What changed in this filing

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Item 1A. Risk Factors

2025-03-03 compared with 2024-02-28 · 90 added, 93 removed, 303 unchanged (38% of the section changed)

Risk Factors.

Investing in our common stock involves a high degree of risk.

Investing in the Company's common stock involves a high degree of risk.

You should carefully review the following discussion of the risks that may affect our business, results of operations and financial condition, as well as our consolidated financial statements and notes thereto and the other information appearing in this report, for important information regarding risks that affect us.

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Additional risks that we are not aware of or do not believe are material at the time of this filing, may also become important factors that adversely affect our business.

Global and Economic Risks

Global economic conditions, including inflation and supply chain disruptions, could continue to adversely affect our operations.

General global economic downturns and macroeconomic trends, including heightened inflation, capital market volatility, interest rate and currency rate fluctuations, and economic slowdown or recession, may result in unfavorable conditions that could negatively affect demand for our products due to customers decreasing their inventories in the near-term or long-term, reduction in sales due to raw material shortages, reduction in research and development efforts, our inability to sufficiently hedge our currency and raw material costs, insolvency of suppliers and customers and exacerbate some of the other risks that affect our business, financial condition and results of operations.

Both domestic and international markets experienced significant inflationary pressures in fiscal year 2023 and inflation rates in the U.S., as well as in other countries in which we operate, are currently expected to continue at elevated levels for the near-term.

We may be adversely affected during periods of high inflation, mainly from raw material and labor costs.

Inflation could increase our cost of financing, raw materials and labor and could cause our financial results and profitability to decline.

In addition, the Federal Reserve in the U.S.

and other central banks in various countries have raised, and may again raise, interest rates in response to concerns about inflation, which, coupled with reduced government spending and volatility in financial markets, may have the effect of further increasing economic uncertainty and heightening these risks.

Interest rate increases or other government actions taken to reduce inflation could also result in recessionary pressures in many parts of the world.

The impact of public health crises, could have a significant effect on supply and/or demand for our products and services and have a negative impact on our business, financial condition and results of operations.

Global pandemics, such as COVID-19, or other public health crises may adversely affect, among other things, our supply chain and associated costs;

demand for our products and services;

our operations and sales, marketing and distribution efforts;

our research and development capabilities;

our engineering, design, and manufacturing processes;

and other important business activities.

These events could result in significant losses, adversely affect our competitive position, increase our costs, require substantial expenditures and recovery time, make it difficult or impossible to provide services or deliver products to our customers or to receive components from our suppliers, create delays and inefficiencies in our supply chain and result in the need to impose employee travel restrictions.

Our operations and those of our suppliers and distributors could be adversely affected if manufacturing, logistics, or other operations in key locations, are disrupted for any reason, such as those described above or other economic, business, labor, environmental, public health, regulatory or political reasons.

In addition, even if our operations are unaffected or recover quickly, if our customers cannot timely resume their own operations, they may reduce or cancel their orders, or these events could otherwise result in a decrease in demand for our products.

Changes in government and industry regulatory standards pertaining to health and safety could have a material adverse effect on our business, financial condition or results of operations.

Public health crises, such as the COVID-19 pandemic, and the measures taken in response to such events have in the past negatively impacted, and may again in the future negatively impact, our operations and workforce, as well as those of our partners, customers and suppliers.

Additionally, concerns over the economic impact of such events have, from time to time, caused increased volatility in financial and other capital markets.

The negative impacts of any such events on business operations and demand for our offerings will depend on future developments and actions taken in response to such events, which may be outside our control, highly uncertain, and cannot be predicted at this time.

Risks Related to Our Business and Our Industry

Business cycles and uncertainty regarding the housing market, economic conditions, political climate and other factors beyond our control could adversely affect demand for our products and services, and our costs of doing business, any of which may harm our business, financial condition and results of operations.

The primary drivers of our North America segment are residential remodeling, replacement activities and housing starts.

The primary drivers of our North America segment are U.S.

housing starts, residential remodeling, and replacement activities.

Accordingly, our business, financial condition, and results of operations depend significantly on the stability of the housing and residential construction and home improvement markets, which are affected by conditions and other factors that are beyond our control.

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• political or social instability, such as war, or acts of terrorism or other international incidents.

These factors could adversely affect demand for our products and services, and our costs of doing business, and our business, financial condition and results of operations may be harmed.

These factors could adversely affect demand for our products and services, and our costs of doing business, our business, financial condition, and results of operations may be harmed.

Further, many of our customers in the construction industry are small and medium-sized businesses that are more likely to be adversely affected by economic downturns than larger, more established businesses.

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Any of these events could reduce our profitability.

We face significant competition in the markets we serve and we may not be able to compete successfully.

In order to compete effectively we must continue to develop enhancements to our existing products, new products and services on a timely basis that meet changing consumer preferences and successfully develop, manufacture and market these new products, product enhancements and services.

