate of5.75% per annum, payable semi-annually in arrears to, but excluding December 15, 2018. From and including December 15, 2018, the 2053 Junior Subordinated Debentures will bear interest at an annual rate equal to three-month LIBOR plus4.304% payable quarterly in arrears. The 2053 Junior Subordinated Debentures are unsecured and rank subordinate and junior in right of payment to all of the Company’s existing and future senior debt. The 2053 Junior Subordinated Debentures rank equally in right of payment with all of the Company’s other unsecured junior subordinated debt. The Company received proceeds from the offering of$392.0 million, net of$8.0 million of underwriting discounts and commissions, before offering expenses. The Company used the net proceeds primarily to repay commercial paper borrowings. The Company may, so long as there is no event of default with respect to the debentures, defer interest payments on the debentures, from time to time, for one or more Optional Deferral Periods (as defined in the indenture governing the 2053 Junior Subordinated Debentures) of up to five consecutive years. Deferral of interest payments cannot extend beyond the maturity date of the debentures. The 2053 Junior Subordinated Debentures include an optional redemption provision whereby the Company may elect to redeem the debentures, in whole or in part, at a "make-whole" premium based on United States Treasury rates, plus accrued and unpaid interest if redeemed before December 15, 2018, or at100% of their principal amount plus accrued and unpaid interest if redeemed after December 15, 2018. In addition, the Company may redeem the debentures in whole, but not in part, before December 15, 2018, if certain changes in tax laws, regulations or interpretations occur at100% of their principal amount plus accrued and unpaid interest.

In November 2012, the Company issued$800.0 million of senior unsecured term notes, maturing on November 1, 2022 (“2022 Term Notes”) with fixed interest payable semi-annually, in arrears, at a rate of2.90% per annum. The 2022 Term Notes are unsecured and rank equally with all of the Company's existing and future unsecured and unsubordinated debt. The Company received net proceeds of$793.9 million which reflects a discount of$0.7 million and$5.4 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 short term borrowings. The 2022 Term Notes include a Change of Control provision that would apply should a Change of Control event (as defined in the Indenture governing the 2022 Term Notes) occur. The Change of Control provision states that the holders of the 2022 Term Notes may require the Company to repurchase, in cash, all of the outstanding 2022 Term Notes for a purchase price at101.0% of the original principal amount, plus any accrued and unpaid interest outstanding up to the repurchase date. In December 2014, the Company repurchased$45.7 million of the 2022 Term Notes and paid$45.3 million cash and recognized a net pre-tax gain of less than$0.1 million after expensing$0.3 million of related loan discount costs and deferred financing fees. At December 31, 2016, the Company's carrying value includes$0.3 million of unamortized discount.

In July 2012, the Company issued$750.0 million of junior subordinated debentures, maturing on July 25, 2052 (“2052 Junior Subordinated Debentures”) with fixed interest payable quarterly, in arrears, at a rate of5.75% per annum. The 2052 Junior Subordinated Debentures are unsecured and rank subordinate and junior in right of payment to all of the Company's existing and future senior debt. The Company received net proceeds of$729.4 million and paid$20.6 million of fees associated with the transaction. The Company used the net proceeds from the offering for general corporate purposes, including repayment of debt and refinancing of near term debt maturities. The Company may, so long as there is no event of default with respect to the debentures, defer interest payments on the debentures, from time to time, for one or more Optional Deferral Periods (as defined in the indenture governing the 2052 Junior Subordinated Debentures) of up tofive consecutive years per period. Deferral of interest payments cannot extend beyond the maturity date of the debentures. Additionally, the 2052 Junior Subordinated Debentures include an optional redemption whereby the Company may elect to redeem the debentures, in whole or in part, at the redemption price plus accrued and unpaid interest if redeemed before July 25, 2017, or at100% of their principal amount plus accrued and unpaid interest if redeemed after July 25, 2017.

Commercial Paper and Credit Facilities

AtDecember31, 2016 andJanuary2, 2016, the Company had no commercial paper borrowings outstanding against the Company’s$2.0 billion commercial paper program.

The Company has a five-year$1.75 billion committed credit facility (the “Credit Agreement”). Borrowings under the Credit Agreement may include U.S. Dollars up to the$1.75 billion commitment or in Euro or Pounds Sterling subject to a foreign currency sub-limit of$400.0 million and bear interest at a floating rate dependent upon the denomination of the borrowing. Repayments must be made on December 18, 2020 or upon an earlier termination date of the Credit Agreement, at the election

of the Company. The Credit Agreement is designated to be a liquidity back-stop for the Company's$2.0 billion commercial paper program. As of December 31, 2016, the Company has not drawn on this commitment.

In addition, the Company has short-term lines of credit that are primarily uncommitted, with numerous banks, aggregating$588.5 million, of which$493.8 million was available at December 31, 2016. Short-term arrangements are reviewed annually for renewal.

At December 31, 2016, the aggregate amount of committed and uncommitted, long- and short-term lines was$2.3 billion. At December 31, 2016,$4.3 million was recorded as short-term borrowings outstanding against uncommitted lines excluding commercial paper. In addition,$94.7 million of the short-term credit lines was utilized primarily pertaining to outstanding letters of credit for which there are no required or reported debt balances. The weighted average interest rates on short-term borrowings, primarily commercial paper, for the fiscal years ended December 31, 2016 and January 2, 2016 were0.6% and0.4%, respectively.

In January 2017, the Company amended its existing$2.0 billion commercial paper program to increase the maximum amount of notes authorized to be issued to $3.0 billion and to include Euro denominated borrowings in addition to U.S. Dollars. In February 2017, the Company issued€600.0 million in Euro denominated commercial paper under its$3.0 billion U.S. Dollar and Euro commercial paper program which has been designated as a Net Investment Hedge as described in more detail inNote I, Derivative Financial Instruments.

Also in January 2017, the Company executed a 364-day$1.3 billion committed credit facility (the "2017 Credit Agreement"). The 2017 Credit Agreement consists of a$1.3 billion revolving credit loan and a sub-limit of an amount equal to the EURO equivalent of$400 million for swing line advances. Borrowings under the 2017 Credit Agreement may be made in U.S. Dollars or Euros, pursuant to the terms of the agreement, and bear interest at a floating rate dependent on the denomination of the borrowing. Repayments must be made by January 17, 2018 or upon an earlier termination of the 2017 Credit Agreement at the election of the Company. The 2017 Credit Agreement serves as a liquidity back-stop for the Company’s$3.0 billion U.S. Dollar and Euro commercial paper program, also authorized and amended in January 2017 as discussed above.

