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Item 1A. Risk Factors

2023-02-22 compared with 2022-02-17 · 111 added, 103 removed, 136 unchanged (61% of the section changed)

The risks described below and in other documents we file from time to time with the Securities and Exchange Commission could materially and adversely affect our business, results of operations, cash flow, liquidity or financial condition.

The risks described below and in other documents we file from time to time with the SEC could materially and adversely affect our business, results of operations, cash flow, liquidity or financial condition.

Although the risks are organized by headings, and each risk is discussed separately, many are interrelated.

While we believe we have identified and discussed below the key risks affecting our business, there may be additional risks and uncertainties that are not presently known or that are not currently believed to be significant that may adversely affect our business, results of operations, cash flow, liquidity or financial condition in the future.

Readers should not interpret the disclosure of any risk factor to imply that the risk has not already materialized.

ECONOMIC AND STRATEGIC RISKS

The COVID-19 pandemic has adversely impacted our business, results of operations, cash flow and financial condition, and the continuing effects of the COVID-19 pandemic remain highly unpredictable and could adversely impact our business, results of operations, cash flow, liquidity and financial condition in the future.

Our business, results of operations, cash flow and financial condition have been, and may be in the future, adversely affected by the COVID-19 pandemic, including the impacts resulting from efforts by public health and governmental authorities to contain and combat the outbreak and spread of COVID-19.

Since the onset of the pandemic, we have made changes in our business designed to support these efforts and protect the health and well-being of our employees and customers.

The changes in our business have included:

temporarily reducing store hours and closing our sales floors in our company-operated paint stores to the general public;

requiring our customers to order product online or via phone and to access their products via curbside pickup or delivery;

implementing remote, alternate and flexible work arrangements where possible;

enhancing cleaning and sanitation procedures;

implementing domestic and international travel restrictions and return to work and visitor screening protocols;

postponing or canceling the hosting or attending of large events;

and enhancing certain employee benefits, such as telehealth, paid sick leave, family leave and voluntary leave of absence policies and programs.

We continue to evaluate the changes we have made in our business, consider new and further changes, and work with public health, government and other authorities and organizations to maintain our operations and support the health and well-being of our employees, customers and their families.

The necessary and appropriate measures we have taken have resulted in additional costs, including for COVID-related leave and healthcare costs, and have adversely impacted our business and financial performance.

As the pandemic continues and evolves, we may incur additional costs and experience further adverse impacts to our business, each of which may be significant.

We also have faced, and may continue to face, operational risks in connection with remote and hybrid in-office work arrangements, including but not limited to cybersecurity risks and increased vulnerability to damage or interruption resulting from, among other causes, cyber attacks, security breaches, phishing, malware, viruses, ransomware, power outages or system failures.

The COVID-19 pandemic has severely impacted the global economy, disrupted consumer spending and global supply chains, and created significant volatility and disruption of financial markets, all of which may continue, and all of which have adversely affected, and may continue to adversely affect, our business.

We have experienced occasional, temporary disruptions and closures of some of our facilities, including more recently in connection with the Omicron variant and due to our employees or their family members testing positive for COVID-19.

We also have seen shifts in consumer behaviors and preferences, as well as impacts in the demand for some of our products.

While demand levels for our products have been returning to more normalized levels, our ability to predict and meet any future changes in the demand for our products due to the impacts of the pandemic remains uncertain.

While we continue to closely monitor the impact of the pandemic on all aspects of our business, the extent of the impact on our results of operations, cash flow, liquidity, and financial performance, as well as our ability to execute near-term and long-term business strategies and initiatives, will depend on numerous evolving factors and future developments, which are highly uncertain and which we cannot predict or control, and some of which we are not currently aware, including, but not limited to:

(a) the duration, severity and scope of the pandemic, including additional variants and waves of COVID-19 cases;

(b) rapidly-changing governmental and public health directives to contain and combat the outbreak, including with respect to COVID-19 vaccination and testing requirements, and the duration, degree, effectiveness and easing, removal or reinstitution of directives;

(d) the extent and duration of the pandemic’s adverse and/or volatile effects on economic and social activity, supply chain logistics, inflationary pressures, consumer confidence, discretionary spending and preferences, labor and healthcare costs, labor markets and unemployment rates, any of which may reduce demand for some of our products, impact our ability to predict and meet any future changes in the demand for our products, or impair the ability of those with whom we do business to satisfy their obligations to us;

(e) our ability to sell, provide and meet the demand for our services and products, including as a result of new, or the reinstitution of prior, directives;

(f) any temporary reduction in our workforce or closures of our offices and facilities and our ability to adequately staff and maintain our operations, including as a result of employees or their family members testing positive for COVID-19;

(g) the ability of our customers and suppliers to continue their operations, which could affect our ability to sell, provide and meet the demand for our services and products and result in terminations of contracts, losses of

revenue and adverse effects to our supply chain;

and (h) any impairment in value of our tangible or intangible assets which could be recorded as a result of weaker economic conditions.

If the pandemic continues to create disruptions or turmoil in the credit or financial markets or impacts our credit ratings in the future, it could adversely affect our ability to access capital on favorable terms and continue to meet our liquidity needs.

Given the inherent uncertainty surrounding COVID-19, the pandemic may continue to create challenging operating environments and may have an adverse impact on our business in the near term.