There can be no assurance that we will be successful in developing and marketing new products, product enhancements, additional technologies and services.

Many of our competitors are dedicating increasing resources to competing with us, especially as our products and services become more affected by technological advances and software innovations.

Our inability to effectively compete could reduce the sales of our products and services, which could have a material adverse impact on our business, financial condition and results of operations.

Additionally, our ability to compete effectively in North America depends, to a significant extent, on the specification or approval of our products by architects, engineers, building inspectors, building code officials and customers and their acceptance of our premium brand.

If a significant portion of those communities were to decide that the design, materials,

manufacturing, testing or quality control of our products is inferior to that of any of our competitors or the cost differences between our products and any competitors are not justifiable, our sales and profits could be materially reduced.

Increases in prices of raw materials and energy could negatively affect our sales and profits.

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Increases in prices of raw materials and energy, our inability or unwillingness to pass increased costs through to our customers could materially and adversely affect our financial condition or results of operations.

We face significant competition in the markets we serve and we may not be able to compete successfully.

There can be no assurance that we will be successful in developing and marketing new products, product enhancements, additional technologies and services.

Many of our competitors are dedicating increasing resources to competing with us, especially as our products and services become more affected by technological advances and software innovations.

Our inability to effectively compete could reduce the sales of our products and services, which could have a material adverse impact on our business, financial condition, and results of operations.

If a significant portion of those communities were to decide that the design, materials, manufacturing, testing or quality control of our products is inferior to that of any of our competitors or the cost differences between our products and any competitors are not justifiable, our sales and profits could be materially reduced.

We depend on third parties for transportation services and the lack of availability of transportation and/or increases in cost could materially and adversely affect our business and operations.

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We depend on information technology networks and systems, including the Internet, to process, transmit and store electronic information.

We depend on our information technology infrastructure for electronic communications among our locations

around the world and between our personnel and our subsidiaries, customers and suppliers.

We depend on our information technology infrastructure for electronic communications among our locations around the world and between our personnel and our subsidiaries, customers and suppliers.

We collect and retain large volumes of internal and customer, vendor and supplier data, including some personally identifiable information, for business purposes.

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Even if we believe that such intellectual property claims are without merit, defending such claims can be costly, time consuming and require significant resources.

Claims of intellectual property

infringement also might require us to redesign affected products, pay costly damage awards, or face injunctions prohibiting us from manufacturing, importing, marketing or selling certain of our products.

Claims of intellectual property infringement also might require us to redesign affected products, pay costly damage awards, or face injunctions prohibiting us from manufacturing, importing, marketing or selling certain of our products.

Even if we have agreements to indemnify us, indemnifying parties may be unable or unwilling to do so.

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Any failure to comply with GDPR, the CCPA, the CPRA, or other state or regulatory standards, could subject the Company to legal and reputational risks.

Misuse of or failure to secure personal information could also result in violation of data privacy laws and regulations, proceedings against us by governmental entities or others, damage to our reputation and credibility, and could have a material adverse effect on our business and results of operations.

Misuse of or failure to secure personal information could also result in violation of data privacy laws and

regulations, proceedings against us by governmental entities or others, damage to our reputation and credibility, and could have a material adverse effect on our business and results of operations.

We publicly post our privacy policies and practices concerning our processing, use, and disclosure of personally identifiable information on our websites.

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the diversion of management attention from our daily operations to the implementation project;

due to unanticipated changes in business processes;

reworks due to unanticipated changes in business processes;

difficulty in training employees in the operation of new systems and maintaining internal control while converting from legacy systems to new systems;

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was $591.5 million, representing approximately 26.5% of consolidated sales.

In addition, a significant amount of our manufacturing and production operations are located outside the U.S.

In addition, a portion of our manufacturing and production operations are located outside the U.S.

As a result, our business is subject to risks and uncertainties associated with international operations, including:

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subsidiaries, make cross-border investments, or engage in other intercompany transactions;

• future regulatory guidance and interpretations of the tax legislation commonly known as the U.S.

Tax Cuts and Jobs Act of 2017 (the "Tax Act"), as well as assumptions that the Company makes related to the Tax Act;

• potential future or existing regulatory guidance and interpretations of the tax legislation, as well as any associated assumptions that the Company makes related to the change;

• changes to tariffs or other import or export restrictions, penalties or sanctions, including modification or elimination of international agreements covering trade or investment;

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If we were found to be liable for violations of anti-corruption laws, we could be liable for criminal or civil penalties or other sanctions, which could have a material adverse impact on our business, financial condition and results of operations.

If significant tariffs or other restrictions are placed on our imports or any related counter-measures are taken by other countries, our costs of doing business, revenue and results of operations may be negatively impacted.