Equity Units

In December 2013, the Company issued3,450,000 Equity Units (the “Equity Units”), each with a stated value of$100. The Equity Units were initially comprised of a 1/10, or10%, undivided beneficial ownership in a$1,000 principal amount2.25% junior subordinated note due 2018 (the “2018 Junior Subordinated Note”) and a forward common stock purchase contract (the “Equity Purchase Contract”). The Company received approximately$334.7 million in cash proceeds from the Equity Units, net of underwriting discounts and commissions, before offering expenses, and recorded$345.0 million in long-term debt. The proceeds were used primarily to repay commercial paper borrowings. The Company also used$9.7 million of the proceeds to enter into capped call transactions utilized to hedge potential economic dilution as described in more detail below.

Equity Purchase Contracts:

On November 17, 2016, the Company settled all Equity Purchase Contracts by issuing3,504,165 million common shares and received$345.0 million in cash proceeds generated from the remarketing described in detail below. The number of shares of common stock issuable upon settlement of each purchase contract (the “settlement rate”) was rounded to the nearest ten-thousandth of a share and was determined by calculating the applicable market value, equal to the average of the daily volume-weighted average price of common stock for each of the 20 consecutive trading days during the market value averaging period, October 21, 2016 through November 17, 2016. The conversion rate used in calculating the average of the daily volume-weighted average price of common stock during the market value averaging period was1.0157 (equivalent to the purchase contract settlement rate and a conversion price of$98.45 per common share).

Holders of the Equity Purchase Contracts were paid contract adjustment payments (“contract adjustment payments”) at a rate of4.00% per annum, payable quarterly in arrears on February 17, May 17, August 17 and November 17 of each year, commencing February 17, 2014. The$40.2 million present value of the Contract Adjustment Payments reduced Shareowners’ Equity upon issuance of the Equity Units and a related liability for the present value of the cash payments of$40.2 million was recorded. As each quarterly contract adjustment payment was made, the related liability was relieved with the difference between the cash payment and the present value accreted to interest expense over the three-year term. On November 17, 2016, the Company made the final contract adjustment payment.

2018 Junior Subordinated Notes:

The$345.0 million aggregate principal amount of the 2018 Junior Subordinated Notes will mature on November 17, 2018. Prior to November 17, 2016, the 2018 Junior Subordinated Notes bore interest at a rate of2.25% per annum, payable quarterly in arrears on February 17, May 17, August 17 and November 17 of each year, commencing February 17, 2014. The 2018 Junior Subordinated Notes were unsecured and ranked subordinate and junior in right of payment to the Company’s existing and future senior indebtedness. The 2018 Junior Subordinated Notes initially ranked equally in right of payment with all of the Company’s other unsecured junior subordinated debt.

The Company successfully remarketed the 2018 Junior Subordinated Notes on November 17, 2016 ("Subordinated Notes"). In connection with the remarketing, the interest rate on the notes was reset, effective on the settlement date to a rate of1.622% per annum, payable semi-annually in arrears on May 17 and November 17 of each year, commencing May 17, 2017 and maturing on November 17, 2018. Following settlement of the remarketing, the Subordinated Notes remain the Company’s direct, unsecured general obligations and are subordinated and junior in right of payment to the Company’s existing and future senior indebtedness, but the Subordinated Notes rank senior in right of payment to specified junior indebtedness on the terms and to the extent set forth in the indentures governing such junior indebtedness.

The remarketing resulted in proceeds of$345.0 million, which the Company did not directly receive, and were automatically applied to satisfy in full the related unit holders’ obligations to purchase common stock under their Equity Purchase Contracts.

Interest expense of$0.7 million was recorded for 2016 related to the contractual interest coupon on the Subordinated Notes based on the annual rate of1.622%. Interest expense of$6.8 million in 2016, and$7.8 million for both 2015 and 2014 was recorded related to the2.25% contractual interest coupon on the 2018 Junior Subordinated Notes.

The unamortized deferred remarketing and discount costs of the Subordinated Notes at December 31, 2016 is$1.9 million and will be recorded to interest expense over the term of the underlying notes.

Capped Call Transactions:

In order to offset the potential economic dilution associated with the common shares issuable upon settlement of the Equity Purchase Contracts, the Company entered into capped call transactions with a major financial institution (the “counterparty”). The capped call transactions covered, subject to customary anti-dilution adjustments, the number of shares equal to the number of shares issuable upon settlement of the Equity Purchase Contracts. The capped call transactions have a term of approximately three years and initially had a lower strike price of$98.80, which corresponds to the minimum settlement rate of the Equity Purchase Contracts, and an upper strike price of$112.91, which is approximately40% higher than the closing price of the Company's common stock on November25, 2013, and are subject to customary anti-dilution adjustments. The Company paid$9.7 million of cash to fund the cost of the capped call transactions, which was recorded as a reduction of Shareowners’ Equity. In October and November 2016, the Company’s capped call options on its common stock expired and were net-share settled resulting in the Company receiving418,234 shares of common stock.

Convertible Preferred Units

In November 2010, the Company issued6,325,000 Convertible Preferred Units (the “Convertible Preferred Units”), each with a stated amount of$100. The Convertible Preferred Units were comprised of a 1/10, or10%, undivided beneficial ownership in a$1,000 principal amount junior subordinated note (the “Note”) and a Purchase Contract (the “Purchase Contract”) obligating holders to purchaseone share of the Company’s4.75% SeriesB Perpetual Cumulative Convertible Preferred Stock (the “Convertible Preferred Stock”). The Company received$613.5 million in cash proceeds from the Convertible Preferred Units offering, net of underwriting fees.

Purchase Contracts:

Each Purchase Contract obligated the holder to purchase, on November17, 2015, for$100, one newly-issued share of Convertible Preferred Stock.