If these conditions persist or worsen for a prolonged period, the COVID-19 pandemic, including any of the above factors and others that are currently unknown, may also have a material adverse effect on our results of operations, cash flow, liquidity, or financial condition.

Adverse changes in general business and economic conditions in the United States and worldwide may adversely affect our results of operations, cash flow, liquidity or financial condition.

Our business is sensitive to global and regional business and economic conditions.

Adverse changes in such conditions in the United States and worldwide, including due to the COVID-19 pandemic, may reduce the demand for some of our products, adversely impact our ability to predict and meet any future changes in the demand for our products, and impair the ability of those with whom we do business to satisfy their obligations to us, each of which could adversely affect our results of operations, cash flow, liquidity or financial condition.

Higher inflation rates, interest rates, tax rates and unemployment rates, higher labor and healthcare costs, recessions, changing governmental policies, laws and regulations, business disruptions due to cybersecurity incidents, terrorist activity, armed conflict, war, public health crises (including the COVID-19 pandemic), impacts of climate change, fires or other natural disasters, supply chain disruptions, and other economic factors could also adversely affect demand for some of our products, our ability to predict and meet any future changes in the demand for our products, the availability, delivery or cost of raw materials, our ability to adequately staff and maintain operations at affected facilities and our results of operations, cash flow, liquidity or financial condition and that of our customers, vendors and suppliers.

Adverse changes in such conditions in the United States and worldwide may reduce the demand for some of our products, adversely impact our ability to predict and meet any future changes in the demand for our products, and impair the ability of those with whom we do business to satisfy their obligations to us, each of which could adversely affect our results of operations, cash flow, liquidity or financial condition.

Higher inflation rates, interest rates, tax rates and unemployment rates, higher labor and healthcare costs, recessions, changing governmental policies, laws and regulations, business disruptions due to cybersecurity incidents, terrorist activity, armed conflict (including the ongoing conflict between Russia and Ukraine), war, public health crises (including the COVID-19 pandemic), adverse weather conditions or natural disasters (including those that may be related to climate change or otherwise), supply chain disruptions (including those caused by industry capacity constraints, labor shortages, raw material availability, and transportation and logistics delays and constraints), and other economic factors have in the past and could in the future adversely affect demand for some of our products, our ability to predict and meet any future changes in the demand for our products, the availability, delivery or cost of raw materials, our ability to adequately staff and maintain operations at affected facilities and our results of operations, cash flow, liquidity or financial condition and that of our customers, vendors and suppliers.

With respect to inflation in particular, we expect inflationary pressure to impact consumer behavior during 2023, including in the United States and Europe housing markets and as a result of elevated mortgage rates.

Any such shift in consumer behavior could adversely affect the demand for some of our products and our results of operations, cash flow, liquidity or financial condition.

Protracted duration of economic downturns in cyclical segments of the economy may depress the demand for some of our products and adversely affect our sales, earnings, cash flow or financial condition.

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This decrease in spending likely will reduce the demand for some of our products and may adversely affect our sales, earnings, cash flow or financial condition.

Although interest rates remain low by historical standards, any increase may adversely affect the demand for new residential homes, existing home turnover and new non-residential construction.

In response to increasing inflation, the U.S.

Federal Reserve began to raise interest rates in March 2022 and since then, has signaled it expects to make additional rate increases.

We expect inflationary pressure to impact consumer behavior during 2023, particularly in the United States and Europe housing markets and as a result of elevated mortgage rates.

Rising interest rates and any such shift in consumer behavior may adversely affect the demand for new residential homes, existing home turnover and new non-residential construction.

A worsening in these segments will reduce the demand for some of our products and may adversely impact sales, earnings and cash flow.

construction and housing segments, the recent demand for new construction has caused contractors to experience a shortage of skilled workers, resulting in related project backlogs and an adverse effect on the growth rate of demand for our products.

While we expect to see higher demand for our products as project backlogs are reduced in the future, this labor shortage may adversely impact our sales, earnings, cash flow or financial condition.

construction and housing segments, we continue to see project backlogs due to contractors experiencing a shortage of skilled workers, resulting in an adverse effect on the growth rate of demand for our products.

While we would typically expect to see higher demand for our products as project backlogs are reduced in the future, rising inflation and other economic

conditions may delay a recovery in demand, which may result in the labor shortage and such other conditions adversely impacting our sales, earnings, cash flow or financial condition.

Public health crises, including pandemics and the measures taken by public health and governmental authorities to address them, could adversely impact our business, results of operations, cash flow, liquidity and financial condition in the future.

Our business, results of operations, cash flow and financial condition were adversely affected by the COVID-19 pandemic, including the impacts resulting from efforts by public health and governmental authorities to contain and combat the outbreak and spread of COVID-19.

The pandemic caused us to make significant changes throughout our business designed to protect the health and well-being of our employees and customers.

These changes resulted in additional costs and adversely impacted our business and financial performance.

We continue to evaluate the changes we have made in our business and work with public health, government and other authorities and organizations, as necessary and appropriate, to maintain our operations and support the health and well-being of our employees, customers and their families.

The pandemic also severely impacted the global economy (and continues to impact certain regional economies more than others), disrupted consumer spending and global supply chains, and created significant volatility and disruption of financial markets, all of which have adversely affected our business, including as a result of occasional, temporary disruptions and closures of some of our facilities, shifts in consumer behaviors and preferences and impacts in the demand for some of our products.