If significant tariffs or other restrictions are placed on Chinese or other imports or any related countermeasures are taken by China or other countries, our costs of doing business, revenue and results of operations may be materially harmed.

If duties are imposed on our imports, we may be required to raise our prices, which may result in the loss of customers and harm our operating performance.

Alternatively, we may seek to shift production outside of China, resulting in diversion of management's attention, significant costs and disruption to our operations as we would need to pursue the time-consuming processes of establishing a new supply chain, identifying substitute components and establishing new manufacturing locations.

Failure to comply with export, import, and sanctions laws and regulations could materially and adversely affect us.

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Department of Treasury, Office of Foreign Assets (“OFAC”).

Foreign governments where we have operations also implement

export, import and sanction laws and regulations, some of which may be inconsistent or conflict with ITAR and EAR.

Foreign governments where we have operations also implement export, import and sanction laws and regulations, some of which may be inconsistent or conflict with ITAR and EAR.

Where we face such inconsistencies, it may be impossible for us to comply with all applicable regulations.

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In such event, we may need to seek alternative sources of supply for products for our customers, which may increase the costs to manufacture and deliver our products.

If duties are imposed on our imports, we may be required to raise our prices, which may result in the loss of customers and harm our operating performance.

We are subject to U.S.

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For example, numerous countries have agreed to a statement in support of the Organization for Economic Co-operation and Development model (OECD) rules that propose a partial global profit reallocation and a global minimum tax rate of 15.0%.

Certain countries, including European Union member states, have enacted or are expected to enact legislation incorporating the global minimum tax with effect as early as 2024 and widespread implementation of a global minimum tax is expected by 2025.

As the legislation becomes effective in countries in which we do business, our taxes could increase and negatively impact our provision for income taxes.

Numerous countries, including European Union member states, have already enacted legislation incorporating the global minimum tax with effect and widespread implementation of a global minimum tax is expected by 2025.

While we are subject to Pillar II, the enacted legislative changes to date did not have a material impact to our overall operations.

As the legislation becomes effective in other countries in which we do business, our taxes could increase and negatively impact our provision for income taxes.

As the legislation continues to become effective in countries in which we do business, our taxes could increase and negatively impact our provision for income taxes.

This increasingly complex global tax environment could increase tax uncertainty, which could in turn result in higher compliance costs and adverse effects on our financial performance.

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We are a global company with significant revenues and earnings generated internationally, which exposes us to the impact of foreign currency fluctuations, as well as political and economic risks.

A significant portion of our net sales and earnings are generated internationally.

Sales outside of the U.S.

accounted for 26.4% of our consolidated net sales in 2023 and we anticipate that sales from international operations will continue to represent a significant portion of our net sales in the future.

accounted for 26.5% of our consolidated net sales and a portion of our earnings in 2024.

We anticipate that sales and earnings from international operations will continue to represent a portion of our net sales and earnings in the future.

In addition, many of our manufacturing facilities and suppliers are located outside of the U.S.

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In addition to risks associated with general political conditions, our international operations are subject to fluctuations in foreign currency exchange rates The functional currency for most of our foreign operations is the applicable local currency.

As a result, fluctuations in foreign currency exchange rates affect the results of our operations and the value of our foreign assets and liabilities, which in turn may adversely affect results of operations and cash flows and the comparability of period-to-period results of operations.

As a result, fluctuations in foreign currency exchange rates affect the results of our operations and the value of our foreign assets and

liabilities, which in turn may adversely affect results of operations and cash flows and the comparability of period-to-period results of operations.

Foreign governmental policies and actions regarding currency valuation could result in actions by the United States and other countries to offset the effects of such fluctuations.

Given the unpredictability and volatility of foreign currency exchange rates, ongoing or unusual volatility may adversely impact our business and financial conditions.

Global and Economic Risks

Changes in the global economic environment, inflation, elevated interest rates, recessions or prolonged periods of slow economic growth, and global instability and actual and threatened geopolitical conflict, could continue to adversely affect our operations.

Overall economic conditions in the U.S.

and globally, including in Europe, including adverse factors such as heightened inflation, capital market volatility, rising or sustained high interest rates, currency rate fluctuations, and economic slowdown or recession, may result in unfavorable conditions that could negatively affect demand for our products due to customers decreasing their inventories in the near-term or long-term, reduction in sales due to raw material shortages, reduction in research and development efforts, our inability to sufficiently hedge our currency and raw material costs, insolvency of suppliers and customers and exacerbate some of the other risks that affect our business, financial condition and results of operations.

Periods of economic downturn or continued uncertainty could result in difficulty increasing or maintaining our level of sales or profitability and we may experience an adverse effect on our business, results of operations, financial condition and cash flows.