Holders of the Purchase Contracts were paid contract adjustment payments at a rate of0.50%per annum, payable quarterly in arrears on February17, May17, August17 and November17 of each year. The$14.9 million present value of the contract adjustment payments reduced Shareowners’ Equity at inception. As each quarterly contract adjustment payment was made, the related liability was relieved with the difference between the cash payment and the present value of the contract adjustment payment recorded as interest expense.

In accordance with the Purchase Contracts, on November 17, 2015, the Company issued6,325,000 shares of Convertible Preferred Stock and made the final contract adjustment payment on the Purchase Contracts. The purchase price for the Convertible Preferred Stock was paid using the proceeds of the remarketing described below.

Convertible Preferred Stock:

Holders of the Convertible Preferred Stock were entitled to receive cumulative cash dividends at the rate of4.75%per annum of the$100 liquidation preference per share of the Convertible Preferred Stock. Dividends on the Convertible Preferred Stock were payable, when, as and if declared by the Company’s board of directors, quarterly in arrears in conjunction with the contract adjustment payments.

On November 18, 2015, the Company informed holders that it would redeem, on December 24, 2015 (the “Redemption Date”), all outstanding shares of Convertible Preferred Stock that had not previously been converted at a redemption price of$100.49 per share in cash (the “Redemption Price”), which was equal to the liquidation preference per share of Convertible Preferred Stock of$100, plus accrued and unpaid dividends thereon to, but excluding, the Redemption Date.

Substantially all of the holders of Convertible Preferred Stock elected to convert their shares of Convertible Preferred Stock prior to the Redemption Date. The Company elected to settle all conversions of Convertible Preferred Stock through combination settlement, with a specified dollar amount of$100. The amounts due upon conversion were equal to the sum of the Daily Settlement Amounts for each of the 20 consecutive trading days during the observation period, November 23, 2015 through December 21, 2015. Daily Settlement Amount means, for each of the 20 consecutive trading days during the observation period: (1) cash equal to the lesser of (A)$5.00 and (B) 1/20th of the product of the (i) applicable conversion rate on such trading day and (ii) the daily volume-weighted average price of common stock on such trading day (the “Daily Conversion Value”); and (2) to the extent the Daily Conversion Value for such trading day exceeds$5.00, a number of shares of common stock equal to (A) the difference between such Daily Conversion Value and$5.00, divided by (B) the daily volume-weighted average price for such trading day.

The Company settled all conversions on December 24, 2015 by paying$632.5 million in cash for the$100 par value per share of Convertible Preferred Stock and issuing2.9 million common shares for the excess value of the conversion feature above the$100 face value per share of Convertible Preferred Stock. The conversion rates used in calculating the Daily Conversion Value during the observation period, were1.3763 (equivalent to a conversion price set at$72.66 per common share) prior to December 2, 2015 and1.3789 (equivalent to a conversion price set at$72.52 per common share) on and after December 2, 2015.

Notes:

The$632.5 million principal amount of the Notes are due November17, 2018. At maturity, the Company is obligated to repay the principal in cash. The Notes initially bore interest at an initial rate of4.25%per annum, payable quarterly in arrears on the same dates as the contract adjustment payments. The Notes are the Company’s direct, unsecured general obligations and are subordinated and junior in right of payment to the Company’s existing and future senior indebtedness. The Notes initially ranked equally in right of payment with all of the Company’s other junior subordinated debt. The interest rate, payment dates and ranking of the notes were reset in connection with the remarketing, as described below. The Notes were initially pledged as collateral to guarantee the obligations of holders of Purchase Contracts to purchase Convertible Preferred Stock. Upon completion of the remarketing, the Notes were released from that pledge arrangement.

The Company successfully remarketed the Notes on November 5, 2015. In connection with the remarketing, the interest rate on the notes was reset, effective on the November 17, 2015 settlement date of the remarketing, to a rate of2.45% per annum, payable semi-annually in arrears on May 17 and November 17 of each year, commencing May 17, 2016. Following settlement of the remarketing, the Notes remain the Company’s direct, unsecured general obligations subordinated and junior in right of payment to the Company’s existing and future senior indebtedness, but the Notes rank senior in right of payment to specified junior indebtedness on the terms and to the extent set forth in the indentures governing such junior indebtedness.

The remarketing resulted in proceeds of$632.5 million. The Company did not directly receive any proceeds from the remarketing. Instead, the proceeds of remarketing were automatically applied to satisfy in full the related unit holders’ obligations to purchase Convertible Preferred Stock under their Purchase Contracts.

Interest expense of$15.5 million and$1.9 million was recorded in2016 and 2015, respectively, related to the contractual interest coupon on the 2018 Subordinated Notes based upon the2.45% annual rate and$23.3 million was recorded in 2015, and$26.9 million in2014, related to the contractual interest coupon on the Notes based upon the4.25% annual rate.

The unamortized deferred issuance cost of the Notes was$3.3 million at December 31, 2016, and will be recorded to interest expense over the term of the underlying Notes.

Equity Option:

In order to offset the common shares that were deliverable upon conversion of shares of Convertible Preferred Stock, the Company entered into capped call transactions (equity options) with certain major financial institutions (the “capped call counterparties”). The capped call transactions cover, subject to anti-dilution adjustments, the number of shares of common stock equal to the number of shares of common stock underlying the maximum number of shares of Convertible Preferred Stock issuable upon settlement of the Purchase Contracts. Each of the capped call transactions had an original term of approximately five years and initially had a lower strike price of$75.00, which corresponded to the initial conversion price of the Convertible Preferred Stock, and an upper strike price of$97.95, which was approximately60% higher than the closing price of the common stock on November1, 2010. The Company paid$50.3 million of cash to fund the cost of the capped call transactions, which was recorded as a reduction of Shareowners’ Equity. On August 5, 2015, the Company terminated the capped call options on its common stock and received1,692,778 shares of common stock.

I.DERIVATIVE FINANCIAL INSTRUMENTS

The Company is exposed to market risk from changes in foreign currency exchange rates, interest rates, stock prices and commodity prices. As part of the Company’s risk management program, a variety of financial instruments such as interest rate swaps, currency swaps, purchased currency options, foreign exchange contracts and commodity contracts, are used to mitigate interest rate exposure, foreign currency exposure and commodity price exposure.