Public health crises (including the COVID-19 pandemic if current conditions were to worsen for an extended period) and the measures taken by public health and governmental authorities to address them, could adversely impact our business, results of operations, cash flow, liquidity and financial condition in the future.

The extent of the impact of any public health crisis to our business will depend on numerous factors that we may not be able to predict or control, including, but not limited to:

(a) the duration, severity and scope of the crisis, including the spread of new virus strains and variants;

(b) rapidly-changing governmental and public health directives to address it;

(d) the extent and duration of its adverse and/or volatile effects on economic and social activity, supply chain logistics, inflationary pressures, consumer confidence, discretionary spending and preferences, labor and healthcare costs, labor markets and unemployment rates;

(e) our ability to sell, provide and meet the demand for our services and products;

(f) any temporary reduction in our workforce or closures of our offices and facilities and our ability to adequately staff and maintain our operations;

(g) the ability of our customers and suppliers to continue their operations;

and (h) any impairment in value of our tangible or intangible assets which could be recorded as a result of weaker economic conditions.

FINANCIAL RISKS

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Our cost of borrowing and ability to access the capital markets are affected not only by market conditions, but also by our debt and credit ratings assigned by the major credit rating agencies.

Downgrades in these ratings, including due to uncertainties regarding COVID-19, likely would increase our cost of borrowing and could have an adverse effect on our access to the capital markets, including our access to the commercial paper market.

Downgrades in these ratings likely would increase our cost of borrowing and could have an adverse effect on our access to the capital markets, including our access to the commercial paper market.

An inability to access the capital markets could have a material adverse effect on our results of operations, cash flow, liquidity or financial condition.

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An impairment assessment involves judgment as to assumptions regarding future sales and cash flow and the impact of market conditions on those assumptions.

Future events and changing market conditions may impact our assumptions and change our estimates of future sales and cash flow, resulting in us incurring substantial impairment charges, which would adversely affect our results of operations or financial condition.

Future events and changing market conditions may impact our assumptions

and change our estimates of future sales and cash flow, resulting in us incurring substantial impairment charges, which would adversely affect our results of operations or financial condition.

We hold investments in equity and debt securities in some of our defined benefit pension plans.

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If we cannot generate the required cash, we may not be able to make the necessary payments required under our indebtedness.

At December 31, 2021, we had total debt of approximately $9.615 billion, which is an increase of $1.323 billion since December 31, 2020.

At December 31, 2022, we had total debt of approximately $10.570 billion, which is an increase of $954.7 million since December 31, 2021.

We have the ability under our existing credit facilities to incur substantial additional indebtedness in the future.

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Our historical financial results have been, and we anticipate our future financial results will be, subject to fluctuations.

Our ability to generate cash, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors beyond our control, including public health crises, such as the COVID-19 pandemic, adverse weather conditions or natural disasters, such as due to the impacts of climate change, supply chain disruptions and related impacts.

Our ability to generate cash, to a certain extent, is subject to general business, economic, financial, competitive, legislative, regulatory and other factors beyond our control, including public health crises, such as the COVID-19 pandemic, adverse weather conditions or natural disasters (including those that may be related to climate change or otherwise), supply chain disruptions, changes in raw material and energy supplies and pricing and related impacts.

We cannot guarantee our business will generate sufficient cash flow from our operations or future borrowings will be available to us in an amount sufficient to enable us to make payments of our debt, fund other liquidity needs and make planned capital expenditures.

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• require us to dedicate a substantial portion of our cash flow from operations to the payment of debt service, reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other long-term growth initiatives and general corporate purposes;

• increase our vulnerability to adverse economic or industry conditions;

• limit our ability to obtain additional financing in the future to enable us to react to changes in our business or economic or industry conditions;

• increase our vulnerability to adverse business, economic or industry conditions;

• limit our ability to obtain additional financing in the future to enable us to react to changes in our business or general business, economic or industry conditions;

• place us at a competitive disadvantage compared to businesses in our industry that have less debt.

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OPERATIONAL RISKS

Adverse weather conditions and natural disasters, including due to the impacts of climate change, may temporarily reduce the demand for some of our products, impact our ability to meet the demand for our products or cause supply chain disruptions and increased costs, and could have a negative effect on our sales, earnings or cash flow.

Our business is seasonal in nature, with the second and third quarters typically generating a higher proportion of sales and earnings than other quarters.

From time to time, adverse weather conditions and natural disasters, including due to the impacts of climate change, have had or may have an adverse effect on our sales, manufacture and distribution of paint, coatings and related products.

In the event adverse weather conditions or a natural disaster cause significant damage to any one or more of our principal manufacturing or distribution facilities, we may not be able to manufacture the products needed to meet customer demand, which could have an adverse effect on our sales of certain paint, coatings and related products.

The impact of these risks to our suppliers also have had or may have an adverse effect on our sales, manufacture and distribution of certain of our products.

During 2021, Winter Storm Uri and Hurricane Ida caused significant damage to certain of our suppliers’ facilities in Texas and Louisiana, respectively.

These natural disasters and their impacts to certain of our suppliers resulted in unprecedented industry-wide supply chain disruptions, increased raw material and other costs, and significantly hindered our ability to manufacture the products needed to fully meet customer demand.