Global pandemics, such as COVID-19, or other public health crises may adversely affect, among other things, our supply chain and associated costs;

demand for our products and services;

our operations and sales, marketing and distribution efforts;

our research and development capabilities;

our engineering, design, and manufacturing processes;

and other important business activities.

Changes in government and industry regulatory standards pertaining to health and safety and various political factors could have a material adverse effect on our business, financial condition or results of operations.

Additionally, concerns over the economic impact of such events have, from time to time, caused increased volatility in financial and other capital markets.

Political factors that could impact us include, but are not limited to, changes to tax laws and regulations resulting in increased income tax liability, changes in administration resulting in increased or newly imposed tariffs, increased regulation, limitations on exports of energy and raw materials, and trade remedies.

Actions taken by the U.S.

government could affect our results of operations, cash flows and liquidity.

Risks Related to Seasonality and Weather Conditions

Seasonality and weather-related conditions may have a significant impact on our financial condition from period to period.

The demand for our products and services is heavily correlated to both seasonal changes, with operating results varying from quarter to quarter, and unpredictable weather patterns.

Our sales and income have historically been lower in the first and fourth quarters than in the second and third quarters, as customers tend to purchase construction materials in the late spring and summer months for the construction season.

In addition, weather conditions, such as unseasonably warm, cold or wet weather, which affect, and sometimes delay or accelerate installation of some of our products, may significantly affect our results of

Sales that we anticipate in one quarter may occur in another quarter, affecting both quarters’ results and potentially our stock price.

In addition, we typically ship orders as we receive them and maintain inventory levels to allow us to operate with minimum backlog.

The efficiency of our inventory system, and our ability to avoid backlogs and potential loss of customers, is closely tied to our ability to accurately predict seasonal and quarterly variances.

Further, our planned expenditures are also based primarily on sales forecasts.

When sales do not meet our expectations, our operating results will be reduced for the relevant quarters, as we will have already incurred expenses based on those expectations.

This could result in a material decline in our stock price.

Climate change, drought, weather conditions and storm activity could have a material adverse impact on our results of operations.

In North America, weather conditions and the level of severe storms can have a significant impact on the markets for residential construction and home improvement.

As a result, climate change that results in altered weather conditions or storm activity could have a significant impact on our business by:

• depressing or reversing economic development;

• reducing the demand for construction;

• increasing the cost and reducing the availability of wood products used in construction;

• increasing the cost and reducing the availability of raw materials and energy;

• increasing the cost and reducing the availability of insurance covering damage from natural disasters;

• lead to new laws and regulations that increase our expenses and reduce our sales.

Generally, any weather conditions that slow or limit residential or construction activity can adversely impact demand for our products and services.

Lower demand for our products or services as a result of this scenario could adversely impact our business, financial condition and results of operations.

Additionally, severely low temperatures may lead to significant and immediate spikes in costs of natural gas, electricity and other commodities that could negatively affect our results of operation.

Natural disasters or other catastrophes could decrease our manufacturing capacity or harm our business and financial condition.

Some of our manufacturing facilities are located in geographic regions that have experienced, or may experience in the future, major natural disasters and other catastrophes, such as fires, earthquakes, floods and hurricanes.

Our disaster recovery plan may not be adequate or effective to respond in such events.

Further, although we maintain various form and levels of insurance to protect us against potential loss exposures, the scope of our available insurance coverage may not be adequate to protect us against all potential risks.

For example, we do not carry earthquake insurance and other insurance that we carry is limited in the risks covered and the amount of coverage.

Our insurance may not be adequate to cover all of our resulting costs, business interruption and lost profits when a major natural disaster or catastrophe occurs.

A natural disaster rendering one or more of our manufacturing facilities totally or partially inoperable, whether or not covered by insurance, would materially and adversely affect our business and financial condition.

Risks Related to Product, Services and Sales Risks

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Design defects, labeling defects, product formula defects, inaccurate chemical mixes, product recalls and/or product liability claims could harm our business, reputation, financial condition and results of operations.

Many of our products are integral to the structural soundness or safety of the structures in which they are used and we have on occasion found flaws and deficiencies in the design, manufacturing, assembling, labeling, product formulations, chemical mixes

or testing of our products.

We also have on occasion found flaws and deficiencies in raw materials and finished goods produced by others and used with or incorporated into our products.

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After termination, the union may authorize a strike similar to the strike which was initiated at our Stockton facility in the third quarter of 2019.

Although we believe that our relations with our employees are generally good, no assurance can be

given that we will be able to successfully extend or renegotiate our collective bargaining agreements as they expire.

If we fail to extend or renegotiate our collective bargaining agreements, if disputes with our unions arise, or if the workers covered by one or more of the collective bargaining agreements engage in a strike, lockout, or other work stoppage, we could have a material adverse effect on production at one or more of our facilities, incur higher labor costs, and, depending upon the length of such dispute or work stoppage, on our business, results of operations, financial position and liquidity.