If the Company elects to do so and if the instrument meets the criteria specified in ASC815, "Derivatives and Hedging," management designates its derivative instruments as cash flow hedges, fair value hedges or net investment hedges. Generally, commodity price exposures are not hedged with derivative financial instruments and instead are actively managed through customer pricing initiatives, procurement-driven cost reduction initiatives and other productivity improvement projects. Financial instruments are not utilized for speculative purposes.

The counterparties to all of the above mentioned financial instruments are major international financial institutions. The Company is exposed to credit risk for net exchanges under these agreements, but not for the notional amounts. The credit risk is limited to the asset amounts noted above. The Company limits its exposure and concentration of risk by contracting with diverse financial institutions and does not anticipate non-performance by any of its counterparties. Further, as more fully discussed inNoteM, Fair Value Measurements, the Company considers non-performance risk of its counterparties at each reporting period and adjusts the carrying value of these assets accordingly. The risk of default is considered remote.

In2016 and2015, significant cash flows related to derivatives including those that are separately discussed below resulted in net cash received of$94.7 million and$144.4 million, respectively.

CASH FLOW HEDGES—There was a$46.3 million and a$52.1 million after-tax loss as ofDecember31, 2016 andJanuary2, 2016, respectively, reported for cash flow hedge effectiveness in Accumulated other comprehensive loss. An after-tax gain of$9.0 million is expected to be reclassified to earnings as the hedged transactions occur or as amounts are amortized within the next twelve months. The ultimate amount recognized will vary based on fluctuations of the hedged currencies and interest rates through the maturity dates.

The tables below detail pre-tax amounts reclassified from Accumulated other comprehensive loss into earnings for active derivative financial instruments during the periods in which the underlying hedged transactions affected earnings for the twelve months endedDecember31, 2016 andJanuary2, 2016 (in millions):

*Includes ineffective portion and amount excluded from effectiveness testing on derivatives.

For2016 and2015, the hedged items’ impact to the Consolidated Statement of Operations was a loss of$21.7 million and a loss of$57.4 million, respectively, in Cost of Sales. There was no impact related to the interest rate contracts’ hedged items for any period presented.

For2016 and2015, an after-tax gain of$3.3 million and$22.4 million, respectively, and for2014 an after-tax loss of$7.5 million were reclassified from Accumulated other comprehensive loss into earnings (inclusive of the gain/loss amortization on terminated derivative financial instruments) during the periods in which the underlying hedged transactions affected earnings.

Interest Rate Contracts:The Company enters into interest rate swap agreements in order to obtain the lowest cost source of funds within a targeted range of variable to fixed-rate debt proportions. As ofDecember31, 2016, andJanuary2, 2016, the Company had$400 million of forward starting swaps outstanding which were executed in 2014. The objective of the hedges is to offset the expected variability on future payments associated with the interest rate on debt instruments expected to be issued in 2018. Gains or losses on the swaps are recorded in Accumulated other comprehensive loss and will be subsequently reclassified into earnings as the future interest expense is recognized in earnings or as ineffectiveness occurs.

Foreign Currency Contracts

Forward Contracts:Through its global businesses, the Company enters into transactions and makes investments denominated in multiple currencies that give rise to foreign currency risk. The Company and its subsidiaries regularly purchase inventory from subsidiaries with functional currencies different than their own, which creates currency-related volatility in the Company’s results of operations. The Company utilizes forward contracts to hedge these forecasted purchases and sales of inventory. Gains and losses reclassified from Accumulated other comprehensive loss for the effective portion of the hedge are recorded in Cost of sales. The ineffective portion, if any, as well as gains and losses incurred after a hedge has been de-designated are not recorded in Accumulated other comprehensive loss, but are recorded directly to the Consolidated Statements of Operations in Other, net. AtDecember31, 2016 andJanuary2, 2016, the notional values of the forward currency contracts outstanding was$503.8 million and$439.3 million, respectively, maturing on various dates through2017.

Purchased Option Contracts:The Company and its subsidiaries enter into various intercompany transactions whereby the notional values are denominated in currencies other than the functional currencies of the party executing the trade. In order to better match the cash flows of its intercompany obligations with cash flows from operations, the Company enters into purchased option contracts. Gains and losses reclassified from Accumulated other comprehensive loss for the effective portions of the hedge are recorded in Cost of sales. The ineffective portion, if any, as well as gains and losses incurred after a hedge has

been de-designated are not recorded in Accumulated other comprehensive loss, but are recorded directly to the Consolidated Statements of Operations in Other, net. AtDecember31, 2016, the notional value of option contracts outstanding was$252.0 million, maturing on various dates through 2017. As ofJanuary2, 2016, the notional value of purchased option contracts was$197.4 million, maturing on various dates in 2016.

FAIR VALUE HEDGES

Interest Rate Risk:In an effort to optimize the mix of fixed versus floating rate debt in the Company’s capital structure, the Company enters into interest rate swaps. In previous years, the Company entered into interest rate swaps on the first five years of the Company's$400 million 5.75% notes due 2053, interest rate swaps with notional values which equaled the Company's$400 million 3.40% notes due 2021 and the Company's$150 million 7.05% notes due 2028. These interest rate swaps effectively converted the Company's fixed rate debt to floating rate debt based on LIBOR, thereby hedging the fluctuation in fair value resulting from changes in interest rates. In the second quarter of 2016, the Company terminated all of the above interest rate swaps. The terminations resulted in cash receipts of$27.0 million. This gain was deferred and will be amortized to earnings over the remaining life of the notes.

The changes in fair value of the interest rate swaps during the period were recognized in earnings as well as the offsetting changes in fair value of the underlying notes. There were no open contracts as ofDecember31, 2016 and the notional value of open contracts was$950.0 million as ofJanuary2, 2016. A summary of the fair value adjustments relating to these swaps is as follows (in millions):

*Includes ineffective portion and amount excluded from effectiveness testing on derivatives.

In addition to the fair value adjustments in the table above, the net swap accruals for each period and amortization of the gains on terminated swaps are also reported as a reduction of interest expense and totaled$6.9 million and$14.2 million for2016 and2015, respectively. Interest expense on the underlying debt was$19.9 million (for the period prior to termination of the derivatives) and$47.1 million for2016 and2015, respectively.