We discuss these natural disasters and their adverse impact to our business in more detail in the “Outlook” section in Item 7.

In any of these instances, an adverse effect on sales may cause a reduction in our earnings or cash flow.

Unexpected shortages and increases in the cost of raw materials and energy may adversely affect our earnings or cash flow.

We purchase raw materials (including titanium dioxide and petrochemical feedstock sources, such as propylene and ethylene) and energy for use in the manufacturing, distribution and sale of our products.

Factors such as political instability, higher tariffs, supply chain disruptions, adverse weather conditions and natural disasters (including hurricanes and severe winter or other storms due to the impacts of climate change) or public health crises (including the COVID-19 pandemic) could disrupt the availability of raw material and fuel supplies, adversely impact our ability to meet customer demands for some of our products or adequately staff and maintain operations at affected facilities and increase our costs.

In addition, environmental and social regulations, including regulations related to climate change, may negatively impact us or our suppliers in terms of availability and cost of raw materials, as well as sources and supply of energy.

We purchase raw materials (including petrochemical-derived resins, latex and solvents, titanium dioxide and various additives) and energy for use in the manufacturing, distribution and sale of our products.

Factors such as political instability, higher tariffs, supply chain disruptions, adverse weather conditions and natural disasters (including those that may be related to climate change or otherwise), or public health crises have disrupted, and may in the future disrupt, the availability of raw material and fuel supplies, adversely impact our ability to meet customer demands for some of our products or adequately staff and maintain operations at affected facilities and increase our costs.

In addition, environmental and social regulations, including regulations related to climate change or otherwise, may negatively impact us or our suppliers in terms of availability and cost of raw materials, as well as sources and supply of energy.

Although raw materials and energy supplies (including oil and natural gas) are generally available from various sources in sufficient quantities, unexpected shortages and increases in the cost of raw materials and energy, or any deterioration in our relationships with or the financial viability of our suppliers, may have an adverse effect on our earnings or cash flow.

In the event we experience supply chain disruptions from our suppliers, we may not be able to timely secure alternate sources in order to prevent significant impacts to our business, or we may experience quality issues with raw materials and energy sourced from alternate sources.

In the event we experience supply chain disruptions from our suppliers, we may not be able to timely shift to internal production or secure alternate sources in order to prevent significant impacts to our business, or we may experience quality issues with raw materials and energy sourced from alternate sources.

During 2022, industry-wide shortages of alkyd resins impacted our ability to manufacture and meet the demand of some of our products, including certain stains, aerosols and industrial products.

If these shortages continue or worsen, and we are unable to offset the shortages through internal production or alternate sources, we may experience adverse impacts to our business, including adverse effects to our earnings and cash flow.

If the cost of raw materials and energy increases, we may not be able to offset higher costs in a timely manner by sufficiently decreasing our operating costs or raising the prices of our products.

In recent years, some raw material and energy prices have increased, particularly titanium dioxide and petrochemical feedstock sources, such as propylene and ethylene, as well as metal and plastic packaging.

The cost of raw materials and energy could continue to experience periods of volatility in the future and may adversely affect our earnings and cash flow.

While we have started to see a decline in some raw material prices in recent months, the cost of raw materials and energy could continue to experience periods of volatility in the future and may adversely affect our earnings and cash flow.

Adverse weather conditions and natural disasters, including those that may be related to climate change or otherwise, may temporarily reduce the demand for some of our products, impact our ability to meet the demand for our products or cause supply chain disruptions and increased costs, and could have a negative effect on our sales, earnings or cash flow.

Our business is seasonal in nature, with the second and third quarters typically generating a higher proportion of sales and earnings than other quarters.

From time to time, adverse weather conditions and natural disasters, including those that may be related to climate change or otherwise, have had or may have an adverse effect on our sales, manufacture and distribution of paint, coatings and related products.

Also from time to time, the impact of these risks to our suppliers have had or may have an adverse effect on our sales, manufacture and distribution of certain of our products.

Adverse weather conditions or natural disasters and their impacts have resulted, and may in the future result, in industry-wide supply chain disruptions, increased raw material and other costs, and our hindered ability to manufacture the products needed to fully meet customer demand.

In any of these instances, an adverse effect on sales may cause a reduction in our earnings or cash flow.

Although we have an extensive customer base, the loss of any of our largest customers could adversely affect our sales, earnings or cash flow.

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However, we have some customers that, individually, purchase a large amount of products from us.

Although our broad distribution channels help to minimize the impact of the loss of any one customer, the loss of any of these large customers could have an adverse effect on our sales, earnings or cash flow.

Although our broad distribution channels help to minimize the impact of the loss of any one customer or the loss of a significant amount of sales to any one customer, the loss of any of these large customers, or the loss of significant amount of sales to any of these large customers, could have an adverse effect on our sales, earnings or cash flow.

Increased competition or failure to keep pace with developments in key competitive areas of our business may reduce our sales, earnings or cash flow performance.

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Other competitors are smaller and may be able to offer more specialized products.

Technology, product quality, product innovation, breadth of product line, technical expertise, distribution, service and price are key competitive factors for our business.

Technology, product quality, product innovation and development (including relating to increased customer interest in the sustainability attributes of products and our related key strategies and initiatives for expanding our product offerings), breadth of product line, technical expertise, distribution, service and price are key competitive factors for our business.