NET INVESTMENT HEDGES

Foreign Exchange Contracts:The Company utilizes net investment hedges to offset the translation adjustment arising from re-measurement of its investment in the assets and liabilities of its foreign subsidiaries. The total after-tax amounts in Accumulated other comprehensive loss were a gain of$88.6 million and$11.8 million atDecember31, 2016 andJanuary2, 2016, respectively. As ofDecember31, 2016, the Company had foreign exchange contracts that mature on various dates through 2017 with notional values totaling$1.0 billion outstanding hedging a portion of its British pound sterling, Mexican peso, Swedish krona, Euro and Canadian dollar denominated net investments, and a cross currency swap with a notional value totaling$250.0 million maturing 2023 hedging a portion of its Japanese yen denominated net investment. Of the$1.0 billion discussed above,$136.1 million hedging a portion of the British pound sterling net investments had been de-designated as of December 31, 2016. As ofJanuary2, 2016, the Company had foreign exchange contracts maturing on various dates through 2016 with notional values totaling$1.9 billion outstanding hedging a portion of its British pound sterling, Mexican peso, Japanese yen, Swedish krona, Euro and Canadian denominated net investment. For the year endedDecember31, 2016 andJanuary2, 2016, maturing foreign exchange contracts resulted in net cash received of$104.7 million and$137.7 million, respectively. Gains and losses on net investment hedges remain in Accumulated other comprehensive loss until disposal of the underlying assets. Gains and losses after a hedge has been de-designated are recorded directly to the Consolidated Statements of Operations in Other, net.

The pre-tax gain or loss from fair value changes was as follows (in millions):

*Includes ineffective portion and amount excluded from effectiveness testing.

In February 2017, the Company issued€600.0 million in Euro denominated commercial paper under its$3.0 billion U.S. Dollar and Euro commercial paper program which has been designated as a Net Investment Hedge against a portion of its EUR denominated net investment. The notional amount of the Euro commercial paper program matches the portion of the net investment designated as being hedged and they are denominated in the same currency; therefore, the Company does not expect to incur any ineffectiveness.

UNDESIGNATED HEDGES

Foreign Exchange Contracts:Currency swaps and foreign exchange forward contracts are used to reduce risks arising from the change in fair value of certain foreign currency denominated assets and liabilities (such as affiliate loans, payables and receivables). The objective of these practices is to minimize the impact of foreign currency fluctuations on operating results. The total notional amount of the forward contracts outstanding atDecember31, 2016 was$1.5 billion maturing on various dates through 2017. The total notional amount of the forward contracts outstanding atJanuary2, 2016 was$2.0 billion maturing on various dates through 2016. The income statement impacts related to derivatives not designated as hedging instruments for2016 and2015 are as follows (in millions):

The following weighted-average stock options were not included in the computation of diluted shares outstanding because the effect would be anti-dilutive (in thousands):

As described in detail below, under "Other Equity Arrangements," the Company issued Equity Units in December 2013 comprised of$345.0 million of Notes and Equity Purchase Contracts, which obligated the holders to purchase on November 17, 2016, for$100, between1.0122 and1.2399 shares of the Company’s common stock. The shares related to the Equity Purchase Contracts were anti-dilutive during 2014 and certain months in 2015 and 2016. Upon the November 17, 2016 settlement date, the Company issued3,504,165 shares of common stock and received cash proceeds of$345.0 million.

COMMON STOCK ACTIVITY— Common stock activity for2016,2015 and2014 was as follows:

In 2016, the Company repurchased3,940,087 shares of common stock for approximately$374.1 million. Additionally, the Company net-share settled capped call options on its common stock and received711,376 shares during 2016.

In November 2016, the Company issued3,504,165 shares of common stock to settle the purchase contracts of the 2013 Equity Units.

In December 2015, the Company issued2,869,169 shares of common stock to settle the conversion feature of the Convertible Preferred Stock issued and redeemed through a combination settlement.

See "Other Equity Arrangements" below for further details of the above transactions.

In March 2015, the Company entered into a forward share purchase contract with a financial institution counterparty for3,645,510 shares of common stock. The contract obligates the Company to pay$350.0 million, plus an additional amount related to the forward component of the contract. In November 2016, the Company amended the settlement date to April 2019, or earlier at the Company's option. The reduction of common shares outstanding was recorded at the inception of the forward share purchase contract in March 2015 and factored into the calculation of weighted average shares outstanding at that time.

In October 2014, the Company entered into a forward share purchase contract on its common stock. The contract obligated the Company to pay$150.0 million, plus an additional amount related to the forward component of the contract, to the financial institution counterparty not later than October 2016, or earlier at the Company’s option, for the1,603,822 shares purchased. The reduction of common shares outstanding was recorded at the inception of the forward share purchase contract in October 2014 and factored into the calculation of weighted average shares outstanding at that time. In October 2016, the Company physically settled the contract, receiving1,603,822 shares for a settlement amount of$147.4 million. These shares are reflected as "Returned to treasury" in the table above.

COMMON STOCK RESERVED— Common stock shares reserved for issuance under various employee and director stock plans atDecember31, 2016 andJanuary2, 2016 are as follows:

PREFERRED STOCK PURCHASE RIGHTS— Prior to March 10, 2016, each outstanding share of common stock had a1 share purchase right. Each purchase right could be exercised to purchase one two-hundredth of a share of SeriesA Junior Participating Preferred Stock at an exercise price of$220.00, subject to adjustment. The rights, which did not have voting rights, expired onMarch 10, 2016. There were no outstanding rights or shares of Series A Junior Participating Preferred Stock as ofDecember31, 2016.

STOCK-BASED COMPENSATION PLANS— The Company has stock-based compensation plans for salaried employees and non-employee members of the Board of Directors. The plans provide for discretionary grants of stock options, restricted stock units and other stock-based awards.

The plans are generally administered by the Compensation and Organization Committee of the Board of Directors, consisting of non-employee directors.

Stock Option Valuation Assumptions:

Stock options are granted at the fair market value of the Company’s stock on the date of grant and have a10-year term. Generally, stock option grants vest ratably over4 years from the date of grant.

The following describes how certain assumptions affecting the estimated fair value of stock options are determined: the dividend yield is computed as the annualized dividend rate at the date of grant divided by the strike price of the stock option; expected volatility is based on an average of the market implied volatility and historical volatility for the5.25year expected life; the risk-free interest rate is based on U.S.Treasury securities with maturities equal to the expected life of the option; and a seven percent forfeiture rate is assumed. The Company uses historical data in order to estimate forfeitures and holding period behavior for valuation purposes.

The fair value of stock option grants is estimated on the date of grant using the Black-Scholes option pricing model. The following weighted average assumptions were used to value grants made in2016,2015 and2014.

AtDecember31, 2016, the range of exercise prices on outstanding stock options was$30.03 to$121.63. Stock option expense was$22.8 million,$16.7 million and$16.5 million for the years endedDecember31, 2016,January2, 2016 andJanuary3, 2015, respectively. AtDecember31, 2016, the Company had$36.2 million of unrecognized pre-tax compensation expense for stock options. This expense will be recognized over the remaining vesting periods which are2.4 years on a weighted average basis.

During2016, the Company received$47.4 million in cash from the exercise of stock options. The related tax benefit from the exercise of these options was$13.0 million. During2016,2015 and2014, the total intrinsic value of options exercised was$35.9 million,$102.7 million and$33.7 million, respectively. When options are exercised, the related shares are issued from treasury stock.

ASC 718, “Compensation— Stock Compensation,” requires the benefit arising from tax deductions in excess of recognized compensation cost to be classified as a financing cash flow. To quantify the recognized compensation cost on which the excess tax benefit is computed, both actual compensation expense recorded and pro-forma compensation cost reported in disclosures are considered. An excess tax benefit is generated on the extent to which the actual gain, or spread, an optionee receives upon exercise of an option exceeds the fair value determined at the grant date; that excess spread over the fair value of the option times the applicable tax rate represents the excess tax benefit. In2016,2015 and2014, the Company reported$9.1 million,$21.2 million and$7.3 million, respectively, of excess tax benefits as a financing cash flow within the proceeds from issuance of common stock caption.

Outstanding and exercisable stock option information atDecember31, 2016 follows:

Compensation cost for new grants is recognized on a straight-line basis over the vesting period. The expense for retirement eligible employees (those aged55 and over and with10 or more years of service) is recognized by the date they become retirement eligible, as such employees may retain their options for the10year contractual term in the event they retire prior to the end of the vesting period stipulated in the grant.

As of December 31, 2016, the aggregateintrinsic valueof stock options outstanding and stock options exercisable was$187.8 million and$169.5 million, respectively.

Employee Stock Purchase Plan:

The Employee Stock Purchase Plan (“ESPP”) enables eligible employees in the United States and Canada to subscribe at any time to purchase shares of common stock on a monthly basis at the lower of85.0% of the fair market value of the shares on the grant date ($86.87 per share for fiscal year2016 purchases) or85.0% of the fair market value of the shares on the last business day of each month. A maximum of6,000,000shares are authorized for subscription. During2016,2015 and2014,168,233 shares,182,039shares and128,144shares, respectively, were issued under the plan at average prices of$84.46,$71.80, and$71.69 per share, respectively, and the intrinsic value of the ESPP purchases was$4.8 million,$5.4 million and$1.9 million, respectively. For2016, the Company received$14.2 million in cash from ESPP purchases, and there was no related tax benefit. The fair value of ESPP shares was estimated using the Black-Scholes option pricing model. ESPP compensation cost is recognized ratably over theone-year term based on actual employee stock purchases under the plan. The fair value of the employees’ purchase rights under the ESPP was estimated using the following assumptions for2016,2015 and2014, respectively: dividend yield of2.1%,2.2% and2.5%; expected volatility of20.0%,19.0% and25.0%; risk-free interest rates of0.5%,0.1%, and0.1%; and expected lives ofone year. The weighted average fair value of those purchase rights granted in2016,2015 and2014 was$29.68,$31.41 and$17.10, respectively. Total compensation expense recognized for ESPP amounted to$4.7 million for2016,$5.4 million for2015, and$2.1 million for2014.

Restricted Share Units and Awards:

Compensation cost for restricted share units and awards, including restricted shares granted to French employees in lieu of RSUs, (collectively “RSUs”) granted to employees is recognized ratably over the vesting term, which varies but is generally4years. RSU grants totaled445,155shares,349,768shares and559,955shares in2016,2015 and2014, respectively. The weighted-average grant date fair value of RSUs granted in2016,2015 and2014 was$118.20,$107.43 and$93.67 per share, respectively.

Total compensation expense recognized for RSUs amounted to$32.6 million,$30.9 million and$26.0 million in2016,2015 and2014, respectively. The actual tax benefit received in the period the shares were delivered was$11.4 million. The excess tax benefit recognized was$2.4 million,$7.0 million, and$3.5 million in2016,2015 and2014, respectively. As ofDecember31, 2016, unrecognized compensation expense for RSUs amounted to$79.8 million and this cost will be recognized over a weighted-average period of2.2 years.

A summary of non-vested restricted stock unit and award activity as ofDecember31, 2016, and changes during thetwelve month period then ended is as follows:

The total fair value of shares vested (market value on the date vested) during2016,2015 and2014 was$37.0 million,$72.2 million and$64.5 million, respectively.

Non-employee members of the Board of Directors received restricted share-based grants which must be cash settled and accordingly mark-to-market accounting is applied. Additionally, the Board of Directors were granted restricted share units for which compensation expense of$1.1 million was recognized for2016,2015 and2014.

Long-Term Performance Awards:

The Company has granted Long Term Performance Awards (“LTIPs”) under its 2009 and 2013 Long Term Incentive Plans to senior management employees for achieving Company performance measures. Awards are payable in shares of common stock, which may be restricted if the employee has not achieved certain stock ownership levels, and generally no award is made if the employee terminates employment prior to the payout date. LTIP grants were made in2014,2015 and2016. Each grant has separate annual performance goals for each year within the respectivethree year performance period. Earnings per share and cash flow return on investment represent75% of the share payout of each grant. There is a third market-based element, representing25% of the total grant, which measures the Company’s common stock return relative to peers over the performance period. The ultimate delivery of shares will occur in2017,2018 and2019 for the2014,2015 and2016 grants, respectively. Total payouts are based on actual performance in relation to these goals.

Expense recognized for these performance awards amounted to$20.0 million in2016,$13.8 million in2015, and$11.4 million in2014. With the exception of the market-based award, in the event performance goals are not met, compensation cost is not recognized and any previously recognized compensation cost is reversed.