Competition in any of these areas, or failure to keep pace with developments in any of these areas, may reduce our sales and adversely affect our earnings or cash flow by resulting in decreased sales volumes, reduced prices and increased costs of manufacturing, distributing and selling our products.

Our results of operations, cash flow or financial condition may be negatively impacted if we do not successfully integrate future acquisitions into our existing operations and if the performance of the businesses we acquire do not meet our expectations.

We have historically made strategic acquisitions of businesses in the paint and coatings industry and likely will acquire additional businesses in the future as part of our long-term growth strategy.

The success of future acquisitions depends in large part on our ability to integrate the operations and personnel of the acquired companies and manage challenges that may arise as a result of the acquisitions, particularly when the acquired businesses operate in new or foreign markets.

In the event we do not successfully integrate such future acquisitions into our existing operations so as to realize the expected return on our investment, our results of operations, cash flow or financial condition could be adversely affected.

Our results of operations, cash flow or financial condition may be negatively impacted if we do not successfully integrate past and future acquisitions into our existing operations and if the performance of the businesses we acquire do not meet our expectations.

We have historically made strategic acquisitions of businesses in the paint and coatings industry and likely will acquire additional businesses in the future as part of our long-term growth strategy and initiatives.

During 2022, we invested $1.003 billion to complete five acquisitions.

The success of past and future acquisitions depends in large part on our ability to integrate the operations and personnel of the acquired companies and manage challenges that may arise as a result of the acquisitions, particularly when the acquired businesses operate in new or foreign markets.

In the event we do not successfully integrate such past and future acquisitions into our existing operations so as to realize the expected return on our investment, our results of operations, cash flow or financial condition could be adversely affected.

We may not successfully execute or achieve the expected benefits of our current business restructuring plan or other productivity initiatives we may take in the future.

In the fourth quarter of 2022, we approved a business restructuring plan to simplify our operating model and portfolio of brands within the Consumer Brands Group and to reduce costs in all regions in the Consumer Brands Group, Performance Coatings Group and the Administrative segment.

Key focus areas within the Consumer Brands Group include the China architectural business, aerosol portfolio and optimization of the overall retail portfolio.

The majority of these restructuring actions are expected to be completed by the end of 2023.

In the event we do not successfully execute on our restructuring plan or other productivity initiatives and are unable to realize expected benefits, our results of operations, cash flow or financial condition could be adversely affected.

We discuss the restructuring plan in more detail in Note 4 to the Consolidated Financial Statements in Item 8.

Risks and uncertainties associated with our expansion into and our operations in Asia, Europe, South America and other foreign markets could adversely affect our results of operations, cash flow, liquidity or financial condition.

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Sales outside of the United States make up a significant part of our current business and future strategic plans.

Our results of operations, cash flow, liquidity or financial condition could be adversely affected by a variety of domestic and international factors, including general economic conditions, political instability, inflation rates, recessions, tariffs, foreign currency exchange rates, foreign currency exchange controls, interest rates, foreign investment and repatriation restrictions, legal and regulatory constraints, civil unrest, difficulties in staffing and managing foreign operations and other external economic and political factors.

Our results of operations, cash flow, liquidity or financial condition could be adversely affected by a variety of domestic and international factors, including general economic conditions, political instability, inflation rates, recessions, sanctions, tariffs, foreign currency exchange rates, foreign currency exchange controls, interest rates, foreign investment and repatriation restrictions, legal and regulatory constraints, civil unrest, armed conflict (including the ongoing conflict between Russia and Ukraine), war, difficulties in staffing and managing foreign operations and other economic and political factors.

In addition, public health crises (including the COVID-19 pandemic) in foreign jurisdictions may temporarily reduce the demand for some of our products and adversely affect the availability and cost of raw materials.

During 2022, COVID-related lockdowns in China caused significant weakness in the demand for some of our products and adversely affected our sales in the region.

Our inability to successfully manage the risks and uncertainties relating to any of these factors could adversely affect our results of operations, cash flow, liquidity or financial condition.

In many foreign countries, it is not uncommon to engage in certain business practices we are prohibited from engaging in because of regulations applicable to us, such as the Foreign Corrupt Practices Act and the UK Bribery Act.

In many foreign countries, it is not uncommon for others to engage in certain business practices we are prohibited from engaging in because of regulations applicable to us, such as the Foreign Corrupt Practices Act and the UK Bribery Act.

Recent years have seen a substantial increase in anti-bribery law enforcement activity, with more frequent and aggressive investigations and enforcement proceedings by both U.S.

regulators, and an increase in criminal and civil proceedings brought against companies and individuals.

Although we have internal control policies and procedures designed to ensure compliance with these regulations, there can be no assurance our policies and procedures will prevent a violation of these regulations.

Although we have internal control policies and procedures designed to promote compliance with these regulations, there can be no assurance our policies and procedures will prevent a violation of these regulations.

Any violation could cause an adverse effect on our results of operations, cash flow or financial condition.

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Due to the international scope of our operations, changes in government policies on foreign trade and investment may affect the demand for our products and services, impact the competitive position of our products or prevent us from being able to sell products in certain countries.

Our business benefits from free trade agreements, which may include the United States-Mexico-Canada Agreement, and efforts to withdraw from, or substantially modify such agreements, in addition to the implementation of more restrictive trade policies, such as more detailed inspections, higher tariffs, import or export licensing requirements, exchange controls or new barriers to entry, could have a material adverse effect on our results of operations, financial condition or cash flow and that of our customers, vendors and suppliers.

Additionally, the results of the United Kingdom’s referendum on European Union membership, which resulted in the United Kingdom’s exit from the European Union on January 31, 2020 (“Brexit”), caused significant volatility in global stock markets, currency exchange rate fluctuations and global economic uncertainty.

The transition period post-Brexit expired on December 31, 2020, and the United Kingdom and European Union entered into a free trade agreement that now governs the United Kingdom’s relationship with the European Union.

While the United Kingdom and European Union generally have continued to trade with each other without the imposition of tariffs for imports and exports, trades have been subject to new customs

requirements that require additional documentation and data and new controls on the movement and reporting of goods (including chemicals).

Although we have not experienced any material disruption in our business as a result of Brexit to date, we do not know the extent to which Brexit and the free trade agreement will ultimately impact the business and regulatory environment in the United Kingdom, the rest of the European Union or other countries, although it is possible there will be tighter controls and administrative requirements for imports and exports between the United Kingdom and the European Union or other countries, as well as increased regulatory complexities, as the transition continues.

Any of these factors could adversely impact customer demand, our relationships with customers and suppliers and our results of operations.

Our business benefits from free trade agreements, which may include the United States-Mexico-Canada Agreement and EU-UK Trade and Cooperation Agreement, and efforts to withdraw from, or substantially modify such agreements, in addition to the implementation of more restrictive trade policies, such as more detailed inspections, higher

tariffs, import or export licensing requirements, exchange controls or new barriers to entry, could have a material adverse effect on our results of operations, financial condition or cash flow and that of our customers, vendors and suppliers.

Cybersecurity incidents and other disruptions to our information technology systems could interfere with our operations, result in the compromise or loss of critical and confidential information and severely harm our business.

We rely on information technology systems to conduct our business, including recording and processing transactions, manufacturing and selling our products, researching and developing new products, maintaining and growing our competitive position, and supporting and communicating with our employees, customers, suppliers and other vendors.

These information technology systems are important to many business-critical processes including, but not limited to, production planning, manufacturing, finance, company operations, sales and customer service.

Some of these systems are maintained or operated by third-party providers.

Despite our efforts to prevent disruptions to these information technology systems, these systems may be affected by damage or interruption resulting from, among other causes, cyber attacks, security breaches, phishing, malware, viruses, ransomware, power outages or system failures.

These risks could be magnified due to the increased reliance on information technology systems to conduct our business, including those used in furtherance of remote and hybrid in-office work environments.

Disruptions to these systems may have a material adverse effect on our business, results of operations and financial condition.

Some of these systems are maintained or operated by third-party providers, including cloud-based systems.

Cyber attacks and cybersecurity threats are increasingly sophisticated, constantly evolving and originate from many sources globally, and often cannot be recognized until launched against a target.

Despite our efforts to prevent these threats and disruptions to our information technology systems, these systems may be affected by damage or interruption resulting from, among other causes, cyber attacks, security breaches, power outages, system failures or malware that take the form of phishing and other computer viruses, ransomware, worms, Trojan horses, spyware, adware, rogue software and other programs that act against the system user.

These risks are expected to continue to be magnified due to the increased reliance on information technology systems to conduct our business, including those used in furtherance of supporting remote and hybrid in-office work environments and managing our global operations.

Disruptions to these systems may impair our ability to conduct business and have a material adverse effect on our business, results of operations and financial condition.

As part of our business, we collect and handle sensitive and confidential information about our business, customers, employees and suppliers.

Despite the security measures we have in place, our facilities and systems, and those third parties with which we do business, may be vulnerable to cyber attacks, security breaches, malware, viruses, ransomware, power outages, system failures, acts of vandalism or misconduct, human or technical errors or other similar events or disruptions.

Despite the security measures we have in place, our facilities and systems, and those third parties with which we do business, may be vulnerable to cyber attacks, security breaches, malware, viruses, ransomware, power outages, system failures, acts of vandalism, human or technical errors or other similar events or disruptions.

Our information, facilities and systems could also be impacted by the intentional or unintentional improper conduct of our employees, vendors or others who have access to and may misappropriate sensitive and confidential information.

Any such event involving the misappropriation, loss or other unauthorized disclosure of information, whether impacting us or third parties with which we do business, could result in losses, damage our reputation or relationships with customers and suppliers, expose us to the risks of litigation, regulatory action and liability, disrupt our operations and have a material adverse effect on our business, results of operations and financial condition.

We continue to mitigate these risks in a number of ways, including through additional investment, engagement of third-party experts and consultants, improving the security of our facilities and systems, providing annual training for all employees (with more enhanced or frequent training based on role), assessing the continued appropriateness of relevant insurance coverage and strengthening our controls to monitor and mitigate these threats.

The domestic and international regulatory environment related to information security, collection and privacy is increasingly rigorous and complex, with new and rapidly changing requirements applicable to our business.

Compliance with these requirements, including the European Union’s General Data Protection Regulation, the California Consumer Privacy Act and other international and domestic regulations, could result in additional costs and changes to our business practices.

Our ability to attract, retain, develop and progress a qualified workforce could adversely impact our business and impair our ability to meet our strategic objectives and the needs of our customers.