A summary of the activity pertaining to the maximum number of shares that may be issued is as follows:

OTHER EQUITY ARRANGEMENTS

In November 2013, the Company purchased from certain financial institutions “out-of-the-money” capped call options on12.2 million shares of its common stock (subject to customary anti-dilution adjustments) for an aggregate premium of$73.5 million, or an average of$6.03 per share. The purpose of the capped call options is to hedge the risk of stock price appreciation between the lower and upper strike prices of the capped call options for a future share repurchase. The premium paid was recorded as a reduction of Shareowners’ equity. The contracts for the options provide that they may, at the Company’s election, subject to certain conditions, be cash settled, physically settled, modified-physically settled, or net-share settled (the default settlement method). The capped call options had various expiration dates and initially had an average lower strike price of$86.07 and an average upper strike price of$106.56, subject to customary market adjustments. In February 2015, the Company net-share settled9.1 million of the12.2 million capped call options on its common stock and received911,077 shares using an average reference price of$96.46 per common share. Additionally, the Company purchased directly from the counterparties participating in the net-share settlement,3,381,162 shares for$326.1 million, equating to an average price of$96.46 per share. In February 2016, the Company net-share settled the remaining3.1 million capped call options on its common stock and received293,142 shares using an average reference price of$94.34 per common share. Additionally, the Company purchased1,316,858 shares directly from the counterparty participating in the net-share settlement for$124.2 million. The Company also repurchased2,446,287 shares of common stock in February 2016 for$230.9 million, equating to an average price of$94.34.

Equity Units and Capped Call Transactions

As described more fully inNote H, Long-Term Debt and Financing Arrangements, in December 2013, the Company issued Equity Units comprised of$345.0 million of Notes and Equity Purchase Contracts. The Equity Purchase Contracts obligated the holders to purchase on November 17, 2016, for$100, between1.0122 and1.2399 shares of the Company’s common stock, which are equivalent to an initial settlement price of$98.80 and$80.65, respectively, per share of common stock.

In accordance with the Equity Purchase Contracts, on November 17, 2016, the Company issued3,504,165 shares of common shares and received additional cash proceeds of$345.0 million. The conversion rate used in calculating the average of the daily volume-weighted average price of common stock during the market value averaging period, was1.0157 (equivalent to the minimum settlement rate and a conversion price of$98.45 per common share) on November 17, 2016.

Contemporaneously with the issuance of the Equity Units described above, the Company paid$9.7 million, or an average of$2.77 per option, to enter into capped call transactions on3.5 million shares of common stock with a major financial institution. The purpose of the capped call transactions is to offset the potential economic dilution associated with the common shares issuable upon the settlement of the Equity Purchase Contracts. Refer toNote H, Long-Term Debt and Financing Arrangements,for further discussion. The$9.7 million premium paid was recorded as a reduction to equity.

The capped call transactions cover, subject to customary anti-dilution adjustments, the number of shares equal to the number of shares issuable upon settlement of the Equity Purchase Contracts at the1.0122 minimum settlement rate. The capped call transactions had a term of approximately three years and initially had a lower strike price of$98.80, which corresponded to a minimum settlement rate of the Equity Purchase Contracts, and an upper strike price of$112.91, which was approximately40% higher than the closing price of the Company’s common stock on November 25, 2013, subject to customary anti-dilution adjustments. In October and November 2016, the Company’s capped call options on its common stock expired and were net-share settled resulting in the Company receiving418,234 shares using an average reference price of$117.84 per common share.

Convertible Preferred Units and Equity Option

As described more fully inNote H, Long-Term Debt and Financing Arrangements, in November2010, the Company issued Convertible Preferred Units comprised of$632.5 million of Notes dueNovember 17, 2018 and Purchase Contracts. The Purchase Contracts obligated the holders to purchase, onNovember 17, 2015,6.3 million shares, for$100 per share, of the Company’s4.75% Series B Cumulative Convertible Preferred Stock (the “Convertible Preferred Stock”).

In accordance with the Purchase Contracts, on November 17, 2015, the Company issued6.3 million shares of Convertible Preferred Stock resulting in cash proceeds to the Company of$632.5 million. On November 18, 2015, the Company informed holders that it would redeem all outstanding shares of Convertible Preferred Stock on December 24, 2015 (the “Redemption Date”) at$100.49 per share in cash (the “Redemption Price”), which is equal to the liquidation preference of$100 per share of Convertible Preferred Stock, plus accrued and unpaid dividends thereon to, but excluding, the Redemption Date.

The Company settled all conversions on December 24, 2015 by paying cash for the$100 par value, or$632.5 million in total, and issuing2.9 million common shares for the excess value of the conversion feature above the$100 face value per share of Convertible Preferred Stock. The conversion rates used in calculating the Daily Conversion during the observation period, were1.3763 (equivalent to a conversion price set at$72.66 per common share) prior to December 2, 2015 and1.3789 (equivalent to a conversion price set at$72.52 per common share) on and after December 2, 2015.

In November2010, contemporaneously with the issuance of the Convertible Preferred Units described above, the Company paid$50.3 million, or an average of$5.97 per option, to enter into capped call transactions (equity options) on8.4 million shares of common stock with certain major financial institutions. The purpose of the capped call transactions was to offset the common shares that may be deliverable upon conversion of shares of Convertible Preferred Stock. Refer toNote H, Long-Term Debt and Financing Arrangements,for further discussion. The$50.3 million premium paid was recorded as a reduction to equity.

The capped call transactions cover, subject to customary anti-dilution adjustments, the number of shares of common stock equal to the number of shares of common stock underlying the maximum number of shares of Convertible Preferred Stock issuable upon settlement of the Purchase Contracts. Each of the capped call transactions had a term of approximatelyfive years and initially had a lower strike price of$75.00, which corresponded to the initial conversion price of the Convertible Preferred Stock, and an upper strike price of$97.95, which was approximately60% higher than the closing price of the common stock onNovember 1, 2010. On August 5, 2015, the Company net-share settled the capped call options on its common stock and received1,692,778 shares using an average reference price of$103.97 per common share.