Our continued success depends in part on our ability to identify, attract and onboard qualified candidates with the requisite education, background, skills and experience and our ability to retain, develop, progress and engage qualified employees across our business, including our stores, fleet, manufacturing, corporate and other operations and functions.

Competition for talent is intense, and we are facing increased wage rates and labor shortages due to a tightened labor market and other macroeconomic conditions that have been exacerbated by the COVID-19 pandemic.

To the extent we are unable to remain competitive with our compensation and benefits, talent management strategy, inclusive workplace culture and related initiatives, programs and practices, or if qualified candidates or employees become more difficult to attract or retain under reasonable terms, we may experience higher labor-related costs and may be unable to attract, retain, develop and progress a qualified workforce, which could adversely affect our business and future success and impair our ability to meet our strategic objectives and the needs of our customers.

We continue to mitigate these risks in a number of ways, including through additional investment, engagement of third-party experts and consultants, improving the security of our facilities and systems (including through upgrades to our security and information technology systems), providing annual training for all employees (with more enhanced or frequent training based on role or responsibility), assessing the continued appropriateness of relevant insurance coverage and strengthening our controls and procedures to monitor, mitigate and respond appropriately to these threats.

Compliance with these requirements, including the European Union’s General Data Protection Regulation, the California Consumer Privacy Act, the California Privacy Rights Act and other international and domestic regulations, are costly and will result in additional costs in our efforts to continue to comply.

Our ability to attract, retain, develop and progress a qualified global workforce could adversely impact our business and impair our ability to meet our strategic objectives and the needs of our customers.

Competition for talent is intense, and we are facing increased wage rates and labor shortages due to a tightened labor market and other macroeconomic conditions.

To the extent we are unable to remain competitive with our total rewards programs (which includes compensation and benefits programs and practices), talent management strategy, inclusive workplace culture and related inclusion, diversity and equity and employee engagement strategies, initiatives, programs and practices, or if qualified candidates or employees become more difficult to attract or retain under reasonable terms, we may experience higher labor-related costs and may be unable to attract, retain, develop and progress a qualified global workforce, which could adversely affect our business and future success and impair our ability to meet our strategic objectives and the needs of our customers.

Our business, reputation, image and brands could be damaged by negative publicity.

Our reputation, image and recognized brands significantly contribute to our business and success.

Our reputation and image is critical to retaining and growing our customer base and our relationships with other stakeholders.

Our business and brands depend on our ability to maintain a positive perception of us and our business, including through our seven guiding values of integrity, people, service, quality, performance, innovation, and growth.

Significant negative claims or publicity involving us, our business or our products, services, culture, values, strategies and practices, undermine confidence, and could materially damage our reputation and image, even if such claims are inaccurate.

Damage to our reputation and image could adversely impact our ability to attract new and retain existing customers, employees and other business and stakeholder relationships.

Additionally, negative or inaccurate postings, articles, or comments on social media and the internet about us could generate negative publicity that could damage our business, reputation, image and brands.

Damage to our business, reputation or image, or negative publicity, could adversely affect the demand for some of our products and adversely affect our sales, earnings, cash flow or financial condition.

Inability to protect or enforce our material trademarks and other intellectual property rights could have an adverse effect on our business.

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Despite our efforts to protect such intellectual property and other proprietary information from unauthorized use or disclosure, third parties may attempt to disclose, obtain or use our trademarks or such other intellectual property and information without our authorization.

Although we rely on the patent, trademark, trade secret and copyright laws of the United States and other countries to protect our intellectual property rights, the laws of some countries may not protect such rights to the same extent as

the laws of the United States.

Unauthorized use of our intellectual property by third parties, the failure of foreign countries to have laws to protect our intellectual property rights, or an inability to effectively enforce such rights in foreign countries could have an adverse effect on our business.

LEGAL AND REGULATORY RISKS

We are subject to a wide variety of complex domestic and foreign laws, rules and regulations, for which compliance could adversely affect our results of operations, cash flow or financial condition.

We are subject to a wide variety of complex domestic and foreign laws, rules and regulations, compliance with which could adversely affect our results of operations, cash flow or financial condition.

We are subject to a wide variety of complex domestic and foreign laws, rules and regulations, and legal compliance risks, including securities laws, tax laws, employment and pension-related laws, competition laws, U.S.

and foreign export and trading laws, data privacy and security laws, and laws governing improper business practices.

and foreign export and trading laws, data privacy and cybersecurity laws, and laws governing improper business practices.

We are affected by new laws and regulations, and changes to existing laws and regulations, including interpretations by courts and regulators.

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We are subject to tax laws and regulations in the United States and multiple foreign jurisdictions.

We are affected by changes in tax laws and regulations, as well as changes in related interpretations and other tax guidance.

In the ordinary course of our business, we are subject to examinations and investigations by various tax authorities and other regulators.

We are affected by changes in tax laws and regulations, as well as changes in related interpretations and other tax guidance, such as the Inflation Reduction Act enacted in August 2022.

This law provides for, among other things, a corporate alternative minimum tax on adjusted financial statement income and an excise tax on corporate stock repurchases.

We are continuing to evaluate the impact this new law may have on our results of operations, cash flow or financial condition.

In addition, in the ordinary course of our business, we are subject to examinations and investigations by various tax authorities and other regulators.

In addition to existing examinations and investigations, there could be additional examinations and investigations in the future, and existing examinations and investigations could be expanded.

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In the event the loss contingency is ultimately determined to be significantly higher than currently accrued, the recording of the additional liability may result in a material adverse effect on our results of operations or financial condition for the annual or interim period during which such additional liability is accrued.

In those cases where no accrual is recorded because it is not probable a liability has been incurred and cannot be reasonably estimated, any potential liability ultimately determined to be attributable to us may result in a material adverse effect on our results of operations, cash flow or financial condition for the annual or interim period during which such liability is accrued or paid.

results of operations, cash flow or financial condition for the annual or interim period during which such liability is accrued or paid.

For income tax risks, we recognize tax benefits based on our assessment that a tax benefit has a greater than 50% likelihood of being sustained upon ultimate settlement with the applicable taxing authority that has full knowledge of all relevant facts.

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We are required to comply with, and may become subject to additional, numerous complex and increasingly stringent domestic and foreign health, safety and environmental (including related to climate change) laws, regulations and requirements, the cost of which is likely to increase and may adversely affect our results of operations, cash flow or financial condition.

Our operations are subject to various domestic and foreign health, safety and environmental laws, regulations and requirements, including those related to chemicals, climate change and the COVID-19 pandemic.

These laws, regulations and requirements not only govern our current operations and products, but also impose potential liability on us for our past operations.

Increased global focus on climate change may result in the imposition of new or additional regulations or requirements applicable to, and increased financial risks for, our business and industry.

A number of government authorities and agencies have introduced or are contemplating regulatory changes to address climate change, including the regulation of greenhouse gas emissions.

Our operations are subject to various domestic and foreign health, safety and environmental laws, regulations and requirements, including those related to climate change, chemicals registration and management and the COVID-19 pandemic.

These laws, regulations and requirements not only govern our current operations and products, but also may impose potential liability on us for our past operations.

Increased global focus on climate change may result in the imposition of new or additional regulations or requirements applicable to, and increased financial and transition risks for, our business and industry.

A number of government authorities and agencies have introduced, or are contemplating, regulatory changes to address climate change, including the regulation and disclosure of greenhouse gas emissions.

The outcome of new legislation or regulation in the U.S.

and other jurisdictions in which we operate may result in new or additional requirements, including to fund energy efficiency activities or renewable energy use, and fees or restrictions

on certain activities or materials.

and other jurisdictions in which we operate may result in fees or restrictions on certain activities or materials and new or additional requirements, including to fund energy efficiency activities or renewable energy use and to disclose information regarding our greenhouse gas emissions performance, renewable energy usage and efficiency, waste generation and recycling rates, climate-related risks, opportunities and oversight and related strategies and initiatives across our global operations.

Compliance with these climate change initiatives may also result in additional costs to us, including, among other things, increased production costs, additional taxes, additional investments in renewable energy use and other initiatives, reduced emission allowances or additional restrictions on production or operations.

We may not be able to timely recover the cost of compliance with such new or more stringent laws and regulations, which could adversely affect our results of operations, cash flow or financial condition.

We expect health, safety and additional environmental laws, regulations and requirements to be increasingly stringent upon our industry and us in the future.

Despite our efforts to timely comply with climate change initiatives, implement measures to improve our operations and execute on our related strategies and initiatives, any actual or perceived failure to comply with new or additional requirements or meet stakeholder expectations with respect to the impacts of our operations on the environment and related strategies and initiatives may result in adverse publicity, increased litigation risk, and adversely affect our business and reputation, which could adversely impact our results of operations, cash flow and financial condition.

We expect health, safety and additional environmental laws, regulations and requirements to be increasingly stringent upon our industry in the future.

Our costs to comply with these laws, regulations and requirements may increase as they become more stringent in the future, and these increased costs may adversely affect our results of operations, cash flow or financial condition.

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These estimated costs are based on currently available facts regarding each site.

We continuously assess our potential liability for investigation and remediation activities and adjust our environmental-related accruals as information becomes available, including as a result of sites progressing through investigation and remediation-related activities, upon which more accurate costs can be reasonably estimated.

Due to the uncertainties surrounding environmental investigation and remediation activities, our liability may result in costs that are significantly higher than currently accrued and may have an adverse effect on our earnings.

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In the event a loss contingency is ultimately determined to be significantly higher than currently accrued, the recording of the additional liability may result in a material impact on our results of operations, liquidity or financial condition for the annual or interim period during which such additional liability is accrued.

In those cases where no accrual is recorded because it is not probable that a liability has been incurred and the amount of any such loss cannot be reasonably estimated, any potential liability ultimately determined to be attributable to us may result in a material impact on our results of operations, liquidity or financial condition for the annual or interim period during which such liability is accrued.

In those cases where no accrual is recorded because it is not probable that a liability has been incurred or the amount of any such loss cannot be reasonably estimated, any potential liability ultimately determined to be attributable to us may result in a material impact on our results of operations, liquidity or financial condition for the annual or interim period during which such liability is accrued.

Our past operations included the manufacture and sale of lead pigments and lead-based paints.

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We discuss the risks and uncertainties related to litigation, including the lead pigment and lead-based paint litigation, in more detail in Note 12 to the Consolidated Financial Statements in Item 8.

UNRESOLVED STAFF COMMENTS

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What changed 10-K

Item 1A. Risk Factors