L.EMPLOYEE BENEFIT PLANS

EMPLOYEE STOCK OWNERSHIP PLAN (“ESOP”) Most U.S.employees may contribute from1% to25% of their eligible compensation to a tax-deferred 401(k) savings plan, subject to restrictions under tax laws. Employees generally direct the investment of their own contributions into various investment funds. An employer match benefit is provided under the plan equal to one-half of each employee’s tax-deferred contribution up to the first7% of their compensation. Participants direct the entire employer match benefit such that no participant is required to hold the Company’s common stock in their 401(k) account. The employer match benefit totaled$21.9 million,$21.1 million and$19.9 million in2016,2015 and2014, respectively. In addition to the regular employer match,$4.3 million will be allocated to the employee's accounts for forfeitures and a surplus resulting from appreciation of the Company's share value in 2016.

In addition, approximately7,700 U.S.salaried and non-union hourly employees are eligible to receive a non-contributory benefit under the Core benefit plan. Core benefit allocations range from2% to6% of eligible employee compensation based on age. Core transition benefit allocations and additional Core transition benefit allocations were made under the plan for the years 2011-2015 for certain employees who were previously eligible for Cornerstone account allocations (the predecessor to the Core benefit plan) and certain employees who were previously eligible to accrue benefits under specified defined benefit plans. No Core transition benefit allocations or additional Core transition benefit allocations were made after December 31, 2015. Allocations for benefits earned under the Core plan were$17.6 million in2016,$22.1 millionin2015 and$20.7 million in2014. Assets held in participant Core accounts are invested in target date retirement funds which have an age-based allocation of investments.

Shares of the Company's common stock held by the ESOP were purchased with the proceeds of borrowings from the Company in 1991 ("1991 internal loan"). Shareowners' equity reflects a reduction equal to the cost basis of unearned (unallocated) shares purchased with the internal borrowings. In2016,2015 and2014, the Company made additional contributions to the ESOP for$7.9 million,$7.2 million, and$9.4 million, respectively, which were used by the ESOP to make additional payments on the 1991 internal loan. These payments triggered the release of219,492,184,753 and230,032 shares of unallocated stock, respectively.

Net ESOP activity recognized is comprised of the cost basis of shares released, the cost of the aforementioned Core and 401(k) match defined contribution benefits, less the fair value of shares released and dividends on unallocated ESOP shares. The Company’s net ESOP activity resulted in income of$3.1 million in2016 and expense of$0.8 million in2015 and$0.7 million in2014. ESOP expense is affected by the market value of the Company’s common stock on the monthly dates when shares are released. The market value of shares released averaged$112.12 in2016,$101.79 per share in2015 and$88.05 per share in2014.

Unallocated shares are released from the trust based on current period debt principal and interest payments as a percentage of total future debt principal and interest payments. Dividends on both allocated and unallocated shares may be used for debt service and to credit participant accounts for dividends earned on allocated shares. Dividends paid on the shares acquired with

the1991 internal loan were used solely to pay internal loan debt service in all periods. Dividends on ESOP shares, which are charged to shareowners’ equity as declared, were$9.0 million in2016,$9.7 million in2015 and$10.6 million in2014, net of the tax benefit which is recorded within equity. Dividends on ESOP shares were utilized entirely for debt service in all years. Interest costs incurred by the ESOP on the1991 internal loan, which have no earnings impact, were$3.1 million,$3.8 million and$4.7 million for2016,2015 and2014, respectively. Both allocated and unallocated ESOP shares are treated as outstanding for purposes of computing earnings per share. As ofDecember31, 2016, the cumulative number of ESOP shares allocated to participant accounts was14,145,330, of which participants held2,386,937shares, and the number of unallocated shares was1,396,027. AtDecember31, 2016, there were21,732 released shares in the ESOP trust holding account pending allocation. The Company made cash contributions totaling$4.2 million in2016,$4.4 million in2015 and$3.4 million in2014 excluding additional contributions of$7.9 million,$7.2 million and$9.4 million in2016,2015 and2014, respectively, as discussed previously.

PENSION AND OTHER BENEFIT PLANS— The Company sponsors pension plans covering most domestic hourly and certain executive employees, and approximately14,500 foreign employees. Benefits are generally based on salary and years of service, except for U.S.collective bargaining employees whose benefits are based on a stated amount for each year of service.

The Company contributes to a number of multi-employer plans for certain collective bargaining U.S.employees. The risks of participating in these multiemployer plans are different from single-employer plans in the following aspects:

a. Assets contributed to the multiemployer plan by one employer may be used to provide benefit to employees of other participating employers.

b. If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be inherited by the remaining participating employers.

c. If the Company chooses to stop participating in some of its multiemployer plans, the Company may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

In addition, the Company also contributes to a number of multiemployer plans outside of the U.S. The foreign plans are insured, therefore, the Company’s obligation is limited to the payment of insurance premiums.

The Company has assessed and determined that none of the multiemployer plans to which it contributes are individually significant to the Company’s financial statements. The Company does not expect to incur a withdrawal liability or expect to significantly increase its contributions over the remainder of the contract period.

In addition to the multiemployer plans, various other defined contribution plans are sponsored worldwide.

The expense for such defined contribution plans, aside from the earlier discussed ESOP plans, is as follows:

The components of net periodic pension (benefit) expense are as follows:

The Company provides medical and dental benefits for certain retired employees in the United States and Canada. Approximately13,300 participants are covered under these plans. Net periodic post-retirement benefit expense was comprised of the following elements:

In the first quarter of 2016, the Company changed the method used to estimate the service and interest cost components of net periodic pension (benefit) expense. The new estimation method uses a full yield curve approach by applying specific spot rates along the yield curve used in the determination of the pension benefit obligation, to their underlying projected cash flows, and provides a more precise measurement of the service and interest cost components. Previously, the Company used a single weighted average discount rate derived from the corresponding yield curve used to measure the pension benefit obligation. The change is applied prospectively as a change in estimate that is inseparable from a change in accounting principle and reduced service and interest cost for the year ended December 31, 2016 by approximately$13.9 million.

The amounts in Accumulated other comprehensive loss expected to be recognized as components of net periodic benefit costs during 2017 total$15.1 million, representing amortization of actuarial losses.

The changes in the pension and other post-retirement benefit obligations, fair value of plan assets, as well as amounts recognized in the Consolidated Balance Sheets, are shown below.